First Home, now a division of Hovanian Enterprises, claimed it’s first lending victim. Investors from the credit union bought several homes with construction loans, which means the buyer financed the construction of the homes. The problem is between the time the investor went to contract and the time it took to close-out the construction-perm loan, the market fell significantly to the point there wasn’t enough value in the home to justify the loan to value ratio. Lenders no longer wanted to issue permanent financing, and the loan failed.
The investor can’t close-out the loan, and can’t sell the property for what they paid for it, so the buyer can’t ultimately close.
Not only will this have far reacing impacts on lenders, it may affect the builder as well when they don’t receive final draws on the construction loans and have oodles of properties tied up in court or foreclosure.
In fact, already many investors are suing alleging fraud by First Home, Construction Loan and D’Alessandro & Woodyard, a real estate brokerage that sold some houses for First Home.
More lawsuits are expected as investors from all over invested in these deals. First Home primarily builds homes in Fort Myers, Cape Coral, and Lehigh Acres Florida. Many investors had decent credit scores, but lacked the assets to carry the properties if everything didn’t work out the way they planned. Obviously, things didn’t work out the way they planned as the market took a serious turn and didn’t pass Go.