A large portion of a new-home project in Harford County is scheduled for foreclosure auction next month, an apparent victim of the sharp slowdown in the housing market that has hurt builders across the country.
Lenders filed to foreclose on the undeveloped part of the upscale Greenway Farm, next to Bulle Rock golf course in Havre de Grace, after its owner fell into default.
It's part of a wave of foreclosures that has hit developers as well as homeowners, particularly in the suburbs and exurbs. Several defaulting condominium projects in the Baltimore area are set to be auctioned, while some Eastern Shore development projects that were started at the peak of the boom are now in trouble.
In the Harford case, Acacia Capital Corp. bought the property to develop it for national builder K. Hovnanian Homes, which intended to construct 690 residences there. But the builder said yesterday that it had changed its plans because the group of local investors that financed the deal - the original owners - wanted more for the land than K. Hovnanian or the developer thought it was worth.
The first phase of the development is under construction and will not be auctioned. But about 85 acres - approved for 414 homes - is up for grabs, according to auctioneer A.J. Billig & Co.
Homebuilders locally and nationally have struggled since the housing market slumped last year after a sustained boom. Sales of new, single-family houses dropped about 18 percent nationwide in February compared with the same month last year, according to the most recent U.S. government estimates. The seasonally adjusted annual rate of sales hit its lowest level since the summer of 2000, the National Association of Home Builders said.
"Everything's slower than everyone would like," said John Kortecamp, chief executive of the Home Builders Association of Maryland. "There are a number of developments that are being delayed."
K. Hovnanian said market conditions were a "factor" in the Greenway Farm situation and that the foreclosure is a result of a contract dispute with the investor-lenders over land value. They "were unwilling to resolve the matter short of foreclosure," A. Hugo DeCesaris, a regional president for K. Hovnanian, said in a statement yesterday.
An attorney for Acacia, the developer, did not respond to a request for comment.
Towson attorney Curtis C. Coon, the trustee appointed by the lenders to foreclose, said K. Hovnanian did not exercise its option to purchase the land that was supposed to be Greenway Farm's last two phases. He called the builder's take on the situation "spin."
Because K. Hovnanian handled the purchase and then assigned the contract to Acacia, it was the builder who negotiated the price, Coon said.
"If they think they overpaid for it, that's their opinion," Coon said. "We think, if anything, it's worth more money than it was when we sold it to them. ... The housing market in the Havre de Grace area is one of the strongest markets in the entire region."
Havre de Grace Mayor John P. Correri Jr. expressed confidence about the future of the development. The military base reshuffling that's expected to bring thousands of jobs to nearby Aberdeen Proving Ground will create more demand for housing, he said.
There's less optimism to be found at New Jersey-based Hovnanian Enterprises Inc., K. Hovnanian's parent company and one of the country's largest builders. It lost nearly $60 million in the three months that ended in January. It blamed the loss on trouble in Florida but said it does not expect a quick housing market recovery elsewhere, either. It has walked away from other option-to-purchase contracts besides Greenway Farm.
"We are being extremely cautious in underwriting new land opportunities," J. Larry Sorsby, Hovnanian's chief financial officer, said in a statement when the company's most recent financial results were announced last month. He added that "land sellers have not lowered their expectations to match today's economic realities."
Starting prices for the Greenway Farm condominiums and townhouses range from about $270,000 to $390,000, according to K. Hovnanian's Web site. The debt on the undeveloped land is roughly $28 million, Coon said, and the auction is scheduled for May 16 at the golf course clubhouse.
The market slowdown has prompted similar builder pullouts on the Eastern Shore, said Michael Crosby, president of Crosby New Home Sales & Marketing in Easton. Out-of-town builders rushed to buy land as prices skyrocketed, but when the market turned, they wanted out.
"What we're seeing now is, the national builders have liquidated or gotten out of deals that they could get out of by giving up, some of them, very big deposits on land," Crosby said.
Anticipating demand, his company recently affiliated with a Chicago-based real estate auction company to offer local landowners another option to sell. He said Ocean City has about a half-dozen projects that appear headed for default.
Kortecamp, of the home builders association, knows of a few situations where national companies have pulled out of projects in the Baltimore area. But most firms are holding on, hoping to see improvement, he said.
"There's some people that are really quite concerned, but the vast majority of folks feel, 'OK, we've gone through these things before, we'll get through this one as well,'" he said.