Kara buyers lose thousands

From the Home News Tribune:

Kara Homes slowly building up

Nearly eight months after East Brunswick-based Kara Homes Inc. filed for bankruptcy, many of the builder’s prospective customers, buyers such as Marlboro resident Elizabeth Yigdal, are still without their homes.

Yigdal and her husband, Jeffrey, put down $240,000 in early 2004 for a house at Kara at Crine West in Marlboro.

“We are watching and waiting,” Yigdal said. “I want closure on this. I either want my money, my house, closure, piece of mind.”

Now there are signs that Kara Homes’ bankruptcy case is about to take some major steps forward.

The company is poised to announce in court papers details of a settlement with Amboy National Bank, one of Kara’s major creditors. Kara also is getting ready to file changes to its controversial bankruptcy reorganization plan after extensive negotiations with creditors.

First, here’s a quick recap of what has happened so far.

Kara Homes, one of the largest home builders in Middlesex, Monmouth and Ocean counties, filed for Chapter 11 bankruptcy last October. It reported $227 million in liabilities and $350 million in assets.

The company said it ran out of cash and blamed a slowdown in the real estate market. It left Kara in tatters and about 300 prospective home buyers, some of whom had put down tens of thousands of dollars in deposit money, in limbo.

Kara also owes subcontractors and suppliers who worked on the company’s developments about $26 million as well. Most of the company’s debt, however, is owed to banks and other investors who put up the cash to purchase land to build homes.

After the company declared bankruptcy, its first priority was to raise some money to keep the lights on and pay employees. It laid off workers to cut down operations.

U.S. Bankruptcy Court Judge Michael B. Kaplan also allowed the company to hire corporate restructuring firm Traxi LLC and to put its managing partner, Perry Mandarino, in charge of the company’s daily operations as chief restructuring officer.

Kara attracted investment house Bear Stearns, which agreed to loan the company $5 million to keep its administrative operations going. In January, the company replaced the Bear Stearns loan with one from Plainfield Specialty Holdings II Inc., a hedge fund based in Greenwich, Conn.

Mandarino headed the company’s efforts to look at which developments to sell and which to finish.

In April, six developments — in Stafford, Little Egg Harbor, Monroe, Toms River and two in Edison — were sold for about $19 million. With the exception of some prospective home buyers in the Edison developments, customers lost tens of thousands of dollars in deposits and will have to recoup the money through the bankruptcy proceedings.

In a bankruptcy case, home buyers are considered unsecured creditors. They only receive money once secured lenders, such as banks, are paid.

Other developments, such as the uncompleted portion of Hidden Lakes at Lacey Township, which includes five partially completed homes with contracts, are going to be sold at auction as well.