Prospect finalizes liquidation plan

A year after one of Richmond’s biggest homebuilders filed for Chapter 11 Bankruptcy protection, most of its property has returned to the lenders, and the company has a final plan to finish liquidating.

In 2007, Prospect Homes sold about 190 new homes, bringing in revenue of around $60 million, according to a disclosure statement filed last week in the bankruptcy court along with a liquidation plan. Sales fell 40 percent in 2008, and by 2009, homes were selling for less than the debt owed on those properties, the filing said.

The company lacked adequate funding to complete projects and could not continue to pay its bills because secured lenders had begun on collateral, according to the suit.

Unsecured creditors will not get any money, said Roy Terry, a bankruptcy lawyer at DurretteBradshaw who is representing Prospect Homes. Several Richmond-based companies are owned more than $100,000 each for work such as paving, plumbing and interior finishes on projects Prospect developed in the Richmond area.

But Terry said that the outcome was not as messy for other creditors as it could have been because Joe Audi, Prospect’s president, personally lent the company more than $1 million in so-called Debtor In Possession financing. Audi only got some of that back, Terry said.

“If he (Joe Audi) had just closed the door and walked away, the losses to creditors would have been worse,” Terry said, referring to secured creditors such as banks.

In January, banks were taking back property from Prospect either through foreclosure or through approval of the bankruptcy court. (You can read about that here and here).

BizSense was unable to reach local banks to determine the size of the losses on their loans to Prospect.

The funds that Audi put into the bankrupt entity helped pay mechanics liens, which in turn allowed a host of local and national banks to more easily take the title and try to sell those properties, Terry said.

“If everything just crashed and burned, then the banks would have dealt with them.”

Audi received some of his DIP financing back when a lawsuit between Prospect and West Broad Village was settled for a payment of $550,000. But Audi has not been fully compensated, Terry said.

Because much of the collateral was worth less than the loans Prospect had borrowed on the properties, banks may try to sue Audi for the rest of the money they are owed.

And legal wrangling is likely far from over. For example, this week Virginia Business Bank sued Chamberlayne Road Associates, LLC, an entity owned by Prospect, for $884,000 that Prospect was not paying. (You can see the filing here).

Prospect filed for Chapter 11 in June of 2009, hoping to come out as a smaller, leaner company, Terry said.

“We wanted to keep some of the best land and continue to fund building, and to keep some of the best banking relationships,” he said, adding that by the fall of 2009, reorganization seemed less and less likely.

“At the end of the day, none of the lenders had an appetite to keep lending other than a few houses the company was finishing,” Terry said. “No lender wanted to continue.”

The liquidation plan will be sent to creditors, who will vote on it, Terry said.

Banks with secured pre-petition claims:
First Market Bank:                     $6.4 million
Regions Bank:                              $4.8 million
BB&T:                                           $3.6 million
C&F Bank:                                    $1.7 million
Franklin Federal:                        $1.7 million
Fulton Bank:                                $516,000
Paragon Commercial Bank:       $1.2 million
Village Bank:                               $1.9 million
Va. Commonwealth Bank:         $1.5 million
Wachovia:                                   $4.5 million

Other secured claims:
Daniel Newton Plumbing:          $38,000
Foxcreek Owners Assoc.:          $35,000
The Equipment Leasing Co.:     $35,000

Aaron Kremer is the BizSense editor. Please send news tips to [email protected]

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11 years ago

Very thorough Aaron…

Bob Richmon
Bob Richmon
11 years ago

It’s sad to see another local company go away, Joe Audi was a great homebuilder and really treated his employees like family. Prospect like so many others just got caught in the sudden downturn of our economy. Who would have ever thought that land and home values would fall in such large amounts overnight. My company had done work for Joe for many years and had a great working relationship with his company. We like so many other subcontracts have not been paid by many homebuilders, and it hurt us all. I do know that it has hurt the Homebuilders… Read more »

Nancy Smith Bunin
Nancy Smith Bunin
11 years ago

Long before the economy turned and Prospect Homes bankruptcy filings, my husband and I had a very bad experience with Prospect Homes. We bought from Prospect Homes 6-1/2 years ago, and they delivered our home 5 months late, as per their superintendent, “they forgot about our home.” We went through 4-5 superintendents because of all the firings at Prospect. All their subcontractors constantly complained to us about not being paid by Prospect. When we closed, we found that one of their plumbers put a lien on our home because of nonpayment by Prospect Homes for work done on our home.… Read more »