Prominent homebuilders failing to pay subcontractors

The Arizona Republic is reporting Firm is failing to pay its carpenters. A closer look at the article shows that subcontractors are not paying workers because the subs are not being paid by the homebuilders. Let's take a look:

More than 100 workers at a Scottsdale construction framing company haven't been paid in several weeks, and that has Latino community advocates concerned that some employers are taking advantage of workers.

Veemac Framing Corp., a subcontractor for some of the Valley's top home builders, acknowledged that it has not paid the workers, who are owed three to five weeks of back pay.

Company officials blamed a financial dispute with two home builders and a third company that is hindering its cash flow. Veemac said it would pay the workers as soon as the dispute is worked out.

"We don't want to see this become contagious," said Alfredo Gutiérrez, a talk show host at Radio Campesina and former state legislator, who has taken up the workers' cause. "If you're in business, you're in business. Your first obligation is to pay your workers."

John Vergopia, Veemac's chairman and chief executive officer, referred questions to a company attorney.

The attorney, Greg Eagleburger, said the company plans to pay the workers as soon as it negotiates payment from two of its customers, U.S. Home and Richmond American Homes.

"It's only a delay," he said. "As soon as we are paid by our customers, we will continue to pay our workers, who we feel are the best."

The firm does subcontracting for some of the Valley's largest home builders, including Toll Brothers and U.S. Home, which is owned by Lennar Corp.

Several Veemac workers said they don't plan to return to the company and just want their money.

"We worked for promises," said Arturo Botello, a foreman who said he is owed five weeks of back pay. "They kept telling us they would pay us, so we kept showing up."

Others said they were unsure whether they would continue working, although most said they had stopped working for the company two weeks ago.

Botello added that he was not reimbursed for gas he put in company trucks nor for water and ice he bought his crews.

Under state law, employers are required to pay employees at least twice a month. But the State Labor Department has no ability to levy penalties if employers don't comply. It can only refer cases to prosecuting agencies.

Well how about that? It seems a subsidiary of Lennar is not paying its bills. If this is a quality or performance issue then it reflects on the quality of Lennar homes. On the other hand if this is a cash flow issue it speaks for bigger issues with the homebuilder itself. Without knowing how U.S. Home is structured it is entirely possible that Lennar is financially sheltered from responsibility but if they play that card, what would it say for the integrity of Lennar? With all of Lennar's other problems, including the lawsuit against Mike Morgan, I am somewhat surprised they would let something like this get out of hand.

The other company mentioned in the Arizona Republic article was Richmond American Homes.

MDC, whose subsidiaries build homes under the name "Richmond American Homes," is one of the largest homebuilders in the United States. The Company also provides mortgage financing, primarily for MDC's homebuyers, through its wholly owned subsidiary HomeAmerican Mortgage Corporation. MDC is a major regional homebuilder with a significant presence in some of the country's best housing markets. The Company is the largest homebuilder in Colorado; among the top five homebuilders in Northern Virginia, suburban Maryland, Jacksonville, Phoenix, Tucson, Las Vegas and Salt Lake City; and among the top ten homebuilders in Northern California and Southern California. MDC also has established operating divisions in West Florida, Philadelphia/Delaware Valley, Chicago, Dallas/Fort Worth and Houston.

Looking at that profile we see Richmond American Homes is the largest homebuilder is the biggest homebuilder in the state with the most foreclosures (Colorado), and we see extensive operations in many other bubble areas.

I have two questions for MDC and Lennar:

1. Are you having a little cash flow problem?
2. How much did you overpay for land or options in Phoenix, Las Vegas, and California?

By the way, is there such a thing as a "little cash flow problem"?

I will be on Charles Goyette Show 1100am KFNX News Talk Radio tomorrow at 6:00 AM (Pacific Time)to talk about various nonpayment issues such as this one, as well as Litigation Nightmare & Heartbreak Hotel.

You may also wish to tune into Wednesday's podcast on HoweStreet about Heartbreak Hotel, gold, the stock market, international housing and other things.

Jack McCabe of McCabe Research & Consulting will be on CNBC this Thursday evening at 8:00 PM Eastern to discuss housing in Florida. It seems things are starting to get quite interesting.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/