News - Local News

POSTED: Tuesday, Dec. 30, 2008

Bellingham homebuilder's collapse leaves millions in debts

The collapse of Bellingham homebuilder Apex Construction & Partners Inc. has left behind millions of dollars in unpaid bills and about 20 lawsuits, as materials suppliers, subcontractors and homeowners struggle to sort out who owes what to whom.

In personal bankruptcy filings in U.S. Bankruptcy Court in Seattle, Apex President Thomas Novak reports debts of $5.3 million owed to more than 100 creditors. That includes dozens of firms in construction-related businesses as well as several banks. Close to $5 million of the debt is unsecured. His assets are estimated at less than $500,000.

His son Michael Novak, Apex vice president, lists $7.9 million in debts and $2.1 million in assets. Nearly all of the debts related to Apex appear to be listed as personal liabilities on both father and son's personal bankruptcy filings.

In a telephone interview, Michael Novak said Apex is out of business, after banks pulled the loans on home construction projects he had been trying to complete in hopes of getting company finances back into the black.

"I feel bad for the subcontractors that have lost out," Novak said.

Investors lost money, too. As Novak tells it, Apex offered investors the opportunity to get in on Whatcom County's hot housing market, beginning in 2005. The investors would put up the money to hire Apex to build a spec home on the investor's lot, and then Apex and the investors would split the profits.

"The market was hot," Novak said.

According to court documents, eight house construction projects in Sudden Valley and one at Semiahmoo have been caught up in Apex's financial woes, with both investors and subcontractors taking losses.

Novak said the Apex business strategy ran into trouble when investors could not come up with more cash to cover construction cost overruns.

"Apex wound up on the line for a lot of subcontractor bills, some of which got paid and some didn't get paid," Novak said.

But in documents filed in Whatcom County Superior Court, investors offer a different view of what happened.

In documents included as part of a lawsuit originally filed in January 2008, David and Jennifer Veenbaas of Bellingham said they contracted with Apex in early 2006 to build two Sudden Valley homes on lots they owned on North Summit Court, taking out more than $600,000 in bank loans to put up all the money needed for the projects. Apex was to collect half the profits once the houses were sold.

"If everything continued to keep going up, probably everybody would have made money, but that's not what happened," said attorney Mark Kaiman, representing the Veenbaas couple.

The couple alleged that money they provided to Apex for construction of the two homes was shifted to cover costs on other home construction projects that were running short of cash.

While Novak eventually purchased one of the two homes from the couple, providing just enough money to pay off subcontractors, the second house went back to the bank in a foreclosure.

In an interview, Novak denied that he shifted funds from one project to another, but arbitrator Michael Moynihan, retired Superior Court judge, considered the evidence presented by Veenbaas attorney Kaiman and ruled otherwise.

Besides the initial loan that the couple secured to pay construction costs on the two Sudden Valley houses, Moynihan noted that they had provided an additional $67,520 for cost overruns.

"Despite the funds being transferred to Apex by the bank, and the additional funding provided by Veenbaas, subcontractors and suppliers were not being paid," Moynihan's ruling said.

Moynihan also noted the transcript of an e-mail from Michael Novak to the Veenbaas couple, in which Novak appears to acknowledge shifting their money to other projects.

"We were running all the jobs out of one checking account and it looks like a lot of the money that you gave us paid other peoples (like you) bills instead of being appropriated to your job," the e-mail transcript said.

In light of that and other evidence, Moynihan ruled that Apex and the Novaks "committed fraud and falsely represented to Veenbaas that suppliers and subcontractors were being paid."

Moynihan ruled that the Veenbaas couple was entitled to collect a judgment of $419,676, triple their actual financial loss, because Apex had engaged in deceptive practices.

In another lawsuit involving a Sudden Valley house at 51 Louise View Drive, Apex and the Novaks initially claimed that investors Roger and Hannah Chandler were at fault because they did not produce an additional $94,000 required to complete the project. Apex filed a lien for that amount on the Chandlers' property.

The Chandlers' attorney, Peter Dworkin, argued that the claim was frivolous, and Superior Court Judge Ira Uhrig later dismissed the Apex claim against the Chandlers after all parties to the lawsuit consented. Other issues in the suit are still pending.

Kaiman said he doesn't think his clients are likely to see much of the money the arbitrator awarded them.

"I don't know if there's ever going to be enough assets to cover these judgments," Kaiman said. "These were not rich people. These were hard-working, middle-class people who wanted to make an investment for their future. ... They've been hurt very badly."

Subcontractors who worked for Apex also appear to have little chance of collecting much.

Dana Evans said Apex owes her Bellingham landscape company, Glacierscapes, about $20,000. But she knows that Glacierscapes has a lot of company.

"We were one of the first ones they didn't pay," Evans said. "We didn't realize how big it was until we went to the bankruptcy hearing."

She is angry that Apex kept building and piling up debts.

"Instead of stopping and trying to minimize the damage," Evans said, "they kept going and made the damage 10 times more."