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Note 8 - Accrued Expenses and Other Liabilities

6 Months Ended

Jun. 30, 2021

Accrued Expenses and Other Liabilities [Text Block]

8. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:

	June 30,		December 31,
	2021		2020
	(Dollars in thousands)
Warranty accrual ⁽¹⁾	$	7,632	$	7,276
Litigation reserves ⁽²⁾		7,078		5,641
Accrued interest		4,305		3,172
Accrued compensation and benefits		6,198		7,106
Completion reserve		4,655		5,683
Customer deposits		10,281		2,898
Lease liabilities		2,886		3,180
Other accrued expenses		3,057		1,254
	$	46,092	$	36,210

(1)	Included in the amount at June 30, 2021 and December 31, 2020 is approximately $3.0 million and $2.5 million, respectively, of warranty liabilities estimated to be recovered by our insurance policies.

(2)

At December 31, 2020, litigation reserves of $5.6 million were recorded related to construction defect claim reserves which consisted of $1.0 million for a claim-specific reserve and $4.6 million for IBNR construction defect claims. During the six months ended June 30, 2021, the Company increased its claim-specific reserve by $0.4 million and recorded estimated insurance receivables of the same amount as the self-insured retention deductible has been met for this claim. Also during the six months ended June 30, 2021, the Company recorded $1.1 million of additional IBNR reserves within litigation reserves.

We maintain general liability insurance designed to protect us against a portion of our risk of loss from construction-related warranty and construction defect claims. Our master general liability policies which cover most of our projects allow for our warranty spend to erode our self-insured retention requirements. We establish and track separately our warranty accrual and litigation reserves for both known and IBNR construction defect claims. Our warranty accrual and litigation reserves for construction defect claims are presented on a gross basis within accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets without consideration of insurance recoveries. Expected recoveries from insurance carriers are tracked separately between warranty insurance receivables and insurance receivables related to litigated claims and are presented within other assets in the accompanying condensed consolidated balance sheets. Our warranty accrual and related estimated insurance recoveries are based on historical warranty claim and expense data, and expected recoveries from insurance carriers are recorded based on actual insurance claims and amounts determined using our warranty accrual estimates, our insurance policy coverage limits for the applicable policy years and historical recovery rates. Our litigation reserves for both known and IBNR future construction defect claims based on historical claim and expense data, and expected recoveries from insurance carriers are recorded based on actual insurance claims and amounts determined using our construction defect claim accrual estimates, our insurance policy coverage limits for the applicable policy years and historical recovery rates. Because of the inherent uncertainty and variability in these assumptions, our actual costs and related insurance recoveries could differ significantly from amounts currently estimated.

Changes in our warranty accrual are detailed in the table set forth below:

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2021*			*2020*			*2021*			*2020*
	(Dollars in thousands)
Beginning warranty accrual for homebuilding projects	$	7,431		$	6,836		$	7,269		$	7,195
Warranty provision for homebuilding projects		664			357			1,129			778
Warranty payments for homebuilding projects		(845	)		(481	)		(1,551	)		(1,261	)
Adjustment to warranty accrual⁽¹⁾		375			—			778			—
Ending warranty accrual for homebuilding projects		7,625			6,712			7,625			6,712

Beginning warranty accrual for fee building projects		7			28			7			28
Warranty provision for fee building projects		—			—			—			—
Warranty efforts for fee building projects		—			—			—			—
Ending warranty accrual for fee building projects		7			28			7			28
Total ending warranty accrual	$	7,632		$	6,740		$	7,632		$	6,740

(1)

During the three and six months ended June 30, 2021, the Company recorded an adjustment of $0.4 million and $0.6 million, respectively, to increase its warranty accrual for homebuilding projects. The Company also recorded a corresponding increase of the same amount to its warranty insurance receivable included in other assets in the condensed consolidated balance sheets at June 30, 2021. The adjustment for the six months ended June 30, 2021 also includes $0.2 million of warranty reserves related to the Epic Acquisition.