Buying from Bankrupt Trend Homes
Among the first things which a home builder will do upon entering bankruptcy is to request authorization from the court to continue selling homes free and clear of liens and other encumbrances. Such sales “free and clear of liens” provide customers with some comfort in dealing with the financially-distressed builder.
PFP Holdings, the holding company for Trend Homes and Classic Communities, recently got a court order allowing them to continue selling. Upon the closing of the sale, the escrow agent would pay off the liens with net sale proceeds. Alternatively, if the liens were disputed, the liens would attach only to the reserve funds.
The order made it very clear that “No Asserted Lien Claimant shall have any claim against CTIC [the escrow agent] or any purchaser of a home with respect to any Asserted Lien Claim relating to any property sold pursuant to this Order”.
As for deposits from customers who sign sale agreements with the builder, these deposits would be placed in segregated escrow accounts and it was clearly that that these would not be subject to the security interests of the bank lenders of the builder.
PFP and its subsidiaries are also authorized to return deposits if any of the events occur:
- The builder terminates an agreement.
- The customer has a contractual right to terminate.
- The customer terminates an agreement, the builder has not initiated construction of a home and a refund is in the best interests of the builder.
