Fall-out from Kara Homes’ bankruptcy is having a heavy impact on homeowners in its partially finished developments as well as the municipalities in which they are located, according to a February 26, 2007 report published by the Press of Atlantic City. Homeowners and municipalities are reporting adverse and unexpected expenditures to address a variety of health and safety problems related to unfinished landscaping and construction. According to the Press report, Kara abandoned developments in eighteen New Jersey municipalities.

In Hamilton Township, Kara left destroyed woodlands, unfinished homes, and mountains of trash at Glen Eyre. Township officials estimate that the cost just to clear garbage and construction debris, dumped on the site when trash disposal companies reclaimed their dumpsters, will exceed $25,000, rendering the clean-up subject to municipal bidding requirements. Hamilton is also adversely affected by lost tax revenue on the abandoned property. Meanwhile, owners of completed and closed homes find the enjoyment and value of their properties minimized by the ugly wasteland surrounding them.

Owners of units in The Landings, a Manahawkin condominium project that Kara abandoned, are paying monthly common expense assessments but receiving no services. Common elements such as roads and grounds are incomplete. Several units flooded when pipes froze and burst in adjacent, abandoned units. Delinquent property tax payments from Kara to Stafford Township, of which Manahawkin is a part, approximate half a million dollars. Like Hamilton Township, Stafford has had to address health and safety problems left by Kara, particularly, filling in or fencing excavations for the foundations of buildings that were never built.

In Little Egg Harbor, homeowners are attempting to cope with incomplete homes next door, improperly paved roadways, burst sprinkler systems and sewer back-ups.

Owners and municipalities anticipate improvement in some developments once they are conveyed in Kara’s planned auction. On February 27, 2007, various sources, including the Asbury Park Press, reported that six developments are currently being advertised by auctioneer Sheldon Good & Co.

The sale of these developments will likely not mark the end of problems for existing homeowners and municipalities. In those communities with common interest ownership, such as condominiums or homeowners’ associations, successor sponsor/developers will purchase both the uncompleted homes and units and their appurtenant interests in common elements or common property. The successor will then need to address not only physical completion of the site but also the details of the community’s registration under the Planned Real Estate Development Full Disclosure Act (“PREDFDA,” N.J.S.A. 45:15-16.27 et seq.) and the governing scheme of the condominium or homeowners’ association as set forth in its Master Deed or Declaration and the association’s by-laws. In light of Kara’s failure to develop the communities profitably during the current real estate downtown, anticipating material changes in the development would not be unreasonable as the successors attempt to salvage value from Kara’s cast-offs.