Note 10 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Text Block]

10. Commitments and Contingencies

a. Land Purchase and Option Agreements

We are subject to obligations associated with entering into contracts for the purchase of land and improved homesites. These purchase contracts typically require a cash deposit or delivery of a letter of credit, and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements.  We also utilize option contracts with land sellers and third-party financial entities as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources.  Option contracts generally require a non-refundable deposit for the right to acquire lots over a specified period of time at predetermined prices.  We generally have the right at our discretion to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit or by repaying amounts drawn under our letter of credit with no further financial responsibility to the land seller, although in certain instances, the land seller has the right to compel us to purchase a specified number of lots at predetermined prices.  Also, in a few instances where we have entered into option contracts with third party financial entities, we have generally entered into construction agreements that do not terminate if we elect not to exercise our option.  In these instances, we are generally obligated to complete land development improvements on the optioned property at a predetermined cost (paid by the option provider) and are responsible for all cost overruns.  At December 31, 2012, we had no option contracts outstanding with third party financial entities.  In some instances, we may also expend funds for due diligence, development and construction activities with respect to our land purchase and option contracts prior to purchase, which we would have to write off should we not purchase the land.  At December 31, 2012, we had non-refundable cash deposits outstanding of approximately $20.4 million and capitalized preacquisition and other development and construction costs of approximately $2.1 million relating to land purchase and option contracts having a total remaining purchase price of approximately $197.1 million.  Approximately $30.3 million of the remaining purchase price is included in inventories not owned in the accompanying consolidated balance sheets.

Our utilization of option contracts is dependent on, among other things, the availability of land sellers willing to enter into option takedown arrangements, the availability of capital to financial intermediaries, general housing market conditions, and geographic preferences.  Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.

b. Land Development and Homebuilding Joint Ventures

Our joint ventures have historically obtained secured acquisition, development and construction financing designed to reduce the use of funds from corporate financing sources.  As of December 31, 2012, we held membership interests in 20 homebuilding and land development joint ventures, of which seven were active and 13 were inactive or winding down.  As of such date, our joint ventures had no project specific financing outstanding.  In addition, as of December 31, 2012, our joint ventures had $2.7 million of surety bonds outstanding subject to indemnity arrangements by us and had an estimated $0.2 million remaining in cost to complete.

c. Surety Bonds

We obtain surety bonds in the normal course of business to ensure completion of the infrastructure of our projects.  At December 31, 2012, we had approximately $319.1 million in surety bonds outstanding (exclusive of surety bonds related to our joint ventures), with respect to which we had an estimated $176.9 million remaining in cost to complete.

d. Mortgage Loans and Commitments

We commit to making mortgage loans to our homebuyers through our mortgage financing subsidiary, Standard Pacific Mortgage.  Standard Pacific Mortgage sells substantially all of the loans it originates in the secondary mortgage market and finances these loans under its mortgage credit facilities for a short period of time (typically for 30 to 45 days), as investors complete their administrative review of applicable loan documents.  Mortgage loans in process for which interest rates were committed to borrowers totaled approximately $37.7 million at December 31, 2012 and carried a weighted average interest rate of approximately 3.4%.  Interest rate risks related to these obligations are mitigated through the preselling of loans to investors.  As of December 31, 2012, Standard Pacific Mortgage had approximately $119.3 million in closed mortgage loans held for sale and $41.1 million of mortgage loans that we were committed to sell to investors subject to our funding of the loans and completion of the investors’ administrative review of the applicable loan documents.

Standard Pacific Mortgage sells substantially all of the loans it originates in the secondary mortgage market, with servicing rights released on a non-recourse basis.  This sale is subject to Standard Pacific Mortgage’s obligation to repay its gain on sale if the loan is prepaid by the borrower within a certain time period following such sale, or to repurchase the loan if, among other things, the purchaser’s underwriting guidelines are not met, or there is fraud in connection with the loan.  As of December 31, 2012, we had incurred an aggregate of $9.5 million in losses related to loan repurchases and make-whole payments we had been required to make on the $7.2 billion total dollar value of the loans we originated from the beginning of 2004 through the end of 2012.  During the years ended December 31, 2012, 2011 and 2010, Standard Pacific Mortgage recorded loan loss expense related to indemnification and repurchase allowances of $1.0 million, $4.3 million and $2.3 million, respectively.  As of December 31, 2012, Standard Pacific Mortgage had indemnity and repurchase allowances related to loans sold of approximately $3.0 million.  In addition, during the years ended December 31, 2012, 2011 and 2010, Standard Pacific Mortgage made make-whole payments totaling approximately $1.0 million related to eight loans, $3.1 million related to 27 loans and $1.9 million related to 17 loans, respectively.

e. Insurance and Litigation Accruals

We are involved in various litigation and legal claims arising in the ordinary course of business and have established insurance and litigation accruals for estimated future claim costs (please see Note 2.s. for further discussion).

f. Operating Leases

We lease office facilities and certain equipment under noncancelable operating leases. Future minimum rental payments under these leases, net of related subleases, having an initial term in excess of one year as of December 31, 2012 are as follows:

	Year Ended December 31,
	(Dollars in thousands)
2013	$	2,888
2014		2,379
2015		1,779
2016		1,118
2017		633
Thereafter		322
Subtotal		9,119
Less: Estimated sublease income		(109	)
Net rental obligations	$	9,010

Rent expense under noncancelable operating leases, net of sublease income, for each of the years ended December 31, 2012, 2011 and 2010 was approximately $3.6 million, $3.9 million and $4.3 million, respectively.