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In an unprecedented sign of hard times for builders, Mecklenburg County developers have defaulted recently on 30 bonds that ensure streets and sidewalks are finished.
The bonds or letters of credit, totaling more than $2.5 million, cover the costs of new streets, curbs and gutters, sidewalks and stormwater controls if builders or developers can't complete the work. They let developers begin selling lots while ensuring that public infrastructure is built.
But the wave of bond defaults in recent months leaves collateral damage: mud running into streams from abandoned building sites; potholed streets; and government staff completing developers' work.
Calling bonds, as the practice is known, is a last resort for city and county enforcers, one they have rarely faced in the past.
That's changed as building starts have plummeted – through May, the county's single-family residential permits were down 57 percent from last year – and credit tightens for developers and buyers.
Since August, Charlotte officials have cashed eight developer bonds – three more than in the previous 15 years, according to David Weekly, the city's land development manager. City officials blame the economic downturn.
The largest of the forfeited city bonds, two totaling $461,000, were posted by the developers of the Rapids at Belmeade, a community in northwest Charlotte. The developers filed for bankruptcy protection last September.
Mecklenburg County, which also administers the bonds for six smaller towns, reports 22 defaults. Among them are a dozen bonds, totaling $429,000, for the Mint Hill subdivision of Brighton Park. For two years, the county and town of Mint Hill had tried to get its developers to fix deteriorating streets, which lack a final layer of asphalt.
“We've not heard word one from the developer,” said Town Manager Brian Welch, who lives in this community of tidy new homes.
The streets of Brighton Park undulate, sinking badly in some places. Manhole covers rise above the thin layer of pavement and potholes pock the asphalt.
Homeowner Bryan Lane pointed to the faded X's spray-painted to mark cracked segments of sidewalk in front of his Phyliss Lane home. It's been that way, he said, for the two years he's lived there.
“We all just keep waiting for it to get done,” Lane said of the repairs. “They'll mark it and you think, ‘OK, it's about to get fixed,' but it doesn't get done.”
The Virginia Beach, Va.-registered developer Mint Hill Partners LLC didn't return a call for comment.
In most cases, the bonds are large enough to cover construction costs, staff time and legal fees, said Kia Whittlesey, a county land development official. When the bonds aren't enough, she said, the county prioritizes unfinished work and sometimes asks for help from local public works departments or the county stormwater department.
County environmental officials say they've also found erosion problems at more than a dozen sites. Silt fences are down. Earth-stabilizing grass hasn't been seeded. Sediment-catching ponds brim with mud.
None have been disastrous, said Rusty Rozzelle, whose county water-quality staff enforces erosion control laws. Recognizing economic hardships, enforcers are trying to avoid fining violators.
“We're trying to work with the folks,” he said. “The difficulty in this economy is finding the right person to enforce.”
Some developers are simply ignoring pleas to fix problems, county officials say.
Work has stopped at 83 of the county's 193 permitted construction sites that must control erosion. The county is considering calling the bonds at six of those abandoned sites.
The sour economy isn't fully to blame, because some large developments can take years to complete. Of the 765 bonds posted with Charlotte, one in five are older than the four years officials normally allow for work to be finished.
“Nobody's ever seen anything like what we're into now,” said Tom Pearson, a 25-year Charlotte residential developer and past president of the Home Builders Association of Charlotte. “(The defaults) are amazingly low numbers when you think of all the bonds that are out there.”
But when it does happen, Pearson added, “generally, it means somebody's in deep trouble.”
