(3) Investments in Unconsolidated Joint Ventures

As of June 30, 2011, we participated in certain land development joint ventures in which Beazer Homes had less than a controlling interest. The following table presents our investment in our unconsolidated joint ventures, the total equity and outstanding borrowings of these joint ventures, and our guarantees of these borrowings, as of June 30, 2011 and September 30, 2010:


	June 30,		September 30,
(In thousands)	2011		2010
Beazer’s investment in joint ventures	$	9,535	$	8,721
Total equity of joint ventures		302,919		298,418
Total outstanding borrowings of joint ventures		394,978		394,301
Beazer’s estimate of its maximum exposure to our repayment guarantees		17,916		15,789

The increase in our investment in unconsolidated joint ventures from September 30, 2010 to June 30, 2011 relates primarily to additional investments of $1.8 million offset by distributions of earnings in cash and lots totaling $0.8 million. For the three and nine months ended June 30, 2011 and 2010, our income (loss) from joint venture activities, the impairments of our investments in certain of our unconsolidated joint ventures, and the overall equity in income (loss) of unconsolidated joint ventures is as follows:


	Three Months Ended						Nine Months Ended
	June 30,						June 30,
(In thousands)	2011			2010			2011			2010
Continuing operations:
Income (loss) from joint venture activity	$	63		$	18		$	464		$	(38	)
Impairment of joint venture investment		—			(28	)		(92	)		(8,781	)

Equity in income (loss) of unconsolidated joint ventures	$	63		$	(10	)	$	372		$	(8,819	)


Reported in loss from discontinued operations, net of tax:
Loss from joint venture activity	$	(1	)	$	—		$	(18	)	$	—
Impairment of joint venture investment		(163	)		(12,482	)		(495	)		(15,226	)

Equity in loss of unconsolidated joint ventures - discontinued operations	$	(164	)	$	(12,482	)	$	(513	)	$	(15,226	)

The aggregate debt of the unconsolidated joint ventures was $395.0 million and $394.3 million at June 30, 2011 and September 30, 2010, respectively. At June 30, 2011, total borrowings outstanding include $327.9 million related to our South Edge LLC (“South Edge”) joint venture in which we are a 2.58% partner.

South Edge is in default under its debt obligations. During fiscal 2008, the administrative agent for the lenders to this joint venture notified the joint venture members that it believed the joint venture was in default of certain joint venture loan agreements, in particular, the failure of the joint venture members to acquire specified parcels of land, resulting in a payment default. In December 2008, the lenders filed individual lawsuits against some of the joint venture members and certain of those members’ parent companies (including the Company), seeking to recover damages under completion guarantees, among other claims. Due to discussions with our other joint venture members and based on the Company’s revised estimates regarding the realizability of our investment, the Company impaired our equity interest of $8.8 million in this joint venture during the second quarter of fiscal 2010. In addition, one member of the joint venture filed an arbitration proceeding against the remaining members related to the plaintiff-member’s allegations that the other members failed to perform under the applicable membership agreements. The arbitration panel issued its decision on July 6, 2010. The arbitration award was confirmed by the United States District Court and is now on appeal to the United States Court of Appeals for the Ninth Circuit. The Company does not believe that its proportional share of the arbitration proceeding award is considered material to our consolidated financial position or results of operations (see Note 9 for additional information regarding these legal actions). The Company has recorded an accrual for such matter.

On December 9, 2010, three lenders filed an involuntary bankruptcy petition against the joint venture. On February 3, 2011, the bankruptcy court granted this petition and the motion for appointment of a trustee. As a result of this ruling, we expected the lenders to the joint venture to attempt to enforce the repayment guaranty under the debt agreement. Any payments pursuant to the repayment guaranty would reduce the amount of the debt owed by South Edge and would give each payor lien rights against or title to its share of the property currently owned by the joint venture. In addition to the repayment guaranty to the lenders, we, as a member of the joint venture, continue to have obligations for infrastructure and other development costs as provided for in the joint venture agreement. At this time, these costs cannot be quantified due to, among other things, uncertainty over the future development configuration of the project and the related costs, market conditions, uncertainty over the remaining infrastructure deposits and previously filed bankruptcies of other joint venture members.

Effective June 10, 2011, the Company and certain other joint venture members (the Participating Members) have entered into a settlement agreement with the lenders. Under this agreement, the parties have agreed to develop a plan of reorganization for the joint venture by November 10, 2011, unless extended. Based on the terms of the agreement, the Company will pay the lenders an amount between approximately $15.7 million and $17.2 million depending on the resolution of certain contingencies in the agreement. As a result, during the second quarter of fiscal 2011, we had accrued an additional $2.1 million for a total accrual of $17.2 million related to our estimated obligation under the repayment guaranty. In accordance with the final agreement, we paid $1.5 million into an escrow fund in June 2011, reducing our outstanding liability at June 30, 2011 to $15.7 million. As previously discussed, the Company will ultimately obtain land in exchange for satisfaction of our repayment guarantee obligations. At the current time, there are uncertainties with respect to the location and density of the land we would receive, the products we would build on such land and the estimated selling prices of such homes. Considering the various potential scenarios and the current and expected market conditions in the Las Vegas area, we determined that the value of our future land purchase rights was approximately $13.2 million and recognized a $4.0 million impairment on such future land purchase rights during the nine months ended June 30, 2011. We have recorded $13.2 million to Other Assets as of June 30, 2011 representing our future land purchase rights from the ultimate payment of this repayment guaranty. Because there are uncertainties with respect to the value of the lien rights or title to our share of the underlying property, we may be required to record adjustments to the carrying value of these recognized Other Assets in future periods as better information becomes available.

Our joint ventures typically obtain secured acquisition, development and construction financing. Generally Beazer and our joint venture partners provide varying levels of guarantees of debt and other obligations for our unconsolidated joint ventures. At June 30, 2011, these guarantees included, for certain joint ventures, construction completion guarantees, repayment guarantees and environmental indemnities.

In assessing the need to record a liability for the contingent aspect of these guarantees, we consider our historical experience in being required to perform under the guarantees, the fair value of the collateral underlying these guarantees and the financial condition of the applicable unconsolidated joint ventures. In addition, we monitor the fair value of the collateral of these unconsolidated joint ventures to ensure that the related borrowings do not exceed the specified percentage of the value of the property securing the borrowings. As of June 30, 2011, we have estimated that the Company’s exposure for the contingent aspect of the guarantees related to our unconsolidated joint ventures was from $0 to $17.9 million. We have recorded a liability for guarantees we determined were probable and reasonably estimable, but we have not recorded a liability for the contingent aspects of any guarantees that we determined were reasonably possible but not probable.

Construction Completion Guarantees

We and our joint venture partners may be obligated to the project lenders to complete land development improvements and the construction of planned homes if the joint venture does not perform the required development. Provided the joint venture and the partners are not in default under any loan provisions, the project lenders typically are obligated to fund these improvements through any financing commitments available under the applicable loans. A majority of these construction completion guarantees are joint and several with our partners. In those cases, we generally have a reimbursement arrangement with our partner which provides that neither party is responsible for more than its proportionate share of the guarantee. However, if our joint venture partner does not have adequate financial resources to meet its obligations under such reimbursement arrangement, we may be liable for more than our proportionate share, up to our maximum exposure, which is the full amount covered by the relevant joint and several guarantee. The guarantees cover a specific scope of work, which may range from an individual development phase to the completion of the entire project. As of June 30, 2011, we have a completion guarantee related to one joint venture loan which also has a repayment guarantee associated with it. No accrual has been recorded, as losses, if any, related to construction completion guarantees are both not probable and not reasonably estimable.

Loan-to-Value Maintenance Agreements

As of June 30, 2011 and September 30, 2010, we do not have any obligations related to LTV guarantees. We and our joint venture partners may provide credit enhancements to acquisition, development and construction borrowings in the form of loan-to-value maintenance agreements, which can limit the amount of additional funding provided by the lenders or require repayment of the borrowings to the extent such borrowings plus construction completion costs exceed a specified percentage of the value of the property securing the borrowings. The agreements generally require periodic reappraisals of the underlying property value. To the extent that the underlying property gets reappraised, the amount of the exposure under the loan-to value-maintenance (LTV) guarantee would be adjusted accordingly and any such change could be significant. In certain cases, we may be required to make a re-balancing payment following a reappraisal in order to reduce the applicable loan-to-value ratio to the required level. During the first quarter of fiscal 2010, the Company and its joint venture partner reached an agreement with the lender of a joint venture to release the LTV guarantee and extend the related loan maturity up to two years in exchange for a loan repayment of $7.4 million. The Company invested an additional $3.9 million in the joint venture to facilitate this repayment during fiscal 2010.

Repayment Guarantees

We and our joint venture partners have repayment guarantees related to certain joint ventures’ borrowings. These repayment guarantees require the repayment of all or a portion of the debt of the unconsolidated joint venture only in the event the joint venture defaults on its obligations under the borrowing or in some cases only in the event the joint venture files for bankruptcy. Our estimate of Beazer’s maximum exposure to our repayment guarantees related to the outstanding debt of its unconsolidated joint ventures was $17.9 million and $15.8 million at June 30, 2011 and September 30, 2010, respectively. As of June 30, 2011, $15.7 million has been recorded in Other Liabilities which is net of the $1.5 million we paid and is currently held in escrow related to our South Edge joint venture.