Eyes performance bonds of bankrupt developer
By: Stephanie Brown
MONROE Township officials may call in a performance guarantee bond against an East Brunswick-based developer that recently filed for bankruptcy.
Township Engineer Ernie Feist said he notified Kara Homes Inc. Wednesday about public improvement obligations yet to be completed. The company filed for bankruptcy Oct. 5 and the township is concerned that projects on Bergen Mills and Hoffman Station roads will not be finished.
"Since they have filed for bankruptcy, I doubt any work will be done in the short term," Mr. Feist said Wednesday.
Mr. Feist said he would recommend to the Township Council that it start the bond-claim process if activity remains stagnant by the end of next week.
A performance guarantee bond is money given to a municipality by a developer to ensure work it has promised to do gets done, effectively insuring the project. The township can seek recourse for an incomplete job by contacting the bond company, which will either use the money to hire contractors or release the funds to the township to complete the job.
Mr. Feist suggested that Kara homeowners with outstanding repair items on their private property make a claim with their new home warranty program.
Kara Homes Inc. filed for Chapter 11 bankruptcy Oct. 5 in U.S. Bankruptcy Court.
The company said it had $350.2 million in assets, primarily in unsold houses and land, and $296.8 million in liabilities, according to Bloomberg News.
Under Chapter 11, Kara will be allowed to remain in business and creditors’ claims will be frozen while it comes up with a reorganization plan.
"I’ve seen this happen before," Mr. Feist said. "It’s not unusual when the real estate market takes a down turn."
Calls to David Bruck, the company’s bankruptcy lawyer, by The Cranbury Press were not returned.
Kara is developing three communities of single-family houses in Monroe Bergen Mills Estates, Sterling Acres and Chestnut Woods Estates each at varying stages of completion.
Chestnut Woods Estates is located at the intersection of Hoffman Station and Gravel Hill Spotswood roads. The development is nearly completed with the exception of minor landscape projects, like replacing shade trees that have died, said Mr. Feist. Houses in Chestnut sold for $500,000 to $750,000, he said.
Both Bergen Mills and Sterling acres are located at the intersection of Bergen Mills and Jurgelsky roads. House construction in those developments remains incomplete, said Ron Appleby, township director of construction.
In Sterling Acres, 49 houses have Certificates of Occupancy and 16 are still under construction, Mr. Appleby said. In Bergen Mills, 37 houses have Certificates of Occupancy, eight are still under construction, he said.
He said he believes that the completed houses are all occupied.
Houses in Bergen Mills and Sterling Acres sell for $900,000 to $1.5 million, said Mr. Feist.
Public improvement projects, include completing sidewalks, curbs, road paving, drainage, and landscaping not on private property, are protected under the bond ordinance. The township has three separate performance guarantee bonds for each of the developments.
Bond Safeguard Insurance Co. insured Bergen Mills for $123,267.90 and Sterling Acres for $657,380.25. Chestnut Woods is insured for $43,920 by Gulf Insurance Co.
Mr. Feist said homeowners’ houses and private property are protected under the New Homeowners Warranty program.
He suggested those with a deposit on a Kara house contact an attorney to see what rights they have under their contract with the developer.

