LEGAL Draft Lot Contracts
CORNER with Bankruptcy Perils in Mind
BY MARK SHAIKEN, JANET NESSE, MARC ALBERT, DARRELL CLARK,
LAWRENCE BLOCK AND KATHERINE BECKER
You are a big homebuilder. You have bankruptcy case, he invokes Section reneging developer, not the estate, be-
300 lots under contract in a great loca- 365 of the Bankruptcy Code, which cause you can step in and exercise your
tion, at a price that has become a huge allows a debtor to reject an executory right of speciﬁc performance and ﬁnish
bargain over the course of the two years contract if it is in the best interests of the project.
of development. Your purchase contract the estate. An executory contract is Further, you argue that if you cannot
limits your damages to the deposit you one in which performance obligations enforce your right of speciﬁc perfor-
have paid, but it also contains a right still remain on both sides — like this mance, the developer cannot enforce the
of speciﬁc performance so that you can one. He has to deliver the lots and you limitation on damages. The debtor ar-
enforce your right to purchase. Life is have to pay the balance of the purchase gues that you are limited to the refund of
good... price. A rejection is essentially a court- your deposit, and have no right whatever
Unfortunately, your seller is begin- authorized breach of the contract. to step in and complete the job.
ning to feel unhappy. His lots are going But the debtor asks the court to allow Is this a misuse of the Bankruptcy
to slip away at a fraction of market the rejection and award you the return Code, an outrageous conﬂict of inter-
price, when he was shrewd enough to of your deposit as damages. The debtor est for a debtor in possession or merely
have purchased in a booming area. He takes the position that he can exercise a clever but legitimate business ploy?
has forgotten that without your contract his best business judgment, and anyone’s As unlikely as the preceding scenario
he would have been unable to ﬁnance best business judgment would agree would appear, it has been playing out
the development at all. He approaches that the estate would be better off if the recently in Bankruptcy Court in the
you to renegotiate and you decline. property is sold for more money. He also District of Maryland. Although the case
He has a number of unpaid creditors lacks the cash to ﬁnish the project. may well be settled, and not litigated, it
(secured and unsecured) and elects to You, on the other hand, argue that highlights the necessity to draft every
ﬁle for Chapter 11 bankruptcy. In the the only one who really beneﬁts is the contract for the purchase of real estate
with bankruptcy in mind, because it
can be used as a sword as well as a
shield in the rising real estate market.
The preceding article is solely for
informational purposes. The views
and opinions of the authors expressed
herein do not necessarily state or reﬂect
those of the National Association of
Home Builders. The National Associa-
tion of Home Builders and the authors
expressly disclaim any responsibility
for any damages arising from the use,
application, or reliance on any infor-
mation contained in this article. The
ideas presented in the article are not a
substitute for considered professional
advice. If speciﬁc legal advice or profes-
sional assistance is required, the reader
should seek the services of a qualiﬁed
The legal ﬁrm of Stinson Morrison Hecker LLP,
with ofﬁces throughout the Midwest and in
Washington, D.C., includes construction, real
estate, corporate ﬁnance, environmental and
employment among its practice areas.
56 MID-ATLANTIC BUILDER JANUARY/FEBRUARY 2006 www.homebuilders.org
POLICY PARTNERS HBAM POLICY PARTNERS | 2005-2006
Baldwin Homes Pulte Homes-
or three years, HBAM has been underwriting benchmark stud- Beazer Homes Maryland Division
ies that have been essential in helping us build our Bob Ward Companies Rachuba Home Builders
case that: Dale Thompson Builders Regional Homes
. the buildable inventory, across the region, is precariously low Residential Title & Escrow Co.
David S. Brown Enterprises
(2003 University of Maryland study by Dr. Gerrit Knaap); that
Dorsey Family Homes Richmond American Homes
. counties and municipalities must be accountable for maintaining
of Maryland, Inc.
a responsible development capacity (2001 RESI/Towson Univer- Elm Street Development, Inc.
sity Study of Baltimore County); and that Ryland Homes
. at speciﬁc price points, new residential construction is a net con- Scheiner, Mister &
Forty West Group, Inc
tributor to a county’s tax base. (2004 Optimal Solutions Group, Grandizio, P.A.
Anirban Basu and RESI/ Towson University.) Gemcraft Homes, Inc.
Security Development Group
Goodier Builders, Inc.
Shelter Systems Limited
As we continue to press our case, these studies have been essen- Grayson Homes, LLC
The Southern Land Co.
tial in establishing, on an objective, rational basis that our concerns
Iron Horse Properties
are legitimate and that our positions are fact based. Sturbridge Homes
Policy Partners are those members who have been willing to Khovnanian Homes
write signiﬁcant checks to fund this essential work. Please see the Manekin, LLC
Williamsburg Group LLC
list of our 2005-06 Policy Partners and recognize and thank them Mueller Homes, Inc.
Winchester Homes, Inc.
for their leadership. We, and indeed all in the industry, owe a debt Patriot Homes
of gratitude to these member companies. If your company is not Zwingelberg Enterprises, Inc.
Provident Bank of Maryland
on the list, take this opportunity to join them by becoming a Policy
Partner. Call HBAM at 410-265-7400, ext.122. As of December 5, 2005
www.homebuilders.org JANUARY/FEBRUARY 2006 MID-ATLANTIC BUILDER 57
Building on a Strong Foundation
BY DAVE CHMURA
2005 was a successful and growing percent growth in 2005, which makes One ﬁnal note, there is a lot to be said
year for the Remodelor’s Council™ us tied for the third-largest remodeling about the value of networking and shar-
(RC). As a new year is upon us, I have Council in the United States. The Coun- ing with other contractors, vendors and
taken a minute to reﬂect on the many cil has many beneﬁts for its remodeling associates. We, as the Council, attempt
highlights of 2005. Several come to and associate members, including edu- to balance the agenda, providing our
mind that I would like to share with cation, networking, certiﬁcations and members with social and educational
you. We had very successful, well-at- the Award of Excellence program. The events that emphasize this sharing and
tended educational programs for CGR newly implemented workers compensa- networking. We hope to continue the
and CAPS. Mark Richardson from Case tion insurance program, speciﬁcally growth that has begun in the past year
Remodeling was the guest speaker for designed for RC members, pays up to a and look forward to seeing many new
our spring dinner where he spoke about 40 percent dividend on your premium. members at upcoming events. ■
“determining the right client for your So, get involved in the Remodelor’s
business”. Our relationship with the Council® and your entire organization
Community Assistance Program has will beneﬁt. Dave Chmura is the Owner and Founder of
allowed us to give back to our commu- This coming year we are proud to Elegant Builders Inc. and the 2006 Remod-
nity by building wheel chair accessible offer several CGR courses for both elors™ Council President. Dave has over 17
ramps for those in need. The RC’s night remodelers and our associate members. years of industry experience. Elegant Builders is
out at Oriole Park at Camden Yards Our hope is that many of our members a company focused on continuously improving
was very successful with over 250 in who have not obtained a certiﬁcation the company, and its employees. You can reach
attendance. will be able to do so locally, without the Dave at email@example.com.
The Remodelor’s Council™ had a 15 additional expense of traveling.
58 MID-ATLANTIC BUILDER JANUARY/FEBRUARY 2006 www.homebuilders.org
SALES & MARKETING
Does Market Research Payoff?
BY BAUBLITZ ADVERTISING
Some companies think research is just won’t work. accounts, including several with the
unnecessary or, even worse, a waste ▸ Evaluation: With strong follow-up potential for six-ﬁgure sales. Looking
of money. In fact, the opposite is true: research, you can determine how effec- ahead, the 2006 campaign will feature
market research can be the tool that tive your marketing program has been new customers who switched to Con-
delivers your best return on investment. – and how to make it even stronger. tractor Express as a result of the 2005
A well-designed focus group, cus- campaign.
tomer interview, or survey will help you CASE IN POINT No doubt, market research takes time
determine the most cost-effective way Contractor Express, a family-owned and money. But companies that spend a
to reach your audience. It can also un- lumber and building supply retailer in small percentage of their budgets on re-
cover the hot-button issues or concerns Oceanside, N.Y., used research as the search can reap a huge beneﬁt. They’re
that will motivate them to act. foundation for its preferred-customer able to develop a far more efﬁcient
With research, your company gets: program and its direct-mail campaign. marketing program – one that reaches
▸ Insight: A clear picture about how This enabled Contractor Express to the right audience in the right way with
customers perceive your products – and target a speciﬁc market, select the ideal the right messages. ■
what they want tactics for reaching that market and
▸ Direction: Good research will help develop an effective creative approach.
you determine your target markets’ The result? After four successful Baublitz Advertising is a full-service agency
preferred methods of communication, mailings, the response rate was 5-6 specializing in the building materials industry
key messages – even input on the look percent, far greater than the indus- since 1976. For more information, visit www.
and feel of a marketing campaign. You try average of 1 percent. Contractor baublitz.com.
can avoid wasting money on tactics that Express signed on more than 150 new
60 MID-ATLANTIC BUILDER JANUARY/FEBRUARY 2006 www.homebuilders.org
www.homebuilders.org JANUARY/FEBRUARY 2006 MID-ATLANTIC BUILDER 61
Top 1 Million
The HBAM website, www.homebuilders.
org, is new and improved with lots of
members-only information and details
on HBAM events and meetings. You can
ﬁnd archived copies of Mid-Atlantic
Builder, housing statistics, government
affairs updates, photos of recent events
and more. To log-on to the site, click
on “Members log In” on the homepage.
From there, you will enter your email
address and choose your own password.
If you are having trouble gaining access,
please email Kim Dresser in member-
ship at firstname.lastname@example.org to make
sure we have your correct email address
in our database. Be sure to log on for
resources that will help you make the
most of your HBAM membership. ■
MEMBERS DO BUSINESS
62 MID-ATLANTIC BUILDER JANUARY/FEBRUARY 2006 www.homebuilders.org