Long-rumored financial problems finally caught up with Warrenville, Ill.-based Neumann Homes; the company filed for Chapter 11 bankruptcy on Nov. 1.

BUILDING FOR BROKE: Despite billion-dollar aspirations, Neumann Homes' CEO Ken Neumann filed for Chapter 11 bankruptcy Nov. 1. Photo: James Kegley Neumann's 2005 venture into Detroit turned out to be its unraveling. CEO Ken Neumann faults an unexpectedly slow market, stating that more than 80 percent of the Detroit housing market has evaporated since he entered the market with the acquisition of Tadian Homes. That drop cost the company in excess of $60 million.

"I think he just had some bad timing in relation to getting into Detroit," says Chris Shaxted, executive VP of Lakewood Homes.

Neumann's other markets have also been socked. The builder says sales are off more than 50 percent in the Chicago and Denver markets, and home prices are slipping 10 percent to 25 percent in certain submarkets. However, Shaxted doesn't expecting a lot of other Chicago builders to go out of business. "I don't think business is that bad [to have to close up shop]," he says. "If Neumann didn't make those decisions [to go into Detroit], I think things would have been fine."

Neumann owes more than $100 million to between 1,000 and 5,000 creditors. The company with the biggest ax to grind is Residential Funding Corp., which is owed $75 million. Neuman owes $19.4 million to Fidelity Deposit Co., $11.9 to million Carolina Casualty Insurance, $7.9 million to Lexon Insurance, and slightly less than $5 million to Bank of America.

Neumann's assets total more than $100 million, according to court documents.

Neumann told Builder, Big Builder's sister publication, that his company has 58 spec homes, of which 42 are completed. It has 132 contracted homes under construction and controls 334 lots in Detroit, 3,148 home sites in Chicago, and 2,506 lots (and 860 acres of land) in Wisconsin. In Denver, Neumann has 703 lots and a 960-acre master planned development on the books.

Under the right circumstances, Shaxted says he would have interest in the land in Chicago. "[Neumann's] got some decent communities," he says. "If we were approached by banks or sellers, we'd certainly look at it. [But] we're not out there trying to gobble up the man's issues."

Neumann laid off all but 20 employees and closed all of its sales, production, and customer service offices. While a third party will assume responsibilities for any issues related to Neumann's 10-year structural warranty coverage, more recent buyers may be left in the lurch. Neumann Homes won't honor one-year warranties on construction. Moreover, buyers who had put down deposits on new homes may end up in the long line of trades, suppliers, and other unsecured creditors seeking repayment.

By filing Chapter 11, Neumann can come out of bankruptcy and build homes again. However, most market watchers don't see Neumann remerging anytime soon after all of the negative press. "He can't carry the name," says market consultant Tracy Cross. "There are others that have resurfaced here that went throughout bankruptcy, but it takes about five years."

–Les Shaver

Learn more about markets featured in this article: Los Angeles, CA.