Note: This is the fourth story of four detailing the legal travails of Bella Vita Custom Homes, and the trail of dissatisfied customers, subcontractors and investors they left in the wake of their bankruptcy. You can keep up with the entire series here.
The families. The subcontractors. The investors. The vendors. What do you do when the builder that owes you money files for bankruptcy?
Unfortunately for the people waiting for payment from Bella Vita Custom Homes, the answers are difficult to stomach.
“Regardless of the state of the dispute, whether you are just now sending a demand letter or you already have a judgment, once the debtor has filed for bankruptcy, the federal bankruptcy law imposes what is known as an ‘automatic stay,’” said Darrell W. Cook, name partner of Darrell W. Cook & Associates, a commercial litigation firm in Dallas that litigates all aspects of collection matters, including bankruptcy and construction matters.
“As a result, you must immediately stop (stay) any and all procedures directed at collecting a debt. That includes phone calls, letters, lawsuits, discovery, everything.”
Cook, who knows a thing or two about suing builders and winning, added that anyone or any business trying to collect a debt — whether it be a mortgage company or your doctor — must cease trying to collect the debt.
Cook is not involved in the Bella Vita case, but agreed to help explain in general terms how bankruptcy and debt collection works.
“Once the debtor has sought bankruptcy protection, all disputes with the debtor then move to the bankruptcy court,” he said. “At this point, the creditor (the homeowners in this case) must make an appearance in the bankruptcy court.”
“Typically, this is simply a proof of claim,” Cook said. “A ‘proof of claim’ is a simple document alleging a debt that is filed in the bankruptcy of the debtor.”
So does that mean homeowners will never see their money? That, Cook said, is complicated.
“If the creditor believes their debt should not be discharged in bankruptcy, they need to take additional steps to make their case to the bankruptcy court,” he explained. “ There are generally two opportunities for creditors to avoid the discharge.”
The first, he said, is if the bankruptcy is fraudulent. In that case “everyone to whom the debtor owes money avoids a discharge of their debt in bankruptcy.” The second way is to say that the debt owed to the creditor is the subject of fraud.
“So in one case, everyone avoids discharge and in the other case just the creditor that is the victim of the fraud avoids discharge,” Cook said.
But it’s also more difficult to prove fraud in bankruptcy court.
“Fraud in bankruptcy court is a higher standard than you see in state court and is certainly a higher standard than normal people discuss when they’re talking about fraud in a social setting,” Cook explained. “Fraud in bankruptcy court is very technical and rarely awarded.”
“Even if you had a finding of fraud in state court, after you won that case in state court the debtor has the opportunity to relitigate the fraud issue in bankruptcy court,” he added.
Now, if a creditor wants to avoid having their debt discharged in the bankruptcy, they’ll need to file a new lawsuit in bankruptcy court called an “adversary proceeding.”
“So the homeowners would have to file suit in bankruptcy court to avoid the obligation to them being discharged,” Cook said. “This is a lawsuit in which the bankruptcy judge is normally the sitting judge and is governed by the Rules of Civil Procedure utilized in federal court.”
“After the trial of this case a decision is reached by the judge as to whether or not the debt incurred by the debtor and owed to the creditor is subject to discharge or not,” he continued. “Then the bankruptcy proceeds from that point.”
“Sloppy management and poor workmanship are rarely the basis for fraud, even in state court,” Cook further explained. “Taking on 200 projects when you can only reasonably perform the work on 50 projects is not often going to be viewed as fraud. Obviously, no two set of facts are the same, but that’s a pretty good general rule.”
And although no two cases are the same, “I would probably say the likelihood of collection is very small,” Cook said. “But I have been very successful in collecting debt in bankruptcy, so I always keep an open mind. But the average case is certainly uncollectible.”
What If You Have Liens?
So what if subcontractors have filed liens against your home, and the homebuilder you’ve already paid for their work has declared bankruptcy? What are your options?
“Unfortunately, this is also a little complex,” Cook said, adding that liens are frequently problematic. “First, we are frequently approached by contractors about filing a lien against someone’s home. We never accept those cases. We don’t file liens against people’s homes.”
“We don’t do that because the opportunity to make a mistake is too great,” he explained. “There are too many protections for homeowners in Texas Property Code, especially §53.255, the Texas Constitution, and elsewhere for us to bother with it.”
“First, the contract itself must be in perfect form,” Cook added. And he means perfect — right down to the font.
“That means certain kinds of provisions in the contract, certain font size, if the people are married both husband and wife must sign it, very particular notices must be sent, the contract must be filed with the County Clerk, retainage issues must be dealt with …” he said.
“Most of the time, when a contractor calls me I just ask if both husband and wife signed and that’s usually the end of the inquiry,” Cook said. “However, if everything is done correctly, then a lien is available to the contractor and subcontractors.”
“If the provisions of the Texas Property Code and Texas Constitution are not met then the homeowner can file a lawsuit to vacate the liens that are on file,” he continued. “This is a pretty straightforward process. The homeowner is even entitled to their attorney fees once they prevail.”
However, a ticking clock often works in a homeowner’s favor, unless they’re trying to sell their property. “The lawsuit to foreclose on the lien must be filed within two years,” Cook said. “If it is filed then you can always respond to the lawsuit with a motion to vacate the lien and be awarded your attorney fees at that time.”
“And if the lawsuit is not filed then the lien dies on its own two years after it’s filed,” he said, adding that the one time homeowners might not want to wait and see would be if they are considering selling their property, because the liens would need to be cleared before they can sell their home.
The Bella Vita Bankruptcy
What does the bankruptcy Bella Vita Custom Homes filed look like? According to their petition filed Dec. 16, 2016, the company filed for Chapter 7 bankruptcy, which typically means non-exempt assets are liquidated and distributed to creditors.
When Chapter 7 bankruptcy is approved, the filer’s debts are discharged. “A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor, “ USCourts.gov explained.
The company estimates that they have between 200-999 creditors, less than $50,000 in assets, and between $1 million and $10 million in liabilities.
At the time of filing, additional paperwork revealed that the company had $30 in a Frost Bank checking account, $50 in a Texas Brand checking account, and $110 in a First State Bank checking account. The filing also indicates that the company was in default of its office leases at American National Insurance Co., Hill Country Galleria, and M4 La Frontera, “and bellieve (sic) deposits have been forfeited.”
Assets listed are two lots on Jellico Circle in Southlake, worth $600,000 total, and a $10,000 free-standing office cabin at Laguna Bay. The company indicates that the property was sold in October 2016, “but the cabin remains property of the debtor.”
The filing lists 14 secured claims and 334 in unsecured claims, including $222,295 owed to the IRS, for a total of $7,373,841.80 in claims. Among the unsecured claims is a listing for “Andrew Clem” for $8,106.33, “Michael Clem” for $35,196.70, and “Tracey Clem” for $600. Several of the claims are suppliers and subcontractors.
In a statement that detailed payments made to family members, the company said that Andy Clem made $98,450 last year, Mike Clem made $49,794, and Tracey Clem made $50,334.
On the same day that the company filed bankruptcy, Andy Clem also filed for Chapter 7 bankruptcy. He gives a Highland Park home address on Livingston Ave., which appears to be a rental home belonging to Gwendolyn Murray of Telephone, Texas, according to the Dallas County Appraisal District.
His petition says he has between 200 and 999 creditors, and owes between $1 million and $10 million. He lists two vehicles with a total value of $35,000; $8,000 in household goods and furnishings; $750 in sports and hobby equipment; an $800 shotgun; $5,000 in clothing; and $10,000 in jewelry as assets. He lists three bank accounts – a Chase checking account with $85, a Charles Schwab money market account with $25, and a “Bank of America Checking account – frozen for creditor collection.”
Clem claims Bella Vita owes him $202,000. His total personal property value at the time of filing was $267,860. Unsecured and secured claims total $7,975,126.60. He claims an average monthly income of $6,412.17.
Business as Usual?
Despite the debt, the lawsuits, and the bankruptcy filing, it seems at least one member of the Clem family is back in the home construction business again. After a former employee commented on a previous story alleging the family was working under a new name, CandysDirt.com also found through bid requests to subcontractors and an email sent by Tracey Clem to another subcontractor indicates that at least she is still in the construction business, working for the builder Intelligent Design Homes.
Bids were requested for homes in the Dallas area and Benbrook, including one renovation that appears to be for a relative of the Clems. An email sent by Tracey Clem to a subcontractor has an Intelligent Design Homes email address, but an email signature of BVMG, LLC.
Scans of building permit reports cross-referenced with the addresses of the homes in the bid requests in Benbrook and Highland Park indicates that Intelligent Design Homes (or ID Homes) is owned by Terrence Montgomery. ID Homes is also listed as a creditor in the Bella Vita Custom Homes bankruptcy filing.
Repeated emails, textsm and messages to the Clem family were unanswered at press time.
(Bethany Erickson has been researching Bella Vita Custom Homes and other builders in a months-long investigation that included uncovering at least 20 victims in the Dallas-Fort Worth area alone. This story is the fourth in an initial four-part installment of what will be an ongoing series. Tomorrow, we will examine what this experience has meant to the victims, and what CandysDirt.com will be doing to help consumers in the future. Do you have a story to tell about your home building or renovation experience? Email firstname.lastname@example.org.)
Documents from the Bella Vita Custom Homes Bankruptcy Filing: