Anchorage, Alaska - At least four families are in limbo tonight. They're not able to move into their new homes because it turns out they don't really own them. When a local builder went bankrupt, families like the McDades found out they lost it all.
All is quiet at this new home perched way above Golden View -- and it will be for some time. Mike McDade was supposed to be moving in after Christmas with his wife and two young children, but instead they are still at the duplex they just sold, renting from the new owners.
"Now we have to buy a house again. We have no money for a down payment. We have no money for anything right now. We've been totally wiped clean," said Mike McDade.
"It was absolutely our dream home," said Niki McDade.
That's why Niki McDade documented every step along the way.
"We pretty much drove up there everyday to see how it was going along," she said.
It was a well thought-out plan; unfortunately, it did not include the builder going bankrupt.
"You think you can recover something, knowing it's your land. And then to find out legally you aren't entitled to any of it was, of course, devastating," said Niki McDade.
The McDades lost it all when Lance Lamb of Diamond Builders went bankrupt. That's when they found out they had no home and no land because it was all under Lamb's name.
"All of the equity we built up in buying a home, maintaining a home, getting land means nothing now. None of it is ours. We've lost all of it," said
That's because the McDades did what's common for homebuilders who don't want to take out their own construction loan: they deeded their land to the builder for collateral.
Ordinarily it's a successful business venture, if nothing goes wrong.
"One thing that went wrong is the builder went bankrupt," said John Carman.
Carman, with Homestate Mortgage Company, is the chairman of the legislative committee for Alaska Mortgage Bankers Association and he's familiar with the fallout over Lamb's bankruptcy.
"Some of these people, from what I've understood, lost hundreds of thousand of dollars. It's not a good situation," said Carman.
Indeed, it's a bad situation for both the homeowners and the subcontractors, who didn't get paid.
"Prior to going bankrupt, they were accepting money from homeowners for upgrades and not necessarily passing that money on to the subcontractors that were performing the work," Carman said.
It is the worst situation to be in if you've decided to deed to builder. While it's the easiest financing route, it's the riskiest for the consumer.
"With most builders, you can agree that you want to keep the land in your name. You want to get the construction loan in your name. You simply want to contract with the builder to build the home for a certain price and agree that you will pay them in stages as the home is built," said Carman.
Other options include the owner becoming the general contractor. You're in total control of the money but also have a big responsibility running the show.
The McDades admit it might be too late for them, especially since lawyers have told them there appears to be no recourse, but they want to warn other potential homebuilders now before their dream house gets lost in limbo.
The McDades are out $90,000 for the land, with $30,000 paid to Lamb in cash just before he declared bankruptcy.
Lance Lamb was not available for comment. His business and home phones were disconnected, but last week he left a message saying he also lost everything and is sorry that his customers were also hurt in the bankruptcy.
While it's recommended that consumers check out builders thoroughly before signing a contract, in this case Diamond Builders checked out before the financial problems came to light. With more and more inventory straining the builders capital, I'm thinking this scenario will become more and more prevalent. I believe it will do as it has in the past, weed out some of the less fortunate builders and recover within the 7 year cycle we usually run here in Oklahoma.