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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (57579)	7/12/2006 1:56:49 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 306849

Mechanics Liens against the built homes can be easily satisfied with a bond guaranteeing payment of the lien, should the contractor prevail in court. Trust me, Lennar is good for the amount of the bond. Message 22616746 Regarding the problem between Lennar and one of their framing contractors in Arizona: One of the biggest problems faced by home builders is fraud in the contracting process. Just before I went to work for Pardee, the head of purchasing was fired and prosecuted for kick-backs from vendors. Every employee reporting to him was also fired. He was replaced by an unpleasant, suspicious and hard-nosed but honest man I called "Mr Spider"; I can guarantee you that Lennar believes they were defrauded by the Veemac subcontractor and they believe the Veemac supervisors and office workers participated in the fraud, which is why Lennar is not willing to pay them - while Lennar is willing to pay the actual construction workers; The fact that Lennar is willing to pay the workers with 1099s tells me that Lennar has no intention of ever paying Veemac, the subcontractor. Lennar will have no problem verifying the hours and the workers with their superintendent. If some phantom workers get paid too, Lennar can afford that so that their reputation stays good with potential employees; You have your story from the subcontractor, but not Lennar. He is apparently an ex-Felon who is not entitled to be the officer of a publicly held corporation, even if he might be one of the largest shareholders; As I have said many times, the expensive part for major home builders is the land and finished lots with the cost of putting in the utilities. Putting up homes brings you closer to dumping your excess land inventory without adding substantially to your existing debt load to carry the finished lots. I can tell you with nearly 100% certainty that this is wholly unrelated to the problem Lennar is having with Veemac; Lennar will sell these homes, if they can, and put up a bond to guarantee later payment to Veemac should they prevail in court. No big deal; If the ex-con who runs Veemac is smart, he will file for bankruptcy and not file a lawsuit against Lennar. Lennar may very well seek to prosecute him regardless; In business you can't gain a reputation as an easy mark and stay in business. Chevron, like Pardee, would and did spend $6 million prosecuting a fraud or mistreatment which cost them less than $1 million. It looks like Lennar might be the same - I applaud them; Conversely both Chevron and Pardee could be quite generous with those who had helped them. Some businesses see everything in dollars and I believe they pay a price for this. Being cheap with everyone you deal with doesn't save you money and not prosecuting fraud or standing firm against those who abuse you, even at great cost, does not save you money. .

To: Ramsey Su who wrote (57579)	7/12/2006 3:59:31 PM
From: mishedlo	Respond to of 306849

Here is a take from EddieLuck on the FOOL.... After a lifetime in the construction business, I can tell you several things. One is that when disputes arise between owners and contractors, or contractors and subcontractors, there are ALWAYS plenty of things one side can say about the other to make the other look guilty of something. This is because construction relationships are inherently complex. Another is that statements by senior management in big companies are usually not true. This is because they must promote their company's position, and because they don't actually know the truth at the heart of the matter, being themselves so far removed from it. Statements by subcontractors in trouble are suspect also because they are desperately trying to survive the mistakes they made in getting in trouble in the first place. In this case it is the classic mistake of being heavily dependent on one client. Further, an outside observer can rarely get at the truth of the matter either: even a court hearing seldom reveals the whole truth. You have to be there as the situation develops to know what happened. Thirdly, in any major money dispute it is almost always true that someone has a cash flow problem and is developing a case against the party they are going to have to stiff. Fourthly, that framing contractor is toast. He will never get paid soon enough or completely enough to make him whole again. He should look for a job. I have been in the middle of these scenarios several times. In some cases, I enjoyed helping to bankrupt people who richly deserved it, and at other times tried with no success to help people who were getting screwed. Generally the "good guys" were smart or experienced enough to protect themselves sufficiently to weather the storm, and the cheats and chancers got slammed, so I guess what goes around comes around. In the case of Lennar and Richmond, though, I wouldn't touch their stock with a ten foot pole. Those guys are experienced enough to know that legal proceedings are to be avoided at all costs. They know it's usually better to over-pay a sub. than to go to court with him. They also know that it pays to keep your subs alive at least until they finish the project. Once cash flow problems show up, they tend to stick around, and get worse as legal fees and short term financing start taking their toll. (no pun intended) Good luck, Ed. ========================================= My Reply to Eddie.... Thanks Eddie I am well aware that I am being told what someone wants me to hear. I also know I can not find out the other side of the story. There is a potential ssimple explanation. Veemac ramped up too rapidly (going from 100 workers to 400 workers) think of all the trucks and materials he would need and ran into a cash flow problem. Perhaps nothing more that the next payment from Lennar would solve. Lennar then decides to either take advantage of that situation or perhaps is just worried that Veemac is not paying its employess and stops payments. That makes a minor problem a major problem. Now if Lennar did this to just take advantage (possible and I can not put odds on this at all) it is one thing. But it is also possible this is a simple misunderstanding that crushed Veemac in the process. Either way, from the little facts that I THINK I have, it appears to have been avoidable. If that is the case it is not a good sign for Lennar. Not only do they have a major subcontractor lawsuit in Phoenix, they also have a lawsuit against Mike Morgan in Florida, and 100% certain a huge quality control problem in Florida homes they are building as well. That Lennar did not do everything it could to prevent another lawsuit and more negative publicity could be telling. Then again it is possible (but I doubt it) that my facts are totally wrong (other than the liens which I am confident of) and Lennar did try and resolve this but failed. No matter what the story is, it can't be good for Lennar even IF Lennar did no wrong. Mish