More than 10 days after it announced it was filing for bankruptcy, Neumann Homes in Warrenville, Ill., filed for Chapter 11 yesterday.
Neumann owes more than $100 million to anywhere between 1,000 and 5,000 creditors. Its assets total more than $100 million. The company's largest creditor is Residential Funding Corp. Neumann said it owes $75 million to the lender. After that, it owes money to three surety bond companies. It owes $19.4 million to Fidelity Deposit Co. of Maryland, $11.9 million to Carolina Casualty Insurance Co., and $7.9 million to Lexon Insurance Co.. It also owes slightly less than $5 million to Bank of America.
Greg Eichorn, a partner in the Chicago office law office of Peckar and Abramson, expects Neumann's general contractors and sub contractors to line up and file mechanic's liens against the builder's properties. If the builder sells this property, the new buyer will be subject to the mechanic's liens and will have to pay them off. "They want to get in line for bank to preserve their rights," he said. "There's probably going to be quite a few mechanic's liens in all of these areas."
If Neumann paid any of its contractors in the past 30 days, they could also be losing money, according to Eichorn. "There is a preferential payment clause, which basically said any money they paid in the last 90 days prior to bankruptcy is subject to being brought back into the bankruptcy," Eichorn said. "When someone knows they're going into bankruptcy, they may pay out to certain preferred vendors and leave other people without any monies."
By filing Chapter 11, CEO Ken Neumann has the flexibility to come out of bankruptcy and eventually do work again. Under Chapter 7, it's a strict liquidation and there's a trustee that handles the assets. In Chapter 11, Neumann has some control over how the assets will be dispersed. "He's just seeking protection," Eichorn said.
Chicago market watchers don't see Neumann remerging anytime soon after all of the negative press he's received. "He can't carry the name," said Tracy Cross, a market consultant in Schaumburg, Ill. "There are others that have resurfaced here that went throughout bankruptcy, but it takes about five years."