My response to NAHB bankruptcy article

As a member of the NAHB and as a home builder in Fredericksburg, VA, I am deeply disappointed and discouraged by the article titled Second Acts in the March Builder Magazine. The disclaimer on page 7 states "opinions expressed are those of the authors" but the message has clearly been endorsed by the NAHB since the article has run with its clear message. Please view my comments below. It is my belief that this message could be the last straw for builders like myself that have made proper decisions based on economic conditions and outlook.

Clearly the NAHB represents members in and after bankruptcy. However, bankruptcy should not be glorified in any way. It is certainly failure and/or default and should be properly characterized with no uncertainty. Although the NAHB represents builders, we have a fiduciary responsibility to benefit our home buyers. Bankrupted builders have an undue competitive advantage versus builders that do not file although each of us is struggling through uncertain times. The article starts by giving an example of Anderson Homes lowering their debt from $14 million to $9 million. In competition with similar builders, their operating costs are certainly lower by comparison. Bankruptcy is a tool and is by no means illegal. More importantly, it is failure in every sense of the word. We should be supporting with much more effort, our builders that choose not to file. Builders that do not file are far more trustworthy and dependable in most cases to deliver benefits to our purchasers. Perception of our industry, brand identity, and customer service are negatively affected by bankrupted builders. From my experience, bankrupted builders are exactly the ones that made poor decisions and unfortunately have been given a fresh competitive advantage to continue poor decision making. The article mentions lenders in a negative light several times. This should not be the case. Lenders have full rights when a builder defaults. If we believe homeowners should honor their mortgage commitments we should clearly support lenders, through our message, when builders default. We cannot harm our already shaky relationship with lenders and teach them our commitments are only good in the best of times.

I have overcome lower property values, fewer buyers, and deflation of our gross margins. Recently I have lost in competition to bankrupted builders. This may be the last straw I cannot overcome. Lenders are more inclined to have their defaulting partners build out subdivisions rather than bring in a trustworthy builder to partner with. Operating costs of bankrupted builders are lower than typical. It is a clear moral hazard if bankruptcy is the only option to compete on price and to create a negotiating advantage with lenders. My lenders will not budge on my debts because they know I will honor my commitments. Builders like myself should carry the positive image of our industry forward. It is my perception that the bankrupted builders are winning the war. According to Hede (labeled as a bankruptcy expert) "the biggest challenge facing builders emerging from bankruptcy might be letting their optimism about the future get the better of them again." It is a sad day when NAHB's bankrupted companies meet more optimism than their honorable NAHB members.