Builder's bankruptcy raises many questions
BY MARLENE CANTY
Staff Writer

OLD BRIDGE - Kara Homes, the developer of two Old Bridge communities, has left creditors and clients in a quandary as to whether it will be able to meet its contractual obligations.

Kara Homes, which is based in East Brunswick, filed for bankruptcy on Oct. 5. The developer builds homes throughout New Jersey.

The bankruptcy decision came in the midst of a housing slump that left the builder scrambling to find buyers for its homes all over the state.

Locally, after years of difficulties with the two Old Bridge projects, the question being asked by observers, customers, residents and township officials alike is: Are Kara Homes' difficulties isolated and the result of mismanagement and bad luck, or the beginning of a trend that will be repeated as the housing market bottoms out?

According to Old Bridge Mayor Jim Phillips, Kara Homes' problems at least in his township have little to do with a sluggish housing market. The mayor said he could not say what the basis of Kara Homes' difficulties was, but he did say that despite slumps in the housing market, other large developers like K. Hovnanian continue to provide quality products in a timely fashion.

Phillips said towns like Old Bridge are equipped to deal with the situation largely because the projects are secured by performance bonds, a standard protection device towns use when dealing with developers. The bonds help to ensure that roads, curbs and other infrastructure amenities are built even in the event of a situation such as that now faced by Kara Homes.

"What concerns us most in all this are the individual homeowners, many of whom have their entire life savings tied up in deposits on the units," Phillips said.

Will those home buyers get their money back?

The law states that if a home buyer's deposit is in an escrow account, the buyer is entitled to get his money back, but if the homeowner has already released the money from escrow to enable the builder to construct the home, the situation could become tricky. A possible solution might include allowing the buyer to purchase the property at a discount and have another builder complete the house.

Kara Homes has about 100 homes outstanding of the original 200 it proposed for Horizons at Birch Hill on Route 9 nearly three years ago, according to Alex Tucciarone, construction official in Old Bridge.

At Bridgepointe, an Old Bridge development Kara Homes took over from another developer three years ago, Kara Homes has completed construction of the units and amenities like the clubhouse and the pool, Tucciarone said. He did not comment about whether sidewalks and landscaping had been completed at Bridgepointe, where the homeowners association has been working with Kara Homes representatives to have several issues resolved over the past year.

Tucciarone believes Kara Homes' difficulties are rooted in a downturn in the housing market, a market he describes as "super-saturated" with upscale homes.

"I think we overbuilt the market," Tucciarone said. "Once you out-build the market there's no one left to buy the homes. It's not just Kara, I think we overbuilt the state."

Tucciarone, who believes Old Bridge is a wonderful place to live and that his statement is proved by how many people move to the town each year, thinks that Kara Homes and other developers need to begin scaling down and building more lower-priced "starter" homes for first-time buyers and working-class pocket-books.

According to Phillips, Kara Homes' next move will be to present a plan of how to reorganize, provided it wins court approval to continue doing business. If it does not get that approval, it could be forced to sell its assets to pay off creditors.

Kara Homes was founded in 1999 by its president, Zudi Karagiozi, whose goal was to build more than 20 luxury developments, many designed exclusively for residents 55 years of age or older, throughout New Jersey.

Calls seeking comment from Kara Homes were not returned.