EVEN now, Charlene De La Rosa recalls how pretty the model homes were. She remembers the well-dressed and conscientious sales staff, the professional-looking office.
Rancho Las Flores was to be a 550-home, 135-acre development offering homes in the mid-$100,000s to mid-$200,000s in the growing Riverside County city of Coachella. In April 2004, De La Rosa, a court services assistant, put a $2,500 deposit on a $219,000 five-bedroom, four-bathroom home planned for the development's second phase. She felt secure -- and lucky -- that she had locked in an affordable house in a market that was quickly spiraling out of her price range.
But in March 2005, the four companies with a financial interest in the development filed for Chapter 11 bankruptcy protection. More than 170 buyers who had put deposits on single-family houses in Rancho Las Flores were left without new homes, missed out on almost a year's worth of appreciation and didn't know if they would get their money back.
Their experience underscores the importance of buyers checking out a builder's credentials and track record before signing a contract to purchase a newly constructed house.
A builder going belly up is uncommon in Southern California these days, experts say, because large, well-financed companies dominate new housing construction. Even as interest rates rise and housing appreciation begins to lose some steam, industry watchers don't expect a repeat of the beating that builders took in the 1990s downturn when many went bankrupt, were restructured or were bought out. Back then, there was a recession and a high inventory of housing stock.
Ben Bartolotto, research director for the Construction Industry Research Board in Burbank, says the housing market today, coming off a three-year economic boom, is not the same.
Still, as the market cools, the risks may be greater for small builders -- those building about 100 houses a year -- who are putting up new houses in outlying areas such as Victorville, Lancaster, Hemet and Coachella, where land has been less expensive. They make up about 60% of the state's builders, according to Nick Slevin, publisher of Builder and Developer magazine in Newport Beach.
What does that mean for consumers looking to buy homes from smaller developers?
