Village Hopes to Collect from Bankrupt Developers

Looking back on it, said Village Attorney Steve Andersson, was pretty lucky.

When the economy (and by extension the housing market) started taking its tumble in 2008, many of the village’s newly-constructed subdivisions were complete, while others had yet to move past the drawing board. That means, for the most part, Montgomery was left with healthy neighborhoods and open fields when the building stopped—unlike the half-finished developments in some other areas, Andersson said.

That also means there are very few cases in which the village has had to chase down developers to complete improvements in those subdivisions. In fact, as far as active cases go, there are only two: the west-side Huntington Chase, owned by now-bankrupt Kimball Hill Homes; and the east-side Fieldstone Place, built by the similarly-insolvent Grand Pointe Homes.

In both cases, Andersson said, it is the subdivision streets that need the most work. Both developments have performance bonds attached—essentially, insurance policies, issued by insurance companies, to ensure the work gets done.

As Andersson explained to the Committee of the Whole Tuesday night, both of those cases are in progress. The village filed suit against Kimball Hill last year, hoping to collect on a bond totaling $998,000. Andersson said he is currently fighting with the insurance company, and while it could take years, there’s a good chance the money can be recovered.

The next court date is set for Oct. 25, but Andersson isn’t confident that anything significant will happen then.

Fieldstone Place is another story. That performance bond totals $792,985.70—it’s been reduced over time, as improvements were made, before Grand Pointe went bankrupt. Andersson said he hoped for a settlement, but the bond company was supposed to make an offer by Aug. 22.

That didn’t happen, and if no offer comes in before Sept. 27, Andersson said, he will recommend filing suit at the next Village Board meeting, on Oct. 10. A settlement could still happen, he said.

“I remain an optimist,” he said.

Two other similar cases have recently come to a conclusion, both dealing with letters of credit from the development companies themselves. These are more problematic, Andersson said, since they become harder to collect if the issuing banks become insolvent.

In the case of the Kennedy Townhomes development, part of the Fairfield Way subdivision on the west side, it’s become impossible. Kennedy’s letter of credit totals $191,091.46, but the issuing bank has failed, and the village is pretty far down a long list of creditors, Andersson said.

The village won’t be pursuing that letter of credit, but that doesn’t mean they won’t hold out for the improvements to be finished. Should someone else buy the property and want to build new homes there, Andersson said, the village would make sure that developer would do all the remaining work first.

And sometimes it does work out, he said. A settlement with Lennar Homes (a solvent company) over the Montgomery Crossing bridge over Blackberry Creek recently netted the village $90,000. That’s $20,000 more than the amount of the letter of credit in question, Andersson said.

The issue was the bridge’s original construction: it went up during winter, Andersson said, and there was some concern the concrete may not have dried properly. Lennar wanted the letter of credit to be released, but the village held out—a full repair of the bridge, if needed, could have cost half a million dollars, Andersson said, and he wanted to be sure it wouldn’t be needed before releasing the credit.

As it turned out, he said, the bridge has held up well. The settlement, he said, was reached partly because Lennar would like to continue doing business in Montgomery. The check, Andersson said, should arrive later this week.

Performance bonds put the village in an interesting position. The unfinished work is essentially the village’s leverage to call in the bonds, so should Montgomery step in and finish the job in those subdivisions, their legal case weakens, Andersson explained. So that’s why streets and sidewalks remain incomplete while negotiations continue.

In July, the Village Board agreed to perform work in these subdivisions to combat safety risks. The board will consider each on a case-by-case basis. The first such job, fixing a light at Fieldstone Place, has hit some snags, according to Director Mike Pubentz, but once an agreement is signed between Rage Property Management and ComEd, the repairs will be made.

Andersson said he will provide monthly status reports on the two active cases, and any others that become active—he works with the community development department to keep an eye on all the subdivisions in town, he said.

Full disclosure: Montgomery Patch Editor Andre Salles is a resident of Fieldstone Place.