THE RYLAND GROUP, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
(amounts in thousands, except share data, in all notes unless
otherwise noted)
NOTE M: COMMITMENTS AND CONTINGENCIES
Commitments
In the normal course of business, the Company acquires rights under option agreements
to purchase land for use in future homebuilding operations. As of December 31, 1998, the
Company had deposits and letters of credit outstanding of $30,565 for options and land
purchase contracts having a total purchase price of $387,963.
Rent expense primarily relates to office facilities, model home furniture and
equipment. Total rent expense amounted to $14,142, $10,634 and $10,191 for the years ended
December 31, 1998, 1997, and 1996 respectively. Future minimum rental commitments under
non-cancelable leases with remaining terms in excess of one year are as follows:
Contingencies
Contingent liabilities may arise from the obligations incurred in the ordinary course
of business, or from the usual obligations of on-site housing producers for the completion
of contracts. Some municipalities require the Company to issue development bonds or
maintain letters of credit to assure completion of public facilities within a project.
Total development bonds at December 31, 1998, were $166,148, and total deposits and
letters of credit at December 31, 1998, were $20,130.
On July 31, 1998, Ryland Mortgage Company ("RMC") entered into a Plea
Agreement with the United States Attorney's Office for the Middle District of Florida to
resolve all charges in connection with an indictment previously brought against RMC (the
"Indictment"). The Indictment concerns actions in 1993 related to two of RMC's
loan servicing contracts with the Resolution Trust Corporation ("RTC"). Under
the terms of the Plea Agreement, RMC paid $3.5 million in restitution plus interest, as
well as a fine of $4.2 million and admitted responsibility for two charges of impeding the
function of the RTC.
As a result of the Indictment, the U.S Department of Housing and Urban Development
("HUD") previously had indicated that it was considering sanctions against RMC,
including possible withdrawal of RMC's right to participate in the Federal Housing
Administration ("FHA") loan program and originate FHA loans. RMC has entered
into an agreement with HUD under which it expects to be able to continue to originate
loans and participate in the FHA loan program while HUD considers what administrative
action, if any, it will take as a result of the resolution of the Indictment. RMC is
continuing its dialogue with representatives of HUD to reach agreement on its ability to
continue to participate in the FHA loan program. The Company also is exploring alternative
arrangements in the event that RMC is not successful in these efforts. Termination of
RMC's right to participate could be followed by similar exclusions from the loan programs
of other RMC investors. No assurance can be given regarding the results of these ongoing
discussions with HUD and its possible impact on RMC and its business.
The Company is party to various other legal proceedings generally incidental to its
businesses. Based on evaluation of these other matters and discussions with counsel,
management believes that liabilities to the Company arising from these other matters will
not have a material adverse effect on the financial condition of the Company.
