"It kind of took us to the ground almost,"
The Asbury Park Press has a few Kara related stories today.
Snip...
[Grounded companies
John Cambra Sr., owner of Air Controlled Environments Inc. in Lacey, was able to pay all his suppliers, subcontractors and other bills, even though Kara Homes owes his company about $120,000. But he had to let his two subcontractors go and lay off four of his eight employees.
"It kind of took us to the ground almost," Cambra said. "It was more than half of our business, and, along with that, the slowing economy has really, really thrown us to the ground."
Small business owners have put a lot into their own companies — sometimes their life savings — said Melinda Middlebrooks, a Roseland lawyer for several subcontractors, including ADE, which are collectively owed about $1.5 million.]
posted by Little_Silvered at 9:37 AM
72 Comments:
I am so sick of this BULLSHIT!!!!! I have no money no house no marriage and no one will help me. I HOPE ALL OF YOU ROT IN HELL!!!!!!!
Including the article listed in discussion topic, there were a total of four articles in the Sunday Asbury Park Press edition. The links to the other 3 articles follow. The tone of each is pretty much the same. That is the secondary effects associated with Kara's Chapter 11 proceeding are going to be large and broad. Article links are:
http://www.app.com/apps/pbcs.dll/article?AID=2006611190387
http://www.app.com/apps/pbcs.dll/article?AID=2006611190386
http://www.app.com/apps/pbcs.dll/article?AID=2006611190391
I sense none of this is going to please Traxi who entered this picture, not for altruistic purposes, but simply to make money. As more and more serious problems are encountered that clear up any question about there being any potential for profit on any of these 300+ residential construction jobs, well the dreams of Traxi to tap these profit reserves for its fees has to reach the point of being suspect.
Now I'm not a Kara insider, but I've been around the block enough to know that residential developers like Kara like to get their profit on a project out as early as possible (called "front end loading" in the construction contract trade). It is probably a safe bet that was done here given Kara's history.
So what this "front end loading" means is it will cost more to complete these homes than the amount of available and unused construction financing. This of course is not a good thing for the construction lenders and all who stand behind them order of priority.
A brief lesson on "priority" may help in understanding the point I'm getting at. The first lien in any real property situation is the lien for property taxes. Upon sale of the property they will be paid first. Next in most situations we will see in the Kara Bankruptcy are construction lenders. By recording their mortgage (or memorandum thereof) before construction commences they are in the coveted "first lien" position. At this point things get a bit complicated. However, mechanic lien claimants who follow the necessary steps required to perfect their liens become secured creditors to the extent there is sufficient equity to pay off their lien at the time of sale (assuming that sale wasn't the result of foreclosure by the construction lender).
So after the taxes, construction loan, and mechanic lien claimants have been paid, it is Bear Stern's turn. After that it is Traxi's turn along with all other Chapter 11 administrative claim to get paid (assuming something is left). Next up are the Priority pre-petition claims (wages, etc.). Then and only then do general unsecured pre-petition claims see a dime.
So, as you can see things don't look too promising if there isn't any Debtor equity in the individual residential building projects.
I hope my writing has not been too confusing. This issue of priority is complicated at best but critical for those seeking to get paid from bankruptcy court distributions.
Kara doesn't have ANY unused or available construction loan money.
They borrowed the $350,000.00 from Bear Sterns just to keep operating.
The only hope is that someone will step up and loan completion money. It doesn't look good for us unsecured creditors. Actually, there was alot of references at the last hearing to Kara using the banks cash collatoral for the past months operating expense. I'm not sure what this means, but it sounded illegal.
Anon 11:56
As to utilization of the term "cash collateral," lenders would much rather be in a secured position than unsecured. When things start to go South, lenders will try to improve their position by granting "additional credit" in exchange for the debtor signing an agreement that something (and that something could be a pot of money being held in a bank account) secures repayment of the loan. What I suspect happened is Kara agreed to maintain a certain level of cash in accounts and the lender had a secured lien on that cash. Problem is, Kara spent that cash and hence violated the terms of the security agreement.
As to whether such action is "illegal," chances are it will be viewed as a contract violation (a civil matter). As to your point that things don't look good for general unsecured creditors, I agree.
Are these contractors out of their collective minds. THey want to do business with Kara again!!! I am sure they are going to rape them in cost but still if I owned a company I would stay far away.
It is almost like these contractors are suffering from Stockholm syndrome
Wow our first poster of the day is having a bad morning.
What is your problem????
My guess with the first poster is that he is actually Zudi, forecasting his life two years from now. Bitter at us for his own failures. Time to move on Zudi.
Stockholm syndrome? Maybe - but more likely some Contractors are struggling to stay alive. Usually a Trustee will handle the payment for future work, so you would probably be paid in full in a timely fashion. If you can get Kara back on it's feet you have a better chance of being paid for the old debt. It just doesn't look as though they are going to be able to get to that point.
Time to lend a little humor to this situation. One of the threads on this site has grown to 90 postings. I find the last two quite interesting. One refers to a boat Zudi owns that may or may not have sunk over the weekend. The other relates to an airplane he is building. A long time ago my father gave me some sage advice. He said, "if it flys, floats, or f**ks, it is cheaper to rent." Perhaps in your future life Zudi, you may do well to follow this advice.
NO THE FIRST POSTER IS A HOMEOWNER WHO IS SICK OF BEING HOMELESS BECAUSE KARA DOES NOT KNOW HOW TO RUN A BUSINESS.
Hey real estate is a risk, buying a new home is a risk. If you bought a Kara Home my guess is you have money and should know the risks of dealing with builders.
Did you mitigate your risk by putting your deposit money in escrow or did you just send your contract to some "fly by night" attorney. Did you even read your contract?
I do feel bad for those who are in limbo but take some personal responsibility for yourselves.
You have avenues to use, courts liens etc. Use what you can but don't bitch about it. You are just as much at fault if you did not take the time to protect yourself and your investment. ALso buying a new home IS AN INVESTMENT and with all investments there are risks.
Stop crying and get a life
well, i can never help myself in responding on this wonderful blog. i'm so, so sorry for all of the people who will be hurt in this real estate boom and bust. let's not forget the folks who were thrown out on their rear-ends from long branch. the good business people in belmar who were thrown out of their long owned small businesses to make way for mcmansions and yuppies. i just hope that this all is now ending. greed is "not" good!
Woes beset 3 developments in Marlboro
Posted by the Asbury Park Press on 11/19/06
BY JAMES A. QUIRK
FREEHOLD BUREAU
MARLBORO — The three Kara Homes developments within Marlboro, particularly Crine West, have been a thorn in the side of township officials since Mayor Robert Kleinberg took office in 2004 and inherited projects approved by previous administrations.
Crine West was plagued with construction problems that ran the gamut from the sloppy to the potentially catastrophic. Township construction official Joseph LaBruzza and engineer Jim Priolo said they issued more than 30 stop-work orders combined at the development throughout the construction process there.
Last week, the township had to dip into its own coffers and spend $18,000 to pay the Sakoutis firm to remove 12 large trash containers full of debris and trash at the three Kara Homes developments in town. Residents had complained that the containers were attracting rats, Priolo said.
Improper drainage planning and shoddy drainage work were not the only problems Marlboro's engineering department dealt with during the initial construction of Crine West. The escrow account that Kara Homes had to maintain with the township as construction commenced would frequently dry up, forcing a complete halt to work and inspections, Priolo said.
With all of these problems, much of the construction work at Crine West was delayed as much as a year beyond when home buyers were told they would be able to move into their homes. Tensions flared — as home buyers demanded answers, company owner Zudhi Karagjozi told them the delays were the fault of Kleinberg and his over-zealous building inspectors, who were needlessly scrutinizing minor details.
This led to many homeowners signing a petition last year that blasted Kleinberg for keeping people from moving into their homes. The mayor is quick to point out that "those people were the first to come to my door telling to me go after those blankety-blanks" when Kara Homes abandoned work at Crine West.
Karagjozi could not be reached for comment.
The most serious construction code violations at Crine West were discovered by LaBruzza purely by chance. While performing a routine inspection of the building site, he noticed workers moving basement support columns that were not secured within concrete footings. A floor built on support columns driven into loose soil, rather than a standard concrete pad, has a high probability of eventually collapsing, LaBruzza said.
Throughout the abbreviated construction of Crine West, Kara Homes was fined $40,000 for problems at 10 homes, township records show.
In his two decades as a building inspector, LaBruzza said he has never encountered construction gaffes as baffling as those he encountered at Crine West. To ensure that the same problem wasn't being repeated elsewhere, the township alerted the state Department of Community Affairs concerning the discovery of the improperly constructed basement footings.
LaBruzza said that, months later, he was not surprised when he learned Kara Homes had filed for Chapter 11 protection.
"Without those basement footings, you could have had a catastrophic collapse, and if I hadn't caught it, it would have happened in Monroe and other Kara developments across the state."
------------------------------------
"Crime West". Notice the consistent pattern of always blaming someone else when faced with problems. Once the money went into his pocket, he considered his business finished.
Crine West was just one of many examples of Kara's take the money and run philosophy. Pressure gov't entities to let you start the job before all approvals are done, front load the construction loans so that most of the profit is taken out by the time the home is framed and when problems arise blame anyone other than yourself. Chapter 11 was inevitable and without a plan in place Chapter 7 is next.
Flipper Nation:
http://housingcrashtv.blogspot.com
Take a look at my market history & forecast report for Bakersfield, Modesto and Los Angeles at
http://homepricehistory.blogspot.com/. The New Jersey report will published in a few days, along with a new city every day.
Who care about bakersfield? This is about NJ.
Why are people now posting lengthy useless drivel on this site? If you have imperical evidence, link to it. If you want to pontificate, go to a local bar, get drunk and annoy the patrons. But this need to post endlessly is boring.
I am so glad all those maggots who have to feed their families like contractors are going to have to sell blood to buy food for the kiddies, fianlly this drawdown in the NJ real Estate is hitting the real criminals.
Nothing's more useless than bitching about how useless something is, Beavis.
First Phase starts at $300,000 ... done.
Second Phase starts at $350,000 ...done.
Third Phase starts at $400,000... done.
Fourth Phase starts at $450,000... done
Now starts at $500,000 to $700,000 to $800,000 in Sea Bright and Dayna Estates in Toms River, New Jersey...
Kaboom in Bankruptcy !!!
This is how the Housing Bubble started in Ocean County New Jersey !!!
The quotes listed below provide some guidance relative to the views of Amboy Bank to the Kara Bankruptcy. You can read the entire article at the link that appears before these quotes.
Since Amboy is a privately held bank, I was initially surprised that it felt it necessary to explain the impact of the Kara Bankruptcy on its operations. My guess is major depositors expressed concerns and Amboy felt it necessary to present information in an attempt to avoid the possible impact of the flight of these customers.
The first quote appears to be designed to first point out that Amboy's loans are "well secured" with first liens on real property owned by Kara. The problem with this public statement is it has the potential of backfiring in Amboy's face if they attempt to seek relief from the automatic stay under Bankruptcy Code Section 362. As you may recall from my earlier posting, claims that the value of the real property exceeds the amount of the secured indebtedness are customarily made by the Debtor when attempting to forestall secured creditor efforts to complete a foreclosure. Claiming as Amboy does here that they are "well secured" may be construed as an admission that the Debtor has equity in the properties securing Amboy's loans.
The second quoted paragraph characterized Amboy's behavior even to defaulting borrowers as though they were charity cases to be given the best possible treatment. Come on Amboy. If you were as altruistic as you claim in this paragraph to be, why is Bear Stearns involved in providing debtor-in-possession financing as opposed to you?
http://tinyurl.com/vxhtr
Amboy exec discusses loan situation
Wednesday, November 22, 2006
BY JUDY DeHAVEN
Star-Ledger Staff
FIRST QUOTE:
“And Kara? All the Kara loans are well secured at Amboy. We have first liens on all the properties. ... We believe there's very little loss exposure at all, because we're well secured with the properties. But this is all going to take some time. It's in the court's hands now. If (Kara) looks to ... sell some properties and the courts approve, we could be out of this in a matter of six months. If this ends up going through a different process, this could be anywhere from two months to two years.”
SECOND QUOTE:
"We stay with our borrowers, both the good and the bad. When things don't always work out well, we sit down at this table ... and figure out what makes sense for us that we all can come out and work through this problem. ... Our reputation is out there. Our borrowers know, and our builders know, if they have issues, they can sit down at the table."
Wonder if Amboy ever had a sit-down w/ Z-man WHILE these problems were manifesting themselves? The Kara quagmire didn't suddenly spring up overnight. America's fastest shrinking homebuilder in NJ needed some sage and wise advice BEFORE he blew the money, now it doesn't do a hell of a lot of good. Too bad he surrounded himself with people whose main goal was to blow smoke up his ass & remind him about how awesome he was.
He wasn't totally surrounded by smoke blowers. A lot of good people gave him a lot of good advice over the last two years. If you strayed to far from Zudi Land you were purged. You either sucked up to Zudi or you updated your resume. The best that Kara had redid their resumes and moved on. The trouble now is that when prospective employers see Kara on your resume you better be ready to explain your part in this mess!.
Amboy has two turkeys on its plate on Thanksgiving. Kara is one. Dwek is the other. According to published reports, that is $50 Million in non performing real estate loans. The Dwek collapse and the Kara collapse occured within six months of each other.
Dwek seems to be more interesting than Kara from a "bubble" point of view. A substantial amount of the Dwek properties were commercial - not residential. According to published information, scores of banks have non-performing Dwek loans on their books.
For a good look at the Dwek matter, go to App.com and find Special Reports. "Rise and Fall: Inside Solomon Dwek's Empire".
Well friends, looks like Zudi has some companionship, but on a smaller scale. "Builder Richard Leli of Fort Myers-based RL Homes says he's broke and won't have the money to finish some 120 projects in various stages of completion or never started." Mr. Leli, in addition to his Florida holdings apparently owns "two New Jersey properties worth more than $700,000." Maybe he and Zudi should go into partnership.
See: http://tinyurl.com/w79xo
Well, another decision awaits the troubled Kara Homes. Seems it is having difficulties meeting its utility obligations. Sort of reminds me of the old days, watching Monday Night Football, when the games wasn't even close at 5 minutes left in the 4th quarter and Dandy Don Meredith would start singing,
"Turn out the lights
The party's over
They say that
All good things must end
Call it tonight
The party's over......"
Notice that in the article quoted below, Kara "has requested money from its bank creditors to winterize homes." About time. What isn't clear to me is it is my understanding that the core group of Zudites, with the exception of Uncle Hector, are still there. Wouldn't it make sense to get rid of them and with the salary expense you'd save there, you might be able to keep the lights on, or start some sort of winterizing effort without going out begging for addition funds from creditors you've already taken to the cleaners?
See:
http://www.app.com/apps/pbcs.dll/article?AID=/20061125/BUSINESS/611250362/1003
Utility threatens Kara with power loss
Posted by the Asbury Park Press on 11/25/06
BY DAVID P. WILLIS
BUSINESS WRITER
months of service for each of the 82 accounts.
Ten days later, a second letter threatened to cut service.
But some of the accounts are for houses that were recently sold to new owners, court papers said. So some accounts, for which the security deposit was demanded, are now the responsibility of homeowners, the company said.
The termination threat does not differentiate between Kara Homes accounts and those houses that the company expects to sell soon, making a security deposit unwarranted, court papers state.
It is "a blanket shut-off threat, which, if carried out, may affect homeowners who have recently moved into their houses," said John Figurelli, financial manager for Kara Homes, in court papers.
The electric utility also did not take into account the company's efforts to obtain financing, which would go toward paying the utility bills.
Next week, a judge is expected to continue a hearing on a $2.6 million loan Kara Homes wants to obtain from Bear Stearns. On Nov. 17, Kaplan approved $350,000, which was enough to keep the company going for two weeks.
Kara Homes also has requested money from its bank creditors to winterize homes, Figurelli said.
"In sum, ACE's termination of utility service to (Kara Homes) is a drastic step that should be avoided," Figurelli stated in court papers.
Anon 6:08, looks like you cut off part of the article which indicates that the electric company wants deposits totaling $21,190. Certainly not a lot of money in my mind, given the fact that it has an operating payroll of somewhere around $90,000 a week if my memory serves me as correct.
I understand the problem, and it interestingly demonstrates how Federal legislation is enacted to protect those with the strongest lobbying capability in Congress. I suspect that your solution by funding this through the elimination of core managers who were involved in what appears on the surface to be a mismanaged company may make sense, I seriously doubt it will happen since Zudi and their continued employment is probably the only reason Zudi has not elected to convert this case to one under Chapter 7. He and his “core group of Zudites” have no doubt been living the “high life” for a while and that doesn’t come cheap. So their goal is to keep this “turkey” alive so they can remain on the “gravy train” as long as possible [Puns Intended].
Let’s get down to the meat and potatoes as to why this is happening. The changes to the Bankruptcy Code last year significantly increased the rights of utility companies. Section 366(e) was originally enacted to assure post-petition payment to utilities in Chapter 11 cases. A utility is permitted to terminate service to a Chapter 11 debtor if it does not receive adequate assurance of payment for its post-petition services within 30 days following the petition. The term “adequate assurance” is defined in the amended Code to mean a cash deposit, letter of credit, certificate of deposit, surety bond, prepayment, or other form of security to which the utility agrees. The recent amendment clarifies that adequate assurance does not include the administrative expense priority that a utility automatically receives for unpaid post-petition delivery of utilities.
Such an administrative claim is of little value when the Chapter 11 debtor converts to Chapter 7! Further, while the court may modify the amount of adequate assurance under Section 366(e), the court cannot take into account the fact that the utility did not have a security deposit prior to the petition, or the fact that the debtor has timely paid its pre-petition bills. A utility may recover or set off against a pre-petition deposit from a Chapter 11 debtor without notice or order of the court.
While this may be good for utilities, it is detrimental to unsecured creditors. It means that the monies available from post-petition financing will have to be increased (with obvious additional costs to the estate) in order to provide funds to make 30 or 60 day advance utility deposits. With a debtor entity with multiple locations, these deposits can pose a SIGNIFICANT burden on the estate and therefore ultimately REDUCE monies available for distribution to the unsecured creditors.
As Clint Eastwood said, "a man's got to know his limitations". Why doesn't Zuhdi just be a man and give up. This desperate little weasel is just scratching and clawing trying to stay afloat. For what? To save his name, for the benefit of his inept lackeys? Its really quite pathetic. The odds are stacked too heavily against him. More importantly the creditors want this to come to a conclusion quickly. That's right the folks to whom Zuhdi owes millions! Enough is enough!
What I’m beginning to like less and less about this case is what I’m seeing more and more of. That is, it’s business as usual in Karaland. It didn’t take care of thing before it filed bankruptcy. We’ve gone what will soon be two months. And it looks as though things have not changed. Somewhere I heard insanity is doing the same thing over and over again expecting different results. Well I’m here to tell you, we see it in this article as clear as day once again. Kara, with that outstanding leadership, doesn’t pay another bill and then whines that it isn’t Kara’s fault but the fault of the big bad utility company.
In court papers, JF says, “It is "a blanket shut-off threat, which, if carried out, may affect homeowners who have recently moved into their houses,"... Come on JF, are you worried that people who bought your homes aren’t smart enough to know that they need to call the utility company and put the electric in their own name. Hey I’m affected too if I don’t get a paycheck and can’t pay my electric bill. I’m guessing this means Kara is going to come to the aid of those former employees facing this exact situation and beg their utility company. Yeah, right.......
So, while JF whines, I sit back and wonder what these high priced experts at Traxi are doing. I personally think it isn’t much other than sending JF into court asking the banks who have been jerked around for more money so they can do what Kara should have been doing since the weather started getting worse. Hey banks! Take my advice and don’t give them the money. If it needs to be done, hire someone to do it yourself. It will be cheaper in the long run and it will actually do the job. I wouldn’t trust these guys at Kara to winterize my dog house.
Back to Traxi. If this company has such a great track record, I’m trying to figure out why when you go to Google you only get a couple of hits on them. If you go to their website (www.traxi.com), the links for things like “alliances,” “events,” and “careers” all come up with the comment, “Under Construction.”
Maybe they can explain to us why when I did a search at the NYS Department of State's online database and I couldn't even find them listed as either a domestic or foreign limited liability corporation (Try your luck at http://appsext5.dos.state.ny.us/corp_public/corpsearch.entity_search_entry ). My recollection, and I know that’s going back a ways to when I took a business law class at the local college, is the law requires that you register a corporation in the state where you’re headquartered (their website says that’s NY). Since it doesn’t appear from the database that they have, it makes me question whether these “experts” are the ones we want steering this crippled ship.
Look if it sounds like I’m upset, well I’m sorry. All I know is that lots of people got hurt badly as a result of this situation. I just don’t see the benefit in continuing it if all we are doing is keeping a bunch of Zudi’s friends and Zudi employed. It’s time to pull the plug on this corpse and quit wasting resources where there isn’t going to be a payback.
Anon 11:13, it sounds to me like you echo the view of many of those directly affected by the downfall of this company. It certainly doesn’t stop with the former employees, buyers, lenders, or the communities where this Debtor operated. Truth here is that to some degree even those who do not appear to have a connection with the case at all will be impacted. Think about the restaurant service worker who was use to the big tips Zudi would include on his credit card receipt every week while entertaining bankers with wonderful stories of how Kara Homes was going to make Toll Brothers look like a minor league player in the residential building business in a couple of years.
Oh and “good catch” on your analysis of Traxi LLC. I looked on the NYS database search page and couldn’t find Traxi either. Now I guess it could be that the database isn’t up to date. But I suspect that isn’t the case given the comment on the web page that “Every effort has been made to ensure that the information contained on this site is up to date and accurate.” Incidentally, the URL you gave didn’t work. I shortened it to http://appsext5.dos.state.ny.us/corp_public and it seemed to work fine. And yes, I agree with your conclusion that Traxi, since they are headquartered in New York, should be listed in this database. After all, New York certainly wants them to be so they can collect the appropriate fees (or taxes) associated with doing business with your home base in New York. Oh and I’m sure New Jersey has a similar requirement for companies doing business in New Jersey.
Take care all and have a good weekend. Next week should be interesting given all that the Court has to consider........
A utility company threatening to cut service to Kara due to non-payment? Wow! Who could have ever imagined anything like THAT happening??
But seriously now, I see the Big Plan hasn't changed much. "More money, more money, more money", the song remains the same. I guess it's pretty obvious there will be little actual building going on anytime soon, as the plan now calls for winterizing the homes rather than finishing them.
I can understand why a creditor bank might want to invest something in preventing depreciation of their potential assets due to weather and inactivity. But wouldn't it also make sense to liquidate such a property now thereby removing the risk of further depreciation altogether? Just a thought.
Why can't the dead weight sitting around the office now go out to the jobsites and winterize these homes themselves? It aint rocket science. Perhaps the gentry might actually learn a little something about the building business in the process.
So true. Zhudi's remaining Core has no clue what it needs to do because someone else always did it without being asked. And without being business as usual fanning out looking for overpriced bottom land at Zhudi's request, they have no money to front load from, which spawned all the problems which made it business as usual. Now Z and Co. will have to do the real work of home building, actual decision making, stop gap prioritizing, and project coordination while the whole state and their new oversears look on. We'll see how these empty suits really perform now that their brains and muscles have been surgically cut out. Should be an interesting week back in court too.
So protecting the unfinished houses became a priority right after the newspaper printed pictures of them, eh? No one cared about weather damage and vandalism and security all year long, now it suddenly matters. I guess newspaper articles carry more weight with Zud than the words of his own staff. Of course they have no intention or means to pay to do it themselves, mind you, someone else can foot the bill for that. After all, Zud's got veeps to feed and v.p.'s don't come cheap.
Memo to the big Z: paying the bills isn't lots of really cool fun like land deals are, but ya gotta get it done or the lights go out & the toilets don't flush. The electric co. isn't too patient when it comes to the rest of us ordinary non-geniuses either. Maybe the Traxi guys can sit you down & give you a quick primer in that whole "currency is exchanged for goods & services" deal because you still just can't seem to grasp it on your own.
You are missing one of the primary tenets of Zudiism. "As long as they are making money, they can wait to get paid. After all, I am the one providing them with a means to make those profits" is a direct quote from a Wednesday night meeting where Zudi was told he needed to pay for porta johns.
scprof: "Think about the restaurant service worker who was use to the big tips Zudi would include on his credit card receipt every week while entertaining bankers"...just for the record Zudi always left his wallet in his "other pants" whenever the bill was put on the table. Anyone who ever went on one of Zudi's business lunch/dinner knew to have their credit card on them. Then when it came time to get reimbursed for the $800 steak dinner, Robbie always had final approval!!
Regarging the Zuhdi devotees, if they are so enamoured by their glorious leader why don't they do the beneficial thing and resign. It would be far more helpful to Zuhdi by reducing his weekly payroll obligation. He'd be able to free up a lot of money to winterize standing inventory. Hear that Robbie, Hektor?
Anon 9:51 said, "It would be far more helpful to Zuhdi by reducing his weekly payroll obligation." Don't be confused thinking it is Zudi's payroll obligation. Truth is the source of this funding is currently Bear Stearns. By "loaning” this money they are being given a Chapter 11 administrative claim. It has priority over all pre-petition claims. Barring unforeseen circumstances it will be paid back along with 15% interest. That priority payback will lessen the amount going to pre-petition unsecured creditors. So you see, the reality is the salaries paid these people are being paid by Kara's creditors, not Zudi.
Anon 8:02, thanks for correcting me on Zudi’s behavior. The fact that he would have one of his employees “pick up the tab” makes sense. If he doesn’t have to pay for it, and can force the employee to “carry the expense” for a while on their own charge card, it is an effective way of borrowing (something Zudi appears to a master at). Zudi is sure a piece of work.
Anon 5:47, you had me laughing over your comment. So, I’m thinking Zudi justified not paying promptly because all these vendors overcharged him and one way to reduce their profits was to delay paying them. What a jerk.
He really did say things like that all the time & I think he really believed it himself. It was pretty much company policy in fact. He didn't see those subs & vendors as working for him, he saw it as giving them a chance to invest in his vision.
The article below appeared a few minutes ago at:
http://www.app.com/apps/pbcs.dll/article?AID=/20061127/NEWS/61127024
Certificates of Occupancy don't make a closing. What about buyers? Would you be willing to close on one of these homes as a buyer knowing that if something is wrong, the builder standing behind the warranty is bankrupt?
_________________
Kara will ask court for permission to sell 15 more homes
Posted by the Asbury Park Press on 11/27/06
BY DAVID P. WILLIS
TRENTON — Troubled builder Kara Homes will ask a bankruptcy court for permission to complete the sale of about 15 homes.
Those homes are "ready to go'' and have certificates of occupancy, Kara Homes lawyer David L. Bruck told U.S. Bankruptcy Court Judge Michael B. Kaplan during a hearing here this afternoon. The lawyer could not say where the completed homes are located.
"There is no good reason not to allow these people to close,'' Bruck said.
The East Brunswick-based company, one of the Shore's biggest home builders, and 21 of its subsidiaries overseeing each of its developments filed for Chapter 11 bankruptcy in October after running out of money.
It owes creditors, including banks, suppliers, employees and customers, $227 million. Nearly 300 home buyers have signed contracts and made deposits for homes that haven't been built.
A few questions that maybe someone could answer??
Rumors say 9-10 closings ready to go at Woods Landing, true?
Is Glen Eyre still in Kara hands? What about Galloway Woods? The jobs in Little Egg?
What is the status at Mt. Arlington? Is this specific job already in Chap. 7 as requested by N. Fork Bank? Thanks in advance!
Hektor is that you?
I have attached below an anonymous posting that appeared earlier tonight to the Blog Topic that rolled off the bottom of this page when a new subject was added. I also added my response. I thought it important to do so because is raised issues about my posting to this Blog, pointing out that I have no personal knowledge of Kara's operations (an accurate statement).
I hope my response does an accurate job of explaining why I have posted to this forum.
________________________
Anonymous said...
While I am glad that you enjoyed reading the Profs posts and true some of the things he has said did come true. On the other hand some of Nostadamus predictions came true. It's another case of if you throw enough crap at a wall some is going to stick. I am just of the opinion that someone who doesn't have all of the facts should mind his own business as opposed to give me credence to the BS rumor mill that is out there now. The prof needs to realize that some take his words as gospel and it affects the way they live their lives.
Prof-this isn't some hypothetical case in one of your text books-it's the real world affecting real lives and your constant negative slant on it is neither needed or helpfull in this situation.
Monday, November 27, 2006 8:29:05 PM
SCProfessor said...
Anon 8:29 et al. I have said repeatedly that I do not have all the facts relating to Kara Homes. I do however have a wealth of experience in bankruptcy settings like this. If you read my posts you will see that I consistently indicate that what I’m saying is based on these past experiences. I am of the opinion that probably the worst thing that can be done to unsecured creditors of this or any other bankruptcy proceeding is to keep them in the dark. Unfortunately that is most often the case. What I am able to do is to make a best guess, based upon past experiences, of what will happen next. I suspect if you read my past guesses, they have been pretty much on the mark. In each instance I have provided the basis (usually by quoting the particular bankruptcy section), of what I think is going to happen.
My opinion has been all through this proceeding that this case is headed towards liquidation. My opinion remains that Chapter 11 liquidating plans are simply a waste of money when things could have been done faster and less expensively in a Chapter 7. Each has the same results but you would eliminate the need to have an unsecured creditors committee (and its list of professionals). You would also eliminate the need for Traxi and Kara’s management. A professional trustee, appointed by the U. S. Trustee’s Office would fill all those roles.
I suspect few that read this Blog would reach your conclusion that my comments are “crap.” Do they put the Debtor’s management and professionals in a bad light? Probably. However, they are just as free as I am to place comments on this Blog and explain their actions. If they don’t agree with my analysis, I would certainly welcome their comments on this Blog as would others.
Monday, November 27, 2006 10:11:46 PM
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SCPROF - I enjoy reading your comments, and I'm sure most others do also, although you might not have a direct connection to Kara, your information is more helpful than most and gives good understanding to what is going on, keep up the good info. it is very helpful - If others don't like it, they don't need to read it
Thanks
Tomorrow was suppose to be a big day in the continuing saga we call Kara Homes. Two weeks ago, Judge Kaplan permitted the Debtor Estate to borrow $350,000 (covering expenses for two weeks) and set a hearing for tomorrow to review the Debtor’s progress to determine whether it made sense to continue operations or convert the case to one under Chapter 7 (resulting in the appointment of a trustee and liquidation of the case). As the result of the Court’s action yesterday of denying the utility the right to cut off power until after Friday and scheduling a hearing for that day, well it looks as though he also moved the primary hearing relating to Kara’s continuing borrowing activity to Friday.
The article that appears below is rather telling in many respects and results in a change of my opinion from what I thought yesterday. My sense was, given the fact that Kara’s lawyer told the Court that another 15 homes were ready to close was that there would be sufficient progress to enable the Court to allow this Debtor to continue. That is still on the table, but there is some truly disturbing information contained at the end of the article. It states:
“[I]n a related development, Roseland lawyer Paul Kizel, who represents Bear Stearns, on Monday told Kaplan the company is not just interested in providing financing to Kara. The investment house also is exploring the purchase of Kara's debt from the banks, he said.”
Ouch. I know I’ve described Zudi and his inner circle as “the fox guarding the hen house.” Didn’t realize we had another fox. Bear Stearns, that “white knight,” it turns out is looking at a completely different angle. What they want to do is to pick up the debt that stands the best chance of getting paid in full (secured debt), buy it at a discount, collect every dime owed under the terms of that loan, and wipe out all other debt. So as it turns out, this $350,000 “loan” was nothing more than seed money to allow Bear Stearns to have a look at the Debtor’s books and determine where the good assets are so they could buy them and screw over the other creditors.
If that quoted information is true, and if Bear Stearns is no longer interested in providing financing to Kara, well it looks like there is simply no other choice in this case but to convert it to one under Chapter 7. I seriously doubt sufficient funds are going to flow from closings to keep this Debtor alive for any appreciable time, given that it can’t even pay its utility bills.
------------------- Article---------------
http://tinyurl.com/yehvqf
Kara asks OK to sell homes that are ready. Approval from judge needed
Posted by the Asbury Park Press on 11/28/06
BY DAVID P. WILLIS
BUSINESS WRITER
TRENTON — Troubled builder Kara Homes wants to complete the sale of about 15 homes that are "ready to go."
They have certificates of occupancy and are ready for homeowners, Kara lawyer David L. Bruck told U.S. District Court Judge Michael B. Kaplan on Monday. The company has not had to spend any money to get them ready.
Kaplan still must approve the sale, which would be the second set of completed homes sold since Kara filed for bankruptcy on Oct. 5.
Recently, the company has moved forward with the sale of 10 homes located in Kara developments in Middletown, Little Egg Harbor, Stafford, Lacey, Mount Arlington, Old Bridge and Monroe.
This next group is also ready, Bruck said. "There is no good reason not to allow these people to close." The lawyer could not say where those homes are located.
The East Brunswick-based company, one of the Shore's biggest home builders, and 21 of its subsidiaries overseeing each of its developments filed for Chapter 11 bankruptcy after running out of money.
It owes creditors, including banks, suppliers, employees and customers, $227 million. Nearly 300 home buyers have signed contracts and made deposits for homes that haven't been built.
In other matters, Kaplan said a hearing on a dispute between Atlantic City Electric and Kara Homes is now scheduled for Friday.
Last week, Bruck asked Kaplan to intervene after Atlantic City Electric, the utility that serves South Jersey, including southern Ocean County, threatened to cut off the electricity to Kara.
The utility had threatened the action by Sunday or thereafter because the company has not paid a $21,190 security deposit on 82 residential and commercial accounts, according to court papers.
Kaplan stopped any action that Atlantic City Electric might take until Friday's hearing. Kara said that to turn off the electricity would leave homes now in various stages of construction open to damage by vandals and the cold weather.
Friday will be a big day for Kara. Kaplan is set to continue a hearing on the company's attempt to get a $2.6 million loan from Bear Stearns. While the money won't pay for the construction of any houses, it would give the company cash it desperately needs to operate and pay its bills, such as employee wages, rent, insurance premiums and security at its projects.
Nearly two weeks ago, Kaplan allowed Kara to receive $350,000 of the $2.6 million, enough to stay in business for two weeks.
Lawyers for Kara's secured lenders — including Amboy National Bank, North Fork Bank and National City Bank — have objected to the financing plan. They argued Bear Stearns would take control of major decisions, possibly to the detriment of other lenders.
In a related development, Roseland lawyer Paul Kizel, who represents Bear Stearns, on Monday told Kaplan the company is not just interested in providing financing to Kara. The investment house also is exploring the purchase of Kara's debt from the banks, he said.
SCPROF
The secured lenders are in charge. Each time they produce an appraisal for LESS than the amount due and owing on the mortgage for each job means the job gets liquidated. Right?
Assuming the appraisal is accurate and the value of the security (real estate and improvements) is less than the amount owed the secured creditor, that simply means there is no equity in the property for the debtor.
However, in order for the lender to foreclose they must get permission from the Bankruptcy Court. What they will do is file a motion for relief from the automatic stay (Bankruptcy Code Section 262). There will be a hearing and the Court will make a determination after considering appraisal testimony, whether or not there is sufficient equity to justify not allowing the lender to proceed with foreclosure.
The important thing to understand is that the lender will go through the whole foreclosure process. It needs to do so to wipe out the mechanic lien claims and to get ownership of the property so it can sell it.
I hope this helps you understand what is going to happen.
Thanks SCProf for keeping us informed. So as I understand the deal, Bear Stearns, the savior of Kara Homes, kept the place running for two weeks at a potential cost of $350,000. They used this two weeks to give them a chance to look over all the accounting records of Kara to determine what, if anything, represented a good business opportunity to make a killing at the expense of creditors.
I point to the fact that there is a potential cost of $350,000 because that potential is offset by the real possibility that they won’t loose a dime since there loan is secured by “a lien on all avoidance actions (preferences, fraudulent transfers, etc.) in addition to junior liens on all the debtors' real estate assets.” [see DIP Financing, http://www.karahomescreditors.blogspot.com/ ].
So based upon the information we see from the news article posted in your comment, it looks like Bear Stearns is abandoning its role as lender and is seeking to swoop in like the vulture it must be and buy the best claims (secured) from the banks so it can wipe out the claims of all the other creditors (having in essence looted the estate of any claims that it had against outsiders by gaining ownership of those claims through the financing it provided to Kara).
All I can say is this adds insult to injury. What really happened here is Kara opened the door to a new creditor who all the time was just trying to figure out how to make money by screwing over creditors more than they had already been screwed over by Kara.
SCPROF
I assumed the appraisals to be accurate.
The state court foreclosure actions are designed to be streamlined. Essentially, except for the claim of taxes, judgment creditors and construction lien holders, there are no other parties (other than the secured bank and the debtor).
According to one website, "A typical uncontested judicial foreclosure in New Jersey requires 12-14 months to complete. New Jersey has one of the longest time frames in the entire country to complete a foreclosure action." I don't call that "streamline" given what can happen in states like Texas that utilize non-judicial foreclosure processes (in Texas that process can be completed in as little as 21-days on non-residential property).
This lengthy foreclosure process actually could work to KARA's favor. If, as I have said all along, secured creditors were treated more as "partners" and not adversaries, it would make sense from a timetable standpoint to get the houses sold through some sort of liquidating plan. But since Bear Stearns choose to play "vulture" and no one trusts Kara's management, well the secured lenders are between a rock and a hard place.
All I can say is Zudi, you brought this thing into bankruptcy and made it a worse mess than it was. By your actions in bringing Bear Stearns in as a "white knight," you've probably eliminated any possibility of a successful reorganization that could have been put in place through your departure and funding by the secured creditors. So sad.
I'd like to point out that right at the start, SC guessed that this entire sorry spectacle would likely devolve to a point where lawyers and various financial profiteers ended up bickering over the carcass like starving hyenas fighting over a dead emu. Which is pretty much what appears to be happening right now. Lawyers are exactly like stray cats, if you keep feeding them they'll never go away.
So what happens next? I believe I read here there is a meeting in front of the Judge this week, for what purpose ?
The unsecured creditors committee has recently updated its blog and it explains what is happening. I'd encourage you to view that source. It can be found at:
http://www.karahomescreditors.blogspot.com/
There is also an article today that discusses the Mystic at Keyport. The article is somewhat confusing and relates to a discussion at the Town Council about whether or not this is a Kara development. You can view that at:
http://independent.gmnews.com/news/2006/1129/Front_Page/009.html
Dear Zudi,
I was a sub a sub for you. I have a family with three children. My workers all have families. You promised that you would pay us for the work that we did. We have been out every day trying to scare up work since you filed chapter 11. No one is hiring us. Our venders have cut us off we can't buy supplies anymore, even if we did manage to get some work. I had to lay all but three employees off the day before Thanksgiving. I'm behind on my morgage because I haven't been paid since July. The money I got in July was just enough to pay my suppliers. I was just trying to earn an honest living. I don't drive an Aston Martin or have a 6 million dollar home. I have no banks to go to for a bail out. The cash reserve that I did have went to paying my employees and buying supplies for your empire. I have no unemployment chck to rely on It's just me trying to do the right thing every day. You have wrecked the lives of the 12 employees that I laid off. They were hard workers not like the idiots that you surrounded yourself with. They all have families. Here are the hard facts. Twelve workers, nine wives, eighteen children. All of them will have no holiday. As for my family we may have to come to Rumson and steal a cardboard box from your trash. A box that once housed your kids holiday toys. On a more serious note Its not about the money its about my life and the lives of my employees. Every time I read the message boards I get more and more depressed. Its harder and harder every day to go on. Cold calling builders and getting hung up on. I've worn out two pairs of shoes pounding the pavement for new business. I just want to die. You have victimized me, my family and my employees families. All we did was work hard for you. I sat in church crying because I just can't forgive you. I'm sure you have no idea what its like to have to go to the food bank so your kids can eat. I know what its like I had to do it last week. The shame of having to carry the bags of grocries to my truck hoping no one would see me. All I have left is my family, a beat up pickup truck and some tools. If any of you job supers have gone to other jobs and need help please post your contact info so that we or other subs can contact you about work. I'm sure you can understand why I haven't posted my name I'm just too embarrased. Zudi, I know you have to be reading this please respond. If you can't pay my company please appoligize. If you appoligize I hope I can forgive you in my soul.
If Bear Sterns buys out all of Kara's debt, what does that do for the Unsecured Creditors? Will they be paid by Bear Sterns or will the money just go to the banks and than Bear Sterns will have to deal with the unscecured creditors themselves? Please explaine.
Prof, in your opinion what is the best path this thing can take that will help the unsecured creditors get their monies.
Also to the sub who is screwed I feel for you, I am in the same boat. I talked to several ex-Kara employees and they are in the same boat as you. Good luck.
Thank you for reminding us who the true victims are. This is truly a lousy situation. Sadly the banks don't take responsibility for at least being part of the problem. If they had exercised some level of reasonable funding control, I suspect you sub-contractors would not be facing these difficulties. Logic dictates that when they disburse money to the builder they would want reasonable assurances that the builder's sub-contractors and material suppliers get paid. Unfortunately logic doesn't often times guide a moral approach to doing business.
I only wish I had a solution that would ease your pain.
SCProfessor
Hey do you think there still is a Christmas party this year? I am waiting for my invitation. Oh I forgot the lame BBQ was the substitute. Or should I say the going away party. At least we dont have to listen to Zuhdi throwing boquets at himself anymore. It surely will be a wonderful Holiday Season. Lets all wish for a great and prosperous 2007. Just watch out for the Grinches at Kara.
Frankly, I wouldn't hold out much hope for unsecured creditors receiving a dime out of this Estate. With Bear Stearns acting in both the capacity of controlling the case as the Debtor's lender, and buying up secured claims, I guess a talented lawyer could make an appealing argument that they are working to squeeze out the unsecured creditors and that is morally and legally reprehensible.
RE: Mystic @ Keyport. This is another one of those land deals that never went anywhere a la Wanaque, Franklin Lakes, Shrewsbury, etc.
No hearing today. Drove all the way to Trenton for nothing. David Bruck got up and said they needed more time. Judge said Friday 10am. Dismissed. Mystic @ Keyport I believe was swapped out as a settlement in a suit the Z-man was involved in and would certainly have lost. You can't build anything in Keyport anyway. That place is unbelievable when it comes to trying to get approvals.
is "Meadows at Parkway...ooops I mean Tinton Falls" still a go?
Looks like a couple of other municipalities are going after Kara's bonding companies for uncompleted work. See article below. Reminds you of a football game where the referee (judge) is getting close to calling and infraction for "piling on."
See http://tinyurl.com/y8nwau
Southern Ocean towns seek Kara Homes performance bonds
Posted by the Asbury Park Press on 11/29/06
Two southern Ocean County municipalities have become the latest towns to go after performance bonds issued by developer Kara Homes, to pay for what township and other officials say are needed improvements at Kara developments.
Performance bonds are issued by an insurance company to guarantee successful completion of a project. On Nov. 20, Marlboro was the first town to pursue the developer's performance bonds as a source of possible recourse. Now Barnegat and Little Egg Harbor officials have said they have put Kara Homes on notice, with Barnegat officials willing to start the process by next week.
David Breeden, township administrator for Barnegat, said $750,000 in site work, including landscaping and drainage not associated with individual homes, is outstanding at Horizons at Barnegat, a 164-unit age-restricted development off West Bay Avenue.
Breeden said the township put the bond company, New York City-based Gulf Insurance, on notice on Nov. 3, and would institute proceedings to call in the $4.86 million in bonds if Barnegat didn't receive a response within 30 days.
-- Hartriono B. Sastrowardoyo
Does anyone have a real number as to how many homes have closed since the bankrupsy started??
Has anyone even asked that question?
Any subs that can do general contracting to existing homes (inside work), please let me know as we could use some "winter work" help - not much but it is something. pmathews1020@gmail.com
correction: mathew1020@gmail.com - sorry
anyone out there from winding run didnt i tell u this would happen 2 years ago boy im glad that dike terminated me so much for the terms you said you had
its funny i used to see amboy at theses homes every day the bank guy predicted this would happen over 2 years ago re; front loading
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These kinds of things took everyone by surprise, but it's getting better everyday, sadly I hear alot of cities are still due for another realestate crunch, I wonder if this new congress is going to help that at all
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