Andrew Maletich says hedoesn’t trust builders anymore. His company, Bolingbroke, Ill.–based flooring contractor RiteWay Tile & Carpet, got stiffed for $120,000 when Burnside Construction went bankrupt a year ago. RiteWay is also one of seven companies on the unsecured creditors committee in the Neumann Homes Chapter 11 case and had $850,000 in mechanics’ liens filed against 80 to 90 of Neumann’s homes his company helped build.
As 2008 began, Maletich’s mistrust spilled into his relationships with other builders, two of which owed RiteWay $240,000 and $98,000, respectively. “They’re all in trouble, and they’re all on the same string with me,” meaning he will file a lien against any builder that doesn’t pay RiteWay within 75 days of its being billed. (In Illinois, contractors have 90 days to file a lien after submitting an invoice.)
Months after Neumann Homes petitioned for bankruptcy protection on Oct. 26, the repercussions of its collapse were still being felt in Chicago’s soft housing market. Many wonder how severe the ripple effect might be. “Consumers might be more worried about a builder or the community they are thinking of buying in,” observes Tom Hodgson, vice president of operations for Aurora, Ill.–based Alexander Lumber Co. Bob Dolezal, credit manager for Oak Lawn, Ill.–based Beatty Lumber, adds that the bankruptcy was like “an earthquake reverberating from its epicenter.” Beatty, like other suppliers in Chicago, has cinched its credit because of general market conditions. “But we’ve had to work with some customers because they’re stuck in the Neumann situation,” says Dolezal.
A delinquent past
Neumann Homes had been struggling financially well before it filed for bankruptcy. “We knew they were having trouble [because] they weren’t paying their bills, which unfortunately was normal from year to year with them,” says Jim Hoffman, who owns J & E Nursery, a landscaping contractor in Libertyville, Ill., which had worked with Neumann since 1999 and was owed $45,818 when the builder went bankrupt.
Contractors filed a torrent of mechanics’ liens against Neumann’s properties in February 2007, according to Merritt Credit Bureau, a Chicago-based research firm that prepares mechanics’ lien notices and claims. (A mechanic’s lien is a lien on property that secures the payment of debts related to materials and labor. Construction on that property cannot continue until liens are resolved.) By the time it entered Chapter 11 eight months later, Neumann had $12 million in lien-related claims to contend with (out of $151 million in secured claims), to say nothing of $134 million in unsecured claims, some of that owed to contractors, too. As of late January 2008, 75 companies in eight Chicago-area counties alone had filed 2,214 mechanics’ liens naming Neumann as first defendant, and another 130 where the builder is named second defendant. “I’ve never seen anything like this,” says Merritt’s owner Janet Berman about the sheer number of claims.
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