Yet the seeds of Reunion's troubles were planted early on. Its first homes went on the market in 2002, just as mortgage rates began their descent to historic lows and a new breed of exotic loans offered almost anyone the chance to buy in.
"We should have walked away sooner and quit selling to some of them," Shea's president, Chetter Latcham, says of a number of buyers approved by the developer's mortgage arm. "But it's just so hard. We can counsel them and say, 'We really think you should borrow 30-year paper.' But they're responsible for their own decisions, and some of those were wrong."
Some of the sales also went against Shea's policy of selling only to buyers who promised to live in them. Although its sales contracts stipulate that homes must be owner occupied, some were bought by speculators. "There are people out there who are willing to lie because they think they're making a great real-estate deal," says Latcham. "We try to avoid those, because they wreak havoc on the community." One builder, Lennar, sold a dozen houses in Reunion to a single investor. This month, it also signed a deal to sell thousands of undeveloped lots in Colorado and elsewhere to Morgan Stanley Real Estate at 40 cents on the dollar, infuriating neighbors and competitors alike.
Go with Plan B. "The minute Lennar does a deal like this, it could lower the benchmark for everyone," says Ivy Zelman, a housing researcher. "So now the banks have to call all the builders and say, 'Hey, we've reappraised the land, and we need you to put up more equity.'" If they can't, the whole development begins to unravel. "You end up with half-built houses and empty lots and a master plan that isn't finishing the amenities that people were promised," says Zelman, "which makes for some very unhappy homeowners."
That isn't how builder Scott Carter figured things would play out. Impressed by Shea's master plan and projections that Reunion would draw up to 500 new home buyers a year, the co-owner of Brookline Homes poured his all into La Grande Cannoli, a $2.2 million, 8,750-square-foot, Tuscan-style farmhouse that won "Best in Show" in Denver's 2006 Parade of Homes. Despite the acclaim, Carter's Cannoli was the last of the six homes in the competition to find a buyer.
"I would have sold first, but I won't sell to real-estate speculators or buyers who aren't qualified," Carter says. "People were getting a 100 percent loan on a million-dollar house with no income verification. But it doesn't help the community to have someone come in who can't afford it."
It certainly didn't help his next-door neighbor, Doreen Jaress. An entrepreneur and real-estate investor from California, Jaress figured she and her husband would live for a while in the Tuscan-style home she bought last year for $1.6 million, then sell at a profit. But her "city boy" husband "could never get his arms around living out here," Jaress says. She put the house on the market in August—plenty of time before her three-year-option adjustable-rate mortgage resets.
Unfortunately, that was shortly after Jaress's other next-door neighbor tried to short-sell the 6,500-square-foot home he had bought for $1.8 million. Meanwhile, a builder down the street listed a comparable home for just $1.17 million. Last month, Jaress planted a "for sale by owner" sign in her front yard and offered owner financing. "I don't believe discounting is the answer," she says of her $1.7 million asking price. "It's the terms."
Of course, it's precisely the terms that got folks like Lacy Sullivan in trouble. Approved for 100 percent financing by Richmond American's mortgage arm, the 27-year-old didn't even have a job at the time. After the closing, when her dad sat down to read the fine print and eyed the 13.5 percent interest rate, "I just about choked," Randy says sheepishly. "As a father, I wasn't a good adviser to Lacy. But the average person doesn't know squat about this stuff; they depend on the Realtor and the mortgage company and the builder to do right by them. But they had dollar signs in their eyes."