Consumer Law, Warranties Developer Failed to Complete Subdivision Street Before Filing for Bankruptcy

[Casey Newman]

Jurisdiction

Arkansas

I was the first home in a small subdivision in Arkansas. In my contract it says that the builder would have the streets paved 5 years after the last house was completed. The last house was completed around 6 and a half years ago. Since that time, the developer has declared bankruptcy. When I contacted the city government about the issue, they said they would not take possession of the street until it is paved. When looking at the current subdivision zoning codes, the city has methods for enforcing zoning code violations. My questions are, if the developer still owns the street is he responsible for maintenance? Also, does bankruptcy prevent the city from enforcing code violations? I've researched some instances where municipalities have used code enforcement fines to motivate developers to finish developments. Any advice/thoughts on what I can do going forward would be much appreciated.

 

[army judge]

My questions are, if the developer still owns the street is he responsible for maintenance? Also, does bankruptcy prevent the city from enforcing code violations?

You should address our questions to your attorney.

The answers will depend upon doing research, extensive research, as well as reviewing the bankruptcy court records.

If I had to guess, the roads would have to be completed by another entity or person.

In fact, the roads might never get built by the original builder.

I am guessing, so don't rely upon it, as guesses and opinions are akin to "armpits" almost everyone has two of them; some of them are also malodorous.

 

[Tax Counsel]

Any advice/thoughts on what I can do going forward would be much appreciated.

Your problem is that your rights against the builder are defined by the contract you have with the builder. You could sue for the breach of the contract — the developer's failure to put in the road — either by seeking specific performance (that it, to make the developer put in the road) or by seeking money damages. Your problem is that the builder filed bankruptcy. The details of the bankruptcy matter and you've not indicated anything about that. Assuming the builder was a corporation or LLC, however, one of two things happened.

First, it may have filed a Chapter 7 bankruptcy. Corporations and LLCs do not get discharges of debts in a Chapter 7 bankruptcy. Instead, what happens is that the entity liquidates its assets, pays off creditors in priority assets with the proceeds, and goes out of business. If this is what happened then suing the developer would be worthless because the developer would have no assets and would be defunct so there would be no way to enforce any judgment you would get.

Second, it may have filed a Chapter 11 to reorganize. If it did that then its debts get restructured with the hope that the entity can stay in business. If that succeeded then the developer is still around and might have assets enough to make suing for the breach worthwhile.

The bankruptcy would not prevent the city/county from enforcing post petition zoning violations committed by the developer. But again, the city/county will be faced with the problem that imposing fines, etc., does no good against a defunct entity with no assets, so the city/county would want to see that the developer actually has the ability to pay up.

You'll want to to see a lawyer about what you might do about the road. But as discussed above, as a practical matter the remedies against the builder itself will depend a great deal on what state the builder is now in.

 

[adjusterjack]

When I contacted the city government about the issue, they said they would not take possession of the street until it is paved.

It's possible (if all other avenues are exhausted) that the homeowners may eventually get the city to pave the streets if they agree to pay for it. Another alternative is for the homeowners to form an association and contribute funds for the paving.

 

[flyingron]

Best bet would to be to band together with your affected neighbors to share an attorney to represent your interests. If these are private roads, there's ZERO chance the state/county is going to do anything for you. If you're willing to make them public, they may allow you to dedicate to them (i.e., take on maintenance) after you pave them to an acceptable standard. In rare cases they may take on an unpaved public road, but you'll probably wait a long time.