Summary
D.TR. Horton divested itself of potentially billions of dollars in acquired land and land under contract pending entitlement approvals. The direct land sales to other entities are of record but the questions that should be asked are; has DR Horton reported contingent liabilities related to their canceled and defaulted land contracts, are these type land contracts being carried on the book with regards to development and entitlement processing costs and lastly are there contingent liabilities that are not being reported or contingency funds being established. I believe these questions must be asked and answers provided to determine if D.R. Horton's reporting is accurate. Maybe this situation has been reported or maybe it wasn't. I ask these questions due to a personal experience with D.R. Horton regarding a land contract.
Analysis
I am a partner in a land transaction which I sold to D.R.Horton with a price of approx $16.8M subject to their obtaining site plan approval. The entitlement process was proceeding well and D. R. Horton was successful in obtaining a Builders Remedy Court Decision and was in the process of satisfying the conditions when their Vice President during a meeting announced that D. R. Horton would no longer finance the remainder of the entitlement process nor would they actively process the remaining requirements to complete the contract. The Contract provided that D.R. Horton process the approvals to building permits and defend all challenges and appeals in addition to paying real estate taxes and extensions of the contract. There was clearly a default according to the contract. D.R. Horton's Vice President informed us that National would not finance any land entitlements through the Country but D.R. Horton would stay in the deal if you process the remainder of the approvals. With the understanding that we maintained our legal rights to default we spent approximately $600,000 in processing the approvals. In a lunch meeting with the Vice President I asked if D.R. Horton was ready to close title in accordance with the contract when all approvals and permits were in hand The answer was no. Upon reporting their position to my partners we issued a default letter and demanded the removal of a memorandum that was recorded on our property. D.R. Horton's response through their attorney was as follows; maybe we defaulted and maybe we didn't and they refused to remove the memorandum and demanded we pay them over $300,000. Understand the contract had a default clause in which they forfeited all moneys.
This will most likely be in litigation shortly as their are other issues that I will not comment on in this writing that we believe subjects D.R. Horton to contingent liabilities. Now I am wondering if this silly push me pull me statement from a very creditable attorney is a delay to keep our property on D.R Horton's books so the company losses are delayed and do not impact on their financial reporting status. I began to wonder was this just an isolated situation caused by the VP or is this same process being repeated on each and every property D.R. Horton divested. Maybe the have and again maybe they haven't only time will tell and therefore, I don't see anything newsworthy in D.R. Horton's latest report.
Post Script: The VP at our lunch meeting suggested that we resell the property and reimburse D.R. Horton over $3.2 Million dollars an amount he claimed he could verify as being spent on the approval process. Obviously, rewards to those who don't perform are not handed out in our world as this type of bailout is exclusive to our government.
