Fulton Homes may be in bankruptcy reorganization, operating in one of the hardest hit housing markets in the country, and building less than a quarter the number of homes it built at the peak of the market, but it's the second biggest builder in Phoenix market now in permits.

"When the dust settles, we are one of the last ones standing," said Douglas Fulton, CEO of the Tempe, Ariz.-based company.

Fulton now has 7% of the local market by total permits issued in the past 12 months, the company reported, behind only Pulte Homes/Del Webb. The company pulled 339 permits in those months, and Fulton said it is on target to sell 500 homes by the end of the year.

"We usually bounce between 3% and 5%," he said. "It's part of the natural selection process--who can hang around the longest."

The federal $8,000 first-time home buyer tax credit has been responsible for a recent surge in business. Fulton reported selling 205 homes in the last 12 weeks. By year's end, the company will deliver about 500 homes, which compares with 2,200 at the peak of the market.

Fulton said it's been business as usual at his company despite operating under Chapter 11 bankruptcy court protection since January. Fulton was able to provide his own cash to run the company while in bankruptcy, freeing him from lender financing, which sometimes comes with operational constraints.

"We had cash in the bank," said Fulton. "We are free to operate in any way we want. We are selling a piece of land."

The company's creditors are voting on a reorganization plan that would bring the company out of bankruptcy, Fulton said.

In truth, it hasn't quite been business as usual. The company morphed itself in a number of ways to meet the market.

Now, 80% of the company's business is in homes worth $250,000 or less. Before the market crash that segment was about 40% of the business. Of course that ratio has been affected by dramatically falling prices as well as a focus toward lower-priced homes.

Another change has been the launch of a full-frontal attack on the foreclosure market, what Fulton sees as the company's biggest competition. Rather than ignore the fact that foreclosures are more common than cacti in Phoenix, Fulton offers to have its sales agents take customers to see foreclosures to compare them to its homes.

"That's the way the ducks were flying" toward the foreclosures, Fulton said. "So we told buyers, 'We'll put a sign out on the door and go help you buy a foreclosure.' Why not? They're all licensed Realtors. We call them foreclosure specialists."

As a result, traffic at the models has doubled. And the company's product, with a two-year warranty backed by the company's reputation after 30 years in the market, wins out over foreclosures almost always, he said.

Fulton has even been able to start increasing prices. "Every third or fourth home we sell [in a community], we increase the price a little bit," he said.

Keeping up with foreclosures has required the company to keep 20 to 25 spec homes available for quick purchase most of the time. But the company has had very few cancellations, he said, so it hasn't had any problems with unintended specs ending up on the company's books.

"It's a different playing field, but it's working, so that's a good thing," Fulton said.

Learn more about markets featured in this article: Phoenix, AZ.