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Protect yourself from builder's bankruptcy

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This means all defects in heating, ventilation and air conditioning systems, plumbing and electrical systems are supposed to be handled by the builder. The Web site states that in the first year under the warranty, claims concerning workmanship and materials issues are to be handled by the builder. It also mentions that in first year after closing there are to be three inspections under the Customer Care Program.

Now, homeowners don't have this warranty.

In addition, homeowners in Neumann Homes communities in Wisconsin are already having problems with subcontractors not being paid, according to the Racine Journal Times in Wisconsin.

The newspaper described the travails of a Wisconsin woman who closed on a newly constructed three bedroom, 1,800-square-foot ranch house in the Chicory Creek subdivision. Already, a $9,000 lien has been placed on her home from a drywall contractor who wasn't paid.

She says her neighbor has three liens on her home. The woman has contacted the title company and hired a lawyer.

"We don't know at this point if we are going to be held liable," she says.

Sturtevant Village Administrator Mark Janiuk says: "Neumann Homes has completed at least 20 homes, with two in the building process. We expected the company to build on an additional 30 home sites.

"As a town of 6,000 people, there is not much we can do. However, our concern is that a lot of subcontractors are not going to get paid and that can cause possible job loss."

Almost 400 other customers find themselves facing uncertain living arrangements, while approximately 135 currently have homes under construction, but not yet built. About 130 homes were sold "on spec" but are not yet being finished.

One of the hardest hit communities is in Antioch, Ill. Plans called for 1,500 single-family homes and town houses to be constructed in two subdivisions. So far, 700 homes are built, with many in various stages of completion.

One subdivision was supposed to have an 8,000-square-foot clubhouse and swimming pools. Construction never started on these amenities. An ice skating rink had been installed in the development. Neumann Homes paid the tab for it, but homeowners aren't sure they want to pick up the roughly $8,000 annual cost of maintaining it.

"Obviously it will take a lot longer than anticipated to build out the clubhouse," Meltzer says. "But it will get built and finished, and eventually the development will sell out."

What happens to these developments?
Cross believes that homeowners living in a bankrupted new-home community have few options when their home has a major problem. If the foundation has cracks, the floors aren't level, the roof is leaking or the foundation is shifting, the homeowner will have to pay for the repairs. If a new entity takes over the development, it can help the homeowner -- but it has no obligation to do so.

As for the houses partly under construction, what most likely happens is that the lenders or another entity step in and hire the trades to finish those houses. The homebuyer will then get the house for which he or she contracted. In the meantime, the homebuyer is stuck and can't get out of the legally binding contract.

City of Kenosha, Wisc., officials are concerned about incomplete infrastructure in developments there, including roads that haven't yet been deeded to the city.

Next: "Drive around. Is anyone working?"
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