Developer's bankruptcy puts buyers' future in doubt

Todd and Kathryn Lawler took a giant step toward the American dream this past March.

The couple made a $20,000 down payment on their first home, a three-bedroom place in North Aurora. With their future secured, they made plans to live with their parents until Neumann Homes finished construction on the $330,000 house in Tanner Trails subdivision.

But as months passed without any work beginning on his lot, Todd Lawler became increasingly worried. He received constant reassurances from the prolific builder and was even offered an opportunity to buy a four-bedroom home in the neighborhood for $315,000.

Before that offer could come to fruition, however, Lawler learned Neumann Homes planned to file bankruptcy, a move precipitated by a more than 50 percent drop in annual sales within the Chicago and Denver markets.

"I had a feeling this was going to happen," Lawler said.

Lawler and roughly 400 other Neumann customers in the Chicago area find themselves facing uncertain living arrangements following the builder's decision to declare bankruptcy. The Warrenville-based company has halted construction on all residential projects, leaving 15 suburban neighborhoods unfinished and even more would-be homeowners wondering what will happen to their escrowed deposits.

Company CEO Kenneth Neumann said he will ask a bankruptcy judge to immediately refund down payments for customers with homes not yet under way. He estimates that amounts to about 130 homes.

Another 130 to 135 homeowners will be notified their homes under construction no longer are being built. An additional 132 homes have been sold "on-spec" but are not finished.

Customers with unfinished work must wait for the bankruptcy proceedings to go through the courts or the possibility that their housing community sells to another developer, Neumann said.

Lawler, who has hired a lawyer, said he already has been told the company will return his $20,000. He has no idea, however, when he will receive the refund.

Until then, he and his wife will continue shuttling between their parents' houses. Once they have their money back, they intend to buy an existing home.

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Homeowners who already live in Neumann communities also must wait out the bankruptcy proceedings. For some, it may mean living next to unfinished structures or coping with incomplete projects.

In the two months since she moved into Streamwood's Church Street Station neighborhood, for example, Rosita Manlapaz has compiled a list of problems needing to be addressed. When she looks out her front window, she sees mud mounds where grass should be. Whenever it rains, a small pond forms outside her garage.

"We've complained about this since we moved in," Manlapaz says. "The workers say all the time they'd fix it."

With so much construction activity in her neighborhood, Manlapaz believed her concerns eventually would be addressed. On Tuesday, however, the sales office was shuttered, the construction sites were deserted and the bulldozing equipment gone.

"It's ridiculous how messy all this is," she said. "Hopefully the snow will cover things up. That would look better than this."

The neighborhood's 60 homeowners have it better than some Neumann communities. The builder already had finished 95 percent of the required public improvements, including water, sewer and storm detention, Hanover Park officials said.

Between five and 10 units are still under construction, according to village estimates. Another 60 homes are still slated to be built, though community development director Patrick Grill believes another residential developer will finish the project.

"The village will not lose any money just because Neumann Homes declared bankruptcy," Grill said.

Similar reviews are under way in other Neumann suburbs, including Antioch, Aurora, Gilberts, Lakemoor and Naperville.

The bankruptcy filing marks Naperville's first problem with the builder since construction began on NeuDearborn Station, a mass transit-based townhouse development along Route 59.

All the required infrastructure work has been completed and the municipality still holds about $80,000 of Neumann's original $850,000 surety bond for the work. The city could use that money to take care of public safety issues such as filling or covering unfinished foundations, officials said.

Signs of Neumann's troubles surfaced months ago in the Naperville neighborhood, residents say. Construction had slowed to a crawl and the sales staff changed constantly.

"There would be long stretches of days when nobody was out there," said Kristine Soderholm, who was one of the first buyers in the development in July 2006. "And the turnover at the sales office was huge, too. Every time you'd get close to an agent, they'd leave and you had to deal with a whole new person."

At least one person claimed Neumann's standstill as a victory on Tuesday. For years, some critics have attacked The Conservancy, the developer's 796-home development along Galligan and Freeman roads in Gilberts. Roughly 1,100 people signed a petition in 2005 contending the high-density project would lower their property values.

With only five homes built so far, critics see the standstill as a second chance to develop the former farmland in what they would consider a more responsible manner.

"At the end of the day, in the long term, this is good for the village," petition organizer Martin Matushek said. "They don't have a builder in the town, and a builder who makes a good product will eventually go in there."