Like many other baby boomers, Betsy Seligman decided to move to Southern Florida in search of a retirement paradise.
She thought she found it when she heard about Cascades at River Hall, a 55-and-over community being built just outside Fort Myers, Fla. She got in on the ground floor and moved in before most of the other homes and amenities were built.
But on Nov. 9, her hopes of a maintenance-free paradise turned into a bad dream when Levitt and Sons, the builder behind the development, filed for Chapter 11 bankruptcy protection.
“People sold their houses up north, took their life savings and invested them, bought these houses outright, so they could retire and live comfortably and now they're sitting in a development where we don't know what's going to happen,” said Seligman.
The housing crisis has forced local and regional homebuilders along the East Coast to seek bankruptcy protection, and Levitt and Sons, the legendary builder of Levittown, is the largest among them. The company had been in business since 1929, but it could not weather the current housing crisis. This is bad news for Levitt and Sons and its 500 employees, who were mostly terminated, but it is devastating news for customers.
Hundreds of Empty Plots
Before its bankruptcy, Levitt and Sons enjoyed robust operations in four states, but its collapse left 30 residential developments unfinished. Cascades at River Hall, for example, was to have a clubhouse, pools, tennis courts and more than 500 homes. Now, the development has just 89 homes, no amenities and hundreds of empty plots.
Seligman moved into Cascades at River Hall looking forward to an active adult community, but the activity she and her neighbors got was not what they were expecting.
“We have no landscaping right now, people are doing all of the landscaping, they're making sure the plants don't die," she says. "We have no irrigation system working right now, they're out there working and watering and making sure the entrance still looks nice and the property doesn't go to ruin.”
Levitt’s lead bankruptcy attorney, Paul Singerman, says the company filed for Chapter 11 protection in response to a catastrophic downturn in the southeastern United States residential real estate sector.
“Levitt and Sons tried to anticipate this downturn and began reduction in its operation well before the bankruptcy, hoping to scale down and weather its way through," he says. "It missed; it didn't anticipate how bad it was going to be.” Singerman adds that based on the company’s current financing, it would be unlikely that Levitt and Sons would be operating at all three years from now.
When a builder seeks bankruptcy protection, customers’ recourse varies depending on whether they’ve closed on their home, their contract, state law and whether the builder has abandoned the project to its creditors.
Left With Few Answers
In the case of Cascades at River Hall, Levitt failed to obtain adequate funding to finish the project and abandoned the property to Bank of America. Customers whose deposits were received on or after Aug. 29 are getting their money back. But other customers have been left with few answers.
Current residents, like Betsy Seligman, hope the bank will sell the property to a developer that will finish the project, but even if that happens, it could take years for them to see the amenities they were promised.
When asked about its future plans for Cascades at River Hall, a representative of Bank of America says the bankruptcy court has not lifted the stay that is currently in place, and because of this, Bank of America cannot take any action at this point.
As the housing market continues to tumble, prospective homeowners should be more cautious. Ivan Reich, a lawyer who represents homeowners, recommends customers investigate homebuilders thoroughly, as well as look into how their deposit is going to be treated.
“I would recommend anybody who's looking to buy a home in this market and the foreseeable future to make sure they have an absolute escrow that they can get their money back even if the developer files bankruptcy, so that it's clear that the money does not go to the developer.”
While this advice comes too late for the residents of Cascades at River Hall, many of them are banding together to maintain their shared property and seek legal advice.
Disclosure: CNBC.com’s Brooke Sopelsa was made aware of Levitt and Sons’ bankruptcy and its effect on customers through relatives, who own a home in a Levitt and Sons development.