10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

☒  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the fiscal year ended OCTOBER 31, 2018

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-8551

Hovnanian Enterprises, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	22-1851059
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
90 Matawan Road, Fifth Floor, Matawan, NJ	07747
(Address of Principal Executive Offices)	(Zip Code)
732-747-7800
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Name of Each Exchange on Which Registered
Class A Common Stock, $0.01 par value per share	New York Stock Exchange
Preferred Stock Purchase Rights	New York Stock Exchange
Depositary Shares, each representing 1/1,000th of a share of 7.625% Series A Preferred Stock	NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, $0.01 par value per share
Preferred Stock Purchase Rights
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.  Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐  No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐ Accelerated Filer ☒  Nonaccelerated Filer ☐   Smaller Reporting Company ☐ Emerging Growth Company ☐

If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

The aggregate market value of the voting and nonvoting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity as of April 30, 2018 (the last business day of the registrant’s most recently completed second fiscal quarter) was $244,113,849.

As of the close of business on December 14, 2018, there were outstanding 132,835,722 shares of the Registrant’s Class A Common Stock and 15,550,099 shares of its Class B Common Stock.

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HOVNANIAN ENTERPRISES, INC.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III — Those portions of the registrant’s definitive proxy statement to be filed pursuant to Regulation 14A in connection with registrant’s annual meeting of stockholders to be held on March 19, 2019, which are responsive to those parts of Part III, Items 10, 11, 12, 13 and 14 as identified herein.

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FORM 10-K

TABLE OF CONTENTS

Item		Page
	PART I	4
1	Business	4
1A	Risk Factors	12
1B	Unresolved Staff Comments	22
2	Properties	23
3	Legal Proceedings	23
4	Mine Safety Disclosures	24
	Executive Officers of the Registrant	24
	PART II	25
5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
6	Selected Financial Data	26
7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
7A	Quantitative and Qualitative Disclosures About Market Risk	54
8	Financial Statements and Supplementary Data	54
9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	54
9A	Controls and Procedures	55
9B	Other Information	56
	PART III	56
10	Directors, Executive Officers and Corporate Governance	56
11	Executive Compensation	57
12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	57
13	Certain Relationships and Related Transactions, and Director Independence	57
14	Principal Accountant Fees and Services	57
	PART IV	57
15	Exhibits and Financial Statement Schedules	57
16	Form 10-K Summary	58
	Signatures	64

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Part I

ITEM 1

BUSINESS

Business Overview

Hovnanian Enterprises, Inc. (“HEI”) conducts all of its homebuilding and financial services operations through its subsidiaries (references herein to the “Company”, “we”, “us” or “our” refer to HEI and its consolidated subsidiaries and should be understood to reflect the consolidated business of HEI’s subsidiaries). Through its subsidiaries, HEI designs, constructs, markets, and sells single-family detached homes, attached townhomes and condominiums, urban infill, and active lifestyle homes in planned residential developments and is one of the nation’s largest builders of residential homes. Founded in 1959 by Kevork Hovnanian, HEI was incorporated in New Jersey in 1967 and reincorporated in Delaware in 1983. Since the incorporation of HEI’s predecessor company, the Company combined with its unconsolidated joint ventures have delivered in excess of 336,000 homes, including 5,831 homes in fiscal 2018. The Company has two distinct operations: homebuilding and financial services. Our homebuilding operations consist of six segments: Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West. Our financial services operations provide mortgage loans and title services to the customers of our homebuilding operations.

We are currently, excluding unconsolidated joint ventures, offering homes for sale in 123 communities in 25 markets in 14 states throughout the United States. We market and build homes for first-time buyers, first-time and second-time move-up buyers, luxury buyers, active lifestyle buyers and empty nesters. We offer a variety of home styles at base prices ranging from $144,000 to $2,252,000 with an average sales price, including options, of $393,000 nationwide in fiscal 2018.

Our operations span all significant aspects of the home-buying process – from design, construction, and sale, to mortgage origination and title services.

The following is a summary of our growth history:

1959 - Founded by Kevork Hovnanian as a New Jersey homebuilder.

1983 - Completed initial public offering.

1986 - Entered the North Carolina market through the investment in New Fortis Homes.

1992 - Entered the greater Washington, D.C. market.

1994 - Entered the Coastal Southern California market.

1998 - Expanded in the greater Washington, D.C. market through the acquisition of P.C. Homes.

1999 - Entered the Dallas, Texas market through our acquisition of Goodman Homes. Further diversified and strengthened our position as New Jersey’s largest homebuilder through the acquisition of Matzel & Mumford.

2001 - Continued expansion in the greater Washington D.C. and North Carolina markets through the acquisition of Washington Homes. This acquisition further strengthened our operations in each of these markets.

2002 - Entered the Central Valley market in Northern California and Inland Empire region of Southern California through the acquisition of Forecast Homes.

2003 - Expanded operations in Texas and entered the Houston market through the acquisition of Parkside Homes and Brighton Homes. Entered the greater Ohio market through our acquisition of Summit Homes and entered the greater metro Phoenix market through our acquisition of Great Western Homes.

2004 - Entered the greater Tampa, Florida market through the acquisition of Windward Homes and started operations in the Minneapolis/St. Paul, Minnesota market.

2005 - Entered the Orlando, Florida market through our acquisition of Cambridge Homes and entered the greater Chicago, Illinois market and expanded our position in Florida and Minnesota through the acquisition of the operations of Town & Country Homes, which occurred concurrently with our entering into a joint venture with affiliates of Blackstone Real Estate Advisors to own and develop Town & Country Homes’ existing residential communities. We also entered the Cleveland, Ohio market through the acquisition of Oster Homes.

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2006 - Entered the coastal markets of South Carolina and Georgia through the acquisition of Craftbuilt Homes.

During fiscal 2016, we exited the Minneapolis, Minnesota and Raleigh, North Carolina markets and sold land portfolios in those markets. During fiscal 2018, we completed a wind down of our operations in the San Francisco Bay area in Northern California and in Tampa, Florida.

Geographic Breakdown of Markets by Segment

The Company markets and builds homes that are constructed in 17 of the nation’s top 50 housing markets. We segregate our homebuilding operations geographically into the following six segments:

Northeast: New Jersey and Pennsylvania

Mid-Atlantic: Delaware, Maryland, Virginia, Washington, D.C. and West Virginia

Midwest: Illinois and Ohio

Southeast: Florida, Georgia and South Carolina

Southwest: Arizona and Texas

West: California

For financial information about our segments, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Employees

We employed 1,851 full-time employees (whom we refer to as associates) as of October 31, 2018.

Corporate Offices and Available Information

Our corporate offices are located at 90 Matawan Road, Fifth Floor, Matawan, New Jersey 07747 (See Item 2-Properties). Our telephone number is 732-747-7800, and our Internet web site address is www.khov.com. Information available on or through our web site is not a part of this Form 10-K. We make available free of charge through our web site our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(d) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission (SEC). Copies of the Company’s Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports are available free of charge upon request. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

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Business Strategies

Given the relatively low levels of total U.S. housing starts, and our belief in the long-term recovery of the homebuilding market, we remain focused on identifying new land parcels, which are critical to improving our financial performance. As discussed in previous quarters, we were limited in our ability to invest in land purchases in fiscal 2016 and 2017 due to significant debt maturities that we were unable to refinance and therefore had to pay at maturity. This reduction of investment has led to a decrease in community count and revenues, which impacts our overall profitability. In the fourth quarter of fiscal 2016 and in July 2017, we were able to refinance certain of our debt maturities and in fiscal 2018 the Company entered into certain financing transactions with GSO Capital Partners LP (“GSO”) which extended our debt maturities. These transactions provided us with the long term capital needed to implement our strategy to invest in land to grow the business to more significant profitability. However, there is typically a significant time lag from when we first control lots until the time that we open a community for sale. This timeline can vary significantly from a few months (in a market such as Houston) to three to five plus years (in a market such as New Jersey). We continue to see opportunities to purchase land at prices that make economic sense in light of our current sales prices and sales paces and plan to continue actively pursuing such land acquisitions. New land purchases at pricing that we believe will generate appropriate investment returns and drive greater operating efficiencies are needed to return to sustained profitability.

In addition to our current focus on maintaining adequate liquidity and evaluating new investment opportunities, we intend to continue to focus on our historic key business strategies, as enumerated below. We believe that these strategies separate us from our competitors in the residential homebuilding industry and the adoption, implementation and adherence to these principles will continue to benefit our business.

Our goal is to become a significant builder in each of the selected markets in which we operate, which will enable us to achieve powers and economies of scale and differentiate ourselves from most of our competitors.

As noted above, we offer a broad product array to provide housing to a wide range of customers. Our customers consist of first-time buyers, first-time and second-time move-up buyers, luxury buyers, active lifestyle buyers and empty nesters. Our diverse product array includes single-family detached homes, attached townhomes and condominiums, urban infill and active lifestyle homes.

We are committed to customer satisfaction and quality in the homes that we build. We recognize that our future success rests in the ability to deliver quality homes to satisfied customers. We seek to expand our commitment to customer service through a variety of quality initiatives. In addition, our focus remains on attracting and developing quality associates. We use several leadership development and mentoring programs to identify key individuals and prepare them for positions of greater responsibility within our Company.

We focus on achieving high return on invested capital. Each new community is evaluated based on its ability to meet or exceed internal rate of return requirements. Our belief is that the best way to create lasting value for our shareholders is through a strong focus on return on invested capital.

We prefer to use a risk-averse land acquisition strategy. We attempt to acquire land with a minimum cash investment and negotiate takedown options, thereby limiting the financial exposure to the amounts invested in property and predevelopment costs. This approach significantly reduces our risk and generally allows us to obtain necessary development approvals before acquisition of the land.

Our strategy includes homebuilding and land development joint ventures as a means of controlling lot positions, expanding our market opportunities, establishing strategic alliances, reducing our risk profile, leveraging our capital base and enhancing our returns on capital. Our homebuilding joint ventures are generally entered into with third-party investors to develop land and construct homes that are sold directly to home buyers. Our land development joint ventures include those with developers and other homebuilders, as well as financial investors to develop finished lots for sale to the joint venture’s members or other third parties.

We manage our financial services operations to better serve all of our home buyers. Our current mortgage financing and title service operations enhance our contact with customers and allow us to coordinate the home-buying experience from beginning to end.

Operating Policies and Procedures

We attempt to reduce the effect of certain risks inherent in the housing industry through the following policies and procedures:

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Training - Our training is designed to provide our associates with the knowledge, attitudes, skills and habits necessary to succeed in their jobs. Our training department regularly conducts online or webinar training in sales, construction, administration and managerial skills.

Land Acquisition, Planning, and Development - Before entering into a contract to acquire land, we complete extensive comparative studies and analyses which assist us in evaluating the economic feasibility of such land acquisition. We generally follow a policy of acquiring options to purchase land for future community developments.

● Where possible, we acquire land for future development through the use of land options, which need not be exercised before the completion of the regulatory approval process. We attempt to structure these options with flexible takedown schedules rather than with an obligation to take down the entire parcel upon receiving regulatory approval. If we are unable to negotiate flexible takedown schedules, we will buy parcels in a single bulk purchase. Additionally, we purchase improved lots in certain markets by acquiring a small number of improved lots with an option on additional lots. This allows us to minimize the economic costs and risks of carrying a large land inventory, while maintaining our ability to commence new developments during favorable market periods.

● Our option and purchase agreements are typically subject to numerous conditions, including, but not limited to, our ability to obtain necessary governmental approvals for the proposed community. Generally, the deposit on the agreement will be returned to us if all approvals are not obtained, although predevelopment costs may not be recoverable. By paying an additional nonrefundable deposit, we have the right to extend a significant number of our options for varying periods of time. In most instances, we have the right to cancel any of our land option agreements by forfeiture of our deposit on the agreement. In fiscal 2018, 2017 and 2016, rather than purchase additional lots in underperforming communities, we took advantage of this right and walked away from 2,777 lots, 3,930 lots and 6,102 lots, respectively, out of 20,387 total lots, 17,837 total lots and 19,210 total lots, respectively, under option, resulting in pretax charges of $1.4 million, $2.7 million and $8.9 million, respectively.

Design - Our residential communities are generally located in urban and suburban areas easily accessible through public and personal transportation. Our communities are designed as neighborhoods that fit existing land characteristics. We strive to create diversity within the overall planned community by offering a mix of homes with differing architecture, textures and colors. Recreational amenities, such as swimming pools, tennis courts, clubhouses, open areas and tot lots, are frequently included.

Construction - We design and supervise the development and building of our communities. Our homes are constructed according to standardized prototypes, which are designed and engineered to provide innovative product design while attempting to minimize costs of construction. We generally employ subcontractors for the installation of site improvements and construction of homes. Agreements with subcontractors are generally short term and provide for a fixed price for labor and materials. We rigorously control costs through the use of computerized monitoring systems.

Because of the risks involved in speculative building, our general policy is to construct an attached condominium or townhouse building only after signing contracts for the sale of at least 50% of the homes in that building. A majority of our single-family detached homes are constructed after the signing of a sales contract and mortgage approval has been obtained. This limits the buildup of inventory of unsold homes and the costs of maintaining and carrying that inventory.

Materials and Subcontractors - We attempt to maintain efficient operations by utilizing standardized materials available from a variety of sources. In addition, we generally contract with subcontractors to construct our homes. We have reduced construction and administrative costs by consolidating the number of vendors serving certain markets and by executing national purchasing contracts with select vendors. In recent years, we have experienced some construction delays due to shortage of labor in certain markets like Houston, Dallas and Northern California; and we cannot predict the extent to which shortages in necessary materials or labor may occur in these or other markets in the future.

Marketing and Sales - Our residential communities are sold principally through on-site sales offices. In order to respond to our customers’ needs and trends in housing design, we rely upon our internal market research group to analyze information gathered from, among other sources, buyer profiles, exit interviews at model sites, focus groups and demographic databases. We make use of our website, internet, newspaper, radio, television, magazine, billboard, video and direct mail advertising, special and promotional events, illustrated brochures and full-sized and scale model homes in our comprehensive marketing program. In addition, we have home design galleries in our Florida, Illinois, New Jersey and Virginia markets, which offer a wide range of customer options to satisfy individual customer tastes.

Customer Service and Quality Control - In many of our markets, associates are responsible for customer service and preclosing quality control inspections as well as responding to postclosing customer needs. Prior to closing, each home is inspected and any necessary completion work is undertaken by us or our subcontractors. Our homes are enrolled in a standard limited warranty program which, in general, provides a homebuyer with a limited warranty for the home’s materials and workmanship which follows each State’s applicable statute of repose. All of the warranties contain standard exceptions, including, but not limited to, damage caused by the customer.

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Customer Financing - We sell our homes to customers who generally finance their purchases through mortgages. Our financial services segment provides our customers with competitive financing and coordinates and expedites the loan origination transaction through the steps of loan application, loan approval, and closing and title services. We originate loans in each of the states in which we build homes, except Ohio. We believe that our ability to offer financing to customers on competitive terms as a part of the sales process is an important factor in completing sales.

During the year ended October 31, 2018, for the markets in which our mortgage subsidiaries originated loans, 12.9% of our home buyers paid in cash and 72.4% of our noncash home buyers obtained mortgages from our mortgage banking subsidiary. The loans we originated in fiscal 2018 were 69.8% prime and 24.6% Federal Housing Administration/Veterans Affairs (“FHA/VA”). The remaining 5.6% of our loan originations represent jumbo and/or USDA loans.

We sell virtually all of the loans and loan-servicing rights that we originate within a short period of time. Loans are sold either individually or against forward commitments to institutional investors, including banks, mortgage banking firms, and savings and loan associations.

Residential Development Activities

Our residential development activities include site planning and engineering, obtaining environmental and other regulatory approvals and constructing roads, sewer, water, and drainage facilities, recreational facilities, and other amenities and marketing and selling homes. These activities are performed by our associates, together with independent architects, consultants and contractors. Our associates also carry out long-term planning of communities. A residential development generally includes single-family detached homes and/or a number of residential buildings containing from two to 24 individual homes per building, together with amenities, such as club houses, swimming pools, tennis courts, tot lots and open areas.

Current base prices for our homes in contract backlog at October 31, 2018, range from $403,000 to $866,000 in the Northeast, from $235,000 to $2,252,000 in the Mid-Atlantic, from $144,000 to $831,000 in the Midwest, from $239,000 to $997,000 in the Southeast, from $183,000 to $582,000 in the Southwest and from $231,000 to $962,000 in the West. Closings generally occur and are typically reflected in revenues within six to nine months of when sales contracts are signed.

Information on homes delivered by segment for the year ended October 31, 2018, is set forth below:

(Housing revenue in thousands)	Housing Revenues	Homes Delivered	Average Price
Northeast	$96,012	178	$539,393
Mid-Atlantic	354,153	672	527,013
Midwest	196,307	662	296,536
Southeast	237,948	596	399,242
Southwest	637,568	1,873	340,399
West	384,240	866	443,695
Consolidated total	$1,906,228	4,847	$393,280
Unconsolidated joint ventures (1)	$599,979	984	$609,735

(1) Represents housing revenues and home deliveries for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures. See Note 20 to the Consolidated Financial Statements for a further discussion of our unconsolidated joint ventures.

The value of our net sales contracts, excluding unconsolidated joint ventures, decreased 11.9% to $1.8 billion for the year ended October 31, 2018 from $2.1 billion for the year ended October 31, 2017. The number of homes contracted decreased 10.1% to 4,671 in fiscal 2018 from 5,196 in fiscal 2017. The decrease in the number of homes contracted occurred along with a 12.2% decrease in the average number of open-for-sale communities from 148 for fiscal 2017 to 130 for fiscal 2018. We contracted an average of 35.9 homes per average active selling community in fiscal 2018 compared to 35.1 homes per average active selling community in fiscal 2017, a 2.3% increase in sales pace per community as our performance per community improved in fiscal 2018 as compared to fiscal 2017.

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 Information on the value of net sales contracts by segment for the years ended October 31, 2018 and 2017, is set forth below:

(Value of net sales contracts in thousands)	2018	2017	Percentage of Change
Northeast	$74,730	$119,018	(37.2	%)
Mid-Atlantic	340,963	399,420	(14.6	%)
Midwest	204,487	193,451	5.7	%
Southeast	225,703	232,278	(2.8	%)
Southwest	640,604	718,595	(10.9	%)
West	348,726	421,335	(17.2	%)
Consolidated total	$1,835,213	$2,084,097	(11.9	%)
Unconsolidated joint ventures(1)	$556,745	$436,538	27.5	%

(1) Represents net contract dollars for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures. See Note 20 to the Consolidated Financial Statements for a further discussion of our unconsolidated joint ventures.

The following table summarizes our active selling communities under development as of October 31, 2018. The contracted not delivered and remaining homes available in our active selling communities are included in the consolidated total homesites under the total residential real estate chart in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 

Active Selling Communities

	Communities	Approved Homes	Homes Delivered	Contracted Not Delivered(1)	Remaining Homes Available(2)
Northeast	4	975	284	51	640
Mid-Atlantic	20	3,436	1,755	296	1,385
Midwest	14	2,669	895	394	1,380
Southeast	14	3,236	913	251	2,072
Southwest	56	10,220	6,336	523	3,361
West	15	3,628	1,588	311	1,729
Total	123	24,164	11,771	1,826	10,567

(1)	Includes 252 home sites under option.
(2)	Of the total remaining homes available, 642 were under construction or completed (including 71 models and sales offices), and 3,905 were under option.

Backlog

At October 31, 2018 and 2017, including unconsolidated joint ventures, we had a backlog of signed contracts for 2,192 homes and 2,437 homes, respectively, with sales values aggregating $977.3 million and $1.1 billion, respectively. The majority of our backlog at October 31, 2018 is expected to be completed and closed within the next six to nine months. At November 30, 2018 and 2017, our backlog of signed contracts, including unconsolidated joint ventures, was 2,248 homes and 2,606 homes, respectively, with sales values aggregating $1.0 billion and $1.2 billion, respectively. For information on our backlog excluding unconsolidated joint ventures, see the table on page 43 under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations -Homebuilding.”

Sales of our homes typically are made pursuant to a standard sales contract that provides the customer with a statutorily mandated right of rescission for a period ranging up to 15 days after execution. This contract requires a nominal customer deposit at the time of signing. In addition, in the Northeast, and some sections of the Mid-Atlantic and Midwest, we typically obtain an additional 5% to 10% down payment due within 30 to 60 days after signing. In most markets, an additional deposit is required when a customer selects and commits to optional upgrades in the home. The contract may include a financing contingency, which permits customers to cancel their obligation in the event mortgage financing at prevailing interest rates (including financing arranged or provided by us) is unobtainable within the period specified in the contract. This contingency period typically is four to eight weeks following the date of execution of the contract. When housing values decline in certain markets, some customers cancel their contracts and forfeit their deposits. Cancellation rates are discussed further in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Sales contracts are included in backlog once the sales contract is signed by the customer, which in some cases includes contracts that are in the rescission or cancellation periods. However, revenues from sales of homes are recognized in the Consolidated Statements of Operations, when title to the home is conveyed to the buyer, adequate initial and continuing investments have been received, and there is no continued involvement.

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Residential Land Inventory in Planning

It is our objective to control a supply of land, primarily through options, whenever possible, consistent with anticipated homebuilding requirements in each of our housing markets. Controlled land (land owned and under option) as of October 31, 2018, exclusive of communities under development described above under “Active Selling Communities” and excluding unconsolidated joint ventures, is summarized in the following table. The proposed developable home sites in communities in planning are included in the 30,557 consolidated total home sites under the total residential real estate table in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 37.

Communities in Planning

(Dollars in thousands)	Number of Proposed Communities	Proposed Developable Home Sites	Total Land Option Price	Book Value	(1)
Northeast:
Under option	28	3,038	$233,739	$6,564
Owned	4	191		$9,099
Total	32	3,229		$15,663
Mid-Atlantic:
Under option	22	1,749	$186,537	$5,364
Owned	12	1,365		$36,786
Total	34	3,114		$42,150
Midwest:
Under option	18	2,601	$105,098	$2,404
Owned	8	383		$5,782
Total	26	2,984		$8,186
Southeast:
Under option	16	2,333	$84,844	$2,417
Owned	2	15		$5,633
Total	18	2,348		$8,050
Southwest:
Under option	33	2,714	$157,662	$9,529
Owned	2	185		$6,907
Total	35	2,899		$16,436
West:
Under option	9	1,018	$80,678	$2,690
Owned	16	2,572		$18,191
Total	25	3,590		$20,881
Totals:
Under option	126	13,453	$848,558	$28,968
Owned	44	4,711		$82,398
Combined total	170	18,164		$111,366

For comparison, below are the combined totals as of October 31, 2017. We are providing this information to demonstrate the growth in our total controlled lots during fiscal 2018.

(Dollars in thousands)

Combined total 143 15,557 $140,924

(1) Properties under option also include costs incurred on properties not under option but which are under evaluation. For properties under option, as of October 31, 2018, option fees and deposits aggregated approximately $19.2 million. As of October 31, 2018, we spent an additional $9.8 million in nonrefundable predevelopment costs on such properties, including properties not under option but under evaluation.

We either option or acquire improved or unimproved home sites from land developers or other sellers. Under a typical agreement with the land developer, we purchase a minimal number of home sites. The balance of the home sites to be purchased is covered under an option agreement or a nonrecourse purchase agreement. During the declining homebuilding market, we decided to mothball (or stop development on) certain communities where we determined that current market conditions did not justify further investment at that time. When we decide to mothball a community, the inventory is reclassified on our Consolidated Balance Sheets from Sold and unsold homes and lots under development to Land and land options held for future development or sale. See Note 3 to the Consolidated Financial Statements for further discussion on mothballed communities. For additional financial information regarding our homebuilding segments, see Note 10 to the Consolidated Financial Statements.

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Raw Materials

The homebuilding industry has from time to time experienced raw material and labor shortages. In particular, shortages and fluctuations in the price of lumber or in other important raw materials could result in delays in the start or completion of or increase the cost of developing one or more of our residential communities. We attempt to maintain efficient operations by utilizing standardized materials available from a variety of sources. In recent years, we have experienced some construction delays due to shortage of labor in certain markets like Houston, Dallas and Northern California. We cannot predict, however, the extent to which shortages in necessary raw materials or labor may occur in the future. In addition, we generally contract with subcontractors to construct our homes. We have reduced construction and administrative costs by consolidating the number of vendors serving certain markets and by executing national purchasing contracts with select vendors.

Seasonality

Our business is seasonal in nature and, historically, weather-related problems, typically in the fall, late winter and early spring, can delay starts or closings and increase costs.

Competition

Our homebuilding operations are highly competitive. We are among the top 15 homebuilders in the United States in both homebuilding revenues and home deliveries. We compete with numerous real estate developers in each of the geographic areas in which we operate. Our competition ranges from small local builders to larger regional builders to publicly owned builders and developers, some of which have greater sales and financial resources than we do. Previously owned homes and the availability of rental housing provide additional competition. We compete primarily on the basis of reputation, price, location, design, quality, service and amenities.

Regulation and Environmental Matters

We are subject to extensive and complex laws and regulations that affect the development of land and home building, sales and customer financing processes concerning zoning, building design, construction, and similar matters, including local regulations which impose restrictive zoning and density requirements in order to limit the number of homes that can eventually be built within the boundaries of a particular locality. In addition, we are subject to registration and filing requirements in connection with the construction, advertisement and sale of our communities in certain states and localities in which we operate even if all necessary government approvals have been obtained. We may also be subject to periodic delays or may be precluded entirely from developing communities due to building moratoriums that could be implemented in the future in the states in which we operate. Generally, such moratoriums relate to insufficient water or sewerage facilities or inadequate road capacity.

In addition, some state and local governments in markets where we operate have approved, and others may approve, slow-growth, or no-growth initiatives that could negatively affect the availability of land and building opportunities within those areas. Approval of these initiatives could adversely affect our ability to build and sell homes in the affected markets and/or could require the satisfaction of additional administrative and regulatory requirements, which could result in slowing the progress or increasing the costs of our homebuilding operations in these markets. Any such delays or costs could have a negative effect on our future revenues and earnings.

We are also subject to a variety of local, state, federal and foreign laws and regulations concerning protection of health and the environment, including those regulating the emission or discharge of materials into the environment, the management of storm water runoff at construction sites, the handling, use, storage and disposal of hazardous substances, impacts to wetlands and other sensitive environments, and the remediation of contamination at properties that we have owned or developed or currently own or are developing (“environmental laws”). The particular environmental laws which apply to any given community vary greatly according to the community site, the site’s environmental conditions and the present and former uses of the site. See Risk Factors – “Homebuilders are subject to a number of federal, local, state, and foreign laws and regulations concerning the development of land, the homebuilding, sales, and customer financing processes and the protection of the environment, which can cause us to incur delays and costs associated with compliance and which can prohibit or restrict our activity in some regions or areas”, Item 3 “Legal Proceedings” and Note 18 to the Consolidated Financial Statements.

Despite our past ability to obtain necessary permits and approvals for our communities, we anticipate that increasingly stringent requirements will be imposed on developers and homebuilders in the future. Although we cannot reliably predict the extent of any effect these requirements may have on us, they could result in time-consuming and expensive compliance programs and in substantial expenditures, which could cause delays and increase our cost of operations. In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained is dependent upon many factors, some of which are beyond our control, such as changes in policies, rules and regulations and their interpretation and application.

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ITEM 1A

RISK FACTORS

You should carefully consider the following risks in addition to the other information included in this Annual Report on Form 10-K, including the Consolidated Financial Statements and the notes thereto.

The homebuilding industry is significantly affected by changes in general and local economic conditions, real estate markets, and weather and other environmental conditions, which could affect our ability to build homes at prices our customers are willing or able to pay, could reduce profits that may not be recaptured, could result in cancellation of sales contracts, and could affect our liquidity.

The homebuilding industry is cyclical, has from time to time experienced significant difficulties, and is significantly affected by changes in general and local economic conditions such as:   

● Employment levels and wage and job growth;

● Availability and affordability of financing for home buyers;

● Interest rates;

● Adverse changes in tax laws;

● Foreclosure rates;

● Inflation;

● Consumer confidence;

● Housing demand in general and for our particular community locations and product designs, as well as consumer interest in purchasing a home compared to other housing alternatives;

● Population growth; and

● Availability of water supply in locations in which we operate.

Turmoil in the financial markets could affect our liquidity. In addition, our cash balances are primarily invested in short-term government-backed instruments. The remaining cash balances are held at numerous financial institutions and may, at times, exceed insurable amounts. We seek to mitigate this risk by depositing our cash in major financial institutions and diversifying our investments. In addition, our homebuilding operations often require us to obtain letters of credit. We have certain stand-alone letter of credit facilities and agreements pursuant to which letters of credit are issued. However, we may need additional letters of credit above the amounts provided under these facilities and letters of credit may not be issued under our current revolving credit facility. If we are unable to obtain such additional letters of credit as needed to operate our business, we would be adversely affected.

Weather conditions and man-made or natural disasters such as hurricanes, tornadoes, earthquakes, floods, droughts, fires and other environmental conditions can harm the local homebuilding business. For example, subsequent to our fiscal year-end, there have been significant wildfires throughout Southern California. While none of our communities have been directly affected, we could experience labor shortages, construction delays or utility company delays, which in turn could impact our fiscal 2019 results. In addition, in September 2017, Hurricane Harvey and Hurricane Irma caused disruption and delays in Houston and Florida. Similarly, our production process slowed and our cost of operations increased in Texas during fiscal 2015 as a result of record wet conditions in this state and, in August 2011 and October 2012, Hurricane Irene and Hurricane Sandy, respectively, caused widespread flooding and disruptions on the Atlantic seaboard, which impacted our sales and construction activity in affected markets during those months.

The difficulties described above could cause us to take longer and incur more costs to build our homes. In addition, our insurance may not fully cover business interruptions or losses caused by weather conditions and manmade or natural disasters and we may not be able to recapture increased costs by raising prices in many cases because we fix our prices up to 12 months in advance of delivery by signing home sales contracts. Some home buyers may also cancel or not honor their home sales contracts altogether.

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A significant downturn in the homebuilding industry could materially and adversely affect our business.

The homebuilding industry experienced a significant and sustained downturn that began in 2007, during which the lowest volumes of housing starts were significantly below troughs in previous downturns. This downturn resulted in an industry-wide softening of demand for new homes due to a lack of consumer confidence, decreased availability of mortgage financing, and large supplies of resale and new home inventories, among other factors. In addition, an oversupply of alternatives to new homes, such as rental properties, resale homes and foreclosures, depressed prices and reduced margins for the sale of new homes. Industry conditions had a material adverse effect on our business and results of operations in fiscal years 2007 through 2011. Further, we had substantially increased our inventory through fiscal 2006, which required significant cash outlays and which increased our price and margin exposure as we worked through this inventory. Although the homebuilding market has improved in the last few years, the recovery has been slow by historical standards and the volume of housing starts is still below normal historical averages and our business, liquidity and results of operations continue to be impacted by the lasting effects of the significant and sustained downturn and it may continue to materially adverse our business and results of operations in future years. If the homebuilding industry experiences another significant or sustained downturn, it would materially adversely affect our business and results of operations in future years.

Several challenges, such as general U.S. economic uncertainty and the potential for more rapid inflation, extreme weather conditions, increasing cycle times due to labor shortages, increasing labor and materials costs, the restrictive mortgage lending environment and rising mortgage interest rates and regulatory changes, could further impact the housing market and, consequently, our performance. For example, if rising house construction costs substantially outpace increases in the income of potential purchasers we may be limited in our ability to raise home sales prices, which may result in lower gross margins.

Our high leverage may restrict our ability to operate, may prevent us from fulfilling our obligations, and may adversely affect our financial condition.

We have a significant amount of debt.

● Our debt (excluding nonrecourse secured debt and debt of our financial subsidiaries), as of October 31, 2018, including the debt of the subsidiaries that guarantee our debt, was $1,493.3 million ($1,453.3 million net of discount and premiums). Additionally, we have a $125.0 million senior secured credit facility, which was fully available for borrowing as of October 31, 2018.

● Our debt service payments for the year ended October 31, 2018, were $322.8 million, which represented interest incurred and payments on the principal of our debt and do not include principal and interest on nonrecourse secured debt, debt of our financial subsidiaries and fees under our letter of credit and other credit facilities and agreements.

As of October 31, 2018, we had $12.5 million in aggregate outstanding face amount of letters of credit issued under various letter of credit and other credit facilities and agreements, certain of which were collateralized by $12.7 million of cash. Our fees for these letters of credit for the year ended October 31, 2018, which are based on both the used and unused portion of the facilities and agreements, were $1.3 million. We also had substantial contractual commitments and contingent obligations, including $192.5 million of performance bonds as of October 31, 2018. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations.”

Our significant amount of debt could have important consequences. For example, it could:

● Limit our ability to obtain future financing for working capital, capital expenditures, acquisitions, debt service requirements, or other requirements;

● Require us to dedicate a substantial portion of our cash flow from operations to the payment of our debt and reduce our ability to use our cash flow for other purposes, including land investments;

● Limit our flexibility in planning for, or reacting to, changes in our business;

● Place us at a competitive disadvantage because we have more debt than some of our competitors;

● Limit our ability to implement our strategies and operational actions;

● Require us to consider selling some of our assets or debt or equity securities, possibly on unfavorable terms, to satisfy obligations; and

● Make us more vulnerable to downturns in our business and general economic conditions.

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Our ability to meet our debt service and other obligations will depend upon our future performance. We are engaged in businesses that are substantially affected by changes in economic cycles. Our revenues and earnings vary with the level of general economic activity in the markets we serve. Our businesses are also affected by customer sentiment and financial, political, business, and other factors, many of which are beyond our control. The factors that affect our ability to generate cash can also affect our ability to raise additional funds for these purposes through the sale of equity or debt securities, the refinancing of debt, or the sale of assets. Changes in prevailing interest rates may affect our ability to meet our debt service obligations to the extent we have any floating rate indebtedness. A higher interest rate on our debt service obligations could result in lower earnings or increased losses.

Our sources of liquidity are limited and may not be sufficient to meet our needs.

We are largely dependent on our current cash balance and future cash flows from operations (which may not be positive) to enable us to service our indebtedness, to cover our operating expenses, and/or to fund our other liquidity needs. Cash used in and provided from operating activities in fiscal 2018 and fiscal 2017 were $66.8 million and $301.6 million, respectively. Depending on the levels of our land purchases, we could generate negative or positive cash flow in future years. In 2016, we used a significant portion of cash to repay debt because financing was unavailable to us in the capital and loan markets. If the homebuilding industry does not experience improved conditions over the next several years, our cash flows could be insufficient to fund our obligations and support land purchases; if we cannot buy additional land we would ultimately be unable to generate future revenues from the sale of houses. In addition, we will need to refinance all or a portion of our debt on or before maturity, which we may not be able to do on favorable terms or at all. If our cash flows and capital resources are insufficient to fund our debt service obligations or we are unable to refinance our indebtedness, we may be forced to reduce or delay investments and capital expenditures, sell assets, seek additional capital, or restructure our indebtedness. These alternative measures may not be successful or, if successful, made on desirable terms and may not permit us to meet our debt service obligations. We have also entered into certain cash collateralized letters of credit agreements and facilities that require us to maintain specified amounts of cash in segregated accounts as collateral to support our letters of credit issued thereunder. If our available cash and capital resources are insufficient to meet our debt service and other obligations, we could face liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or the proceeds from the dispositions may not be permitted under the terms of our debt instruments to be used to service indebtedness or may not be adequate to meet any debt service obligations then due. For additional information about capital resources and liquidity, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity.”

Our cash flows, liquidity and consolidated financial statements could be materially and adversely affected if we are unable to obtain letters of credit.

Our homebuilding operations often require us to obtain letters of credit. We have certain stand-alone letter of credit facilities and agreements pursuant to which letters of credit are issued. However, letters of credit may not be issued under our current revolving credit facility and we may need additional letters of credit above the amounts provided under these stand-alone facilities and agreements. If we are unable to obtain such additional letters of credit as needed to operate our business, we would be adversely affected.

We may have difficulty in obtaining the additional financing required to operate and develop our business.

Our operations require significant amounts of cash, and we may be required to seek additional capital, whether from sales of debt or equity securities or borrowing additional money, for the future growth and development of our business. The terms and/or availability of additional capital is uncertain. Moreover, the agreements governing our outstanding debt instruments contain provisions that restrict the debt we may incur in the future (including a requirement in the 9.50% Senior Secured Notes due 2020 that any new or refinancing indebtedness may not be scheduled to mature earlier than specified dates in 2021) and our ability to pay dividends on equity. If we are not successful in obtaining sufficient capital, it could reduce our sales and may hinder our future growth and results of operations. In addition, pledging substantially all of our assets to support our revolving credit facility and our senior secured notes may make it more difficult to raise additional financing in the future.

Restrictive covenants in our debt instruments may restrict our and certain of our subsidiaries’ ability to operate, and if our financial performance worsens, we may not be able to undertake transactions within the restrictions of our debt instruments.

The indentures governing our outstanding debt securities, the term loan facility and our revolving credit facility impose certain restrictions on our and certain of our subsidiaries’ operations and activities. The most significant restrictions relate to debt incurrence (including maturity date requirements), creating liens, sales of assets (including in certain land banking transactions), cash distributions, including paying dividends on common and preferred stock, capital stock and subordinated debt repurchases, and investments by us and certain of our subsidiaries. Because of these restrictions, we are currently prohibited from paying dividends on our common and preferred stock and anticipate that we will remain prohibited for the foreseeable future.

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The restrictions in our debt instruments could prohibit or restrict our and certain of our subsidiaries’ activities, such as undertaking capital raising or restructuring activities or entering into other transactions. In such a situation, we may be unable to amend the instrument or obtain a waiver. In addition, if we fail to comply with these restrictions or to make timely payments on this debt and other material indebtedness, an event of default could occur and our debt under these debt instruments could become due and payable prior to maturity. Any such event of default could lead to cross defaults under certain of our other debt or negatively impact other covenants. In these situations, we may be unable to amend the applicable instrument or obtain a waiver without significant additional cost, or at all. In such a situation, there can be no assurance that we would be able to obtain alternative financing. Any such situation could have a material adverse effect on the solvency of the Company.

The terms of our debt instruments allow us to incur additional indebtedness.

Under the terms of our indebtedness under our indentures and credit facilities, we have the ability, subject to our debt covenants, to incur additional amounts of debt, including secured debt. The incurrence of additional indebtedness could magnify the risks described above. In addition, certain obligations, such as standby letters of credit and performance bonds issued in the ordinary course of business, including those issued under our stand-alone letter of credit agreements and facilities, are not considered indebtedness under our debt instruments (and may be secured), and therefore, are not subject to limits in our debt covenants.

We could be adversely affected by a negative change in our credit rating.

Our ability to access capital on favorable terms is a key factor in our ability to service our indebtedness to cover our operating expenses and to fund our other liquidity needs. Negative rating actions by credit agencies, including downgrades, may make it more difficult and costly for us to access capital. Therefore, any downgrade by any of the principal credit agencies may exacerbate these difficulties. There can be no assurances that our credit ratings will not be downgraded in the future, whether as a result of deteriorating general economic conditions, a more protracted downturn in the housing industry, failure to successfully implement our operating strategy, the adverse impact on our results of operations or liquidity position of any of the above, or otherwise.

Our business is seasonal in nature and our quarterly operating results fluctuate.

Our quarterly operating results generally fluctuate by season. The construction of a customer’s home typically begins after signing the agreement of sale and can take six to nine months or more to complete. Weather-related problems, typically in the fall, winter and early spring, can delay starts or closings and increase costs and thus reduce profitability. In addition, delays in opening communities could have an adverse effect on our sales and revenues. Due to these factors, our quarterly operating results will likely continue to fluctuate.

Our success depends on the availability of suitable undeveloped land and improved lots at acceptable prices and our having sufficient liquidity to fund such investments.

Our success in developing land and in building and selling homes depends in part upon the continued availability of suitable undeveloped land and improved lots at acceptable prices. The homebuilding industry is highly competitive for land that is suitable for residential development and the availability of undeveloped land and improved lots for purchase at favorable prices depends on a number of factors outside of our control, including the risk of competitive overbidding on land and lots, geographical or topographical constraints and restrictive governmental regulation. Should suitable land opportunities become less available, our ability to implement our strategies and operational actions would be limited and the number of homes we may be able to build and sell would be reduced, which would reduce revenue and profits. In addition, our ability to make land purchases will depend upon us having sufficient liquidity to fund such purchases. We may be at a disadvantage in competing for land compared to others who have more substantial cash resources.

Raw material and labor shortages and price fluctuations could delay or increase the cost of home construction and adversely affect our operating results.

The homebuilding industry is vulnerable to raw material and labor shortages and has from time to time experienced such shortages. In particular, shortages and fluctuations in the price of lumber or in other important raw materials could result in delays in the start or completion of, or increase the cost of, developing one or more of our residential communities. For example, manufacturers increased the price of drywall in 2013 by approximately 20% as compared to the prior year, and there is a potential for significant future price increases. Delays or cost increases caused by raw material and labor shortages and price fluctuations, including as a result of inflation or wage increases, could harm our operating results, the impact of which may be further affected depending on our ability to raise sales prices to offset increased costs. We have experienced some labor shortages and increased labor costs over the past few years, including fiscal 2017 and 2018 during which we also experienced increased materials and construction costs. It is uncertain whether these shortages will continue as is, improve or worsen. The cost of labor may be adversely affected by changes in immigration laws and trends in labor migration. If rising labor and house construction costs substantially outpace increases in the income of potential purchasers we may be limited in our ability to raise home sale prices, which may result in lower gross margins.  

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We rely on subcontractors to construct our homes and may incur costs or losses if these subcontractors fail to properly construct our homes or manage and pay their employees.

We engage subcontractors to perform the actual construction of our homes and, in some cases, to select and obtain building materials. Therefore, the timing and quality of our construction depends on the availability, skill, and cost of our subcontractors. Despite our quality control efforts, we may discover that our subcontractors failed to properly construct our homes or may use defective materials. The occurrence of such events could require us to repair the homes in accordance with our standards and as required by law. The cost of satisfying our legal obligations in these instances may be significant, and we may be unable to recover the cost of repair from subcontractors and insurers.

We also can suffer damage to our reputation, and may be exposed to possible liability, if subcontractors fail to comply with applicable laws. When we learn about possibly improper practices by subcontractors, we attempt to cause the subcontractors to discontinue them and may terminate the use of such subcontractors. However, attempts at mitigation may not avoid claims against us relating to actions of or matters relating to our subcontractors that are out of our control. For example, although we do not have the ability to control what these independent subcontractors pay their own employees, or their own subcontractors, or the work rules they impose on such personnel, federal and state governmental agencies, including the U.S. National Labor Relations Board, have sought, and may in the future seek, to hold contracting parties like us responsible for subcontractors’ violations of wage and hour laws, or workers’ compensation, collective bargaining and/or other employment-related obligations related to subcontractors’ workforces. Governmental agency determinations or attempts by others to make us responsible for subcontractors’ labor practices or obligations, could create substantial adverse exposure for us in these types of situations even though not within our control.

We also can suffer damage to our reputation, and may be exposed to possible liability, if subcontractors fail to comply with applicable laws, including laws involving actions or matters that are not within our control.

When we learn about possibly improper practices by subcontractors, we attempt to cause the subcontractors to discontinue them and may terminate the use of such subcontractors. However, attempts at mitigation may not avoid claims against us relating to actions of or matters relating to our subcontractors.

Products supplied to us and work done by subcontractors can expose us to risks that could adversely affect our business.

We rely on subcontractors to perform the actual construction of our homes, and, in some cases, to select and obtain building materials. Despite our detailed specifications and quality control procedures, in some cases, subcontractors may use improper construction processes or defective materials. Defective products widely used by the homebuilding industry can result in the need to perform extensive repairs to large numbers of homes. The cost of complying with our warranty obligations may be significant if we are unable to recover the cost of repairs from subcontractors, materials suppliers and insurers.

Changes in economic and market conditions could result in the sale of homes at a loss or holding land in inventory longer than planned, the cost of which can be significant.

Land inventory risk can be substantial for homebuilders. We must continuously seek and make acquisitions of land for expansion into new markets and for replacement and expansion of land inventory within our current markets. We incur many costs even before we begin to build homes in a community. Depending on the stage of development of a land parcel when we acquire it, these may include costs of preparing land, finishing and entitling lots, installing roads, sewers, water systems and other utilities, taxes and other costs related to ownership of the land on which we plan to build homes. The market value of undeveloped land, buildable lots, and housing inventories can fluctuate significantly as a result of changing economic and market conditions. In the event of significant changes in economic or market conditions, we may have to sell homes at a loss or hold land in inventory longer than planned. In the case of land options, we could choose not to exercise them, in which case we would write-off the value of these options. Inventory carrying costs can be significant and can result in losses in a poorly performing project or market. The assessment of communities for indication of impairment is performed quarterly. While we consider available information to determine what we believe to be our best estimates as of the reporting period, these estimates are subject to change in future reporting periods as facts and circumstances change. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Critical Accounting Policies.” For example, during more recent years, we did not have significant land option write-offs or impairments; however, during fiscal 2011, 2010 and 2009, we decided not to exercise many option contracts and walked away from land option deposits and predevelopment costs, which resulted in land option write-offs of $24.3 million, $13.2 million, and $45.4 million, respectively. Also, in fiscal 2011, 2010 and 2009, as a result of the difficult market conditions, we recorded inventory impairment losses on owned property of $77.5 million, $122.5 million and $614.1 million, respectively. If market conditions worsen, additional inventory impairment losses and land option write-offs will likely be necessary.

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We conduct a significant portion of our business in Arizona, California, Florida, New Jersey, Ohio, Texas and Virginia, and accordingly, regional factors affecting home sales and activities in these markets may have a large impact on our results of operations.

We presently conduct a significant portion of our business in Arizona, California, Florida, New Jersey, Ohio, Texas and Virginia, which subjects us to risks associated with the regional and local economies of these markets. Home prices and sales activities in these markets and in most of the other markets in which we operate have declined from time to time, particularly as a result of slow economic growth. These markets may also depend, to a degree, on certain sectors of the economy and any declines in those sectors may impact home sales and activities in that region. For example, to the extent the oil and gas industries, which can be very volatile, are negatively impacted by declining commodity prices, climate change, legislation or other factors, it could result in reduced employment, or other negative economic consequences, which in turn could adversely impact our home sales and activities in Texas. Furthermore, precarious economic and budget situations at the state government level may adversely affect the market for our homes in the affected areas. Weather-related or other events impacting these markets could also negatively affect these markets as well as the other markets in which we operate. If home prices and sales activity decline in one or more of the markets in which we operate, our costs may not decline at all or at the same rate and the Company’s business, financial condition and results of operations could be materially adversely affected. See also “—The homebuilding industry is significantly affected by changes in general and local economic conditions, real estate markets, and weather and other environmental conditions, which could affect our ability to build homes at prices our customers are willing or able to pay, could reduce profits that may not be recaptured, could result in cancellation of sales contracts, and could affect our liquidity.”

Increases in cancellations of agreements of sale could have an adverse effect on our business.

Our backlog reflects agreements of sale with our home buyers for homes that have not yet been delivered. We have received a deposit from our home buyer for each home, which is reflected in our backlog, and we generally have the right to retain the deposit if the home buyer does not complete the purchase. In some situations, however, a home buyer may cancel the agreement of sale and receive a complete or partial refund of the deposit for reasons such as state and local law, his or her inability to obtain mortgage financing at prevailing interest rates (including financing arranged or provided by us), his or her inability to sell his or her current home, or our inability to complete and deliver the home within the specified time. At October 31, 2018, including unconsolidated joint ventures, we had a backlog of signed contracts for 2,192 homes with a sales value aggregating $977.3 million. If mortgage financing becomes less accessible, or if economic conditions deteriorate, more home buyers may cancel their agreements of sale with us, which could have an adverse effect on our business and results of operations.

Interest rates have been at historic lows over the last several years and are expected to increase. Because almost all of our customers require mortgage financing, increases in interest rates or the decreased availability of mortgage financing could impair the affordability of our homes, lower demand for our products, limit our marketing effectiveness, and limit our ability to fully realize our backlog.

Virtually all of our customers finance their acquisitions through lenders providing mortgage financing. Increases in interest rates (or the perception that interest rates will rise, including as a result of government actions), increases in the costs to obtain mortgages or decreases in availability of mortgage financing could lower demand for new homes because of the increased monthly mortgage costs and cash required to close on mortgages to potential home buyers. Even if potential customers do not need financing, changes in interest rates and mortgage availability could make it harder for them to sell their existing homes to potential buyers who need financing. This could prevent or limit our ability to attract new customers as well as our ability to fully realize our backlog because our sales contracts generally include a financing contingency. Financing contingencies permit the customer to cancel his/her obligation in the event mortgage financing at prevailing interest rates, including financing arranged or provided by us, is unobtainable within the period specified in the contract. This contingency period is typically four to eight weeks following the date of execution of the sales contract. We believe that the availability of mortgage financing, including through federal government agencies or government-sponsored enterprises (such as Federal National Mortgage Association, Federal Home Loan Mortgage Corporation and FHA/VA financing), is an important factor in marketing many of our homes. Any limitations or restrictions on the availability of mortgage financing could reduce our sales. Further, if we are unable to originate mortgages for any reason going forward, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding business and our consolidated financial statements.

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Increases in the after-tax costs of owning a home could prevent potential customers from buying our homes and adversely affect our business or financial results.

Significant expenses of owning a home, including mortgage interest expenses and real estate taxes, have historically been deductible expenses for an individual’s federal, and in some cases state, income taxes, subject to limitations under tax law and policy. The "Tax Cuts and Jobs Act" which was signed into law in December 2017 includes provisions which impose significant limitations with respect to these income tax deductions. For instance, the annual deduction for real estate taxes and state and local income taxes (or sales taxes in lieu of income taxes) is now generally limited to $10,000. Furthermore, through the end of 2025, the deduction for mortgage interest is generally only available with respect to the first $750,000 of a new mortgage and there is no longer a federal deduction for interest on home equity loans. In addition, if the federal government or a state government further changes its income tax laws to further eliminate or substantially limit these income tax deductions, the after-tax cost of owning a new home would further increase for many of our potential customers. The loss or reduction of these homeowner tax deductions that have historically been available has and could further reduce the perceived affordability of homeownership, and therefore the demand for and sales price of new homes, including ours. In addition, increases in property tax rates or fees on developers by local governmental authorities, as experienced in response to reduced federal and state funding or to fund local initiatives, such as funding schools or road improvements, or increases in insurance premiums can adversely affect the ability of potential customers to obtain financing or their desire to purchase new homes, and can have an adverse impact on our business and financial results.

We conduct certain of our operations through unconsolidated joint ventures with independent third parties in which we do not have a controlling interest. These investments involve risks and are highly illiquid.

We currently operate through a number of unconsolidated homebuilding and land development joint ventures with independent third parties in which we do not have a controlling interest. At October 31, 2018, we had invested an aggregate of $123.7 million in these joint ventures, including advances and a note receivable to these joint ventures of $4.6 million. In addition, as part of our strategy, we intend to continue to evaluate additional joint venture opportunities.

These investments involve risks and are highly illiquid. There are a limited number of sources willing to provide acquisition, development, and construction financing to land development and homebuilding joint ventures, and if market conditions become more challenging, it may be difficult or impossible to obtain financing for our joint ventures on commercially reasonable terms. Over the past few years, it has been difficult to obtain financing for newly created joint ventures. In addition, we lack a controlling interest in these joint ventures and, therefore, are usually unable to require that our joint ventures sell assets or return invested capital, make additional capital contributions, or take any other action without the vote of at least one of our venture partners. Therefore, absent partner agreement, we will be unable to liquidate our joint venture investments to generate cash.

Homebuilders are subject to a number of federal, local, state, and foreign laws and regulations concerning the development of land, the homebuilding, sales, and customer financing processes and the protection of the environment, which can cause us to incur delays and costs associated with compliance and which can prohibit or restrict our activity in some regions or areas.

We are subject to extensive and complex laws and regulations that affect the development of land and homebuilding, sales and customer financing processes, including zoning, density, building standards and mortgage financing. These laws and regulations often provide broad discretion to the administering governmental authorities. This can delay or increase the cost of development or homebuilding. In addition, some state and local governments in markets where we operate have approved, and others may approve, slow-growth or no-growth initiatives that could negatively impact the availability of land and building opportunities within those areas. Approval of these initiatives could adversely affect our ability to build and sell homes in the affected markets and/or could require the satisfaction of additional administrative and regulatory requirements, which could result in slowing the progress or increasing the costs of our homebuilding operations in these markets. Any of the above delays or costs could have a negative effect on our future revenues and earnings.

 We also are subject to a variety of local, state, federal and foreign laws and regulations concerning protection of health and the environment, including those regulating the emission or discharge of materials into the environment, the management of storm water runoff at construction sites, the handling, use, storage and disposal of hazardous substances, impacts to wetlands and other sensitive environments, and the remediation of contamination at properties that we have owned or developed or currently own or are developing (“environmental laws”). The particular environmental laws that apply to a site may vary greatly according to the community's site, for example, due to the community, the environmental conditions at or near the site, and the present and former uses of the site. These environmental laws may result in delays, may cause us to incur substantial compliance, remediation and/or other costs, and can prohibit or severely restrict development and homebuilding activity. In addition, noncompliance with these laws and regulations could result in fines and penalties, obligations to remediate, permit revocations or other sanctions, and contamination or other environmental conditions at or in the vicinity of our developments may result in claims against us for personal injury, property damage or other losses.

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For example, in March 2013, we received a letter from the U.S. Environmental Protection Agency (“EPA”) requesting information about our involvement in a housing redevelopment project in Newark, New Jersey that a Company entity undertook during the 1990s. We understand that the development is in the vicinity of a former lead smelter and that tests on soil samples from properties within the development conducted by the EPA show elevated levels of lead. We also understand that the smelter ceased operations many years before the Company entity involved acquired the properties in the area and carried out the re-development project. We responded to the EPA’s request. In August 2013, we were notified that the EPA considers us a potentially responsible party (or “PRP”) with respect to the site, that the EPA will clean up the site, and that the EPA is proposing that we fund and/or contribute towards the cleanup of the contamination at the site. We began preliminary discussions with the EPA concerning a possible resolution but do not know the scope or extent of the Company’s obligations, if any, that may arise from the site and therefore cannot provide any assurance that this matter will not have a material impact on the Company. The EPA requested additional information in April 2014 and again in March 2017 and the Company responded to the information requests. On May 2, 2018 the EPA sent a letter to the Company entity demanding reimbursement for 100% of the EPA’s costs to clean-up the site in the amount of $2.7 million. The Company responded to the EPA’s demand letter on June 15, 2018 setting forth the Company’s defenses and expressing its willingness to enter into settlement negotiations. We believe that we have adequate reserves for this matter.

We anticipate that increasingly stringent requirements will be imposed on developers and homebuilders in the future. For example, for a number of years, the EPA and U.S. Army Corps of Engineers have been engaged in rulemakings to clarify the scope of federally regulated wetlands, which included a June 2015 rule many affected businesses contend impermissibly expanded the scope of such wetlands that was challenged in court, stayed, and remains in litigation. A proposal was made in June 2017 to formally rescind the June 2015 rule and reinstate the rule scheme previously in place while the agencies initiate a new substantive rulemaking on the issue. A February 2018 rule delays the effective date of the June 2015 rule until February 2020, but was enjoined nationwide in August 2018 by a federal district court in South Carolina in response to a lawsuit by a coalition of environmental advocacy groups (the result of which, according to the EPA, is that the June 2015 rule applies in 22 states, the District of Columbia, and the United States territories, and that the pre-June 2015 regime applies in the rest). The district court’s August 2018 decision is being appealed, and the EPA and U.S. Army Corps of Engineers are seeking a stay of the decision. It is unclear how these and related developments, including at the state or local level, ultimately may affect the scope of regulated wetlands where we operate. Although we cannot reliably predict the extent of any effect these developments regarding wetlands, or any other requirements that may take effect may have on us, they could result in time-consuming and expensive compliance programs and in substantial expenditures, which could cause delays and increase our cost of operations. In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained is dependent upon many factors, some of which are beyond our control, such as changes in policies, rules and regulations and their interpretations and application.

Legal claims not resolved in our favor, such as product liability litigation and warranty claims may be costly.

As discussed in Item 3 – “Legal Proceedings,” in the ordinary course of business we are involved in litigation from time to time, including with home owners associations, home buyers and other persons with whom we have relationships. For example, as a homebuilder, we are subject to construction defect and home warranty claims, including moisture intrusion and related claims, arising in the ordinary course of business. Such claims are common in the homebuilding industry and can be costly. For example, in the past we have received construction defect and home warranty claims associated with, and we were involved in a multidistrict litigation concerning, allegedly defective drywall manufactured in China (“Chinese Drywall”) that may have been responsible for noxious smells and accelerated corrosion of certain metals in certain homes we have constructed. We remediated certain homes in response to such claims and settled the litigation.

With regard to certain general liability exposures such as product liability claims, construction defect claims and related claims, assessment of claims and the related liability and reserve estimation process is highly judgmental and subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to our markets and the types of products we build, claim settlement patterns, insurance industry practices and legal interpretations, among others. Because of the high degree of judgment required in determining these estimated liability amounts, actual future costs could differ significantly from our currently estimated amounts. Furthermore, after claims are asserted for construction defects, it can be difficult to determine the extent to which assertions of such claims will expand geographically. For example, the Company has been a party to litigation in New Jersey concerning alleged defects in construction (see Item 3 – “Legal Proceedings” and Note 18 to our Consolidated Financial Statements for the year ended October 31, 2018). In addition, the amount and scope of coverage offered by insurance companies is currently limited, and this coverage may be further restricted and become more costly. If we are not able to obtain adequate insurance against such claims, if the costs associated with such claims significantly exceed the amount of our insurance coverage, or if our insurers do not pay on claims under our policies (whether because of dispute, inability, or otherwise), we may experience losses that could hurt our financial results.

19

Our financial results could also be adversely affected if we were to experience an unusually high number of claims or unusually severe claims. Our insurance companies have the right to review our claims and claims history, and do so from time to time, and could decline to pay on such claims if such reviews determine the claims did not meet the terms for coverage. Additionally, we may need to significantly increase our construction defect and home warranty reserves as a result of insurance not being available for any of the reasons discussed above, such claims or the results of our annual actuarial study.

Mortgage investors could seek to have us buy back loans or compensate them for losses incurred on mortgages we have sold based on claims that we breached our limited representations or warranties.

Our financial services segment originates mortgages, primarily for our homebuilding customers. Substantially all of the mortgage loans originated are sold within a short period of time in the secondary mortgage market on a servicing released, nonrecourse basis, although we remain liable for certain limited representations, such as fraud, and warranties related to loan sales. Accordingly, mortgage investors have in the past and could in the future seek to have us buy back loans or compensate them for losses incurred on mortgages we have sold based on claims that we breached our limited representations or warranties. While we believe these reserves are adequate for known losses and projected repurchase requests, given the volatility in the mortgage industry and the uncertainty regarding the ultimate resolution of these claims, if either actual repurchases or the losses incurred resolving those repurchases exceed our expectations, additional expense may be incurred. There can be no assurance that we will not have significant liabilities in respect of such claims in the future, which could exceed our reserves, or that the impact of such claims on our results of operations will not be material. Further, an increase in the default rate on the mortgages we originate may adversely affect our ability to sell mortgages or the pricing we receive upon the sale of mortgages.

We compete on several levels with homebuilders that may have greater sales and financial resources, which could hurt future earnings.

We compete not only for home buyers but also for desirable properties, financing, raw materials, and skilled labor often within larger subdivisions designed, planned, and developed by other homebuilders. Our competitors include other local, regional and national homebuilders, some of which have greater sales and financial resources or more established relationships with suppliers and subcontractors in the markets in which we operate. In addition, we compete with other housing alternatives, such as existing homes and rental housing. In the homebuilding industry, we compete primarily on the basis of reputation, price, location, design, quality, service and amenities. Our financial services segment competes with other mortgage providers, primarily on the basis of fees, interest rates and other features of mortgage loan products.

The competitive conditions in the homebuilding industry together with current market conditions have, and could continue to, result in:

● difficulty in acquiring suitable land at acceptable prices (see also “−Our success depends on the availability of suitable undeveloped land and improved lots at acceptable prices and our having sufficient liquidity to fund such investments”);  

● increased selling incentives;  

● lower sales;  

● delays in construction; or  

● impairment of our ability to implement our strategies and operational actions.

Any of these problems could increase costs and/or lower profit margins.

Our future growth may include additional acquisitions of companies that may not be successfully integrated and may not achieve expected benefits.

Acquisitions of companies have contributed to our historical growth and may again be a component of our growth strategy in the future. In the future, we may acquire businesses, some of which may be significant. As a result of acquisitions of companies, we may need to seek additional financing and integrate product lines, dispersed operations, and distinct corporate cultures. These integration efforts may not succeed or may distract our management from operating our existing business. Additionally, we may not be able to enhance our earnings as a result of acquisitions. Our failure to successfully identify and manage future acquisitions could harm our operating results.

20

Our controlling stockholders are able to exercise significant influence over us.

Members of the Hovnanian family, including Ara K. Hovnanian, our chairman of the board, president, and chief executive officer, have voting control, through personal holdings, the limited partnership and the limited liability company established for members of Mr. Hovnanian’s family and family trusts of Class A and Class B common stock that enabled them to cast approximately 57% of the votes that could be cast by the holders of our outstanding Class A and Class B common stock combined as of October 31, 2018. Their combined stock ownership enables them to exert significant control over us, including power to control the election of the Board of Directors and to approve matters presented to our stockholders. This concentration of ownership may also make some transactions, including mergers or other changes in control, more difficult or impossible without their support. Also, because of their combined voting power, circumstances may occur in which their interests could be in conflict with the interests of other stakeholders.

Our net operating loss carryforwards could be substantially limited if we experience an ownership change as defined in the Internal Revenue Code.

Based on past impairments and our current financial performance, we generated a federal net operating loss carryforward of $1.6 billion through the fiscal year ended October 31, 2018, and we may generate net operating loss carryforwards in future years.

Section 382 of the United States Internal Revenue Code of 1986, as amended (the “Code”), contains rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to utilize its net operating loss carryforwards and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership shifts among stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company.

If we undergo an ownership change for purposes of Section 382 as a result of future transactions involving our stock, including purchases or sales of stock between 5% shareholders, our ability to use our net operating loss carryforwards and to recognize certain built-in losses would be subject to the limitations of Section 382. Depending on the resulting limitation, a significant portion of our net operating loss carryforwards could expire before we would be able to use them. A limitation imposed under Section 382 on our ability to utilize our net operating loss carryforwards could have a negative impact on our financial position and results of operations.

The value of our deferred tax assets is also dependent upon the tax rates expected to be in effect at the time the taxable income is expected to be generated. A decrease in enacted corporate tax rates in our major jurisdictions, especially the U.S. federal corporate rate, would decrease the value of our deferred tax assets, which could be material.

 Our Board of Directors has adopted, and our shareholders have approved, a shareholder rights plan (the “Rights Plan”) designed to preserve shareholder value and the value of certain tax assets primarily associated with net operating loss carryforwards and built-in losses under Section 382 of the Code. The Rights Plan is intended to act as a deterrent to any person or group acquiring 4.9% or more of our outstanding Class A common stock (any such person an “Acquiring Person”), without the approval of the Company’s Board of Directors. Subject to the terms, provisions and conditions of the Rights Plan, if and when they become exercisable, each right would entitle its holder to purchase from the Company one ten-thousandth of a share of the Company’s Series B Junior Preferred Stock for a purchase price of $16.60 per share (the “purchase price”). The rights will not be exercisable until the earlier of (i) 10 business days after a public announcement by us that a person or group has become an Acquiring Person and (ii) 10 business days after the commencement of a tender or exchange offer by a person or group for 4.9% of the Class A common stock (the “distribution date”). If issued, each fractional share of Series B Junior Preferred Stock would give the stockholder approximately the same dividend, voting and liquidation rights as does one share of the Company’s Class A common stock. However, prior to exercise, a right does not give its holder any rights as a stockholder of the Company, including without limitation any dividend, voting or liquidation rights. After the distribution date, each holder of a right, other than rights beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to receive upon exercise of a right and payment of the purchase price, that number of shares of Class A common stock or Class B common stock, as the case may be, having a market value of two times the purchase price. After the distribution date, our Board of Directors may exchange the rights (other than rights owned by an Acquiring Person which will have become void), in whole or in part, at an exchange ratio of one share of common stock, or a fractional share of Series B Junior Preferred Stock (or of a share of a similar class or series of Hovnanian’s preferred stock having similar rights, preferences and privileges) of equivalent value, per right (subject to adjustment).

In addition, our Restated Certificate of Incorporation restricts certain transfers of our common stock in order to preserve the tax treatment of our net operating loss carryforwards and built-in losses under Section 382 of the Code. Subject to certain exceptions pertaining to pre-existing 5% stockholders and Class B stockholders, the transfer restrictions in our Restated Certificate of Incorporation generally restrict any direct or indirect transfer (such as transfers of the Company’s stock that result from the transfer of interests in other entities that own the Company’s stock) if the effect would be to: (i) increase the direct or indirect ownership of the Company’s stock by any person (or public group) from less than 5% to 5% or more of the Company’s stock; (ii) increase the percentage of the Company’s stock owned directly or indirectly by a person (or public group) owning or deemed to own 5% or more of the Company’s stock; or (iii) create a new “public group” (as defined in the applicable United States Treasury regulations).

21

Utility shortages and outages or rate fluctuations could have an adverse effect on our operations.

In prior years, the areas in which we operate in California have experienced power shortages, including periods without electrical power, as well as significant fluctuations in utility costs. We may incur additional costs and may not be able to complete construction on a timely basis if such power shortages and outages and utility rate fluctuations continue. Furthermore, power shortages and outages and rate fluctuations may adversely affect the regional economies in which we operate, which may reduce demand for our homes. Our operations may be adversely affected if further rate fluctuations and/or power shortages and outages occur in California, the Northeast or in our other markets.

Geopolitical risks and market disruption could adversely affect our operating results and financial condition.

Geopolitical events, acts of war or terrorism, civil unrest, or any outbreak or escalation of hostilities throughout the world or health pandemics, may have a substantial impact on the economy, consumer confidence, the housing market, our associates and our customers. Further, perceived threats to national security and other actual or potential conflicts or wars and related geopolitical risks have created many economic and political uncertainties. If any such events were to occur, it could have a material adverse impact on our results of operations and financial condition.

We could be adversely impacted by the loss of key management personnel or if we fail to attract qualified personnel.

To a significant degree, our future success depends on the efforts of our senior management, many of whom have been with the Company for a significant number of years, and our ability to attract qualified personnel. Our operations could be adversely affected if key members of our senior management leave the Company or if we cannot attract qualified personnel to manage growth in our business.

Information technology failures and data security breaches could harm our business.

We use information technology, digital telecommunications and other computer resources to carry out important operational activities and to maintain our business records. In addition, we rely on the systems of third parties, such as third-party vendors. Our computer systems, including our backup systems, and those of the third-parties on whose systems we rely, are subject to damage or interruption from computer and telecommunications failures, computer viruses, power outages, security breaches (including through data-theft and cyber-attack), usage errors by our associates and catastrophic events, such as fires, floods, hurricanes and tornadoes. If our computer systems and our backup systems, or those of the third-parties on whose systems we rely, are breached, compromised, damaged, or otherwise cease to function properly, we could suffer interruptions in our operations or the misappropriation of proprietary or confidential information, including information about our business partners and home buyers. Our failure to maintain the security of the data we are required to protect could result in damage to our reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation with potentially large costs, and also in deterioration in customers’ confidence in us and other competitive disadvantages. Further, we are continuously working to develop and maintain our systems and protect them from the threats enumerated above. These measures, which require ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated, are costly and may not be effective in preventing or mitigating significant negative occurrences or irregularities in our systems or those of third-parties on whose systems we rely.

Negative publicity could adversely affect our reputation and our business, financial results and stock price.

Unfavorable media related to our industry, company, brand, personnel, operations, business performance, or prospects may impact our stock price and the performance of our business, regardless of its accuracy or inaccuracy. The speed at which negative publicity is disseminated has increased dramatically through the use of electronic communication, including social media outlets, websites, "tweets", and blogs. Our success in maintaining and expanding our brand image depends on our ability to adapt to this rapidly changing media environment. Adverse publicity or negative commentary from any media outlets could damage our reputation and reduce the demand for our homes, which would adversely affect our business.

ITEM 1B

UNRESOLVED STAFF COMMENTS

None.

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ITEM 2

PROPERTIES

We rent approximately 57,000 square feet of office space in the Northeast for our corporate headquarters. We own 215,000 square feet of office and warehouse space throughout the Midwest. We lease approximately 346,000 square feet of space for our segments located in the Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West. Included in this amount is 6,800 square feet of abandoned lease space.

ITEM 3

LEGAL PROCEEDINGS

We are involved in litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on our financial position, results of operations or cash flows, and we are subject to extensive and complex laws and regulations that affect the development of land and home building, sales and customer financing processes, including zoning, density, building standards and mortgage financing. These laws and regulations often provide broad discretion to the administering governmental authorities. This can delay or increase the cost of development or homebuilding. The significant majority of our litigation matters are related to construction defect claims. Our estimated losses from construction defect litigation matters, if any, are included in our construction defect reserves as discussed in Note 16 to the Consolidated Financial Statements.

We also are subject to a variety of local, state, federal and foreign laws and regulations concerning protection of health and the environment, including those regulating the emission or discharge of materials into the environment, the management of storm water runoff at construction sites, the handling, use, storage and disposal of hazardous substances, impacts to wetlands and other sensitive environments, and the remediation of contamination at properties that we have owned or developed or currently own or are developing (“environmental laws”). The particular environmental laws that apply to a site may vary greatly according to the community site, for example, due to the community, the environmental conditions at or near the site, and the present and former uses of the site. These environmental laws may result in delays, may cause us to incur substantial compliance, remediation and/or other costs, and can prohibit or severely restrict development and homebuilding activity. In addition, noncompliance with these laws and regulations could result in fines and penalties, obligations to remediate, permit revocations or other sanctions; and contamination or other environmental conditions at or in the vicinity of our developments may result in claims against us for personal injury, property damage or other losses.

We anticipate that increasingly stringent requirements will be imposed on developers and homebuilders in the future. For example, for a number of years, the EPA and U.S. Army Corps of Engineers have been engaged in rulemakings to clarify the scope of federally regulated wetlands, which included a June 2015 rule many affected businesses contend impermissibly expanded the scope of such wetlands that was challenged in court, stayed, and remains in litigation. A proposal was made in June 2017 to formally rescind the June 2015 rule and reinstate the rule scheme previously in place while the agencies initiate a new substantive rulemaking on the issue. A February 2018 rule delays the effective date of the June 2015 rule until February 2020, but was enjoined nationwide in August 2018 by a federal district court in South Carolina in response to a lawsuit by a coalition of environmental advocacy groups (the result of which, according to the EPA, is that the June 2015 rule applies in 22 states, the District of Columbia and the United States territories, and that the pre-June 2015 regime applies in the rest). The district court’s August 2018 decision is being appealed, and the EPA and U.S. Army Corps of Engineers are seeking a stay of the decision. It is unclear how these and related developments, including at the state or local level, ultimately may affect the scope of regulated wetlands where we operate. Although we cannot reliably predict the extent of any effect these developments regarding wetlands, or any other requirements that may take effect may have on us, they could result in time-consuming and expensive compliance programs and in substantial expenditures, which could cause delays and increase our cost of operations. In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained is dependent upon many factors, some of which are beyond our control, such as changes in policies, rules and regulations and their interpretations and application.

In March 2013, we received a letter from the Environmental Protection Agency (“EPA”) requesting information about our involvement in a housing redevelopment project in Newark, New Jersey that a Company entity undertook during the 1990s. We understand that the development is in the vicinity of a former lead smelter and that tests on soil samples from properties within the development conducted by the EPA showed elevated levels of lead. We also understand that the smelter ceased operations many years before the Company entity involved acquired the properties in the area and carried out the re-development project. We responded to the EPA’s request. In August 2013, we were notified that the EPA considers us a potentially responsible party (or “PRP”) with respect to the site, that the EPA will clean up the site, and that the EPA is proposing that we fund and/or contribute towards the cleanup of the contamination at the site. We began preliminary discussions with the EPA concerning a possible resolution but do not know the scope or extent of the Company’s obligations, if any, that may arise from the site and therefore cannot provide any assurance that this matter will not have a material impact on the Company. The EPA requested additional information in April 2014 and again in March 2017 and the Company responded to the information requests. On May 2, 2018 the EPA sent a letter to the Company entity demanding reimbursement for 100% of the EPA’s costs to clean-up the site in the amount of $2.7 million. The Company responded to the EPA’s demand letter on June 15, 2018 setting forth the Company’s defenses and expressing its willingness to enter into settlement negotiations. We believe that we have adequate reserves for this matter.

23

The Grandview at Riverwalk Port Imperial Condominium Association, Inc. (the “Grandview Plaintiff”) filed a construction defect lawsuit against Hovnanian Enterprises, Inc. and several of its affiliates, including K. Hovnanian at Port Imperial Urban Renewal II, LLC, K. Hovnanian Construction Management, Inc., K. Hovnanian Companies, LLC, K. Hovnanian Enterprises, Inc., K. Hovnanian North East, Inc. aka and/or dba K. Hovnanian Companies North East, Inc., K. Hovnanian Construction II, Inc., K. Hovnanian Cooperative, Inc., K. Hovnanian Developments of New Jersey, Inc., and K. Hovnanian Holdings NJ, LLC, as well as the project architect, the geotechnical engineers and various construction contractors for the project alleging various construction defects, design defects and geotechnical issues totaling approximately $41.3 million. The lawsuit included claims against the geotechnical engineers for differential soil settlement under the building, against the architects for failing to design the correct type of structure allowable under the New Jersey Building Code, and against the Hovnanian-affiliated developer entity (K. Hovnanian at Port Imperial Urban Renewal II, LLC ) alleging that it: (1) had knowledge of and failed to disclose the improper building classification to unit purchasers and was therefore liable for treble damages under the New Jersey Consumer Fraud Act; and (2) breached an express warranty set forth in the Public Offering Statements that the common elements at the building were fit for their intended purpose. The Grandview Plaintiff further alleged that Hovnanian Enterprises, Inc., K. Hovnanian Holdings NJ, LLC, K. Hovnanian Developments of New Jersey, Inc., and K. Hovnanian Developments of New Jersey II, Inc. were jointly liable for any damages owed by the Hovnanian development entity under a veil piercing theory.

After the parties reached a pre-trial settlement on the construction defect issues, trial commenced on April 17, 2017 in Hudson County, New Jersey. The Hovnanian-affiliated defendants resolved the geotechnical claims mid-trial for an amount immaterial to the Company, but the balance of the case continued to be tried before the jury. On June 1, 2017, the jury rendered a verdict against K. Hovnanian at Port Imperial Urban Renewal II, LLC on the breach of warranty and New Jersey Consumer Fraud claims in the total amount of $3 million, which resulted in a total verdict of $9 million against that entity due to statutory trebling, plus a portion of Grandview Plaintiff’s attorneys’ fees and costs. The Court subsequently awarded $1.4 million in attorneys’ fees and costs. The jury also found in favor of Grandview Plaintiff on its veil piercing theory. After the Court denied the Hovnanian-affiliated defendants’ filed post-trial motions, including a motion for contractual indemnification against the project architect, the Court entered final judgment in the amount of approximately $10.4 million on January 12, 2018. 

On January 24, 2018, the relevant Hovnanian-affiliated defendants appealed all aspects of the verdict against them. On February 16, 2018, the Court entered an order staying execution of the judgment provided that the Hovnanian-affiliated defendants post a bond in the amount of approximately $11.1 million. On March 9, 2018, the Hovnanian-affiliated defendants filed the Court-approved bond. On July 30, 2018, during the pendency of the appeal, the Hovnanian-affiliated defendants settled the Grandview Plaintiff's claims for an amount less than the bond, which amount was paid on September 12, 2018.  As part of the settlement, all appeals were dismissed other than the appeal of the Court’s denial of the Hovnanian-affiliated defendant’s contractual indemnification claim against the project architect.

In 2015, the condominium association of the Four Seasons at Great Notch condominium community (the “Great Notch Plaintiff”) filed a lawsuit in the Superior Court of New Jersey, Law Division, Passaic County (the “Court”) alleging various construction defects, design defects, and geotechnical issues relating to the community. The operative complaint (“Complaint”) asserts claims against Hovnanian Enterprises, Inc. and several of its affiliates, including K. Hovnanian at Great Notch, LLC, K. Hovnanian Construction Management, Inc., and K. Hovnanian Companies, LLC. The Complaint also asserts claims against various other design professionals and contractors. The Great Notch Plaintiff has also filed a motion, which remains pending, to permit it to pursue a claim to pierce the corporate veil of K. Hovnanian at Great Notch, LLC to hold its alleged parent entities liable for any damages awarded against it. To date, the Hovnanian-affiliated defendants have reached a partial settlement with the Great Notch Plaintiff as to a portion of the Great Notch Plaintiff’s claims against them for an amount immaterial to the Company. On its remaining claims against the Hovnanian-affiliated defendants, the Great Notch Plaintiff recently asserted damages of approximately $119.5 million, which amount is potentially subject to treble damages pursuant to the Great Notch Plaintiff’s claim under the New Jersey Consumer Fraud Act. On August 17, 2018, the Hovnanian-affiliated defendants filed a motion for summary judgment seeking dismissal of all of the Great Notch Plaintiff’s remaining claims against them, which remains pending. Trial is currently scheduled for March 25, 2019. Court ordered mediation sessions have been scheduled for January 2019. The Hovnanian-affiliated defendants intend to defend these claims vigorously.

ITEM 4

MINE SAFETY DISCLOSURES

Not applicable

EXECUTIVE OFFICERS OF THE REGISTRANT

Information on executive officers of the registrant is incorporated herein from Part III, Item 10.

24

Part II

ITEM 5

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Class A Common Stock is traded on the New York Stock Exchange under the symbol “HOV” and was held by 436 stockholders of record at December 14, 2018. There is no established public trading market for our Class B Common Stock, which was held by 227 stockholders of record at December 14, 2018. If a shareholder desires to sell shares of Class B Common Stock (other than to Permitted Transferees (as defined in the Company’s amended Certificate of Incorporation)), such stock must be converted into shares of Class A Common Stock at a one to one conversion rate. 

Recent Sales of Unregistered Equity Securities

 None.

Issuer Purchases of Equity Securities

No shares of our Class A Common Stock or Class B Common Stock were purchased by or on behalf of the Company or any affiliated purchaser during the fiscal fourth quarter of 2018. The maximum number of shares that may yet be purchased under the Company’s repurchase plans or programs is 0.5 million.

25

ITEM 6

SELECTED FINANCIAL DATA

The following table sets forth our selected consolidated financial data and should be read in conjunction with Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K. 

	Year Ended
Summary of Consolidated Statements of Operations Data (In thousands, except per share data)	October 31, 2018		October 31, 2017		October 31, 2016		October 31, 2015		October 31, 2014
Revenues	$1,991,233		$2,451,665		$2,752,247		$2,148,480		$2,063,380
Expenses excluding inventory impairment loss and land option write-offs	1,996,083		2,437,195		2,708,912		2,162,370		2,044,718
Inventory impairment loss and land option write-offs	3,501		17,813		33,353		12,044		5,224
Total expenses	1,999,584		2,455,008		2,742,265		2,174,414		2,049,942
Loss on extinguishment of debt	(7,536	)	(34,854	)	(3,200	)	-		(1,155	)
Income (loss) from unconsolidated joint ventures	24,033		(7,047	)	(4,346	)	4,169		7,897
Income (loss) before income taxes	8,146		(45,244	)	2,436		(21,765	)	20,180
State and federal income tax provision (benefit)	3,626		286,949		5,255		(5,665	)	(286,964	)
Net Income (loss)	$4,520		$(332,193	)	$(2,819	)	$(16,100	)	$307,144
Per share data:
Basic:
Net income (loss) per common share	$0.03		$(2.25	)	$(0.02	)	$(0.11	)	$2.05
Weighted-average number of common shares outstanding	148,515		147,703		147,451		146,899		146,271
Assuming dilution:
Net income (loss) per common share	$0.03		$(2.25	)	$(0.02	)	$(0.11	)	$1.87
Weighted-average number of common shares outstanding	151,786		147,703		147,451		146,899		162,441

Summary of Consolidated Balance Sheet Data

(In thousands)	October 31, 2018		October 31, 2017		October 31, 2016		October 31, 2015		October 31, 2014
Total assets(1)	$1,662,042		$1,900,898		$2,354,956		$2,577,398		$2,264,433
Mortgages and lines of credit (1)	$208,733		$244,088		$294,015		$310,672		$193,104
Term loans and revolving loans, senior notes, senior amortizing notes, senior exchangeable notes and tangible equity unit (“TEU”) senior subordinated amortizing notes (net of discount and premium)	$1,439,238		$1,585,837		$1,573,333		$1,827,924		$1,636,402
Total equity deficit	$(453,504	)	$(460,371	)	$(128,510	)	$(128,084	)	$(117,799	)

(1) In connection with our adoption of Accounting Standards Update 2015-03 in November 2016, certain prior year amounts for unamortized debt issuance costs were reclassified between the lines “Total assets” and “Mortgages and lines of credit” and “Term loans and revolving loans, senior notes, senior amortizing notes, senior exchangeable notes and tangible equity unit (“TEU”) senior subordinated amortizing note (net of discount and premium)”.

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ITEM 7

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Hovnanian Enterprises, Inc. (“HEI”) conducts all of its homebuilding and financial services operations through its subsidiaries (references herein to the “Company,” “we,” “us” or “our” refer to HEI and its consolidated subsidiaries and should be understood to reflect the consolidated business of HEI’s subsidiaries).

Overview

As discussed in previous quarters, we were limited in our ability to invest in land purchases in fiscal 2016 and 2017 due to significant debt maturities that we were unable to refinance and therefore had to pay at maturity. This reduction of investment has led to a decrease in community count and revenues, which impacts our overall profitability. Our total number of lots controlled increased in the quarter ended October 31, 2018, as compared to the same period of the prior year, which is the fourth consecutive quarter for which we have experienced a year-over-year quarterly increase. We believe continued growth in lots controlled should ultimately lead to community count growth and our fiscal 2017 and 2018 financing transactions have provided us with the long term capital needed to implement our investment strategy to grow our business. However, there is typically a significant time lag from when we first control lots until the time that we open a community for sale. 

Our cash position in fiscal 2018 allowed us to spend $566.8 million on land purchases and land development during fiscal 2018, along with using $211.4 million of cash to pay down debt, and still have $187.9 million of homebuilding cash and cash equivalents as of October 31, 2018. We continue to see opportunities to purchase land at prices that make economic sense in light of our current sales prices and sales pace and plan to continue actively pursuing such land acquisitions. New land purchases at pricing that we believe will generate appropriate investment returns and drive greater operating efficiencies are needed to return to sustained profitability.

The factors discussed above for fiscal 2016 and 2017 led to a decrease in our community count from 130 at October 31, 2017 to 123 at October 31, 2018, and as a result, for the year ended October 31, 2018 we experienced mixed operating results compared to the prior year. More specifically:

● Net contracts per average active selling community increased slightly to 35.9 for the year ended October 31, 2018 compared to 35.1 in the prior year.

● Active selling communities decreased 5.4% over last year, and our average active selling communities decreased by 12.2% over last year. Net contracts decreased 10.1% for the year ended October 31, 2018, compared to the prior year.

● For the year ended October 31, 2018, sale of homes revenues decreased 18.5% as compared to the prior year, as a result of a 13.5% decrease in deliveries, primarily due to our decreased community count.

● Gross margin percentage increased from 13.2% for the year ended October 31, 2017 to 15.2% for the year ended October 31, 2018. Gross margin percentage, before cost of sales interest expense and land charges, increased from 17.2% for the year ended October 31, 2017 to 18.4% for the year ended October 31, 2018. The improvements in both gross margin percentage and gross margin percentage, before cost of sales interest expense and land charges, are primarily the result of the mix of communities delivering, as well as the benefit of a one-time $6.3 million credit related to a land development reimbursement from a municipality in California.

● Selling, general and administrative costs (including corporate general and administrative expenses) decreased $26.9 million for the year ended October 31, 2018 as compared to the prior year. As a percentage of total revenue, such costs increased from 10.4% for the year ended October 31, 2017 to 11.5% for the year ended October 31, 2018. The dollar decrease for year ended October 31, 2018 was primarily due to the reduction of our warranty reserves, as a result of our annual actuarial analysis, along with an adjustment to our insurance reserves in the third quarter of fiscal 2018, resulting from a recent legal settlement. There was also an increase in management fees received from our joint ventures, due to increased unconsolidated joint venture deliveries during the period, and $12.5 million of additional reserves recorded in fiscal 2017 related to the Grandview litigation discussed in Note 18 to the Consolidated Financial Statements. Partially offsetting the decrease for the year ended October 31, 2018, were higher stock compensation costs and legal (including litigation) fees incurred related to our fiscal 2018 financing transactions. We received insurance coverage, less the deductible, for these litigation costs. Also offsetting the decreased costs for the year ended October 31, 2018 was rent expense related to (i) the sale and leaseback of our former corporate headquarters building for the period from November 2017 to February 2018 and (ii) rent on our new headquarters building. The increase in selling, general and administrative costs (including corporate general and administrative expenses) as a percentage of total revenue for the year ended October 31, 2018 was mainly due to the decrease in total revenues for fiscal 2018 as compared to the prior year.

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When comparing sequentially from the third quarter of fiscal 2018 to the fourth quarter of fiscal 2018, our gross margin percentage increased from 15.4% to 16.5% and our gross margin percentage, before cost of sales interest expense and land charges, increased from 18.4% to 19.2%. Our gross margin percentage, and gross margin percentage, before cost of sales interest expense and land charges, increased primarily as a result of product mix, as well as the benefit of a one-time $6.3 million credit related to a land development reimbursement from a municipality in California. Selling, general and administrative costs (including corporate general and administrative expenses) as a percentage of total revenues decreased from 11.8% to 8.3%, as compared to the third quarter of fiscal 2018 primarily due to a $10.2 million reduction in our construction defect reserves in the fourth quarter of fiscal 2018, as a result of our annual actuarial analysis, along with an increase in management fees received from our joint ventures, due to increased unconsolidated joint venture deliveries during the period. Partially offsetting the decrease was an adjustment to our insurance reserves in the third quarter of fiscal 2018, resulting from a recent legal settlement. Improving the efficiency of our selling, general and administrative expenses will continue to be a significant area of focus.

We had 1,826 homes in backlog with a dollar value of $745.6 million at October 31, 2018 (a decrease of 7.7% in dollar value compared to the prior year). As expected, due to our use of cash for significant debt repayments in prior fiscal years as discussed above, our community count decreased during fiscal 2018. Further, our net contracts per community declined in the fourth quarter of fiscal 2018 compared to the fourth quarter of fiscal 2017 consistent with data for the overall housing market. In light of these results, we remain cautious and are carefully evaluating market conditions when evaluating new land acquisitions. As discussed above, we have invested $566.8 million in land purchases and land development during fiscal 2018, which along with continued land acquisitions, is expected to lead to future community count growth. However, there is typically a significant time lag from when we first control lots until the time that we open a community for sale. This timeline can vary significantly from a few months (in a market such as Houston) to three to five plus years (in a market such as New Jersey). We continue to see opportunities to purchase land at prices that make economic sense in light of our current sales prices and sales paces and plan to continue actively pursuing such land acquisitions. Given the mix of land that we currently control and the land investment we currently anticipate, we currently believe that our community count growth will begin in the first half of fiscal 2019. Ultimately, community count growth, absent adverse market factors, should lead to delivery and revenue growth in the future.

Subsequent to our fiscal year-end, there have been significant wildfires throughout Southern California. While none of our communities have been directly affected, we could experience labor shortages, construction delays or utility company delays, which in turn could impact our fiscal 2019 results.

Critical Accounting Policies

Management believes that the following critical accounting policies require its most significant judgments and estimates used in the preparation of the consolidated financial statements:

Income Recognition from Mortgage Loans - Our Financial Services segment originates mortgages, primarily for our homebuilding customers. We use mandatory investor commitments and forward sales of mortgage backed securities (“MBS”) to hedge our mortgage-related interest rate exposure on agency and government loans.

We elected the fair value option for our mortgage loans held for sale in accordance with Accounting Standards Codification (“ASC”) 825, “Financial Instruments,” which permits us to measure our loans held for sale at fair value. Management believes that the election of the fair value option for loans held for sale improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions.

Substantially all of the mortgage loans originated are sold within a short period of time in the secondary mortgage market on a servicing released, nonrecourse basis, although the Company remains liable for certain limited representations, such as fraud, and warranties related to loan sales. Mortgage investors could seek to have us buy back loans or compensate them for losses incurred on mortgages we have sold based on claims that we breached our limited representations and warranties. We have established reserves for probable losses. While we believe these reserves are adequate for known losses and projected repurchase requests, given the volatility in the mortgage industry and the uncertainty regarding the ultimate resolution of these claims, if either actual repurchases or the losses incurred resolving those repurchases exceed our expectations, additional expense may be incurred.  

Inventories - Inventories consist of land, land development, home construction costs, capitalized interest, construction overhead and property taxes. Construction costs are accumulated during the period of construction and charged to cost of sales under specific identification methods. Land, land development and common facility costs are allocated based on buildable acres to product types within each community, then charged to cost of sales equally based upon the number of homes to be constructed in each product type.

We record inventories in our consolidated balance sheets at cost unless the inventory is determined to be impaired, in which case the inventory is written down to its fair value. Our inventories consist of the following three components: (1) sold and unsold homes and lots under development, which includes all construction, land, capitalized interest and land development costs related to started homes and land under development in our active communities; (2) land and land options held for future development or sale, which includes all costs related to land in our communities in planning or mothballed communities; and (3) consolidated inventory not owned, which includes all costs related to specific performance options, variable interest entities and other options, which consists primarily of model homes financed with an investor and inventory related to land banking arrangements accounted for as financings.

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We decide to mothball (or stop development on) certain communities when we determine that the current performance does not justify further investment at the time. When we decide to mothball a community, the inventory is reclassified on our Consolidated Balance Sheets from “Sold and unsold homes and lots under development” to “Land and land options held for future development or sale.” As of October 31, 2018, the net book value associated with our 18 mothballed communities was $24.5 million, net of impairment charges recorded in prior periods of $186.1 million. We regularly review communities to determine if mothballing is appropriate. During fiscal 2018, we did not mothball any communities, but we sold two previously mothballed communities and re-activated two previously mothballed communities.

From time to time we enter into option agreements that include specific performance requirements, whereby we are required to purchase a minimum number of lots. Because of our obligation to purchase these lots, for accounting purposes in accordance with ASC 360-20-40-38, we are required to record this inventory on our Consolidated Balance Sheets. As of October 31, 2018, we had no specific performance options recorded on our Consolidated Balance Sheets. Consolidated inventory not owned also consists of other options that were included on our Consolidated Balance Sheets in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). 

We sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to a third party at the end of the respective lease. As a result of our continued involvement, for accounting purposes in accordance with ASC 360-20-40-38, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, for purposes of our Consolidated Balance Sheets, at October 31, 2018, inventory of $50.5 million was recorded to “Consolidated inventory not owned,” with a corresponding amount of $43.9 million recorded to “Liabilities from inventory not owned.”

We have land banking arrangements, whereby we sell our land parcels to the land banker and they provide us an option to purchase back finished lots on a quarterly basis. Because of our options to repurchase these parcels, for accounting purposes, in accordance with ASC 360-20-40-38, these transactions are considered financings rather than sales. For purposes of our Consolidated Balance Sheets, at October 31, 2018, inventory of $37.4 million was recorded as “Consolidated inventory not owned,” with a corresponding amount of $19.5 million recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions.

The recoverability of inventories and other long-lived assets is assessed in accordance with the provisions of ASC 360-10, “Property, Plant and Equipment − Overall” (“ASC 360-10”). ASC 360-10 requires long-lived assets, including inventories, held for development to be evaluated for impairment based on undiscounted future cash flows of the assets at the lowest level for which there are identifiable cash flows. As such, we evaluate inventories for impairment at the individual community level, the lowest level of discrete cash flows that we measure.

We evaluate inventories of communities under development and held for future development for impairment when indicators of potential impairment are present. Indicators of impairment include, but are not limited to, decreases in local housing market values, decreases in gross margins or sales absorption rates, decreases in net sales prices (base sales price net of sales incentives), or actual or projected operating or cash flow losses. The assessment of communities for indication of impairment is performed quarterly. As part of this process, we prepare detailed budgets for all of our communities at least semi-annually and identify those communities with a projected operating loss. For those communities with projected losses, we estimate the remaining undiscounted future cash flows and compare those to the carrying value of the community, to determine if the carrying value of the asset is recoverable.

The projected operating profits, losses, or cash flows of each community can be significantly impacted by our estimates of the following:

● future base selling prices;

● future home sales incentives;

● future home construction and land development costs; and

● future sales absorption pace and cancellation rates.

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These estimates are dependent upon specific market conditions for each community. While we consider available information to determine what we believe to be our best estimates as of the end of a quarterly reporting period, these estimates are subject to change in future reporting periods as facts and circumstances change. Local market-specific conditions that may impact our estimates for a community include:

● the intensity of competition within a market, including available home sales prices and home sales incentives offered by our competitors;

● the current sales absorption pace for both our communities and competitor communities;

● community specific attributes, such as location, availability of lots in the market, desirability and uniqueness of our community, and the size and style of homes currently being offered;

● potential for alternative product offerings to respond to local market conditions;

● changes by management in the sales strategy of the community;

● current local market economic and demographic conditions and related trends of forecasts; and

● existing home inventory supplies, including foreclosures and short sales.

These and other local market-specific conditions that may be present are considered by management in preparing projection assumptions for each community. The sales objectives can differ between our communities, even within a given market. For example, facts and circumstances in a given community may lead us to price our homes with the objective of yielding a higher sales absorption pace, while facts and circumstances in another community may lead us to price our homes to minimize deterioration in our gross margins, although it may result in a slower sales absorption pace. In addition, the key assumptions included in our estimate of future undiscounted cash flows may be interrelated. For example, a decrease in estimated base sales price or an increase in homes sales incentives may result in a corresponding increase in sales absorption pace. Additionally, a decrease in the average sales price of homes to be sold and closed in future reporting periods for one community that has not been generating what management believes to be an adequate sales absorption pace may impact the estimated cash flow assumptions of a nearby community. Changes in our key assumptions, including estimated construction and development costs, absorption pace and selling strategies, could materially impact future cash flow and fair-value estimates. Due to the number of possible scenarios that would result from various changes in these factors, we do not believe it is possible to develop a sensitivity analysis with a level of precision that would be meaningful to an investor.

If the undiscounted cash flows are more than the carrying value of the community, then the carrying amount is recoverable, and no impairment adjustment is required. However, if the undiscounted cash flows are less than the carrying amount, then the community is deemed impaired and is written down to its fair value. We determine the estimated fair value of each community by determining the present value of its estimated future cash flows at a discount rate commensurate with the risk of the respective community, or in limited circumstances, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale), and recent bona fide offers received from outside third parties. Our discount rates used for all impairments recorded from October 31, 2016 to October 31, 2018 ranged from 16.8% to 19.8%. The estimated future cash flow assumptions are virtually the same for both our recoverability and fair value assessments. Should the estimates or expectations used in determining estimated cash flows or fair value, including discount rates, decrease or differ from current estimates in the future, we may be required to recognize additional impairments related to current and future communities. The impairment of a community is allocated to each lot on a relative fair value basis.

From time to time, we write off deposits and approval, engineering and capitalized interest costs when we determine that it is no longer probable that we will exercise options to buy land in specific locations or when we redesign communities and/or abandon certain engineering costs. In deciding not to exercise a land option, we take into consideration changes in market conditions, the timing of required land takedowns, the willingness of land sellers to modify terms of the land option contract (including timing of land takedowns), and the availability and best use of our capital, among other factors. The write-off is recorded in the period it is deemed not probable that the optioned property will be acquired. In certain instances, we have been able to recover deposits and other pre-acquisition costs that were previously written off. These recoveries have not been significant in comparison to the total costs written off.

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Inventories held for sale are land parcels ready for sale in their current condition, where we have decided not to build homes but are instead actively marketing for sale. These land parcels represented $6.4 million and $23.6 million of our total inventories at October 31, 2018 and 2017, respectively, and are reported at the lower of carrying amount or fair value less costs to sell. In determining fair value for land held for sale, management considers, among other things, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale) and recent bona fide offers received from outside third parties.

Unconsolidated Homebuilding and Land Development Joint Ventures - Investments in unconsolidated homebuilding and land development joint ventures are accounted for under the equity method of accounting. Under the equity method, we recognize our proportionate share of earnings and losses earned by the joint venture upon the delivery of lots or homes to third parties. Our ownership interests in the joint ventures vary but our voting interests are generally 50% or less. In determining whether or not we must consolidate joint ventures where we are the managing member of the joint venture, we assess whether the other partners have specific rights to overcome the presumption of control by us as the manager of the joint venture. In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the significant operating and capital decisions of the partnership, including budgets, in the ordinary course of business. The evaluation of whether or not we control a venture can require significant judgment. In accordance with ASC 323-10, “Investments - Equity Method and Joint Ventures – Overall,” we assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment below its carrying amount is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint venture’s projected cash flows. This process requires significant management judgment and estimates. During fiscal 2017, we wrote down certain joint venture investments by $2.8 million. There were no write-downs in fiscal 2018 or 2016.

Post-Development Completion, Warranty Costs and Insurance Deductible Reserves - In those instances where a development is substantially completed and sold and we have additional construction work to be incurred, an estimated liability is provided to cover the cost of such work. We accrue for warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. This accrual is expensed as selling, general, and administrative costs. For homes delivered in fiscal 2018 and 2017, our deductible under our general liability insurance is a $20 million aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal 2018 and 2017 is $0.25 million, up to a $5 million limit. Our aggregate retention for construction defect, warranty and bodily injury claims is $20 million for fiscal 2018 and $21 million for fiscal 2017. We do not have a deductible on our worker's compensation insurance. Reserves for estimated losses for construction defects, warranty and bodily injury claims have been established using the assistance of a third-party actuary. We engage a third-party actuary that uses our historical warranty and construction defect data to assist our management in estimating our unpaid claims, claim adjustment expenses and incurred but not reported claims reserves for the risks that we are assuming under the general liability and construction defect programs. The estimates include provisions for inflation, claims handling and legal fees. These estimates are subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to our markets and the types of products we build, claim settlement patterns, insurance industry practices and legal interpretations, among others. Because of the high degree of judgment required in determining these estimated liability amounts, actual future costs could differ significantly from our currently estimated amounts. In addition, we establish a warranty accrual for lower cost-related issues to cover home repairs, community amenities and land development infrastructure that are not covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and title and possession have been transferred to the homebuyer. See Note 16 to the Consolidated Financial Statements for additional information on the amount of warranty costs recognized in cost of goods sold and administrative expenses.

Recent Accounting Pronouncements

See Note 3 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Capital Resources and Liquidity

Our operations consist primarily of residential housing development and sales in the Northeast (New Jersey and Pennsylvania), the Mid-Atlantic (Delaware, Maryland, Virginia, Washington D.C. and West Virginia), the Midwest (Illinois and Ohio), the Southeast (Florida, Georgia and South Carolina), the Southwest (Arizona and Texas) and the West (California). In addition, we provide certain financial services to our homebuilding customers.

We have historically funded our homebuilding and financial services operations with cash flows from operating activities, borrowings under our credit facilities, the issuance of new debt and equity securities and other financing activities. Due to covenant restrictions in our debt instruments, we are currently limited in the amount of debt we can incur that does not qualify as refinancing indebtedness with certain maturity requirements (a limitation that we expect to continue for the foreseeable future), even if market conditions would otherwise be favorable, which could also impact our ability to grow our business. In fiscal 2017, we transferred four communities to an existing joint venture, which resulted in $11.2 million of net cash proceeds to us during the period. During fiscal 2018, we completed a wind down of our operations in the San Francisco Bay area in Northern California and in Tampa, Florida. Any liquidity-enhancing or other capital raising/refinancing transaction will depend on identifying counterparties, negotiation of documentation and applicable closing conditions and any required approvals. 

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Operating, Investing and Financing Activities – Overview

Our homebuilding cash balance, including $12.7 million of cash collateralizing our letter of credit agreements, at October 31, 2018 was $200.6 million, a decrease of $264.8 million from October 31, 2017. However, as of October 31, 2018 we have $125.0 million of borrowing capacity under our Secured Credit Facility (defined below), and therefore, our total liquidity at October 31, 2018 was $325.6 million, which is above our target liquidity range of $170.0 million to $245.0 million. In addition to using cash to pay down debt during fiscal 2018, we spent $566.8 million on land and land development. After considering this land and land development and all other operating activities, including revenue received from deliveries, we used $66.8 million of cash in operations. During fiscal 2018, cash provided by investing activities was $35.5 million, primarily related to the sale of our former corporate headquarters building, along with distributions from joint ventures, partially offset by investments in new and existing joint ventures. Cash used in financing activities was $229.4 million during fiscal 2018, which included net payments of $211.4 million for debt repayments and $27.5 million used for model finance and land banking programs. We intend to continue to use nonrecourse mortgage financings, model sale leaseback, joint ventures, and, subject to covenant restrictions in our debt instruments, land banking programs as our business needs dictate.

Our cash uses during the year ended October 31, 2018 and 2017 were for operating expenses, land purchases, land deposits, land development, construction spending, debt payments, state income taxes, interest payments, litigation matters and investments in joint ventures. During these periods, we provided for our cash requirements from available cash on hand, housing and land sales, financing transactions, model sale leasebacks, land banking transactions, joint ventures, financial service revenues and other revenues. We believe that these sources of cash together with our Secured Credit Facility will be sufficient through fiscal 2019 to finance our working capital requirements.

Our net income (loss) historically does not approximate cash flow from operating activities. The difference between net income (loss) and cash flow from operating activities is primarily caused by changes in inventory levels together with changes in receivables, prepaid and other assets, mortgage loans held for sale, interest and other accrued liabilities, deferred income taxes, accounts payable and other liabilities, and noncash charges relating to depreciation, stock compensation awards and impairment losses for inventory. When we are expanding our operations, inventory levels, prepaids and other assets increase causing cash flow from operating activities to decrease. Certain liabilities also increase as operations expand and partially offset the negative effect on cash flow from operations caused by the increase in inventory levels, prepaids and other assets. Similarly, as our mortgage operations expand, net income from these operations increases, but for cash flow purposes net income is partially offset by the net change in mortgage assets and liabilities. The opposite is true as our investment in new land purchases and development of new communities decrease, causing us to generate positive cash flow from operations. In fiscal 2017, with spending on land purchases and land development relatively flat as compared to fiscal 2016, we continued to generate cash from operations. As we continue to increase spending on land purchases and land development, cash flow from operations will decrease. As we continue to actively seek land investment opportunities, we will also remain focused on liquidity.

See “Inventory Activities” below for a detailed discussion of our inventory position.

Debt Transactions

As of October 31, 2018, we had $1,111.0 million of outstanding senior secured notes ($1,093.4 million, net of discount and debt issuance costs), comprised of $53.2 million 2.0% 2021 Notes (defined below), $141.8 million 5.0% 2021 Notes (defined below), $75.0 million 9.5% 2020 Notes (defined below), $440.0 million 10.0% Senior Secured Notes due 2022 and $400.0 million 10.5% Senior Secured Notes due 2024. As of October 31, 2018, we also had $180.7 million of outstanding senior notes ($144.4 million net of discount, premium and debt issuance costs), comprised of $90.1 million 5.0% Senior Notes due 2040 and $90.6 million 13.5% Senior Notes due 2026 ($26.0 million of 8.0% Senior Notes due 2019 are owned by a wholly-owned consolidated subsidiary of HEI and therefore, in accordance with GAAP, such notes are not reflected on the Consolidated Balance Sheets of HEI). In addition, as of October 31, 2018, there were $202.5 million ($201.4 million net of debt issuance costs) of borrowings under our senior unsecured term loan facility (“Term Loan Facility”).

Except for K. Hovnanian, the issuer of the notes and borrower under the Credit Facilities, (as defined below) our home mortgage subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures and certain of our title insurance subsidiaries, we and each of our subsidiaries are guarantors of the Credit Facilities, the senior secured notes and senior notes outstanding at October 31, 2018 (collectively, the “Notes Guarantors”). In addition to the Notes Guarantors, the 5.0% Senior Secured Notes due 2021 (the “5.0% 2021 Notes”), the 2.0% Senior Secured Notes due 2021 (the “2.0% 2021 Notes” and together with the 5.0% 2021 Notes, the “2021 Notes”) and the 9.50% Senior Secured Notes due 2020 (the “9.50% 2020 Notes” and collectively with the 2021 Notes, the “JV Holdings Secured Group Notes”) are guaranteed by K. Hovnanian JV Holdings, L.L.C. and its subsidiaries, except for certain joint ventures and joint venture holding companies (collectively, the “JV Holdings Secured Group”). Members of the JV Holdings Secured Group do not guarantee K. Hovnanian's other indebtedness.  

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The credit agreements governing the Credit Facilities and the indentures governing the notes (together, the “Debt Instruments”) outstanding at October 31, 2018 do not contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the Company’s ability and that of certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness (other than nonrecourse indebtedness, certain permitted indebtedness and refinancing indebtedness (under the 9.50% 2020 Notes, any new or refinancing indebtedness may not be scheduled to mature earlier than January 15, 2021 (so long as no member of the JV Holdings Secured Group is an obligor thereon), or February 15, 2021 (if otherwise), and under the 10.0% Senior Secured Notes due 2022 (the “10.0% 2022 Notes”), any refinancing indebtedness of the 7.0% Senior Notes due 2019 (the “7.0% Notes”) (which includes the Term Loans (as defined below)) and 8.0% Senior Notes due 2019 (the “8.0% Notes” and together with the 7.0% Notes, the “2019 Notes”) (which includes the New Notes (as defined below) and the Term Loans) may not be scheduled to mature earlier than July 16, 2024 (such restrictive covenant in respect of the 10.5% Senior Secured Notes due 2024 (the “10.5% 2024 Notes”) was eliminated as described below)), pay dividends and make distributions on common and preferred stock, repurchase subordinated indebtedness and common and preferred stock, make other restricted payments, including investments, sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all assets, enter into certain transactions with affiliates and make cash repayments of the 2019 Notes and refinancing indebtedness in respect thereof (with respect to the 10.0% 2022 Notes). The Debt Instruments also contain events of default which would permit the lenders or holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans made under the Term Loan Facility (defined below) (the “Term Loans”) and loans made under the Secured Credit Facility (as defined below) (the “Secured Revolving Loans”) or notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Term Loans, Secured Revolving Loans or notes or other material indebtedness, cross default to other material indebtedness, the failure to comply with agreements and covenants and specified events of bankruptcy and insolvency, with respect to the Term Loans and Secured Revolving Loans, material inaccuracy of representations and warranties and with respect to the Term Loans and Secured Revolving Loans, a change of control, and, with respect to the Secured Revolving Loans and senior secured notes, the failure of the documents granting security for the Secured Revolving Loans and senior secured notes to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the Secured Revolving Loans and senior secured notes to be valid and perfected. As of October 31, 2018, we believe we were in compliance with the covenants of the Debt Instruments.

If our consolidated fixed charge coverage ratio, as defined in the agreements governing our debt instruments, is less than 2.0 to 1.0, we are restricted from making certain payments, including dividends, and from incurring indebtedness other than certain permitted indebtedness, refinancing indebtedness and nonrecourse indebtedness. As a result of this ratio restriction, we are currently restricted from paying dividends, which are not cumulative, on our 7.625% Series A Preferred Stock. We anticipate that we will continue to be restricted from paying dividends for the foreseeable future. Our inability to pay dividends is in accordance with covenant restrictions and will not result in a default under our debt instruments or otherwise affect compliance with any of the covenants contained in our debt instruments.

Under the terms of our Debt Instruments, we have the right to make certain redemptions and prepayments and, depending on market conditions and covenant restrictions, may do so from time to time. We also continue to evaluate our capital structure and may also continue to make debt purchases and/or exchanges for debt or equity from time to time through tender offers, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions.

On December 1, 2017, our 6.0% Senior Exchangeable Note Units were paid in full, which units consisted of $53.9 million principal amount of our Senior Exchangeable Notes that matured and the final installment payment of $2.1 million on our 11.0% Senior Amortizing Notes.

On December 28, 2017, the Company and K. Hovnanian announced that they had entered into a commitment letter (the “Commitment Letter”) in respect of certain financing transactions with GSO Capital Partners LP (“GSO”) on its own behalf and on behalf of one or more funds managed, advised or sub-advised by GSO (collectively, the “GSO Entities”), and had commenced a private offer to exchange with respect to the 8.0% Notes (the “Exchange Offer”).

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Pursuant to the Commitment Letter, the GSO Entities agreed to, among other things, provide the principal amount of the following: (i) a senior unsecured term loan credit facility (the “Term Loan Facility”) to be borrowed by K. Hovnanian and guaranteed by the Company and the Notes Guarantors, pursuant to which the GSO Entities committed to lend K. Hovnanian Term Loans consisting of $132.5 million of initial term loans (the “Initial Term Loans”) on the settlement date of the Exchange Offer for purposes of refinancing K. Hovnanian’s 7.0% Notes, and up to $80.0 million of delayed draw term loans (the “Delayed Draw Term Loans”) for purposes of refinancing certain of K. Hovnanian’s 8.0% Notes, in each case, upon the terms and subject to the conditions set forth therein, and (ii) a senior secured first lien credit facility (the “Secured Credit Facility” and together with the Term Loan Facility, the “Credit Facilities”) to be borrowed by K. Hovnanian and guaranteed by the Notes Guarantors, pursuant to which the GSO Entities committed to lend to K. Hovnanian the Secured Revolving Loans, consisting of up to $125.0 million of senior secured first priority loans to fund the repayment of K. Hovnanian’s then outstanding secured term loans (the “Secured Term Loans”) and for general corporate purposes, upon the terms and subject to the conditions set forth therein. In addition, pursuant to the Commitment Letter, the GSO Entities have committed to purchase, and K. Hovnanian has agreed to issue and sell, on January 15, 2019 (or such later date within five business days as mutually agreed by the parties working in good faith), $25.0 million in aggregate principal amount of additional 10.5% 2024 Notes (the “Additional 10.5% 2024 Notes”) at a purchase price, for each $1,000 principal amount of Additional 10.5% 2024 Notes, that would imply a yield to maturity equal to (a) the volume weighted average yield to maturity (calculated based on the yield to maturity during the 30 calendar day period ending on one business day prior to the settlement date of the Additional 10.5% 2024 Notes, which is expected to be January 15, 2019) for the 10.5% 2024 Notes, minus (b) 0.50%, upon the terms and subject to conditions set forth therein.

On January 29, 2018, K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the Term Loan Facility. K. Hovnanian borrowed the Initial Term Loans on February 1, 2018 to fund, together with cash on hand, the redemption on February 1, 2018 of all $132.5 million aggregate principal amount of 7.0% Notes, which resulted in a loss on extinguishment of debt of $0.5 million. On May 29, 2018, K. Hovnanian completed the redemption of $65.7 million aggregate principal amount of the 8.0% Notes (representing all of the outstanding 8.0% Notes, excluding the $26 million of 8% Notes held by the Subsidiary Purchaser (as defined below)) with approximately $70.0 million in borrowings on the Delayed Draw Term Loans under the Term Loan Facility (with the completion of this redemption, the remaining committed amounts under the Delayed Draw Term Loans may not be borrowed). This transaction resulted in a loss on extinguishment of debt of $4.3 million for year ended October 31, 2018. The Term Loans bear interest at a rate equal to 5.0% per annum and interest is payable in arrears, on the last business day of each fiscal quarter. The Term Loans will mature on February 1, 2027, which is the ninth anniversary of the first closing date of the Term Loan Facility.

On January 29, 2018, K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the Secured Credit Facility. Availability under the Secured Credit Facility will terminate on December 28, 2019 and any outstanding Secured Revolving Loans on such date shall convert to secured term loans maturing on December 28, 2022. On September 10, 2018, K. Hovnanian borrowed $35.0 million of Secured Revolving Loans under the Secured Credit Facility and used $41.0 million of cash on hand to repay the Secured Term Loans in full, plus unpaid interest and closing costs (in the fourth quarter of fiscal 2018, K. Hovnanian repaid the borrowed Secured Revolving Loans and as of October 31, 2018 there were no amounts outstanding under the Secured Credit Facility). This transaction resulted in a loss on extinguishment of debt of $1.8 million for the year ended October 31, 2018. The Secured Revolving Loans and the guarantees thereof are secured (subject to perfection requirements under the terms of the Secured Credit Facility) by substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, subject to permitted liens and certain exceptions, on a first lien basis relative to the liens securing K. Hovnanian’s 10.0% 2022 Notes and 10.5% 2024 Notes pursuant to an intercreditor agreement. The collateral securing the Secured Revolving Loans will be the same as that securing the 10.0% 2022 Notes and the 10.5% 2024 Notes. The Secured Revolving Loans bear interest at a rate equal to 10.0% per annum, and interest is payable in arrears, on the last business day of each fiscal quarter.

On February 1, 2018, K. Hovnanian accepted all of the $170.2 million aggregate principal amount of 8.0% Notes validly tendered and not validly withdrawn in the Exchange Offer (representing 72.14% of the aggregate principal amount of 8.0% Notes outstanding prior to the Exchange Offer), and in connection therewith, K. Hovnanian issued $90.6 million aggregate principal amount of its 13.5% Senior Notes due 2026 (the “New 2026 Notes”) and $90.1 million aggregate principal amount of its 5.0% Senior Notes due 2040 (the “New 2040 Notes” and together with the New 2026 Notes, the “New Notes”) under a new indenture. Also, as part of the Exchange Offer, K. Hovnanian at Sunrise Trail III, LLC, a wholly-owned subsidiary of the Company (the “Subsidiary Purchaser”), purchased for $26.5 million in cash an aggregate of $26.0 million in principal amount of the 8.0% Notes (the “Purchased 8.0% Notes”). The New Notes were issued by K. Hovnanian and guaranteed by the Notes Guarantors, except the Subsidiary Purchaser, which does not guarantee the New Notes. The New 2026 Notes bear interest at 13.5% per annum and mature on February 1, 2026. The New 2040 Notes bear interest at 5.0% per annum and mature on February 1, 2040. Interest on the New Notes is payable semi-annually on February 1 and August 1 of each year to holders of record at the close of business on January 15 or July 15, as the case may be, immediately preceding each such interest payment date. The Exchange Offer was treated as a substantial modification of debt. The New Notes were recorded at fair value (based on management's estimate using available trades for similar debt instruments) on the date of the issuance of the New Notes, which equaled $103.0 million for the New 2026 Notes and $44.0 million for the New 2040 Notes, resulting in a premium on the New 2026 Notes and a discount on the New 2040 Notes, and a loss on extinguishment of debt of $0.9 million for the year ended October 31, 2018.

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On May 30, 2018, K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee, executed the Second Supplemental Indenture, dated as of May 30, 2018 (the “Supplemental Indenture”), to the Indenture governing the New Notes. The Supplemental Indenture eliminated the covenant restricting certain actions with respect to the Purchased 8.0% Notes, which covenant had included requirements that (A) K. Hovnanian and the guarantors of the New Notes would not, (i) prior to June 6, 2018, redeem, cancel or otherwise retire, purchase or acquire any Purchased 8.0% Notes or (ii) make any interest payments on the Purchased 8.0% Notes prior to their stated maturity, and (B) K. Hovnanian and the guarantors of the New Notes would not, and would not permit any of their subsidiaries to (i) sell, transfer, convey, lease or otherwise dispose of any Purchased 8.0% Notes other than to any subsidiary of the Company that is not K. Hovnanian or a guarantor of the New Notes or (ii) amend, supplement or otherwise modify the Purchased 8.0% Notes or the indenture under which they were issued with respect to the Purchased 8.0% Notes, subject to certain exceptions. In addition, the Supplemental Indenture eliminated events of default related to the eliminated covenant. On May 30, 2018, K. Hovnanian paid the overdue interest on the Purchased 8.0% Notes that was originally due on May 1, 2018 and as a result of such payment, the “Default” under the Indenture governing the 8.0% Notes was cured.

On January 16, 2018, K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee and Collateral Agent, executed the Second Supplemental Indenture, dated as of January 16, 2018, to the indenture governing the 10.0% 2022 Notes and 10.5% 2024 Notes, dated as of July 27, 2017 (as supplemented, amended or otherwise modified), among K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee and Collateral Agent, giving effect to the proposed amendments to such indenture solely with respect to the 10.5% 2024 Notes, which were obtained in a consent solicitation of the holders of the 10.5% 2024 Notes, and which eliminated the restrictions on K. Hovnanian’s ability to purchase, repurchase, redeem, acquire or retire for value the 2019 Notes and refinancing or replacement indebtedness in respect thereof.

See Note 9 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further discussion of K. Hovnanian’s Credit Facilities, senior secured notes and senior notes.

Mortgages and Notes Payable

We have nonrecourse mortgage loans for certain communities totaling $95.6 million and $64.5 million (net of debt issuance costs) at October 31, 2018 and October 31, 2017, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $241.9 million and $157.8 million, respectively. The weighted-average interest rate on these obligations was 6.1% and 5.3% at October 31, 2018 and October 31, 2017, respectively, and the mortgage loan payments on each community primarily correspond to home deliveries. We also had nonrecourse mortgage loans on our former corporate headquarters totaling $13.0 million at October 31, 2017. On November 1, 2017, these loans were paid in full in connection with the sale of this corporate headquarters building.

Our wholly owned mortgage banking subsidiary, K. Hovnanian American Mortgage, LLC (“K. Hovnanian Mortgage”), originates mortgage loans primarily from the sale of our homes. Such mortgage loans and related servicing rights are sold in the secondary mortgage market within a short period of time. In certain instances, we retain the servicing rights for a small amount of loans. The loans are secured by the mortgages held for sale and repaid when we sell the underlying mortgage loans to permanent investors. As of October 31, 2018 and October 31, 2017, we had an aggregate of $113.2 million and $114.6 million, respectively, outstanding under several of K. Hovnanian Mortgage’s short-term borrowing facilities.

 See Note 8 to the Consolidated Financial Statements for a discussion of these agreements and facilities.

Equity

On July 3, 2001, our Board of Directors authorized a stock repurchase program to purchase up to 4 million shares of Class A Common Stock. We did not repurchase any shares under this program during fiscal 2018 or 2017. As of October 31, 2018, the maximum number of shares of Class A Common Stock that may yet be purchased under this program is 0.5 million. (See Part II, Item 5 for information on equity purchases).  

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On July 12, 2005, we issued 5,600 shares of 7.625% Series A Preferred Stock, with a liquidation preference of $25,000 per share. Dividends on the Series A Preferred Stock are not cumulative and are payable at an annual rate of 7.625%. The Series A Preferred Stock is not convertible into the Company’s common stock and is redeemable in whole or in part at our option at the liquidation preference of the shares. The Series A Preferred Stock is traded as depositary shares, with each depositary share representing 1/1000th of a share of Series A Preferred Stock. The depositary shares are listed on the NASDAQ Global Market under the symbol “HOVNP.” In fiscal 2018, 2017 and 2016, we did not make any dividend payments on the Series A Preferred Stock as a result of covenant restrictions in our debt instruments. Certain debt instruments to which we are a party contain restrictions on the payment of cash dividends. As a result of the most restrictive of these provisions, we are not currently able to pay any cash dividends. We have never paid a cash dividend to common stockholders. We anticipate that we will continue to be restricted from paying dividends, which are not cumulative, for the foreseeable future. 

Inventory Activities

Total inventory, excluding consolidated inventory not owned, increased $105.2 million during the year ended October 31, 2018 from October 31, 2017. Total inventory, excluding consolidated inventory not owned, increased in the Mid-Atlantic by $15.8 million, in the Midwest by $5.8 million, in the Southwest by $38.8 million and in the West by $57.9 million. These increases were partially offset by decreases in the Northeast of $10.7 million and in the Southeast of $2.4 million. These inventory fluctuations were primarily attributable to home deliveries and land sales during the period, partially offset by new land purchases and land development. During the year ended October 31, 2018, we had aggregate impairments in the amount of $2.1 million. We wrote-off costs in the amount of $1.4 million during the year ended October 31, 2018 related to land options that expired or that we terminated, as the communities’ forecasted profitability was not projected to produce adequate returns on investment commensurate with the risk. In the last few years, we have been able to acquire new land parcels at prices that we believe will generate reasonable returns under current homebuilding market conditions. There can be no assurances that this trend will continue in the near term. Substantially all homes under construction or completed and included in inventory at October 31, 2018 are expected to be closed during the next six to nine months.  

Consolidated inventory not owned decreased $36.9 million. Consolidated inventory not owned consists of options related to land banking and model financing transactions that were added to our Consolidated Balance Sheets in accordance with US GAAP. The decrease from October 31, 2017 to October 31, 2018 was primarily due to a decrease in land banking transactions along with a decrease in the sale and leaseback of certain model homes during the period. We have land banking arrangements, whereby we sell land parcels to the land bankers and they provide us an option to purchase back finished lots on a predetermined schedule. Because of our options to repurchase these parcels, for accounting purposes in accordance with ASC 360-20-40-38, these transactions are considered a financing rather than a sale. For purposes of our Consolidated Balance Sheet, at October 31, 2018, inventory of $50.5 million was recorded to “Consolidated inventory not owned,” with a corresponding amount of $43.9 million (net of debt issuance costs) recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions. In addition, we sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to a third party at the end of the respective lease. As a result of our continued involvement, for accounting purposes in accordance with ASC 360-20-40-38, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, for purposes of our Consolidated Balance Sheet, at October 31, 2018, inventory of $37.4 million was recorded to “Consolidated inventory not owned,” with a corresponding amount of $19.5 million (net of debt issuance costs) recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions.

When possible, we option property for development prior to acquisition. By optioning property, we are only subject to the loss of the cost of the option and predevelopment costs if we choose not to exercise the option (other than with respect to specific performance options discussed above). As a result, our commitment for major land acquisitions is reduced. The costs associated with optioned properties are included in “Land and land options held for future development or sale” on the Consolidated Balance Sheets. Also included in “Land and land options held for future development or sale” are amounts associated with inventory in mothballed communities. We mothball (or stop development on) certain communities when we determine the current performance does not justify further investment at the time. That is, we believe we will generate higher returns if we decide against spending money to improve land today and save the raw land until such time as the markets improve or we determine to sell the property. As of October 31, 2018, we had mothballed land in 18 communities. The book value associated with these communities at October 31, 2018 was $24.5 million, which was net of impairment charges recorded in prior periods of $186.1 million. We continually review communities to determine if mothballing is appropriate. During fiscal 2018, we did not mothball any additional communities, but we sold two previously mothballed communities and re-activated two previously mothballed communities.

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Inventories held for sale, which are land parcels where we have decided not to build homes, represented $6.4 million and $23.6 million, respectively, of our total inventories at October 31, 2018 and October 31, 2017, and are reported at the lower of carrying amount or fair value less costs to sell. In determining fair value for land held for sale, management considers, among other things, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale) and recent bona fide offers received from outside third parties.

The following tables summarize home sites included in our total residential real estate. The increase in remaining home sites available at October 31, 2018 compared to October 31, 2017 was primarily attributable to our ability to control new land during fiscal 2018. As previously discussed, we expect to continue to actively seek new land investment opportunities in fiscal 2019. 

	Total Home Sites	Contracted Not Delivered	Remaining Home Sites Available
October 31, 2018:
Northeast	3,920	51	3,869
Mid-Atlantic	4,795	296	4,499
Midwest	4,758	394	4,364
Southeast	4,671	251	4,420
Southwest	6,783	523	6,260
West	5,630	311	5,319
Consolidated total	30,557	1,826	28,731
Unconsolidated joint ventures	4,029	366	3,663
Owned	12,729	1,356	11,373
Optioned	17,610	252	17,358
Construction to permanent financing lots	218	218	-
Consolidated total	30,557	1,826	28,731
Lots controlled by unconsolidated joint ventures	4,029	366	3,663
October 31, 2017:
Northeast	4,527	98	4,429
Mid-Atlantic	4,241	309	3,932
Midwest	3,392	382	3,010
Southeast	3,356	285	3,071
Southwest	5,433	509	4,924
West	4,600	400	4,200
Consolidated total	25,549	1,983	23,566
Unconsolidated joint ventures	5,770	454	5,316
Owned	11,422	1,462	9,960
Optioned	13,907	301	13,606
Construction to permanent financing lots	220	220	-
Consolidated total	25,549	1,983	23,566
Lots controlled by unconsolidated joint ventures	5,770	454	5,316

The following table summarizes our started or completed unsold homes and models, excluding unconsolidated joint ventures, in active and substantially completed communities. The decrease in the total homes from October 31, 2017 to October 31, 2018 is due to the decrease in community count during the period. 

	October 31, 2018			October 31, 2017
	Unsold Homes	Models	Total	Unsold Homes	Models	Total
Northeast	24	5	29	11	6	17
Mid-Atlantic	38	19	57	81	11	92
Midwest	19	10	29	21	13	34
Southeast	62	11	73	118	28	146
Southwest	335	14	349	348	15	363
West	93	12	105	23	10	33
Total	571	71	642	602	83	685
Started or completed unsold homes and models per active selling communities(1)	4.6	0.6	5.2	4.6	0.7	5.3

(1) Active selling communities (which are communities that are open for sale with ten or more home sites available) were 123 and 130 at October 31, 2018 and 2017, respectively. Ratio does not include substantially completed communities, which are communities with less than ten home sites available. 

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Other Balance Sheet Activities

Homebuilding – Restricted cash and cash equivalents increased $10.7 million from October 31, 2017 to $12.8 million at October 31, 2018. The increase was primarily due to cash collateral required to collateralize certain of our letters of credit under our stand alone letter of credit facilities which had been previously issued under and collateralized by our unsecured revolving credit facility that had a final maturity in September 2018.

Investments in and advances to unconsolidated joint ventures increased $8.6 million during the fiscal year ended October 31, 2018 compared to October 31, 2017. The increase was primarily due to recording our share of income in excess of distributions and additional capital contributions on several existing joint ventures during the period, along with an increase for an investment in a new joint venture in the third quarter of fiscal 2018. These increases were partially offset by decreases related to the acquisition of the remaining assets of one of our joint ventures in the first quarter of fiscal 2018, along with partner distributions on another joint venture during the period. As of October 31, 2018 and October 31, 2017, we had investments in nine and ten homebuilding joint ventures, respectively, and one land development joint venture for both periods. We have no guarantees associated with our unconsolidated joint ventures, other than guarantees limited only to performance and completion of development, environmental indemnification and standard warranty and representation against fraud, misrepresentation and similar actions, including a voluntary bankruptcy.

Receivables, deposits and notes, net decreased $23.0 million from October 31, 2017 to $35.2 million at October 31, 2018. The decrease was primarily due to funds received in the third quarter of fiscal 2018 for receivables related to land sales in the fourth quarter of fiscal 2017 and the second quarter of fiscal 2018.

Property, Plant, and Equipment decreased $32.6 million from October 31, 2017 to October 31, 2018. The decrease was primarily due to the sale of our former corporate headquarters building on November 1, 2017, totaling $34.7 million, net of accumulated depreciation. The decrease was slightly offset by an increase for software costs capitalized during the period.

Prepaid expenses and other assets were as follows as of:

(In thousands)	October 31, 2018	October 31, 2017	Dollar Change
Prepaid insurance	$2,514	$1,893	$621
Prepaid project costs	28,667	30,360	(1,693	)
Other prepaids	7,505	4,245	3,260
Other assets	464	528	(64	)
Total	$39,150	$37,026	$2,124

Prepaid insurance increased due to the timing of premium payments. These costs are amortized over the life of the associated insurance policy, which can be one to three years. Prepaid project costs consist of community specific expenditures that are used over the life of the community. Such prepaids are expensed as homes are delivered and therefore have declined as our community count has declined. Other prepaids increased primarily due to costs related to our Term Loan Facility, along with new premiums for the renewal of certain software and related services during the period, partially offset by amortization of these costs.

Financial services assets consist primarily of residential mortgages receivable held for sale of which $129.0 million and $131.5 million at October 31, 2018 and 2017, respectively, were being temporarily warehoused and are awaiting sale in the secondary mortgage market. The slight decrease in mortgage loans held for sale from October 31, 2017 was related to a decrease in the volume of loans originated during the fourth quarter of 2018 compared to the fourth quarter of 2017, partially offset by an increase in the average loan value.

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Nonrecourse mortgages increased to $95.6 million at October 31, 2018, from $64.5 million at October 31, 2017. The increase was primarily due to new mortgages for communities in all segments obtained during the fiscal 2018, along with additional loan draws on existing mortgages, partially offset by the payment of existing mortgages, including a mortgage on a community which was transferred to a joint venture.

Accounts payable and other liabilities are as follows as of:

(In thousands)	October 31, 2018	October 31, 2017	Dollar Change
Accounts payable	$127,795	$128,844	$(1,049	)
Reserves	99,229	134,089	(34,860	)
Accrued expenses	14,884	12,900	1,984
Accrued compensation	53,200	47,209	5,991
Other liabilities	9,791	12,015	(2,224	)
Total	$304,899	$335,057	$(30,158	)

Reserves decreased during the period as payments for construction defect claims exceeded new accruals primarily due to litigation settlements, along with a reduction in our warranty reserves based on our annual assessment. Accrued expenses increased due to the timing of various accruals primarily related to legal and marketing services during the fourth quarter of fiscal 2018 as compared to the fourth quarter of fiscal 2017. The increase in accrued compensation was primarily due to accrued bonuses being higher in fiscal 2018 as compared to fiscal 2017 as a result of financial performance in 2018. Other liabilities decreased primarily due to deferred income recognized during the period for home closings that had been previously delayed in connection with the remediation of the Weyerhaeuser-manufacture I-joist issue as previously disclosed in our Form 10-K for the fiscal year ended October 31, 2017.

Customers’ deposits decreased $3.7 million from October 31, 2017 to $30.1 million at October 31, 2018. The decrease was primarily related to the decrease in backlog during the year.

Nonrecourse mortgages secured by operating properties decreased $13.0 million from October 31, 2017 to October 31, 2018. The decrease was due to the payoff of our mortgage loans on our former corporate headquarters building, which was sold on November 1, 2017.

Liabilities from inventory not owned decreased $27.7 million to $63.4 million at October 31, 2018. The decrease was due a decrease in land banking transactions during the period, along with a decrease in the sale and leaseback of certain model homes, both of which are accounted for as financing transactions as described above.

Accrued interest decreased $6.2 million to $35.6 million at October 31, 2018. The decrease was primarily due to a combination of the timing of interest payments on our senior notes issued in fiscal 2018 as compared to our senior notes that were refinanced in fiscal 2018.

Results of Operations

Total Revenues

Compared to the prior period, revenues increased (decreased) as follows:

	Year Ended
(Dollars in thousands)	October 31, 2018		October 31, 2017		October 31, 2016
Homebuilding:
Sale of homes	$(433,805	)	$(260,757	)	$512,661
Land sales	(24,319	)	(27,445	)	75,191
Other revenues	3,080		1,494		(37	)
Financial services	(5,388	)	(13,874	)	15,952
Total change	$(460,432	)	$(300,582	)	$603,767
Total revenues percent change	(18.8	)%	(10.9	)%	28.1	%

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Homebuilding

Sale of homes revenues decreased $433.8 million, or 18.5%, for the year ended October 31, 2018, decreased $260.8 million, or 10.0%, for the year ended October 31, 2017, and increased $512.7 million, or 24.6%, for the year ended October 31, 2016 as compared to the same period of the prior year. The decreased revenues in fiscal 2018 were primarily due to the number of home deliveries decreasing 13.5%, and the average price per home decreasing to $393,280 in fiscal 2018 from $417,714 in fiscal 2017. The decrease in deliveries in fiscal 2018 was primarily the result of a reduction in community count in fiscal 2018 by 5.4%. The decreased revenues in fiscal 2017 were primarily due to the number of home deliveries decreasing 13.3%, partially offset by the average price per home increasing to $417,714 in fiscal 2017 from $402,350 in fiscal 2016. The decrease in fiscal 2017 deliveries was primarily the result of a reduction in community count by 22.2%. The increased revenues in fiscal 2016 were primarily due to the 17.4% increase in deliveries, as well as the average price per home increasing to $402,350 in fiscal 2016 from $379,177 in fiscal 2015. For fiscal 2018, the fluctuations in average prices were primarily the result of geographic and community mix of our deliveries and home price decreases (which we increase or decrease in communities depending on the respective community’s performance), partially offset by price increases in some communities primarily in the West. For fiscal 2017, the fluctuations in average prices were primarily the result of the geographic and community mix of our deliveries, along with our ability to raise home prices in certain communities. For fiscal 2016, the fluctuations in average prices were primarily a result of the geographic and community mix of our deliveries, as opposed to home price increases. For further detail on changes in segment revenues see “Homebuilding Operations by Segment” below. For further detail on land sales and other revenue, see the section titled “Land Sales and Other Revenues” below.

Information on homes delivered by segment is set forth below:

	Year Ended
(Housing Revenue in thousands)	October 31, 2018	October 31, 2017	October 31, 2016
Northeast:
Housing revenues	$96,012	$166,752	$274,126
Homes delivered	178	351	557
Average price	$539,393	$475,077	$492,147
Mid-Atlantic:
Housing revenues	$354,153	$463,271	$457,906
Homes delivered	672	856	960
Average price	$527,013	$541,205	$476,985
Midwest:
Housing revenues	$196,307	$199,009	$287,469
Homes delivered	662	640	921
Average price	$296,536	$310,951	$312,127
Southeast:
Housing revenues	$237,948	$257,066	$214,585
Homes delivered	596	614	581
Average price	$399,242	$418,675	$369,339
Southwest:
Housing revenues	$637,568	$826,422	$1,024,410
Homes delivered	1,873	2,357	2,750
Average price	$340,399	$350,624	$372,512
West:
Housing revenues	$384,240	$427,513	$342,294
Homes delivered	866	784	695
Average price	$443,695	$545,297	$492,509
Consolidated total:
Housing revenues	$1,906,228	$2,340,033	$2,600,790
Homes delivered	4,847	5,602	6,464
Average price	$393,280	$417,714	$402,350
Unconsolidated joint ventures:(1)
Housing revenues	$599,979	$310,573	$140,576
Homes delivered	984	547	248
Average price	$609,735	$567,774	$566,836

(1) Represents housing revenue and home deliveries for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures. See Note 20 to the Consolidated Financial Statements for a further discussion of our joint ventures.

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The decrease in housing revenues during year ended October 31, 2018, as compared to year ended October 31, 2017, was primarily attributed to our decreased deliveries, as our community count has decreased year over year, and by the decrease in average sales price. Housing revenues in fiscal 2018 decreased in all of our homebuilding segments combined by 18.5%, and average sales price decreased by 5.8%, excluding unconsolidated joint ventures. In our homebuilding segments, homes delivered decreased in fiscal 2018 as compared to fiscal 2017 by 49.3%, 21.5%, 2.9% and 20.5% in the Northeast, Mid-Atlantic, Southeast and Southwest, respectively, and increased by 3.4% and 10.5% in the Midwest and West, respectively. Overall in fiscal 2018 as compared to fiscal 2017 homes delivered decreased 13.5% across all our segments, excluding unconsolidated joint ventures.

The decrease in housing revenues during year ended October 31, 2017, as compared to year ended October 31, 2016, was primarily attributed to our decreased deliveries, partially offset by an increase in average sales price. Housing revenues in fiscal 2017 decreased in all of our homebuilding segments combined by 10.0%, while average sales price increased by 3.8%, excluding joint ventures. In our homebuilding segments, homes delivered decreased in fiscal 2017 as compared to fiscal 2016 by 37.0%, 10.8%, 30.5% and 14.3% in the Northeast, Mid-Atlantic, Midwest and Southwest, respectively, and increased by 5.7% and 12.8% in the Southeast and West, respectively. Overall in fiscal 2017 as compared to fiscal 2016 homes delivered decreased 13.3% across all our segments, excluding unconsolidated joint ventures.

Quarterly housing revenues and net sales contracts by segment, excluding unconsolidated joint ventures, for the years ended October 31, 2018, 2017 and 2016 are set forth below (Net contracts are defined as new contracts executed during the period for the purchase of homes, less cancellations of contracts in the same period):

	Quarter Ended
(In thousands)	October 31, 2018	July 31, 2018	April 30, 2018	January 31, 2018
Housing revenues:
Northeast	$25,606	$26,701	$23,513	$20,192
Mid-Atlantic	99,493	79,593	104,058	71,009
Midwest	67,395	45,579	42,816	40,517
Southeast	72,828	47,472	60,974	56,674
Southwest	193,000	157,406	158,958	128,204
West	135,353	86,108	77,798	84,981
Consolidated total	$593,675	$442,859	$468,117	$401,577
Sales contracts (net of cancellations):
Northeast	$16,044	$18,045	$15,278	$25,363
Mid-Atlantic	84,027	76,324	117,399	63,213
Midwest	44,167	43,596	67,308	49,416
Southeast	41,126	71,381	62,741	50,455
Southwest	123,485	177,174	198,487	141,458
West	83,933	102,183	93,213	69,397
Consolidated total	$392,782	$488,703	$554,426	$399,302

	Quarter Ended
(In thousands)	October 31, 2017	July 31, 2017	April 30, 2017	January 31, 2017
Housing revenues:
Northeast	$27,913	$40,015	$45,917	$52,907
Mid-Atlantic	149,881	113,111	100,120	100,159
Midwest	72,944	40,620	41,794	43,651
Southeast	78,267	68,408	54,005	56,386
Southwest	209,223	209,041	224,898	183,260
West	128,555	103,087	100,819	95,052
Consolidated total	$666,783	$574,282	$567,553	$531,415
Sales contracts (net of cancellations):
Northeast	$24,407	$26,648	$29,918	$38,045
Mid-Atlantic	77,112	97,017	123,045	102,246
Midwest	38,139	48,257	61,489	45,566
Southeast	56,354	73,896	55,577	46,451
Southwest	142,926	177,285	227,500	170,884
West	91,048	103,342	142,522	84,423
Consolidated total	$429,986	$526,445	$640,051	$487,615

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	Quarter Ended
(In thousands)	October 31, 2016	July 31, 2016	April 30, 2016	January 31, 2016
Housing revenues:
Northeast	$81,467	$66,308	$53,913	$72,438
Mid-Atlantic	162,902	111,579	89,873	93,552
Midwest	62,193	56,643	76,793	91,840
Southeast	67,690	56,471	51,230	39,194
Southwest	298,689	248,228	273,304	204,189
West	104,531	101,157	81,044	55,562
Consolidated total	$777,472	$640,386	$626,157	$556,775
Sales contracts (net of cancellations):
Northeast	$50,179	$61,945	$74,727	$39,784
Mid-Atlantic	99,179	97,338	150,369	130,316
Midwest(1)	38,339	54,318	69,445	67,569
Southeast(2)	53,372	59,242	84,665	90,259
Southwest	190,426	225,929	262,344	208,642
West	102,819	99,284	126,505	92,073
Consolidated total	$534,314	$598,056	$768,055	$628,643

(1)	The Midwest net contracts include $1.9 million, $7.1 million and $18.4 million, respectively, for the quarters ended July 31, 2016, April 30, 2016 and January 31, 2016, from Minneapolis, Minnesota.
(2)	The Southeast net contracts include $9.9 million and $21.7 million, respectively, for the quarters ended April 30, 2016 and January 31, 2016, from Raleigh, North Carolina.

Contracts per average active selling community in fiscal 2018 were 35.9 compared to fiscal 2017 of 35.1. Our reported level of sales contracts (net of cancellations) has been impacted by a slight increase in the pace of sales in most of the Company’s segments during fiscal 2018. Cancellation rates represent the number of cancelled contracts in the quarter divided by the number of gross sales contracts executed in the quarter. For comparison, the following are historical cancellation rates, excluding unconsolidated joint ventures:

Quarter	2018		2017		2016		2015		2014
First	18	%	19	%	20	%	16	%	18	%
Second	17	%	18	%	19	%	16	%	17	%
Third	19	%	19	%	21	%	20	%	22	%
Fourth	23	%	22	%	20	%	20	%	22	%

Another common and meaningful way to analyze our cancellation trends is to compare the number of contract cancellations as a percentage of the beginning backlog. The following table provides this historical comparison, excluding unconsolidated joint ventures.

Quarter	2018		2017		2016		2015		2014
First	12	%	12	%	13	%	11	%	11	%
Second	15	%	16	%	14	%	14	%	17	%
Third	14	%	13	%	12	%	13	%	13	%
Fourth	13	%	12	%	11	%	12	%	14	%

Most cancellations occur within the legal rescission period, which varies by state but is generally less than two weeks after the signing of the contract. Cancellations also occur as a result of a buyer's failure to qualify for a mortgage, which generally occurs during the first few weeks after signing. As shown in the tables above, the contract cancellations over the past several years have been within what we believe to be a normal range. However, market conditions remain uncertain and it is difficult to predict what cancellation rates will be in the future.

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An important indicator of our future results is recently signed contracts and our home contract backlog for future deliveries. Our consolidated contract backlog, excluding unconsolidated joint ventures, by segment is set forth below:

(Dollars in thousands)	October 31, 2018	October 31, 2017	October 31, 2016
Northeast:
Total contract backlog	$30,496	$51,778	$99,512
Number of homes	51	98	204
Mid-Atlantic:
Total contract backlog	$180,546	$185,123	$248,974
Number of homes	296	309	430
Midwest: (1)(3)
Total contract backlog	$107,149	$98,969	$104,527
Number of homes	394	382	374
Southeast: (2)
Total contract backlog	$108,137	$120,382	$145,171
Number of homes	251	285	332
Southwest:
Total contract backlog	$180,854	$177,818	$285,644
Number of homes	523	509	763
West:
Total contract backlog	$138,448	$173,963	$185,274
Number of homes	311	400	295
Totals:
Total consolidated contract backlog	$745,630	$808,033	$1,069,102
Number of homes	1,826	1,983	2,398

(1)	The Midwest contract backlog as of October 31, 2016 reflects the reduction of 64 homes and $24.1 million related to the sale of our land portfolio in Minneapolis, Minnesota.
(2)	The Southeast contract backlog as of October 31, 2016 reflects the reduction of 67 homes and $33.7 million related to the sale of our land portfolio in Raleigh, North Carolina.
(3)	Contract backlog as of October 31, 2016 excluded 9 homes that were sold to one of our joint ventures at the time of the joint venture formation.

Contract backlog dollars decreased 7.7% as of October 31, 2018 compared to October 31, 2017, and the number of homes in backlog decreased 7.9% for the same period. The decrease in backlog was driven by a 10.1% decrease in net contracts and the decrease in community count for the year ended October 31, 2018 compared to the prior fiscal year. In the month of November 2018, excluding unconsolidated joint ventures, we signed an additional 285 net contracts amounting to $112.4 million in contract value.

Total cost of sales on our Consolidated Statements of Operations includes expenses for consolidated housing and land and lot sales, including inventory impairment loss and land option write-offs (defined as “land charges” in the tables below). A breakout of such expenses for housing sales and homebuilding gross margin is set forth below.

Homebuilding gross margin before cost of sales interest expense and land charges is a non-GAAP financial measure. This measure should not be considered as an alternative to homebuilding gross margin determined in accordance with GAAP as an indicator of operating performance.

Management believes this non-GAAP measure provides investors another way to understand our operating performance. This measure is also useful internally, helping management evaluate our operating results on a consolidated basis and relative to other companies in our industry. In particular, the magnitude and volatility of land charges for the Company, and for other homebuilders, have been significant and, as such, have made financial analysis of our industry more difficult. Homebuilding metrics excluding land charges, as well as interest amortized to cost of sales, and other similar presentations prepared by analysts and other companies are frequently used to assist investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies’ respective level of impairments and levels of debt.

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	Year Ended
(Dollars in thousands)	October 31, 2018		October 31, 2017		October 31, 2016
Sale of homes	$1,906,228		$2,340,033		$2,600,790
Cost of sales, excluding interest expense and land charges	1,555,894		1,937,116		2,162,284
Homebuilding gross margin, before cost of sales interest expense and land charges	350,334		402,917		438,506
Cost of sales interest expense, excluding land sales interest expense	56,588		76,902		86,593
Homebuilding gross margin, after cost of sales interest expense, before land charges	293,746		326,015		351,913
Land charges	3,501		17,813		33,353
Homebuilding gross margin	$290,245		$308,202		$318,560
Gross margin percentage	15.2	%	13.2	%	12.2	%
Gross margin percentage, before cost of sales interest expense and land charges	18.4	%	17.2	%	16.9	%
Gross margin percentage, after cost of sales interest expense, before land charges	15.4	%	13.9	%	13.5	%

Cost of sales expenses as a percentage of consolidated home sales revenues are presented below:

	Year Ended
	October 31, 2018		October 31, 2017		October 31, 2016
Sale of homes	100	%	100	%	100	%
Cost of sales, excluding interest expense and land charges:
Housing, land and development costs	71.9	%	73.1	%	73.2	%
Commissions	3.6	%	3.4	%	3.5	%
Financing concessions	1.2	%	1.2	%	1.3	%
Overheads	4.9	%	5.1	%	5.1	%
Total cost of sales, before interest expense and land charges	81.6	%	82.8	%	83.1	%
Cost of sales interest	3.0	%	3.3	%	3.4	%
Land charges	0.2	%	0.7	%	1.3	%
Gross margin percentage	15.2	%	13.2	%	12.2	%
Gross margin percentage, before cost of sales interest expense and land charges	18.4	%	17.2	%	16.9	%
Gross margin percentage, after cost of sales interest expense and before land charges	15.4	%	13.9	%	13.5	%

We sell a variety of home types in various communities, each yielding a different gross margin. As a result, depending on the mix of communities delivering homes, consolidated gross margin may fluctuate up or down. Total homebuilding gross margin percentage increased to 15.2% for the year ended October 31, 2018 compared to 13.2% for the same period last year. This increase was primarily due to the mix of communities delivering homes and the reduction of our warranty reserves, as a result of our annual analysis performed in the fourth quarter of each year, along with a $6.3 million benefit from a one-time credit related to a land development reimbursement from a municipality in California. Total homebuilding gross margin percentage increased to 13.2% for the year ended October 31, 2017 compared to 12.2% for the year ended October 31, 2016. This increase was primarily attributed to the mix of communities delivering homes, and the reduction of our warranty reserves, as the result of our annual analysis. Additionally, there was a decrease in land charges compared to the prior year because of the impairments recorded in the prior year, which related to the sale of our land portfolio in Minneapolis, Minnesota. For the years ended October 31, 2018, 2017 and 2016, gross margin was favorably impacted by the reversal of prior period inventory impairments of $51.7 million, $74.4 million and $57.9 million, respectively, which represented 2.7%, 3.2% and 2.2%, respectively, of “Sale of homes” revenue.

Reflected as inventory impairment loss and land option write-offs in cost of sales (“land charges”), we have written off or written down certain inventories totaling $3.5 million, $17.8 million and $33.4 million during the years ended October 31, 2018, 2017 and 2016, respectively, to their estimated fair value. See Note 12 to the Consolidated Financial Statements for an additional discussion. During the years ended October 31, 2018, 2017 and 2016, we wrote off residential land options and approval and engineering costs totaling $1.4 million, $2.7 million and $8.9 million, respectively, which are included in the total land charges mentioned above. Option, approval and engineering costs are written off when a community’s pro forma profitability is not projected to produce adequate returns on the investment commensurate with the risk and when we believe it is probable we will cancel the option, or when a community is redesigned engineering costs related to the initial design are written off. Such write-offs were located in all segments in fiscal 2018, 2017 and 2016. The inventory impairments amounted to $2.1 million, $15.1 million and $24.5 million for the years ended October 31, 2018, 2017 and 2016, respectively. It is difficult to predict impairment levels, and should it become necessary or desirable to have additional land sales, further lower prices, or should the estimates or expectations used in determining estimated cash flows or fair value decrease or differ from current estimates in the future, we may need to recognize additional impairments.

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Below is a breakdown of our lot option walk-aways and impairments by segment for fiscal 2018. In fiscal 2018, we walked away from 13.6% of all the lots we controlled under option contracts. The remaining 86.4% of our option lots are in communities that we believe remain economically feasible.

The following table represents lot option walk-aways by segment for the year ended October 31, 2018:

(Dollars in millions)	Dollar Amount of Walk Away	Number of Walk- Away Lots	% of Walk- Away Lots		Total Option Lots(1)	Walk- Away Lots as a % of Total Option Lots
Northeast	$0.6	909	32.7	%	4,063	22.4	%
Mid-Atlantic	0.2	887	32.0	%	3,465	25.6	%
Midwest	0.1	217	7.8	%	3,269	6.6	%
Southeast	-	-	-	%	2,928	-	%
Southwest	0.2	580	20.9	%	4,971	11.7	%
West	0.3	184	6.6	%	1,691	10.9	%
Total	$1.4	2,777	100.0	%	20,387	13.6	%

(1) Includes lots optioned at October 31, 2018 and lots optioned that the Company walked away from in the year ended October 31, 2018.

The following table represents impairments by segment for the year ended October 31, 2018:

(In millions)	Dollar Amount of Impairment	% of Impairments		Pre- Impairment Value(1)	% of Pre- Impairment Value
Northeast	$0.4	19.0	%	$1.0	40.0	%
Mid-Atlantic	-	-	%	-	-	%
Midwest	0.1	4.8	%	0.5	20.0	%
Southeast	1.6	76.2	%	9.7	16.5	%
Southwest	-	-	%	-	-	%
West	-	-	%	-	-	%
Total	$2.1	100.0	%	$11.2	18.8	%

(1) Represents carrying value, net of prior period impairments, if any, at the time of recording the applicable period’s impairments.

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Land Sales and Other Revenues

Land sales and other revenues consist primarily of land and lot sales. A breakout of land and lot sales is set forth below:

	Year Ended
(In thousands)	October 31, 2018	October 31, 2017	October 31, 2016
Land and lot sales	$24,277	$48,596	$76,041
Cost of sales, excluding interest	10,661	24,688	68,173
Land and lot sales gross margin, excluding interest	13,616	23,908	7,868
Land and lot sales interest expense	4,097	11,634	5,798
Land and lot sales gross margin, including interest	$9,519	$12,274	$2,070

Land sales are ancillary to our residential homebuilding operations and are expected to continue in the future but may significantly fluctuate up or down. Although we budget land sales, they are often dependent upon receiving approvals and entitlements, the timing of which can be uncertain. As a result, projecting the amount and timing of land sales is difficult. There were four land sales in the year ended October 31, 2018, compared to ten in the same period of the prior year, resulting in a $24.3 million decrease in land sales revenue. There were ten land sales in the year ended October 31, 2017, compared to 26 in the same period of the prior year, resulting in a $27.4 million decrease in land sales revenue. This decrease was primarily due to the sale of six land parcels in the Midwest and ten land parcels in the Southeast in the third quarter of fiscal 2016 in connection with our previously discussed strategy to exit the Minneapolis, Minnesota and Raleigh, North Carolina markets. 

Land sales and other revenues decreased $21.2 million for the year ended October 31, 2018 and decreased $26.0 million for the year ended October 31, 2017 compared to the same periods in the prior year. Other revenues include income from contract cancellations where the deposit has been forfeited due to contract terminations, interest income, cash discounts and miscellaneous one-time receipts. The decrease from fiscal 2017 to fiscal 2018 and the decrease from fiscal 2016 to fiscal 2017 was mainly due to the fluctuations in land sales revenue noted above. Slightly offsetting the decrease from fiscal 2017 to fiscal 2018 was the gain recognized from the sale of our former corporate headquarters building in the first quarter of fiscal 2018.

Homebuilding Selling, General and Administrative

Homebuilding selling, general and administrative (“SGA”) expenses decreased $37.1 million to $159.2 million for the year ended October 31, 2018 as compared to the year ended October 31, 2017. The decrease was primarily related to a $10.2 million reduction in our construction defect reserves based on our annual actuarial analysis, along with a $2.3 million reduction for a litigation settlement, and $12.5 million of additional reserves recorded in fiscal 2017 related to the Grandview II litigation. The remaining decrease is due to the reduction of our community count, a decrease in insurance costs and the increase of joint venture management fees received, which offset general and administrative expenses, as a result of more joint venture deliveries. SGA increased $3.4 million to $196.3 million for the year ended October 31, 2017 as compared to the year ended October 31, 2016. The increase was primarily due to a $12.5 million adjustment in the fourth quarter of fiscal 2017 in our construction defect reserves related to litigation. Excluding this adjustment, SGA expenses decreased $9.1 million to $183.8 million for the year ended October 31, 2017 as compared to the year ended October 31, 2016. The decrease was mainly due to our decision to exit four markets during 2016, the reduction of our community count and the increase of joint venture management fees received, which offset general and administrative expenses, as a result of more joint venture deliveries.

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Homebuilding Operations by Segment

Financial information relating to the Company’s operations was as follows:

 Segment Analysis (Dollars in thousands, except average sales price)

	Years Ended October 31,
	2018		Variance 2018 Compared to 2017		2017		Variance 2017 Compared to 2016		2016
Northeast
Homebuilding revenue	$116,296		$(93,213	)	$209,509		$(68,519	)	$278,028
Income (loss) before income taxes	$20,869		$18,569		$2,300		$6,169		$(3,869	)
Homes delivered	178		(173	)	351		(206	)	557
Average sales price	$539,393		$64,316		$475,077		$(17,070	)	$492,147
Mid-Atlantic
Homebuilding revenue	$354,690		$(109,436	)	$464,126		$5,547		$458,579
Income before income taxes	$18,757		$1,566		$17,191		$(285	)	$17,476
Homes delivered	672		(184	)	856		(104	)	960
Average sales price	$527,013		$(14,192	)	$541,205		$64,220		$476,985
Midwest
Homebuilding revenue	$196,599		$(3,171	)	$199,770		$(111,552	)	$311,322
Income (loss) before income taxes	$1,528		$2,679		$(1,151	)	$10,265		$(11,416	)
Homes delivered	662		22		640		(281	)	921
Average sales price	$296,536		$(14,415	)	$310,951		$(1,176	)	$312,127
Southeast
Homebuilding revenue	$241,620		$(18,782	)	$260,402		$(182	)	$260,584
Loss before income taxes	$(9,914	)	$(3,715	)	$(6,199	)	$11,592		$(17,791	)
Homes delivered	596		(18	)	614		33		581
Average sales price	$399,242		$(19,433	)	$418,675		$49,336		$369,339
Southwest
Homebuilding revenue	$638,282		$(189,221	)	$827,503		$(201,026	)	$1,028,529
Income before income taxes	$49,852		$(21,688	)	$71,540		$(12,884	)	$84,424
Homes delivered	1,873		(484	)	2,357		(393	)	2,750
Average sales price	$340,399		$(10,225	)	$350,624		$(21,888	)	$372,512
West
Homebuilding revenue	$384,627		$(45,919	)	$430,546		$88,099		$342,447
Income before income taxes	$47,987		$28,351		$19,636		$16,191		$3,445
Homes delivered	866		82		784		89		695
Average sales price	$443,695		$(101,602	)	$545,297		$52,788		$492,509

Homebuilding Results by Segment

Northeast – Homebuilding revenues decreased 44.5% in fiscal 2018 compared to fiscal 2017 primarily due to a 49.3% decrease in homes delivered, partially offset by a 13.5% increase in average selling price. The increase in average sales price was the result of some new communities delivering higher priced single family homes in higher-end submarkets of the segment in fiscal 2018 compared to some communities that are no longer delivering that had lower priced single family homes in similar submarkets of the segment in fiscal 2017. Also impacting the increase in average sales price was higher option revenue and location premiums and the result of our ability to raise prices in fiscal 2018 in certain communities that were delivering homes during both periods.

Income before income taxes increased $18.6 million to $20.9 million, which was mainly due a $24.6 million improvement in loss from unconsolidated joint ventures to income, along with a $10.6 million decrease in selling, general and administrative costs and a $2.8 million decrease in inventory impairment loss and land option write-offs. The increase was partially offset by the decrease in homebuilding revenues discussed above and the decrease in gross margin percentage before interest expense for fiscal 2018 compared to fiscal 2017.

 Homebuilding revenues decreased 24.6% in fiscal 2017 compared to fiscal 2016 primarily due to a 37.0% decrease in homes delivered and a 3.5% decrease in average selling price. The decrease in average sales price was the result of new communities delivering lower priced townhomes and single family homes in lower-end submarkets of the segment in fiscal 2017 compared to some communities that are no longer delivering that had higher priced townhomes and single family homes in higher-end submarkets of the segment in fiscal 2016. 

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Loss before income taxes decreased $6.2 million to income of $2.3 million, which was mainly due a $38.9 million increase in land sales and other revenue, a $7.3 million decrease in inventory impairment loss and land option write-offs and a $4.5 million decrease in selling, general and administrative costs, partially offset by the decrease in homebuilding revenues discussed above. Additionally, the gross margin percentage before interest expense was flat for fiscal 2017 compared to fiscal 2016.

Mid-Atlantic – Homebuilding revenues decreased 23.6% in fiscal 2018 compared to fiscal 2017 primarily due to a 21.5% decrease in homes delivered and a 2.6% decrease in average sales price. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes in lower-end submarkets of the segment in fiscal 2018 compared to some communities delivering in fiscal 2017 that are no longer delivering and which had higher priced, larger single family homes in higher-end submarkets of the segment.

Income before income taxes increased $1.6 million to $18.8 million, due mainly to a $2.3 million decrease in selling, general and administrative costs and a $1.9 million decrease in inventory impairment loss and land option write-offs and a slight increase in gross margin percentage before interest expense for fiscal 2018 compared to fiscal 2017.

Homebuilding revenues increased 1.2% in fiscal 2017 compared to fiscal 2016 primarily due to a 13.5% increase in average sales price, partially offset by a 10.8% decrease in homes delivered. The increase in average sales price was the result of new communities delivering higher priced, larger single family homes in higher-end submarkets of the segment in fiscal 2017 compared to some communities that are no longer delivering that had lower priced, entry-level single family homes in lower-end submarkets of the segment in fiscal 2016. The increase in average sales price was also impacted by our ability to raise prices in fiscal 2017 in certain communities that were delivering homes during both periods. This increase had a minimal impact on our gross margin percentage as it was partially offset by higher construction costs we experienced during the same period.

Income before income taxes decreased $0.3 million to $17.2 million, due mainly to a $0.8 million increase in selling, general and administrative costs and a $1.3 million increase in inventory impairment loss and land option write-offs, partially offset by the increase in homebuilding revenues discussed above and a $1.2 million increase in income from unconsolidated joint ventures. Additionally, the gross margin percentage before interest expense was flat for fiscal 2017 compared to fiscal 2016.

Midwest – Homebuilding revenues decreased 1.6% in fiscal 2018 compared to fiscal 2017. There was a 4.6% decrease in average sales price, partially offset by a 3.4% increase in homes delivered. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes in lower-end submarkets of the segment in fiscal 2018 compared to some communities that are no longer delivering and which had higher priced, larger single family homes in higher-end submarkets of the segment in fiscal 2017.

Loss before income taxes improved $2.7 million to income of $1.5 million. The improvement was primarily due to a $2.7 million decrease in selling, general and administrative costs and the $0.6 million decrease in loss from unconsolidated joint ventures, partially offset by a slight decrease in gross margin percentage before interest expense.

Homebuilding revenues decreased 35.8% in fiscal 2017 compared to fiscal 2016. There was a 30.5% decrease in homes delivered and a 0.4% decrease in average sales price. The decrease in average sales price was the result of less deliveries and home sales revenue for the segment due to our decision to exit the Minneapolis, Minnesota market in fiscal 2016, which had higher priced, single family homes delivering compared to the lower priced, single family homes delivering for the remaining markets in the segment. Also impacting the decrease was a $23.1 million decrease in land sales and other revenue due to the sale of our land portfolio in our Minneapolis, Minnesota division in fiscal 2016.

Loss before income taxes decreased $10.3 million to a loss of $1.2 million. The decrease in loss was primarily due to a $14.3 million decrease in inventory impairment loss and land option write-offs relating to our land portfolio sold in our Minneapolis, Minnesota division, a $5.7 million decrease in selling, general and administrative costs and a slight increase in gross margin percentage before interest expense.

Southeast – Homebuilding revenues decreased 7.2% in fiscal 2018 compared to fiscal 2017. The decrease was primarily due to a 2.9% decrease in homes delivered and a 4.6% decrease in average sales price. The decrease in average sales price was the result of new communities delivering lower priced, single family homes and townhomes in lower-end submarkets of the segment in fiscal 2018 compared to some communities that are no longer delivering and which had higher priced, larger single family homes and townhomes in higher-end submarkets of the segment in fiscal 2017.

Loss before income taxes increased $3.7 million to a loss of $9.9 million due to the decrease in homebuilding revenue discussed above, a $1.6 million increase in selling, general and administrative costs and a $2.9 million decrease in income from unconsolidated joint ventures to a loss, partially offset by a $7.3 million decrease in inventory impairment loss and land option write-offs. Additionally, the gross margin percentage before interest expense was flat for fiscal 2018 compared to fiscal 2017.

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Homebuilding revenues decreased 0.1% in fiscal 2017 compared to fiscal 2016. The decrease was primarily due to a $42.7 million decrease in land sales and other revenue due to the sale of our land portfolio in our Raleigh, North Carolina division during fiscal 2016, partially offset by 13.4% increase in average sales price and a 5.7% increase in homes delivered. The increase in average sales price was the result of new communities delivering higher priced, larger single family homes in higher-end submarkets of the segment in fiscal 2017 compared to some communities that are no longer delivering that had lower priced, townhomes and single family homes in lower-end and submarkets of the segment in fiscal 2016. The increase in average sales price was also impacted by our ability to raise prices in fiscal 2017 in certain communities that were delivering homes during both periods. This increase had a minimal impact on our gross margin percentage as it was partially offset by higher construction costs we experienced during the same period.

Loss before income taxes decreased $11.6 million to a loss of $6.2 million due to a $6.8 million decrease in selling, general and administrative costs and a $2.6 million increase in income from unconsolidated joint ventures, while gross margin percentage before interest expense remained flat. This decrease in loss was partially offset by the decrease in land sales and other revenue noted above and a $5.6 million increase in inventory impairment loss and land option write-offs.

Southwest – Homebuilding revenues decreased 22.9% in fiscal 2018 compared to fiscal 2017 primarily due to a 20.5% decrease in homes delivered and a 2.9% decrease in average sales price. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes in lower-end submarkets of the segment in fiscal 2018 compared to some communities that are no longer delivering and which had higher priced, larger single family homes and townhomes in higher-end submarkets of the segment in fiscal 2017.

Income before income taxes decreased $21.7 million to $49.9 million in fiscal 2018 mainly due to the decrease in homebuilding revenues discussed above, partially offset by a $5.5 million increase in income from unconsolidated joint ventures. Additionally, the gross margin percentage before interest expense was flat for fiscal 2018 compared to fiscal 2017.

Homebuilding revenues decreased 19.5% in fiscal 2017 compared to fiscal 2016 primarily due to a 14.3% decrease in homes delivered, a 5.9% decrease in average sales price and a $3.0 million decrease in land sales and other revenue. The decrease in average sales price was the result of new communities delivering lower priced, single family homes in lower-end submarkets of the segment in fiscal 2017 compared to some communities that are no longer delivering that had higher priced, single family homes in higher-end submarkets of the segment in fiscal 2016. The decrease in average sales price was partially offset our ability to raise prices in fiscal 2017 in certain communities that were delivering homes during both periods. This increase had a minimal impact on our gross margin percentage as it was partially offset by higher construction costs we have been experienced during the same period.

Income before income taxes decreased $12.9 million to $71.5 million in fiscal 2017 mainly due to the decrease in homebuilding revenues discussed above, partially offset by a $1.5 million decrease in selling, general and administrative costs and a $2.8 million decrease in inventory impairment loss and land option write-offs. Additionally, the gross margin percentage before interest expense was flat for fiscal 2017 compared to fiscal 2016.

West – Homebuilding revenues decreased 10.7% in fiscal 2018 compared to fiscal 2017 primarily due to an 18.6% decrease in average sales price and a $2.6 million decrease in land sales and other revenue, partially offset by 10.5% increase in homes delivered. The decrease in average sales price was the result of new communities delivering lower priced, single family homes in lower-end submarkets of the segment in fiscal 2018 compared to some communities that are no longer delivering and which had higher priced, single family homes in higher-end submarkets of the segment in fiscal 2017. Partially offsetting the decrease in average sales price was the impact of price increases in certain communities within the segment. 

Income before income taxes increased $28.4 million to $48.0 million in fiscal 2018 due mainly to an increase in gross margin percentage before interest expense, along with a $3.6 million increase in income from unconsolidated joint ventures and a $1.8 million decrease in inventory impairment loss and land option write-offs. This increase in income was partially offset by a $4.7 million increase in selling, general and administrative costs.  

Homebuilding revenues increased 25.7% in fiscal 2017 compared to fiscal 2016 primarily due to a 12.8% increase in homes delivered and a 10.7% increase in average sales price. The increase in average sales price was the result of our ability to raise prices in fiscal 2017 in certain communities that were delivering homes during both periods. In addition, there was a $2.9 million increase in land sales and other revenue for fiscal 2017 compares to fiscal 2016.

Income before income taxes increased $16.2 million to $19.6 million in fiscal 2017 due mainly to the increase in homebuilding revenues discussed above, a $2.9 million decrease in selling, general and administrative costs and a slight increase in gross margin percentage before interest expense. This increase in income was partially offset by a $4.4 million decrease in income from unconsolidated joint ventures and a $1.9 million increase in inventory impairment loss and land option write-offs.

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Financial Services

Financial services consist primarily of originating mortgages from our home-buyers, selling such mortgages in the secondary market, and title insurance activities. We use mandatory investor commitments and forward sales of MBS to hedge our mortgage-related interest rate exposure on agency and government loans. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk associated with MBS forward commitments and loan sales transactions is managed by limiting our counterparties to investment banks, federally regulated bank affiliates and other investors meeting our credit standards. Our risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments. For the years ended October 31, 2018, 2017 and 2016, FHA/VA loans represented 24.6%, 25.1%, and 25.5%, respectively, of our total loans. The origination of FHA/VA loans have decreased over the last three fiscal years and our conforming conventional loan originations as a percentage of our total loans also decreased slightly from 69.6% for fiscal 2016 to 69.0% for fiscal 2017, but increased slightly to 69.8% for fiscal 2018. The remaining 5.6%, 5.9% and 4.9% of our loan originations represent jumbo and/or USDA loans. Profits and losses relating to the sale of mortgage loans are recognized when legal control passes to the buyer of the mortgage and the sales price is collected.

During the years ended October 31, 2018, 2017, and 2016, financial services provided a $18.2 million, $26.4 million and $35.5 million pretax profit, respectively. In fiscal 2018, financial services pretax profit decreased $8.2 million due to the decrease in the homebuilding deliveries, and the decrease in the basis point spread between the loans originated and the implied rate from the sale of the loans as a result of the competitive financial services market and recent increases in mortgage rates. In fiscal 2017, financial services pretax profit decreased $9.1 million compared to fiscal 2016 due to the decrease in homebuilding deliveries, along with a decrease in the average price of loans settled. In the market areas served by our wholly owned mortgage banking subsidiaries, 72.4%, 67.8%, and 67.3% of our noncash home buyers obtained mortgages originated by these subsidiaries during the years ended October 31, 2018, 2017, and 2016, respectively.

Corporate General and Administrative

Corporate general and administrative expenses include the operations at our headquarters in New Jersey. These expenses include payroll, stock compensation, legal expenses, rent and facility costs and other costs associated with our executive offices, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, construction services and administration of insurance, quality and safety. Corporate general and administrative expenses increased $10.3 million for the year ended October 31, 2018 compared to the year ended October 31, 2017, and decreased $0.8 million for the year ended October 31, 2017 compared to the year ended October 31, 2016. The increase in expense for fiscal 2018 was primarily due to increased legal (including litigation) fees related to our fiscal 2018 financing transactions and higher costs for ongoing litigations involving the Company. Also contributing to the increase in corporate general and administrative expenses was rent expense incurred during the year ended October 31, 2018, related to (i) the sale and leaseback of our former corporate headquarters building for the period from November 2017 to February 2018, and (ii) our new corporate headquarters building which we moved into in February 2018. Additionally impacting the increase was an increase in stock compensation expense in fiscal 2018, as a result of lower expense in fiscal 2017, resulting from the forfeiture of compensation under our long-term incentive plan due to the retirement of a senior executive, along with the cancelation of certain stock awards that did not meet their performance criteria. The minor decrease in expense for fiscal 2017 compared to fiscal 2016 was due mainly to the reversal of previously recognized expense for certain performance based stock compensation plans for which certain requirements are not expected to be satisfied, partially offset by the increase from an adjustment to reserves for self-insured medical claims that were reduced based on claim estimates that occurred in the prior year and which did not recur in 2017.

Other Interest

Other interest increased $6.0 million to $103.3 million for the year ended October 31, 2018 compared to October 31, 2017 and increased $6.3 million to $97.3 million for the year ended October 31, 2017 compared to October 31, 2016. Our assets that qualify for interest capitalization (inventory under development) are less than our debt, and therefore a portion of interest not covered by qualifying assets must be directly expensed. In fiscal 2018, the increase was attributed to more interest incurred as a result of the senior secured notes issued in July 2017 that have a higher interest rate than the senior secured notes which they refinanced and additional amounts outstanding under the term loan facility in fiscal 2018 compared to fiscal 2017. In fiscal 2017, our qualifying assets for interest capitalization decreased by more than our debt, therefore directly expensed interest increased for the year ended October 31, 2017 compared to the year ended October 31, 2016. Also contributing to the increase was the higher interest rate on our secured debt that was refinanced in July 2017.

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Loss on Extinguishment of Debt

We incurred a $7.5 million loss on extinguishment of debt during the year ended October 31, 2018 due to (i) borrowings of the Initial Term Loans in the amount of $132.5 million under the Term Loan Facility, and proceeds of such Initial Term Loans, together with cash on hand, were used to redeem all of K. Hovnanian’s outstanding $132.5 million aggregate principal amount of 7.0% Notes (upon redemption, all 7.0% Notes were cancelled); and (ii) the exchange of all of the $170.2 million aggregate principal amount of 8.0% Notes validly tendered and not validly withdrawn in the Exchange Offer (representing 72.14% of the aggregate principal amount of 8.0% Notes outstanding prior to the exchange offer), and the issuance of $90.6 million aggregate principal amount of New 2026 Notes and $90.1 million aggregate principal amount of New 2040 Notes, and as part of the Exchange Offer, the Subsidiary Purchaser, purchased for $26.5 million in cash the Purchased 8.0% Notes. These transactions resulted in a loss on extinguishment of debt of $1.4 million. In addition, on May 29, 2018, K. Hovnanian completed the redemption of $65.7 million aggregate principal amount of the 8.0% Notes (upon redemption, such 8.0% Notes were cancelled) with approximately $70.0 million in borrowings on the Delayed Draw Term Loans under the Term Loan Facility. This transaction resulted in a loss on extinguishment of debt of $4.3 million. Third, on September 10, 2018, K. Hovnanian drew $35.0 million on the Secured Credit Facility and used $41.0 million of cash on hand to repay the secured term loans in full, plus unpaid interest and closing costs. This transaction resulted in a loss on extinguishment of debt of $1.8 million for the year ended October 31, 2018.

We incurred a $34.9 million loss on extinguishment of debt during the year ended October 31, 2017. This was due to three items that occurred during fiscal 2017. First, we repurchased in open market transactions $17.5 million aggregate principal amount of 7.0% Notes, $14.0 million aggregate principal amount of 8.0% Notes and 6,925 senior exchangeable note units representing $6.9 million stated amount of senior exchangeable note units. The aggregate purchase price for these transactions was $30.8 million, plus accrued and unpaid interest. These transactions resulted in a gain on extinguishment of debt of $7.8 million. Second, we incurred $0.4 million of costs associated with the 9.50% 2020 Notes issued during the fourth quarter of fiscal 2016. Third, we issued $440.0 million aggregate principal amount of 10.0% 2022 Notes and $400.0 million aggregate principal amount of 10.5% 2024 Notes. The net proceeds from these issuances together with available cash were used to (i) purchase $575,912,000 principal amount of 7.25% First Lien Notes, $87,321,000 principal amount of 9.125% Second Lien Notes and all $75,000,000 principal amount of 10.0% Second Lien Notes that were tendered and accepted for purchase pursuant to the Tender Offers and to pay related tender premiums and accrued and unpaid interest thereon to the date of purchase and (ii) satisfy and discharge all obligations (and cause the release of the liens on the collateral securing such indebtedness) under the indentures under which the 7.25% First Lien Notes, the 9.125% Second Lien Notes and the 10.0% Second Lien Notes were issued and in connection therewith to call for redemption on October 15, 2017 and on November 15, 2017 all remaining $1,088,000 principal amount of 7.25% First Lien Notes and all remaining $57,679,000 principal amount of 9.125% Second Lien Notes, respectively, that were not validly tendered and purchased in the applicable Tender Offer in accordance with the redemption provisions of the indentures governing the 2020 Secured Notes. These transactions resulted in a loss on extinguishment of debt of $42.3 million.

We incurred a $3.2 million loss on extinguishment of debt for the year ended October 31, 2016, due to the redemption of the remaining outstanding principal amount of our 8.625% Senior Notes due 2017 and the exchange of a portion of our Existing Second Lien Notes for Exchange Notes. These losses were slightly offset by a gain from the purchase of 20,823 6.0% Exchangeable Note Units due December 2017. We did not incur any loss on the extinguishment of debt for the year ended October 31, 2015. 

Income (Loss) from Unconsolidated Joint Ventures

Income (loss) from unconsolidated joint ventures consists of our share of the earnings or losses of our joint ventures. Income (loss) from unconsolidated joint ventures increased $31.0 million for the year ended October 31, 2018 from a loss of $7.0 million for the year ended October 31, 2017 to income of $24.0 million. The increase is due to the recognition of our share of income from certain of our joint ventures delivering more homes and increased profits in the current fiscal year as compared to the prior fiscal year when they reported losses primarily due to startup costs. Loss from unconsolidated joint ventures increased $2.7 million for the year ended October 31, 2017 from a loss of $4.3 million for the year ended October 31, 2016 to a loss of $7.0 million. The increase in loss was due to the recognition of our share of losses on our newly formed joint ventures, some of which had not delivered any homes, and the write-off of our investment on a joint venture that delivered its last home during fiscal 2017 and we have determined that we will not receive any future distributions.

Total Taxes

The total income tax expense of $3.6 million for the year ended October 31, 2018 was primarily related to state tax expense from income generated that was not offset by tax benefits in states where we fully reserve the tax benefit from net operating losses. The total income tax expense of $286.9 million for the year ended October 31, 2017 was primarily due to increasing our valuation allowance to fully reserve against our deferred tax assets (“DTAs”). In addition, this period was also impacted by state tax expense from income generated in some states, which was not offset by tax benefits in other states that had losses for which we fully reserve the net operating losses. The total income tax expense of $5.3 million for the year ended October 31, 2016 was primarily due to current state taxes and permanent differences related to stock compensation, partially offset by a federal tax benefit related to receiving a specified liability loss refund of taxes paid in fiscal year 2002.

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Deferred federal and state income tax assets primarily represent the deferred tax benefits arising from net operating loss carryforwards and temporary differences between book and tax income which will be recognized in future years as an offset against future taxable income. If the combination of future years’ income (or loss) and the reversal of the timing differences results in a loss, such losses can be carried forward to future years. In accordance with ASC 740, we evaluate our deferred tax assets quarterly to determine if valuation allowances are required. ASC 740 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not” standard.  

As of October 31, 2018, we considered all available positive and negative evidence to determine whether, based on the weight of that evidence, our valuation allowance for our DTAs was appropriate in accordance with ASC 740. As listed in Note 11 to the Consolidated Financial Statements, in order of the weighting of each factor, is the available positive and negative evidence that we considered in determining that it is more likely than not that all of our DTAs will not be realized. In analyzing these factors, overall the negative evidence, both objective and subjective, outweighed the positive evidence. Based on this analysis, we determined that the current valuation allowance for deferred taxes of $638.2 million as of October 31, 2018, which fully reserves for our DTAs, is appropriate.

Off-Balance Sheet Financing

In the ordinary course of business, we enter into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Lot option contracts enable us to control significant lot positions with a minimal capital investment and substantially reduce the risks associated with land ownership and development. At October 31, 2018, we had $59.0 million in option deposits in cash to purchase land and lots with a total purchase price of $1.2 billion. Our financial exposure is generally limited to forfeiture of the nonrefundable deposits, letters of credit and other nonrefundable amounts incurred. We have no material third-party guarantees.

 Contractual Obligations

The following summarizes our aggregate contractual commitments at October 31, 2018.

	Payments Due by Period (1)
(In thousands)	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years
Long term debt (2)(3)(4)	$2,209,270	$128,142	$324,753	$805,726	$950,649
Operating leases	27,042	9,297	10,291	4,972	2,482
Purchase obligations (5)	-	-	-	-	-
Total	$2,236,312	$137,439	$335,044	$810,698	$953,131

(1) Total contractual obligations exclude our accrual for uncertain tax positions of $1.5 million recorded for financial reporting purposes as of October 31, 2018 because we were unable to make reasonable estimates as to the period of cash settlement with the respective taxing authorities.

(2) Represents our senior unsecured term loan credit facility, senior secured and senior notes and other notes payable and $716.0 million of related interest payments for the life of such debt.

(3) Does not include $95.6 million of nonrecourse mortgages secured by inventory. These mortgages have various maturities spread over the next two to three years and are paid off as homes are delivered.

(4) Does not include the mortgage warehouse lines of credit made under our Master Repurchase Agreements. See“- Capital Resources and Liquidity.” Also does not include our $125.0 million Secured Credit Facility under which there were no borrowings outstanding as of October 31, 2018.

(5) Represents obligations under option contracts with specific performance provisions, net of cash deposits.

We had outstanding letters of credit and performance bonds of $12.5 million and $192.5 million, respectively, at October 31, 2018, related principally to our obligations to local governments to construct roads and other improvements in various developments. We do not believe that any such letters of credit or bonds are likely to be drawn upon.  

Inflation

Inflation has a long-term effect, because increasing costs of land, materials and labor result in increasing sale prices of our homes. In general, these price increases have been commensurate with the general rate of inflation in our housing markets and have not had a significant adverse effect on the sale of our homes. A significant risk faced by the housing industry generally is that rising house construction costs, including land and interest costs, will substantially outpace increases in the income of potential purchasers and therefore limit our ability to raise home sale prices, which may result in lower gross margins.

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Inflation has a lesser short-term effect, because we generally negotiate fixed-price contracts with many, but not all, of our subcontractors and material suppliers for the construction of our homes. These prices usually are applicable for a specified number of residential buildings or for a time period of between three to twelve months. We also have certain national contracts whereby the prices are applicable for time periods ranging from one to three years. Construction costs for residential buildings represent approximately 55% of our homebuilding cost of sales for fiscal 2018.

 Safe Harbor Statement

All statements in this Annual Report on Form 10-K that are not historical facts should be considered as “Forward-Looking Statements” within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include but are not limited to statements related to the Company's goals and expectations with respect to its financial results for future financial periods. Although we believe that our plans, intentions and expectations reflected in, or suggested by, such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. By their nature, forward-looking statements: (i) speak only as of the date they are made, (ii) are not guarantees of future performance or results and (iii) are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as result of a variety of factors. Such risks, uncertainties and other factors include, but are not limited to:

● Changes in general and local economic, industry and business conditions and impacts of a significant homebuilding downturn;

● Adverse weather and other environmental conditions and natural disasters;

● High leverage and restrictions on the Company’s operations and activities imposed by the agreements governing the Company’s outstanding indebtedness;

● Availability and terms of financing to the Company;

● The Company’s sources of liquidity;

● Changes in credit ratings;

● The seasonality of the Company’s business;

●  The availability and cost of suitable land and improved lots and sufficient liquidity to invest in such land and lots;

● Shortages in, and price fluctuations of, raw materials and labor;

● Reliance on, and the performance of, subcontractors;

●  Regional and local economic factors, including dependency on certain sectors of the economy, and employment levels affecting home prices and sales activity in the markets where the Company builds homes;

● Fluctuations in interest rates and the availability of mortgage financing;

● Increases in cancellations of agreements of sale;

● Changes in tax laws affecting the after-tax costs of owning a home;

● Operations through unconsolidated joint ventures with third parties;

● Government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment;

● Legal claims brought against us and not resolved in our favor, such as product liability litigation, warranty claims and claims made by mortgage investors;

●  Levels of competition;

●  Successful identification and integration of acquisitions;

●  Significant influence of the Company’s controlling stockholders; 

● Availability of net operating loss carryforwards;

●  Utility shortages and outages or rate fluctuations;

●  Geopolitical risks, terrorist acts and other acts of war;

● Loss of key management personnel or failure to attract qualified personnel;

● Information technology failures and data security breaches; and

● Negative publicity.

Certain risks, uncertainties and other factors are described in detail in Part I, Item 1 “Business” and Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K as updated by our subsequent filings with the SEC. Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Annual Report on Form 10-K.

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ITEM 7A

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A primary market risk facing us is interest rate risk on our long term debt, including debt instruments at variable interest rates. In connection with our mortgage operations, mortgage loans held for sale and the associated mortgage warehouse lines of credit under our Master Repurchase Agreements are subject to interest rate risk; however, such obligations reprice frequently and are short-term in duration. In addition, we hedge the interest rate risk on mortgage loans by obtaining forward commitments from private investors. Accordingly, the interest rate risk from mortgage loans is not material. We do not use financial instruments to hedge interest rate risk except with respect to mortgage loans. We are also subject to foreign currency risk but we do not believe this risk is material. The following tables set forth as of October 31, 2018 and 2017, our long-term debt obligations, principal cash flows by scheduled maturity, weighted-average interest rates and estimated fair value (“FV”).

Long-Term Debt Tables

	Long-Term Debt as of October 31, 2018 by Fiscal Year of Debt Maturity
(Dollars in thousands)	2019		2020		2021		2022		2023		Thereafter		Total		FV at 10/31/18
Long term debt(1)(2):
Fixed rate	$-		$-		$75,000		$635,000		$-		$783,257		$1,493,257		$1,357,179
Weighted-average interest rate	-	%	-	%	9.50	%	8.21	%	-	%	8.79	%	8.58	%

(1) Does not include the mortgage warehouse lines of credit made under our Master Repurchase Agreements. Also does not include our $125.0 million Secured Credit Facility under which there were no borrowings outstanding as of October 31, 2018.

(2) Does not include $95.6 million of nonrecourse mortgages secured by inventory. These mortgages have various maturities spread over the next two to three years and are paid off as homes are delivered.

	Long-Term Debt as of October 31, 2017 by Fiscal Year of Debt Maturity
(Dollars in thousands)	2018		2019		2020		2021		2022		Thereafter		Total		FV at 10/31/17
Long term debt(1)(2):
Fixed rate	$109,414		$209,082		$237,634		$76,825		$636,994		$404,572		$1,674,521		$1,760,337
Weighted-average interest rate	4.09	%	7.46	%	8.00	%	9.48	%	8.22	%	10.49	%	8.43	%

(1)  Does not include the mortgage warehouse lines of credit made under our Master Repurchase Agreements. Also does not include $14.6 million of letters of credit issued as of October 31, 2017 under our $75.0 million revolving Credit Facility.

(2) Does not include $64.5 million of nonrecourse mortgages secured by inventory. These mortgages have various maturities spread over the next two to three years and are paid off as homes are delivered.

ITEM 8

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements of Hovnanian Enterprises, Inc. and its consolidated subsidiaries are set forth herein beginning on page 67.

ITEM 9

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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ITEM 9A

CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of October 31, 2018. Based upon that evaluation and subject to the foregoing, the Company’s chief executive officer and chief financial officer concluded that the design and operation of the Company’s disclosure controls and procedures are effective to accomplish their objectives.

Changes in Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended October 31, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of October 31, 2018.

The effectiveness of the Company’s internal control over financial reporting as of October 31, 2018 has been audited by Deloitte & Touche LLP, the Company’s independent registered public accounting firm, as stated in their report below.

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ITEM 9B

OTHER INFORMATION

None.

PART III

ITEM 10

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information called for by Item 10, except as set forth in this Item 10, is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 19, 2019, which will involve the election of directors.

Executive Officers of the Registrant

Our executive officers are listed below and brief summaries of their business experience and certain other information with respect to them are set forth following the table. Each executive officer holds such office for a one-year term.

Name	Age		Position	Year Started With Company
Ara K. Hovnanian		61	Chairman of the Board, Chief Executive Officer, President and Director of the Company		1979
Lucian T. Smith, III		58	Chief Operating Officer		2007
J. Larry Sorsby		63	Executive Vice President, Chief Financial Officer and Director of the Company		1988
Brad G. O’Connor		48	Vice President, Chief Accounting Officer and Corporate Controller		2004

Mr. Hovnanian has been Chief Executive Officer since July 1997 after being appointed President in 1988 and Executive Vice President in 1983. Mr. Hovnanian joined the Company in 1979 and has been a Director of the Company since 1981 and was Vice Chairman from 1998 through November 2009. In November 2009, he was elected Chairman of the Board following the death of Kevork S. Hovnanian, the chairman and founder of the Company and the father of Mr. Hovnanian.

Mr. Smith was appointed Chief Operating Officer, effective November 1, 2016. Mr. Smith joined the Company in April 2007 as a Region President and was promoted to Group President in January 2010. Most recently Mr. Smith has served as Executive Vice President of Homebuilding Operations, a position he had held since August 2015.

Mr. Sorsby has been Chief Financial Officer of Hovnanian Enterprises, Inc. since 1996, and Executive Vice President since November 2000. Mr. Sorsby was also Senior Vice President from March 1991 to November 2000 and was elected as a Director of the Company in 1997. He is Chairman of the Board of Visitors for Urology at The Children’s Hospital of Philadelphia (“CHOP”) and also serves on the Foundation Board of Overseers at CHOP.

Mr. O’Connor joined the Company in April 2004 as Vice President and Associate Corporate Controller. In December 2007, he was promoted to Vice President, Corporate Controller and then in May 2011, he also became Vice President, Chief Accounting Officer. Prior to joining the Company, Mr. O’Connor was the Corporate Controller for Amershem Biosciences, and prior to that a Senior Manager in the audit practice of PricewaterhouseCoopers LLP.

Code of Ethics and Corporate Governance Guidelines

In more than 50 years of doing business, we have been committed to enhancing our shareholders’ investment through conduct that is in accordance with the highest levels of integrity. Our Code of Ethics is a set of guidelines and policies that govern broad principles of ethical conduct and integrity embraced by our Company. Our Code of Ethics applies to our principal executive officer, principal financial officer, chief accounting officer, and all other associates of our Company, including our directors and other officers.

We also remain committed to fostering sound corporate governance principles. The Company’s Corporate Governance Guidelines assist the Board of Directors of the Company (the “Board”) in fulfilling its responsibilities related to corporate governance conduct. These guidelines serve as a framework, addressing the function, structure, and operations of the Board, for purposes of promoting consistency of the Board’s role in overseeing the work of management.

56

We have posted our Code of Ethics on our web site at www.khov.com under “Investor Relations/Corporate Governance.” We have also posted our Corporate Governance Guidelines on our web site at www.khov.com under “Investor Relations/Corporate Governance.” A printed copy of the Code of Ethics and Guidelines is also available to the public at no charge by writing to: Hovnanian Enterprises, Inc., Attn: Human Resources Department, 90 Matawan Road, Fifth Floor, Matawan, NJ 07747 or calling corporate headquarters at 732-747-7800. We will post amendments to or waivers from our Code of Ethics that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange (the “NYSE”) on our web site at www.khov.com under “Investor Relations/Corporate Governance.”

Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee Charters

We have adopted charters that apply to the Company’s Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee. We have posted the text of these charters on our web site at www.khov.com under “Investor Relations/Corporate Governance.” A printed copy of each charter is available at no charge to any shareholder who requests it by writing to: Hovnanian Enterprises, Inc., Attn: Human Resources Department, 90 Matawan Road, Fifth Floor, Matawan, NJ 07747 or calling corporate headquarters at 732-747-7800.

ITEM 11

EXECUTIVE COMPENSATION

The information called for by Item 11 is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 19, 2019.

ITEM 12

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information called for by Item 12, is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 19, 2019.

ITEM 13

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information called for by Item 13 is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 19, 2019.

ITEM 14

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information called for by Item 14 is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 19, 2019.

PART IV

ITEM 15

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

	Page
FINANCIAL STATEMENTS:
Index to Consolidated Financial Statements		65
Report of Independent Registered Public Accounting Firm		66
Consolidated Balance Sheets at October 31, 2018 and 2017		67
Consolidated Statements of Operations for the years ended October 31, 2018, 2017 and 2016		68
Consolidated Statements of Equity for the years ended October 31, 2018, 2017 and 2016		69
Consolidated Statements of Cash Flows for the years ended October 31, 2018, 2017 and 2016		70
Notes to Consolidated Financial Statements		72

No schedules have been prepared because the required information of such schedules is not present, is not present in amounts sufficient to require submission of the schedule, or because the required information is included in the financial statements and notes thereto.

57

ITEM 16

Form 10-K Summary

None.

58

Exhibits:

3(a)	Restated Certificate of Incorporation of the Registrant.(5)
3(b)	Certificate of Amendment of the Restated Certificate of Incorporation of Hovnanian Enterprises, Inc., dated March 13, 2018. (14)
3(c)	Amended and Restated Bylaws of the Registrant.(22)
4(a)	Specimen Class A Common Stock Certificate.(13)
4(b)	Specimen Class B Common Stock Certificate.(13)
4(c)	Certificate of Designations, Powers, Preferences and Rights of the 7.625% Series A Preferred Stock of Hovnanian Enterprises, Inc., dated July 12, 2005.(11)
4(d)	Certificate of Designations of the Series B Junior Preferred Stock of Hovnanian Enterprises, Inc., dated August 14, 2008.(1)
4(e)	Rights Agreement, dated as of August 14, 2008, between Hovnanian Enterprises, Inc. and National City Bank, as Rights Agent, which includes the Form of Certificate of Designation as Exhibit A, Form of Right Certificate as Exhibit B and the Summary of Rights as Exhibit C.(20)
4(f)	Amendment No. 1 to Rights Agreement, dated as of January 11, 2018, between Hovnanian Enterprises, Inc. and Computershare Trust Company, N.A. (as successor to National City Bank), as Rights Agent, which includes the amended and restated Form of Rights Certificate as Exhibit 1 and the amended and restated Summary of Rights as Exhibit 2. (15)
4(g)	Indenture, dated as of February 1, 2018, relating to the 13.5% Senior Notes due 2026 and 5.0% Senior Note due 2040, by and among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto and Wilmington Trust, National Association, as Trustee, including the forms of 13.5% Senior Notes due 2026 and 5.0% Senior Notes due 2040.(29)
4(h)	Second Supplemental Indenture, dated as of May 30, 2018, relating to the 13.5% Senior Notes due 2026 and 5.0% Senior Notes due 2040, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto and Wilmington Trust, National Association, as trustee.(34)
4(i)	Indenture dated as of July 27, 2017, relating to the 10.0% Senior Secured Notes due 2022 and the 10.5% Senior Secured Notes due 2024, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the Subsidiary Guarantors named therein and Wilmington Trust, National Association, as Trustee and Collateral Agent, including the forms of 10.0% Senior Secured Note due 2022 and the 10.5% Senior Secured Note due 2024.(17)
4(j)	Second Supplemental Indenture, dated January 16, 2018, relating to 10.500% Senior Secured Notes due 2024, by and among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto and Wilmington Trust, National Association, as Trustee and Collateral Agent.(30)
4(k)	Indenture dated as of September 8, 2016, relating to the 9.50% Senior Secured Notes due 2020, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., and the other guarantors named therein and Wilmington Trust, National Association, as Trustee and Collateral Agent, including form of 9.50% Senior Secured Notes due 2020.(2)
4(l)	Secured Notes Indenture dated as of November 1, 2011 relating to the 5.0% Senior Secured Notes due 2021 and 2.0% Senior Secured Notes due 2021, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors named therein and Wilmington Trust, National Association, as Trustee and Collateral Agent, including the forms of 5.0% Senior Secured Notes due 2021 and 2.0% Senior Secured Notes due 2021.(4)
4(m)	Indenture, dated as of November 5, 2014, relating to the 8.000% Senior Notes due 2019, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto and Wilmington Trust, National Association, as Trustee, including the form of 8.000% Senior Note due 2019.(10)
10(a)	Commitment Letter, dated December 28, 2017, by and among Hovnanian Enterprises, Inc., K. Hovnanian Enterprises, Inc., K. Hovnanian at Sunrise Trail III, LLC and GSO Capital Partners LP, on its own behalf and on behalf of certain funds managed, advised or sub-advised by GSO Capital Partners LP.(31)
10(b)	$125,000,000 Credit Agreement, dated as of January 29, 2018, by and among K. Hovnanian Enterprises Inc., Hovnanian Enterprises, Inc., the subsidiary guarantors named therein, Wilmington Trust, National Association, as Administrative Agent, and the lenders party thereto.(29)
10(c)	First Amendment, dated as of May 14, 2018, to the $125,000,000 Credit Agreement, dated as of January 29, 2018, among Hovnanian Enterprises, Inc., K. Hovnanian Enterprises Inc., the subsidiary guarantors party thereto, the lenders party thereto and Wilmington Trust, National Association, as administrative agent.(33)
10(d)	$212,500,000 Credit Agreement, dated as of January 29, 2018, by and among K. Hovnanian Enterprises Inc., Hovnanian Enterprises, Inc., the subsidiary guarantors named therein, Wilmington Trust, National Association, as Administrative Agent, and the lenders party thereto.(29)
10(e)	First Amendment, dated as of May 14, 2018, to the $212,500,000 Credit Agreement, dated as of January 29, 2018, among Hovnanian Enterprises, Inc., K. Hovnanian Enterprises Inc., the subsidiary guarantors party thereto, the lenders party thereto and Wilmington Trust, National Association, as administrative agent.(33)
10(f)	Collateral Agency Agreement, dated as of July 27, 2017, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the Subsidiary Guarantors named therein, Wilmington Trust, National Association, as Notes Collateral Agent and Wilmington Trust, National Association, as Collateral Agent.(17)
10(g)	Security Agreement, dated as of July 27, 2017, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the Subsidiary Guarantors named therein and Wilmington Trust, National Association, as Collateral Agent.(17)
10(h)	Pledge Agreement, dated as of July 27, 2017, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the Subsidiary Guarantors named therein and Wilmington Trust, National Association, as Collateral Agent.(17)
10(i)	Joinder to the Amended and Restated Intercreditor Agreement, dated as of July 27, 2017, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the Subsidiary Guarantors named therein, Wilmington Trust, National Association, as Trustee and Notes Collateral Agent, Wilmington Trust, National Association, as Senior Credit Agreement Administrative Agent, Wilmington Trust, National Association, as Junior Joint Collateral Agent and Wilmington Trust, National Association, as Mortgage Tax Collateral Agent.(17)
10(j)	Second Amended and Restated Mortgage Tax Collateral Agency Agreement, dated as of July 27 2017, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the Subsidiary Guarantors named therein, Wilmington Trust, National Association, as Notes Collateral Agent, Wilmington Trust, National Association, as Senior Credit Agreement Administrative Agent, Wilmington Trust, National Association, as Junior Joint Collateral Agent and Wilmington Trust, National Association, as Mortgage Tax Collateral Agent.(17)
10(k)	Trademark Security Agreement, dated as of July 27, 2017, between K. HOV IP II, Inc. and Wilmington Trust, National Association, as Collateral Agent.(17)

59

10(l)	Amended and Restated Intercreditor Agreement, dated September 8, 2016, among Hovnanian Enterprises, Inc., K. Hovnanian Enterprises, Inc., the other guarantors party thereto, Wilmington Trust, National Association, in its capacities as Senior Notes Trustee and Senior Notes Collateral Agent (each as defined therein), Wilmington Trust, National Association, in its capacity as Administrative Agent (as defined therein), Wilmington Trust, National Association, in its capacity as Mortgage Tax Collateral Agent (as defined therein), Wilmington Trust, National Association, in its capacities as 9.125% Junior Trustee and 9.125% Junior Collateral Agent (each as defined therein), Wilmington Trust, National Association, in its capacities as 10.000% Junior Trustee and 10.000% Junior Collateral Agent (each as defined therein) and Wilmington Trust, National Association, in its capacity as Junior Joint Collateral Agent (as defined therein).(2)
10(m)	Amended and Restated First Lien Pledge Agreement, dated as of September 8, 2016, relating to the 5.0% Senior Secured Notes due 2021, the 2.0% Senior Secured Notes due 2021 and the 9.50% Senior Secured Notes due 2020.(2)
10(n)	Amended and Restated First Lien Security Agreement, dated as of September 8, 2016, relating to the 5.0% Senior Secured Notes due 2021, the 2.0% Senior Secured Notes due 2021 and the 9.50% Senior Secured Notes due 2020.(2)
10(o)	Form of Non-Qualified Stock Option Agreement (2012) for Ara K. Hovnanian.(27)
10(p)	Amended and Restated 2008 Hovnanian Enterprises, Inc. Stock Incentive Plan.(16)
10(q)	Management Agreement dated August 12, 1983, for the management of properties by K. Hovnanian Investment Properties, Inc.(3)
10(r)	Management Agreement dated December 15, 1985, for the management of properties by K. Hovnanian Investment Properties, Inc.(19)
10(s)*	Executive Deferred Compensation Plan as amended and restated on January 1, 2014.
10(t)*	Death and Disability Agreement between the Registrant and Ara K. Hovnanian, dated February 2, 2006.(24)
10(u)*	Form of Nonqualified Stock Option Agreement (Class B shares).(8)
10(v)*	Form of Stock Option Agreement for Directors.(8)
10(w)*	Form of Incentive Stock Option Agreement.(23)
10(x)*	Form of Performance Vesting Incentive Stock Option Agreement.(23)
10(y)*	Form of Performance Vesting Nonqualified Stock Option Agreement.(23)
10(z)*	Form of 2018 Long-Term Incentive Program Award Agreement.(32)
10(aa)*	Form of 2016 Long Term Incentive Program Award Agreement.(21)
10(bb)*	Form of Change in Control Severance Protection Agreement entered into with Brad G. O’Connor.(25)
10(cc)*	Form of Amendment to Outstanding Stock Option Grants.(26)
10(dd)*	Form of Amendment to 2011 Non-Qualified Stock Option Agreement for Ara K. Hovnanian.(26)
10(ee)*	Form of Amendment to 2011 Incentive Stock Option Agreement for J. Larry Sorsby.(26)
10(ff)*	Form of Incentive Stock Option Agreement (2012).(27)
10(gg)*	Form of Stock Option Agreement (2012) for Directors.(27)
10(hh)*	Form of Market Share Unit Agreement Class A shares (2014 grants and thereafter).(9)
10(ii)*	Form of Market Share Unit Agreement Class B shares (2014 grants and thereafter).(9)
10(jj)*	Form of Market Share Unit Agreement (Performance Vesting) Class A (2014 grants and thereafter).(9)
10(kk)*	Form of Market Share Unit Agreement (Performance Vesting) Class B shares (2014 grants and thereafter) (9)
10(ll)*	Form of Incentive Stock Option Agreement (2014 grants and thereafter).(9)
10(mm)*	Form of Restricted Share Unit Agreement (2014 grants and thereafter).(9)
10(nn)*	Form of Stock Option Agreement for Directors (2014 grants and thereafter).(9)
10(oo)*	2012 Hovnanian Enterprises, Inc. Amended and Restated Stock Incentive Plan.(7)
10(pp)*	Amended and Restated Hovnanian Enterprises, Inc. Senior Executive Short-Term Incentive Plan.(6)
10(qq)*	Form of Letter Agreement Relating to Change in Control Severance Protection Agreement entered into with Brad G. O’Connor.(18)

60

10(rr)*	Market Share Unit Agreement Class A (2016 grants and thereafter).(2)
10(ss)*	Market Share Unit Agreement Class B (2016 grants and thereafter).(2)
10(tt)*	Market Share Unit Agreement (Gross Margin Performance Vesting) Class A (2016 grants and thereafter).(2)
10(uu)*	Market Share Unit Agreement (Gross Margin Performance Vesting) Class B (2016 grants and thereafter).(2)
10(vv)*	Market Share Unit Agreement (Debt Reduction Performance Vesting) Class A (2016 grants and thereafter).(2)
10(ww)*	Market Share Unit Agreement (Debt Reduction Performance Vesting) Class B (2016 grants and thereafter).(2)
10(xx)*	Premium-Priced Incentive Stock Option Agreement Class A (2016 grants and thereafter).(2)
10(yy)*	Premium-Priced Non-qualified Stock Option Agreement Class B (2016 grants and thereafter).(2)
10(zz)*	Incentive Stock Option Agreement Class A (2016 grants and thereafter).(2)
10(aaa)*	Restricted Share Unit Agreement Class A (2016 grants and thereafter).(2)
10(bbb)*	Director Restricted Share Unit Agreement Class A (2016 grants and thereafter).(2)
10(ccc)*	Market Share Unit Agreement (Pre-tax Profit performance Vesting) Class A (2017 grants and thereafter).(28)
10(ddd)*	Market Share Unit Agreement (Pre-tax Profit performance Vesting) Class B (2017 grants and thereafter).(28)
10(eee)*	Market Share Unit Agreement (Gross Margin Improvement Performance Vesting) Class A (2017 grants and thereafter).(28)
10(fff)*	Market Share Unit Agreement (Gross Margin Improvement Performance Vesting) Class B (2017 grants and thereafter).(28)
10(ggg)*	Market Share Unit Agreement Class A (Pre-tax Profit Performance Vesting) (2018 grants and thereafter).(35)
10(hhh)*	Market Share Unit Agreement Class B (Pre-tax Profit Performance Vesting) (2018 grants and thereafter).(35)
10(iii)*	Market Share Unit Agreement Class A (Stock Multiplier Performance Vesting) (2018 grants and thereafter).(35)
10(jjj)*	Market Share Unit Agreement Class B (Stock Multiplier Performance Vesting) (2018 grants and thereafter).(35)
10(kkk)*	Market Share Unit Agreement Class A (Community Count Performance Vesting) (2018 grants and thereafter).(35)
10(lll)*	Market Share Unit Agreement Class B (Community Count Performance Vesting) (2018 grants and thereafter).(35)
10(mmm)*	Premium-Priced Incentive Stock Option Agreement Class A (2018 grants and thereafter).(35)
10(nnn)*	Premium-Priced Non-Qualified Stock Option Agreement Class B (2018 grants and thereafter).(35)
10(ooo)*	Incentive Stock Option Agreement Class A (2018 grants and thereafter).(35)
10(ppp)*	Non-Qualified Stock Option Agreement Class B (2018 grants and thereafter).(35)
10(qqq)*	Director Stock Option Agreement Class A (2018 grants and thereafter).(35)
10(rrr)*	Form of Letter Agreement entered into with Lucian Theon Smith III.(12)
10(sss)*	Amendment to Form of Letter Agreement entered into with Lucian Theon Smith III.(32)
10(ttt)	First Lien Collateral Agency Agreement, dated as of September 8, 2016, among Wilmington Trust, National Association, in its capacity as Existing Collateral Agent (as defined therein), Wilmington Trust, National Association, in its capacity as 9.50% Collateral Agent (as defined therein), Wilmington Trust, National Association, in its capacity as Collateral Agent (as defined therein), K. Hovnanian Enterprises, Inc., and the Grantors (as defined therein).(2)
10(uuu)	First Supplemental Guarantee, dated as of September 10, 2018, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the subsidiary guarantors party thereto, and Wilmington Trust, National Association, as administrative agent, relating to the $125,000,000 Credit Agreement dated January 29, 2018.
10(vvv)	Security Agreement, dated as of September 10, 2018, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other grantors party thereto and Wilmington Trust, National Association, as collateral agent, relating to the $125,000,000 Credit Agreement dated January 29, 2018.
10(www)	Trademark Security Agreement, dated as of September 10, 2018, between K HOV IP, II, Inc. and Wilmington Trust, National Association, as collateral agent, relating to the $125,000,000 Credit Agreement dated January 29, 2018.
10(xxx)	Pledge Agreement, dated as of September 10, 2018, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the pledgors party thereto and Wilmington Trust, National Association, as collateral agent, relating to the $125,000,000 Credit Agreement dated January 29, 2018.
10(yyy)	Joinder to Intercreditor Agreement and Mortgage Tax Collateral Agency Agreement, dated as of September 10, 2018, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the subsidiary guarantors party thereto, Wilmington Trust, National Association, as administrative agent, Wilmington Trust, National Association, as junior joint collateral agent and Wilmington Trust, National Association, as mortgage tax collateral agent, relating to the $125,000,000 Credit Agreement dated January 29, 2018.
21	Subsidiaries of the Registrant.
23(a)	Consent of Deloitte & Touche LLP.
23(b)	Consent of Deloitte & Touche LLP.
23(c)	Consent of Deloitte & Touche LLP.
31(a)	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31(b)	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32(a)	Section 1350 Certification of Chief Executive Officer.
32(b)	Section 1350 Certification of Chief Financial Officer.
99(a)	Financial Statements of GTIS – HOV Holdings V, L.L.C.
99(b)	Financial Statements of GTIS – HOV Holdings VI, L.L.C.
101	The following financial information from our Annual Report on Form 10-K for the year ended October 31, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets at October 31, 2018 and October 31, 2017, (ii) the Consolidated Statements of Operations for the years ended October 31, 2018, 2017 and 2016, (iii) the Consolidated Statements of Equity for years ended October 31, 2018, 2017 and 2016 (iv) the Consolidated Statements of Cash Flows for the years ended October 31, 2018, 2017 and 2016, and (v) the Notes to Consolidated Financial Statements.

* Management contracts or compensatory plans or arrangements.

61

(1)	Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2008 (No. 001-08551) of the Registrant.
(2)	Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2016 (No. 001-08551) of the Registrant.
(3)	Incorporated by reference to Exhibits to Registration Statement (No. 2-85198) on Form S-1 of the Registrant.
(4)	Incorporated by reference to Exhibits to Current Report on Form 8-K (No. 001-08551) of the Registrant filed on November 7, 2011.
(5)	Incorporated by reference to Exhibits to Current Report of the Registrant on Form 8-K (No. 001-08551) filed on March 15, 2013.
(6)	Incorporated by reference to Appendix B to the Registrant’s definitive Proxy Statement on Schedule 14A (No. 001-08551) filed on January 27, 2014.
(7)	Incorporated by reference to Appendix A to the Registrant’s definitive Proxy Statement on Schedule 14A (No. 001-08551) filed on February 1, 2016.
(8)	Incorporated by reference to Exhibits to Annual Report on Form 10-K for the year ended October 31, 2008 (No. 001-08551) of the Registrant.
(9)	Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014 (No. 001-08551) of the Registrant.
(10)	Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant (No. 001-08551) filed November 5, 2014.
(11)	Incorporated by reference to Exhibits to Current Report on Form 8-K (No. 001-08551) of the Registrant filed on July 13, 2005.
(12)	Incorporated by reference to Annual Report on Form 10-K for the year ended October 31, 2017 (No. 001-08551), of the Registrant.
(13)	Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2009 (No. 001-08551) of the Registrant.
(14)	Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant (001-08551) filed March 14, 2018.
(15)	Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant (001-08551) filed January 11, 2018.
(16)	Incorporated by reference to Appendix A to the Registrant’s definitive Proxy Statement on Schedule 14A of the Registrant filed on February 1, 2010.
(17)	Incorporated by reference to Exhibits to Current Report on Form 8-K (001-08551) of the Registrant filed on July 28, 2017.
(18)	Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2015 of the Registrant (No. 001-08551).
(19)	Incorporated by reference to Exhibits to Annual Report on Form 10-K for the year ended October 31, 2003 (No. 001-08551), of the Registrant.
(20)	Incorporated by reference to Exhibits to the Registration Statement (No. 001-08551) on Form 8-A of the Registrant filed August 14, 2008.

62

(21)	Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2016 (No. 001-08551), of the Registrant.
(22)	Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant (No. 001-08551), filed December 3, 2018.
(23)	Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2009 (No. 001-08551), of the Registrant.
(24)	Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2006 (No. 001-08551) of the Registrant.
(25)	Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2012 (No. 001-08551) of the Registrant.
(26)	Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended April 30, 2012 (No. 001-08551) of the Registrant.
(27)	Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2012 (No. 001-08551) of the Registrant.
(28)	Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2017 (No. 001-08551) of the Registrant.
(29)	Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant (001-08551) filed February 2, 2018.
(30)	Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant (001-08551) filed January 16, 2018.
(31)	Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant (001-08551) filed December 28, 2017.
(32)	Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2018 (No. 001-08551) of the Registrant.
(33)	Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant (001-08551) filed May 14, 2018.
(34)	Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant (001-08551) filed May 30, 2018.
(35)	Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 (No. 001-08551) of the Registrant.

63

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

HOVNANIAN ENTERPRISES, INC.
By:	/s/ ARA K. HOVNANIAN
	Ara K. Hovnanian
	Chairman of the Board, Chief Executive Officer and President
	December 20, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on December 20, 2018, and in the capacities indicated.

/s/ ARA K. HOVNANIAN	Chairman of the Board, Chief Executive Officer, President and Director
Ara K. Hovnanian	(Principal Executive Officer)
/s/ J. LARRY SORSBY	Executive Vice President, Chief Financial Officer and Director
J. Larry Sorsby	(Principal Financial Officer)
/s/ BRAD G. O’CONNOR	Vice President – Chief Accounting Officer and Corporate Controller
Brad G. O’Connor	(Principal Accounting Officer)
/s/ EDWARD A. KANGAS	Chairman of Audit Committee and Director
Edward A. Kangas
/s/ STEPHEN D. WEINROTH	Chairman of Compensation Committee and Director
Stephen D. Weinroth
/s/ VINCENT PAGANO JR.	Chairman of Corporate Governance and Nominating Committee and Director
Vincent Pagano Jr.

64

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Statements:	Page
Report of Independent Registered Public Accounting Firm	66
Consolidated Balance Sheets as of October 31, 2018 and 2017	67
Consolidated Statements of Operations for the Years Ended October 31, 2018, 2017 and 2016	68
Consolidated Statements of Equity for the Years Ended October 31, 2018, 2017 and 2016	69
Consolidated Statements of Cash Flows for the Years Ended October 31, 2018, 2017 and 2016	70
Notes to Consolidated Financial Statements	72

No schedules have been prepared because the required information of such schedules is not present, is not present in amounts sufficient to require submission of the schedule, or because the required information is included in the financial statements and notes thereto.

65

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Hovnanian Enterprises Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Hovnanian Enterprises Inc. and subsidiaries (the "Company") as of October 31, 2018 and 2017, the related consolidated statements of operations, equity, and cash flows, for each of the three years in the period ended October 31, 2018, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of October 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 31, 2018 and 2017, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

New York, New York

December 20, 2018

We have served as the Company's auditor since 2009.

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HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)	October 31, 2018		October 31, 2017
ASSETS
Homebuilding:
Cash and cash equivalents	$187,871		$463,697
Restricted cash and cash equivalents	12,808		2,077
Inventories:
Sold and unsold homes and lots under development	878,876		744,119
Land and land options held for future development or sale	111,368		140,924
Consolidated inventory not owned	87,921		124,784
Total inventories	1,078,165		1,009,827
Investments in and advances to unconsolidated joint ventures	123,694		115,090
Receivables, deposits and notes, net	35,189		58,149
Property, plant and equipment, net	20,285		52,919
Prepaid expenses and other assets	39,150		37,026
Total homebuilding	1,497,162		1,738,785
Financial services	164,880		162,113
Total assets	$1,662,042		$1,900,898
LIABILITIES AND EQUITY
Homebuilding:
Nonrecourse mortgages secured by inventory, net of debt issuance costs	$95,557		$64,512
Accounts payable and other liabilities	304,899		335,057
Customers’ deposits	30,086		33,772
Nonrecourse mortgages secured by operating properties	-		13,012
Liabilities from inventory not owned, net of debt issuance costs	63,387		91,101
Revolving and term loan credit facilities, net of debt issuance costs	201,389		124,987
Notes payable (net of discount, premium and debt issuance costs) and accrued interest	1,273,446		1,554,687
Total homebuilding	1,968,764		2,217,128
Financial services	143,448		141,914
Income taxes payable	3,334		2,227
Total liabilities	2,115,546		2,361,269
Stockholders' equity deficit:
Preferred stock, $0.01 par value - authorized 100,000 shares; issued and outstanding 5,600 shares with a liquidation preference of $140,000 at October 31, 2018 and 2017	135,299		135,299
Common stock, Class A, $0.01 par value - authorized 400,000,000 shares; issued 144,596,485 shares at October 31, 2018 and 144,046,073 shares at October 31, 2017	1,446		1,440
Common stock, Class B, $0.01 par value (convertible to Class A at time of sale) - authorized 60,000,000 shares; issued 16,241,847 shares at October 31, 2018 and 15,999,355 shares at October 31, 2017	162		160
Paid in capital - common stock	708,805		706,466
Accumulated deficit	(1,183,856	)	(1,188,376	)
Treasury stock - at cost – 11,760,763 shares of Class A common stock and 691,748 shares of Class B common stock at October 31, 2018 and 2017	(115,360	)	(115,360	)
Total stockholders' equity deficit	(453,504	)	(460,371	)
Total liabilities and equity	$1,662,042		$1,900,898

See notes to consolidated financial statements.

67

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended
(In thousands except per share data)	October 31, 2018		October 31, 2017		October 31, 2016
Revenues:
Homebuilding:
Sale of homes	$1,906,228		$2,340,033		$2,600,790
Land sales and other revenues	31,650		52,889		78,840
Total homebuilding	1,937,878		2,392,922		2,679,630
Financial services	53,355		58,743		72,617
Total revenues	1,991,233		2,451,665		2,752,247
Expenses:
Homebuilding:
Cost of sales, excluding interest	1,566,555		1,961,804		2,230,457
Cost of sales interest	60,685		88,536		92,391
Inventory impairment loss and land option write-offs	3,501		17,813		33,353
Total cost of sales	1,630,741		2,068,153		2,356,201
Selling, general and administrative	159,202		196,320		192,938
Total homebuilding expenses	1,789,943		2,264,473		2,549,139
Financial services	35,128		32,346		37,144
Corporate general and administrative	69,632		59,367		60,141
Other interest	103,297		97,304		90,967
Other operations	1,584		1,518		4,874
Total expenses	1,999,584		2,455,008		2,742,265
Loss on extinguishment of debt	(7,536	)	(34,854	)	(3,200	)
Income (loss) from unconsolidated joint ventures	24,033		(7,047	)	(4,346	)
Income (loss) before income taxes	8,146		(45,244	)	2,436
State and federal income tax provision:
State	3,626		11,261		2,457
Federal	-		275,688		2,798
Total income taxes	3,626		286,949		5,255
Net income (loss)	$4,520		$(332,193	)	$(2,819	)
Per share data:
Basic:
Net income (loss) per common share	$0.03		$(2.25	)	$(0.02	)
Weighted-average number of common shares outstanding	148,515		147,703		147,451
Assuming dilution:
Net income (loss) per common share	$0.03		$(2.25	)	$(0.02	)
Weighted-average number of common shares outstanding	151,786		147,703		147,451

See notes to consolidated financial statements.

68

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

	A Common Stock		B Common Stock				Preferred Stock
(Dollars In thousands)	Shares Issued and Outstanding	Amount	Shares Issued and Outstanding		Amount		Shares Issued and Outstanding	Amount	Paid-In Capital		Accumulated Deficit		Treasury Stock		Total
Balance, November 1, 2015	131,532,118	$1,433	14,985,081		$157		5,600	$135,299	$703,751		$(853,364	)	$(115,360	)	$(128,084	)
Stock options, amortization and issuances									(1,502	)					(1,502	)
Restricted stock amortization, issuances and forfeitures	445,522	4	334,352		3				3,888						3,895
Conversion of Class B to Class A common stock	68,372	1	(68,372	)	(1	)									-
Net (loss)											(2,819	)			(2,819	)
Balance, October 31, 2016	132,046,012	1,438	15,251,061		159		5,600	135,299	706,137		(856,183	)	(115,360	)	(128,510	)
Stock options, amortization and issuances	48,250								556						556
Restricted stock amortization, issuances and forfeitures	188,548	2	59,046		1				(227	)					(224	)
Conversion of Class B to Class A common stock	2,500		(2,500	)											-
Net (loss)											(332,193	)			(332,193	)
Balance, October 31, 2017	132,285,310	1,440	15,307,607		160		5,600	135,299	706,466		(1,188,376	)	(115,360	)	(460,371	)
Stock options, amortization and issuances	30,250								802						802
Restricted stock amortization, issuances and forfeitures	516,814	6	245,840		2				1,537						1,545
Conversion of Class B to Class A common stock	3,348		(3,348	)											-
Net income											4,520				4,520
Balance, October 31, 2018	132,835,722	$1,446	15,550,099		$162		5,600	$135,299	$708,805		$(1,183,856	)	$(115,360	)	$(453,504	)

See notes to consolidated financial statements.

69

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended
(In thousands)	October 31, 2018		October 31, 2017		October 31, 2016
Cash flows from operating activities:
Net income (loss)	$4,520		$(332,193	)	$(2,819	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation	3,156		4,249		3,565
Compensation from stock options and awards	3,669		557		2,921
Amortization of bond discounts, premiums and deferred financing costs	8,822		13,875		12,830
Gain on sale and retirement of property and assets	(3,619	)	(166	)	(632	)
(Income) loss from unconsolidated joint ventures	(24,033	)	7,047		4,346
Distributions of earnings from unconsolidated joint ventures	-		1,864		1,002
Loss on extinguishment of debt	7,536		34,854		3,200
Inventory impairment and land option write-offs	3,501		17,813		33,353
Deferred income tax provision	-		285,578		6,851
(Increase) decrease in assets:
Origination of mortgage loans	(1,069,519	)	(1,045,991	)	(1,274,284	)
Sale of mortgage loans	1,071,250		1,078,649		1,239,521
Receivables, prepaids, deposits and other assets	20,669		5,249		22,905
Inventories	(58,801	)	255,444		328,141
Increase (decrease) in liabilities:
State and federal income tax payable	1,107		282		(205	)
Customers’ deposits	(3,686	)	(3,657	)	(6,789	)
Accounts payable, accrued interest and other accrued liabilities	(31,394	)	(21,876	)	13,090
Net cash (used in) provided by operating activities	(66,822	)	301,578		386,996
Cash flows from investing activities:
Proceeds from sale of property and assets	38,303		270		764
Purchase of property, equipment, and other fixed assets and acquisitions	(5,193	)	(6,478	)	(8,007	)
Investment in and advances to unconsolidated joint ventures	(26,271	)	(36,803	)	(49,905	)
Distributions of capital from unconsolidated joint ventures	28,662		13,304		5,264
Net cash provided by (used in) investing activities	35,501		(29,707	)	(51,884	)
Cash flows from financing activities:
Proceeds from mortgages and notes	181,101		199,275		211,209
Payments related to mortgages and notes	(162,192	)	(218,468	)	(272,220	)
Proceeds from model sale leaseback financing programs	22,749		10,270		24,297
Payments related to model sale leaseback financing programs	(30,123	)	(28,798	)	(41,435	)
Proceeds from land bank financing programs	18,827		29,190		174,211
Payments related to land bank financing programs	(38,991	)	(71,757	)	(108,577	)
Net (payments) proceeds related to mortgage warehouse lines of credit	(1,388	)	(31,023	)	36,713
Borrowings from revolving credit facility	-		-		5,000
Payments related to unsecured revolving credit facility	(52,000	)	-		-
Proceeds from senior secured term loan facility	-		-		75,000
Payments related to senior secured term loan facility	(76,829	)	-		-
Proceeds from senior unsecured term loan facility	202,547		-		-
Proceeds from senior secured notes	-		840,000		71,250
Payments related to senior secured, senior, senior amortizing and senior exchangeable notes	(285,095	)	(861,976	)	(409,646	)
Deferred financing costs from land banking financing programs and note issuances	(8,035	)	(14,556	)	(11,469	)
Net cash used in financing activities	(229,429	)	(147,843	)	(245,667	)
Net (decrease) increase in cash and cash equivalents	(260,750	)	124,028		89,445
Cash, cash equivalents and restricted cash and cash equivalents balance, beginning of year	493,742		369,714		280,268
Cash, cash equivalents and restricted cash and cash equivalents balance, end of year	$232,992		$493,742		$369,713
Supplemental disclosures of cash flows:
Cash paid (received) during the period for:
Interest, net of capitalized interest (see Note 3 to the Consolidated Financial Statements)	$112,016		$89,836		$101,796
Income taxes	$2,520		$1,089		$(1,390	)
Reconciliation of Cash, cash equivalents and restricted cash
Homebuilding: Cash and cash equivalents	$187,871		$463,697		$339,773
Homebuilding: Restricted cash and cash equivalents	12,808		2,077		3,914
Financial Service: Cash and cash equivalents, included in Financial services assets	6,948		5,623		6,992
Financial Services: Restricted cash and cash equivalents, included in Financial services assets	25,365		22,345		19,035
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$232,992		$493,742		$369,714

See notes to consolidated financial statements.

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Supplemental disclosure of noncash investing activities:

In the first quarter of fiscal 2018, we acquired the remaining assets of one of our joint ventures, resulting in a $13.0 million reduction in our investment in the joint venture and a corresponding increase to inventory.

Supplemental disclosure of noncash financing activities:

In the second quarter of fiscal 2018, we completed a debt for debt exchange of existing 8.0% Senior Notes due November 1, 2019 for newly issued 13.5% Senior Notes due 2026 and 5.0% Senior Notes due 2040. See Note 9 for further information.

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HOVNANIAN ENTERPRISES, INC.

Notes to Consolidated Financial Statements

1. Basis of Presentation

Basis of Presentation - The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and include Hovnanian Enterprises, Inc.’s (“HEI”) accounts and those of all wholly owned subsidiaries, after elimination of all intercompany balances and transactions. HEI’s fiscal year ends October 31.

Reclassifications - In fiscal 2018, we reclassified our Senior Secured Term Loan due 2019 on the Consolidated Balance Sheets from the line item “Notes payable (net of discount, premium and debt issuance costs) and accrued interest” to “Revolving and term loan credit facilities, net of debt issuance costs”, resulting in a reclassification of the October 31, 2017 balance of $73.0 million.

Effective October 31, 2018 we early adopted Accounting Standards Update (“ASU”) 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). As a result, restricted cash amounts are no longer shown within the operating and investing activities as these balances are now included in the beginning and ending cash balances in our Consolidated Statements of Cash Flows. The adoption also resulted in the reclassification of restricted cash in operating and investing activities of $4.0 million and $2.6 million, respectively, for the year ended October 31, 2017, and $0.7 million and $2.9 million, respectively, for the year ended October 31, 2016. These amounts are now included in the beginning and ending cash balances for the respective periods. See also the reconciliation of cash, cash equivalents and restricted cash on the Consolidated Statements of Cash Flows.

The Company has changed the presentation of our consolidated balance sheets to present its financial services assets on a combined basis. Prior year amounts have also been combined to reflect this presentation. As a result, “Financial services cash and cash equivalents” of $5.6 million at October 31, 2017 is now included in “Financial Services” under the new presentation. Financial services cash and cash equivalents balances are now included in the reconciliation of cash, cash equivalents and restricted cash in our Consolidated Statements of Cash Flows.  

2. Business

HEI conducts all of its homebuilding and financial services operations through its subsidiaries (references herein to the “Company”, “we”, “us” or “our” refer to HEI and its consolidated subsidiaries and should be understood to reflect the consolidated business of HEI’s subsidiaries). Our operations consist of homebuilding, financial services and corporate. Our homebuilding operations are made up of six reportable segments defined as Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West. Homebuilding operations comprise the substantial part of our business, representing approximately 97% of consolidated revenues for the year ended October 31, 2018, approximately 98% for the year ended October 31, 2017 and approximately 97% for the year ended October 31, 2016. HEI is a Delaware corporation, which through its subsidiaries, was building and selling homes at October 31, 2018 in 123 consolidated new home communities in Arizona, California, Delaware, Florida, Georgia, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, South Carolina, Texas, Virginia, Washington, D.C. and West Virginia. Our homebuilding subsidiaries offer a wide variety of homes that are designed to appeal to first-time buyers, first and second-time move-up buyers, luxury buyers, active lifestyle buyers and empty nesters. Our financial services operations, which are a reportable segment, provide mortgage banking and title services to the homebuilding operations’ customers. Our financial services subsidiaries do not typically retain or service the mortgages that they originate but rather sell the mortgages and related servicing rights to investors. Corporate primarily includes the operations of our corporate office whose primary purpose is to provide executive services, accounting, information services, human resources, management reporting, training, cash management, internal audit, risk management, and administration of process redesign, quality, and safety.

During fiscal 2016, we exited the Minneapolis, Minnesota and Raleigh, North Carolina markets and in the third quarter of fiscal 2016, we completed the sale of our portfolios in those markets. During fiscal 2018, we completed a wind down of our operations in the San Francisco Bay area in Northern California and in Tampa, Florida.

See Note 10 “Operating and Reporting Segments” for further disclosure of our reportable segments.

3. Summary of Significant Accounting Policies

Use of Estimates - The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and these differences could have a significant impact on the financial statements.

Income Recognition from Home and Land Sales - We are primarily engaged in the development, construction, marketing and sale of residential single-family and multi-family homes where the planned construction cycle is less than 12 months. For these homes, in accordance with Accounting Standards Codification (“ASC”) 360-20, “Property, Plant and Equipment - Real Estate Sales,” revenue is recognized when title is conveyed to the buyer, adequate initial and continuing investments have been received and there is no continued involvement. In situations where the buyer’s financing is originated by our mortgage subsidiary and the buyer has not made an adequate initial investment or continuing investment as prescribed by ASC 360-20, the profit on such sales is deferred until the sale of the related mortgage loan to a third-party investor has been completed.

72

Income Recognition from Mortgage Loans - Our Financial Services segment originates mortgages, primarily for our homebuilding customers. We use mandatory investor commitments and forward sales of mortgage-backed securities (“MBS”) to hedge our mortgage-related interest rate exposure on agency and government loans.

We elected the fair value option for our mortgage loans held for sale in accordance with ASC 825, “Financial Instruments,” which permits us to measure our loans held for sale at fair value. Management believes that the election of the fair value option for loans held for sale improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions.

Substantially all of the mortgage loans originated are sold within a short period of time in the secondary mortgage market on a servicing released, nonrecourse basis, although the Company remains liable for certain limited representations, such as fraud, and warranties related to loan sales. Mortgage investors could seek to have us buy back loans or compensate them from losses incurred on mortgages we have sold based on claims that we breached our limited representations and warranties. We have established reserves for probable losses.  

Cash and Cash Equivalents - Cash represents cash deposited in checking accounts. Cash equivalents include certificates of deposit, Treasury bills and government money–market funds with maturities of 90 days or less when purchased. Our cash balances are held at a few financial institutions and may, at times, exceed insurable amounts. We believe we help to mitigate this risk by depositing our cash in major financial institutions. At October 31, 2018 and 2017, $199.6 million and $13.3 million, respectively, of the total cash and cash equivalents was in cash equivalents, the book value of which approximates fair value.

Fair Value of Financial Instruments - The fair value of financial instruments is determined by reference to various market data and other valuation techniques as appropriate. Our financial instruments consist of cash and cash equivalents, restricted cash and cash equivalents, receivables, deposits and notes, accounts payable and other liabilities, customer deposits, mortgage loans held for sale, nonrecourse mortgages, mortgage warehouse lines of credit, revolving credit facility, accrued interest, senior secured term loan and the senior secured notes, senior notes, senior amortizing notes and senior exchangeable notes. The fair value of the senior secured notes, senior notes, senior amortizing notes and senior exchangeable notes is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. The fair value of all of our other financial instruments approximates their carrying amounts.

Inventories - Inventories consist of land, land development, home construction costs, capitalized interest, construction overhead and property taxes. Construction costs are accumulated during the period of construction and charged to cost of sales under specific identification methods. Land, land development and common facility costs are allocated based on buildable acres to product types within each community, then charged to cost of sales equally based upon the number of homes to be constructed in each product type.

We record inventories in our consolidated balance sheets at cost unless the inventory is determined to be impaired, in which case the inventory is written down to its fair value. Our inventories consist of the following three components: (1) sold and unsold homes and lots under development, which includes all construction, land, capitalized interest and land development costs related to started homes and land under development in our active communities; (2) land and land options held for future development or sale, which includes all costs related to land in our communities in planning or mothballed communities; and (3) consolidated inventory not owned, which includes all costs related to specific performance options, variable interest entities, and other options, which consists primarily of model homes financed with an investor and inventory related to land banking arrangements accounted for as financings.

We decide to mothball (or stop development on) certain communities when we determine that the current performance does not justify further investment at the time. When we decide to mothball a community, the inventory is reclassified on our Consolidated Balance Sheets from “Sold and unsold homes and lots under development” to “Land and land options held for future development or sale.” During fiscal 2018, we did not mothball any communities, but we sold two previously mothballed communities and re-activated two previously mothballed communities. As of October 31, 2018 and 2017, the net book value associated with our 18 and 22 total mothballed communities was $24.5 million and $36.7 million, respectively, which was net of impairment charges recorded in prior periods of $186.1 million and $214.1 million, respectively.

From time to time we enter into option agreements that include specific performance requirements, whereby we are required to purchase a minimum number of lots. Because of our obligation to purchase these lots, for accounting purposes in accordance with Accounting Standards Codification (“ASC”) 360-20-40-38, we are required to record this inventory on our Consolidated Balance Sheets. As of October 31, 2018 and 2017, we had no specific performance options.

73

We sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to a third party at the end of the respective lease. As a result of our continued involvement, for accounting purposes in accordance with ASC 360-20-40-38, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, for purposes of our Consolidated Balance Sheets, at October 31, 2018 and 2017, inventory of $50.5 million and $58.5 million, respectively, was recorded to “Consolidated inventory not owned,” with a corresponding amount of $43.9 million and $51.8 million, respectively, recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions.

We have land banking arrangements, whereby we sell our land parcels to the land banker and they provide us an option to purchase back finished lots on a predetermined schedule. Because of our options to repurchase these parcels, for accounting purposes, in accordance with ASC 360-20-40-38, these transactions are considered a financing rather than a sale. For purposes of our Consolidated Balance Sheets, at October 31, 2018 and 2017, inventory of $37.4 million and $66.3 million, respectively, was recorded to “Consolidated inventory not owned,” with a corresponding amount of $19.5 million and $39.3 million, respectively, recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions.

The recoverability of inventories and other long-lived assets is assessed in accordance with the provisions of ASC 360-10, “Property, Plant and Equipment – Overall.” ASC 360-10 requires long-lived assets, including inventories, held for development to be evaluated for impairment based on undiscounted future cash flows of the assets at the lowest level for which there are identifiable cash flows. As such, we evaluate inventories for impairment at the individual community level, the lowest level of discrete cash flows that we measure.

We evaluate inventories of communities under development and held for future development for impairment when indicators of potential impairment are present. Indicators of impairment include, but are not limited to, decreases in local housing market values, decreases in gross margins or sales absorption rates, decreases in net sales prices (base sales price net of sales incentives), or actual or projected operating or cash flow losses. The assessment of communities for indication of impairment is performed quarterly. As part of this process, we prepare detailed budgets for all of our communities at least semi-annually and identify those communities with a projected operating loss. For those communities with projected losses, we estimate the remaining undiscounted future cash flows and compare those to the carrying value of the community, to determine if the carrying value of the asset is recoverable.

The projected operating profits, losses or cash flows of each community can be significantly impacted by our estimates of the following:

● future base selling prices;

● future home sales incentives;

● future home construction and land development costs; and

● future sales absorption pace and cancellation rates.

These estimates are dependent upon specific market conditions for each community. While we consider available information to determine what we believe to be our best estimates as of the end of a quarterly reporting period, these estimates are subject to change in future reporting periods as facts and circumstances change. Local market-specific conditions that may impact our estimates for a community include:

● the intensity of competition within a market, including available home sales prices and home sales incentives offered by our competitors;

● the current sales absorption pace for both our communities and competitor communities;

● community-specific attributes, such as location, availability of lots in the market, desirability and uniqueness of our community, and the size and style of homes currently being offered;

● potential for alternative product offerings to respond to local market conditions;

● changes by management in the sales strategy of the community;

● current local market economic and demographic conditions and related trends and forecasts; and

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● existing home inventory supplies, including foreclosures and short sales.

These and other local market-specific conditions that may be present are considered by management in preparing projection assumptions for each community. The sales objectives can differ between our communities, even within a given market. For example, facts and circumstances in a given community may lead us to price our homes with the objective of yielding a higher sales absorption pace, while facts and circumstances in another community may lead us to price our homes to minimize deterioration in our gross margins, although it may result in a slower sales absorption pace. In addition, the key assumptions included in our estimate of future undiscounted cash flows may be interrelated. For example, a decrease in estimated base sales price or an increase in homes sales incentives may result in a corresponding increase in sales absorption pace. Additionally, a decrease in the average sales price of homes to be sold and closed in future reporting periods for one community that has not been generating what management believes to be an adequate sales absorption pace may impact the estimated cash flow assumptions of a nearby community. Changes in our key assumptions, including estimated construction and development costs, absorption pace and selling strategies, could materially impact future cash flow and fair value estimates. Due to the number of possible scenarios that would result from various changes in these factors, we do not believe it is possible to develop a sensitivity analysis with a level of precision that would be meaningful to an investor.

If the undiscounted cash flows are more than the carrying value of the community, then the carrying amount is recoverable, and no impairment adjustment is required. However, if the undiscounted cash flows are less than the carrying amount, then the community is deemed impaired and is written down to its fair value. We determine the estimated fair value of each community by determining the present value of its estimated future cash flows at a discount rate commensurate with the risk of the respective community, or in limited circumstances, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale), and recent bona fide offers received from outside third parties. Our discount rates used for all impairments recorded from October 31, 2016 to October 31, 2018 ranged from 16.8% to 19.8%. The estimated future cash flow assumptions are virtually the same for both our recoverability and fair value assessments. Should the estimates or expectations used in determining estimated cash flows or fair value, including discount rates, decrease or differ from current estimates in the future, we may be required to recognize additional impairments related to current and future communities. The impairment of a community is allocated to each lot on a relative fair value basis.

From time to time, we write off deposits and approval, engineering and capitalized interest costs when we determine that it is no longer probable that we will exercise options to buy land in specific locations or when we redesign communities and/or abandon certain engineering costs. In deciding not to exercise a land option, we take into consideration changes in market conditions, the timing of required land takedowns, the willingness of land sellers to modify terms of the land option contract (including timing of land takedowns), and the availability and best use of our capital, among other factors. The write-off is recorded in the period it is deemed not probable that the optioned property will be acquired. In certain instances, we have been able to recover deposits and other pre-acquisition costs that were previously written off. These recoveries have not been significant in comparison to the total costs written off.

Inventories held for sale are land parcels ready for sale in their current condition, where we have decided not to build homes but are instead actively marketing for sale. These land parcels represented $6.4 million and $23.6 million of our total inventories at October 31, 2018 and 2017, respectively, and are reported at the lower of carrying amount or fair value less costs to sell. In determining fair value for land held for sale, management considers, among other things, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale) and recent bona fide offers received from outside third parties.

Post-Development Completion, Warranty Costs and Insurance Deductible Reserves - In those instances where a development is substantially completed and sold and we have additional construction work to be incurred, an estimated liability is provided to cover the cost of such work. We accrue for warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. This accrual is expensed as selling, general and administrative costs. For homes delivered in fiscal 2018 and 2017, our deductible under our general liability insurance is a $20 million aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal 2018 and 2017 is $0.25 million, up to a $5 million limit. Our aggregate retention for construction defect, warranty and bodily injury claims is $20 million for fiscal 2018 and $21 million for fiscal 2017. We do not have a deductible on our worker's compensation insurance. Reserves for estimated losses for construction defects, warranty and bodily injury claims have been established using the assistance of a third-party actuary. We engage a third-party actuary that uses our historical warranty and construction defect data to assist our management in estimating our unpaid claims, claim adjustment expenses and incurred but not reported claims reserves for the risks that we are assuming under the general liability and construction defect programs. The estimates include provisions for inflation, claims handling and legal fees. These estimates are subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to our markets and the types of products we build, claim settlement patterns, insurance industry practices and legal interpretations, among others. Because of the high degree of judgment required in determining these estimated liability amounts, actual future costs could differ significantly from our currently estimated amounts. In addition, we establish a warranty accrual for lower cost-related issues to cover home repairs, community amenities and land development infrastructure that are not covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and title and possession have been transferred to the homebuyer. See Note 16 for additional information on the amount of warranty costs recognized in cost of goods sold and administrative expenses.

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Interest - Interest attributable to properties under development during the land development and home construction period is capitalized and expensed along with the associated cost of sales as the related inventories are sold. Interest incurred in excess of interest capitalized, which occurs when assets qualifying for interest capitalization are less than our outstanding debt balances, is expensed as incurred in “Other interest.”

Interest costs incurred, expensed and capitalized were:

	Year Ended
(In thousands)	October 31, 2018	October 31, 2017	October 31, 2016
Interest capitalized at beginning of year	$71,051	$96,688	$123,898
Plus interest incurred(1)	161,048	160,203	166,824
Less cost of sales interest expensed	60,685	88,536	92,391
Less other interest expensed(2)(3)	103,297	97,304	90,967
Less interest contributed to unconsolidated joint venture(4)	-	-	10,676
Interest capitalized at end of year(5)	$68,117	$71,051	$96,688

(1) Data does not include interest incurred by our mortgage and finance subsidiaries.

(2) Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $76.2 million, $69.1 million and $50.4 million for the years ended October 31, 2018, 2017 and 2016, respectively. Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization, and therefore, is expensed. This component of other interest was $27.1 million, $28.2 million and $40.6 million for the years ended October 31, 2018, 2017 and 2016.

(3) Cash paid for interest, net of capitalized interest, is the sum of other interest expensed, as defined above, and interest paid by our mortgage and finance subsidiaries adjusted for the change in accrued interest on notes payable, which is calculated as follows:

	Year Ended
(In thousands)	October 31, 2018	October 31, 2017		October 31, 2016
Other interest expensed	$103,297	$97,304		$90,967
Interest paid by our mortgage and finance subsidiaries	2,478	1,944		2,866
Decrease (increase) in accrued interest	6,241	(9,412	)	7,963
Cash paid for interest, net of capitalized interest	$112,016	$89,836		$101,796

(4) Represents capitalized interest which was included as part of the assets contributed to the joint venture the Company entered into in November 2015, as discussed in Note 20. There was no impact to the Consolidated Statement of Operations as a result of this transaction.

(5) Capitalized interest amounts are shown gross before allocating any portion of impairments, if any, to capitalized interest.

Land Options - Costs incurred to obtain options to acquire improved or unimproved home sites are capitalized. Such amounts are either included as part of the purchase price if the land is acquired or charged to “Inventory impairments loss and land option write-offs” if we determine we will not exercise the option. If the options are with variable interest entities and we are the primary beneficiary, we record the land under option on the Consolidated Balance Sheets under “Consolidated inventory not owned” with an offset under “Liabilities from inventory not owned.” If the option includes an obligation to purchase land under specific performance or has terms that require us to record it as financing, then we record the option on the Consolidated Balance Sheets under “Consolidated inventory not owned” with an offset under “Liabilities from inventory not owned.” In accordance with ASC 810-10 “Consolidation – Overall,” we record costs associated with other options on the Consolidated Balance Sheets under “Land and land options held for future development or sale.”

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Unconsolidated Homebuilding and Land Development Joint Ventures - Investments in unconsolidated homebuilding and land development joint ventures are accounted for under the equity method of accounting. Under the equity method, we recognize our proportionate share of earnings and losses earned by the joint venture upon the delivery of lots or homes to third parties. Our ownership interests in the joint ventures vary but our voting interests are generally 50% or less. In determining whether or not we must consolidate joint ventures where we are the managing member of the joint venture, we assess whether the other partners have specific rights to overcome the presumption of control by us as the manager of the joint venture. In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the significant operating and capital decisions of the partnership, including budgets, in the ordinary course of business. The evaluation of whether or not we control a venture can require significant judgment. In accordance with ASC 323-10, “Investments - Equity Method and Joint Ventures – Overall,” we assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment below its carrying amount is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint venture’s projected cash flows. This process requires significant management judgment and estimates. During fiscal 2017, we wrote down certain joint venture investments by $2.8 million. There were no write-downs in fiscal 2018 or 2016.

Deferred Bond Issuance Costs - Costs associated with borrowings under our revolving credit facility and senior secured term loan and the issuance of senior secured, senior, senior amortizing and senior exchangeable notes are capitalized and amortized over the term of each note’s issuance. The capitalization of the costs are recorded as a contra liability within our debt balances, except for the revolving credit facility costs, which are recorded as a prepaid asset.

Debt Issued At a Discount - Debt issued at a discount to the face amount is accreted up to its face amount utilizing the effective interest method over the term of the note and recorded as a component of interest on the Consolidated Statements of Operations.

Debt Issued At a Premium - Debt issued at a premium to the face amount is accreted down to its face amount utilizing the effective interest method over the term of the note and recorded as a component of interest on the Consolidated Statements of Operations. 

Advertising Costs - Advertising costs are expensed as incurred. During the years ended October 31, 2018, 2017 and 2016, advertising costs expensed totaled $16.4 million, $17.9 million and $21.4 million, respectively.

Deferred Income Taxes - Deferred income taxes are provided for temporary differences between amounts recorded for financial reporting and for income tax purposes. If the combination of future years’ income (or loss) combined with the reversal of the timing differences results in a loss, such losses can be carried back to prior years or carried forward to future years to recover the deferred tax assets. In accordance with ASC 740-10, “Income Taxes – Overall,” we evaluate our deferred tax assets quarterly to determine if valuation allowances are required. ASC 740-10 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more-likely-than-not” standard.

In evaluating the exposures associated with our various tax filing positions, we recognize tax liabilities in accordance with ASC 740-10, for more likely than not exposures. We re-evaluate the exposures associated with our tax positions on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity by taxing authorities, and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision. A number of years may elapse before a particular matter for which we have established a liability is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled, or the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a liability that is materially different from our current estimate. Any such changes will be reflected as increases or decreases to income tax expense in the period in which they are determined.

Prepaid Expenses - Prepaid expenses which relate to specific housing communities (model setup, architectural fees, homeowner warranty program fees, etc.) are amortized to cost of sales as the applicable inventories are sold. All other prepaid expenses are amortized over a specific time period or as used and charged to overhead expense.

Allowance for Doubtful Accounts – We regularly review our receivable balances, which are included in Receivables, deposits and notes on the Consolidated Balance Sheets, for collectability and record an allowance against a receivable when it is deemed that collectability is uncertain. These receivables include receivables from our insurance carriers, receivables from municipalities related to the development of utilities or other infrastructure, and other miscellaneous receivables. The balance for allowance for doubtful accounts was $11.4 million and $7.3 million at October 31, 2018 and 2017, respectively, which primarily related to allowances for receivables from municipalities and an allowance for a receivable for a prior year land sale. During fiscal 2018 and 2017, we recorded $0.6 million and $0.2 million, respectively, in recoveries. In addition, there were $0.1 million and $0.1 million of write-offs in fiscal 2018 and 2017, respectively. During fiscal 2018, we recorded $4.8 million of additional reserves.

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Stock Options - We account for our stock options under ASC 718-10, “Compensation - Stock Compensation – Overall,” which requires the fair-value based method of accounting for stock awards granted to employees and measures and records the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.

Compensation cost arising from nonvested stock granted to employees and from nonemployee stock awards is based on the fair value of the awards at the grant date recognized as expense using the straight-line method over the vesting period.

Per Share Calculations - Basic earnings per share is computed by dividing net income (loss) (the “numerator”) by the weighted-average number of common shares outstanding, adjusted for nonvested shares of restricted stock (the “denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of options and nonvested shares of restricted stock, as well as common shares issuable upon exchange of our Senior Exchangeable Notes issued as part of our 6.0% Exchangeable Note Units (which matured and were paid in full in fiscal 2018). Any options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation.  

All outstanding nonvested shares that contain nonforfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in computing earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings in periods where we have net income. The Company’s restricted common stock (“nonvested shares”) are considered participating securities.

Recent Accounting Pronouncements 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), (“ASU 2014-09”). ASU 2014-09 requires entities to recognize revenue that represents the transfer of promised goods or services to customers in an amount equivalent to the consideration to which the entity expects to be entitled to in exchange for those goods or services. The following steps should be applied to determine this amount: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition,” and most industry-specific guidance in the Accounting Standards Codification. The FASB has also issued a number of updates to this standard. The standard is effective for us for annual and interim periods beginning November 1, 2018, and at that time, we expect to apply the modified retrospective method of adoption. We have substantially completed our evaluation of the impact of adopting ASU 2014-09. Based on our assessment, we do not expect significant changes to our business processes, systems, or internal controls as a result of adopting the standard. We also do not expect the adoption of ASU 2014-09 to have a material impact on our financial statements. 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which provides guidance for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight line basis over the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU 2016-02 is effective for the Company beginning November 1, 2019. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”) and ASU No. 2018-11 “Leases (Topic 842) Targeted Improvements” (“ASU 2018-11”). ASU 2018-10 provides certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2018-11 also allows lessors to not separate nonlease components from the associated lease component if certain conditions are met. We are currently evaluating both the method and the impact of adopting this guidance on our Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. We early adopted ASU 2016-15 effective October 31, 2018 and there was no impact of adopting this guidance on our Consolidated Financial Statements.

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In November 2016, the FASB issued ASU No. 2016-18, which amends the classification and presentation of changes in restricted cash or restricted cash equivalents in the statement of cash flows. We early adopted ASU 2016-18 effective October 31, 2018. See Note 1 for further information on the reclassification of prior period amounts.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”). ASU 2016-16 provides guidance for the accounting of income taxes related to intra-entity transfers of assets other than inventory. ASU 2016-16 is effective for the Company’s fiscal year beginning November 1, 2018. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

In July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). ASU 2018-09 provides amendments to a wide variety of topics in the FASB’s Accounting Standards Codification, which applies to all reporting entities within the scope of the affected accounting guidance. The transition and effective date guidance are based on the facts and circumstances of each amendment. Some of the amendments in ASU 2018-09 do not require transition guidance and were effective upon issuance of ASU 2018-09. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018. We are currently evaluating the potential impact of adopting the applicable guidance on our Consolidated Financial Statements.

In August 2018, the FASB issued No. ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework” (“ASU 2018-13”), which improves the disclosure requirements for fair value measurements. ASU 2018-13 is effective for us beginning November 1, 2020. Early adoption is permitted for any removed or modified disclosures. We are currently assessing the impact of adopting this guidance on our Consolidated Financial Statements.

In August 2018, the FASB issued No. ASU 2018-15 “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for us beginning November 1, 2020. Early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements.

4. Leases

We lease certain property under non-cancelable leases. Office leases are generally for terms of three to five years and generally provide renewal options. Model home leases are generally for shorter terms of approximately one to three years with renewal options on a month-to-month basis. In most cases, we expect that in the normal course of business, leases that will expire will be renewed or replaced by other leases. The future lease payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year are as follows:

Years Ending October 31,	(In Thousands)
2019	$9,297
2020	6,388
2021	3,903
2022	2,946
2023	2,026
Thereafter	2,482
Total	$27,042

Net rental expense for the three years ended October 31, 2018, 2017 and 2016, was $14.4 million, $10.8 million and $12.8 million, respectively. These amounts represent all of the above described lease types and also include rent expense for our corporate headquarters and various month-to-month leases on model homes, furniture and equipment. Certain leases contain renewal or purchase options and generally provide that the Company shall pay for insurance, taxes and maintenance.

5. Property, Plant and Equipment

Homebuilding property, plant, and equipment consists of land, land improvements, buildings, building improvements, furniture and equipment used to conduct day-to-day business and are recorded at cost less accumulated depreciation. Included in the October 31, 2017 amounts are $1.0 million in land, $60.1 million in buildings and $26.4 million in accumulated depreciation for our former corporate headquarters, for a net book value of $34.7 million, which was held for sale at October 31, 2017 and sold on November 1, 2017.

Property, plant, and equipment balances as of October 31, 2018 and 2017 were as follows:

	October 31,
(In thousands)	2018	2017
Land and land improvements	$1,639	$2,625
Buildings	9,155	69,279
Building improvements	10,958	9,458
Furniture	5,305	5,571
Equipment, including capitalized software	33,015	35,328
Total	60,072	122,261
Less accumulated depreciation	39,787	69,342
Total	20,285	$52,919

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6. Restricted Cash and Deposits

Homebuilding - Restricted cash and cash equivalents on the Consolidated Balance Sheets totaled $12.8 million and $2.1 million as of October 31, 2018 and 2017, respectively, which included cash collateralizing our letter of credit agreements and facilities as discussed in Note 9. Also included in these balances were homebuilding customers’ deposits of $0.1 million and $0.4 million at October 31, 2018 and 2017, respectively, which are subject to restrictions on our use.

Financial services restricted cash and cash equivalents, which are included in Financial services other assets on the Consolidated Balance Sheets, totaled $25.4 million and $22.3 million as of October 31, 2018 and 2017, respectively. Included in these balances were (1) financial services customers’ deposits of $23.4 million at October 31, 2018 and $20.0 million as of October 31, 2017, which are subject to restrictions on our use, and (2) $2.0 million at October 31, 2018 and $2.3 million at October 31, 2017, respectively, of restricted cash under the terms of our mortgage warehouse lines of credit.

Total Homebuilding Customers’ deposits are shown as a liability on the Consolidated Balance Sheets. These liabilities are significantly more than the applicable periods’ restricted cash balances because in some states the deposits are not restricted from use and, in other states, we are able to release the majority of these customer deposits to cash by pledging letters of credit and surety bonds.

7. Mortgage Loans Held for Sale

Our wholly owned mortgage banking subsidiary, K. Hovnanian American Mortgage, LLC (“K. Hovnanian Mortgage”) originates mortgage loans, primarily from the sale of our homes. Such mortgage loans are sold in the secondary mortgage market within a short period of time of origination. Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property. We have elected the fair value option to record loans held for sale and therefore these loans are recorded at fair value with the changes in the value recognized in the Consolidated Statements of Operations in “Revenues: Financial services.” We currently use forward sales of mortgage-backed securities (“MBS”), interest rate commitments from borrowers and mandatory and/or best efforts forward commitments to sell loans to third-party purchasers to protect us from interest rate fluctuations. These short-term instruments, which do not require any payments to be made to the counterparty or purchaser in connection with the execution of the commitments, are recorded at fair value. Gains and losses on changes in the fair value are recognized in the Consolidated Statements of Operations in “Revenues: Financial services.”

At October 31, 2018 and 2017, $115.2 million and $119.6 million, respectively, of mortgages held for sale were pledged against our mortgage warehouse lines of credit (see Note 8). We may incur losses with respect to mortgages that were previously sold that are delinquent and which had underwriting defects, but only to the extent the losses are not covered by mortgage insurance or resale value of the home. The reserves for these estimated losses are included in the “Financial services” liability balances on the Consolidated Balance Sheets. As of October 31, 2018 and 2017, we had reserves specifically for 46 and 45 identified mortgage loans, respectively, as well as reserves for an estimate for future losses on mortgages sold but not yet identified to us. In both fiscal 2018 and 2017, the adjustments to pre-existing provisions for losses from changes in estimates were primarily due to the settlements of disputes for significantly less than the amounts that had been previously reserved.

The activity in our loan origination reserves in fiscal 2018 and 2017 was as follows:

	Year Ended
	October 31,
(In thousands)	2018		2017
Loan origination reserves, beginning of period	$3,158		$8,137
Provisions for losses during the period	160		165
Adjustments to pre-existing provisions for losses from changes in estimates	(755	)	(4,571	)
Payments/settlements	-		(573	)
Loan origination reserves, end of period	$2,563		$3,158

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8. Mortgages

We have nonrecourse mortgage loans for certain communities totaling $95.6 million and $64.5 million (net of debt issuance costs) at October 31, 2018 and 2017, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $241.9 million and $157.8 million, respectively. The weighted-average interest rate on these obligations was 6.1% and 5.3% at October 31, 2018 and 2017, respectively, and the mortgage loan payments on each community primarily correspond to home deliveries. We also had nonrecourse mortgage loans on our former corporate headquarters totaling $13.0 million at October 31, 2017. On November 1, 2017, these loans were paid in full in connection with the sale of this corporate headquarters building.

K. Hovnanian Mortgage originates mortgage loans primarily from the sale of our homes. Such mortgage loans and related servicing rights are sold in the secondary mortgage market within a short period of time. In certain instances, we retain the servicing rights for a small amount of loans. K. Hovnanian Mortgage finances the origination of mortgage loans through various master repurchase agreements, which are recorded in financial services liabilities on the Consolidated Balance Sheets.

Our secured Master Repurchase Agreement with JPMorgan Chase Bank, N.A. (“Chase Master Repurchase Agreement”) is a short-term borrowing facility that provides up to $50.0 million through its maturity on July 31, 2019. The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable monthly on outstanding advances at an adjusted LIBOR rate, which was 2.31% at October 31, 2018, plus the applicable margin of 2.5% or 2.63% based upon type of loan. As of October 31, 2018 and 2017, the aggregate principal amount of all borrowings outstanding under the Chase Master Repurchase Agreement was $40.3 million and $41.5 million, respectively.

K. Hovnanian Mortgage has another secured Master Repurchase Agreement with Customers Bank (“Customers Master Repurchase Agreement”) which is a short-term borrowing facility that provides up to $50.0 million through its maturity on February 15, 2019. The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable daily or as loans are sold to permanent investors on outstanding advances at the current LIBOR rate, plus the applicable margin ranging from 2.38% to 5.13% based on the type of loan and the number of days outstanding on the warehouse line. As of October 31, 2018 and 2017, the aggregate principal amount of all borrowings outstanding under the Customers Master Repurchase Agreement was $40.2 million and $40.7 million, respectively.

K. Hovnanian Mortgage also has a secured Master Repurchase Agreement with Comerica Bank (“Comerica Master Repurchase Agreement”) which is a short-term borrowing facility that provides up to $50.0 million through June 10, 2019. The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable monthly at the current LIBOR rate, subject to a floor of 0.25%, plus the applicable margin of 2.25% or 3.25% based upon the type of loan. As of October 31, 2018 and 2017, the aggregate principal amount of all borrowings outstanding under the Comerica Master Repurchase Agreement was $32.7 million and $32.4 million, respectively.

The Chase Master Repurchase Agreement, Customers Master Repurchase Agreement and Comerica Master Repurchase Agreement (together, the “Master Repurchase Agreements”) require K. Hovnanian Mortgage to satisfy and maintain specified financial ratios and other financial condition tests. Because of the extremely short period of time mortgages are held by K. Hovnanian Mortgage before the mortgages are sold to investors (generally a period of a few weeks), the immateriality to us on a consolidated basis of the size of the Master Repurchase Agreements, the levels required by these financial covenants, our ability based on our immediately available resources to contribute sufficient capital to cure any default, were such conditions to occur, and our right to cure any conditions of default based on the terms of the applicable agreement, we do not consider any of these covenants to be substantive or material. As of October 31, 2018, we believe we were in compliance with the covenants under the Master Repurchase Agreements.

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9.  Senior Notes and Credit Facilities

Senior notes and credit facilities balances as of October 31, 2018 and October 31, 2017, were as follows:

(In thousands)	October 31, 2018(1)(2)	October 31, 2017(1)(2)
Senior Secured Term Loan due 2019, net of debt issuance costs	$-	$72,987
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$74,561	$74,350
2.0% Senior Secured Notes due November 1, 2021 (net of discount)	53,094	53,058
5.0% Senior Secured Notes due November 1, 2021 (net of discount)	135,571	133,732
10.0% Senior Secured Notes due July 15, 2022	435,461	434,543
10.5% Senior Secured Notes due July 15, 2024	394,736	394,953
Total Senior Secured Notes, net of debt issuance costs	$1,093,423	$1,090,636
Senior Notes:
7.0% Senior Notes due January 15, 2019	$-	$131,957
8.0% Senior Notes due November 1, 2019 (3)	-	234,293
13.5% Senior Notes due February 1, 2026 (including premium)	101,162	-
5.0% Senior Notes due February 1, 2040 (net of discount)	43,264	-
Total Senior Notes, net of debt issuance costs	$144,426	$366,250
11.0% Senior Amortizing Notes due December 1, 2017, net of debt issuance costs	$-	$2,045
Senior Exchangeable Notes due December 1, 2017, net of debt issuance costs	$-	$53,919
Senior Unsecured Term Loan Credit Facility due February 1, 2027, net of debt issuance costs	$201,389	$-
Unsecured Revolving Credit Facility due September 2018	$-	$52,000
Senior Secured Revolving Credit Facility (4)	$-	$-

(1) “Notes payable” on our Consolidated Balance Sheets as of October 31, 2018 and 2017 consists of the total senior secured, senior, senior amortizing and senior exchangeable notes shown above, as well as accrued interest of $35.6 million and $41.8 million, respectively.

(2) Unamortized debt issuance costs at October 31, 2018 and 2017 were $14.1 million and $16.1 million, respectively.

(3) $26.0 million of 8.0% Senior Notes due 2019 are owned by a wholly-owned consolidated subsidiary of HEI. Therefore, in accordance with GAAP, such notes are not reflected on the Consolidated Balance Sheets of HEI.

(4) Availability under the Senior Secured Revolving Credit Facility will terminate on December 28, 2019 and any loans thereunder on such date shall convert to secured term loans maturing on December 28, 2022.

As of October 31, 2018, future maturities of our borrowings were as follows (in thousands):

Fiscal Year Ended October 31, (1)
2019	$-
2020	-
2021	75,000
2022	635,000
2023	-
Thereafter	783,257
Total	$1,493,257

(1) Does not include our $125.0 million Senior Secured Revolving Credit Facility under which there were no borrowings outstanding as of October 31, 2018.

General

Except for K. Hovnanian, the issuer of the notes and borrower under the Credit Facilities (as defined below), our home mortgage subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures and certain of our title insurance subsidiaries, we and each of our subsidiaries are guarantors of the Credit Facilities, the senior secured notes and senior notes outstanding at October 31, 2018 (collectively, the “Notes Guarantors”). In addition to the Notes Guarantors, the 5.0% Senior Secured Notes due 2021 (the “5.0% 2021 Notes”), the 2.0% Senior Secured Notes due 2021 (the “2.0% 2021 Notes” and together with the 5.0% 2021 Notes, the “2021 Notes”) and the 9.50% Senior Secured Notes due 2020 (the “9.50% 2020 Notes” and collectively with the 2021 Notes, the “JV Holdings Secured Group Notes”) are guaranteed by K. Hovnanian JV Holdings, L.L.C. and its subsidiaries, except for certain joint ventures and joint venture holding companies (collectively, the “JV Holdings Secured Group”). Members of the JV Holdings Secured Group do not guarantee K. Hovnanian's other indebtedness.  

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The credit agreements governing the Credit Facilities and the indentures governing the notes (together, the “Debt Instruments”) outstanding at October 31, 2018 do not contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the Company’s ability and that of certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness (other than nonrecourse indebtedness, certain permitted indebtedness and refinancing indebtedness (under the 9.50% 2020 Notes, any new or refinancing indebtedness may not be scheduled to mature earlier than January 15, 2021 (so long as no member of the JV Holdings Secured Group is an obligor thereon), or February 15, 2021 (if otherwise), and under the 10.0% Senior Secured Notes due 2022 (the “10.0% 2022 Notes”), any refinancing indebtedness of the 7.0% Senior Notes due 2019 (the “7.0% Notes”) (which includes the Term Loans (as defined below)) and 8.0% Senior Notes due 2019 (the “8.0% Notes” and together with the 7.0% Notes, the “2019 Notes”) (which includes the New Notes (as defined below) and the Term Loans) may not be scheduled to mature earlier than July 16, 2024 (such restrictive covenant in respect of the 10.5% Senior Secured Notes due 2024 (the “10.5% 2024 Notes”) was eliminated as described below under “—Fiscal 2018”)), pay dividends and make distributions on common and preferred stock, repurchase subordinated indebtedness and common and preferred stock, make other restricted payments, including investments, sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all assets, enter into certain transactions with affiliates and make cash repayments of the 2019 Notes and refinancing indebtedness in respect thereof (with respect to the 10.0% 2022 Notes). The Debt Instruments also contain events of default which would permit the lenders or holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans made under the Term Loan Facility (defined below) (the “Term Loans”) and loans made under the Secured Credit Facility (as defined below) (the “Secured Revolving Loans”) or notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Term Loans, Secured Revolving Loans or notes or other material indebtedness, cross default to other material indebtedness, the failure to comply with agreements and covenants and specified events of bankruptcy and insolvency, with respect to the Term Loans and Secured Revolving Loans, material inaccuracy of representations and warranties and with respect to the Term Loans and Secured Revolving Loans, a change of control, and, with respect to the Secured Revolving Loans and senior secured notes, the failure of the documents granting security for the Secured Revolving Loans and senior secured notes to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the Secured Revolving Loans and senior secured notes to be valid and perfected. As of October 31, 2018, we believe we were in compliance with the covenants of the Debt Instruments.

If our consolidated fixed charge coverage ratio, as defined in the agreements governing our debt instruments, is less than 2.0 to 1.0, we are restricted from making certain payments, including dividends, and from incurring indebtedness other than certain permitted indebtedness, refinancing indebtedness and nonrecourse indebtedness. As a result of this ratio restriction, we are currently restricted from paying dividends, which are not cumulative, on our 7.625% Series A Preferred Stock. We anticipate that we will continue to be restricted from paying dividends for the foreseeable future. Our inability to pay dividends is in accordance with covenant restrictions and will not result in a default under our debt instruments or otherwise affect compliance with any of the covenants contained in our debt instruments.

Under the terms of our Debt Instruments, we have the right to make certain redemptions and prepayments and, depending on market conditions and covenant restrictions, may do so from time to time. We also continue to evaluate our capital structure and may also continue to make debt purchases and/or exchanges for debt or equity from time to time through tender offers, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions.

Any liquidity-enhancing or other capital raising or refinancing transaction will depend on identifying counterparties, negotiation of documentation and applicable closing conditions and any required approvals. Due to covenant restrictions in our Debt Instruments, we are currently limited in the amount of debt we can incur that does not qualify as refinancing indebtedness with certain maturity requirements as discussed above (a limitation that we expect to continue for the foreseeable future), even if market conditions would otherwise be favorable, which could also impact our ability to grow our business. 

 Fiscal 2018

On December 1, 2017, our 6.0% Senior Exchangeable Note Units were paid in full, which units consisted of $53.9 million principal amount of our Senior Exchangeable Notes that matured and the final installment payment of $2.1 million on our 11.0% Senior Amortizing Notes.

On December 28, 2017, the Company and K. Hovnanian announced that they had entered into a commitment letter (the “Commitment Letter”) in respect of certain financing transactions with GSO Capital Partners LP (“GSO”) on its own behalf and on behalf of one or more funds managed, advised or sub-advised by GSO (collectively, the “GSO Entities”), and had commenced a private offer to exchange with respect to the 8.0% Notes (the “Exchange Offer”).

Pursuant to the Commitment Letter, the GSO Entities agreed to, among other things, provide the principal amount of the following: (i) a senior unsecured term loan credit facility (the “Term Loan Facility”) to be borrowed by K. Hovnanian and guaranteed by the Company and the Notes Guarantors, pursuant to which the GSO Entities committed to lend K. Hovnanian Term Loans consisting of $132.5 million of initial term loans (the “Initial Term Loans”) on the settlement date of the Exchange Offer for purposes of refinancing K. Hovnanian’s 7.0% Notes, and up to $80.0 million of delayed draw term loans (the “Delayed Draw Term Loans”) for purposes of refinancing certain of K. Hovnanian’s 8.0% Notes, in each case, upon the terms and subject to the conditions set forth therein, and (ii) a senior secured first lien credit facility (the “Secured Credit Facility” and together with the Term Loan Facility, the “Credit Facilities”) to be borrowed by K. Hovnanian and guaranteed by the Notes Guarantors, pursuant to which the GSO Entities committed to lend to K. Hovnanian the Secured Revolving Loans, consisting of up to $125.0 million of senior secured first priority loans to fund the repayment of K. Hovnanian’s then-outstanding secured term loans (the “Secured Term Loans”) and for general corporate purposes, upon the terms and subject to the conditions set forth therein. In addition, pursuant to the Commitment Letter, the GSO Entities have committed to purchase, and K. Hovnanian has agreed to issue and sell, on January 15, 2019 (or such later date within five business days as mutually agreed by the parties working in good faith), $25.0 million in aggregate principal amount of additional 10.5% 2024 Notes (the “Additional 10.5% 2024 Notes”) at a purchase price, for each $1,000 principal amount of Additional 10.5% 2024 Notes, that would imply a yield to maturity equal to (a) the volume weighted average yield to maturity (calculated based on the yield to maturity during the 30 calendar day period ending on one business day prior to the settlement date of the Additional 10.5% 2024 Notes, which is expected to be January 15, 2019) for the 10.5% 2024 Notes, minus (b) 0.50%, upon the terms and subject to conditions set forth therein.

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On January 29, 2018, K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the Term Loan Facility. K. Hovnanian borrowed the Initial Term Loans on February 1, 2018 to fund, together with cash on hand, the redemption on February 1, 2018 of all $132.5 million aggregate principal amount of 7.0% Notes, which resulted in a loss on extinguishment of debt of $0.5 million. On May 29, 2018, K. Hovnanian completed the redemption of $65.7 million aggregate principal amount of the 8.0% Notes (representing all of the outstanding 8.0% Notes, excluding the $26 million of 8% Notes held by the Subsidiary Purchaser (as defined below)) with approximately $70.0 million in borrowings on the Delayed Draw Term Loans under the Term Loan Facility (with the completion of this redemption, the remaining committed amounts under the Delayed Draw Term Loans may not be borrowed). This transaction resulted in a loss on extinguishment of debt of $4.3 million for year ended October 31, 2018. The Term Loans bear interest at a rate equal to 5.0% per annum and interest is payable in arrears, on the last business day of each fiscal quarter. The Term Loans will mature on February 1, 2027, which is the ninth anniversary of the first closing date of the Term Loan Facility.

On January 29, 2018, K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the Secured Credit Facility. Availability under the Secured Credit Facility will terminate on December 28, 2019 and any outstanding Secured Revolving Loans on such date shall convert to secured term loans maturing on December 28, 2022. On September 10, 2018, K. Hovnanian borrowed $35.0 million of Secured Revolving Loans under the Secured Credit Facility and used $41.0 million of cash on hand to repay the Secured Term Loans in full, plus unpaid interest and closing costs (in the fourth quarter of fiscal 2018, K. Hovnanian repaid the borrowed Secured Revolving Loans and as of October 31, 2018, there were no amounts outstanding under the Secured Credit Facility). This transaction resulted in a loss on extinguishment of debt of $1.8 million for the year ended October 31, 2018. The Secured Revolving Loans and the guarantees thereof are secured (subject to perfection requirements under the terms of the Secured Credit Facility) by substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, subject to permitted liens and certain exceptions, on a first lien basis relative to the liens securing K. Hovnanian’s 10.0% 2022 Notes and 10.5% 2024 Notes pursuant to an intercreditor agreement. The collateral securing the Secured Revolving Loans will be the same as that securing the 10.0% 2022 Notes and the 10.5% 2024 Notes (see –“Fiscal 2017” below). The Secured Revolving Loans bear interest at a rate equal to 10.0% per annum, and interest is payable in arrears, on the last business day of each fiscal quarter.

On February 1, 2018, K. Hovnanian accepted all of the $170.2 million aggregate principal amount of 8.0% Notes validly tendered and not validly withdrawn in the Exchange Offer (representing 72.14% of the aggregate principal amount of 8.0% Notes outstanding prior to the Exchange Offer), and in connection therewith, K. Hovnanian issued $90.6 million aggregate principal amount of its 13.5% Senior Notes due 2026 (the “New 2026 Notes”) and $90.1 million aggregate principal amount of its 5.0% Senior Notes due 2040 (the “New 2040 Notes” and together with the New 2026 Notes, the “New Notes”) under a new indenture. Also, as part of the Exchange Offer, K. Hovnanian at Sunrise Trail III, LLC, a wholly-owned subsidiary of the Company (the “Subsidiary Purchaser”), purchased for $26.5 million in cash an aggregate of $26.0 million in principal amount of the 8.0% Notes (the “Purchased 8.0% Notes”). The New Notes were issued by K. Hovnanian and guaranteed by the Notes Guarantors, except the Subsidiary Purchaser, which does not guarantee the New Notes. The New 2026 Notes bear interest at 13.5% per annum and mature on February 1, 2026. The New 2040 Notes bear interest at 5.0% per annum and mature on February 1, 2040. Interest on the New Notes is payable semi-annually on February 1 and August 1 of each year to holders of record at the close of business on January 15 or July 15, as the case may be, immediately preceding each such interest payment date. The Exchange Offer was treated as a substantial modification of debt. The New Notes were recorded at fair value (based on management's estimate using available trades for similar debt instruments) on the date of the issuance of the New Notes, which equaled $103.0 million for the New 2026 Notes and $44.0 million for the New 2040 Notes, resulting in a premium on the New 2026 Notes and a discount on the New 2040 Notes, and a loss on extinguishment of debt of $0.9 million for the year ended October 31, 2018.

K. Hovnanian’s New 2026 Notes are redeemable in whole or in part at K. Hovnanian’s option at any time prior to February 1, 2026 at a redemption price equal to 100.0% of their principal amount plus an applicable “Make-Whole Amount.” At any time and from time to time on or after February 1, 2019, K. Hovnanian may also redeem some or all of the New 2026 Notes at a redemption price equal to 100.0% of their principal amount. 

K. Hovnanian’s New 2040 Notes are redeemable in whole or in part at K. Hovnanian’s option at any time prior to February 1, 2040 at a redemption price equal to 100.0% of their principal amount plus an applicable “Make-Whole Amount.” At any time and from time to time on or after February 1, 2040, K. Hovnanian may also redeem some or all of the New 2040 Notes at a redemption price equal to 100.0% of their principal amount.

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On May 30, 2018, K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee, executed the Second Supplemental Indenture, dated as of May 30, 2018 (the “Supplemental Indenture”), to the Indenture governing the New Notes. The Supplemental Indenture eliminated the covenant restricting certain actions with respect to the Purchased 8.0% Notes, which covenant had included requirements that (A) K. Hovnanian and the guarantors of the New Notes would not, (i) prior to June 6, 2018, redeem, cancel or otherwise retire, purchase or acquire any Purchased 8.0% Notes or (ii) make any interest payments on the Purchased 8.0% Notes prior to their stated maturity, and (B) K. Hovnanian and the guarantors of the New Notes would not, and would not permit any of their subsidiaries to (i) sell, transfer, convey, lease or otherwise dispose of any Purchased 8.0% Notes other than to any subsidiary of the Company that is not K. Hovnanian or a guarantor of the New Notes or (ii) amend, supplement or otherwise modify the Purchased 8.0% Notes or the indenture under which they were issued with respect to the Purchased 8.0% Notes, subject to certain exceptions. In addition, the Supplemental Indenture eliminated events of default related to the eliminated covenant. On May 30, 2018, K. Hovnanian paid the overdue interest on the Purchased 8.0% Notes that was originally due on May 1, 2018 and as a result of such payment, the “Default” under the Indenture governing the 8.0% Notes was cured.

On January 16, 2018, K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee and Collateral Agent, executed the Second Supplemental Indenture, dated as of January 16, 2018, to the indenture governing the 10.0% 2022 Notes and 10.5% 2024 Notes, dated as of July 27, 2017 (as supplemented, amended or otherwise modified), among K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee and Collateral Agent, giving effect to the proposed amendments to such indenture solely with respect to the 10.5% 2024 Notes, which were obtained in a consent solicitation of the holders of the 10.5% 2024 Notes, and which eliminated the restrictions on K. Hovnanian’s ability to purchase, repurchase, redeem, acquire or retire for value the 2019 Notes and refinancing or replacement indebtedness in respect thereof.

Fiscal 2017

During the year ended October 31, 2017, we repurchased in open market transactions $17.5 million aggregate principal amount of 7.0% Notes, $14.0 million aggregate principal amount of 8.0% Notes and 6,925 senior exchangeable note units representing $6.9 million stated amount of senior exchangeable note units. The aggregate purchase price for these transactions was $30.8 million, plus accrued and unpaid interest. These transactions resulted in a gain on extinguishment of debt of $7.8 million, which is included as “Loss on Extinguishment of Debt” on the Consolidated Statement of Operations. This gain was offset by $0.4 million of costs associated with the 9.50% 2020 Notes issued during the fourth quarter of fiscal 2016 and the debt transactions during the third quarter of fiscal 2017 discussed below.

On July 27, 2017, K. Hovnanian issued $440.0 million aggregate principal amount of 10.0% 2022 Notes and $400.0 million aggregate principal amount of 10.5% 2024 Notes. The net proceeds from these issuances together with available cash were used to (i) purchase $575,912,000 principal amount of 7.25% Senior Secured First Lien Notes due 2020 (the “7.25% First Lien Notes”), $87,321,000 principal amount of 9.125% Senior Secured Second Lien Notes due 2020 (the “9.125% Second Lien Notes” and, together with the 7.25% First Lien Notes, the “ 2020 Secured Notes”) and all $75,000,000 principal amount of 10.0% Senior Secured Second Lien Notes due 2018 (the “10.0% Second Lien Notes”) that were tendered and accepted for purchase pursuant to K. Hovnanian’s offers to purchase for cash (the “Tender Offers”) any and all of the 7.25% First Lien Notes, the 9.125% Second Lien Notes and the 10.0% Second Lien Notes and to pay related tender premiums and accrued and unpaid interest thereon to the date of purchase and (ii) satisfy and discharge all obligations (and cause the release of the liens on the collateral securing such indebtedness) under the indentures under which the 7.25% First Lien Notes, the 9.125% Second Lien Notes and the 10.0% Second Lien Notes were issued and in connection therewith to call for redemption on October 15, 2017 and on November 15, 2017 all remaining $1,088,000 principal amount of 7.25% First Lien Notes and all remaining $57,679,000 principal amount of 9.125% Second Lien Notes, respectively, that were not validly tendered and purchased in the applicable Tender Offer in accordance with the redemption provisions of the indentures governing the 2020 Secured Notes. These transactions resulted in a loss on extinguishment of debt of $42.3 million for fiscal 2017, which is included as “Loss on Extinguishment of Debt” on the Consolidated Statement of Operations.

The 10.0% 2022 Notes have a maturity of July 15, 2022 and bear interest at a rate of 10.0% per annum payable semi-annually on January 15 and July 15 of each year, to holders of record at the close of business on January 1 and July 1, as the case may be, immediately preceding such interest payment dates. The 10.0% 2022 Notes are redeemable in whole or in part at our option at any time prior to July 15, 2019 at 100.0% of their principal amount plus an applicable “Make-Whole Amount.” K. Hovnanian may also redeem some or all of the 10.0% 2022 Notes at 105.0% of principal commencing July 15, 2019, at 102.50% of principal commencing July 15, 2020 and at 100.0% of principal commencing July 15, 2021. In addition, K. Hovnanian may also redeem up to 35.0% of the aggregate principal amount of the 10.0% 2022 Notes prior to July 15, 2019 with the net cash proceeds from certain equity offerings at 110.0% of principal.

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The 10.5% 2024 Notes have a maturity of July 15, 2024 and bear interest at a rate of 10.5% per annum payable semi-annually on January 15 and July 15 of each year, to holders of record at the close of business on January 1 and July 1, as the case may be, immediately preceding such interest payment dates. The 10.5% 2024 Notes are redeemable in whole or in part at our option at any time prior to July 15, 2020 at 100.0% of their principal amount plus an applicable “Make-Whole Amount.” K. Hovnanian may also redeem some or all of the 10.5% 2024 Notes at 105.25% of principal commencing July 15, 2020, at 102.625% of principal commencing July 15, 2021 and at 100.0% of principal commencing July 15, 2022. In addition, K. Hovnanian may also redeem up to 35.0% of the aggregate principal amount of the 10.5% 2024 Notes prior to July 15, 2020 with the net cash proceeds from certain equity offerings at 110.50% of principal.

All of K. Hovnanian’s obligations under the 10.0% 2022 Notes and the 10.5% 2024 Notes are guaranteed by the Notes Guarantors. In addition to pledges of the equity interests in K. Hovnanian and the subsidiary Notes Guarantors which secure the 10.0% 2022 Notes and the 10.5% 2024 Notes, the 10.0% 2022 Notes and the 10.5% 2024 Notes and the guarantees thereof are also secured in accordance with the terms of the indenture governing such Notes and the security documents related thereto by pari passu liens on substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, in each case, subject to permitted liens and certain exceptions (the collateral securing the 10.0% 2022 Notes and the 10.5% 2024 Notes is the same as that which will secure the Secured Revolving Loans). The liens securing the 10.0% 2022 Notes and the 10.5% 2024 Notes rank junior to the liens securing the Secured Revolving Loans and any other future secured obligations that are senior in priority with respect to the assets securing the 10.0% 2022 Notes and the 10.5% 2024 Notes.

At October 31, 2018, the aggregate book value of the real property that constituted collateral securing the 10.0% 2022 Notes and the 10.5% 2024 Notes was $437.9 million, which does not include the impact of inventory investments, home deliveries or impairments thereafter and which may differ from the value if it were appraised. Cash and cash equivalents collateral that secured the 10.0% 2022 Notes and the 10.5% 2024 Notes was $125.6 million as of October 31, 2018, which included $11.9 million of restricted cash collateralizing certain letters of credit. Subsequent to such date, fluctuations as a result of cash uses include general business operations and real estate and other investments along with cash inflow primarily from deliveries.  

Fiscal 2016

On January 15, 2016, $172.7 million principal amount of our 6.25% Senior Notes due 2016 matured and was paid and on May 15, 2016, $86.5 million principal amount of our 7.5% Senior Notes due 2016 matured and was paid. On October 11, 2016 (the next business day following the redemption date of October 8, 2016), all $121.0 million principal amount of our 8.625% Senior Notes due 2017 were redeemed for a redemption price of approximately $126.1 million, which included accrued and unpaid interest.

On September 8, 2016, the Company and K. Hovnanian completed certain financing transactions with certain investment funds managed by affiliates of H/2 Capital Partners LLC (collectively, the “Investor”) pursuant to which the Investor (1) funded a $75.0 million senior secured term loan facility, which was borrowed by K. Hovnanian and guaranteed by the Notes Guarantors, (2) purchased $75.0 million aggregate principal amount of 10.0% Second Lien Notes issued by K. Hovnanian and guaranteed by the Notes Guarantors (all such notes were subsequently purchased in the Tender Offers as described above under “-Fiscal 2017”), and (3) exchanged $75.0 million aggregate principal amount of 9.125% Second Lien Notes held by such Investor for $75.0 million of newly issued 9.50% 2020 Notes issued by K. Hovnanian and guaranteed by the Notes Guarantors and the members of the JV Holdings Secured Group, for aggregate cash proceeds of approximately $146.3 million, before expenses. On September 10, 2018, K. Hovnanian repaid the Secured Term Loans in full, as described under “—Fiscal 2018.”

The 9.50% 2020 Notes have a maturity of November 15, 2020, and bear interest at a rate of 9.50% per annum, payable semi-annually on February 15 and August 15 of each year, to holders of record at the close of business on  February 1 and  August 1, as the case may be, immediately preceding such interest payment dates. The 9.50% 2020 Notes are redeemable in whole or in part at our option at any time prior to November 15, 2018 at 100% of their principal amount plus an applicable “Make-Whole Amount.” At any time and from time to time on or after November 15, 2018, K. Hovnanian may also redeem some or all of the 9.50% 2020 Notes at a redemption price equal to 100% of their principal amount.

The 9.50% 2020 Notes are guaranteed by the Notes Guarantors and the members of the JV Holdings Secured Group. The 9.50% 2020 Notes are secured on a pari passu first lien basis with K. Hovnanian’s 2021 Notes, by substantially all of the assets of the members of the JV Holdings Secured Group, subject to permitted liens and certain exceptions. See “—Other Secured Obligations” below.

Other Secured Obligations

 On November 1, 2011, K. Hovnanian issued $141.8 million aggregate principal amount of 5.0% 2021 Notes and $53.2 million aggregate principal amount of 2.0% 2021 Notes. The 5.0% 2021 Notes and the 2.0% 2021 Notes were issued as separate series under an indenture, but have substantially the same terms other than with respect to interest rate and related redemption provisions, and vote together as a single class. The 2021 Notes are redeemable in whole or in part at our option at any time, at 100.0% of the principal amount plus the greater of 1% of the principal amount and an applicable “Make-Whole Amount.”

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The guarantees of the JV Holdings Secured Group with respect to the 2021 Notes and the 9.50% 2020 Notes are secured, subject to permitted liens and certain exceptions, by a first-priority lien on substantially all of the assets of the members of the JV Holdings Secured Group. As of October 31, 2018, the collateral securing the guarantees included (1) $75.0 million of cash and cash equivalents, which included $0.8 million of restricted cash collateralizing certain letters of credit (subsequent to such date, fluctuations as a result of cash uses include general business operations and real estate and other investments along with cash inflow primarily from deliveries); (2) $139.2 million aggregate book value of real property of the JV Holdings Secured Group, which does not include the impact of inventory investments, home deliveries or impairments thereafter and which may differ from the value if it were appraised; and (3) equity interests owned by guarantors that are members of the JV Holdings Secured Group. Members of the JV Holdings Secured Group also own equity in joint ventures, either directly or indirectly through ownership of joint venture holding companies, with a book value of $114.8 million as of October 31, 2018; this equity is not pledged to secure, and is not collateral for, the 2021 Notes. Members of the JV Holdings Secured Group are “unrestricted subsidiaries” under K. Hovnanian's other senior secured notes and senior notes and the Credit Facilities, and thus have not guaranteed such indebtedness. 

Senior Notes

On February 1, 2018, K. Hovnanian borrowed the Initial Term Loans in the amount of $132.5 million under the Term Loan Facility, and proceeds of such Initial Term Loans, together with cash on hand, were used to redeem all of its outstanding $132.5 million aggregate principal amount of 7.0% Notes (upon redemption, all 7.0% Notes were cancelled).  

As discussed above, the 8.0% Notes were the subject of the Exchange Offer that closed on February 1, 2018 and, on May 29, 2018, K. Hovnanian completed the redemption of $65.7 million aggregate principal amount of the 8.0% Notes, which was funded with borrowings of the Delayed Draw Term Loans under the Term Loan Facility (upon redemption, such redeemed 8.0% Notes were cancelled). 

Other

 In June 2013, K. Hovnanian, as borrower, and we and certain of our subsidiaries, as guarantors, entered into a five-year, $75.0 million unsecured revolving credit facility (the “Unsecured Revolving Credit Facility”) with Citicorp USA, Inc., as administrative agent and issuing bank, and Citibank, N.A., as a lender. This facility matured and was paid in full in September 2018 with borrowings under the Secured Credit Facility and cash on hand. As of October 31, 2017, there were $52.0 million of borrowings and $14.6 million of letters of credit outstanding under the Unsecured Revolving Credit Facility.

We have certain stand–alone cash collateralized letter of credit agreements and facilities under which there was a total of $12.5 million and $1.7 million letters of credit outstanding at October 31, 2018 and October 31, 2017, respectively. These agreements and facilities require us to maintain specified amounts of cash as collateral in segregated accounts to support the letters of credit issued thereunder, which will affect the amount of cash we have available for other uses. At October 31, 2018 and October 31, 2017, the amount of cash collateral in these segregated accounts was $12.7 million and $1.7 million, respectively, which is reflected in “Restricted cash and cash equivalents” on the Consolidated Balance Sheets.

10. Operating and Reporting Segments

HEI’s operating segments are components of the Company’s business for which discrete financial information is available and reviewed regularly by the chief operating decision maker, our Chief Executive Officer, to evaluate performance and make operating decisions. Based on this criteria, each of the Company's communities qualifies as an operating segment, and therefore, it is impractical to provide segment disclosures for this many segments. As such, HEI has aggregated the homebuilding operating segments into six reportable segments.

HEI’s homebuilding operating segments are aggregated into reportable segments based primarily upon geographic proximity, similar regulatory environments, land acquisition characteristics and similar methods used to construct and sell homes. HEI’s reportable segments consist of the following six homebuilding segments and a financial services segment noted below.

Homebuilding:

(1)	Northeast (New Jersey and Pennsylvania)
(2)	Mid-Atlantic (Delaware, Maryland, Virginia, Washington D.C. and West Virginia)
(3)	Midwest (Illinois and Ohio)
(4)	Southeast (Florida, Georgia and South Carolina)
(5)	Southwest (Arizona and Texas)
(6)	West (California)

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Financial Services

Operations of the Homebuilding segments primarily include the sale and construction of single-family attached and detached homes, attached townhomes and condominiums, urban infill and active lifestyle homes in planned residential developments. In addition, from time to time, operations of the homebuilding segments include sales of land. Operations of the Financial Services segment include mortgage banking and title services provided to the homebuilding operations’ customers. Our financial services subsidiaries do not typically retain or service mortgages that we originate but rather sell the mortgages and related servicing rights to investors. 

Corporate and unallocated primarily represents operations at our headquarters in New Jersey. This includes our executive offices, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, construction services, and administration of insurance, quality and safety. It also includes interest income and interest expense resulting from interest incurred that cannot be capitalized in inventory in the Homebuilding segments, as well as the gains or losses on extinguishment of debt from any debt repurchases or exchanges.  

Evaluation of segment performance is based primarily on operating earnings from continuing operations before provision for income taxes (“Income (loss) before income taxes”). Income (loss) before income taxes for the Homebuilding segments consist of revenues generated from the sales of homes and land, income (loss) from unconsolidated entities, management fees and other income, less the cost of homes and land sold, selling, general and administrative expenses and interest expense. Income (loss) before income taxes for the Financial Services segment consist of revenues generated from mortgage financing, title insurance and closing services, less the cost of such services and selling, general and administrative expenses incurred by the Financial Services segment. 

Operational results of each segment are not necessarily indicative of the results that would have occurred had the segment been an independent stand-alone entity during the periods presented.  

Financial information relating to HEI’s segment operations was as follows:

	Year Ended October 31,
(In thousands)	2018		2017		2016
Revenues:
Northeast	$116,296		$209,509		$278,028
Mid-Atlantic	354,690		464,126		458,579
Midwest	196,599		199,770		311,322
Southeast	241,620		260,402		260,584
Southwest	638,282		827,503		1,028,529
West	384,627		430,546		342,447
Total homebuilding	1,932,114		2,391,856		2,679,489
Financial services	53,355		58,743		72,617
Corporate and unallocated	5,764		1,066		141
Total revenues	$1,991,233		$2,451,665		$2,752,247
Income (loss) before income taxes:
Northeast	$20,869		$2,300		$(3,869	)
Mid-Atlantic	18,757		17,191		17,476
Midwest	1,528		(1,151	)	(11,416	)
Southeast	(9,914	)	(6,199	)	(17,791	)
Southwest	49,852		71,540		84,424
West	47,987		19,636		3,445
Total homebuilding	129,079		103,317		72,269
Financial services	18,227		26,397		35,473
Corporate and unallocated (1)	(139,160	)	(174,958	)	(105,306	)
Income (loss) before income taxes	$8,146		$(45,244	)	$2,436

(1) Corporate and unallocated for the year ended October 31, 2018 included corporate general and administrative costs of $69.6 million, interest expense of $76.2 million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of $7.5 million, and $14.1 million of other income and expenses primarily related to interest income and gain on the sale of our former corporate headquarters building, along with the adjustment to our insurance reserves. Corporate and unallocated for the year ended October 31, 2017 included corporate general and administrative costs of $59.4 million, interest expense of $69.1 million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of $34.9 million, $12.5 million adjustment for construction defect reserves (discussed in Note 16) and $0.9 million of other income and expenses primarily related to interest income, rental income, bond amortization and stock compensation. Corporate and unallocated for the year ended October 31, 2016 included corporate general and administrative costs of $60.1 million, interest expense of $50.4 million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of $3.2 million, $(9.2) million adjustment for construction defect reserves (discussed in Note 16) and $0.8 million of other income and expenses primarily related to bond amortization, stock compensation and rental income.

88

	October 31,
(In thousands)	2018	2017
Assets:
Northeast	$152,607	$180,545
Mid-Atlantic	217,807	224,398
Midwest	85,398	84,960
Southeast	246,497	231,644
Southwest	320,452	294,337
West	244,886	175,347
Total homebuilding	1,267,647	1,191,231
Financial services	164,880	162,113
Corporate and unallocated	229,515	547,554
Total assets	$1,662,042	$1,900,898

	October 31,
(In thousands)	2018	2017
Investments in and advances to unconsolidated joint ventures:
Northeast	$51,094	$36,411
Mid-Atlantic	7,307	20,873
Midwest	3,738	4,268
Southeast	39,509	36,320
Southwest	18,219	11,832
West	2,445	4,451
Total homebuilding	122,312	114,155
Corporate and unallocated	1,382	935
Total investments in and advances to unconsolidated joint ventures	$123,694	$115,090

	Year Ended October 31,
(In thousands)	2018	2017		2016
Homebuilding interest expense:
Northeast	$11,811	$20,308		$19,417
Mid-Atlantic	15,051	23,886		23,662
Midwest	5,874	7,799		12,275
Southeast	14,934	13,646		16,770
Southwest	21,820	25,278		37,552
West	18,309	25,799		23,295
Total homebuilding	87,799	116,716		132,971
Corporate and unallocated	76,183	69,124		50,387
Financial services interest expense (1)	104	(630	)	(763	)
Total interest expense, net	$164,086	$185,210		$182,595

(1) Financial services interest expenses are included in the Financial services lines on the Consolidated Statements of Operations in the respective revenues and expenses sections.

89

	Year Ended October 31,
(In thousands)	2018	2017	2016
Depreciation:
Northeast	$135	$71	$62
Mid-Atlantic	63	50	56
Midwest	1,106	858	497
Southeast	124	83	82
Southwest	70	78	104
West	45	94	92
Total homebuilding	1,543	1,234	893
Financial services	14	16	41
Corporate and unallocated	1,599	2,999	2,631
Total depreciation	$3,156	$4,249	$3,565

	Year Ended October 31,
(In thousands)	2018	2017	2016
Net additions to operating properties and equipment:
Northeast	$142	$442	$78
Mid-Atlantic	318	71	208
Midwest	621	3,773	3,180
Southeast	701	28	233
Southwest	23	18	199
West	55	80	91
Total homebuilding	1,860	4,412	3,989
Financial services	-	-	30
Corporate and unallocated	3,333	2,066	3,988
Total net additions to operating properties and equipment	$5,193	$6,478	$8,007

	Year Ended October 31,
(In thousands)	2018		2017		2016
Equity in earnings (losses) from unconsolidated joint ventures:
Northeast	$20,231		$(4,376	)	$(2,639	)
Mid-Atlantic	799		1,180		(27	)
Midwest	(775	)	(1,424	)	(1,304	)
Southeast	(2,032	)	837		(1,774	)
Southwest	5,165		(306	)	(64	)
West	645		(2,958	)	1,462
Total equity in earnings (losses) from unconsolidated joint ventures	$24,033		$(7,047	)	$(4,346	)

11. Income Taxes

Income taxes payable (receivable), including deferred benefits, consists of the following:

	Year Ended October 31,
(In thousands)	2018	2017
State income taxes:
Current	$3,334	$2,227
Deferred	-	-
Federal income taxes:
Current	-	-
Deferred	-	-
Total	$3,334	$2,227

90

The provision for income taxes is composed of the following charges (benefits):

	Year Ended October 31,
(In thousands)	2018	2017	2016
Current income tax expense (benefit):
Federal (1)	$-	$-	$(2,796	)
State (2)	3,626	1,371	1,200
Total current income tax expense (benefit):	3,626	1,371	(1,596	)
Federal	-	275,688	5,594
State	-	9,890	1,257
Total deferred income tax expense (benefit):	-	285,578	6,851
Total	$3,626	$286,949	$5,255

(1) The current federal income tax expense did not include the use of federal net operating losses for the years ended October 31, 2018 and 2017. The current federal income tax benefit is net of the use of federal net operating losses totaling $4.4 million for the year ended October 31, 2016.

(2) The current state income tax expense (benefit) is net of the use of state net operating losses totaling $4.4 million, $18.2 million and $16.4 million for the years ended October 31, 2018, 2017 and 2016, respectively.

The total income tax expense of $3.6 million for the period ending October 31, 2018 was primarily related to state tax expense from income generated that was not offset by tax benefits in states where we fully reserve the tax benefit from net operating losses. The total income tax expense of $286.9 million for the period ended October 31, 2017 was primarily due to increasing our valuation allowance to fully reserve against our deferred tax assets (“DTAs”). In addition, the same periods were also impacted by state tax expense from income generated in some states, which was not offset by tax benefits in other states that had losses for which we fully reserve the net operating losses. The total income tax expense of $5.3 million for the period ended October 31, 2016 was primarily due to current state taxes and permanent differences related to stock compensation, partially offset by a federal tax benefit related to receiving a specified liability loss refund of taxes paid in fiscal year 2002.

The permanent difference in fiscal 2016 related to stock compensation arose because for tax purposes, the amount of stock compensation the Company expenses is the amount reported on an associate’s W-2 when the equity award is exercised or received, whereas for accounting purposes, the amount the Company expenses is based on the fair value of the equity award on the date of grant. The amount was significant because of the issuance in fiscal 2016 of stock to Company executives in respect of awards that had been granted over ten years ago at significantly higher stock prices and thus significantly higher fair values as compared to the time of issuance to the executive. As a result, at the time the stock awards were issued in fiscal 2016, a significant permanent difference between book and tax was created impacting the effective tax rate for 2016.

The federal specified liability loss refund of taxes in fiscal year 2002 was due to an amendment of a prior year’s tax return. The Internal Revenue Service issued the refund following the Company’s application therefore during the year ended October 31, 2016. The refund related to the portion of the fiscal year 2012 NOL attributable to a specified liability loss which, pursuant to Internal Revenue Code Section 172 (b)(1)(C), can be carried back ten years to October 31, 2002. A specified liability is any amount allowable as a deduction attributable to a product liability or expense incurred in investigation or settlement of claims because of a product liability. The refund was received in February 2016 and therefore the tax credit was recorded in the second quarter of fiscal 2016.

Our federal net operating losses of $1.6 billion expire between 2028 and 2037, and $16.4 million have an indefinite carryforward period. Our state NOLs of $2.5 billion expire between 2019 and 2038, and some have an indefinite carryforward period. Of the total state amount $145.3 million will expire between 2019 through 2023; $691.2 million will expire between 2024 through 2028; $1.3 billion will expire between 2029 through 2033; $320.0 million will expire between 2034 through 2038; and $43.3 million have an indefinite carryforward period.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the “Act”). Effective January 1, 2018, the comprehensive U.S. tax reform package, among other things, lowered the corporate tax rate from 35% to 21%. Under the accounting rules, companies are required to recognize the effects of changes in tax laws and tax rates on deferred tax assets and liabilities in the period in which the new legislation is enacted. The effects of the Act on the Company include one major category which is the remeasurement of deferred taxes. Consequently, we have recorded a decrease related to deferred tax assets and liabilities of $298.5 million and $12.2 million, respectively, with a corresponding net adjustment to the valuation allowance in fiscal 2018, and there was no income tax expense or benefit as a result of the tax law changes. The Act contained additional changes that will impact our taxable income determinations, including, but not limited to elimination of the corporate alternative minimum tax and limitations on the deductibility of certain executive compensation. Although these provisions are not applicable until our fiscal year 2019, we anticipated limitations on the deductibility of executive compensation in our fiscal year 2018. We will continue to evaluate the impact of the tax reform as additional regulatory guidance is obtained. The ultimate impact of tax reform may differ from our interpretations and assumptions due to additional regulatory guidance that may be issued. As of October 31, 2018, we have completed our analysis of the impacts of the Act under SAB 118 with immaterial differences to our provisional amounts previously recorded.

Deferred federal and state income tax assets (“DTAs”) primarily represent the deferred tax benefits arising from NOL carryforwards and temporary differences between book and tax income which will be recognized in future years as an offset against future taxable income. If the combination of future years’ income (or loss) and the reversal of the timing differences results in a loss, such losses can be carried forward to future years. In accordance with ASC 740, we evaluate our DTAs quarterly to determine if valuation allowances are required. ASC 740 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not” standard.  

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As of October 31, 2018, we considered all available positive and negative evidence to determine whether, based on the weight of that evidence, our valuation allowance for our DTAs was appropriate in accordance with ASC 740. Listed below, in order of the weighting of each factor, is the available positive and negative evidence that we considered in determining that it is more likely than not that all of our DTAs will not be realized. In analyzing these factors, overall the negative evidence, both objective and subjective, outweighed the positive evidence. Based on this analysis, we determined that the current valuation allowance for deferred taxes of $638.2 million as of October 31, 2018, which fully reserves for our DTAs, is appropriate.

1. Fiscal 2017 financial results, especially the $50.2 million pre-tax loss in the third quarter of 2017 primarily from the $42.3 million loss on extinguishment of debt during the quarter, that put us in a cumulative three-year pretax loss position as of July 31, 2017. We are still in a cumulative three-year US GAAP pretax loss position as of October 31, 2018. Per ASC 740, cumulative losses are one of the most objectively verifiable forms of negative evidence. (Negative Objective Evidence)

2. In the third quarter of fiscal 2017 and second and third quarters of fiscal 2018, we completed debt refinancing/restructuring transactions which, by extending our debt maturities, will enable us to allocate cash to invest in new communities and grow our community count to get back to sustained profitability. (Positive Objective Evidence)

3. Recent financial results of $48.1 million pre-tax income in the fourth quarter of 2018 and $8.1 million pre-tax income for the twelve months ending October 31, 2018. (Positive Objective Evidence)

4. Our net contracts per community declined in the fourth quarter of fiscal 2018 compared to the fourth quarter of 2017, consistent with data for the overall housing market. This recent slow down may be the beginning of a cyclical housing downturn or may just be temporary because of recent increases in mortgage rates. (Negative Objective Evidence)

5. The refinancing in the third quarter of fiscal 2017 discussed in item 2 above will increase our interest incurred in fiscal 2018 and future years (based on our longer term modeling) by $23.4 million per year. (Negative Objective Evidence)

6. We incurred pre-tax losses during the housing market decline and the slower than expected housing market recovery. (Negative Objective Evidence)

7. We exited two geographic markets in fiscal 2016 and completed the wind down of operations in two other markets in fiscal 2018, that have historically had losses. By exiting these underperforming markets, the Company will be able to redeploy capital to better performing markets, which over time should improve our profitability. (Positive Subjective Evidence)

8. The historical cyclicality of the U.S. housing market, a more restrictive mortgage lending environment compared to before the housing downturn, the uncertainty of the overall US economy and government policies and consumer confidence, all or any of which could continue to hamper a faster, stronger recovery of the housing market. (Negative Subjective Evidence)

The deferred tax assets and liabilities have been recognized in the Consolidated Balance Sheets as follows:

	Year Ended October 31,
(In thousands)	2018		2017
Deferred tax assets:
Inventory impairment loss	$60,854		$122,584
Uniform capitalization of overhead	4,183		5,766
Warranty and legal reserves	4,774		8,763
Acquisition intangibles	1,185		4,420
Restricted stock bonus	1,344		4,202
Stock options	4,358		6,539
Provision for losses	18,044		38,831
Joint venture loss	3,384		12,028
Federal net operating losses	334,971		549,862
State net operating losses	191,064		172,307
Other	14,030		23,366
Total deferred tax assets	638,191		948,668
Deferred tax liabilities:
Debt repurchase income	-		30,465
Total deferred tax liabilities	-		30,465
Valuation allowance	(638,191	)	(918,203	)
Net deferred income taxes	$-		$-

92

The effective tax rate varied from the statutory federal income tax rate. The effective tax rate is affected by a number of factors, the most significant of which has been the valuation allowance related to our deferred tax assets. Due to the effects of these factors, our effective tax rates for 2018, 2017 and 2016 are not correlated to the amount of our income or loss before income taxes. The sources of these factors were as follows:

	Year Ended October 31,
	2018			2017			2016
Computed “expected” tax rate		21.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		17.2			1.0			65.4
Permanent differences, net		74.0			(2.4	)		222.2
Deferred tax asset valuation allowance impact		(70.8	)		(667.8	)		-
Tax contingencies		1.0			-			0.3
Adjustments to prior years’ tax accruals(1)		2.1			-			(107.2	)
Effective tax rate		44.5	%		(634.2	)%		215.7	%

(1) For the year ended October 31, 2017, the adjustments to prior years’ tax accruals includes the impact of a federal specified liability loss refund of taxes paid in fiscal year 2002 of (114.8%).

ASC 740-10 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of ASC 740 - 10 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

We recognize tax liabilities in accordance with ASC 740-10 and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a liability that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.

We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Statements of Operations. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheets. 

The following is a tabular reconciliation of the total amount of unrecognized tax benefits for the year (in millions) excluding interest and penalties:

	Year Ended October 31,
		2018		2017
Unrecognized tax benefit—November 1,		$1.1		$1.1
Gross increases—tax positions in current period		0.3		0.2
Lapse of statute of limitations		(0.2	)	(0.2	)
Unrecognized tax benefit—October 31,		$1.2		$1.1

Related to the unrecognized tax benefits noted above, as of both October 31, 2018 and 2017, we have recognized a liability for interest and penalties of $0.3 million. For the years ended October 31, 2018, 2017 and 2016, we recognized $(41) thousand, $(45) thousand and $(2) thousand respectively, of interest and penalties in income tax benefit.

It is likely that, within the next year, the amount of the Company's unrecognized tax benefits will decrease by $0.2 million, excluding penalties and interest. This reduction is expected primarily due to the expiration of the statutes of limitation. The portion of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate (excluding any related impact to the valuation allowance) is $1.2 million and $1.1 million for the years ended October 31, 2018 and 2017. The recognition of unrecognized tax benefits could have an impact on the Company’s deferred tax assets and the valuation allowance.

93

The consolidated federal tax returns have been audited through October 31, 2017 and these years are closed. We are also subject to various income tax examinations in the states in which we do business. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit, appeal, and in some cases, litigation process. As each audit is concluded, adjustments, if any, are appropriately recorded in the period determined. To provide for potential exposures, tax reserves are recorded, if applicable, based on reasonable estimates of potential audit results. However, if the reserves are insufficient upon completion of an audit, there could be an adverse impact on our financial position and results of operations. The statute of limitations for our major tax jurisdictions remains open for examination for tax years 2014 through 2017.  

12.  Reduction of Inventory to Fair Value

We record impairment losses on inventories related to communities under development and held for future development when events and circumstances indicate that they may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. If the expected undiscounted cash flows are less than the carrying amount, then the community is written down to its fair value. We estimate the fair value of each impaired community by determining the present value of the estimated future cash flows at a discount rate commensurate with the risk of the respective community. For the years ended October 31, 2018, 2017 and 2016, our discount rates used for the impairments recorded ranged from 16.8% to 19.8%, 18.3% to 19.8% and 16.8% to 18.8%, respectively. Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we may need to recognize additional impairments. 

During the years ended October 31, 2018 and 2017, we evaluated inventories of all 391 and 372 communities under development and held for future development or sale, respectively, for impairment indicators through preparation and review of detailed budgets or other market indicators of impairment. We performed detailed impairment calculations during the years ended October 31, 2018 and 2017 for five and 12 of those communities (i.e., those with a projected operating loss or other impairment indicators), respectively, with an aggregate carrying value of $11.2 million and $98.0 million, respectively. As impairment indicators are assessed on a quarterly basis, some of the communities evaluated during the years ended October 31, 2018 and 2017 were evaluated in more than one quarterly period. As a result of our impairment analysis, we recorded aggregate impairment losses, which are included in the Consolidated Statement of Operations on the line entitled “Homebuilding: Inventory impairment loss and land option write-offs” and deducted from inventory, of $2.1 million, $15.1 million and $24.5 million for the years ended October 31, 2018, 2017 and 2016, respectively. The pre-impairment value represents the carrying value, net of prior period impairments, if any, at the time of recording the impairment. Of those communities tested for impairment during the year ended October 31, 2018, all five communities were impaired, which resulted in recording aggregate impairment losses of $2.1 million. Of those communities tested for impairment during the year ended October 31, 2017, two communities with an aggregate carrying value of $45.0 million had undiscounted future cash flows that exceeded the carrying amount by less than 20%.

The following table represents impairments by segment for fiscal 2018, 2017 and 2016:

(Dollars in millions)	Year Ended October 31, 2018
	Number of Communities	Dollar Amount of Impairment	Pre- Impairment Value (1)
Northeast	1	$0.4	$1.0
Mid-Atlantic	-	-	-
Midwest	1	0.1	0.5
Southeast	3	1.6	9.7
Southwest	-	-	-
West	-	-	-
Total	5	$2.1	$11.2

(Dollars in millions)	Year Ended October 31, 2017
	Number of Communities	Dollar Amount of Impairment	Pre- Impairment Value (1)
Northeast	2	$3.3	$22.2
Mid-Atlantic	1	1.5	8.5
Midwest	2	0.2	0.8
Southeast	3	8.1	18.3
Southwest	-	-	-
West	2	2.0	3.1
Total	10	$15.1	$52.9

94

(Dollars in millions)	Year Ended October 31, 2016
	Number of Communities	Dollar Amount of Impairment	Pre- Impairment Value (1)
Northeast	5	$9.5	$33.8
Mid-Atlantic	-	-	-
Midwest	12	13.5	43.7
Southeast	3	1.5	10.9
Southwest	-	-	-
West	-	-	-
Total	20	$24.5	$88.4

(1) Represents carrying value, net of prior period impairments, if any, at the time of recording the applicable period’s impairments.

The Consolidated Statements of Operations line entitled “Homebuilding: Inventory impairment loss and land option write-offs” also includes write-offs of options and approval, engineering and capitalized interest costs that we record when we redesign communities and/or abandon certain engineering costs and we do not exercise options in various locations because the communities’ pro forma profitability is not projected to produce adequate returns on investment commensurate with the risk. The total aggregate write-offs related to these items were $1.4 million, $2.7 million and $8.9 million for the years ended October 31, 2018, 2017 and 2016, respectively. Occasionally, these write-offs are offset by recovered deposits (sometimes through legal action) that had been written off in a prior period as walk-away costs. Historically, these recoveries have not been significant in comparison to the total costs written off.

The following table represents write-offs of such costs by segment for fiscal 2018, 2017 and 2016:

	Year Ended October 31,
(In millions)	2018	2017	2016
Northeast	$0.6	$0.5	$1.6
Mid-Atlantic	0.2	0.6	0.8
Midwest	0.1	0.3	1.3
Southeast	-	0.8	1.8
Southwest	0.2	0.4	3.2
West	0.3	0.1	0.2
Total	$1.4	$2.7	$8.9

13. Per Share Calculations

Basic earnings per share is computed by dividing net income (loss) (the “numerator”) by the weighted-average number of common shares outstanding, adjusted for nonvested shares of restricted stock (the “denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of options and nonvested shares of restricted stock, and common shares issuable upon exchange of our Senior Exchangeable Notes issued as part of our 6.0% Exchangeable Note Units (which matured and were fully paid in December 2017). Any options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation.   

All outstanding nonvested shares that contain nonforfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in computing earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings in periods when we have net income. The Company’s restricted common stock (“nonvested shares”) are considered participating securities.

95

Basic and diluted earnings per share for the periods presented below were calculated as follows:

	Year Ended October 31,
(In thousands, except per share data)	2018		2017		2016
Numerator:
Net earnings (loss) attributable to Hovnanian	$4,520		$(332,193	)	$(2,819	)
Less: undistributed earnings allocated to nonvested shares	(159	)	-		-
Numerator for basic earnings per share	$4,361		$(332,193	)	$(2,819	)
Plus: undistributed earnings allocated to nonvested shares	159		-		-
Less: undistributed earnings reallocated to nonvested shares	(159	)	-		-
Numerator for diluted earnings per share	$4,361		$(332,193	)	$(2,819	)
Denominator:
Denominator for basic earnings per share	148,515		147,703		147,451
Effect of dilutive securities:
Share-based payments	3,271		-		-
Denominator for diluted earnings per share – weighted-average shares outstanding	151,786		147,703		147,451
Basic earnings (loss) per share	$0.03		$(2.25	)	$(0.02	)
Diluted earnings (loss) per share	$0.03		$(2.25	)	$(0.02	)

Incremental shares attributed to nonvested stock and outstanding options to purchase common stock of 2.7 million and 4.4 million for the years ended October 31, 2017 and 2016 respectively, were excluded from the computation of diluted earnings per share because we had a net loss for the period, and any incremental shares would not be dilutive. For the year ended October 31, 2018, 0.8 million shares of common stock issuable upon the exchange of our senior exchangeable notes (which were issued in fiscal 2012), were excluded from the computation of diluted earnings per share because they were anti-dilutive. Also, for the years ended October 31, 2017 and 2016, 10.0 million and 14.6 million shares, respectively, of common stock issuable upon the exchange of our senior exchangeable notes were excluded from the computation of diluted earnings per share because we had a net loss for the period.

In addition, shares related to out-of-the money stock options that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share were 5.4 million, 4.6 million and 7.3 million for the years ended October 31, 2018, 2017 and 2016, respectively, because to do so would have been anti-dilutive for the periods presented.

14. Capital Stock

Common Stock - Each share of Class A Common Stock entitles its holder to one vote per share, and each share of Class B Common Stock generally entitles its holder to ten votes per share. The amount of any regular cash dividend payable on a share of Class A Common Stock will be an amount equal to 110% of the corresponding regular cash dividend payable on a share of Class B Common Stock. If a shareholder desires to sell shares of Class B Common Stock, such stock must be converted into shares of Class A Common Stock at a one to one conversion rate.

On August 4, 2008, our Board of Directors adopted a shareholder rights plan (the “Rights Plan”), which was amended on January 11, 2018, designed to preserve shareholder value and the value of certain tax assets primarily associated with net operating loss (NOL) carryforwards and built-in losses under Section 382 of the Internal Revenue Code. Our ability to use NOLs and built-in losses would be limited if there was an “ownership change” under Section 382. This would occur if shareholders owning (or deemed under Section 382 to own) 5% or more of our stock increase their collective ownership of the aggregate amount of our outstanding shares by more than 50 percentage points over a defined period of time. The Rights Plan was adopted to reduce the likelihood of an “ownership change” occurring as defined by Section 382. Under the Rights Plan, one right was distributed for each share of Class A Common Stock and Class B Common Stock outstanding as of the close of business on August 15, 2008. Effective August 15, 2008, if any person or group acquires 4.9% or more of the outstanding shares of Class A Common Stock without the approval of the Board of Directors, there would be a triggering event causing significant dilution in the voting power of such person or group. However, existing stockholders who owned, at the time of the Rights Plan’s initial adoption on August 4, 2008, 4.9% or more of the outstanding shares of Class A Common Stock will trigger a dilutive event only if they acquire additional shares. The approval of the Board of Directors’ decision to adopt the Rights Plan may be terminated by the Board of Directors at any time, prior to the Rights being triggered. The Rights Plan will continue in effect until August 14, 2021, unless it expires earlier in accordance with its terms. The approval of the Board of Directors’ decision to initially adopt the Rights Plan was approved by shareholders at a special meeting of stockholders held on December 5, 2008 and the amendment to the Rights Plan adopted by the Board on January 11, 2018 was approved by shareholders at the Company's annual meeting of shareholders held on March 13, 2018. Also at the special meeting on December 5, 2008, our stockholders approved an amendment to our Certificate of Incorporation to restrict certain transfers of Class A Common Stock in order to preserve the tax treatment of our NOLs and built-in losses under Section 382 of the Internal Revenue Code. Subject to certain exceptions pertaining to pre-existing 5% stockholders and Class B stockholders, the transfer restrictions in our Restated Certificate of Incorporation generally restrict any direct or indirect transfer (such as transfers of our stock that result from the transfer of interests in other entities that own our stock) if the effect would be to (i) increase the direct or indirect ownership of our stock by any person (or public group) from less than 5% to 5% or more of our common stock; (ii) increase the percentage of our common stock owned directly or indirectly by a person (or public group) owning or deemed to own 5% or more of our common stock; or (iii) create a new “public group” (as defined in the applicable United States Treasury regulations). Transfers included under the transfer restrictions include sales to persons (or public groups) whose resulting percentage ownership (direct or indirect) of common stock would exceed the 5% thresholds discussed above, or to persons whose direct or indirect ownership of common stock would by attribution cause another person (or public group) to exceed such threshold.

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On July 3, 2001, our Board of Directors authorized a stock repurchase program to purchase up to 4 million shares of Class A Common Stock. There were no shares purchased during year ended October 31, 2018. As of October 31, 2018, the maximum number of shares of Class A Common Stock that may yet be purchased under this program is 0.5 million.

Preferred Stock - On July 12, 2005, we issued 5,600 shares of 7.625% Series A Preferred Stock, with a liquidation preference of $25,000 per share. Dividends on the Series A Preferred Stock are not cumulative and are payable at an annual rate of 7.625%. The Series A Preferred Stock is not convertible into the Company’s common stock and is redeemable in whole or in part at our option at the liquidation preference of the shares. The Series A Preferred Stock is traded as depositary shares, with each depositary share representing 1/1000th of a share of Series A Preferred Stock. The depositary shares are listed on the NASDAQ Global Market under the symbol “HOVNP.” In fiscal 2018, 2017 and 2016, we did not pay any dividends on the Series A Preferred Stock due to covenant restrictions in our debt instruments. We anticipate that we will continue to be restricted from paying dividends, which are not cumulative, for the foreseeable future.

Retirement Plan - We have established a tax-qualified, defined contribution savings and investment retirement plan (a 401(k) plan). All associates are eligible to participate in the retirement plan, and employer contributions are based on a percentage of associate contributions and our operating results. Plan costs charged to operations were $7.0 million, $6.8 million and $6.6 million for the years ended October 31, 2018, 2017 and 2016, respectively.

15. Stock Plans 

The fair value of option awards is established at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the years ended October 31, 2018, 2017 and 2016: risk free interest rate of 2.8%, 2.05% and 1.38%, respectively; dividend yield of zero; historical volatility factor of the expected market price of our common stock of 0.50, 0.53 and 0.61, respectively; a weighted-average expected life of the option of 8.0 years, 7.64 years and 7.36 years, respectively; and an estimated forfeiture rate of 9.90%, 9.92% and 10.90%, respectively. 

For the years ended October 31, 2018, 2017 and 2016, total stock-based compensation expense was $3.7 million ($2.0 million post tax), $0.6 million and $2.9 million ($2.3 million post tax), respectively. Included in this total stock-based compensation expense was expense from stock options of $0.7 million and $0.5 million for the years ended October 31, 2018 and 2017, respectively, and income for stock options of $1.5 million for the year ended October 31, 2016. The fiscal 2017 expense includes income of $2.0 million from previously recognized expense of certain performance based restricted stock grants for which the performance metrics are no longer expected to be satisfied. This income was offset by the vesting of restricted stock of $2.1 million during the year ended October 31, 2017. The fiscal 2016 expense included income of $2.1 million from previously recognized expense of certain performance based restricted stock grants for which the performance metrics are no longer expected to be satisfied. This income was offset by the vesting of stock options of $0.5 million during the year ended October 31, 2016.

We have a stock incentive plan for certain officers and key employees and directors. Options are granted by a committee appointed by the Board of Directors or its delegate in accordance with the stock incentive plan. The exercise price of all stock options must be at least equal to the fair market value of the underlying shares on the date of the grant. Stock options granted to officers and associates generally vest in four equal installments on the second, third, fourth and fifth anniversaries of the date of the grant. All options expire 10 years after the date of the grant. At the time of our annual stock grant in the second quarter of fiscal 2018, each of the five of our existing non-employee directors of the Company were given the choice to receive stock options or a reduced number of shares of restricted stock units subject to a two-year post-vesting holding period, or a combination thereof, with restricted stock units based on the fair market value on the date of grant and stock options based on grant date Black-Scholes value. All such directors elected to receive restricted stock units. Additionally, our new non-employee director was granted restricted stock units during fiscal 2018. Non-employee directors’ stock options and restricted stock units vest in three equal installments on the first, second and third anniversaries of the date of the grant. Stock option transactions are summarized as follows:

	October 31, 2018		Weighted-Average Exercise Price		October 31, 2017		Weighted-Average Exercise Price		October 31, 2016		Weighted-Average Exercise Price
Options outstanding at beginning of period		6,860,701	$	3.40		7,373,951	$	4.03		6,393,876	$	4.78
Granted		945,625	$	2.25		236,250	$	2.34		1,148,481	$	1.95
Exercised		30,250	$	2.00		48,250	$	2.07		-	$	-
Forfeited		50,000	$	2.57		452,375	$	5.85		51,125	$	2.73
Expired		761,750	$	6.28		248,875	$	16.68		117,281	$	25.05
Options outstanding at end of period		6,964,326	$	2.95		6,860,701	$	3.40		7,373,951	$	4.03
Options exercisable at end of period		4,793,490				5,259,011				5,071,181

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The total intrinsic value of options exercised during fiscal 2018 and 2017 was $26 thousand and $12 thousand, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. At October 31, 2016, there were no options exercisable which had an intrinsic value. Exercise prices for options outstanding at October 31, 2018 ranged from $1.54 to $6.28.

The weighted-average fair value of grants made in fiscal 2018, 2017 and 2016 was $1.08, $1.33 and $1.00 per share, respectively. Based on the fair value at the time they were granted, the weighted-average fair value of options vested in fiscal 2018, 2017 and 2016 was $2.78, $2.60 and $2.55 per share, respectively.

The following table summarizes the exercise price range and related number of options outstanding at October 31, 2018:

			Number		Weighted- Average		Weighted- Average Remaining Contractual
Range of Exercise Prices			Outstanding		Exercise Price		Life
$1.54	–	$2.41		2,645,784	$	2.00		6.32
$2.42	–	$4.41		3,004,042	$	2.77		3.57
$4.42	–	$6.28		1,314,500	$	5.27		2.66
				6,964,326	$	2.95		4.44

The following table summarizes the exercise price range and related number of exercisable options at October 31, 2018:

			Number		Weighted- Average		Weighted- Average Remaining Contractual
Range of Exercise Prices			Exercisable		Exercise Price		Life
$1.54	–	$2.41		1,108,534	$	1.97		3.65
$2.42	–	$4.41		2,370,456	$	2.81		2.09
$4.42	–	$6.28		1,314,500	$	5.27		2.66
				4,793,490	$	3.29		2.61

Officers and key associates who are eligible to receive equity grants may elect to receive either a stated number of stock options, or a reduced number of shares of restricted stock units, or a combination thereof. Shares underlying restricted stock units granted to officers and associates generally vest in four equal installments on the second, third, fourth and fifth anniversaries of the grant date. Participants aged 60 years or older, or aged 58 with 15 years of service, are eligible to vest in their equity awards on an accelerated basis on their retirement (which in the case of the restricted stock units only applies to a retirement that is at least one year after the date of grant). During the years ended October 31, 2018, 2017 and 2016, we granted 507,278 (including 397,590 units to certain of our non-employee directors), 366,513 (including 298,388 units to certain of our non-employee directors) and 456,070 (including 356,382 units to certain of our non-employee directors) restricted stock units, respectively, and also issued 148,424, 101,218 and 176,944 units, relating to awards granted in prior fiscal years, respectively. During the years ended October 31, 2017 and 2016, 452,500 and 33,125 restricted stock units were forfeited, respectively.

For the years ended October 31, 2018, 2017 and 2016 total compensation cost recognized in the Consolidated Statement of Operations for the annual restricted stock unit grants, market share unit grants (discussed below), and the stock portion of the long-term incentive plan (also discussed below) was $2.8 million, $21 thousand and $4.3 million, respectively. In addition to nonvested share awards summarized in the following table, there were 540,229, 312,419 and 224,326 vested share awards at October 31, 2018, 2017 and 2016, respectively, which were deferred at the participants' election.

A summary of the Company’s nonvested share awards as of and for the year ended October 31, 2018, is as follows:

	Shares		Weighted-Average Grant Date Fair Value
Nonvested at beginning of period		6,174,477	$	2.36
Granted		2,129,073	$	2.55
Vested		705,144	$	2.31
Forfeited		2,423,148	$	1.98
Nonvested at end of period		5,175,258	$	2.62

Included in the above table are awards for the share portion of long-term incentive plans (“LTIPs”) for certain officers and associates, which are performance based plans. This includes 0.3 million 2016 LTIP shares which were granted during fiscal 2016 and based on performance outcomes between 2016 and 2018 were reduced from 2.4 million shares during fiscal 2018. This also includes 0.8 million target 2018 LTIP shares which were granted during fiscal year 2018. 

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Also included in the table above are 3.0 million target Market Share Units (“MSUs”) of which 850,000 were granted to certain officers in both fiscal 2018 and fiscal 2017. In addition, 675,000, 400,000 and 200,000 MSUs are included from the fiscal 2016, fiscal 2015 and fiscal 2014 MSU grants, of which the 2015 and 2014 grants were adjusted by 104,377 and 200,000, respectively, in fiscal 2018, as certain performance conditions at the second and third measurement periods were not met and only a portion of the shares were vested, resulting in the reversal of $0.8 million of expense during the period. Additionally, 58,733 from the 2016 MSUs  and 96,925 from the 2015 MSUs net shares were issued during fiscal 2018. Fifty percent of the MSUs will vest in four equal annual installments, commencing on the second anniversary of the grant date subject to stock price performance conditions, pursuant to which the actual number of shares issuable with respect to vested MSUs may range from 0% to 200% of the target number of shares covered by the MSU awards, generally depending on the growth in the 60-day average trading price of the Company’s shares during the period between the grant date and the relevant vesting dates. The remaining fifty percent of the MSUs are also subject to financial performance conditions in addition to the stock price performance conditions applicable to all MSUs. These additional performance-based MSUs vest in four equal installments with the first installment vesting on January 1^st , three years after the MSU grant date (for example, January 1, 2021 for the 2018 MSU grant) and the remaining annual installments commencing on the third anniversary of the grant date, except that no portion of the award will vest unless the Committee determines that the Company achieved (1) for the 2018 MSU grants, specified community count improvement (as to 25% of the MSU amount) and pre-tax profit (as to 25% of the MSU amount) goals comparing the fiscal year of the grant date and the second fiscal year following the grant date (fiscal 2020 compared to fiscal 2018), (2) for the 2017 and 2016 MSU grants, specified gross margin improvement (as to 25% of the MSU amount) and debt reduction (as to 25% of the MSU amount) goals comparing the fiscal year of the grant date and the second fiscal year following the grant date (fiscal 2019 compared to fiscal 2017).

The fair value of the MSU grants is determined using the Monte-Carlo simulation model, which simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. This model uses the average closing trading price of the Company’s Class A Common Stock on the New York Stock Exchange over the 60 calendar day period ending on the grant date. This model also incorporates the following ranges of assumptions:

● The expected volatility is based on our stock’s historical volatility commensurate with the life 2 years, 2.6 years, 3 years, 4 years and 5 years.

● The risk-free interest rate is based on the U.S. Treasury rate assumption ranging from 2-5 years.

● The expected dividend yield is not applicable since we do not currently pay dividends.

The following assumptions were used for 2018 MSU grants: historical volatility factor of the expected market price of our common stock of 48.41%, 51.92%, 56.11%, 52.59% and 49.57% for the 2 year, 2.6 year, 3 year, 4 year and 5 year vesting tranches, respectively; the concluded risk free rate assumptions of 2.56% and 2.68% equals the continuously compounded 2.56 year and 4 year yield, respectively and dividend yield of zero for all time periods. The following assumptions were used for 2017 MSU grants: historical volatility factor of the expected market price of our common stock of 57.93%, 54.61%, 52.66%, 48.85% and 50.78% for the 2 year, 2.6 year, 3 year, 4 year and 5 year vesting tranches, respectively; risk free interest rates of 1.35%, 1.43%, 1.49%, 1.63% and 1.76% for each vesting tranche, respectively; and dividend yield of zero for all time periods. The following assumptions were used for 2016 MSU Grants: historical volatility factor of the expected market price of our common stock of 56.50%, 52.77%, 50.34%, 52.36% and 61.08% for the 2 year, 2.5 year, 3 year, 4 year and 5 year vesting tranches, respectively; risk free interest rates of 0.73%, 0.81%, 0.87%, 1.02% and 1.17% for each vesting tranche, respectively; and dividend yield of zero for all time periods.

Based on the terms of our equity compensation plans, awards that are forfeited become available to us for future grants under the plan. As of October 31, 2018, we had 5.0 million shares authorized and remaining (inclusive of the 2.1 million shares forfeited as of October 31, 2018) for future issuance under our equity compensation plans. In addition, as of October 31, 2018, there were $5.1 million of total unrecognized compensation costs related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.5 years. 

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16. Warranty Costs

General liability insurance for homebuilding companies and their suppliers and subcontractors is very difficult to obtain. The availability of general liability insurance is limited due to a decreased number of insurance companies willing to underwrite for the industry. In addition, those few insurers willing to underwrite liability insurance have significantly increased the premium costs. To date, we have been able to obtain general liability insurance but at higher premium costs with higher deductibles. Our subcontractors and suppliers have advised us that they have also had difficulty obtaining insurance that also provides us coverage. As a result, we have an owner controlled insurance program for certain of our subcontractors whereby the subcontractors pay us an insurance premium (through a reduction of amounts we would otherwise owe such subcontractors for their work on our homes) based on the risk type of the trade. We absorb the liability associated with their work on our homes as part of our overall general liability insurance at no additional cost to us because our existing general liability and construction defect insurance policy and related reserves for amounts under our deductible covers construction defects regardless of whether we or our subcontractors are responsible for the defect. For the fiscal years ended October 31, 2018 and 2017, we received $4.6 million and $4.1 million, respectively, from subcontractors related to the owner controlled insurance program, which we accounted for as reductions to inventory.

We accrue for warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. This accrual is expensed as selling, general and administrative costs. For homes delivered in fiscal 2018 and 2017, our deductible under our general liability insurance is a $20 million aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal 2018 and 2017 is $0.25 million, up to a $5 million limit. Our aggregate retention for construction defect, warranty and bodily injury claims is $20 million for fiscal 2018 and $21 million for fiscal 2017. In addition, we establish a warranty accrual for lower cost-related issues to cover home repairs, community amenities and land development infrastructure that are not covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and title and possession have been transferred to the homebuyer. Additions and charges in the warranty reserve and general liability reserve for the fiscal years ended October 31, 2018 and 2017 were as follows:

	Year Ended October 31,
(In thousands)	2018		2017
Balance, beginning of period	$127,702		$121,144
Additions – Selling, general and administrative	9,024		10,870
Additions – Cost of sales	17,180		15,835
Charges incurred during the period	(43,462	)	(28,019	)
Changes to pre-existing reserves	(15,380	)	7,872
Balance, end of period	$95,064		$127,702

Warranty accruals are based upon historical experience. We engage a third-party actuary that uses our historical warranty and construction defect data to assist our management in estimating our unpaid claims, claim adjustment expenses and incurred but not reported claims reserves for the risks that we are assuming under the general liability and construction defect programs. The estimates include provisions for inflation, claims handling and legal fees. The charges incurred during fiscal 2018 are higher than those for fiscal 2017 due to the payment for construction defect reserves related to the settlement of a litigation matter in the second quarter of fiscal 2018. Also, as a result of reductions in our construction defect claims in recent years and the impact of these reductions on the actuarial analysis on our total reserves, we recorded a $10.2 million reduction in our construction defect reserves during the fourth quarter of fiscal 2018. These reductions are reflected in the changes to pre-existing reserves in the table above. During the fourth quarter of fiscal 2017, we recorded a $12.5 million adjustment to increase our construction defect reserves related to litigation. We also recorded a $4.6 million reduction in our warranty accruals during the fourth quarter of fiscal 2017.

Insurance claims paid by our insurance carriers, excluding insurance deductibles paid, were $0.2 million and $0.9 million for the fiscal years ended October 31, 2018 and 2017, respectively, for prior year deliveries.

17. Transactions with Related Parties

During the years ended October 31, 2018, 2017 and 2016, an engineering firm owned by Tavit Najarian, a relative of Ara K. Hovnanian, our Chairman of the Board and one of our executive officers, provided services to the Company totaling $0.7 million, $0.8 million and $1.0 million, respectively. Neither the Company nor Mr. Hovnanian has a financial interest in the relative’s company from whom the services were provided.

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Mr. Carson Sorsby, the son of J. Larry Sorsby, one of our directors and executive officers, is employed by the Company’s mortgage subsidiary. His total commissions from the Company’s mortgage affiliate totaled approximately $148,000, $191,000 and $152,000 in fiscal 2018, 2017 and 2016, respectively.

Mr. Alexander Hovnanian, the son of Ara K. Hovnanian, our Chairman of the Board and one of our executive officers, is employed by the Company. Mr. Hovnanian was an Area Vice President in the Company’s Hudson/North Jersey Area during fiscal 2018 and was promoted to Division President of the Northeast Division in fiscal 2019. His total compensation was approximately $514,000, $336,000 and $166,000 in fiscal 2018, 2017 and 2016, respectively.

18. Commitments and Contingent Liabilities

We are involved in litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on our financial position, results of operations or cash flows, and we are subject to extensive and complex laws and regulations that affect the development of land and home building, sales and customer financing processes, including zoning, density, building standards and mortgage financing. These laws and regulations often provide broad discretion to the administering governmental authorities. This can delay or increase the cost of development or homebuilding. The significant majority of our litigation matters are related to construction defect claims. Our estimated losses from construction defect litigation matters, if any, are included in our construction defect reserves as discussed in Note 16.

We also are subject to a variety of local, state, federal and foreign laws and regulations concerning protection of health and the environment, including those regulating the emission or discharge of materials into the environment, the management of storm water runoff at construction sites, the handling, use, storage and disposal of hazardous substances, impacts to wetlands and other sensitive environments, and the remediation of contamination at properties that we have owned or developed or currently own or are developing (“environmental laws”). The particular environmental laws that apply to a site may vary greatly according to the community site, for example, due to the community, the environmental conditions at or near the site, and the present and former uses of the site. These environmental laws may result in delays, may cause us to incur substantial compliance, remediation and/or other costs, and can prohibit or severely restrict development and homebuilding activity. In addition, noncompliance with these laws and regulations could result in fines and penalties, obligations to remediate, permit revocations or other sanctions; and contamination or other environmental conditions at or in the vicinity of our developments may result in claims against us for personal injury, property damage or other losses.

We anticipate that increasingly stringent requirements will be imposed on developers and homebuilders in the future. For example, for a number of years, the EPA and U.S. Army Corps of Engineers have been engaged in rulemakings to clarify the scope of federally regulated wetlands, which included a June 2015 rule many affected businesses contend impermissibly expanded the scope of such wetlands that was challenged in court, stayed, and remains in litigation. A proposal was made in June 2017 to formally rescind the June 2015 rule and reinstate the rule scheme previously in place while the agencies initiate a new substantive rulemaking on the issue. A February 2018 rule delays the effective date of the June 2015 rule until February 2020, but was enjoined nationwide in August 2018 by a federal district court in South Carolina in response to a lawsuit by a coalition of environmental advocacy groups (the result of which, according to the EPA, is that the June 2015 rule applies in 22 states, the District of Columbia, and the United States territories, and that the pre-June 2015 regime applies in the rest). The district court’s August 2018 decision is being appealed, and the EPA and U.S. Army Corps of Engineers are seeking a stay of the decision. It is unclear how these and related developments, including at the state or local level, ultimately may affect the scope of regulated wetlands where we operate. Although we cannot reliably predict the extent of any effect these developments regarding wetlands, or any other requirements that may take effect may have on us, they could result in time-consuming and expensive compliance programs and in substantial expenditures, which could cause delays and increase our cost of operations. In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained is dependent upon many factors, some of which are beyond our control, such as changes in policies, rules and regulations and their interpretations and application.

In March 2013, we received a letter from the Environmental Protection Agency (“EPA”) requesting information about our involvement in a housing redevelopment project in Newark, New Jersey that a Company entity undertook during the 1990s. We understand that the development is in the vicinity of a former lead smelter and that tests on soil samples from properties within the development conducted by the EPA showed elevated levels of lead. We also understand that the smelter ceased operations many years before the Company entity involved acquired the properties in the area and carried out the re-development project. We responded to the EPA’s request. In August 2013, we were notified that the EPA considers us a potentially responsible party (or “PRP”) with respect to the site, that the EPA will clean up the site, and that the EPA is proposing that we fund and/or contribute towards the cleanup of the contamination at the site. We began preliminary discussions with the EPA concerning a possible resolution but do not know the scope or extent of the Company’s obligations, if any, that may arise from the site and therefore cannot provide any assurance that this matter will not have a material impact on the Company. The EPA requested additional information in April 2014 and again in March 2017 and the Company responded to the information requests. On May 2, 2018 the EPA sent a letter to the Company entity demanding reimbursement for 100% of the EPA’s costs to clean-up the site in the amount of $2.7 million. The Company responded to the EPA’s demand letter on June 15, 2018 setting forth the Company’s defenses and expressing its willingness to enter into settlement negotiations. We believe that we have adequate reserves for this matter.

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The Grandview at Riverwalk Port Imperial Condominium Association, Inc. (the “Grandview Plaintiff”) filed a construction defect lawsuit against Hovnanian Enterprises, Inc. and several of its affiliates, including K. Hovnanian at Port Imperial Urban Renewal II, LLC, K. Hovnanian Construction Management, Inc., K. Hovnanian Companies, LLC, K. Hovnanian Enterprises, Inc., K. Hovnanian North East, Inc. aka and/or dba K. Hovnanian Companies North East, Inc., K. Hovnanian Construction II, Inc., K. Hovnanian Cooperative, Inc., K. Hovnanian Developments of New Jersey, Inc., and K. Hovnanian Holdings NJ, LLC, as well as the project architect, the geotechnical engineers and various construction contractors for the project alleging various construction defects, design defects and geotechnical issues totaling approximately $41.3 million. The lawsuit included claims against the geotechnical engineers for differential soil settlement under the building, against the architects for failing to design the correct type of structure allowable under the New Jersey Building Code, and against the Hovnanian-affiliated developer entity (K. Hovnanian at Port Imperial Urban Renewal II, LLC ) alleging that it: (1) had knowledge of and failed to disclose the improper building classification to unit purchasers and was therefore liable for treble damages under the New Jersey Consumer Fraud Act; and (2) breached an express warranty set forth in the Public Offering Statements that the common elements at the building were fit for their intended purpose. The Grandview Plaintiff further alleged that Hovnanian Enterprises, Inc., K. Hovnanian Holdings NJ, LLC, K. Hovnanian Developments of New Jersey, Inc., and K. Hovnanian Developments of New Jersey II, Inc. were jointly liable for any damages owed by the Hovnanian development entity under a veil piercing theory.

After the parties reached a pre-trial settlement on the construction defect issues, trial commenced on April 17, 2017 in Hudson County, New Jersey. The Hovnanian-affiliated defendants resolved the geotechnical claims mid-trial for an amount immaterial to the Company, but the balance of the case continued to be tried before the jury. On June 1, 2017, the jury rendered a verdict against K. Hovnanian at Port Imperial Urban Renewal II, LLC on the breach of warranty and New Jersey Consumer Fraud claims in the total amount of $3 million, which resulted in a total verdict of $9 million against that entity due to statutory trebling, plus a portion of Grandview Plaintiff’s attorneys’ fees and costs. The Court subsequently awarded $1.4 million in attorneys’ fees and costs. The jury also found in favor of Grandview Plaintiff on its veil piercing theory. After the Court denied the Hovnanian-affiliated defendants’ filed post-trial motions, including a motion for contractual indemnification against the project architect, the Court entered final judgment in the amount of approximately $10.4 million on January 12, 2018. 

On January 24, 2018, the relevant Hovnanian-affiliated defendants appealed all aspects of the verdict against them. On February 16, 2018, the Court entered an order staying execution of the judgment provided that the Hovnanian-affiliated defendants post a bond in the amount of approximately $11.1 million. On March 9, 2018, the Hovnanian-affiliated defendants filed the Court-approved bond. On July 30, 2018, during the pendency of the appeal, the Hovnanian-affiliated defendants settled the Grandview Plaintiff's claims for an amount less than the bond, which amount was paid on September 12, 2018.  As part of the settlement, all appeals were dismissed other than the appeal of the Court’s denial of the Hovnanian-affiliated defendant’s contractual indemnification claim against the project architect.

In 2015, the condominium association of the Four Seasons at Great Notch condominium community (the “Great Notch Plaintiff”) filed a lawsuit in the Superior Court of New Jersey, Law Division, Passaic County (the “Court”) alleging various construction defects, design defects, and geotechnical issues relating to the community. The operative complaint (“Complaint”) asserts claims against Hovnanian Enterprises, Inc. and several of its affiliates, including K. Hovnanian at Great Notch, LLC, K. Hovnanian Construction Management, Inc., and K. Hovnanian Companies, LLC. The Complaint also asserts claims against various other design professionals and contractors. The Great Notch Plaintiff has also filed a motion, which remains pending, to permit it to pursue a claim to pierce the corporate veil of K. Hovnanian at Great Notch, LLC to hold its alleged parent entities liable for any damages awarded against it. To date, the Hovnanian-affiliated defendants have reached a partial settlement with the Great Notch Plaintiff as to a portion of the Great Notch Plaintiff’s claims against them for an amount immaterial to the Company. On its remaining claims against the Hovnanian-affiliated defendants, the Great Notch Plaintiff recently asserted damages of approximately $119.5 million, which amount is potentially subject to treble damages pursuant to the Great Notch Plaintiff’s claim under the New Jersey Consumer Fraud Act. On August 17, 2018, the Hovnanian-affiliated defendants filed a motion for summary judgment seeking dismissal of all of the Great Notch Plaintiff’s remaining claims against them, which remains pending. Trial is currently scheduled for March 25, 2019. Court ordered mediation sessions have been scheduled for January 2019. The Hovnanian-affiliated defendants intend to defend these claims vigorously.

19. Variable Interest Entities

The Company enters into land and lot option purchase contracts to procure land or lots for the construction of homes. Under these contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of the option purchase contracts, many of the option deposits are not refundable at the Company's discretion. Under the requirements of ASC 810, certain option purchase contracts may result in the creation of a variable interest in the entity (“VIE”) that owns the land parcel under option.

102

In compliance with ASC 810, the Company analyzes its option purchase contracts to determine whether the corresponding land sellers are VIEs and, if so, whether the Company is the primary beneficiary. Although the Company does not have legal title to the underlying land, ASC 810 requires the Company to consolidate a VIE if the Company is determined to be the primary beneficiary. In determining whether it is the primary beneficiary, the Company considers, among other things, whether it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE. The Company also considers whether it has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. As a result of its analyses, the Company determined that as of October 31, 2018 and 2017, it was not the primary beneficiary of any VIEs from which it is purchasing land under option purchase contracts.

We will continue to secure land and lots using options, some of which are with VIEs. Including deposits on our unconsolidated VIEs, at October 31, 2018, we had total cash deposits amounting to $59.0 million to purchase land and lots with a total purchase price of $1.2 billion. The maximum exposure to loss with respect to our land and lot options is limited to the deposits plus any pre-development costs invested in the property, although some deposits are refundable at our request or refundable if certain conditions are not met.

20. Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

We enter into homebuilding and land development joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile, leveraging our capital base and enhancing returns on capital. Our homebuilding joint ventures are generally entered into with third-party investors to develop land and construct homes that are sold directly to third-party home buyers. Our land development joint ventures include those entered into with developers and other homebuilders as well as financial investors to develop finished lots for sale to the joint venture’s members or other third parties.

During the first quarter of fiscal 2017, we transferred one community we owned and our option to buy three communities to an existing joint venture, resulting in our receiving $11.2 million of net cash. During the first quarter of fiscal 2018, we acquired the remaining assets of one of our joint ventures, resulting in a $13.0 million reduction in our investment in the joint venture and a corresponding increase to inventory.

The tables set forth below summarize the combined financial information related to our unconsolidated homebuilding and land development joint ventures that are accounted for under the equity method.

	October 31, 2018
(Dollars in thousands)	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$50,010		$2,275		$52,285
Inventories	506,650		8,004		514,654
Other assets	35,105		-		35,105
Total assets	$591,765		$10,279		$602,044
Liabilities and equity:
Accounts payable and accrued liabilities	$79,108		$746		$79,854
Notes payable	236,665		-		236,665
Total liabilities	315,773		746		316,519
Equity of:
Hovnanian Enterprises, Inc.	114,950		4,369		119,319
Others	161,042		5,164		166,206
Total equity	275,992		9,533		285,525
Total liabilities and equity	$591,765		$10,279		$602,044
Debt to capitalization ratio	46	%	0	%	45	%

103

	October 31, 2017
(Dollars in thousands)	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$60,580		$194		$60,774
Inventories	666,017		9,162		675,179
Other assets	36,026		-		36,026
Total assets	$762,623		$9,356		$771,979
Liabilities and equity:
Accounts payable and accrued liabilities	$121,646		$429		$122,075
Notes payable	330,642		-		330,642
Total liabilities	452,288		429		452,717
Equity of:
Hovnanian Enterprises, Inc.	88,884		3,746		92,630
Others	221,451		5,181		226,632
Total equity	310,335		8,927		319,262
Total liabilities and equity	$762,623		$9,356		$771,979
Debt to capitalization ratio	52	%	0	%	51	%

As of October 31, 2018 and 2017, we had advances and a note receivable outstanding of $4.6 million and $22.4 million, respectively, to these unconsolidated joint ventures. These amounts were included in the “Accounts payable and accrued liabilities” balances in the tables above. On our Consolidated Balance Sheets, our “Investments in and advances to unconsolidated joint ventures” amounted to $123.7 million and $115.1 million at October 31, 2018 and 2017, respectively. In some cases our net investment in these joint ventures is less than our proportionate share of the equity reflected in the table above because of the differences between asset impairments recorded against our joint venture investments and any impairments recorded in the applicable joint venture. Impairments of joint venture investments are recorded at fair value while impairments recorded in the joint venture are recorded when undiscounted cash flows trigger the impairment. During the year ended October 31, 2018, we did not write-down any of our joint venture investments; however, one of our joint ventures in the Northeast and one of our joint ventures in the Mid-Atlantic recorded asset impairments. We recorded our proportionate share of these impairment charges of $0.7 million and $0.6 million, respectively, as part of our share of the net income(loss) of the ventures.

	For The Year Ended October 31, 2018
(Dollars in thousands)	Homebuilding		Land Development		Total
Revenues	$602,681		$6,418		$609,099
Cost of sales and expenses	(577,106	)	(5,173	)	(582,279	)
Joint venture net income	$25,575		$1,245		$26,820
Our share of net income	$23,904		$623		$24,527

	For The Year Ended October 31, 2017
(Dollars in thousands)	Homebuilding		Land Development		Total
Revenues	$312,164		$5,685		$317,849
Cost of sales and expenses	(324,514	)	(4,633	)	(329,147	)
Joint venture net (loss) income	$(12,350	)	$1,052		$(11,298	)
Our share of net (loss) income	$(7,189	)	$526		$(6,663	)

	For The Year Ended October 31, 2016
(Dollars in thousands)	Homebuilding		Land Development		Total
Revenues	$141,418		$6,299		$147,717
Cost of sales and expenses	(159,431	)	(6,103	)	(165,534	)
Joint venture net (loss) income	$(18,013	)	$196		$(17,817	)
Our share of net income	$(4,424	)	$98		$(4,326	)

“Income (loss) from unconsolidated joint ventures” is reflected as a separate line in the accompanying Consolidated Statements of Operations and reflects our proportionate share of the income or loss of these unconsolidated homebuilding and land development joint ventures. The difference between our share of the income or loss from these unconsolidated joint ventures in the tables above compared to the Consolidated Statements of Operations is due primarily to the reclassification of the intercompany portion of management fee income from certain joint ventures and the deferral of income for lots purchased by us from certain joint ventures. To compensate us for the administrative services we provide as the manager of certain joint ventures we receive a management fee based on a percentage of the applicable joint venture’s revenues. These management fees, which totaled $21.1 million, $11.3 million and $5.8 million for the years ended October 31, 2018, 2017 and 2016, are recorded in “Homebuilding: Selling, general and administrative” on the Consolidated Statements of Operations.

104

In determining whether or not we must consolidate joint ventures that we manage, we assess whether the other partners have specific rights to overcome the presumption of control by us as the manager of the joint venture. In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the operations and capital decisions of the partnership, including budgets in the ordinary course of business.

Typically, our unconsolidated joint ventures obtain separate project specific mortgage financing. For some of our joint ventures, obtaining financing was challenging, therefore, some of our joint ventures are capitalized only with equity. The total debt to capitalization ratio of all our joint ventures is currently 45%. Any joint venture financing is on a nonrecourse basis, with guarantees from us limited only to performance and completion of development, environmental warranties and indemnification, standard indemnification for fraud, misrepresentation and other similar actions, including a voluntary bankruptcy filing. In some instances, the joint venture entity is considered a VIE under ASC 810-10 “Consolidation – Overall” due to the returns being capped to the equity holders; however, in these instances, we have determined that we are not the primary beneficiary, and therefore we do not consolidate these entities.  

21. Fair Value of Financial Instruments

ASC 820, "Fair Value Measurements and Disclosures," provides a framework for measuring fair value, expands disclosures about fair-value measurements and establishes a fair-value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:

Level 1:                      Fair value determined based on quoted prices in active markets for identical assets.

Level 2:                      Fair value determined using significant other observable inputs.

Level 3:                      Fair value determined using significant unobservable inputs.

Our financial instruments measured at fair value on a recurring basis are summarized below:

(In thousands)	Fair Value Hierarchy	Fair Value at October 31, 2018		Fair Value at October 31, 2017
Mortgage loans held for sale (1)	Level 2	$130,709		$132,424
Interest rate lock commitments	Level 2	(28	)	(14	)
Forward contracts	Level 2	13		15
Total		$130,694		$132,425

(1)  The aggregate unpaid principal balance was $127.6 million and $128.4 million at October 31, 2018 and 2017, respectively.

We elected the fair value option for our loans held for sale for mortgage loans originated subsequent to October 31, 2008, in accordance with ASC 825, “Financial Instruments,” which permits us to measure financial instruments at fair value on a contract-by-contract basis. Management believes that the election of the fair value option for loans held for sale improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions. Fair value of loans held for sale is based on independent quoted market prices, where available, or the prices for other mortgage loans with similar characteristics.

The Financial Services segment had a pipeline of loan applications in process of $429.0 million at October 31, 2018. Loans in process for which interest rates were committed to the borrowers totaled $41.5 million as of October 31, 2018. Substantially all of these commitments were for periods of 60 days or less. Since a portion of these commitments is expected to expire without being exercised by the borrowers, the total commitments do not necessarily represent future cash requirements.

The Financial Services segment uses investor commitments and forward sales of mandatory MBS to hedge its mortgage-related interest rate exposure. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering into MBS forward commitments, option contracts with investment banks, federally regulated bank affiliates and loan sales transactions with permanent investors meeting the segment’s credit standards. The segment’s risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments and option contracts. At October 31, 2018, the segment had open commitments amounting to $26.5 million to sell MBS with varying settlement dates through December 19, 2018.

105

The assets accounted for using the fair value option are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in the Consolidated Financial Statements in “Revenues: Financial services.” The fair values that are included in income are shown, by financial instrument and financial statement line item, below: 

	Year Ended October 31, 2018
(In thousands)	Mortgage Loans Held for Sale	Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$3,115	$(28	)	$13

	Year Ended October 31, 2017
(In thousands)	Mortgage Loans Held for Sale	Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$4,256	$(14	)	$15

	Year Ended October 31, 2016
(In thousands)	Mortgage Loans Held for Sale	Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$4,711	$(73	)	$(422	)

The Company's assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs during the fiscal years ended October 31, 2018 and 2017. The assets measured at fair value on a nonrecurring basis are all within the Company's Homebuilding operations and are summarized below:

Nonfinancial Assets

	Year Ended
	October 31, 2018
(In thousands)	Fair Value Hierarchy	Pre- Impairment Amount	Total Losses		Fair Value
Sold and unsold homes and lots under development	Level 3	$11,170	$(2,117	)	$9,053
Land and land options held for future development or sale	Level 3	$-	$-		$-

	Year Ended
	October 31, 2017
(In thousands)	Fair Value Hierarchy	Pre- Impairment Amount	Total Losses		Fair Value
Sold and unsold homes and lots under development	Level 3	$30,022	$(11,658	)	$18,364
Land and land options held for future development or sale	Level 3	$22,850	$(3,403	)	$19,447

106

We record impairment losses on inventories related to communities under development and held for future development when events and circumstances indicate that they may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. If the expected undiscounted cash flows are less than the carrying amount, then the community is written down to its fair value. We estimate the fair value of each impaired community by determining the present value of its estimated future cash flows at a discount rate commensurate with the risk of the respective community. Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we may be required to recognize additional impairments. We recorded inventory impairments, which are included in the Consolidated Statements of Operations as “Inventory impairment loss and land option write-offs” and deducted from inventory, of $2.1 million, $15.1 million and $24.5 million for the years ended October 31, 2018, 2017 and 2016, respectively. See Note 12 for further detail of the communities evaluated for impairment.

The fair value of our cash equivalents, restricted cash and cash equivalents and customer’s deposits approximates their carrying amount, based on Level 1 inputs.

The fair value of each series of our Notes are listed below. Level 2 measurements are estimated based on recent trades or quoted market prices for the same issues or based on recent trades or quoted market prices for our debt of similar security and maturity to achieve comparable yields. Level 3 measurements are estimated based on third-party broker quotes or management’s estimate of the fair value based on available trades for similar debt instruments.

Fair Value as of October 31, 2018

(In thousands)	Level 1	Level 2	Level 3	Total
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$-	$-	$74,250	$74,250
2.0% Senior Secured Notes due November 1, 2021	-	-	40,434	40,434
5.0% Senior Secured Notes due November 1, 2021	-	124,781	-	124,781
10.0% Senior Secured Notes due July 15, 2022	-	424,670	-	424,670
10.5% Senior Secured Notes due July 15, 2024	-	366,720	-	366,720
Senior Notes:
13.5% Senior Notes due February 1, 2026	-	88,148	-	88,148
5.0% Senior Notes due February 1, 2040	-	35,628	-	35,628
Total fair value	$-	$1,039,947	$114,684	$1,154,631

Fair Value as of October 31, 2017

(In thousands)	Level 1	Level 2	Level 3	Total
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$-	$-	$75,750	$75,750
2.0% Senior Secured Notes due November 1, 2021	-	-	44,425	44,425
5.0% Senior Secured Notes due November 1, 2021	-	-	132,580	132,580
10.0% Senior Secured Notes due July 15, 2022	-	-	479,600	479,600
10.5% Senior Secured Notes due July 15, 2024	-	-	448,000	448,000
Senior Notes:
7.0% Senior Notes due January 15, 2019	-	131,221	-	$131,221
8.0% Senior Notes due November 1, 2019	-	252,478	-	252,478
11.0% Senior Amortizing Notes due December 1, 2017	-	-	2,055	2,055
Senior Exchangeable Notes due December 1, 2017	-	-	54,217	54,217
Total fair value	$-	$383,699	$1,236,627	$1,620,326

107

22. Unaudited Summarized Consolidated Quarterly Information

Summarized quarterly financial information for the years ended October 31, 2018 and 2017 is as follows:

	Three Months Ended
(In thousands, except per share data)	October 31, 2018		July 31, 2018		April 30, 2018		January 31, 2018
Revenues	$614,811		$456,712		$502,544		$417,166
Expenses	581,680		463,004		509,352		442,047
Inventory impairment loss and land option write-offs	318		96		2,673		414
Loss on extinguishment of debt	(1,830	)	(4,266	)	(1,440	)	-
Income (loss) from unconsolidated joint ventures	17,134		10,732		1,343		(5,176	)
Income (loss) before income taxes	48,117		78		(9,578	)	(30,471	)
State and federal income tax provision	1,939		1,104		245		338
Net income (loss)	$46,178		$(1,026	)	$(9,823	)	$(30,809	)
Per share data:
Basic:
Net income (loss) per common share	$0.30		$(0.01	)	$(0.07	)	$(0.21	)
Weighted-average number of common shares outstanding	148,925		148,669		148,435		148,028
Assuming dilution:
Net income (loss) per common share	$0.29		$(0.01	)	$(0.07	)	$(0.21	)
Weighted-average number of common shares outstanding	151,929		148,669		148,435		148,028

	Three Months Ended
(In thousands, except per share data)	October 31, 2017	July 31, 2017		April 30, 2017		January 31, 2017
Revenues	$721,686	$592,035		$585,935		$552,009
Expenses	703,964	591,872		586,877		554,482
Inventory impairment loss and land option write-offs	8,479	4,197		1,953		3,184
(Loss) gain on extinguishment of debt	-	(42,258	)	(242	)	7,646
Income (loss) from unconsolidated joint ventures	3,062	(3,881	)	(4,562	)	(1,666	)
Income (loss) before income taxes	12,305	(50,173	)	(7,699	)	323
State and federal income tax provision (benefit)	464	287,036		(1,017	)	466
Net income (loss)	$11,841	$(337,209	)	$(6,682	)	$(143	)
Per share data:
Basic:
Net income (loss) per common share	$0.08	$(2.28	)	$(0.05	)	$(0.00	)
Weighted-average number of common shares outstanding	147,905	147,748		147,558		147,535
Assuming dilution:
Net Income (loss) per common share	$0.08	$(2.28	)	$(0.05	)	$(0.00	)
Weighted-average number of common shares outstanding	160,548	147,748		147,558		147,535

108

EX-10.S

Exhibit 10(s)

K. Hovnanian Companies, LLC

Plan Document

AMENDMENT AND RESTATEMENT

EFFECTIVE JANUARY 1, 2014

TABLE OF CONTENTS

Page

Purpose     1

Article 1 Definitions     1

Article 2 Selection, Enrollment, Eligibility     11

     2.1     Selection by Committee     11

     2.2     Enrollment Requirements     11

     2.3     Eligibility; Commencement of Participation     12

     2.4     Termination of Participation and/or Deferrals     12

Article 3 Deferral Commitments/Company Contributions/Crediting/Taxes     12

     3.1     Annual Deferral Amount Deferrals     12

     3.2     Annual Deferred Share Amount/Restricted Share Unit Deferrals     13

3.3     Annual Stock Retainer Amount, Annual Cash Retainer Amount and Annual

            Cash Meeting Fee Amount Deferrals     14

     3.4     LTIP Stock Award, LTIP Cash Award Deferrals and MSU Award Deferrals     15

     3.5     Election to Defer; Effect of Election Form     16

     3.6     Withholding of Annual Deferral Amounts     22

     3.7     Annual Company Contribution Amount     22

     3.8     Investment of Trust Assets     23

     3.9     Sources of Stock     23

     3.10     Vesting     23

     3.11     Crediting/Debiting of Account Balances     24

     3.12     FICA and Other Taxes     28

     3.13     Distributions     29

Article 4 Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election 29

     4.1     Short-Term Payout     29

     4.2     Other Benefits Take Precedence Over Short-Term Payout     34

     4.3     Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies     34

Article 5 Retirement Benefit     34

     5.1     Retirement Benefit     34

     5.2     Payment of Retirement Benefit     34

Article 6 Pre-Retirement Survivor Benefit     39

     6.1     Pre-Retirement Survivor Benefit     39

     6.2     Payment of Pre-Retirement Survivor Benefit     39

     6.3     Death Prior to Completion of Termination Benefit or Retirement Benefit     39

Article 7 Termination Benefit     40

     7.1     Termination Benefit     40

     7.2     Payment of Termination Benefit     40

Article 8 Beneficiary Designation     41

     8.1     Beneficiary     41

     8.2     Beneficiary Designation; Change     41

     8.3     Acceptance     41

     8.4     No Beneficiary Designation     41

     8.5     Doubt as to Beneficiary     41

     8.6     Discharge of Obligations     41

Article 9 Termination, Amendment or Modification     42

     9.1     Termination     42

     9.2     Amendment     43

     9.3     Plan Agreement     43

     9.4     Effect of Payment     43

     9.5     Amendment to Ensure Proper Characterization of the Plan     44

Article 10 Administration     44

     10.1     Committee Duties     44

     10.2     Agents     44

     10.3     Binding Effect of Decisions     44

     10.4     Indemnity of Committee     44

     10.5     Employer Information     45

Article 11 Other Benefits and Agreements     45

     11.1     Coordination with Other Benefits     45

Article 12 Claims Procedures     45

     12.1     Scope of Claims Procedures     45

     12.2     Initial Claim     45

     12.3     Review Procedures     46

     12.4     Calculation of Time Periods     47

     12.5     Legal Action     47

Article 13 Trust     47

     13.1     Establishment of the Trust     47

     13.2     Interrelationship of the Plan and the Trust     48

     13.3     Distributions From the Trust     48

Article 14 Miscellaneous     48

     14.1     Status of Plan     48

     14.2     Unsecured General Creditor     48

     14.3     Employer's Liability     48

     14.4     Nonassignability     48

     14.5     Not a Contract of Employment     49

     14.6     Furnishing Information     49

     14.7     Terms     49

     14.8     Captions     49

     14.9     Governing Law     49

     14.10     Notice     49

     14.11     Successors     50

     14.12     Spouse's Interest     50

     14.13     Validity     50

     14.14     Incompetent     50

     14.15     Court Order     50

     14.16     Acceleration of Distribution     51

     14.17     Delay in Payment     51

     14.18     Prohibited Acceleration/Distribution Timing     51

     14.19     Insurance     52

     14.20     Aggregation of Employers     52

     14.21     Aggregation of Plans     52

     14.22     USERRA     52

     14.23     Legal Fees to Enforce Rights After Change in Control     52

K. HOVNANIAN COMPANIES, LLC

EXECUTIVE DEFERRED COMPENSATION PLAN

Amendment and Restatement

Effective January 1, 2014

Purpose

The purpose of this Plan is to provide specified benefits to a select group of management and highly compensated Associates of Hovnanian Enterprises, Inc., a Delaware corporation, and its subsidiaries, if any, that sponsor this Plan. In addition, effective September 15, 2009, selected non-Associate members of the Board of Directors of Hovnanian Enterprises, Inc. shall be eligible to participate in certain features of the Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. This Plan, as amended and restated herein, is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, as added by the American Jobs Creation Act of 2004 and the final Treasury regulations or any other authoritative guidance issued thereunder ("Section 409A"). In order to facilitate administration and participant communications of certain changes to the Plan becoming effective January 1, 2005 due to Section 409A, certain documents associated with this Plan refer to that portion of this Plan relating to deferrals and credits made on or after January 1, 2005 as the "K. Hovnanian Enterprises, Inc. 2005 Executive Deferred Compensation Plan". Notwithstanding any such references, it is intended that, effective January 1, 2005, the official Plan document governing the terms and conditions of all Plan balances (whether attributable to deferrals/credits made before or after January 1, 2005) shall be this Plan document.

ARTICLE 1
Definitions

For purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings:

1.1 "Account Balance" shall mean, as applicable to a given Participant, a credit on the records of the Employer equal to the sum of (i) the Deferral Account balance, (ii) the Company Contribution Account balance, (iii) the Deferred Share/Restricted Share Unit Deferral Account balance, (iv) the LTIP Stock Award Deferral Account balance, (v) the LTIP Cash Award Deferral Account balance, (vi) the Stock Retainer Deferral Account balance, (vii) the Cash Retainer Deferral Account balance (viii) the Cash Meeting Fee Deferral Account balance, (ix) the Pre-2005 Deferred Share Deferral Account balance and (x) the MSU Award Deferral Account balance. The Account Balance, and each other specified account balance, shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan.

1.2 "Annual Cash Meeting Fee Amount" shall mean, with respect to a Participant who is an Independent Director, that portion of the Participant's Cash Meeting Fee(s) deferred for any one Fiscal Year in accordance with Section 3.3(c) of this Plan.

1.3 "Annual Cash Retainer Amount" shall mean, with respect to a Participant who is an Independent Director, that portion of a Participant's Cash Retainer deferred for any one Fiscal Year in accordance with Section 3.3(b) of this Plan.

1.4 "Annual Company Contribution Amount" shall mean, for any one Plan Year, the amount determined in accordance with Section 3.7 of this Plan, which shall consist of Annual Company Make-Whole Contribution Amounts described in Section 3.7(a) and Annual Company Basic Contribution Amounts described in Section 3.7(b) to the extent the Participant is entitled thereto.

1.5 "Annual Deferral Amount" shall mean that portion of a Participant's Base Annual Salary and Bonus that is deferred, in accordance with Article 3, for any one Plan Year. In the event of a Participant's Retirement, death or a Termination of Employment prior to the end of a Plan Year, such year's Annual Deferral Amount shall be the actual amount withheld prior to such event.

1.6 "Annual Deferred Share Amount" shall mean, with respect to a Participant for any one Fiscal Year, the value of unvested Stock awarded under any Hovnanian Enterprises, Inc. or Company stock incentive plan, deferred in accordance with Section 3.2(a) of this Plan.

1.7 "Annual Installment Method" shall be an annual installment payment over one of the installment payout alternatives selected by the Participant in accordance with this Plan, calculated as follows (subject to Section 3.14): The Account Balance of the Participant shall be calculated as of the close of business on the date of reference (or, if the date of reference is not a business day, on the immediately following business day), and shall be paid during the ninety (90) day period thereafter unless otherwise provided herein. The date of reference with respect to the first annual installment payment shall be as provided in Section 5.2 and the date of reference with respect to subsequent annual installment payments shall be the anniversary of the first annual installment payment.

The installment payout alternatives available for election by the Participant with respect to his or her Retirement Benefit is substantially equal annual installments between two (2) and fifteen (15) years. The annual installment shall be calculated by multiplying the Account Balance by a fraction, the numerator of which is one (1), and the denominator of which is the remaining number of annual payments due the Participant. By way of example, if a Participant elects a five (5) year Annual Installment Method, the first payout shall be one-fifth (1/5) of the Account Balance (or applicable portion thereof), calculated as described in this definition. Within ninety (90) days after the anniversary of the first annual installment payment, the payment shall be one-fourth (1/4) of the Account Balance (or applicable portion thereof), calculated as described in this definition.

1.8 "Annual Stock Retainer Amount" shall mean, with respect to a Participant who is an Independent Director, the value of that portion of a Participant's Stock Retainer deferred for any one Fiscal Year in accordance with Section 3.3(a) of this Plan.

1.9 "Associate" shall mean a person who is an employee of any Employer.

1.10 "Base Annual Salary" shall mean the annual cash compensation relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form W-2 for such calendar year, excluding bonuses, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, directors fees and other fees, automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Associate's gross income). Base Annual Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or non-qualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant's gross income under Code Sections 125, 402(e)(3), 402(h), 403(b), or 132(f)(4) pursuant to plans established by any Employer; provided, however, that all such amounts will be included in compensation only to the extent that, had there been no such plan, the amount would have been payable in cash to the Associate.

1.11 "Beneficiary" shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 8, that are entitled to receive benefits under this Plan upon the death of a Participant.

1.12 "Beneficiary Designation Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries.

1.13 "Board" shall mean the board of directors of the Company.

1.14 "Bonus" shall mean any compensation, in addition to Base Annual Salary, relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form W-2 for such calendar year, ordinarily payable in cash to a Participant as an Associate under any Employer's bonus and cash incentive plans, excluding any stock awards.

1.15 "Cash Meeting Fee" shall mean cash compensation for services performed by an Independent Director at a meeting (whether in person or telephonic) of the Board of Directors of Hovnanian Enterprises, Inc. or a committee thereof.

1.16 "Cash Meeting Fee Deferral Account" shall mean (i) the sum of the Participant's Cash Meeting Fee deferrals, plus (ii) amounts credited/debited in accordance with all the applicable crediting/debiting provisions of this Plan that relate to the Participant's Cash Meeting Fee Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's Cash Meeting Fee Deferral Account.

1.17 "Cash Retainer" shall mean that portion of an Independent Director's annual Fiscal Year retainer for services on the Board of Directors on Hovnanian Enterprises, Inc. or a committee thereof which is payable in cash under any Hovnanian Enterprises, Inc. or Company non-employee director compensation plan. An Independent Director's Cash Retainer is generally payable during the January of the Fiscal Year in which the related service on the Board of Directors of Hovnanian Enterprises, Inc. is performed (e.g., a Cash Retainer for services performed during the November 1, 2011 – October 31, 2012 Fiscal Year is generally payable during January 2012).

1.18 "Cash Retainer Deferral Account" shall mean (i) the sum of the Participant's Cash Retainer deferrals, plus (ii) amounts credited/debited in accordance with all the applicable crediting/debiting provisions of this Plan that relate to the Participant's Cash Retainer Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's Cash Retainer Deferral Account.

1.19 "Claimant" shall have the meaning set forth in Section 12.2 of this Plan.

1.20 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time.

1.21 "Committee" shall mean the committee described in Article 10 of this Plan.

1.22 "Company" shall mean K. Hovnanian Companies, LLC, a California corporation, and any successor to all or substantially all of the Company's assets or business.

1.23 "Company Contribution Account" shall mean (i) the sum of the Participant's Annual Company Contribution Amounts credited on or after January 1, 2005, plus (ii) amounts credited or debited in accordance with all the applicable crediting/debiting provisions of this Plan that relate to the Participant's Company Contribution Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's Company Contribution Account.

1.24 "Deduction Limitation" shall mean the following described limitation on a benefit that may otherwise be distributable pursuant to the provisions of this Plan. Except as otherwise provided, this limitation shall be applied to all distributions that are "subject to the Deduction Limitation" under this Plan. If an Employer reasonably anticipates that, if any distribution hereunder were made as scheduled, the Employer's deduction with respect to that distribution would not be permitted by reason of the limitation under Code Section 162(m), then the Employer may defer that distribution, provided that all distributions that could be deferred in accordance with this Section 1.24 are so deferred, and provided further that the Employer treats payments to all similarly situated Participants on a reasonably consistent basis. Any amounts deferred pursuant to this limitation shall continue to be credited/debited with additional amounts in accordance with Section 3.11 below, even if such amount is being paid out in installments. The amounts so deferred and amounts credited thereon shall be distributed to the Participant or his or her Beneficiary (in the event of the Participant's death) during the Participant's first taxable year in which the Employer reasonably anticipates, or should reasonably anticipate, that if the distribution is made during such year, the deduction of such payment will not be limited by Code Section 162(m). To the extent required under Section 409A, where payment to a Specified Employee is delayed pursuant to the preceding to a date on or after the Specified Employee's Separation from Service, the payment will be considered a payment upon a Separation from Service for purposes of the rules under Section 409A(a)(2)(B)(i) (generally requiring a six (6) month delay on distributions upon a Specified Employee's Separation from Service). In no event shall an election be provided to the Participant with respect to the timing of the payment under the preceding. Notwithstanding the foregoing, this Section 1.24 shall apply only to the extent permitted by Section 409A.

1.25 "Deferral Account" shall mean (i) the sum of all of a Participant's Annual Deferral Amounts deferred on or after January 1, 2005, plus (ii) amounts credited or debited in accordance with all the applicable crediting/debiting provisions of this Plan that relate to the Participant's Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account.

1.26 "Deferred Share/Restricted Share Unit Deferral Account" shall mean (i) the sum of the Participant's Annual Deferred Share Amount and/or Restricted Share Unit deferrals deferred on or after January 1, 2005, plus (ii) amounts credited/debited in accordance with all the applicable crediting/debiting provisions of this Plan that relate to the Participant's Deferred Share/Restricted Share Unit Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's Deferred Share/Restricted Share Unit Deferral Account.

1.27 "Deferred Share Award" shall mean unvested shares of Stock selected by the Committee in its sole discretion and awarded (currently, or on a deferred basis) to the Participant under any stock incentive plan of Hovnanian Enterprises, Inc. or the Company.

1.28 "Deferred Shares" shall mean, for any Deferred Share Award, the amount of such Deferred Share Award deferred in accordance with Section 3.2(a) of this Plan.

1.29 "Election Form" shall mean the form or forms established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan (which form or forms may take the form of an electronic transmission, if required or permitted by the Committee).

1.30 "Employer(s)" shall mean Hovnanian Enterprises, Inc. and/or any of its subsidiaries (now in existence or hereafter formed or acquired) that have been selected by the Board to participate in the Plan and have adopted the Plan as a sponsor. For purposes of this Plan, "subsidiary" shall include entities required to be aggregated pursuant to Section 14.20.

1.31 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.

1.32 "Fiscal Year" shall mean a period beginning on November 1 of each calendar year and continuing through October 31 of the following calendar year.

1.33 "401(k) Plan" shall mean the Hovnanian Savings and Investment Retirement Plan, as it may be amended from time to time.

1.34 "Independent Director" shall mean a member of the Board of Directors of Hovnanian Enterprises, Inc. who is not an Associate.

1.35 "LTIP Cash Award" shall mean performance-based compensation relating to services performed over an LTIP Performance Period, payable as an award in cash under any Hovnanian Enterprises, Inc. or Company long term incentive plan.

1.36 "LTIP Cash Award Deferral Account" shall mean (i) the sum of the Participant's LTIP Cash Award deferrals, plus (ii) amounts credited/debited in accordance with all the applicable crediting/debiting provisions of the Plan that relate to the Participant's LTIP Cash Award Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's LTIP Cash Award Deferral Account.

1.37 "LTIP Performance Period" shall mean the performance period of no less than twelve (12) months for which a Participant's LTIP Cash Award and/or LTIP Stock Award is awarded in accordance with the terms and conditions of the applicable Hovnanian Enterprises, Inc. or Company long term incentive plan.

1.38 "LTIP Stock Award" shall mean performance-based compensation relating to services performed over an LTIP Performance Period, payable as an award in shares of Stock under any Hovnanian Enterprises, Inc. or Company long term incentive plan.

1.39 "LTIP Stock Award Deferral Account" shall mean (i) the sum of the Participant's LTIP Stock Award deferrals, plus (ii) amounts credited/debited in accordance with all the applicable crediting/debiting provisions of the Plan that relate to the Participant's LTIP Stock Award Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's LTIP Stock Award Deferral Account.

1.40 "MSU Award" shall mean performance-based compensation relating to services performed over an MSU Performance Period, payable as an award for the future delivery of Stock granted under any stock incentive plan of Hovnanian Enterprises, Inc. pursuant to a "Market Share Unit Agreement" between Hovnanian Enterprises, Inc. and the Participant.

1.41 "MSU Award Deferral Account" shall mean (i) the sum of the Participant's MSU Award deferrals, plus (ii) amounts credited/debited in accordance with all the applicable crediting/debiting provisions of the Plan that relate to the Participant's MSU Award Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's MSU Award Deferral Account.

1.42 "MSU Performance Period" shall mean the performance period of no less than twelve (12) months for which a Participant's MSU Award is awarded in accordance with the terms and conditions of the applicable Hovnanian Enterprises, Inc. stock incentive plan and Market Share Unit Agreement.

1.43 "Participant" shall mean any Associate (i) who is determined by the Committee to be a member of a select group of management or highly compensated employees (within the meaning of ERISA), (ii) who is selected to participate in the Plan, and (iii)(A) who elects to participate in the Plan, (B) who signs a Plan Agreement, an Election Form and a Beneficiary Designation Form, (C) whose signed Plan Agreement, Election Form and Beneficiary Designation Form are accepted by the Committee, (D) who commences participation in the Plan, and (E) whose Plan Agreement has not terminated. In addition, effective September 15, 2009, the term "Participant" shall also include any Independent Director who is selected to participate in the Plan and who satisfies the requirements of (iii)(A)-(E), above. A spouse or former spouse of a Participant shall not be treated as a Participant in the Plan or have an Account Balance under the Plan, even if he or she has an interest in the Participant's benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce.

1.44 "Performance-Based Compensation" shall mean that portion of a Participant's Bonus, the amount of which, or the entitlement to which, is contingent on the satisfaction of pre-established organizational or individual performance criteria relating to a performance period of at least twelve (12) consecutive months, and which qualifies as "performance-based compensation" under Section 409A including the requirement that the performance criteria be established in writing by not later than (i) ninety (90) days after the commencement of the period of service to which the criteria relates and (ii) the date the outcome ceases to be substantially uncertain.

1.45 "Plan" shall mean the Company's Executive Deferred Compensation Plan, which shall be evidenced by this instrument and by each Plan Agreement, as they may be amended from time to time.

1.46 "Plan Agreement" shall mean a written agreement (which may take the form of an electronic transmission, if required or permitted by the Committee), as may be amended from time to time, which is entered into by and between an Employer and a Participant. Each Plan Agreement executed by a Participant and the Participant's Employer shall provide for the entire benefit to which such Participant is entitled under the Plan; should there be more than one Plan Agreement, the Plan Agreement bearing the latest date of acceptance by the Employer shall supersede all previous Plan Agreements in their entirety and shall govern such entitlement. The terms of any Plan Agreement may be different for any Participant, and any Plan Agreement may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan; provided, however, that any such additional benefits or benefit limitations must, unless otherwise provided by the Plan Agreement, be agreed to by both the Employer and the Participant. In the Plan Agreement, each Participant shall acknowledge that he or she accepts all of the terms of the Plan, including the discretionary authority of the Committee as set forth in Article 10.

1.47 "Plan Year" shall mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year.

1.48 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in Article 6 of this Plan.

1.49 "Pre-2005 Deferred Share Deferral Account" shall mean (i) the sum of the Participant's Annual Deferred Share Amounts deferred prior to January 1, 2005, plus (ii) amounts credited/debited in accordance with all the applicable crediting/debiting provisions of this Plan that relate to the Participant's Pre-2005 Deferred Share Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's Pre-2005 Deferred Share Deferral Account.

1.50 "Restricted Share Units" shall mean awards for the future delivery of Stock granted under any stock incentive plan of Hovnanian Enterprises, Inc. or the Company pursuant to a "Restricted Share Unit Agreement" between Hovnanian Enterprises, Inc. and the Participant.

1.51 "Retirement", "Retire(s)" or "Retired" shall mean, with respect to an Associate or Independent Director, a Separation from Service for any reason other than a leave of absence or death on or after the earlier of the attainment of (a) age sixty-five (65) or (b) age fifty-five (55) with ten (10) Years of Service.

1.52 "Retirement Benefit" shall mean the benefit set forth in Article 5.

1.53 "Section 409A" shall mean Code Section 409A and the Treasury regulations or other authoritative guidance issued thereunder. Whenever the terms "subject to Section 409A" or "to the extent permitted by Section 409A" (or any such similar reference so as to indicate that a Plan provision is subject to Section 409A) are used, such terms shall be interpreted to mean that the applicable Plan provision shall be effective only if and to the extent such provision would not trigger penalty taxes or interest under Section 409A; except to the extent that Section 409A requires that such terms be disregarded because they purport to nullify Plan terms that are not in compliance with Section 409A.

1.54 "Separation from Service" shall mean, with respect to a Participant who is an Associate, the Participant's separation from service within the meaning of Section 409A, treating as a Separation from Service an anticipated permanent reduction in the level of bona fide services to twenty percent (20%) or less of the average level of bona fide services performed over the immediately preceding thirty-six (36) month period (or the full period during which the Participant performed services for the Employer, if that is less than thirty-six (36) months). For this purpose, upon a sale or other disposition of the assets of the Employer to an unrelated purchaser, the Employer reserves the right to the extent permitted by Section 409A to determine whether Participants providing services to the purchaser after and in connection with the purchase transaction have experienced a Separation from Service. With respect to a Participant who is an Independent Director, the term "Separation from Service" shall mean that the Participant ceases to be a member of the Board of Directors of Hovnanian Enterprises, Inc.; provided, however, that such cessation of membership shall constitute a Separation from Service only if it qualifies as a separation from service within the meaning of Section 409A.

1.55 "Short-Term Payout" shall mean the payout set forth in Section 4.1 of this Plan.

1.56 "Specified Employee" shall mean, with respect to an Employer corporation any stock of which is publicly traded on an established securities market or otherwise, an individual who, as of the date of his or her Separation from Service, is a Key Employee, as currently defined in Code Section 416(i) (without regard to paragraph (5) thereof) to mean, as of the Effective Date, an employee of the corporation who, at any time during the twelve (12) month period ending on a Specified Employee identification date, is (a) an officer of the corporation having an annual compensation greater than one hundred thirty-five thousand dollars ($160,000) for 2011 (indexed for inflation in future years), (b) a five-percent (5%) owner of the corporation, or (c) a one-percent (1%) owner of the corporation having an annual compensation from the corporation of more than one hundred fifty thousand dollars ($150,000).

1.57 "Stock" shall mean Hovnanian Enterprises, Inc. Class A or Class B common stock, $.01 par value, or any other equity securities of Hovnanian Enterprises, Inc. or of the Company designated by the Committee.

1.58 "Stock Bonus" shall mean any compensation, in addition to Base Annual Salary and cash Bonus, relating to services performed during any calendar year, whether or not paid in such calendar year, payable as a bonus in shares of Stock under any Hovnanian Enterprises, Inc. or Company stock incentive plan.

1.59 "Stock Retainer" shall mean that portion of an Independent Director's annual Fiscal Year retainer for services on the Board of Directors on Hovnanian Enterprises, Inc. or a committee thereof which is payable in shares of Stock under any Hovnanian Enterprises, Inc. or Company non-employee director compensation plan. An Independent Director's Stock Retainer is generally payable during the January of the Fiscal Year in which the related service on the Board of Directors of Hovnanian Enterprises, Inc. is performed (e.g., a Stock Retainer for services performed during the November 1, 2011 – October 31, 2012 Fiscal Year is generally payable during January 2012).

1.60 "Stock Retainer Deferral Account" shall mean (i) the sum of the Participant's Stock Retainer deferrals, plus (ii) amounts credited/debited in accordance with all the applicable crediting/debiting provisions of this Plan that relate to the Participant's Stock Retainer Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's Stock Retainer Deferral Account.

1.61 "Termination Benefit" shall mean the benefit set forth in Article 7 of this Plan.

1.62 "Termination of Employment" shall mean the Separation from Service with all Employers, voluntarily or involuntarily, for any reason other than Retirement, death or an authorized leave of absence.

1.63 "Total Compensation" shall mean the Participant's compensation as defined for employer contribution purposes under the 401(k) Plan, disregarding any reductions to the same due to deferral elections to this Plan, disregarding any reductions to the same for any other nonqualified deferred compensation amounts (whether in the form of cash or stock) and determined without regard to any limitations imposed under the 401(k) Plan as to the amount of compensation recognizable thereunder.

1.64 "Trust" shall mean the trust, if any, established and maintained pursuant to this Plan, as amended from time to time. The assets of the Trust, if any, shall be the property of the Employer.

1.65 "Unforeseeable Financial Emergency" shall mean a severe financial hardship to the Participant resulting from (i) an illness or accident of the Participant, the Participant's spouse, the Participant's dependent (as defined in Code Section 152 without regard to Code Section 152(b)(1), (b)(2) and (d)(1)(B)) or the Participant's beneficiary, (ii) a loss of the Participant's property due to casualty (including the need to rebuild a home following damage not otherwise covered by insurance, for example, not as a result of a natural disaster), or (iii) such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant (e.g., imminent foreclosure or eviction from the Participant's primary residence, the need to pay for medical expenses, including non-refundable deductibles and prescription drugs, the need to pay funeral expenses of a spouse, dependent or beneficiary), all as determined in the sole discretion of the Committee (which discretion the Committee is bound to exercise, however, within the limits of Section 409A).

1.66 "Years of Service" shall mean, if the Participant is an Associate, the total number of full years in which the Participant has been employed by one or more Employers. For purposes of this definition, a year of employment shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year of employment, commences on the Associate's date of hiring and that, for any subsequent year, commences on an anniversary of that hiring date. Any partial year of employment shall not be counted. If the Participant is an Independent Director, the term "Years of Service" shall mean the total number of full years in which the Participant performs services as an Independent Director. For purposes of this definition, a year of service as an Independent Director shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year of service as an Independent Director, commences on the date the Participant becomes an Independent Director and that, for any subsequent year, commences on an anniversary of that date. Any partial year of service as an Independent Director shall not be counted.

ARTICLE 2
Selection, Enrollment, Eligibility

2.1     Selection by Committee. Participation in the Plan shall be limited to a select group of management and highly compensated Associates of the Employers and/or Independent Directors, as determined by the Committee in its sole discretion. From that group, the Committee shall select, in its sole discretion, Associates to participate in any given feature(s) of the Plan for any given period(s).

2.2 Enrollment Requirements. The Committee may require that as a condition to participation, each selected Associate or Independent Director shall complete, execute and return to the Committee a Plan Agreement, an Election Form and a Beneficiary Designation Form (or to enroll using the Internet enrollment procedures established by the Committee, if any), all within 30 days after he or she is selected to participate in the Plan. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary.

2.3 Eligibility; Commencement of Participation. Provided an Associate or Independent Director selected to participate in the Plan has met all enrollment requirements set forth in this Plan and/or required by the Committee, including returning all required documents to the Committee (or enrolling using the Internet enrollment procedures established by the Committee, if any) within the specified time period, that Associate or Independent Director shall commence participation in the Plan on the first day of the month following the month in which the Associate or Independent Director completes all enrollment requirements. If an Associate or Independent Director fails to meet all such requirements within the period required, in accordance with Section 2.2, that Associate or Independent Director shall not be eligible to participate in the Plan until the first day of the Plan Year (or Fiscal Year, as applicable in respect of the given Plan deferral feature) following the delivery to and acceptance by the Committee of the required documents. Notwithstanding anything in the Plan to the contrary, a Participant's eligibility to participate in any given feature of the Plan for any given period shall be in the sole discretion of the Committee. As part of its authority to select those Associates and/or Independent Directors who are eligible to participate in any given feature of the Plan for any given period, the Committee may document such selection through the provision (for eligible Associates/Independent Directors) or the lack of provision (for ineligible Associates/Independent Directors) of the applicable enrollment materials for a given enrollment period.

2.4 Termination of Participation and/or Deferrals. If the Committee determines in good faith that a Participant who is an Associate no longer qualifies as a member of a select group of management or highly compensated Associates, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the right, in its sole discretion, to prevent the Participant from making future deferral elections and/or from being credited with any further contribution amounts. If the Committee determines that a Participant who is an Independent Director is no longer eligible to participate in the Plan, the Committee shall have the right, in its sole discretion, to prevent the Participant from making future deferral elections and/or from being credited with any further contribution amounts.

ARTICLE 3
Deferral Commitments/Company Contributions/Crediting/Taxes

3.1     3.Annual Deferral Amount Deferrals.

(a) Minimum and Maximum Deferrals. For each Plan Year, a Participant whom the Committee designates, in its sole discretion, as eligible to make Annual Deferral Amount deferrals for the Plan Year may elect to defer, as his or her Annual Deferral Amount, Base Annual Salary and Bonus in the following minimum and maximum amounts/percentages:

Deferral	Minimum Amount	Maximum Percentage
Base Annual Salary	$2,000	75%
Bonus	$2,000	100%

Notwithstanding the foregoing, the Committee may, in its sole discretion, establish for any Plan Year minimum(s) and/or maximum(s) which differ from those set forth above.

Subject to Section 409A, if an election is made for less than the stated minimum amounts, or if no election is made, the amount deferred shall be zero.

(b) Short Plan Year. Notwithstanding the foregoing, if a Participant whom the Committee designates, in its sole discretion, as eligible to make Annual Deferral Amount deferrals for a given Plan Year first becomes a Participant after the first day of the Plan Year, the minimum Base Annual Salary deferral shall be an amount equal to the minimum set forth above, multiplied by a fraction, the numerator of which is the number of complete months remaining in the Plan Year and the denominator of which is 12. Also notwithstanding the foregoing, if a Participant whom the Committee designates, in its sole discretion, as eligible to make Annual Deferral Amount deferrals for the Plan Year first becomes a Participant after the first day of the Plan Year, the maximum Annual Deferral Amount, with respect to Base Annual Salary and Bonus, shall be limited to the amount of compensation not yet earned by the Participant as of the date the Participant submits a Plan Agreement and Election Form to the Committee for acceptance. Finally, any Bonus deferral election made by a new Participant after the beginning of the performance period to which the Bonus relates shall be subject to the pro-ration provisions of Section 3.5(a)(i) describing that portion of the Bonus amounts which are considered as applying to services performed after the deferral election.

3.2     Annual Deferred Share Amount/Restricted Share Unit Deferrals.

(a) Annual Deferred Share Amount Deferrals. Subject to any terms and conditions imposed by the Committee, a Participant whom the Committee designates, in its sole discretion, as eligible to make Annual Deferred Share Amount deferrals for a given Fiscal Year may elect to defer under the Plan an Annual Deferred Share Amount for the Fiscal Year. A Participant may elect to defer, as his or her Annual Deferred Share Amount, up to 100% of his or her Deferred Share Award. Annual Deferred Share Amounts shall be credited (or continue to be credited) to the Participant on the books of the Company or the Employer in connection with such an election. An Annual Deferred Share Amount shall consist of all Deferred Shares deferred pursuant to this Section 3.2 in any one Fiscal Year.

(b) Restricted Share Unit Deferrals. Subject to any terms and conditions imposed by the Committee, a Participant whom the Committee designates, in its sole discretion, as eligible to make Restricted Share Unit deferrals for a given Restricted Share Unit deferral enrollment period (as established by the Committee) may elect to defer under the Plan Restricted Share Units for such period. Restricted Share Unit deferrals shall be credited (or continue to be credited) to the Participant on the books of the Company or the Employer in connection with such an election.

3.3     Annual Stock Retainer Amount, Annual Cash Retainer Amount and Annual      Cash Meeting Fee Amount Deferrals.

(a) Annual Stock Retainer Amount Deferrals. Subject to any terms and conditions imposed by the Committee, a Participant who is an Independent Director whom the Committee designates, in its sole discretion, as eligible to make Annual Stock Retainer Amount deferrals for a given Fiscal Year may elect to defer under the Plan Annual Stock Retainer Amounts for the Fiscal Year. A Participant who is an Independent Director may elect to defer, as his or her Annual Stock Retainer Amount for a given Fiscal Year, up to 100% of his or her Stock Retainer attributable to service as an Independent Director performed during the Fiscal Year. Annual Stock Retainer Amounts shall be credited to the Participant on the books of the Company or the Employer in connection with such an election on the date the Stock Retainer would, but for the election, have been paid to the Participant. An Annual Stock Retainer Amount for a given Fiscal Year shall consist of all Stock Retainer shares deferred pursuant to this Section 3.3(a) attributable to services performed by the Independent Director on the Board of Directors of Hovnanian Enterprises, Inc. during the Fiscal Year.

(b) Annual Cash Retainer Amount Deferrals. Subject to any terms and conditions imposed by the Committee, a Participant who is an Independent Director whom the Committee designates, in its sole discretion, as eligible to make Annual Cash Retainer Amount deferrals for a given Fiscal Year may elect to defer under the Plan Annual Cash Retainer Amounts for the Fiscal Year. A Participant who is an Independent Director may elect to defer, as his or her Annual Cash Retainer Amount for a given Fiscal Year, up to 100% of his or her Cash Retainer attributable to service as an Independent Director performed during the Fiscal Year. Annual Cash Retainer Amounts shall be credited to the Participant on the books of the Company or the Employer in connection with such an election on the date the Cash Retainer would, but for the election, have been paid to the Participant. An Annual Cash Retainer Amount for a given Fiscal Year shall consist of all cash deferred pursuant to this Section 3.3(b) attributable to services performed by the Independent Director on the Board of Directors of Hovnanian Enterprises, Inc. during the Fiscal Year.

(c) Annual Cash Meeting Fee Amount Deferrals. Subject to any terms and conditions imposed by the Committee, a Participant who is an Independent Director whom the Committee designates, in its sole discretion, as eligible to make Annual Cash Meeting Fee Amount deferrals for a given Fiscal Year may elect to defer under the Plan Annual Cash Meeting Fee Amounts for the Fiscal Year. A Participant who is an Independent Director may elect to defer, as his or her Annual Cash Meeting Fee Amount for a given Fiscal Year, up to 100% of his or her Cash Meeting Fee(s) attributable to service as an Independent Director performed during the Fiscal Year. Annual Cash Meeting Fee Amounts shall be credited to the Participant on the books of the Company or the Employer in connection with such an election on the date the Cash Meeting Fee would, but for the election, have been paid to the Participant. An Annual Cash Meeting Fee Amount for a given Fiscal Year shall consist of all Cash Meeting Fee(s) deferred pursuant to this Section 3.3(c) attributable to services performed by the Independent Director on the Board of Directors of Hovnanian Enterprises, Inc. during the Fiscal Year.

3.4     LTIP Stock Award, LTIP Cash Award Deferrals and MSU Award Deferrals.

(a) LTIP Stock Award Deferrals. Subject to any terms and conditions imposed by the Committee, a Participant whom the Committee designates, in its sole discretion, as eligible to make LTIP Stock Award deferrals for a given LTIP Performance Period may elect to defer under the Plan all or a portion of his or her LTIP Stock Award for the LTIP Performance Period. A Participant may elect to defer, for any given LTIP Performance Period for which he or she is eligible to make LTIP Stock Award deferrals, up to 100% of his or her LTIP Stock Award attributable to service performed during the LTIP Performance Period. Each portion of an LTIP Stock Award deferred hereunder shall be credited to the Participant on the books of the Company or the Employer in connection with such an election on the date the portion would, but for the election, have been paid to the Participant in Stock.

(b) LTIP Cash Award Deferrals. Subject to any terms and conditions imposed by the Committee, a Participant whom the Committee designates, in its sole discretion, as eligible to make LTIP Cash Award deferrals for a given LTIP Performance Period may elect to defer under the Plan all or a portion of his or her LTIP Cash Award for the LTIP Performance Period. A Participant may elect to defer, for any given LTIP Performance Period for which he or she is eligible to make LTIP Cash Award deferrals, up to 100% of his or her LTIP Cash Award attributable to service performed during the LTIP Performance Period. Each portion of an LTIP Cash Award deferred hereunder shall be credited to the Participant on the books of the Company or the Employer in connection with such an election on the date the portion would, but for the election, have been paid to the Participant in cash.

(c) MSU Award Deferrals. Subject to any terms and conditions imposed by the Committee, a Participant whom the Committee designates, in its sole discretion, as eligible to make MSU Award deferrals for a given MSU Performance Period may elect to defer under the Plan all or a portion of his or her MSU Award for the MSU Performance Period. A Participant may elect to defer, for any given MSU Performance Period for which he or she is eligible to make MSU Award deferrals, up to 100% of his or her MSU Award attributable to service performed during the MSU Performance Period. Each portion of an MSU Award deferred hereunder shall be credited to the Participant on the books of the Company or the Employer in connection with such an election.

3.5 Election to Defer; Effect of Election Form.

(a) Timing of Election.

(i) Base Annual Salary and Bonus Deferrals. Except as provided below, a Participant shall make a deferral election with respect to Base Annual Salary and/or Bonus amounts to be earned for services performed during an upcoming twelve (12) month Plan Year. To the extent permitted by the Committee, a Participant may make a unique Base Annual Salary deferral election for the six (6) month period beginning January 1 and ending June 30 of a given Plan Year and for the six (6) month period beginning July 1 and ending December 31 of a given Plan Year. Except as provided below, any Base Annual Salary and/or Bonus deferral election must be made during such period as shall be established by the Committee which ends no later than the last day of the Plan Year preceding the Plan Year in which the services giving rise to the Base Annual Salary and/or Bonus amounts, as applicable, to be deferred are to be performed. For these purposes, Base Annual Salary payable after the last day of the Plan Year for services performed during the final payroll period containing the last day of the Plan Year shall be treated as Base Annual Salary for services performed in the subsequent Plan Year.

Also, notwithstanding the preceding, if and to the extent permitted by the Committee, a Participant may make an election to defer that portion (if any) of his or her Bonus which qualifies as Performance-Based Compensation no later than six (6) months prior to the last day of the period over which the services giving rise to the Performance-Based Compensation are performed, provided that the Participant performs services continuously from the later of the beginning of the performance period or the date the performance criteria are established through the date of the deferral election, and provided further that in no event may such deferral election be made with respect to any portion of the Performance-Based Compensation that has become reasonably ascertainable prior to the making of the deferral election, within the meaning of Section 409A.

In addition, notwithstanding the preceding, but subject to Section 14.21, in the case of the first Plan Year in which an Associate first becomes eligible to become a Participant (or again becomes eligible after having been ineligible for at least twenty four (24) months), if and to the extent permitted by the Committee, the individual may make an election no later than thirty (30) days after the date he or she becomes eligible to become a Participant to defer Base Salary and/or Bonus amounts (as applicable) for services to be performed after the election. For this purpose, an election will be deemed to apply to Bonus amounts for services performed after the election if the election applies to no more than an amount equal to the total Bonus for the performance period multiplied by the ratio of the number of days remaining in the performance period after the election over the total number of days in the performance period.

Notwithstanding the preceding, the Committee shall, in its discretion, be permitted to cause to be paid to the Participant Base Annual Salary and/or Bonus amounts, as applicable, rather than being deferred under the Plan if, under Section 409A, an earlier election was required in order to properly defer tax with respect to such amount(s). In addition, the Committee, in its discretion, shall be permitted to allow a Participant to revoke or modify a Base Annual Salary and/or Bonus deferral election he or she has made if Section 409A provides an opportunity to later modify a deferral election with respect to such amount(s); provided, however, that no such revocation or modification will be effective or available if and to the extent Section 409A provides that such revocation or modification, or the availability thereof, prevents the proper deferral of tax with respect to such amount(s).

(ii) Annual Deferred Share Amount/Restricted Share Unit Deferrals. Except as otherwise provided below, a Participant wishing to defer Deferred Shares and/or Restricted Share Units must make such a deferral election during such period as shall be established by the Committee which ends no later than twelve (12) months prior to the date on which the Deferred Shares/Restricted Share Units are scheduled to vest. For example, the Committee may require that an election to defer Deferred Shares scheduled to vest November 1, 2016 and/or Restricted Share Units scheduled to vest May 31, 2016 must be made during the enrollment period ending December 31, 2014.

Notwithstanding the preceding, with respect to deferrals of Deferred Shares scheduled to vest prior to November 1, 2010, Section 409A transition rules and the Plan document in effect at the time of the deferrals permitted later deferral elections; the deferral election deadlines in respect of such Deferred Share deferrals are as reflected in the Plan document in effect at the time of the deferrals.

Notwithstanding anything above or elsewhere in the Plan to the contrary, to the extent Section 409A requires that an Annual Deferred Share Amount/Restricted Share Unit deferral election satisfy the rules under Section 409A applicable to changes to form and timing of distribution elections in order for such Annual Deferred Share Amount/Restricted Share Unit deferral election to effectively defer tax with respect to the Annual Deferred Share Amounts/Restricted Share Units, the deferral election shall not be accepted by the Committee to the extent it would violate the rules under Section 409A applicable to changes to form and timing of distribution elections.

Notwithstanding the preceding, the Committee shall, in its discretion, be permitted to disregard any Annual Deferred Share Amount/Restricted Share Unit deferral election if, under Section 409A, an earlier election was required in order to properly defer tax with respect to such Annual Deferred Share Amounts/Restricted Share Units. In addition, the Committee, in its discretion, shall be permitted to allow a Participant to revoke or modify an Annual Deferred Share Amount/Restricted Share Unit deferral election he or she has made if Section 409A provides an opportunity to later modify a deferral election with respect to such Annual Deferred Share Amounts/Restricted Share Units; provided, however, that no such revocation or modification will be effective or available if and to the extent Section 409A provides that such revocation or modification, or the availability thereof, prevents the proper deferral of tax with respect to such Annual Deferred Share Amounts/Restricted Share Units.

(iii) Annual Stock Retainer Amount, Annual Cash Retainer Amount and Annual Cash Meeting Fee Amount Deferrals. Except as provided below, a Participant who is an Independent Director shall make a deferral election with respect to Annual Stock Retainer Amounts, Annual Cash Retainer Amounts and/or Annual Cash Meeting Fee Amounts relating to services to be performed during a given Fiscal Year during such period as shall be established by the Committee which ends no later than the December 31^st preceding the beginning of such Fiscal Year. By way of example, an Independent Director Participant must generally elect on or before December 31, 2014 (or any earlier deadline established by the Committee) to defer Annual Stock Retainer Amounts, Annual Cash Retainer Amounts and/or Annual Cash Meeting Fee Amounts relating to Independent Director services to be performed during the November 1, 2015 – October 31, 2016 Fiscal Year.

Notwithstanding the preceding, but subject to Section 14.21, in the case of the first year in which an Independent Director first becomes eligible to become a Participant (or again becomes eligible after having been ineligible for at least twenty four (24) months), if and to the extent permitted by the Committee, the individual may make an election no later than thirty (30) days after the date he or she becomes eligible to become a Participant to defer Annual Stock Retainer Amounts, Annual Cash Retainer Amounts and/or Annual Cash Meeting Fee Amounts for services to be performed after the election. By way of example, an Independent Director who first becomes eligible to participate as of September 15, 2015 shall, if and to the extent permitted by the Committee, have until October 15, 2015 to defer Annual Stock Retainer Amounts, Annual Cash Retainer Amounts and/or Annual Cash Meeting Fee Amounts relating to Independent Director services to be performed during the November 1, 2015 – October 31, 2016 Fiscal Year.

Notwithstanding the preceding, the Committee shall, in its discretion, be permitted to cause to be paid to the Participant Stock Retainer amounts, Cash Retainer and/or Cash Meeting Fee amounts (as applicable) rather than being deferred under the Plan if, under Section 409A, an earlier election was required in order to properly defer tax with respect to such amounts. In addition, the Committee, in its discretion, shall be permitted to allow a Participant to revoke or modify an Annual Stock Retainer Amount, Annual Cash Retainer Amount and/or Annual Cash Meeting Fee Amount deferral election he or she has made if Section 409A provides an opportunity to later modify a deferral election with respect to such amount(s); provided, however, that no such revocation or modification will be effective or available if and to the extent Section 409A provides that such revocation or modification, or the availability thereof, prevents the proper deferral of tax with respect to such amount.

(iv) LTIP Stock Award and LTIP Cash Award Deferrals. Except as provided below, a Participant shall make a deferral election with respect to an LTIP Stock Award and/or an LTIP Cash Award relating to services performed during a given LTIP Performance Period during such period as shall be established by the Committee which ends no later than six (6) months preceding the end the LTIP Performance Period; provided, however, if and to the extent required under Section 409A in respect of any portion of the LTIP Stock Award and/or LTIP Cash Award which is readily ascertainable and substantially certain to occur prior to six (6) months preceding the end of the LTIP Performance Period, the deferral election must be made no later than the day before the amount is readily ascertainable and substantially certain to occur. For example, the Committee may require that an election to defer LTIP Stock Award and/or LTIP Cash Award amounts relating to services performed during the LTIP Performance Period ending October 31, 2015 must be made during the enrollment period ending December 31, 2014; provided, however, if a minimum LTIP Stock Award and/or LTIP Cash Award amount is readily ascertainable and substantially certain to occur on October 31, 2014, the Participant must generally elect on or before October 30, 2014 (or any earlier deadline established by the Committee) to defer such all or any portion of such amount.

Notwithstanding the preceding, the Committee shall, in its discretion, be permitted to cause to be paid to the Participant LTIP Stock Award amounts and/or LTIP Cash Award amounts (as applicable) rather than being deferred under the Plan if, under Section 409A, an earlier election was required in order to properly defer tax with respect to such amounts. In addition, the Committee, in its discretion, shall be permitted to allow a Participant to revoke or modify an LTIP Stock Award and/or LTIP Cash Award deferral election he or she has made if Section 409A provides an opportunity to later modify a deferral election with respect to such amount(s); provided, however, that no such revocation or modification will be effective or available if and to the extent Section 409A provides that such revocation or modification, or the availability thereof, prevents the proper deferral of tax with respect to such amount.

(v) MSU Award Deferrals. Except as provided below, a Participant shall make a deferral election with respect to an MSU Award relating to services performed during a given MSU Performance Period during such period as shall be established by the Committee which ends no later than six (6) months preceding the end the MSU Performance Period; provided, however, if and to the extent required under Section 409A in respect of any portion of the MSU Award which is readily ascertainable and substantially certain to occur prior to six (6) months preceding the end of the MSU Performance Period, the deferral election must be made no later than the day before the amount is readily ascertainable and substantially certain to occur. For example, the Committee may require that an election to defer MSU Award amounts relating to services performed during the MSU Performance Period ending June 13, 2016 must be made during the enrollment period ending December 12, 2015; provided, however, if a minimum MSU Award amount is readily ascertainable and substantially certain to occur on October 31, 2015, the Participant must generally elect on or before October 30, 2015 (or any earlier deadline established by the Committee) to defer such all or any portion of such amount.

Notwithstanding the preceding, the Committee shall, in its discretion, be permitted to cause to be paid to the Participant MSU Award amounts (as applicable) rather than being deferred under the Plan if, under Section 409A, an earlier election was required in order to properly defer tax with respect to such amounts. In addition, the Committee, in its discretion, shall be permitted to allow a Participant to revoke or modify an MSU Award deferral election he or she has made if Section 409A provides an opportunity to later modify a deferral election with respect to such amount(s); provided, however, that no such revocation or modification will be effective or available if and to the extent Section 409A provides that such revocation or modification, or the availability thereof, prevents the proper deferral of tax with respect to such amount.

(b) Manner of Election. For any given deferral period (e.g., Plan Year, Fiscal Year or other period, as applicable for a given type of Plan deferral), a deferral election, and such other elections as the Committee deems necessary or desirable under the Plan, shall be made by timely delivering to the Committee, in accordance with its rules and procedures, by the deadline(s) set forth above, an Election Form, along with such other elections as the Committee deems necessary or desirable under the Plan. For these elections to be valid, the Election Form and any other required election materials must be completed and signed by the Participant, timely delivered to the Committee (in accordance with Section 2.2 above) and accepted by the Committee. If no such Election Form and any other required election materials are timely delivered and accepted, the Plan deferral type(s) available for the deferral period shall be zero (0) for such period.

(c) Change in Election. For any given type of Plan deferral, once the applicable deferral election deadline (as described in (a), above)) has occurred, a Participant may not elect to change his or her deferral election (or absence of a deferral election) that is subject to such deadline, except if and to the extent permitted by the Committee and made in accordance with the provisions of Section 409A specifically relating to the change and/or revocation of deferral elections (such as, for example, following an Unforeseeable Financial Emergency).

3.6 Withholding of Annual Deferral Amounts. For each Plan Year, the Base Annual Salary portion of the Annual Deferral Amount shall be withheld from each regularly scheduled Base Annual Salary payroll in equal amounts, except as otherwise provided in Section 3.7, as adjusted from time to time for increases and decreases in Base Annual Salary. The Bonus portion of the Annual Deferral Amount shall be withheld at the time the Bonus is or otherwise would be paid to the Participant, whether or not this occurs during the Plan Year itself.

3.7 Annual Company Contribution Amount.

(a) Annual Company Make-Whole Contribution Amount. The Company may, but is not required to, credit to the Company Contribution Account of one or more Participants an amount (an "Annual Company Make-Whole Contribution Amount") for any one or more Plan Years. The Company shall credit such Annual Company Make-Whole Contribution Amounts, if any, for such Participants, with such frequency, and in such amounts, as the Company determines in its sole discretion, including, for example, by crediting to the Participant's Company Contribution Account of an eligible Participant an amount equal to: (i) the percentage match to which the Participant is entitled under the 401(k) Plan based on the Participant's years of service determined under the 401(k) Plan (or any other percentage match rate applicable to the Participant, as determined by the Committee in its discretion) multiplied by (ii) that portion of the Participant's Total Compensation which exceeds the legal limit on annual compensation permitted to be considered under the 401(k) Plan (e.g., $260,000 for 2014). The Annual Company Make-Whole Contribution Amounts, if any, shall be withheld by the Company pending the Participant's satisfaction of the 401(k) Plan's vesting schedule, but such withheld Annual Company Make-Whole Contribution Amounts shall be made in full (with or without credited interest in the sole and absolute discretion of the Committee) upon satisfaction of the 401(k) Plan's vesting schedule.

(b) Annual Company Basic Contribution Amount. The Company may, but is not required to, make a contribution to each Participant's Company Contribution Account, if the Participant is eligible to receive a basic profit sharing contribution under the 401(k) Plan for the Plan Year, as soon as practicable after the close of each Plan Year, in an amount (an "Annual Company Basic Contribution Amount") equal to: (i) the percentage basic profit sharing contribution to which the Participant is entitled under the 401(k) Plan multiplied by (ii) that portion of the Participant's Total Compensation which exceeds the legal limit on annual compensation permitted to be considered under the 401(k) Plan (e.g., $260,000 for 2014). The Annual Company Basic Contribution Amounts, if any, shall be withheld by the Company pending the Participant's satisfaction of the 401(k) Plan vesting schedule, but such withheld Annual Company Basic Contribution Amounts shall be made in full (with or without credited interest in the sole and absolute discretion of the Committee) upon satisfaction of the 401(k) Plan's vesting schedule.

3.8 Investment of Trust Assets. If and to the extent a Trust is maintained under the Plan, the Trustee of the Trust shall be authorized, upon written instructions received from the Committee or investment manager appointed by the Committee, to invest and reinvest the assets of the Trust in accordance with the applicable Trust agreement, including the disposition of investment vehicles and reinvestment of the proceeds in one or more other investment vehicles designated by the Committee.

3.9 Sources of Stock. If Stock is credited under the Plan on the books of the Company or the Employer, or in the Trust (if any), in connection with a deferral of an Annual Deferred Share Amount, Restricted Share Unit, Annual Stock Retainer Amount, LTIP Stock Award or MSU Award, the shares so credited shall be deemed to have originated, and shall be counted against the number of shares reserved, under such other plan, program or arrangement.

3.10 Vesting. Unless otherwise provided in the Plan Agreement, a Participant shall at all times be 100% vested in his or her Account Balance under the Plan. Notwithstanding anything to the contrary in any Plan Agreement, in the event of a Change in Control, a Participant's Account Balance, to the extent not then vested, shall immediately become 100% vested. For purposes of this Section 3.10, a "Change in Control" shall mean the first to occur of any of the following events:

(a) Any "person" (as that term is used in Section 13 and 14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act")) becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of 50% or more of Hovnanian Enterprises, Inc. Stock entitled to vote in the election of directors;

(b) During any period of not more than two consecutive years, not including any period prior to the adoption of this Plan, individuals who at the beginning of such period constitute the board of directors of Hovnanian Enterprises, Inc., and any new director (other than a director designated by a person who has entered into an agreement with Hovnanian Enterprises, Inc. to effect a transaction described in clause (a), (c), (d) or (e) of this Section 3.10) whose election by the board of directors or nomination for election by Hovnanian Enterprises, Inc.'s stockholders was approved by a vote of at least three-fourths (3/4ths) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof;

(c) The shareholders of Hovnanian Enterprises, Inc. approve any consolidation or merger of Hovnanian Enterprises, Inc., other than a consolidation or merger of the Company in which the holders of the Stock of Hovnanian Enterprises, Inc. immediately prior to the consolidation or merger hold more than 50% of the common stock of the surviving corporation immediately after the consolidation or merger;

(d) The shareholders of Hovnanian Enterprises, Inc. approve any plan or proposal for the liquidation or dissolution of Hovnanian Enterprises, Inc.; or

(e) The shareholders of Hovnanian Enterprises, Inc. approve the sale or transfer of all or substantially all of the assets of Hovnanian Enterprises, Inc. to parties that are not within a "controlled group of corporations" (as defined in Code Section 1563) in which Hovnanian Enterprises, Inc. is a member.

3.11 Crediting/Debiting of Account Balances. In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a Participant's Account Balance in accordance with the following rules:

(a) Sub-Accounts. Separate sub-accounts shall be established and maintained with respect to each Participant's Account Balance (together, the "Sub-Accounts"), each attributable to the portion of the Participant's Account Balance representing the same type of credited deferral or contribution.

(b) Election of Measurement Funds. Except as otherwise provided in Section 3.11(f) below, if and to the extent the Committee makes available more than one Measurement Fund in respect of amounts credited to a given Participant's Sub-Account, a Participant, in connection with his or her initial deferral election in accordance with Section 3.5(a) above, shall elect, on the Election Form(s), one or more "Measurement Fund(s)" (as described in this Section, and as may be established from time to time by the Committee without the need to formally amend this Plan) to be used to determine the additional amounts to be credited or debited to the Sub-Account for the first business day of the Plan Year, continuing thereafter unless changed in accordance with the next sentence. Commencing with the first business day of the Plan Year, and continuing thereafter for the remainder of the Participant's participation in the Plan, if and to the extent the Committee makes available more than one Measurement Fund in respect of amounts credited to a given Participant's Sub-Account, the Participant may (but is not required to) elect daily, by submitting an Election Form(s) to the Committee that is accepted by the Committee (which submission may take the form of an electronic transmission, if required or permitted by the Committee), to add or delete one or more Measurement Fund(s) to be used to determine the additional amounts to be credited or debited to such Sub-Account, or to change the portion of the Sub-Account allocated to each previously or newly elected Measurement Fund. If an election is made in accordance with the previous sentence, it shall apply to the next business day and continue thereafter for the remainder of the Participant's participation in the Plan, unless changed in accordance with the previous sentence. Notwithstanding anything in the Plan to the contrary, the Committee has the absolute discretion to determine the Measurement Fund(s) available for election in respect of a given Sub-Account, including the discretion to require that all amounts credited to the Sub-Account be measured by reference to a single prescribed Measurement Fund (e.g., the Stock fund and/or the Average Yield Fund). For this purpose, the term "Average Yield Fund" shall be a credit rate established by the Committee and communicated to Participants in writing (e.g., based on the average yield on Hovnanian Enterprises, Inc. debt) and, regardless of anything in the Plan to the contrary, shall be applied as follows for each calendar year it is determined by the Committee to be a relevant Measurement Fund in respect of one or more Sub-Accounts: the credit rate shall be effective on the January 1 of the given calendar year and shall apply to the Participant's applicable Sub-Account Balance(s) determined as of the immediately preceding December 31 plus deferrals/contributions made to such Sub-Account(s) under the Plan for the calendar year.

(c) Proportionate Allocation. In making any election described in Section 3.11(b) above, the Participant shall specify on the Election Form, in increments of one percentage point (1%), the percentage of each of his or her Sub-Accounts to be allocated to a Measurement Fund (as if the Participant was making an investment in that Measurement Fund with that portion of his or her Sub-Account).

(d) Measurement Funds. Except as otherwise provided in Section 3.11(f) below, if and to the extent the Committee makes available more than one Measurement Fund in respect of amounts credited to a given Participant's Sub-Account, a Participant, in connection with his or her initial deferral election in accordance with Section 3.5(a) above, shall elect, on the Election Form(s), one or more Measurement Fund(s) for the purpose of crediting or debiting additional amounts to his or her Sub-Account. The Committee may, in its sole discretion, discontinue, substitute or add a Measurement Fund without the need to formally amend this Plan; such Committee authority shall include the discretion to limit all or a part of a Participant's Sub-Account or Account Balance to a single Measurement Fund (e.g., the Stock fund). Each such action will take effect as of the first business day that follows by thirty (30) days the day on which the Committee gives Participants advanced written notice of such change. If the Committee receives an initial or revised Measurement Fund(s) election which it deems to be incomplete, unclear or improper, the Participant's Measurement Fund(s) election then in effect shall remain in effect (or, in the case of a deficiency in an initial Measurement Fund(s) election, the Participant shall be deemed to have filed no deemed investment direction). If and to the extent the Committee makes available more than one Measurement Fund in respect of amounts credited to all or a portion of the Participant's Account Balance, if the Committee possesses (or is deemed to possess as provided in the previous sentence) at any time directions as to Measurement Funds of less than all of such portion of the Participant's Account Balance, the Participant shall be deemed to have directed that the undesignated portion of the Account Balance be deemed to be invested in the default Measurement Fund established the Committee . Each Participant hereunder, as a condition to his or her participation hereunder, agrees to indemnify and hold harmless the Committee, the Company and the Employer, and their agents and representatives, from any losses or damages of any kind relating to (i) the Measurement Funds made available hereunder and (ii) any discrepancy between the credits and debits to the Participant's Account Balance based on the performance of the Measurement Funds and what the credits and debits otherwise might be in the case of an actual investment in the Measurement Funds.

(e) Crediting or Debiting Method. The performance of each Measurement Fund (either positive or negative) associated with all or a portion of the Participant's Account Balance will be determined by the Committee, in its reasonable discretion, based on the performance of the Measurement Funds themselves. A Participant's Account Balance shall be credited or debited on a daily basis based on the performance of each Measurement Fund associated with the Participant's Account Balance, as determined by the Committee in its sole discretion, as though (i) a Participant's Account Balance were invested in the Measurement Fund(s) associated with the Participant's Account Balance, in the percentages applicable to each portion of the Account Balance as of such date, at the closing price on such date; (ii) the portion of the Annual Deferral Amount that was actually deferred was invested in the Measurement Fund(s) associated with the Annual Deferral Amount, in the percentages applicable to each portion of the Annual Deferral Amount, no later than the close of business on the third business day after the day on which such amounts are actually deferred from the Participant's Base Annual Salary and/or Bonus through reductions in his or her payroll, at the closing price on such date; and (iii) any distribution made to a Participant that decreases such Participant's Account Balance ceased being invested in the Measurement Fund(s), in the percentages applicable to each portion of the Account Balance, no earlier than three business days prior to the distribution, at the closing price on such date. The Participant's Annual Company Contribution Amount shall be credited to his or her Company Contribution Account for purposes of this Section 3.11(e) as soon as administratively practicable following the date such amount(s) were credited to the Participant's Account Balance. The Participant's Annual Deferred Share Amount, Restricted Share Unit, Annual Stock Retainer Amount, Annual Cash Retainer Amount, Annual Cash Meeting Fee Amount, LTIP Stock Award, LTIP Cash Award and MSU Award deferral(s) shall be credited to the applicable Sub-Account no later than the close of business on the third business day after the date of the deferral(s).

(f) No Actual Investment. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and any Participant election of any such Measurement Fund, the allocation to his or her Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Account Balance shall not be considered or construed in any manner as an actual investment of his or her Account Balance in any such Measurement Fund. In the event that the Company or the Trustee (as that term is defined in the Trust), if any, in its own discretion, decides to invest funds in any or all of the Measurement Funds, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Account Balance shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company, the Employer or the Trust (if any); the Participant shall at all times remain an unsecured creditor of the Employer.

(g) Committee Discretion to Limit One or More Sub-Account(s) to the Stock Fund. Notwithstanding anything in this Plan to the contrary, the Committee has the sole and absolute discretion to require that one or more Sub-Account(s) of a Participant's Account Balance be allocated exclusively to the Stock fund and to no other Measurement Fund until such time, if any, as the Committee, in its sole and absolute discretion, makes available additional Measurement Fund(s) for such Sub-Account(s).

(h) Beneficiary Elections. Each reference in this Section 3.11 to a Participant shall be deemed to include, where applicable, a reference to a Beneficiary.

3.12 FICA and Other Taxes.

(a) Annual Deferral Amounts. For each Plan Year in which an Annual Deferral Amount is being withheld from a Participant, the Participant's Employer(s) shall withhold from that portion of the Participant's Base Annual Salary and Bonus that is not being deferred, in a manner determined by the Employer(s), the Participant's share of FICA and other employment taxes on such Annual Deferral Amount, and any other applicable deductions. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with this Section 3.12(a).

(b) Annual Company Contribution Amounts. When an Annual Company Contribution Amount is credited to a Participant's Company Contribution Account (or, if later, when a Participant becomes vested in his or her Company Contribution Account), the Participant's Employer(s) shall withhold from the Participant's Base Annual Salary and/or Bonus that is not deferred, in a manner determined by the Employer(s), the Participant's share of FICA and other employment taxes, and any other applicable deductions. If necessary, the Committee may reduce the Participant's Annual Company Contribution Amount in order to comply with this Section 3.12(b).

(c) Annual Deferred Share Amounts/Restricted Share Units/LTIP Stock Award/LTIP Cash Award/MSU Award. For each Fiscal Year in which an Annual Deferred Share Amount/Restricted Share Unit/LTIP Stock Award/LTIP Cash Award/MSU Award is being first withheld from a Participant, or at such other time as FICA taxes are due, the Participant's Employer(s) shall withhold from that portion of the Participant's compensation that is not being deferred, in a manner determined by the Employer(s), the Participant's share of FICA and other employment taxes on such Annual Deferred Share Amount/Restricted Share Unit/LTIP Stock Award/LTIP Cash Award/MSU Award, and any other applicable deductions. If necessary, the Committee may reduce the Participant's Annual Deferred Share Amount/Restricted Share Unit/LTIP Stock Award/LTIP Cash Award/MSU Award deferral in order to comply with this Section 3.12(c).

3.13 Distributions. Notwithstanding anything herein to the contrary, the Employer, or the trustee of the Trust (if any), shall withhold from any payments made under this Plan all Federal, state and local income, employment and other taxes required to be withheld by the Employer, or the trustee of the Trust (if any), in connection with such payments, and any indebtedness of the Participant to the Employer as of the date(s) of distribution, in amounts and in a manner to be determined in the reasonable discretion of the Employer and the trustee of the Trust (if any). Any payment made to a Participant or Beneficiary under this Plan shall be made on or during the period after the payment date or event specified herein; provided, however, such payment shall not be made later than the later of (i) the last day of the calendar year in which the payment date or event occurs, or, if later, the fifteenth (15^th) day of the third (3^rd) calendar month following the date of the payment date or event, or (ii) the last day of such other, extended period as the IRS may prescribe, such as in the case of disputed payments or refusals to pay, provided the conditions of such extension have been satisfied. If a Participant who experiences a Separation from Service is rehired (or, in the case of an Independent Director Participant, again becomes an Independent Director following a Separation from Service), his or her distributions hereunder may not be suspended.

ARTICLE 4
Short-Term Payout; Unforeseeable Financial Emergencies;
Withdrawal Election

4.1 Short-Term Payout.

(a) Short-Term Payouts of Annual Deferral Amounts and Vested Annual Company Contribution Amounts. At the same time that a Participant elects to defer an Annual Deferral Amount for a given Plan Year, the Participant may irrevocably elect to receive a future "Short-Term Payout" from the Plan. Except as provided in Section 4.3, any Short-Term Payout election must be made by the deadline(s) set forth in Section 3.5(a) for making a deferral election in respect of the Base Annual Salary and/or Bonus to which it relates, and is irrevocable after that deadline has passed. Subject to such requirements as may be imposed by the Committee, a Participant may make separate Short-Term Payout elections in respect of the Base Annual Salary and/or Bonus portions of his or her Annual Deferral Amount for a given Plan Year, in respect of any vested Annual Company Make-Whole Contribution Amounts credited during the Plan Year and in respect of any vested Annual Company Basic Contribution Amounts credited during the Plan Year. Subject to the Deduction Limitation and to Section 3.14, the Short-Term Payout shall be a lump sum payment in an amount that is equal to the Annual Deferral Amount (or applicable portion thereof), vested Annual Company Make-Whole Contribution Amounts and/or vested Annual Company Basic Contribution Amounts, as applicable, and amounts credited or debited thereto in the manner provided in Section 3.11 above, determined at the time that the Short-Term Payout becomes payable. Subject to the Deduction Limitation, Section 3.14 and the other terms and conditions of this Plan, each Short-Term Payout elected shall be paid out during a sixty (60) day period designated by the Participant that is at least three (3) Plan Years (or such other period established by the Committee and reflected on the applicable Short-Term Payout election materials) after the Plan Year of the deferral election of the Annual Deferral Amount (or applicable portion thereof), vested Annual Company Make-Whole Contribution Amounts and/or vested Annual Company Basic Contribution Amounts, as applicable, as specifically elected by the Participant; provided, however, that any Short-Term Payout election which would result in a Short-Term Payout of vested Annual Company Make-Whole Contribution Amounts earlier than the Participant's sixtieth (60^th) birthday shall be deemed to be an election to receive a Short-Term Payout of such vested Annual Company Make-Whole Contribution Amounts at age sixty (60), or (if later) earliest Short-Term Payout date described above. By way of example, if a three (3) year Short-Term Payout is elected for Annual Deferral Amounts, vested Annual Company Make-Whole Contribution Amounts and/or vested Annual Company Basic Contribution Amounts elected to be deferred during the enrollment period ending December 31, 2014, the three (3) year Short-Term Payout would become payable during a sixty (60) day period commencing January 1, 2018 (if, in respect of the vested Annual Company Make-Whole Contribution Amounts, the Participant is age sixty (60) or older as of January 1, 2018).

(b) Short-Term Payouts of Annual Deferred Share Amounts/Restricted Share Units. At the same time that a Participant elects to defer an Annual Deferred Share Amount and/or Restricted Share Unit, the Participant may irrevocably elect to receive a future "Short-Term Payout" from the Plan. Subject to the Deduction Limitation and to Section 3.14, the Short-Term Payout shall be a lump sum payment in an amount that is equal to the Annual Deferred Share Amount/Restricted Share Unit and amounts credited or debited thereto in the manner provided in Section 3.11 above, determined at the time that the Short-Term Payout becomes payable. Subject to the Deduction Limitation, to Section 3.14 and the other terms and conditions of this Plan, each Short-Term Payout elected shall be paid during a period beginning one (1) day and ending sixty (60) days after the last day of the Plan Year designated by the Participant that results in the Annual Deferred Share Amount/Restricted Share Unit deferral remaining in the Plan for at least five (5) full calendar years, or such longer period established by the Committee and reflected on the applicable Short-Term Payout election materials (i.e., the earliest Short-Term Payout available in respect of deferrals of Deferred Shares otherwise scheduled to vest on November 1, 2015 and/or Restricted Share Units otherwise scheduled to vest on May 31, 2015 is the sixty (60) day period commencing January 1, 2021).

Notwithstanding the preceding, with respect to deferrals of Deferred Shares scheduled to vest prior to November 1, 2010, Section 409A transition rules and the Plan document in effect at the time of the deferrals permitted earlier Short-Term Payout dates; the Short-Term Payment dates permitted in respect of such Deferred Share deferrals are as reflected in the Plan document in effect at the time of the deferrals.

Notwithstanding anything above or elsewhere in the Plan to the contrary, to the extent Section 409A requires that an Annual Deferred Share Amount/Restricted Share Unit deferral election satisfy the rules under Section 409A applicable to changes to form and timing of distribution elections in order for such Annual Deferred Share Amount/Restricted Share Unit deferral election to effectively defer tax with respect to the Annual Deferred Share Amounts/Restricted Share Units, that portion of the Participant's Deferred Share/Restricted Share Unit Deferral Account attributable to such Annual Deferred Share Amount/Restricted Share Unit deferral election shall be distributable as a Short-Term Payout solely at such time(s) and in such manner as the Short-Term Payout does not violate the rules under Section 409A applicable to changes to form and timing of distribution elections.

(c) Short-Term Payouts of Annual Stock Retainer Amounts, Annual Cash Retainer Amounts and/or Annual Cash Meeting Fee Amounts. At the same time that a Participant who is an Independent Director elects to defer an Annual Stock Retainer Amount, Annual Cash Retainer Amount or Annual Cash Meeting Fee Amount for a given Fiscal Year, the Participant may irrevocably elect to receive a future "Short-Term Payout" from the Plan. Any Short-Term Payout election must be made by the deadline(s) set forth in Section 3.5(a) for making a deferral election in respect of the Annual Stock Retainer Amount, Annual Cash Retainer Amount or Annual Cash Meeting Fee Amount to which it relates, and is irrevocable after that deadline has passed. Subject to the Deduction Limitation and to Section 3.14, the Short-Term Payout shall be a lump sum payment in an amount that is equal to the Annual Stock Retainer Amount, Annual Cash Retainer Amount or Annual Cash Meeting Fee Amount, and amounts credited or debited thereto in the manner provided in Section 3.11 above, determined at the time that the Short-Term Payout becomes payable. Subject to the Deduction Limitation, Section 3.14, and the other terms and conditions of this Plan, each Short-Term Payout elected shall be paid out during a period one (1) day and ending sixty (60) days after the last day of the Plan Year designated by the Participant that is at least two (2) Plan Years (or such longer period established by the Committee and reflected on the applicable Short-Term Payout election materials) after the Fiscal Year for which the Annual Stock Retainer Amount deferral, Annual Cash Retainer Amount deferral or Annual Cash Meeting Fee Amount deferral is credited. By way of example, if a two (2) year Short-Term Payout is elected for 2016 Fiscal Year Annual Stock Retainer Amount, Annual Cash Retainer Amount or Annual Cash Meeting Fee Amount, the two (2) year Short-Term Payout would become payable during a sixty (60) day period commencing January 1, 2019.

(d) Short-Term Payouts of LTIP Stock Award and/or LTIP Cash Award Deferrals. At the same time that a Participant elects to defer an LTIP Stock Award or LTIP Cash Award for a given LTIP Performance Period, the Participant may irrevocably elect to receive a future "Short-Term Payout" from the Plan. Any Short-Term Payout election must be made by the deadline(s) set forth in Section 3.5(a) for making a deferral election in respect of the LTIP Stock Award or LTIP Cash Award to which it relates, and is irrevocable after that deadline has passed. Subject to the Deduction Limitation and to Section 3.14, the Short-Term Payout shall be a lump sum payment in an amount that is equal to the LTIP Stock Award deferral amount or LTIP Cash Award deferral amount, and amounts credited or debited thereto in the manner provided in Section 3.11 above, determined at the time that the Short-Term Payout becomes payable. Subject to the Deduction Limitation, Section 3.14, and the other terms and conditions of this Plan, each Short-Term Payout elected shall be paid out during a period one (1) day and ending sixty (60) days after the last day of the Plan Year designated by the Participant that is at least two (2) Plan Years (or such longer period established by the Committee and reflected on the applicable Short-Term Payout election materials) after the calendar year in which the LTIP Stock Award or LTIP Cash Award is credited. By way of example, if a two (2) year Short-Term Payout is elected for an LTIP Stock Award (or portion thereof) deferred in January 2016 (i.e., the date the LTIP Stock Award, or portion thereof, would, but for the deferral election, otherwise have been payable), the two (2) year Short-Term Payout would become payable during a sixty (60) day period commencing January 1, 2019.

(e) Short-Term Payouts of MSU Award Deferrals. At the same time that a Participant elects to defer an MSU Award for a given MSU Performance Period, the Participant may irrevocably elect to receive a future "Short-Term Payout" from the Plan. Any Short-Term Payout election must be made by the deadline(s) set forth in Section 3.5(a) for making a deferral election in respect of the MSU Award to which it relates, and is irrevocable after that deadline has passed. Subject to the Deduction Limitation and to Section 3.14, the Short-Term Payout shall be a lump sum payment in an amount that is equal to the MSU Award deferral amount, and amounts credited or debited thereto in the manner provided in Section 3.11 above, determined at the time that the Short-Term Payout becomes payable. Subject to the Deduction Limitation, Section 3.14, and the other terms and conditions of this Plan, each Short-Term Payout elected shall be paid out during a period one (1) day and ending sixty (60) days after the last day of the Plan Year designated by the Participant that is at least three (3) Plan Years (or such other period established by the Committee and reflected on the applicable Short-Term Payout election materials) after the calendar year in which the MSU Award deferral election was made. By way of example, if a three (3) year Short-Term Payout is elected for an MSU Award (or portion thereof) deferred during the enrollment period ending December 12, 2015, the three (3) year Short-Term Payout would become payable during a sixty (60) day period commencing January 1, 2019.

(f) Postponements of Previously Elected Short-Term Payouts. Notwithstanding the preceding paragraphs or any other provision of this Plan that may be construed to the contrary, a Participant who is in active service with the Employer (including, for Independent Director Participants, in active service as an Independent Director) may, with respect to each Short-Term Payout, on a form determined by the Committee, make one (1) or more additional deferral elections (a "Subsequent Election") to defer payment of all or a portion of such Short-Term Payout to a Plan Year subsequent to the Plan Year originally (or subsequently) elected; provided, however, that, except as provided elsewhere in this Plan, such Subsequent Election will be null and void unless accepted by the Committee no later than one (1) year prior to the first day of the Plan Year in which, but for the Subsequent Election, such Short-Term Payout would be paid, and such Subsequent Election provides for the deferral of at least five (5) Plan Years following the Plan Year in which the Short-Term Payout, but for the Subsequent Election, would be paid. By way of example, if a two (2) year Short-Term Payout is elected for 2016 Fiscal Year Annual Stock Retainer Amounts, Annual Cash Retainer Amounts and/or Annual Cash Meeting Fee Amounts (resulting, as described above, in a Short-Term Payout payable during the sixty (60) day period commencing January 1, 2019), the Participant shall be entitled to make a Subsequent Election prior to the time designated by the Committee (e.g., any time designated by the Committee which is no later than December 31, 2017) to have the Short-Term Payout instead paid during the sixty (60) day period commencing January 1, 2024 (or January 1 of any later Plan Year).

4.2 Other Benefits Take Precedence Over Short-Term Payout. Should an event occur that triggers a benefit under Article 5, 6 or 7, all Account Balances (or portions thereof) that are subject to Short-Term Payout elections under Section 4.1 shall not be paid in accordance with Section 4.1 but shall be paid in accordance with the other applicable Article.

4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies. If a Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to (i) halt any deferrals required to be made by the Participant and (ii) receive a partial or full payout from the Plan. The payout shall not exceed the lesser of the Participant's Account Balance, or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the payouts, after taking into account the extent to which the Unforeseeable Financial Emergency is or may be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of the Participant^'s assets (to the extent the liquidation of assets would not itself cause severe financial hardship) or by termination of deferrals hereunder. If, subject to the sole discretion of the Committee (which discretion the Committee is bound to exercise, however, within the limitations of Section 409A), the petition for a termination of deferrals and payout is approved, cessation shall take effect upon the date of approval and any payout shall be made within sixty (60) days of the date of approval. The payment of any amount under this Section 4.3 shall be subject to Section 3.14, but shall not be subject to the Deduction Limitation. Notwithstanding anything in this Plan to the contrary, any distribution from the Deferred Share/Restricted Share Unit Deferral Account, Stock Retainer Deferral Account, LTIP Stock Award Deferral Account or MSU Award Deferral Account under this Section 4.3 shall be in the form of Stock.

ARTICLE 5
Retirement Benefit

5.1     Retirement Benefit. Subject to the Deduction Limitation and to Section 3.14, and any other conditions imposed by the Committee, a Participant who Retires shall receive, as a Retirement Benefit, his or her vested Account Balance (or applicable portion thereof).

5.2 Payment of Retirement Benefit.

(a) Retirement Benefit Payments of Annual Deferral Amounts and Vested Annual Company Contribution Amounts. At the same time that a Participant elects to defer an Annual Deferral Amount for a given Plan Year, the Participant may elect to receive that portion of his or her Retirement Benefit attributable to the Annual Deferral Amount (and/or that portion of his or her Retirement Benefit attributable to any vested Annual Company Make-Whole Contribution Amounts credited for the Plan Year and/or that portion of his or her Retirement Benefit attributable to any vested Annual Company Basic Contribution Amounts credited for the Plan Year) in a lump sum, or pursuant to one of the available Annual Installment Methods. At such time, the Participant may also elect to have any such lump sum payment paid, or installments commence, during the sixty (60) day period immediately following the close of the calendar quarter in which the Participant Retires or, alternatively, during the sixty (60) day period immediately following the close of the Plan Year in which the Participant Retires; provided, however, that, to the extent required under Section 409A, Retirement Benefit distributions to an individual who is a Specified Employee as of the date of his or her Separation from Service shall commence no earlier than six (6) months after the date or his or her Retirement (or, if earlier, his or her death). If a Participant does not make any election with respect to the form of distribution of any portion of his or her Retirement Benefit, such portion shall be distributable in the form of a lump sum. In addition, subject to the preceding limitation on Retirement Benefit distributions to Specified Employees, if a Participant does not make any election with respect to when any portion of his or her Retirement Benefit shall be made or begin, such portion shall be made or begin during the sixty (60) day period immediately following the close of the calendar quarter in which the Participant Retires. Any payment made shall be subject to Section 3.14 and the Deduction Limitation. Subject to such requirements as may be imposed by the Committee, a Participant may make separate Retirement Benefit distribution elections in respect of the Base Annual Salary and/or Bonus portions of his or her Annual Deferral Amount for a given Plan Year, in respect of any vested Annual Company Make-Whole Contribution Amounts credited for the Plan Year and in respect of any vested Annual Company Basic Contribution Amount credited for the Plan Year.

(b) Retirement Benefit Payments of Annual Deferred Share Amounts/Restricted Share Units. At the same time that a Participant elects to defer an Annual Deferred Share Amount/Restricted Share Unit for a given Fiscal Year (or portion thereof), the Participant may elect to receive that portion of his or her Retirement Benefit attributable to the Annual Deferred Share Amount/Restricted Share Unit in a lump sum, or pursuant to one of the available Annual Installment Methods. At such time, the Participant may also elect to have any such lump sum payment paid, or installments commence, during the sixty (60) day period immediately following the close of the calendar quarter in which the Participant Retires or, alternatively, during the sixty (60) day period immediately following the close of the Plan Year in which the Participant Retires; provided, however, that, to the extent required under Section 409A, Retirement Benefit distributions to a Specified Employee shall commence no earlier than six (6) months after the date or his or her Retirement (or, if earlier, his or her death). If a Participant does not make any election with respect to the form of distribution of any portion of his or her Retirement Benefit, such portion shall be distributable in the form of a lump sum. In addition, subject to the preceding limitation on Retirement Benefit distributions to Specified Employees, if a Participant does not make any election with respect to when any portion of his or her Retirement Benefit shall be made or begin, such portion shall be made or begin during the sixty (60) day period immediately following the close of the calendar quarter in which the Participant Retires. Any payment made shall be subject to Section 3.14 and the Deduction Limitation.

Notwithstanding anything above or elsewhere in the Plan to the contrary, to the extent Section 409A requires that an Annual Deferred Share Amount/Restricted Share Unit deferral election satisfy the rules under Section 409A applicable to changes to form and timing of distribution elections in order for such Annual Deferred Share Amount/Restricted Share Unit deferral election to effectively defer tax with respect to the Annual Deferred Share Amounts/Restricted Share Units, that portion of the Participant's Deferred Share/Restricted Share Unit Deferral Account attributable to such Annual Deferred Share Amount/Restricted Share Unit deferral election shall be distributable as a Retirement Benefit solely at such time(s) and in such manner as the Retirement Benefit distribution does not violate the rules under Section 409A applicable to changes to form and timing of distribution elections.

Notwithstanding anything in this Plan to the contrary, any distribution from the Deferred Share/Restricted Share Unit Deferral Account under this Section 5.2 shall be in the form of Stock.

The preceding applies only to Annual Deferred Share Amounts/Restricted Share Units deferred on or after January 1, 2005.

(c) Retirement Benefit Payments Relating to Pre-2005 Deferrals/Credits. A Participant who entered the Plan prior to January 1, 2005 was permitted, in connection with his or her commencement of participation in the Plan, to elect on an Election Form to receive the Retirement Benefit relating to his or her pre-2005 deferrals/credits in a lump sum or pursuant to an Annual Installment Method of 5, 10 or 15 years. The Participant was also permitted to elect on the Election Form to have his or her Retirement Benefit relating to his or her pre-2005 deferrals/credits made or begin as soon as administratively practicable following the close of the calendar quarter in which the Participant Retires or, alternatively, as soon as administratively practicable following the close of the Plan Year in which the Participant Retires. Notwithstanding such elections, effective January 1, 2005, in no event shall Retirement Benefit distributions relating to a Specified Employee's pre-2005 deferrals/credits commence earlier than six (6) months after the date of his or her Retirement (or, if earlier, his or death). If a Participant does not make any election with respect to the payment of the Retirement Benefit relating to his or her pre-2005 deferrals/credits, then such benefit shall be payable in a lump sum. If a Participant does not make any election with respect to when his or her Retirement Benefit relating to his or her pre-2005 deferrals/credits shall be made or begin, such Retirement Benefit shall be made or begin as soon as administratively practicable following the close of the calendar quarter in which the Participant Retires. Any payment made shall be subject to the Deduction Limitation. Notwithstanding anything in this Plan to the contrary, any distribution from the Pre-2005 Deferred Share Deferral Account under this paragraph shall be in the form of Stock.

(d) Retirement Benefit Payments of Annual Stock Retainer Amounts, Annual Cash Retainer Amounts and/or Annual Cash Meeting Fee Amounts. At the same time that a Participant who is an Independent Director elects to defer an Annual Stock Retainer Amount, Annual Cash Retainer Amount and/or Annual Cash Meeting Fee Amount for a given Fiscal Year, the Participant may elect to receive that portion of his or her Retirement Benefit attributable to the Annual Stock Retainer Amount, Annual Cash Retainer Amount and/or Annual Cash Meeting Fee Amount in a lump sum, or pursuant to one of the available Annual Installment Methods. At such time, the Participant may also elect to have any such lump sum payment paid, or installments commence, during the sixty (60) day period immediately following the close of the calendar quarter in which the Participant Retires or, alternatively, during the sixty (60) day period immediately following the close of the Plan Year in which the Participant Retires. If a Participant does not make any election with respect to the form of distribution of any portion of his or her Retirement Benefit, such portion shall be distributable in the form of a lump sum. Any payment made shall be subject to Section 3.14 and the Deduction Limitation.

Notwithstanding anything in this Plan to the contrary, any distribution from the Stock Retainer Deferral Account under this Section 5.2 shall be in the form of Stock.

(e) Retirement Benefit Payments of LTIP Stock Award and/or LTIP Cash Award Deferral Amounts. At the same time that a Participant elects to defer an LTIP Stock Award or LTIP Cash Award for an LTIP Performance Period, the Participant may elect to receive that portion of his or her Retirement Benefit attributable to the LTIP Stock Award and/or LTIP Cash Award in a lump sum, or pursuant to one of the available Annual Installment Methods. At such time, the Participant may also elect to have any such lump sum payment paid, or installments commence, during the sixty (60) day period immediately following the close of the calendar quarter in which the Participant Retires or, alternatively, during the sixty (60) day period immediately following the close of the Plan Year in which the Participant Retires. If a Participant does not make any election with respect to the form of distribution of any portion of his or her Retirement Benefit, such portion shall be distributable in the form of a lump sum. Any payment made shall be subject to Section 3.14 and the Deduction Limitation.

Notwithstanding anything in this Plan to the contrary, any distribution from the LTIP Stock Award Deferral Account under this Section 5.2 shall be in the form of Stock.

(f) Retirement Benefit Payments of MSU Award Deferral Amounts. At the same time that a Participant elects to defer an MSU Award amount for an MSU Performance Period, the Participant may elect to receive that portion of his or her Retirement Benefit attributable to the MSU Award in a lump sum, or pursuant to one of the available Annual Installment Methods. At such time, the Participant may also elect to have any such lump sum payment paid, or installments commence, during the sixty (60) day period immediately following the close of the calendar quarter in which the Participant Retires or, alternatively, during the sixty (60) day period immediately following the close of the Plan Year in which the Participant Retires. If a Participant does not make any election with respect to the form of distribution of any portion of his or her Retirement Benefit, such portion shall be distributable in the form of a lump sum. Any payment made shall be subject to Section 3.14 and the Deduction Limitation.

Notwithstanding anything in this Plan to the contrary, any distribution from the MSU Award Deferral Account under this Section 5.2 shall be in the form of Stock.

(g) Changes to Retirement Benefit Distribution Elections. The Participant may change his or her election(s) to an allowable alternative payout period date by submitting a new Election Form to the Committee, provided that, effective January 1, 2005, and except as provided elsewhere in the Plan, any such Election Form is submitted at least one (1) year prior to the distribution date then in effect and, if required by Section 409A, provides for a distribution (or commencement of distributions) date which is at least five (5) years from the distribution date then in effect. Subject to the foregoing, the Election Form most recently accepted by the Committee shall govern the payout of the Retirement Benefit with respect to the portion of the Participant's Account Balance to which it pertains.

Effective January 1, 2005, no change submitted on an Election Form shall be accepted by the Committee if the change accelerates the time over which distributions shall be made to the Participant (except as otherwise permitted under Section 409A) and the Committee shall deny any change made to an election if the Committee determines that the change violates the requirement under Section 409A that the first payment with respect to which such election is made be deferred for a period of not less than five (5) years from the date the payment would otherwise have been made. For these purposes, installment payments shall be treated as a single payment, with the result that an election to change from installments to a lump sum (or to a different Annual Installment Method) will require that the lump sum be postponed until a date which is at least five (5) years from the previously scheduled payment date of the first installment.

ARTICLE 6
Pre-Retirement Survivor Benefit

6.1     Pre-Retirement Survivor Benefit. Subject to the Deduction Limitation, and any other conditions imposed by the Committee, the Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the Participant's Account Balance if the Participant dies before he or she Retires or experiences a Termination of Employment.

6.2 Payment of Pre-Retirement Survivor Benefit. The Participant's Beneficiary shall receive the Pre-Retirement Survivor Benefit in a lump sum during the sixty (60) day period immediately following the close of the calendar quarter in which the Committee receives proof that is satisfactory to the Committee of the Participant's death, in accordance with the procedures established by the Committee. Any payment made shall be subject to Section 3.14 and to the Deduction Limitation. Notwithstanding anything in this Plan to the contrary, any distribution from the Deferred Share/Restricted Share Unit Deferral Account, the Pre-2005 Deferred Share Deferral Account, the Stock Retainer Deferral Account, the LTIP Stock Award Deferral Account and/or the MSU Award Deferral Account under this Section 6.2 shall be in the form of Stock.

6.3 Death Prior to Completion of Termination Benefit or Retirement Benefit. If a Participant dies after Termination of Employment or Retirement but before the Termination Benefit or Retirement Benefit is paid in full, the Participant^'s unpaid Termination Benefit or Retirement Benefit shall be paid to the Participant's Beneficiary in a lump sum during the sixty (60) day period immediately following the close of the calendar quarter in which the Committee receives proof that is satisfactory to the Committee of the Participant's death, in accordance with the procedures established by the Committee. Any payment made hereunder shall be subject to Section 3.14, but shall not be subject to the Deduction Limitation. Notwithstanding anything in this Plan to the contrary, any distribution from the Deferred Share/Restricted Share Unit Deferral Account, the Pre-2005 Deferred Share Deferral Account, the Stock Retainer Deferral Account, the LTIP Stock Award Deferral Account or the MSU Award Deferral Account under this Section 6.3 shall be in the form of Stock.

ARTICLE 7
Termination Benefit

7.1     Termination Benefit. Subject to the Deduction Limitation and to Section 3.14, and any other conditions imposed by the Committee, the Participant shall receive a Termination Benefit, which shall be equal to the Participant's vested Account Balance if a Participant experiences a Termination of Employment prior to his or her Retirement or death.

7.2 Payment of Termination Benefit. A Participant's Termination Benefit shall be paid in a lump sum during the sixty (60) day period immediately following the close of the calendar quarter in which the Participant experiences a Termination of Employment, in accordance with the procedures established by the Committee; provided, however, that, to the extent required under Section 409A, Termination Benefit distributions to an individual who is a Specified Employee as of the date of his or her Separation from Service shall commence no earlier than six (6) months after the date or his or her Termination of Employment (or, if earlier, his or her death).

Notwithstanding anything above or elsewhere in the Plan to the contrary, to the extent Section 409A requires that an Annual Deferred Share Amount/Restricted Share Unit deferral election satisfy the rules under Section 409A applicable to changes to form and timing of distribution elections in order for such Annual Deferred Share Amount/Restricted Share Unit deferral election to effectively defer tax with respect to the Annual Deferred Share Amounts, that portion of the Participant's Deferred Share/Restricted Share Unit Deferral Account attributable to such Annual Deferred Share Amount/Restricted Share Unit deferral election shall be distributable as a Termination Benefit solely at such time(s) and in such manner as the Termination Benefit distribution does not violate the rules under Section 409A applicable to changes to form and timing of distribution elections.

Any payment made shall be subject to the Deduction Limitation and to Section 3.14. Notwithstanding anything in this Plan to the contrary, any distribution from the Deferred Share/Restricted Share Unit Deferral Account, the Pre-2005 Deferred Share Deferral Account, the Stock Retainer Deferral Account, the LTIP Stock Award Deferral Account and/or MSU Award Deferral Account under this Section 7.2 shall be in the form of Stock.

ARTICLE 8
Beneficiary Designation

8.1 Beneficiary. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a Beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates.

8.2 Beneficiary Designation; Change. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. Upon the acceptance by the Committee or its designated agent of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee or its designated agent prior to his or her death.

8.3 Acceptance. No designation or change in designation of a Beneficiary shall be effective until received and accepted by the Committee or its designated agent.

8.4 No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided in Sections 8.1, 8.2 and 8.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant's estate.

8.5 Doubt as to Beneficiary. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant's Employer to withhold such payments until this matter is resolved to the Committee's satisfaction.

8.6 Discharge of Obligations. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant's Plan Agreement shall terminate upon such full payment of benefits.

Neither the Committee nor the Employer shall be obliged to search for any Participant or Beneficiary beyond the sending of a registered letter to such person's last known address. If the Committee notifies any Participant or Beneficiary that he or she is entitled to an amount under the Plan and the Participant or Beneficiary fails to claim such amount or make his or her location known to the Committee within three (3) years thereafter, then, except as otherwise required by law, if the location of one or more of the next of kin of the Participant is known to the Committee, the Committee may direct distribution of such amount to any one or more or all of such next of kin, and in such proportions as the Committee determines. If the location of none of the foregoing persons can be determined, the Committee shall have the right to direct that the amount payable shall be deemed to be a forfeiture, except that the dollar amount of the forfeiture, unadjusted for deemed gains or losses in the interim, shall be paid by the Employer if a claim for the benefit subsequently is made by the Participant or the Beneficiary to whom it was payable. If a benefit payable to an unlocated Participant or Beneficiary is subject to escheat and/or unclaimed property laws pursuant to applicable law, neither the Committee nor the Employer shall be liable to any person for any payment made in accordance with such law.

ARTICLE 9
Termination, Amendment or Modification

9.1 Termination. Although each Employer anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that any Employer will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, each Employer reserves the right to discontinue its sponsorship of the Plan and/or to terminate the Plan at any time with respect to any or all of its participating Associates (and/or, with respect to Hovnanian Enterprises, Inc., Independent Directors), by action of its board of directors. In addition, the Committee may terminate the Plan with respect to one or more Employers and/or with respect to the right of Independent Directors to participate. Upon a termination of the Plan in accordance with the requirements, restrictions and limitations of Section 1.409A-3(j)(4)(ix) of the Treasury regulations, the Plan Agreements of the affected Participants shall terminate and they shall be paid in a single lump sum distribution their vested Account Balances (but not to commence before or end after any distribution period required by Section 409A). If, due to the circumstances surrounding the Plan termination, a distribution of a Participant^'s vested Account Balance upon Plan termination is not permitted by Section 409A, the payment of the Account Balance shall be made only after Plan benefits otherwise become due hereunder. The termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination.

Without limiting the generality of the foregoing, the Employer specifically reserves the right to terminate and liquidate the Plan with respect to all of its participating Associates (and, with respect to Hovnanian Enterprises, Inc., Independent Directors), in its discretion and by action of the Committee, within the thirty (30) days preceding or the twelve (12) months following a "change in control event" (as defined in Section 409A); provided, however, that such termination and liquidation must be irrevocable and shall be permitted only if all arrangements sponsored by the Employer that are required to be aggregated with the Plan pursuant to Section 14.21 are also irrevocably terminated and liquidated with respect to each participant therein that has experienced a change in control event, so that Associates and Independent Directors participating under the Plan and all participants under those other arrangements that have experienced a change in control event are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of the date the Employer takes irrevocable action to terminate and liquidate the arrangements.

Notwithstanding anything in this Plan to the contrary, any distribution from the Deferred Share/Restricted Share Unit Deferral Account, the Pre-2005 Deferred Share Deferral Account, the Stock Retainer Deferral Account, the LTIP Stock Award Deferral Account and/or MSU Award Deferral Account under this Section 9.1 shall be in the form of Stock.

9.2 Amendment. Any Employer may, at any time, amend or modify the Plan in whole or in part with respect to that Employer by the action of its board of directors and the Committee may, at any time, amend or modify the Plan in whole or in part with respect to one or more Employers; provided, however, that no amendment or modification shall be effective to decrease or restrict the value of a Participant's Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification.

9.3 Plan Agreement. Despite the provisions of Sections 9.1 and 9.2 above, if a Participant's Plan Agreement contains benefits or limitations that are not in this Plan document, the Employer or the Committee may only amend or terminate such provisions with the consent of the Participant, unless otherwise provided in the Plan Agreement.

9.4 Effect of Payment. The full payment of the applicable benefit under Articles 4, 5, 6 or 7 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan and the Participant's Plan Agreement shall terminate.

9.5 Amendment to Ensure Proper Characterization of the Plan. Notwithstanding the previous Sections of this Article 9, the Plan may be amended at any time, retroactively if required, if found necessary, in the opinion of the Committee, in order to ensure that the Plan is characterized as a non-tax-qualified "top hat" plan of deferred compensation maintained for a select group of management or highly compensated employees, as described under ERISA Sections 201(2), 301(a)(3) and 401(a)(1), to conform the Plan to the provisions of Section 409A, to ensure that amounts under the Plan are not considered to be taxed to a Participant under the Federal income tax laws prior to the Participant's receipt of the amounts or to conform the Plan and the Trust to the provisions and requirements of any applicable law (including ERISA and the Code).

ARTICLE 10
Administration

10.1 Committee Duties. This Plan shall be administered by a Committee which shall consist of the Board, or such committee as the Board shall appoint. Members of the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company.

10.2 Agents. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer.

10.3 Binding Effect of Decisions. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan.

10.4 Indemnity of Committee. All Employers shall indemnify and hold harmless the members of the Committee, and any Associate to whom the duties of the Committee may be delegated, against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee, any of its members, or any such Associate.

10.5 Employer Information. To enable the Committee to perform its functions, the Company and each Employer shall supply full and timely information to the Committee on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, death or Termination of Employment of its Participants, and such other pertinent information as the Committee may reasonably require.

ARTICLE 11
Other Benefits and Agreements

11.1 Coordination with Other Benefits. The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for Associates (and/or, with respect to Hovnanian Enterprises, Inc., Independent Directors) of the Participant's Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided.

ARTICLE 12
Claims Procedures

12.1 Scope of Claims Procedures. This Article is based on final regulations issued by the Department of Labor and published in the Federal Register on November 21, 2000 and codified at 29 C.F.R. section 2560.503-1. If any provision of this Article conflicts with the requirements of those regulations, the requirements of those regulations will prevail.

12.2 Initial Claim. A Participant or Beneficiary who believes he or she is entitled to any benefit under the Plan (a "Claimant") may file a claim with the Committee. The Committee shall review the claim itself or appoint an individual or an entity to review the claim.

(a) Decision on Initial Claim. The Claimant shall be notified within ninety (90) days after the claim is filed whether the claim is allowed or denied, unless the Claimant receives written notice from the Committee or appointee of the Committee prior to the end of the ninety (90) day period stating that special circumstances require an extension of the time for decision, such extension not to extend beyond the day which is one hundred eighty (180) days after the day the claim is filed.

(b) Manner and Content of Denial of Initial Claims. If the Committee denies a claim, it must provide to the Claimant, in writing or by electronic communication:

(i)     The specific reasons for the denial;

(ii) A reference to the Plan provision or insurance contract provision upon which the denial is based;

(iii) A description of any additional information or material that the Claimant must provide in order to perfect the claim;

(iv) An explanation of why such additional material or information is necessary;

(v) Notice that the Claimant has a right to request a review of the claim denial and information on the steps to be taken if the Claimant wishes to request a review of the claim denial; and

(vi) A statement of the Participant's right to bring a civil action under ERISA Section 502(a) following a denial on review of the initial denial.

12.3 Review Procedures.

(a) Request for Review of Denied Claim. A request for review of a denied claim must be made in writing to the Committee within sixty (60) days after receiving notice of denial. The decision upon review will be made within sixty (60) days after the Committee's receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision will be rendered not later than one hundred twenty (120) days after receipt of a request for review. A notice of such an extension must be provided to the Claimant within the initial sixty (60) day period and must explain the special circumstances and provide an expected date of decision.

The reviewer shall afford the Claimant an opportunity to review and receive, without charge, all relevant documents, information and records and to submit issues and comments in writing to the Committee. The reviewer shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim regardless of whether the information was submitted or considered in the initial benefit determination. 

(b) Manner and Content of Notice of Decision on Review. Upon completion of its review of an adverse initial claim determination, the Committee will give the Claimant, in writing or by electronic notification, a notice containing:

(i)      its decision;

(ii)      the specific reasons for the decision;

(iii) the relevant Plan provisions or insurance contract provisions on which its decision is based;

(iv) a statement that the Claimant is entitled to receive, upon request and without charge, reasonable access to, and copies of, all documents, records and other information in the Plan's files which is relevant to the Claimant's claim for benefits;

(v) a statement describing the Claimant's right to bring an action for judicial review under ERISA Section 502(a); and

(vi) if an internal rule, guideline, protocol or other similar criterion was relied upon in making the adverse determination on review, a statement that a copy of the rule, guideline, protocol or other similar criterion will be provided without charge to the Claimant upon request.

12.4 Calculation of Time Periods. For purposes of the time periods specified in this Article, the period of time during which a benefit determination is required to be made begins at the time a claim is filed in accordance with the Plan procedures without regard to whether all the information necessary to make a decision accompanies the claim. If a period of time is extended due to a Claimant's failure to submit all information necessary, the period for making the determination shall be tolled from the date the notification is sent to the Claimant until the date the Claimant responds.

12.5 Legal Action. If the Plan fails to follow the claims procedures required by this Article, a Claimant shall be deemed to have exhausted the administrative remedies available under the Plan and shall be entitled to pursue any available remedy under ERISA Section 502(a) on the basis that the Plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim. A Claimant's compliance with the foregoing provisions of this Article is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claims for benefits under the Plan. However, notwithstanding anything herein that may suggest otherwise, with respect to any claim pertaining to a Participant who is not subject to ERISA, following the Claimant's exhaustion of the foregoing provisions of this Article, all disputes in connection with such claim shall be resolved by binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association.

ARTICLE 13
Trust

13.1 Establishment of the Trust. As of the execution of this amended and restated Plan, the Trust previously established under the Plan has been discontinued. The Company reserves the right at any time to establish another Trust, in which event each Employer shall at least annually transfer over to the Trust such assets as the Employer determines, in its sole discretion, are necessary to provide for its respective future liabilities created with respect to those amounts deferred under the Plan for such Employer's Participants which are to be held under the Trust.

13.2 Interrelationship of the Plan and the Trust. The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan.

13.3 Distributions From the Trust. Each Employer's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Employer's obligations under this Plan.

ARTICLE 14
Miscellaneous

14.1 Status of Plan. The Plan is not qualified within the meaning of Code Section 401(a) and "is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent.

14.2 Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. For purposes of the payment of benefits under this Plan, any and all of an Employer's assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.

14.3 Employer's Liability. An Employer's liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement.

14.4 Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. Subject to Section 14.15, no part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise.

14.5 Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an "at will" employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer or to interfere with the right of any Employer to discipline or discharge the Participant at any time. In addition, nothing in the Plan shall be deemed to give an Independent Director Participant the right to continue in the position of an Independent Director.

14.6 Furnishing Information. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary.

14.7 Terms. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.

14.8 Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.

14.9 Governing Law. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of Delaware without regard to its conflicts of laws principles.

14.10 Notice. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if it is in accordance with the procedures established by the Committee for notice or filing delivery via electronic transmission or if it is in writing and hand-delivered, or sent by registered or certified mail, to the address below:

Treasurer

K. Hovnanian Companies, LLC

90 Matawan Road, Fifth Floor

Matawan, New Jersey 07747

(732) 747-7800

Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant.

14.11 Successors. The provisions of this Plan shall bind and inure to the benefit of the Participant's Employer (Hovnanian Enterprises, Inc. in respect of Independent Director Participants) and its successors and assigns and the Participant and the Participant's designated Beneficiaries.

14.12 Spouse's Interest. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession.

14.13 Validity. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein; except to the extent that Section 409A requires that this Section 14.13 be disregarded because it purports to nullify Plan terms that are not in compliance with Section 409A.

14.14 Incompetent. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount.

14.15 Court Order. The Committee is authorized to make any payments directed by court order in any action in which the Plan or the Committee has been named as a party. In addition, if a court determines that a spouse or former spouse of a Participant has an interest in the Participant's benefits under the Plan in connection with a property settlement or otherwise, the Committee, in its sole discretion but solely if and to the extent permitted by Section 409A, shall have the right, notwithstanding any election made by a Participant, to immediately distribute the spouse's or former spouse's interest in the Participant's benefits under the Plan to that spouse or former spouse.

14.16 Acceleration of Distribution.

(a) In General. The Employer may, its discretion, accelerate the date of distribution or commencement of distributions hereunder, or accelerate installment payments by paying the vesting Account Balance in a lump sum or pursuant to a Annual Installment Method using fewer years, to the extent permitted under Section 409A (such as, for example, as provided in Section 1.409A-3(j)(4) of the Treasury regulations to comply with domestic relations orders or certain conflict of interest rules, to pay employment taxes, or to pay certain de minimus amount, or to make payments upon income inclusion under Section 409A). Notwithstanding anything in this Plan to the contrary, any distribution from the Deferred Share/Restricted Share Unit Deferral Account, Stock Retainer Deferral Account, LTIP Stock Award Deferral Account and/or MSU Award Deferral Account under this Section 14.16 shall be in the form of Stock.

(b) Trust. If the Trust, if any, terminates in accordance with the provisions of the Trust and benefits are distributed from the Trust to a Participant in accordance with such provisions, the Participant's benefits under this Plan shall be reduced to the extent of such distributions.

14.17 Delay in Payment. If the Employer reasonably anticipates that any payment scheduled to be made hereunder would violate securities laws (or other applicable laws) or jeopardize the ability of the Employer to continue as a going concern if paid as scheduled, then the Employer may defer that payment, provided the Employer treats payments to all similarly situated Participants on a reasonably consistent basis. In addition, the Employer may, in its discretion, delay a payment upon such other events and conditions as the IRS may prescribe, provided the Employer treats payments to all similarly situated Participants on a reasonably consistent basis. Any amounts deferred pursuant to this Section shall continue to be credited or debited with additional amounts in accordance with Section 3.12 above, even if such amount is being paid out in installments. The amounts so deferred and amounts credited or debited thereon shall be distributed to the Participant or his or her Beneficiary (in the event of the Participant's death) at the earliest possible date on which the Employer reasonably anticipates that such violation or material harm would be avoided or as otherwise prescribed by the IRS.

14.18 Prohibited Acceleration/Distribution Timing. This Section shall take precedence over any other provision of the Plan or this Article 14 to the contrary. If the timing of any deferral or distribution election would result in any tax or other penalty (other than ordinarily payable Federal, state or local income or payroll taxes), which tax or penalty can be avoided by payment of the distribution at a later time, then the distribution shall be made (or commence, as the case may be) on the first date on which such distributions can be made (or commence) without such tax or penalty; except to the extent that Section 409A requires that this Section 14.18 be disregarded because it purports to nullify Plan terms that are not in compliance with Section 409A.

14.19 Insurance. The Employers, on their own behalf or on behalf of the Trustee of the Trust, and, in their sole discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Trust may choose. The Employers or the Trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of the Employers shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Employers have applied for insurance.

14.20 Aggregation of Employers. If the Employer is a member of a controlled group of corporations or a group of trades or business under common control (as described in Code §414(b) or (c)), but substituting a twenty-five percent (25%) ownership level for the eighty percent (80%) level set forth in those Code Sections, all members of the group shall be treated as a single Employer for purposes of whether there has occurred a Separation from Service and for any other purposes under the Plan as Section 409A shall require. For purposes of Section 9.1, in the case of a change in control event, the entities to be treated as a single Employer shall be determined immediately following the change in control event.

14.21 Aggregation of Plans. If the Employer offers other account balance deferred compensation plans in addition to the Plan, those plans together with the Plan shall be treated as a single plan to the extent required under Section 409A for purposes of determining whether an Employee may make a deferral election pursuant to Section 3.5(a) within thirty (30) days of becoming eligible to participate in the Plan and for any other purposes under the Plan as Section 409A shall require.

14.22 USERRA. Notwithstanding anything herein to the contrary, any election provided to a Participant as necessary to satisfy the requirements of the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended, shall be permissible hereunder.

14.23 Legal Fees To Enforce Rights After Change in Control.  Hovnanian Enterprises, Inc. and each Employer is aware that upon the occurrence of a Change in Control, the Board or the board of directors of a Participant's Employer (which might then be composed of new members) or a shareholder of Hovnanian Enterprises, Inc. or the Participant's Employer, or of any successor corporation might then cause or attempt to cause Hovnanian Enterprises, Inc., the Participant's Employer or such successor to refuse to comply with its obligations under the Plan and might cause or attempt to cause Hovnanian Enterprises, Inc. or the Participant's Employer to institute, or may institute, litigation seeking to deny Participants the benefits intended under the Plan.  In these circumstances, the purpose of the Plan could be frustrated.  Accordingly, if, following a Change in Control, it should appear to any Participant that Hovnanian Enterprises, Inc., the Participant's Employer or any successor corporation has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if Hovnanian Enterprises, Inc., such Employer or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then Hovnanian Enterprises, Inc. and the Participant's Employer irrevocably authorize such Participant to retain counsel of his or her choice at the expense of Hovnanian Enterprises, Inc. and the Participant's Employer (who shall be jointly and severally liable) to represent such Participant in connection with the initiation or defense of any litigation or other legal action, whether by or against Hovnanian Enterprises, Inc., the Participant's Employer or any director, officer, shareholder or other person affiliated with Hovnanian Enterprises, Inc., the Participant's Employer or any successor thereto in any jurisdiction.

IN WITNESS WHEREOF, the Company has signed this Plan document as of January 1, 2014.

K. HOVNANIAN COMPANIES, LLC,

a California corporation

By:_________________________________

Title:_______________________________ 

EX-10.UUU

Exhibit 10(uuu)

FIRST SUPPLEMENTAL GUARANTEE

dated as of September 10, 2018

among

K. HOVNANIAN ENTERPRISES, INC.,

HOVNANIAN ENTERPRISES, INC.,

The Other Guarantors Party Hereto

and

WILMINGTON TRUST, NATIONAL ASSOCIATION

as Administrative Agent

THIS FIRST SUPPLEMENTAL GUARANTEE (this “First Supplemental Guarantee”), entered into as of September 10, 2018, among K. Hovnanian Enterprises, Inc., a California corporation (the “Borrower”), Hovnanian Enterprises, Inc., a Delaware corporation (“Holdings”), each of the guarantors listed in Schedule I hereto (each an “Undersigned”) and Wilmington Trust, National Association, a national banking association, as Administrative Agent (the “Administrative Agent”).

RECITALS

WHEREAS, the Borrower, Holdings, the other Guarantors party thereto and the Administrative Agent entered into a credit agreement, dated as of January 29, 2018 (the “Credit Agreement”);

WHEREAS, in consideration of the extensions of credit made pursuant to the Credit Agreement, Holdings agreed pursuant to the Credit Agreement to cause any newly acquired or created Restricted Subsidiaries (other than any Excluded Subsidiary) to provide Guarantees.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and intending to be legally bound, the parties hereto hereby agree as follows:

Section 1. Capitalized terms used herein and not otherwise defined herein are used as defined in the Credit Agreement.

Section 2. Each Undersigned, by its execution of this First Supplemental Guarantee, agrees to be a Guarantor under the Credit Agreement and to be bound by the terms of the Credit Agreement applicable to Guarantors, including, but not limited to, Article X thereof.

Section 3. This First Supplemental Guarantee shall be governed by and construed in accordance with the laws of the State of New York.

Section 4. This First Supplemental Guarantee may be signed in various counterparts which together shall constitute one and the same instrument.

Section 5. This First Supplemental Guarantee is an amendment supplemental to the Credit Agreement and the Credit Agreement and this First Supplemental Guarantee shall henceforth be read together.

Section 6. The Administrative Agent shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Guarantee or for or in respect of the Recitals contained herein, all of which are made solely by the Borrower, Holdings and each of the undersigned.

IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Guarantee to be duly executed as of the date first above written.

K. HOVNANIAN ENTERPRISES, INC., as Borrower
By:	/s/ J. Larry Sorsby
Name:J. Larry Sorsby
Title:Executive Vice President and Chief Financial Officer

HOVNANIAN ENTERPRISES, INC.
By:	/s/ J. Larry Sorsby
Name:J. Larry Sorsby
Title:Executive Vice President and Chief Financial Officer

On behalf of each of the entities listed on Schedule I hereto
By:	/s/ J. Larry Sorsby
Name:J. Larry Sorsby
Title:Executive Vice President and Chief Financial Officer

WILMINGTON TRUST, NATIONAL ASSOCIATION, as Administrative Agent
By:	/s/ Jeffery Rose
Name:Jeffery Rose
Title:Vice President

Schedule I

K. HOVNANIAN AT ASHLEY POINTE LLC

K. HOVNANIAN AT CHURCHILL FARMS LLC

K. HOVNANIAN AT CRESTVIEW, LLC

K. HOVNANIAN AT LIBERTY HILL FARM, LLC

K. HOVNANIAN AT LUNA VISTA, LLC

K. HOVNANIAN AT RETREAT AT MILLSTONE, LLC

K. HOVNANIAN AT VILLAGES AT COUNTRY VIEW, LLC

K. HOVNANIAN AT WALL QUAIL RIDGE, LLC

K. HOVNANIAN DFW THE PARKS AT ROSEHILL, LLC

K. HOVNANIAN FLORIDA OLD GC, LLC

K. HOVNANIAN FOUR SEASONS AT CHESTNUT RIDGE, LLC

K. HOVNANIAN SOLA VISTA, LLC

KHOV WINDING BAY II, LLC

K. HOVNANIAN LAKE GRIFFIN RESERVE, LLC

K. HOVNANIAN OSPREY RANCH, LLC

K. HOVNANIAN'S FOUR SEASONS AT BELLA VISTA, LLC

K. HOVNANIAN DFW VILLAS AT THE STATION, LLC

K. HOVNANIAN AT ROCKLAND VILLAGE GREEN, LLC

EX-10.VVV

Exhibit 10(vvv)

SECURITY AGREEMENT

made by

K. HOVNANIAN ENTERPRISES, INC.,
HOVNANIAN ENTERPRISES, INC.

and certain of their respective Subsidiaries

in favor of

WILMINGTON TRUST, NATIONAL ASSOCIATION

as Agent

Dated as of September 10, 2018

TABLE OF CONTENTS

		Page
ARTICLE 1 DEFINED TERMS
Section 1.01.	Definitions	2
Section 1.02.	Other Definitional Provisions	6
ARTICLE 2 GRANT OF SECURITY INTEREST
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
Section 3.01.	Title: No Other Liens	8
Section 3.02.	Perfected Priority Liens	9
Section 3.03.	Jurisdiction of Organization; Chief Executive Office	9
Section 3.04.	Farm Products	9
Section 3.05.	Investment Property	9
Section 3.06.	Receivables	9
Section 3.07.	Perfection Certificate.	9
ARTICLE 4 COVENANTS
Section 4.01.	Maintenance of Perfected Security Interest; Further Documentation	9
Section 4.02.	Changes In Name, Etc	10
Section 4.03.	Delivery of Instruments, Certificated Securities and Chattel Paper	10
Section 4.04.	Intellectual Property	10
ARTICLE 5 INVESTING AMOUNTS IN THE SECURITIES ACCOUNTS
Section 5.01.	Investments	11
Section 5.02.	Liability	11
ARTICLE 6 REMEDIAL PROVISIONS
Section 6.01.	Certain Matters Relating to Receivables	11
Section 6.02.	Communications with Obligors: Grantors Remain Liable	12
Section 6.03.	Proceeds to Be Turned Over to Agent	13
Section 6.04.	Application of Proceeds	13
Section 6.05.	Code and Other Remedies	13
Section 6.06.	Subordination	14
Section 6.07.	Deficiency	14

ARTICLE 7 THE AGENT
Section 7.01.	Agent’s Appointment as Attorney-in-fact, Etc	15
Section 7.02.	Duty of Agent	17
Section 7.03.	Execution of Financing Statements	17
Section 7.04.	Authority of Agent	17
ARTICLE 8 MISCELLANEOUS
Section 8.01.	Amendments in Writing	17
Section 8.02.	Notices	18
Section 8.03.	No Waiver by Course of Conduct; Cumulative Remedies	18
Section 8.04.	Enforcement Expenses; Indemnification	18
Section 8.05.	Successors and Assigns	18
Section 8.06.	Set-off	19
Section 8.07.	Counterparts	19
Section 8.08.	Severability	19
Section 8.09.	Section Headings	19
Section 8.10.	Integration	19
Section 8.11.	Governing Law	19
Section 8.12.	Submission to Jurisdiction; Waivers	20
Section 8.13.	Acknowledgments	20
Section 8.14.	Additional Grantors	21
Section 8.15.	Releases	21
Section 8.16.	Waiver of Jury Trial	21
Section 8.17.	Control Agreements	21
Section 8.18.	Agent Privileges, Powers and Immunities	21

Schedule A – List of Entities

Schedule B – Commercial Tort Claims

Schedule C – Actions Required To Perfect

Exhibit A – Intellectual Property Security Agreement

Exhibit B – Joinder Agreement

Exhibit C – Perfection Certificate

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (the “Agreement”), dated as of September 10, 2018, is made by K. Hovnanian Enterprises, Inc., a California corporation (the “Borrower”), Hovnanian Enterprises, Inc., a Delaware corporation (“Holdings”), and each of the signatories listed on Schedule A hereto (the Borrower, Holdings and such signatories, together with any other entity that may become a party hereto as provided herein, the “Grantors”), in favor of Wilmington Trust, National Association, as Administrative Agent in its capacity as collateral agent (in such capacity, the “Agent”) for the benefit of itself and the Lenders (as defined below).

W I T N E S S E T H:

WHEREAS, the Borrower, Holdings and each of the other Guarantors party thereto have entered into the Credit Agreement dated as of January 29, 2018, as amended by the First Amendment dated as of May 14, 2018 (as amended, supplemented, amended and restated or otherwise modified from time to time, the “Credit Agreement”) with Wilmington Trust, National Association, as Administrative Agent and the Lenders party thereto;

WHEREAS, the Borrower, Holdings, the Guarantors party thereto, Wilmington Trust, National Association, in its capacity as Senior Credit Agreement Administrative Agent (as defined therein), Wilmington Trust, National Association, in its capacity as Mortgage Tax Collateral Agent (as defined therein) and Wilmington Trust, National Association, in its capacity as the Junior Joint Collateral Agent (as defined therein) have entered into the Amended and Restated Intercreditor Agreement dated as of September 8, 2016 and the Borrower, Holdings, the Subsidiary Guarantors named therein, Wilmington Trust, National Association, as Trustee (as defined therein) and Notes Collateral Agent (as defined therein), Wilmington Trust, National Association, as Senior Credit Agreement Administrative Agent, Wilmington Trust, National Association, as Junior Joint Collateral Agent and Wilmington Trust, National Association, as Mortgage Tax Collateral Agent have entered into the Joinder to the Amended and Restated Intercreditor Agreement, dated as of July 27, 2017 (as the same may be amended, supplemented, amended or restated or otherwise modified from time to time, the “Amended and Restated Intercreditor Agreement”);

WHEREAS, the Administrative Agent is entering into the Joinder to the Amended and Restated Intercreditor Agreement dated as of the date hereof, pursuant to which the Agent becomes party to the Amended and Restated Intercreditor Agreement for the benefit of itself and the Lenders.

WHEREAS, the Loans constitute First-Lien Indebtedness under the Amended and Restated Intercreditor Agreement;

WHEREAS, the Borrower is a member of an affiliated group of companies that includes Holdings, the Borrower’s parent company, and each other Grantor;

WHEREAS, the Borrower and the other Grantors are engaged in related businesses, and each Grantor will derive substantial direct and indirect benefit from the borrowing of Loans; and

NOW, THEREFORE, in consideration of the premises and to induce Lenders to make the extensions of credit contemplated by the Credit Agreement, each Grantor hereby agrees with the Agent, for the ratable benefit of the Secured Parties, as follows:

Article 1     
Defined Terms

Section 1.01.     Definitions.   Definitions set forth above are incorporated herein and unless otherwise defined herein, terms defined in the Credit Agreement and used herein (including the recitals above) shall have the meanings respectively given to them in the Credit Agreement, and the following terms are used herein as defined in the New York UCC: Accounts, Chattel Paper, Commercial Tort Claims, Deposit Account, Documents, Equipment, Electronic Chattel Paper, Farm Products, Fixtures, General Intangibles, Goods, Payment Intangibles, Instruments, Inventory, Investment Property, Letter of Credit Rights, Payment Intangibles, Securities Accounts, Software and Supporting Obligations.

(b)     The following terms shall have the following meanings:

“Additional Pari Passu Liens”: any liens on the Collateral which secure Additional Secured Obligations on an equal and ratable basis with the Secured Obligations, provided that such liens are permitted by the Credit Agreement.

“Additional Pari Passu Collateral Agent”: the agent or other representative with respect to any Additional Secured Obligations in favor of which any Additional Pari Passu Liens are granted.

“Additional Secured Obligations”: any obligations arising pursuant to any Indebtedness permitted to be secured on a pari passu basis with the Loans pursuant to the Credit Agreement (including for the avoidance of doubt any guarantees with respect thereto).

“Agreement”: this Security Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time.

“Cash Equivalents”: (i) cash, marketable direct obligations of the United States of America or any agency thereof, and certificates of deposit, demand deposits, time deposits, or repurchase agreements issued by any bank with a capital and surplus of at least $25,000,000 organized under the laws of the United States of America or any state thereof, state or municipal securities with a rating of A-1 or better by Standard & Poor’s or by Moody’s or F-1 by Fitch, provided that such obligations, certificates of deposit, demand deposits, time deposits, and repurchase agreements have a maturity of less than one year from the date of purchase, and (ii) investment grade commercial paper or debt or commercial paper issued by any bank with a capital and surplus of at least $25,000,000 organized under the laws of the United States of America or any state thereof having a maturity date of one year or less from the date of purchase, and (iii) funds holding assets primarily consisting of those described in clauses (i) and (ii).

“Collateral”: as defined in Article 2.

“Collateral Account”: any collateral account established by the Agent as provided in Section 6.01 or 6.03.

“Collateral Agency Agreement”: an intercreditor or collateral agency agreement entered into between the Additional Pari Passu Collateral Agent(s) and the Agent on terms reasonably satisfactory to the Agent, the Borrower and Holdings, setting forth the respective rights of the Secured Parties and the Additional Pari Passu Collateral Agent(s) and the holders of Additional Secured Obligations with respect to the Collateral and providing, among other things, that (x) the Additional Pari Passu Liens shall rank equally with the liens securing the Secured Obligations, (y) any proceeds of the Collateral shall be applied ratably to the Secured Obligations and the Additional Secured Obligations and (z) the Agent, including at the direction of the Lenders, shall be entitled to take such actions, or to direct any agent appointed pursuant to the Collateral Agency Agreement to take such actions, as are permitted hereby, by the Credit Agreement, by the Amended and Restated Intercreditor Agreement; provided that any such intercreditor or collateral agency agreement shall provide that in the event of any conflicting instructions from the Lenders and any holders of the Additional Secured Obligations, the instruction of the holders of the series with the greatest principal amount of outstanding Obligations shall prevail.

“Contracts”: any contracts and agreements for the purchase, acquisition or sale of real or personal property or the receipt or performance of services, any contract rights relating thereto, and all other rights to such contract or agreements and any right to payment for or to receive moneys due or to become due for items sold or leased or for services rendered, together with all rights of any Grantor to damages arising thereunder or to perform and to exercise all remedies thereunder.

“Copyright Licenses”: any written agreement naming any Grantor as licensor or licensee, granting any right under any Copyright, including, without limitation, the grant of rights to distribute, exploit and sell materials derived from any Copyright.

“Copyrights”: (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (ii) the right to obtain all renewals thereof.

“Deposit Accounts”: the collective reference to each Deposit Account (as such term is defined in Section 1.01(a) hereof) in the name of the applicable Grantor, together with any one or more securities accounts into which any monies on deposit in any such Deposit Account may be swept or otherwise transferred now or hereafter and from time to time, and any additional, substitute or successor Deposit Account.

“Excluded Accounts” shall mean at any time those deposit, checking or securities accounts of any of the Grantors (i) that individually have an average monthly balance (over the most recent ended 3-month period) less than $250,000 and which together do not have an average monthly balance (for such 3-month period) in excess of $2,000,000 in the aggregate, (ii) all escrow accounts (in which funds are held for or of others by virtue of customary real estate practice or contractual or legal requirements), (iii) the account holding amounts dedicated to the “Marie Fund” established by the Grantors for the benefit of their employees (so long as the Grantors’ deposits therein and withdrawals therefrom are consistent with past practice) and (iv) such other accounts with respect to which Holdings determines that the cost of perfecting a Lien thereon is excessive in relation to the benefit thereof (as reasonably determined by Holdings’ Board of Directors in a board resolution delivered to the Agent).

“Guarantors”: the collective reference to each Grantor other than the Borrower.

“Intellectual Property”: the collective reference to all rights, priorities and privileges, whether arising under United States, multinational or foreign laws, in, to and under the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

“Investment Property”: the collective reference to (i) all “investment property” as such term is defined in Section 9-102(a)(49) of the New York UCC, and (ii) whether or not constituting “investment property” as so defined, all Pledged Notes.

“Law”: any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree, bond, judgment, authorization or approval, lien or award of or settlement agreement with any Official Body.

“New York UCC”: the Uniform Commercial Code as from time to time in effect in the State of New York.

“Official Body”: any national, federal, state, local or other governmental or political subdivision or any agency, authority, board, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic.

“Patent License”: all written agreements providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent.

“Patents”: (i) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, (ii) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, and (iii) all rights to obtain any reissues or extensions of the foregoing.

“Perfection Certificate”: with respect to any Grantor, a certificate substantially in the form of Exhibit C, completed and supplemented with the schedules contemplated thereby, and signed by an officer of such Grantor.

“Pledged Notes”: all promissory notes issued to or held by any Grantor.

“Proceeds”: all “proceeds” as such term is defined in Section 9-102(a)(64) of the New York UCC and, in any event, shall include, without limitation, all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto.

“Receivable”: any right to payment for real or personal property sold or leased or for services rendered, whether or not such right is evidenced by a Contract, an Instrument or Chattel Paper and whether or not it has been earned by performance (including, without limitation, any Account).

“Secured Obligations”: all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding. Without limiting the generality of the foregoing, the Loan Obligations of the Loan Parties under the Loan Documents include the obligation to pay principal, interest, charges, expenses, fees, Attorney Costs indemnities and other amounts payable by any Loan Party under any Loan Document.

“Secured Parties”: the collective reference to the Administrative Agent, the Agent, the Mortgage Tax Collateral Agent, the Lenders, the Supplemental Administrative Agent, if any, and each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 8.05 of the Credit Agreement.

“Securities Accounts”: the collective reference to the securities accounts in the name of the applicable Grantor and any additional, substitute or successor account.

“Trademark License”: any written agreement providing for the grant by or to any Grantor of any right to use any Trademark.

“Trademarks”: (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now owned or hereafter acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, and all common-law rights related thereto, and (ii) the right to obtain all renewals thereof.

“Vehicles”: all cars, trucks, trailers, construction and earth moving equipment and other vehicles covered by a certificate of title law of any state and all tires and other appurtenances to any of the foregoing.

Section 1.02.     Other Definitional Provisions.

(a)     The words “hereof,” “herein”, “hereto” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified.

(b)     The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

(c)     Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant part thereof.

Article 2     
Grant of Security Interest

Each Grantor hereby grants to the Agent, for the ratable benefit of the Secured Parties, a security interest in, all of the following property now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the “Collateral”), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Secured Obligations:

(a)     all Accounts;

(b)     all Chattel Paper (including, Electronic Chattel Paper);

(c)     all Commercial Tort Claims (including those claims listed on Schedule B hereto, in which the claim amount individually exceeds $2,000,000, as such schedule is amended or supplemented from time to time);

(d)     all Contracts;

(e)     all Securities Accounts;

(f)     all Deposit Accounts;

(g)     all Documents (other than title documents with respect to vehicles);

(h)     all Equipment;

(i)     all Fixtures;

(j)     all General Intangibles;

(k)     all Goods;

(l)     all Instruments;

(m)     all Intellectual Property;

(n)     all Inventory;

(o)     all Investment Property;

(p)     all letters of credit;

(q)     all Letter of Credit Rights;

(r)     all Payment Intangibles;

(s)     all Vehicles and title documents with respect to Vehicles;

(t)     all Receivables;

(u)     all Software;

(v)     all Supporting Obligations;

(w)     to the extent, if any, not included in clauses (a) through (v) above, each and every other item of personal property whether now existing or hereafter arising or acquired;

(x)     all books and records pertaining to any of the Collateral; and

(y)     to the extent not otherwise included, all Proceeds, Supporting Obligations and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing;

provided, however, that notwithstanding any of the other provisions set forth in this Article 2 (and notwithstanding any recording of the Agent’s Lien in the U.S. Patent and Trademark Office or other registry office in any jurisdiction), this Agreement shall not constitute a grant of a security interest in, and the Collateral shall not include, (i) any property or assets constituting “Excluded Property” (as defined in the Credit Agreement) or (ii) any property to the extent that such grant of a security interest is prohibited by any applicable Law of an Official Body, requires a consent not obtained of any Official Body pursuant to such Law or is prohibited by, or constitutes a breach or default under or results in the termination of or gives rise to any right of acceleration, modification or cancellation or requires any consent not obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such property or, in the case of any Investment Property, or Pledged Note, any applicable shareholder or similar agreement, except to the extent that such Law or the term in such contract, license, agreement, instrument or other document or shareholder or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is ineffective under applicable Law including Sections 9-406, 9-407, 9-408 or 9-409 of the New York UCC (or any successor provision or provisions); provided, further, that no security interest shall be granted in United States “intent-to-use” trademark or service mark applications unless and until acceptable evidence of use of the trademark or service mark has been filed with and accepted by the U.S. Patent and Trademark Office pursuant to Section 1(c) or Section 1(d) of the Lanham Act (U.S.C. 1051, et. seq.), and to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark or service mark applications under applicable federal Law. After such period and after such evidence of use has been filed and accepted, each Grantor acknowledges that such interest in such trademark or service mark applications will become part of the Collateral. The Agent agrees that, at any Grantor’s reasonable request and expense, it will provide such Grantor confirmation that the assets described in this paragraph are in fact excluded from the Collateral during such limited period only upon receipt of an Officers’ Certificate or an Opinion of Counsel to that effect. Notwithstanding the foregoing, in the event that Rule 3-16 of Regulation S-X under the Securities Act requires (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would require) the filing with the SEC of separate financial statements (including if the Loans were “Securities” under the Securities Act) of the Borrower, any Guarantor or of K. Hovnanian JV Holdings, L.L.C., then the capital stock or other securities of the Borrower, such Guarantor or of K. Hovnanian JV Holdings, L.L.C., as applicable, shall automatically be deemed released and not to be and not to have been part of the Collateral but only to the extent necessary to not be subject to such requirement. In such event, this Agreement may be amended or modified, without the consent of any Lender, upon the Agent’s receipt of a written authorization from the Borrower stating that such amendment is permitted hereunder, which the Agent shall be entitled to conclusively rely upon, to the extent necessary to evidence the release of the lien created hereby on the shares of capital stock or other securities that are so deemed to no longer constitute part of the Collateral.

Article 3     
Representations and Warranties

To induce the Lenders to make the extensions of credit contemplated by the Credit Agreement, each Grantor hereby represents and warrants to the Agent and each other Secured Party that:

Section 3.01.     Title: No Other Liens. Except for the security interest granted to the Agent for the ratable benefit of the Secured Parties pursuant to this Agreement, such Grantor owns each item of the Collateral free and clear of any and all Liens or claims of others except for the Permitted Liens. None of the Grantors has filed or consented to the filing of any financing statement or other public notice with respect to all or any part of the Collateral in any public office, except with respect to Permitted Liens.

Section 3.02.     Perfected Priority Liens. The security interests granted pursuant to this Agreement upon completion of the filings and other actions specified on Schedule C (which, in the case of all filings and other documents referred to on said Schedule, have been delivered, or will be delivered within the time periods set forth in Schedule C, to the Agent in completed form) (a) will constitute valid perfected (to the extent such security interest can be perfected by such filings or actions) security interests in all of the Collateral in favor of the Agent, for the ratable benefit of the Secured Parties, as collateral security for the Secured Obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor and any Persons purporting to purchase any Collateral from such Grantor and (b) are prior to all other Liens on the Collateral in existence on the date hereof except for Permitted Liens.

Section 3.03.     Jurisdiction of Organization; Chief Executive Office. On the date hereof, such Grantor’s exact legal name, jurisdiction of organization, and, to the extent required to be listed therein, the location of such Grantor’s chief executive office or sole place of business or principal residence, as the case may be, are specified in the Perfection Certificate.

Section 3.04.     Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm Products.

Section 3.05.     Investment Property. Such Grantor is the record and beneficial owner of, and has good title to, the Investment Property pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except the Permitted Liens.

Section 3.06.     Receivables. No amount payable in excess of $2,000,000 in the aggregate to all Grantors under or in connection with any Receivables is evidenced by any Instrument or Chattel Paper which has not been delivered to the Agent.

Section 3.07.     Perfection Certificate. The Perfection Certificate has been duly prepared, completed and executed and the information set forth therein, including the exact legal name and jurisdiction of organization of each Grantor, is correct and complete in all material respects as of the Closing Date.

Article 4     
Covenants

Each Grantor covenants and agrees with the Agent and the other Secured Parties that, from and after the date of this Agreement until the payment in full of all outstanding Secured Obligations:

Section 4.01.     Maintenance of Perfected Security Interest; Further Documentation.   Such Grantor shall maintain the security interest created by this Agreement as a perfected security interest to the extent required by this Agreement having at least the priority described in Section 3.02 and shall defend such security interest against the claims and demands of all Persons whomsoever other than any holder of Permitted Liens.

(b)     At any time and from time to time, and at the sole expense of such Grantor, such Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as shall be required by applicable law for the purpose of obtaining, perfecting or preserving the security interests purported to be granted under this Agreement and of the rights and remedies herein granted, including, without limitation, (i) filing any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and (ii) subject to Section 6.14(c) of the Credit Agreement, in the case of the Deposit Accounts, Investment Property, Letter of Credit Rights and the Securities Accounts and any other relevant Collateral, taking any actions necessary to enable the Agent to obtain “control” (within the meaning of the applicable Uniform Commercial Code) with respect thereto, provided that the Grantor shall not be required to take any of the actions set forth in this clause (ii) with respect to Excluded Accounts.

(c)     If any Grantor shall at any time acquire a Commercial Tort Claim, in which the claim amount individually exceeds $2,000,000, such Grantor shall promptly notify the Agent in a writing signed by such Grantor of the details thereof and grant to the Agent for the benefit of the Secured Parties in such writing a security interest therein and in the Proceeds thereof, with such writing to be in form and substance required by applicable law and such writing shall constitute a supplement to Schedule B hereto.

Section 4.02.     Changes In Name, Etc. Such Grantor will, within thirty (30) calendar days after any change its jurisdiction of organization or change its name, provide written notice thereof to the Agent.

Section 4.03.     Delivery of Instruments, Certificated Securities and Chattel Paper. If any amount in excess of $2,000,000 in the aggregate payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument, certificated security or Chattel Paper, such Instrument, certificated security or Chattel Paper shall be promptly delivered to the Agent, duly indorsed, to be held as Collateral pursuant to this Agreement.

Section 4.04.     Intellectual Property. Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or any political subdivision thereof, such Grantor shall report such filing to the Agent on or before the date upon which Holdings is required to file reports with the Administrative Agent pursuant to Section 6.12 of the Credit Agreement for the fiscal quarter in which such filing occurs. Such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as may be necessary to create and perfect the Agent’s and the other Secured Parties’ security interest in any registered or applied for Copyright, Patent or Trademark and the goodwill and General Intangibles of such Grantor relating thereto or represented thereby. Nothing in this Agreement prevents any Grantor from discontinuing the use or maintenance of its Intellectual Property if such Grantor determines in its reasonable business judgment that such discontinuance is desirable in the conduct of its business.

(b)     Such Grantor’s obligations under Section 4.04(a) above shall include executing and delivering, and having recorded, with respect to such Collateral, an agreement substantially in the form of the Intellectual Property Security Agreement attached hereto as Exhibit A.

Article 5     
Investing Amounts in the Securities Accounts

Section 5.01.     Investments. If requested by the Borrower in writing, the Agent will, from time to time, invest amounts on deposit in the Deposit Accounts or Securities Accounts in which the Agent for the benefit of the Secured Parties holds a first priority, perfected security interest, in Cash Equivalents pursuant to the written instructions of the Borrower. All investments may, at the option of the Agent, be made in the name of the Agent or a nominee of the Agent and in a manner that preserves the Borrower’s ownership of, and the Agent’s perfected first priority Lien on, such investments. All income received from such investments shall accrue for the benefit of the Borrower and shall be credited (promptly upon receipt by the Agent) to a Deposit Account or Securities Account, in which the Agent for the benefit of the Secured Parties holds a first priority, perfected security interest. The Borrower will only direct the Agent to make investments in which the Agent can obtain a first priority, perfected security interest, and the Borrower hereby agrees to execute promptly any documents which may be required to implement or effectuate the provisions of this Section.

Section 5.02.     Liability. The Agent shall have no responsibility to the Borrower for any loss or liability arising in respect of the investments in the Deposit Accounts or Securities Accounts in which the Agent for the benefit of the Secured Parties holds a first priority, perfected security interest (including, without limitation, as a result of the liquidation of any thereof before maturity), except to the extent that such loss or liability is found to be based on the Agent’s gross negligence or willful misconduct as determined by a final and nonappealable decision of a court of competent jurisdiction.

Article 6     
Remedial Provisions

Section 6.01.     Certain Matters Relating to Receivables.

(a)     At any time during the continuance of an Event of Default, the Agent shall have the right to make test verifications of the Receivables in any manner and through any medium that it reasonably considers advisable, and each Grantor shall furnish all such assistance and information as the Agent may require in connection with such test verifications. The Agent shall endeavor to provide the Borrower with notice at or about the time of such verifications, provided that the failure to provide such notice shall not in any way compromise or adversely affect the exercise of such remedy or the Agent’s rights hereunder.

(b)     The Agent hereby authorizes each Grantor to collect such Grantor’s Receivables and the Agent may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default. The Agent shall endeavor to provide the Borrower with notice at or about the time of the exercise of its rights pursuant to the preceding sentence, provided that the failure to provide such notice shall not in any way compromise or adversely affect the exercise of any rights or remedies hereunder. If requested in writing by the Agent at any time after the occurrence and during the continuance of an Event of Default, any payments of Receivables, when collected by any Grantor, (i) shall be forthwith (and, in any event, within two Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Agent if required, in a Collateral Account maintained under the sole dominion and control of the Agent, subject to withdrawal by the Agent for the account of the Secured Parties only as provided in Section 6.04 and (ii) until so turned over, shall be held by such Grantor in trust for the Agent and the Secured Parties, segregated from other funds of such Grantor.

(c)     At the Agent’s written request at any time after the occurrence and during the continuance of an Event of Default, each Grantor shall deliver to the Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Receivables, including without limitation, all original orders, invoices and shipping receipts.

Section 6.02.     Communications with Obligors: Grantors Remain Liable.

(a)     The Agent in its own name or in the name of others may after the occurrence and during the continuance of an Event of Default communicate with obligors under the Receivables and parties to the Contracts to verify with them to the Agent’s satisfaction the existence, amount and terms of any Receivables or Contracts. The Agent shall endeavor to provide the Borrower with notice at or about the time of the exercise of its rights pursuant to the preceding sentence, provided that the failure to provide such notice shall not in any way compromise or adversely affect the exercise of any rights or remedies hereunder.

(b)     Upon the written request of the Agent at any time after the occurrence and during the continuance of an Event of Default, each Grantor shall notify obligors on the Receivables and parties to the Contracts that the Receivables and the Contracts, as the case may be, have been assigned to the Agent for the ratable benefit of the Secured Parties and that payments in respect thereof shall be made directly to the Agent.

(c)     Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of the Receivables and Contracts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. Neither the Agent nor any Secured Party shall have any obligation or liability under any Receivable (or any agreement giving rise thereto) or Contract by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating thereto, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any Receivable (or any agreement giving rise thereto) or Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

Section 6.03.     Proceeds to Be Turned Over to Agent. In addition to the rights of the Agent and the Secured Parties specified in Section 6.01 with respect to payments of Receivables, if an Event of Default shall occur and be continuing, upon written request from the Agent, all Proceeds received by any Grantor consisting of cash, checks and other near-cash items shall be held by such Grantor in trust for the Agent and the Secured Parties, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to the Agent in the exact form received by such Grantor (duly indorsed by such Grantor to the Agent, if requested). All Proceeds received by the Agent hereunder shall be held by the Agent in a Collateral Account maintained under its sole dominion and control. All such Proceeds while held by the Agent in a Collateral Account (or by such Grantor in trust for the Agent and the Secured Parties) shall continue to be held as collateral security for all the Secured Obligations and shall not constitute payment thereof until applied as provided in Section 6.04.

Section 6.04.     Application of Proceeds. If an Event of Default shall have occurred and be continuing, at any time at the Agent’s election, subject to any Collateral Agency Agreement and any other intercreditor agreement entered into in connection with Indebtedness permitted under the Credit Agreement, the Agent may apply all or any part of the Collateral, whether or not held in the Deposit Accounts, the Securities Accounts or any other Collateral Account, in payment of the Secured Obligations in the order set forth in the Credit Agreement.

Section 6.05.     Code and Other Remedies. If an Event of Default shall occur and be continuing, the Agent, on behalf of the Secured Parties, may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the New York UCC or any other applicable law. Without limiting the generality of the foregoing, the Agent, without prior demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any prior notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances, forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the Agent or any Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Agent shall endeavor to provide the Borrower with notice at or about the time of the exercise of remedies in the proceeding sentence, provided that the failure to provide such notice shall not in any way compromise or adversely affect the exercise of such remedies or the Agent’s rights hereunder. The Agent or any Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released. Each Grantor further agrees, at the Agent’s request, to assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Grantor’s premises or elsewhere. The Agent shall apply the net proceeds of any action taken by it pursuant to this Section 6.05, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Agent and the Secured Parties hereunder, including, without limitation, reasonable attorneys’ fees and disbursements as provided in Section 9.04 of the Credit Agreement, to the payment in whole or in part of the Secured Obligations, in such order as is provided in Section 7.03 of the Credit Agreement, and only after such application and after the payment by the Agent of any other amount required by any provision of law, including, without limitation, Section 9-615(a)(3) of the New York UCC, need the Agent account for the surplus, if any, to any Grantor. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against the Agent or any Secured Party arising out of the exercise by them of any rights hereunder. If any prior notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition.

The Agent shall incur no liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to this Article 6 conducted in accordance with the requirements of applicable laws and provided such sale shall not have resulted from the gross negligence, willful misconduct or fraud of the Agent. Each Grantor hereby waives any claims against the Agent and the other Secured Parties arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if the Agent accepts the first offer received and does not offer the Collateral to more than one offeree, provided that such private sale is conducted in accordance with applicable laws and this Agreement. Each Grantor hereby agrees that in respect of any sale of any of the Collateral pursuant to the terms hereof, the Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable laws, or in order to obtain any required approval of the sale or of the purchaser by any governmental authority or official, nor shall the Agent be liable or accountable to any Grantor for any discount allowed by reason of the fact that such Collateral is sold in compliance with any such limitation or restriction.

Section 6.06.     Subordination. Each Grantor hereby agrees that, upon the occurrence and during the continuance of an Event of Default, unless otherwise agreed by the Agent, all Indebtedness owing to it by the Borrower or any Subsidiary of the Borrower shall be fully subordinated to the indefeasible payment in full in cash of the Secured Obligations.

Section 6.07.     Deficiency. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Secured Obligations and the fees and disbursements of any attorneys employed by the Agent or any Secured Party to collect such deficiency (which shall be limited to one (1) counsel, at any given time, to the Agent and one (1) additional counsel for all other Secured Parties taken as a whole, and if reasonably necessary, one (1) local counsel, at any given time, to the Agent in each relevant jurisdiction and one (1) additional local counsel for all other Secured Parties taken as a whole in each relevant jurisdiction (which may include a single special counsel acting in multiple jurisdictions).

Article 7     
The Agent

Section 7.01.     Agent’s Appointment as Attorney-in-fact, Etc. Each Grantor hereby irrevocably constitutes and appoints the Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Agent the power and right, on behalf of such Grantor, without prior notice to or assent by such Grantor, to do any or all of the following:

(i)     following the occurrence of an Event of Default, in the name of such Grantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Receivable or Contract or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Agent for the purpose of collecting any and all such moneys due under any Receivable or Contract or with respect to any other Collateral whenever payable;

(ii)     in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Agent may request to evidence the Agent’s and the Secured Parties’ security interest in such Intellectual Property and the goodwill and General Intangibles of such Grantors relating thereto or represented thereby;

(iii)      pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof;

(iv)     execute, in connection with any sale provided for in Section 6.05, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and

(v)     (A) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Agent or as the Agent shall direct; (B) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (E) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (F) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Agent may deem appropriate; (G) assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains), through the world for such term or terms, on such conditions, in such manner, as the Agent (in its discretion or at the direction of the Required Lenders) shall determine is necessary; and (H) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Agent were the absolute owner thereof for all purposes, and do, at the Agent’s option and such Grantor’s expense, at any time, or from time to time, all acts and things which the Agent deems necessary to protect, preserve or realize upon the Collateral and the Agent’s and the Secured Parties’ security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.

The Agent shall endeavor to provide the Borrower with notice at or about the time of the exercise of its rights in the preceding clause (a), provided that the failure to provide such notice shall not in any way compromise or adversely affect the exercise of any rights or remedies hereunder.

(b)     If any Grantor fails to perform or comply with any of its agreements contained herein, the Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement.

(c)     The expenses of the Agent incurred in connection with actions undertaken as provided in this Section 7.01, together with, if past due, interest thereon at a rate per annum equal to the interest rate applicable at such time to Base Rate Loans, from the date when due to the Agent to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Agent upon not less than five (5) Business Days’ notice.

(d)     Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released.

Section 7.02.     Duty of Agent. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Neither the Agent, any Secured Party nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Agent and the Secured Parties hereunder are solely to protect the Agent’s and the Secured Parties’ interests in the Collateral and shall not impose any duty upon the Agent or any Secured Party to exercise any such powers. The Agent and the Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.

Section 7.03.     Execution of Financing Statements. Pursuant to any applicable law, each Grantor authorizes the Agent to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of such Grantor in such form and in such offices as required by applicable law to perfect the security interests of the Agent under this Agreement. Each Grantor authorizes the Agent to use the collateral description “all personal property” or “all assets” in any such financing statements.

Section 7.04.     Authority of Agent. Each Grantor acknowledges that the rights and responsibilities of the Agent under this Agreement with respect to any action taken by the Agent or the exercise or non-exercise by the Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Agent and the Secured Parties, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Agent and the Grantors, the Agent shall be conclusively presumed to be acting as agent for the Secured Parties with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority.

Article 8     
Miscellaneous

Section 8.01.     Amendments in Writing. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with the Credit Agreement. For the avoidance of doubt, the Borrower and the Agent may, without the consent of the Lenders, enter into amendments or other modifications of this Agreement or any other Collateral Document (including by entering into any Collateral Agency Agreement or any other new or supplemental agreements) to the extent contemplated by Section 9.01 of the Credit Agreement.

Section 8.02.     Notices. All notices, requests and demands to or upon the Agent or any Grantor hereunder shall be effected in the manner provided for in Section 9.02 of the Credit Agreement.

Section 8.03.     No Waiver by Course of Conduct; Cumulative Remedies. Neither the Agent nor any Secured Party shall by any act (except by a written instrument pursuant to Section 8.01), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Agent or any Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Agent or any Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Agent or such Secured Party would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

Section 8.04.     Enforcement Expenses; Indemnification. Each Grantor agrees to pay, indemnify against or reimburse each Secured Party and the Agent for all its costs and expenses incurred in enforcing or preserving any rights under this Agreement and the other Loan Documents to which such Grantor is a party, including, without limitation, the reasonable fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to the Agent and the Secured Parties.

(b)     Each Grantor agrees to pay, and to save the Agent and the Secured Parties harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement.

(c)     Each Grantor agrees to pay, and to save the Agent and the Secured Parties harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement to the extent the Borrower would be required to do so pursuant to Section 9.04 of the Credit Agreement except those resulting from the Agent’s or any Secured Party’s willful misconduct or gross negligence.

(d)     The agreements in this Section 8.04 shall survive repayment of the Secured Obligations, termination of the Loan Documents and resignation or removal of the Agent.

Section 8.05.     Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of the Agent and the Secured Parties and their successors and assigns; provided that except as permitted by the Credit Agreement, no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Agent.

Section 8.06.     Set-off. Each Grantor hereby irrevocably authorizes the Agent and each other Secured Party at any time and from time to time while an Event of Default has occurred and is continuing, without notice to such Grantor or any other Grantor, any such notice being expressly waived by each Grantor, to set-off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Agent or such other Secured Party to or for the credit or the account of such Grantor, or any part thereof in such amounts as the Agent or such other Secured Party may elect, against and on account of the obligations and liabilities of such Grantor to the Agent or such other Secured Party hereunder and claims of every nature and description of the Agent or such other Secured Party against such Grantor, in any currency, whether arising hereunder, under the Credit Agreement or any other Loan Document, as the Agent or such other Secured Party may elect, whether or not the Agent or any other Secured Party has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Agent and each other Secured Party shall endeavor to notify the Borrower promptly of any such set-off and the application made by the Agent or such other Secured Party of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Agent and each other Secured Party under this Section 8.06 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Agent or such other Secured Party may have.

Section 8.07.     Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

Section 8.08.     Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 8.09.     Section Headings. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

Section 8.10.     Integration. This Agreement and the other Loan Documents represent the agreement of the Grantors, the Agent and the Secured Parties with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Agent or any Secured Parties relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Loan Documents.

Section 8.11.     Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

Section 8.12.     Submission to Jurisdiction; Waivers. Each Grantor hereby irrevocably and unconditionally:

(a)     submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof;

(b)     consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c)     agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Grantor at its address referred to in Section 8.02 or at such other address of which the Agent shall have been notified pursuant thereto;

(d)     agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

(e)     waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

Section 8.13.     Acknowledgments. Each Grantor hereby acknowledges that:

(a)     it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party;

(b)     neither the Agent nor any Secured Party has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Grantors, on the one hand, and the Agent and Secured Parties, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(c)     no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Secured Parties or among the Grantors and the Secured Parties; and

(d)     the Agent may at any time and from time to time appoint a collateral agent to maintain any of the Collateral, maintain books and records regarding any Collateral, release Collateral, and assist in any aspect arising in connection with the Collateral as the Agent may desire; and the Agent may appoint itself, any affiliate or a third party as the collateral agent, and all reasonable costs of the collateral agent shall be borne by the Grantors;

Section 8.14.     Additional Grantors. Each Restricted Subsidiary (as defined in the Credit Agreement) of Holdings shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of a Joinder Agreement, substantially in the form of Exhibit B hereto.

Section 8.15.     Releases. Upon the indefeasible payment in full of all outstanding Secured Obligations, the Collateral shall be automatically released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Agent and each Grantor hereunder shall automatically terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors.

(b)     All or a portion of the Collateral shall be released from the Liens created hereby, and a Grantor may be released from its obligations hereunder, in each case pursuant to and as provided in Section 8.08 of the Credit Agreement. At the request and sole expense of such Grantor, upon the Agent’s receipt of the documents required by Section 8.08 of the Credit Agreement, the Agent shall deliver to such Grantor any Collateral held by the Agent hereunder, and execute and deliver to such Grantor such documents as the Grantor shall reasonably request to evidence such termination or release.

Section 8.16.     Waiver of Jury Trial. EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

Section 8.17.     Control Agreements. In connection with each agreement made at any time pursuant to Sections 9-104 or 8-106 of the Uniform Commercial Code among the Agent, any one or more Grantors, and any depository financial institution or issuer of uncertificated mutual fund shares or other uncertificated securities and any other Person party thereto, the Agent shall not deliver to any such depository or issuer, instructions directing the disposition of the deposit or uncertificated fund shares or other securities unless an Event of Default has occurred and is continuing at such time.

Section 8.18.     Agent Privileges, Powers and Immunities. In the performance of its obligations, powers and rights hereunder, the Agent shall be entitled to the rights, benefits, privileges, powers and immunities afforded to it as Agent under the Credit Agreement. The Agent shall take or refrain from taking any discretionary action or exercise any discretionary powers set forth in this Agreement in accordance with, and subject to, the Credit Agreement. Notwithstanding anything to the contrary contained herein and notwithstanding anything contained in Section 9-207 of the New York UCC, the Agent shall have no responsibility for the creation, perfection, priority, sufficiency or protection of any liens securing Secured Obligations (including, but not limited to, no obligation to prepare, record, file, re-record or re-file any financing statement, continuation statement or other instrument in any public office). The permissive rights and authorizations of the Agent hereunder shall not be construed as duties. The Agent shall be entitled to exercise its powers and duties hereunder through designees, specialists, experts or other appointees selected by it in good faith.

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

IN WITNESS WHEREOF, each of the undersigned has caused this Security Agreement to be duly executed and delivered as of the date first above written.

Secured Party:

WILMINGTON TRUST, NATIONAL ASSOCIATION, as Agent
By:	/s/ Jeffery Rose
Name:Jeffery Rose
Title:Vice President

K. HOVNANIAN ENTERPRISES, INC., as Borrower
By:	/s/ J. Larry Sorsby
Name:J. Larry Sorsby
Title:Executive Vice President and Chief Financial Officer

HOVNANIAN ENTERPRISES, INC.
By:	/s/ J. Larry Sorsby
Name:J. Larry Sorsby
Title:Executive Vice President and Chief Financial Officer

K. HOV IP, II, INC.
By:	/s/ Michael Discafani
Name:Michael Discafani
Title:Vice President and Secretary

On behalf of each other entity named in Schedule A hereto
By:	/s/ J. Larry Sorsby
Name:J. Larry Sorsby
Title:Executive Vice President and Chief Financial Officer

SCHEDULE A – LIST OF ENTITIES

Arbor Trails, LLC

Builder Services NJ, L.L.C.

Builder Services PA, L.L.C.

Eastern National Title Agency, LLC

Eastern Title Agency of Illinois, LLC

EASTERN TITLE AGENCY, INC.

F&W MECHANICAL SERVICES, L.L.C.

Founders Title Agency of Maryland, L.L.C.

FOUNDERS TITLE AGENCY, INC.

Glenrise Grove, L.L.C.

Governor's Abstract Co., Inc.

Hilltop at Cedar Grove Urban Renewal, LLC

Homebuyers Financial Services, L.L.C.

HOVNANIAN DEVELOPMENTS OF FLORIDA, INC.

Hovnanian Land Investment Group of Florida, L.L.C.

Hovnanian Land Investment Group of Maryland, L.L.C.

Hovnanian Land Investment Group, L.L.C.

K Hovnanian Homes at Maxwell Place, L.L.C.

K. Hovnanian Aberdeen, LLC

K. Hovnanian Acquisitions, Inc.

K. Hovnanian Aspire at Bellevue Ranch, LLC

K. Hovnanian at 240 Missouri, LLC

K. Hovnanian at 4S, LLC

K. Hovnanian at Aire on McDowell, LLC

K. Hovnanian at Aliso, LLC

K. Hovnanian at Allentown, L.L.C.

K. Hovnanian at Andalusia, LLC

K. Hovnanian at Asbury Park Urban Renewal, LLC

K. Hovnanian at Ashby Place, LLC

K. Hovnanian at Ashley Pointe LLC

K. HOVNANIAN AT AVENUE ONE, L.L.C.

K. Hovnanian at Bakersfield 463, L.L.C.

K. Hovnanian at Barnegat II, L.L.C.

K. Hovnanian at Beacon Park Area 129 II, LLC

K. Hovnanian at Beacon Park Area 129, LLC

K. Hovnanian at Beacon Park Area 137, LLC

K. Hovnanian at Bella Lago, LLC

K. Hovnanian at Blackstone, LLC

K. Hovnanian at Boca Dunes, LLC

K. Hovnanian at Branchburg II, LLC

K. Hovnanian at Branchburg, L.L.C.

K. Hovnanian at Branchburg-Vollers, LLC

K. Hovnanian at Brenford Station, LLC

K. Hovnanian at Bridgewater I, L.L.C.

K. Hovnanian at Burch Kove, LLC

K. HOVNANIAN AT CAMP HILL, L.L.C.

K. HOVNANIAN AT CAPISTRANO, L.L.C.

K. Hovnanian at Carlsbad, LLC

K. Hovnanian at Catania, LLC

K. Hovnanian at Caton's Reserve, LLC

K. Hovnanian at Cedar Grove III, L.L.C.

K. Hovnanian at Cedar Lane, LLC

K. Hovnanian at Charter Way, LLC

K. Hovnanian at Chesterfield, L.L.C.

K. Hovnanian at Christina Court, LLC

K. Hovnanian at Churchill Farms LLC

K. Hovnanian at Cielo, L.L.C.

K. Hovnanian at Coastline, L.L.C.

K. Hovnanian at Coosaw Point, LLC

K. Hovnanian at Coral Lago, LLC

K. Hovnanian at Cortez Hill, LLC

K. Hovnanian at Crestview, LLC

K. Hovnanian at Deptford Township, L.L.C.

K. Hovnanian at Doylestown, LLC

K. Hovnanian at Dunellen Urban Renewal, LLC

K. Hovnanian at East Brunswick III, LLC

K. Hovnanian at East Brunswick, LLC

K. Hovnanian at East Windsor, LLC

K. Hovnanian at Eden Terrace, L.L.C.

K. Hovnanian at Edgewater II, L.L.C.

K. Hovnanian at Edgewater, L.L.C.

K. Hovnanian at Egg Harbor Township II, L.L.C.

K. Hovnanian at El Dorado Ranch II, L.L.C.

K. Hovnanian at El Dorado Ranch, L.L.C.

K. Hovnanian at Embrey Mill Village, LLC

K. Hovnanian at Estates at Wheatlands, LLC

K. Hovnanian at Estates of Fox Chase, LLC

K. Hovnanian at Fairfield Ridge, LLC

K. Hovnanian at Fiddyment Ranch, LLC

K. Hovnanian at Fifth Avenue, L.L.C.

K. Hovnanian at Florence I, L.L.C.

K. Hovnanian at Florence II, L.L.C.

K. Hovnanian at Forest Meadows, L.L.C.

K. Hovnanian at Fox Path at Hampton Lake, LLC

K. Hovnanian at Franklin II, L.L.C.

K. Hovnanian at Franklin, L.L.C.

K. Hovnanian at Freehold Township III, LLC

K. Hovnanian at Fresno, LLC

K. Hovnanian at Gallery, LLC

K. HOVNANIAN AT GASLAMP SQUARE, L.L.C.

K. Hovnanian at Gilroy 60, LLC

K. Hovnanian at GIlroy, LLC

K. Hovnanian at Great Notch, L.L.C.

K. Hovnanian at Hackettstown II, L.L.C.

K. Hovnanian at Hampton Cove, LLC

K. Hovnanian at Hampton Lake, LLC

K. Hovnanian at Hanover Estates, LLC

K. Hovnanian at Hershey's Mill, Inc.

K. Hovnanian at Hidden Brook, LLC

K. Hovnanian at Hillsborough, LLC

K. Hovnanian at Hilltop Reserve II, LLC

K. Hovnanian at Hilltop Reserve, LLC

K. Hovnanian at Howell Fort Plains, LLC

K. Hovnanian at Howell II, LLC

K. Hovnanian at Howell, LLC

K. HOVNANIAN AT HUDSON POINTE, L.L.C.

K. Hovnanian at Huntfield, LLC

K. Hovnanian at Indian Wells, LLC

K. Hovnanian at Island Lake, LLC

K. Hovnanian at Jackson I, L.L.C.

K. Hovnanian at Jackson, L.L.C.

K. Hovnanian at Jaeger Ranch, LLC

K. Hovnanian at Jersey City IV, L.L.C.

K. Hovnanian at Keyport, L.L.C.

K. Hovnanian at La Laguna, L.L.C.

K. Hovnanian at Lake Burden, LLC

K. Hovnanian at Lake Florence, LLC

K. Hovnanian at Lake LeClare, LLC

K. Hovnanian at Lake Rancho Viejo, LLC

K. Hovnanian at Lake Ridge Estates, LLC

K. Hovnanian at Lee Square, L.L.C.

K. Hovnanian at Lenah Woods, LLC

K. Hovnanian at Liberty Hill Farm, LLC

K. Hovnanian at Lily Orchard, LLC

K. Hovnanian at Link Farm, LLC

K. Hovnanian at Little Egg Harbor Township II, L.L.C.

K. Hovnanian at Lower Macungie Township I, L.L.C.

K. Hovnanian at Lower Macungie Township II, L.L.C.

K. Hovnanian at Lower Makefield Township I, L.L.C.

K. Hovnanian at Lower Moreland II, L.L.C.

K. Hovnanian at Luna Vista, LLC

K. Hovnanian at Magnolia Place, LLC

K. Hovnanian at Mahwah VI, Inc.

K. Hovnanian at Main Street Square, LLC

K. Hovnanian at Malan Park, L.L.C.

K. Hovnanian at Manalapan Crossing, LLC

K. HOVNANIAN AT MANALAPAN II, L.L.C.

K. Hovnanian at Manalapan III, L.L.C.

K. Hovnanian at Manalapan V, LLC

K. Hovnanian at Manalapan VI, LLC

K. Hovnanian at Mansfield II, L.L.C.

K. Hovnanian at Manteca, LLC

K. Hovnanian at Maple Avenue, L.L.C.

K. Hovnanian at Marlboro Township IX, L.L.C.

K. Hovnanian at Marlboro Township V, L.L.C.

K. Hovnanian at Marlboro VI, L.L.C.

K. Hovnanian at Meadowridge Villas, LLC

K. Hovnanian at Melanie Meadows, LLC

K. Hovnanian at Mendham Township, L.L.C.

K. Hovnanian at Middle Township II, L.L.C.

K. Hovnanian at Middletown III, LLC

K. Hovnanian at Middletown, LLC

K. Hovnanian at Millville I, L.L.C.

K. Hovnanian at Millville II, L.L.C.

K. Hovnanian at Monroe IV, L.L.C.

K. Hovnanian at Monroe NJ II, LLC

K. Hovnanian at Monroe NJ III, LLC

K. Hovnanian at Monroe NJ, L.L.C.

K. Hovnanian at Montana Vista Dobbins, LLC

K. Hovnanian at Montana Vista, LLC

K. Hovnanian at Montgomery, LLC

K. Hovnanian at Montvale II, LLC

K. Hovnanian at Montvale, L.L.C.

K. Hovnanian at Morris Twp, LLC

K. Hovnanian at Muirfield, LLC

K. Hovnanian at North Bergen. L.L.C.

K. HOVNANIAN AT NORTH BRUNSWICK VI, L.L.C.

K. Hovnanian at North Caldwell II, L.L.C.

K. Hovnanian at North Caldwell III, L.L.C.

K. Hovnanian at North Caldwell IV, L.L.C.

K. Hovnanian at North Wildwood, L.L.C.

K. Hovnanian at Northampton, L.L.C.

K. Hovnanian at Northfield, L.L.C.

K. Hovnanian at Northridge Estates, LLC

K. Hovnanian at Norton Lake LLC

K. Hovnanian at Nottingham Meadows, LLC

K. Hovnanian at Oak Pointe, LLC

K. Hovnanian at Oakland, LLC

K. Hovnanian at Ocean Township, Inc

K. Hovnanian at Ocean View Beach Club, LLC

K. Hovnanian at Oceanport, L.L.C.

K. Hovnanian at Old Bridge II, LLC

K. Hovnanian at Old Bridge, L.L.C.

K. Hovnanian at Palm Valley, L.L.C.

K. Hovnanian at Park Paseo, LLC

K. Hovnanian at Parkside, LLC

K. Hovnanian at Parsippany, L.L.C.

K. Hovnanian at Pavilion Park, LLC

K. Hovnanian at Piazza D'Oro, L.L.C.

K. Hovnanian at Piazza Serena, L.L.C

K. Hovnanian at Pickett Reserve, LLC

K. Hovnanian at Plantation Lakes, L.L.C.

K. Hovnanian at Pointe 16, LLC

K. HOVNANIAN AT PORT IMPERIAL URBAN RENEWAL V, L.L.C.

K. HOVNANIAN AT PORT IMPERIAL URBAN RENEWAL VIII, L.L.C.

K. Hovnanian at Positano, LLC

K. Hovnanian at Prado, L.L.C.

K. Hovnanian at Prairie Pointe, LLC

K. Hovnanian at Quail Creek, L.L.C.

K. Hovnanian at Rancho Cabrillo, LLC

K. HOVNANIAN AT RAPHO, L.L.C

K. Hovnanian at Redtail, LLC

K. Hovnanian at Reserves at Wheatlands, LLC

K. Hovnanian at Residence at Discovery Square, LLC

K. Hovnanian at Retreat at Millstone, LLC

K. Hovnanian at Ridgemont, L.L.C.

K. Hovnanian at Rock Ledge, LLC

K. Hovnanian at Roderuck, L.L.C.

K. HOVNANIAN AT ROSEMARY LANTANA, L.L.C.

K. Hovnanian at Sage, L.L.C.

K. Hovnanian at Sagebrook, LLC

K. Hovnanian at Santa Nella, LLC

K. Hovnanian at Sawmill, Inc.

K. Hovnanian at Seabrook, LLC

K. Hovnanian at Seasons Landing, LLC

K. Hovnanian at Sheldon Grove, LLC

K. Hovnanian at Shrewsbury, LLC

K. Hovnanian at Sienna Hills, LLC

K. Hovnanian at Sierra Vista, LLC

K. Hovnanian at Signal Hill, LLC

K. Hovnanian at Silver Spring, L.L.C.

K. Hovnanian at Silverstone G, LLC

K. Hovnanian at Silverstone, LLC

K. Hovnanian at Skye Isle, LLC

K. Hovnanian at Skye on McDowell, LLC

K. Hovnanian at Smithville, Inc.

K. Hovnanian at Somerset, LLC

K. Hovnanian at South Brunswick II, LLC

K. Hovnanian at South Brunswick III, LLC

K. Hovnanian at South Brunswick IV, LLC

K. Hovnanian at Spring Isle, LLC

K. Hovnanian at Stanton, LLC

K. Hovnanian at Station Square, L.L.C.

K. Hovnanian at Summerlake, LLC

K. Hovnanian at Sunridge Park, LLC

K. Hovnanian at Sunrise Trail II, LLC

K. Hovnanian at Sunrise Trail III, LLC

K. Hovnanian at Terra Bella Two, LLC

K. Hovnanian at The Commons at Richmond Hill, LLC

K. Hovnanian at The Meadows 9, LLC

K. Hovnanian at The Monarch, L.L.C.

K. Hovnanian at The Promenade at Beaver Creek, LLC

K. Hovnanian at Thompson Ranch, LLC

K. Hovnanian at Trafford Place, LLC

K. Hovnanian at Trail Ridge, LLC

K. Hovnanian at Tramore LLC

K. Hovnanian at Upper Providence, LLC

K. Hovnanian at Upper Uwchlan II, L.L.C.

K. Hovnanian at Upper Uwchlan, L.L.C.

K. Hovnanian at Valle Del Sol, LLC

K. Hovnanian at Ventana Lakes, LLC

K. Hovnanian at Verona Estates, LLC

K. HOVNANIAN AT VERONA URBAN RENEWAL, L.L.C.

K. Hovnanian at Verrado Cascina, LLC

K. Hovnanian at Verrado Marketside, LLC

K. Hovnanian at Victorville, L.L.C.

K. Hovnanian at Village Center, LLC

K. Hovnanian at Villages at Country View, LLC

K. Hovnanian at Villago, LLC

K. Hovnanian at Vineyard Heights, LLC

K. Hovnanian at Vista Del Sol, L.L.C.

K. Hovnanian at Waldwick, LLC

K. Hovnanian at Walkers Grove, LLC

K. Hovnanian at Wall Donato, LLC

K. Hovnanian at Wall Quail Ridge, LLC

K. Hovnanian at Warren Township II, LLC

K. Hovnanian at Warren Township, L.L.C.

K. Hovnanian at Waterstone, LLC

K. Hovnanian at West View Estates, L.L.C.

K. Hovnanian at Westbrook, LLC

K. Hovnanian at Westshore, LLC

K. Hovnanian at Wheeler Ranch, LLC

K. Hovnanian at Wheeler Woods, LLC

K. Hovnanian at Whitemarsh, LLC

K. Hovnanian at Wildwood Bayside, L.L.C.

K. Hovnanian at Woodcreek West, LLC

K. Hovnanian at Woolwich I, L.L.C.

K. Hovnanian Belden Pointe, LLC

K. Hovnanian Belmont Reserve, LLC

K. Hovnanian Cambridge Homes, L.L.C.

K. Hovnanian Central Acquisitions, L.L.C.

K. Hovnanian Classics, L.L.C.

K. Hovnanian Communities, Inc.

K. Hovnanian Companies of California, Inc.

K. HOVNANIAN COMPANIES OF MARYLAND, INC.

K. HOVNANIAN COMPANIES OF NEW YORK, INC.

K. Hovnanian Companies of Pennsylvania, Inc.

K. Hovnanian Companies of Southern California, Inc.

K. Hovnanian Companies, LLC

K. Hovnanian Construction II, Inc

K. Hovnanian Construction III, Inc

K. Hovnanian Construction Management, Inc.

K. Hovnanian Contractors of Ohio, LLC

K. Hovnanian Cornerstone Farms, LLC

K. Hovnanian CraftBuilt Homes of South Carolina, L.L.C.

K. Hovnanian Cypress Key, LLC

K. HOVNANIAN DEVELOPMENTS OF ARIZONA, INC.

K. Hovnanian Developments of California, Inc.

K. HOVNANIAN Developments OF D.C., INC.

K. HOVNANIAN DEVELOPMENTS OF DELAWARE, INC.

K. Hovnanian Developments of Georgia, Inc.

K. Hovnanian Developments of Illinois, Inc.

K. HOVNANIAN DEVELOPMENTS OF MARYLAND, INC.

K. Hovnanian Developments of Minnesota, Inc.

K. Hovnanian Developments of New Jersey, Inc.

K. Hovnanian Developments of New York, Inc.

K. Hovnanian Developments of North Carolina, Inc.

K. Hovnanian Developments of Ohio, Inc.

K. Hovnanian Developments of Pennsylvania, Inc.

K. Hovnanian Developments of South Carolina, Inc.

K. Hovnanian Developments of Texas, Inc.

K. Hovnanian Developments of Virginia, Inc.

K. Hovnanian Developments of West Virginia, Inc.

K. Hovnanian DFW Auburn Farms, LLC

K. Hovnanian DFW Belmont, LLC

K. Hovnanian DFW Bluff Creek, LLC

K. Hovnanian DFW Creekside Estates II, LLC

K. Hovnanian DFW Creekside Estates, LLC

K. Hovnanian DFW Encore of Las Colinas II, LLC

K. Hovnanian DFW Encore of Las Colinas, LLC

K. Hovnanian DFW Harmon Farms, LLC

K. Hovnanian DFW Heritage Crossing, LLC

K. Hovnanian DFW Homestead, LLC

K. Hovnanian DFW Inspiration, LLC

K. Hovnanian DFW Lexington, LLC

K. Hovnanian DFW Liberty Crossing II, LLC

K. Hovnanian DFW Liberty Crossing, LLC

K. Hovnanian DFW Liberty, LLC

K. Hovnanian DFW Light Farms II, LLC

K. Hovnanian DFW Light Farms, LLC

K. Hovnanian DFW Midtown Park, LLC

K. Hovnanian DFW Palisades, LLC

K. Hovnanian DFW Parkside, LLC

K. Hovnanian DFW Ridgeview, LLC

K. Hovnanian DFW Sanford Park, LLC

K. Hovnanian DFW Seventeen Lakes, LLC

K. Hovnanian DFW The Parks at Rosehill, LLC

K. Hovnanian DFW Trailwood II, LLC

K. Hovnanian DFW Trailwood, LLC

K. Hovnanian DFW Villas at Mustang Park, LLC

K. Hovnanian DFW Wellington, LLC

K. Hovnanian DFW Wildridge, LLC

K. Hovnanian Eastern Pennsylvania, L.L.C.

K. Hovnanian Edgebrook, LLC

K. Hovnanian Estates at Regency, L.L.C.

K. Hovnanian Estates at Wekiva, LLC

K. Hovnanian Falls Pointe, LLC

K. HOVNANIAN FIRST HOMES, L.L.C.

K. Hovnanian Florida Old GC, LLC

K. Hovnanian Florida Realty, L.L.C.

K. Hovnanian Forest Valley, LLC

K. Hovnanian Four Seasons at Chestnut Ridge, LLC

K. Hovnanian Grand Cypress, LLC

K. Hovnanian Grandefield, LLC

K. HOVNANIAN GREAT WESTERN BUILDING COMPANY, LLC

K. HOVNANIAN GREAT WESTERN HOMES, LLC

K. Hovnanian Hamptons at Oak Creek II, L.L.C.

K. Hovnanian Hidden Hollow, LLC

K. Hovnanian Highland Ridge, LLC

K. Hovnanian Holdings NJ, L.L.C.

K. Hovnanian Homes - DFW, L.L.C.

K. Hovnanian Homes at Brook Manor, LLC

K. Hovnanian Homes at Burke Junction, LLC

K. Hovnanian Homes at Camp Springs, L.L.C.

K. Hovnanian Homes at Creekside, LLC

K. Hovnanian Homes at Greenway Farm Park Towns, L.L.C.

K. Hovnanian Homes at Greenway Farm, L.L.C.

K. Hovnanian Homes at Jones Station 1, L.L.C.

K. Hovnanian Homes at Leigh Mill, LLC

K. Hovnanian Homes at Pender Oaks, LLC

K. Hovnanian Homes at Reedy Creek, LLC

K. Hovnanian Homes at Russett, L.L.C.

K. Hovnanian Homes at Salt Creek Landing, LLC

K. Hovnanian Homes at Shell Hall, LLC

K. Hovnanian Homes at Shenandoah Springs, LLC

K. Hovnanian Homes at St. James Place, LLC

K. Hovnanian Homes at The Abby, LLC

K. Hovnanian Homes at the Highlands, LLC

K. Hovnanian Homes at The Paddocks, LLC

K. Hovnanian Homes at Thompson's Grant, LLC

K. Hovnanian Homes at Willowsford Grant II, LLC

K. Hovnanian Homes at Willowsford Grant, LLC

K. Hovnanian Homes at Willowsford Greens, LLC

K. Hovnanian Homes Northern California, Inc.

K. Hovnanian Homes of D.C., L.L.C.

K. HOVNANIAN HOMES OF DELAWARE, L.L.C.

K. Hovnanian Homes of Georgia, L.L.C.

K. Hovnanian Homes of Longacre Village, L.L.C.

K. Hovnanian Homes of Maryland, L.L.C.

K. Hovnanian Homes of Minnesota at Arbor Creek, LLC

K. Hovnanian Homes of Minnesota at Autumn Meadows, LLC

K. Hovnanian Homes of Minnesota at Brynwood, LLC

K. Hovnanian Homes of Minnesota at Cedar Hollow, LLC

K. Hovnanian Homes of Minnesota at Founder's Ridge, LLC

K. Hovnanian Homes of Minnesota at Harpers Street Woods, LLC

K. Hovnanian Homes of Minnesota at Oaks of Oxbow, LLC

K. Hovnanian Homes of Minnesota at Regent's Point, LLC

K. Hovnanian Homes of Minnesota, L.L.C.

K. HOVNANIAN HOMES OF NORTH CAROLINA, INC.

K. HOVNANIAN HOMES OF PENNSYLVANIA, L.L.C.

K. Hovnanian Homes of South Carolina, LLC

K. Hovnanian Homes of Virginia, Inc.

K. HOVNANIAN HOMES OF WEST VIRGINIA, L.L.C.

K. Hovnanian Houston Bayou Oaks at West Orem, LLC

K. Hovnanian Houston Cambridge Heights, LLC

K. Hovnanian Houston City Heights, LLC

K. Hovnanian Houston Creek Bend, LLC

K. Hovnanian Houston Dry Creek Village, LLC

K. Hovnanian Houston Katy Pointe, LLC

K. Hovnanian Houston Property I, LLC

K. Hovnanian Houston Property II, LLC

K. Hovnanian Houston River Farms, LLC

K. Hovnanian Houston Sunset Ranch, LLC

K. Hovnanian Houston Terra Del Sol, LLC

K. Hovnanian Houston Thunder Bay Subdivision, LLC

K. Hovnanian Houston Tranquility Lake Estates, LLC

K. Hovnanian Houston Woodshore, LLC

K. Hovnanian Indian Trails, LLC

K. Hovnanian LaDue Reserve, LLC

K. Hovnanian Lakes of Green, LLC

K. Hovnanian Landings 40s, LLC

K. Hovnanian Legacy at Via Bella, LLC

K. Hovnanian Liberty on Bluff Creek, LLC

K. Hovnanian Magnolia at Westside, LLC

K. Hovnanian Manalapan Acquisition, LLC

K. Hovnanian Meadow View at Mountain House, LLC

K. Hovnanian Monarch Grove, LLC

K. Hovnanian North Central Acquisitions, L.L.C.

K. Hovnanian North Jersey Acquisitions, L.L.C.

K. Hovnanian Northeast Services, L.L.C.

K. Hovnanian Northpointe 40s, LLC

K. Hovnanian Norton Place, LLC

K. Hovnanian of Houston II, L.L.C.

K. Hovnanian of Ohio, LLC

K. Hovnanian Ohio Realty, L.L.C.

K. Hovnanian PA Real Estate, Inc.

K. Hovnanian Pennsylvania Acquisitions, L.L.C.

K. Hovnanian Port Imperial Urban Renewal, Inc.

K. HOVNANIAN PRESERVE AT TURTLE CREEK LLC

K. Hovnanian Properties of Red Bank, LLC

K. Hovnanian Reynolds Ranch, LLC

K. Hovnanian Rivendale, LLC

K. Hovnanian Riverside, LLC

K. Hovnanian Schady Reserve, LLC

K. Hovnanian Sherwood at Regency, LLC

K. Hovnanian Shore Acquisitions, L.L.C.

K. Hovnanian Sola Vista, LLC

K. Hovnanian South Fork, LLC

K. Hovnanian South Jersey Acquisitions, L.L.C.

K. Hovnanian Southern New Jersey, L.L.C.

K. Hovnanian Sterling Ranch, LLC

K. Hovnanian Summit Holdings, L.L.C.

K. Hovnanian Summit Homes of Pennsylvania, L.L.C.

K. Hovnanian Summit Homes of West Virginia, L.L.C.

K. Hovnanian Summit Homes, L.L.C.

K. Hovnanian T&C Homes at Florida, L.L.C.

K. Hovnanian T&C Homes at Illinois, L.L.C.

K. Hovnanian Timbres at Elm Creek, LLC

K. Hovnanian Union Park, LLC

K. Hovnanian Venture I, L.L.C.

K. Hovnanian Village Glen, LLC

K. Hovnanian Waterbury, LLC

K. Hovnanian White Road, LLC

K. Hovnanian Winding Bay Preserve, LLC

K. HOVNANIAN WINDWARD HOMES, LLC

K. Hovnanian Woodland Pointe, LLC

K. Hovnanian Woodridge Place, LLC

K. Hovnanian's Aspire at Union Village, LLC

K. HOVNANIAN'S FOUR SEASONS AT BAKERSFIELD, L.L.C.

K. Hovnanian's Four Seasons at Baymont Farms L.L.C.

K. Hovnanian's Four Seasons at Beaumont, LLC

K. Hovnanian's Four Seasons at Belle Terre, LLC

K. Hovnanian's Four Seasons at Briargate, LLC

K. Hovnanian's Four Seasons at Hemet, LLC

K. Hovnanian's Four Seasons at Kent Island Condominiums, L.L.C.

K. Hovnanian's Four Seasons at Kent Island, L.L.C.

K. Hovnanian's Four Seasons at Los Banos, LLC

K. Hovnanian's Four Seasons at Moreno Valley, L.L.C.

K. Hovnanian's Four Seasons at New Kent Vineyards, L.L.C.

K. Hovnanian's Four Seasons at Palm Springs, LLC

K. Hovnanian's Four Seasons at Rush Creek II, LLC

K. Hovnanian's Four Seasons at Rush Creek, L.L.C.

K. Hovnanian's Four Seasons at Silver Maple Farm, L.L.C.

K. Hovnanian's Four Seasons at St. Margarets Landing, L.L.C.

K. Hovnanian's Four Seasons at The Manor II, LLC

K. Hovnanian's Four Seasons at The Manor, LLC

K. Hovnanian's Parkside at Towngate, L.L.C.

K. Hovnanian's Veranda at RiverPark II, LLC

K. Hovnanian's Veranda at RiverPark, LLC

KHH Shell Hall Loan Acquisition, LLC

KHOV WINDING BAY II, LLC

LANDARAMA, INC.

LAUREL HIGHLANDS, LLC

M & M at Monroe Woods, L.L.C.

M&M at Chesterfield, L.L.C.

M&M AT Crescent Court, L.L.C.

M&M at West Orange, L.L.C.

Matzel & Mumford at Egg Harbor, L.L.C.

MCNJ, Inc.

Midwest Building Products & Contractor Services of Pennsylvania, L.L.C.

Midwest Building Products & Contractor Services of West Virginia, L.L.C.

MIDWEST BUILDING PRODUCTS & CONTRACTOR SERVICES, L.L.C.

MM-Beachfront North I, LLC

New Home Realty, LLC

New Land Title Agency, L.L.C.

PARK TITLE COMPANY, LLC

Pine Ayr, LLC

Ridgemore Utility L.L.C.

Route 1 and Route 522, L.L.C.

SEABROOK ACCUMULATION CORPORATION

Shell Hall Club Amenity Acquisition, LLC

Shell Hall Land Acquisition, LLC

STONEBROOK HOMES, INC.

Terrapin Realty, L.L.C.

The Matzel & Mumford Organization, Inc

Washington Homes, Inc.

WTC Ventures, L.L.C.

K. Hovnanian Lake Griffin Reserve, LLC

K. Hovnanian Osprey Ranch, LLC

K. Hovnanian's Four Seasons at Bella Vista, LLC

K. Hovnanian DFW Villas at The Station, LLC

K. Hovnanian at Rockland Village Green, LLC

SCHEDULE B

COMMERCIAL TORT CLAIMS

None.

SCHEDULE C

ACTIONS REQUIRED TO PERFECT

1. With respect to each Grantor organized under the laws of the state of Arizona as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the Arizona Secretary of State.

2. With respect to each Grantor organized under the laws of the state of California as identified on Schedule 1(a) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the California Secretary of State.

3. With respect to each Grantor organized under the laws of the state of Delaware as identified on Schedule 1(a) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the Delaware Secretary of State.

4. With respect to each Grantor organized under the laws of the District of Columbia as identified on Schedule 1(a) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the District of Columbia Recorder of Deeds.

5. With respect to each Grantor organized under the laws of the state of Florida as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the Florida Secured Transaction Registry.

6. With respect to each Grantor organized under the laws of the state of Georgia as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the Office of the Clerk of Superior Court of any County of Georgia.

7. With respect to each Grantor organized under the laws of the state of Illinois as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the Illinois Secretary of State.

8. With respect to each Grantor organized under the laws of the state of Kentucky as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the Kentucky Secretary of State.

9. With respect to each Grantor organized under the laws of the state of Maryland as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the Maryland State Department of Assessments and Taxation.

10. With respect to each Grantor organized under the laws of the state of Minnesota as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the Minnesota Secretary of State.

11. With respect to each Grantor organized under the laws of the state of New Jersey as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the New Jersey Division of Commercial Recording.

12. With respect to each Grantor organized under the laws of the state of New York as identified on Schedule 1(a) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the New York Secretary of State.

13. With respect to each Grantor organized under the laws of the state of North Carolina as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the North Carolina Secretary of State.

14. With respect to each Grantor organized under the laws of the state of Ohio as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the Ohio Secretary of State.

15. With respect to each Grantor organized under the laws of the state of Pennsylvania as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the Pennsylvania Secretary of the Commonwealth.

16. With respect to each Grantor organized under the laws of the state of South Carolina as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the South Carolina Secretary of State.

17. With respect to each Grantor organized under the laws of the state of Texas as identified on Schedule 1(a) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the Texas Secretary of State.

18. With respect to each Grantor organized under the laws of the state of Virginia as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the Virginia State Corporation Commission.

19. With respect to each Grantor organized under the laws of the state of West Virginia as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Collateral with the West Virginia Secretary of State.

20. With respect to the Securities Accounts and the Deposit Accounts (other than the Excluded Accounts), the bank with which such Securities Account and such Deposit Account are maintained agreeing that it will comply with instructions originated by the Agent directing disposition of the funds in such Securities Account and such Deposit Account without further consent of the relevant Grantor; provided that the Grantors shall not be required to deliver any such agreements on the Closing Date, but will deliver such agreements as soon as commercially reasonable thereafter, but in no event later than 90 days following the Closing Date.

21. With respect to each Grantor that owns registered or applied for Intellectual Property, the filing of an Intellectual Property Security Agreement that identifies such Grantor’s registered and applied for Trademarks, Patents and Copyrights with the United States Patent and Trademark Office or the United States Copyright Office, as applicable.

22. With respect to the Pledged Collateral (as defined in the Pledge Agreement) constituting certificated securities, delivery of the certificates representing such Pledged Collateral to the Agent in registered form, indorsed in blank, by an effective endorsement or accompanied by undated stock powers with respect thereto duly indorsed in blank by an effective endorsement.

EXHIBIT A

Form of Intellectual Property Security Agreement

TRADEMARK / PATENT / COPYRIGHT SECURITY AGREEMENT

This Trademark / Patent / Copyright Security Agreement (the “Agreement”), dated as of [_______], [____] is made by [     ], a [     ]
(the “Grantor”) in favor of Wilmington Trust, National Association, as Agent (as defined below) for the benefit of itself, the Secured Parties (as defined below).

WHEREAS, the Borrower, Holdings and each of the other Guarantors party thereto have entered into the Credit Agreement dated as of January 29, 2018 (as amended, supplemented, amended and restated or otherwise modified from time to time, the “Credit Agreement”) with Wilmington Trust, National Association, as Administrative Agent (in such capacity, the “Administrative Agent”) and the Lenders party thereto;

WHEREAS, the Borrower, Holdings, the Guarantors party thereto, Wilmington Trust, National Association, in its capacity as Senior Credit Agreement Administrative Agent (as defined therein), Wilmington Trust, National Association, in its capacity as Mortgage Tax Collateral Agent (as defined therein) and Wilmington Trust, National Association, in its capacity as the Junior Joint Collateral Agent (as defined therein) have entered into the Amended and Restated Intercreditor Agreement dated as of September 8, 2016 and the Borrower, Holdings, the Subsidiary Guarantors named therein, Wilmington Trust, National Association, as Trustee (as defined therein) and Notes Collateral Agent (as defined therein), Wilmington Trust, National Association, as Senior Credit Agreement Administrative Agent, Wilmington Trust, National Association, as Junior Joint Collateral Agent and Wilmington Trust, National Association, as Mortgage Tax Collateral Agent have entered into the Joinder to the Amended and Restated Intercreditor Agreement, dated as of July 27, 2017 (as the same may be amended, supplemented, amended or restated or otherwise modified from time to time, the “Amended and Restated Intercreditor Agreement”);

WHEREAS, the Agent is entering into the Joinder to the Amended and Restated Intercreditor Agreement dated as of the date hereof, pursuant to which the Agent becomes party to the Amended and Restated Intercreditor Agreement for the benefit of itself and the Lenders.

WHEREAS, the Loans constitute First-Lien Indebtedness under the Amended and Restated Intercreditor Agreement;

WHEREAS, the Borrower is a member of an affiliated group of companies that includes Holdings, the Borrower’s parent company, and each other Grantor;

WHEREAS, the Borrower and the other Grantors are engaged in related businesses, and each Grantor will derive substantial direct and indirect benefit from the borrowing of Loans; and

WHEREAS, pursuant to and under the Credit Agreement and the Security Agreement dated as of September 10, 2018 (the “Security Agreement”) among the Grantors party thereto (together with any other entity that may become a party thereto) and the Administrative Agent, in its capacity as collateral agent (in such capacity, the “Agent”), the Grantor has agreed to enter into this Agreement in order to grant a security interest to the Agent in certain Intellectual Property as security for such loans and other obligations as more fully described herein; and

NOW, THEREFORE, intending to be legally bound hereby, the parties hereto agree as follows:

1.     Defined Terms. Except as otherwise expressly provided herein, (i) capitalized terms used in this Agreement shall have the respective meanings assigned to them in the Security Agreement and (ii) the rules of construction set forth in Section 1. 2 of the Credit Agreement and the comparable provisions of any other Loan Documents shall apply to this Agreement. Where applicable and except as otherwise expressly provided herein, terms used herein (whether or not capitalized) shall have the respective meanings assigned to them in the Uniform Commercial Code as enacted in New York as amended from time to time (the “Code”).

2.     To secure the full payment and performance of all Secured

Obligations, the Grantor hereby grants to the Agent a security interest in the entire right, title and interest of such Grantor in and to all of its [Trademark/Patent/Copyrights], including those set forth on Schedule A; provided, however, that notwithstanding any of the other provisions set forth in this Section 2 (and notwithstanding any recording of the Agent’s Lien made in the U.S. Patent and Trademark Office, U.S. Copyright Office, or other registry office in any other jurisdiction), this Agreement shall not constitute a grant of a security interest in any property to the extent that such grant of a security interest is prohibited by any applicable Law of an Official Body, requires a consent not obtained of any Official Body pursuant to such Law or is prohibited by, or constitutes a breach or default under or results in the termination of or gives rise to any right of acceleration, modification or cancellation or requires any consent not obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such property, except to the extent that such Law or the term in such contract, license, agreement, instrument or other document or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is ineffective under applicable Law including Sections 9-406, 9-407, 9-408 or 9-409 of the New York UCC (or any successor provision or provisions); provided, further, that no security interest shall be granted in any United States “intent-to-use” trademark or service mark applications unless and until acceptable evidence of use of the trademark or service mark has been filed with and accepted by the U.S. Patent and Trademark Office pursuant to Section 1(c) or Section 1(d) of the Lanham Act (U.S.C. 1051, et seq.), and to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such “intent-to-use” trademark or service mark applications under applicable federal Law. After such period and after such evidence of use has been filed and accepted, the Grantor acknowledges that such interest in such trademark or service mark applications will become part of the Collateral. The Agent agrees that, at the Grantor’s reasonable request and expense, it will provide such Grantor confirmation that the assets described in this paragraph are in fact excluded from the Collateral during such limited period only upon receipt of an Officer’s Certificate or an Opinion of Counsel to that effect.

3.     The Grantor covenants and warrants that:

(a)     To the knowledge of the Grantor, on the date hereof, all material Intellectual Property owned by the Grantor is valid, subsisting and unexpired, has not been abandoned and does not, to the knowledge of the Grantor, infringe the intellectual property rights of any other Person;

(b)     The Grantor is the owner of each item of Intellectual Property listed on Schedule A, free and clear of any and all Liens or claims of others except for the Permitted Liens. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except as permitted pursuant to this Agreement or as permitted by the Credit Agreement and any other applicable Loan Documents;

4.     The Grantor agrees that, until all of the Secured Obligations shall

have been indefeasibly satisfied in full, it will not enter into any agreement (for example, a license agreement) which is inconsistent with the Grantor’s obligations under this Agreement, without the Agent’s prior written consent which shall not be unreasonably withheld except that the Grantor may license technology in the ordinary course of business without the Agent’s consent to suppliers and customers to facilitate the manufacture and use of the Grantor’s products.

5.     The Agent shall have, in addition to all other rights and remedies given it by this Agreement and those rights and remedies set forth in the Security Agreement and the Credit Agreement and any other applicable Loan Documents, those allowed by applicable Law and the rights and remedies of a secured party under the Uniform Commercial Code as enacted in any jurisdiction in which the Intellectual Property may be located and, without limiting the generality of the foregoing, solely if an Event of Default has occurred and is continuing, the Agent may immediately, without demand of performance and without other notice (except as set forth below) or demand whatsoever to the Grantor, all of which are hereby expressly waived, and without advertisement, sell at public or private sale or otherwise realize upon, in a city that the Agent shall designate by notice to the Grantor, the whole or from time to time any part of the Intellectual Property, or any interest which the Grantor may have therein and, after deducting from the proceeds of sale or other disposition of the Intellectual Property all expenses (including fees and expenses for brokers and attorneys), shall apply the remainder of such proceeds toward the payment of the Secured Obligations as the Agent, in its sole discretion, shall determine. Any remainder of the proceeds after payment in full of the Secured Obligations shall be paid over to the Grantor. Notice of any sale or other disposition of the Intellectual Property shall be given to the Grantor at least ten (10) days before the time of any intended public or private sale or other disposition of the Intellectual Property is to be made, which the Grantor hereby agrees shall be reasonable notice of such sale or other disposition. At any such sale or other disposition, the Agent may, to the extent permissible under applicable Law, purchase the whole or any part of the Intellectual Property sold, free from any right of redemption on the part of the Grantor, which right is hereby waived and released. The Agent shall endeavor to provide the Grantor with notice at or about the time of the exercise of remedies in the preceding sentence, provided that the failure to provide such notice shall not in any way compromise or adversely affect the exercise of such remedies or the Agent’s rights hereunder.

6.      All of the Agent’s rights and remedies with respect to the Intellectual Property, whether established hereby, by the Security Agreement or by the Credit Agreement or any other applicable Loan Documents or by any other agreements or by Law, shall be cumulative and may be exercised singularly or concurrently. In the event of any irreconcilable inconsistency in the terms of this Agreement and the Security Agreement, the Security Agreement shall control.

7.      The provisions of this Agreement are severable, and if any clause or provision shall be held invalid and unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any clause or provision of this Agreement in any jurisdiction.

8.      The benefits and burdens of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties, provided, however, that except as permitted by the Credit Agreement and any other applicable Loan Documents, the Grantor may not assign or transfer any of its rights or obligations hereunder or any interest herein and any such purported assignment or transfer shall be null and void.

9.      This Agreement and the rights and obligations of the parties under this agreement shall be governed by, and construed and interpreted in accordance with, the Law of the State of New York.

10.     The Grantor (i) hereby irrevocably submits to the nonexclusive general jurisdiction of the courts of the State of New York and the courts of the United States of America for the Southern District of New York, or any successor to said court (hereinafter referred to as the “New York Courts”) for purposes of any suit, action or other proceeding which relates to this Agreement or any other Loan Document, (ii) to the extent permitted by applicable Law, hereby waives and agrees not to assert by way of motion, as a defense or otherwise in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of the New York Courts, that such suit, action or proceeding is brought in an inconvenient forum, that the venue of such suit, action or proceeding is improper, or that this Agreement or any Loan Document may not be enforced in or by the New York Courts, (iii) hereby agrees not to seek, and hereby waives, any collateral review by any other court, which may be called upon to enforce the judgment of any of the New York Courts, of the merits of any such suit, action or proceeding or the jurisdiction of the New York Courts, and (iv) waives personal service of any and all process upon it and consents that all such service of process be made by certified or registered mail addressed as provided in Section 13 hereof or at such other address of which the Agent shall have been notified pursuant thereto and service so made shall be deemed to be completed upon actual receipt thereof. Nothing herein shall limit any Secured Party’s right to bring any suit, action or other proceeding against the Grantor or any of any of the Grantor’s assets or to serve process on the Grantor by any means authorized by Law.

11.     This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

12.     THE GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY A JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

13.     All notices, requests and demands to or upon the Agent or the Grantor shall be effected in the manner provided for in Section 9.02 of the Credit Agreement and the related provisions of any other applicable Loan Documents.

14.     In the performance of its obligations, powers and rights hereunder, the Agent shall be entitled to the rights, benefits, privileges, powers and immunities afforded to it as Agent under the Credit Agreement and the other applicable Loan Documents. The Agent shall be entitled to refuse to take or refrain from taking any discretionary action or exercise any discretionary powers set forth in the Security Agreement unless it has received with respect thereto written direction of the Borrower or Required Lenders in accordance with the Credit Agreement. Notwithstanding anything to the contrary contained herein, the Agent shall have no responsibility for the creation, perfection, priority, sufficiency or protection of any liens securing Secured Obligations (including, but not limited to, no obligation to prepare, record, file, re-record or re-file any financing statement, continuation statement or other instrument in any public office). The permissive rights and authorizations of the Agent hereunder shall not be construed as duties. The Agent shall be entitled to exercise its powers and duties hereunder through designees, specialists, experts or other appointees selected by it in good faith.

[SIGNATURES APPEAR ON FOLLOWING PAGE]

IN WITNESS WHEREOF, each of the undersigned has caused this Trademark / Patent / Copyright Security Agreement to be duly executed and delivered as of the date first above written.

WILMINGTON TRUST, NATIONAL ASSOCIATION, as Agent

By:

Name:

Title:

Grantor:

[Name of Grantor]

By:

Name:

Title:

Schedule A

EXHIBIT B

Form of Joinder Agreement

This JOINDER AND ASSUMPTION AGREEMENT is made ___________ by ___________________________, a __________________________ (the “New Grantor”).

Reference is made to (i) the Credit Agreement dated as of January 29, 2018 (as amended, supplemented, amended and restated or otherwise modified from time to time, the “Credit Agreement”) among K. Hovnanian Enterprises, Inc., a California corporation (the “Borrower”), Hovnanian Enterprises, Inc., a Delaware corporation (“Holdings”), each of the other Guarantors party thereto, each of the Lenders party thereto and Wilmington Trust, National Association, as Administrative Agent (in such capacity, the “Administrative Agent”), (ii) the Joinder to the Credit Agreement dated [__] pursuant to which the New Grantor became party to the Credit Agreement as a Guarantor, (iii) the Security Agreement dated as of September 10, 2018 by each of the Grantors (as defined therein) in favor of the Administrative Agent, in its capacity as collateral agent (in such capacity, the “Agent”) for the benefit of itself and the Lenders (as the same may be modified, supplemented, amended or restated, the “Security Agreement”), (iv) the Pledge Agreement dated as of September 10, 2018 by each of the Pledgors (as defined therein) in favor of the Agent for the benefit of itself and the Lenders (as the same may be modified, supplemented, amended or restated, the “Pledge Agreement”), (v) the Amended and Restated Intercreditor Agreement, dated as of September 8, 2016 among the Borrower, Holdings, the guarantors party thereto, Wilmington Trust, National Association, in its capacity as Senior Credit Agreement Administrative Agent (as defined therein), Wilmington Trust, National Association, in its capacity as Mortgage Tax Collateral Agent (as defined therein) and Wilmington Trust, National Association, in its capacity as the Junior Joint Collateral Agent (as defined therein) and the Joinder to the Amended and Restated Intercreditor Agreement, dated as of July 27, 2017 among the Borrower, Holdings, the subsidiary guarantors named therein, Wilmington Trust, National Association, as Trustee (as defined therein) and Notes Collateral Agent (as defined therein), Wilmington Trust, National Association, as Senior Credit Agreement Administrative Agent, Wilmington Trust, National Association, as Junior Joint Collateral Agent and Wilmington Trust, National Association, as Mortgage Tax Collateral Agent (as the same may be amended, supplemented, amended or restated or otherwise modified from time to time, collectively the “Amended and Restated Intercreditor Agreement”); and (vi) the Joinder to the Amended and Restated Intercreditor Agreement dated September 10, 2018, pursuant to which the Administrative Agent became party to the Amended and Restated Intercreditor Agreement for the benefit of itself and the Lenders party to the Credit Agreement. Capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Credit Agreement or the Security Agreement or, if not defined therein, the Pledge Agreement.

The New Grantor hereby agrees that effective as of the date hereof it hereby is, and shall be deemed to be, a Grantor under the Security Agreement and the Amended and Restated Intercreditor Agreement and a Pledgor under the Pledge Agreement and agrees that from the date hereof until the payment in full of the Secured Obligations and the performance of all other obligations of the Borrower under the Loan Documents, New Grantor has assumed the obligations of a Grantor and Pledgor under, and New Grantor shall perform, comply with and be subject to and bound by, jointly and severally, each of the terms, provisions and waivers of, the Security Agreement, the Pledge Agreement, and each of the other Loan Documents which are stated to apply to or are made by a Grantor. Without limiting the generality of the foregoing, the New Grantor hereby represents and warrants that each of the representations and warranties set forth in the Security Agreement and the Pledge Agreement is true and correct as to New Grantor on and as of the date hereof as if made on and as of the date hereof by New Grantor.

New Grantor hereby makes, affirms, and ratifies in favor of the Secured Parties and the Agent, the Security Agreement, the Pledge Agreement and each of the other Loan Documents given by the Grantors to the Agent. In furtherance of the foregoing, New Grantor shall execute and deliver or cause to be executed and delivered at any time and from time to time such further instruments and documents and do or cause to be done such further acts as may be reasonably necessary to carry out more effectively the provisions and purposes of this Joinder Agreement (including, for the avoidance of doubt, the actions described in Section 10.04 of the Credit Agreement).

New Grantor has attached hereto Schedule 1 that supplements Schedules 1(a), 2(b), 2(c), 4, 5(a), and 5(b) to the Perfection Certificate and certifies, as of the date hereof, that the supplemental information set forth therein has been prepared by the New Grantor in substantially the form of the equivalent Schedules to the Perfection Certificate, and is complete and correct in all material respects.

IN WITNESS WHEREOF, the New Grantor has duly executed this Joinder Agreement and delivered the same to the Agent for the benefit of the Secured Parties, as of the date and year first written above.

[NAME OF NEW GRANTOR]

By:____________________________

Title:__________________________

Schedule 1¹

EXHIBIT C

FORM OF PERFECTION CERTIFICATE

The undersigned is a duly authorized officer of each of K. Hovnanian Enterprises, Inc. (the “Borrower”) and the entities listed on Schedule 1 hereto (each such entity together with the Borrower, a “Grantor”). With reference to the Security Agreement dated as of September 10, 2018 (the “Security Agreement”) among the Borrower, the Guarantors party thereto and Wilmington Trust, National Association, as Administrative Agent in its capacity as collateral agent (in such capacity, the “Agent”) (terms defined in the Security Agreement being used herein as therein defined), each of the undersigned certifies to the Agent and each other Secured Party as follows:

1.      Names. (a) The exact legal name of each Grantor (for which certificate or articles of incorporation, limited liability membership agreement or similar organizational documents (the “Constituent Documents” were delivered to the Agent, as it appears in each respective Constituent Document), the type of organization and the jurisdiction of organization (or formation, as applicable) for such Grantor is set forth in Schedule 1(a) hereto and (b) the exact legal name (except with respect to capitalization) of each Grantor (other than a Grantor set forth on Schedule 1(a) hereto), the type of organization and the jurisdiction of organization (or formation, as applicable) for such Grantor is set forth in Schedule 1(b) hereto.

2.      Lien Search Grantors. (a) Set forth on Schedule 2(a) is the name of each Grantor selected for lien searches (the “Lien Search Grantors”) and the county in which each Lien Search Grantor’s chief executive office is located, if such office is not located at 90 Matawan Road, Fifth Floor, Matawan, NJ 07747, as applicable.

(b)     Set forth in Schedule 2(b) hereto is each other entity name (including trade names or similar appellations) each Lien Search Grantor has had in the last five years, together with the date of the relevant change.

(c)     Except as set forth in Schedule 2(c) hereto, no Lien Search Grantor has changed its identity or entity structure in any way within the past five years.

3.      UCC Filings. In order to perfect the Liens granted by the Grantors, duly completed financing statements on Form UCC-1 with respect to each Grantor, with the collateral described as “All Personal Property” or “All Assets”, have been delivered to the Agent for filing in the Uniform Commercial Code filing office in each jurisdiction identified in paragraph 1 above, as applicable.

4.     Deposit Accounts and Securities Accounts. Set forth as Schedule 4 hereto is a true and complete list of all Deposit Accounts and Securities Accounts maintained by each Grantor, including the name of each institution where each such account is held, the name of each Grantor that holds each account and whether such Deposit Account or Securities Account is currently subject to a control agreement as of the date hereof. Schedule 4 shall not include escrow accounts (in which funds are held for or of others by virtue of customary real estate practice or contractual or legal requirements).

5.     Intellectual Property. (a)      Set forth as Schedule 5(a) hereto is a true and complete list of all of each Grantor’s Patents, Patent Licenses, Trademarks and Trademark Licenses (each as defined in the Security Agreement) registered with the United States Patent and Trademark Office, and all other Patents, Patent Licenses, Trademarks and Trademark Licenses, including the name of the registered owner and the registration number of each Patent, Patent License, Trademark and Trademark License owned by such Grantor.

(b)     Set forth as Schedule 5(b) hereto is a true and complete list of all of each Grantor’s United States Copyrights and Copyright Licenses (each as defined in the Security Agreement), and all Copyright Licenses, including the name of the registered owner and the registration number of each Copyright or Copyright License owned by such Grantor.

(c)     In order to preserve, protect and perfect the security interests in the United Sates Trademarks, Trademark Licenses, Patents, Patent Licenses, Copyrights and Copyright Licenses set forth on Schedule 5(a) and Schedule 5(b), duly signed copies of the Intellectual Property Security Agreement by the applicable Grantor have been delivered to the Collateral Agent for filing with the United States Patent and Trademark Office and United States Copyright Office, as applicable.

IN WITNESS WHEREOF, I have hereunto set my hand this __________, 20__.

[GRANTOR]

__________________________________

Name:
     Title:

¹ Schedules 1(a), 2(b), 2(c), 4, 5(a) and 5(b) of the Perfection Certificate to be updated as necessary.

EX-10.WWW

Exhibit 10(www)

Execution Version

TRADEMARK SECURITY AGREEMENT

This Trademark Security Agreement (the “Agreement”), dated as of September 10, 2018 is made by K HOV IP, II, INC. (the “Grantor”) in favor of Wilmington Trust, National Association, as Agent (as defined below) for the benefit of itself, the Secured Parties (as defined below).

WHEREAS, the Borrower, Holdings and each of the other Guarantors party thereto have entered into the Credit Agreement dated as of January 29, 2018, as amended by the First Amendment dated as of May 14, 2018 (as amended, supplemented, amended and restated or otherwise modified from time to time, the “Credit Agreement”) with Wilmington Trust, National Association, as Administrative Agent (in such capacity, the “Administrative Agent”) and the Lenders party thereto;

WHEREAS, the Borrower, Holdings, the Guarantors party thereto, Wilmington Trust, National Association, in its capacity as Senior Credit Agreement Administrative Agent (as defined therein), Wilmington Trust, National Association, in its capacity as Mortgage Tax Collateral Agent (as defined therein) and Wilmington Trust, National Association, in its capacity as the Junior Joint Collateral Agent (as defined therein) have entered into the Amended and Restated Intercreditor Agreement dated as of September 8, 2016 and the Borrower, Holdings, the Subsidiary Guarantors named therein, Wilmington Trust, National Association, as Trustee (as defined therein) and Notes Collateral Agent (as defined therein), Wilmington Trust, National Association, as Senior Credit Agreement Administrative Agent, Wilmington Trust, National Association, as Junior Joint Collateral Agent and Wilmington Trust, National Association, as Mortgage Tax Collateral Agent have entered into the Joinder to the Amended and Restated Intercreditor Agreement, dated as of July 27, 2017 (as the same may be amended, supplemented, amended or restated or otherwise modified from time to time, the “Amended and Restated Intercreditor Agreement”);

WHEREAS, the Agent is entering into the Joinder to the Amended and Restated Intercreditor Agreement dated as of the date hereof, pursuant to which the Agent becomes party to the Amended and Restated Intercreditor Agreement for the benefit of itself and the Lenders.

WHEREAS, the Loans constitute First-Lien Indebtedness under the Amended and Restated Intercreditor Agreement;

WHEREAS, the Borrower is a member of an affiliated group of companies that includes Holdings, the Borrower’s parent company, and each other Grantor;

WHEREAS, the Borrower and the other Grantors are engaged in related businesses, and each Grantor will derive substantial direct and indirect benefit from the borrowing of Loans; and

WHEREAS, pursuant to and under the Credit Agreement and the Security Agreement dated as of September 10, 2018 (the “Security Agreement”) among the Grantors party thereto (together with any other entity that may become a party thereto) and the Administrative Agent, in its capacity as collateral agent (in such capacity, the “Agent”), the Grantor has agreed to enter into this Agreement in order to grant a security interest to the Agent in certain Intellectual Property as security for such loans and other obligations as more fully described herein; and

NOW, THEREFORE, intending to be legally bound hereby, the parties hereto agree as follows:

1.     Defined Terms. Except as otherwise expressly provided herein, (i) capitalized terms used in this Agreement shall have the respective meanings assigned to them in the Security Agreement and (ii) the rules of construction set forth in Section 1. 2 of the Credit Agreement and the comparable provisions of any other Loan Documents shall apply to this Agreement. Where applicable and except as otherwise expressly provided herein, terms used herein (whether or not capitalized) shall have the respective meanings assigned to them in the Uniform Commercial Code as enacted in New York as amended from time to time (the “Code”).

2.     To secure the full payment and performance of all Secured Obligations, the Grantor hereby grants to the Agent a security interest in the entire right, title and interest of such Grantor in and to all of its Trademarks, including those set forth on Schedule A; provided, however, that notwithstanding any of the other provisions set forth in this Section 2 (and notwithstanding any recording of the Agent’s Lien made in the U.S. Patent and Trademark Office), this Agreement shall not constitute a grant of a security interest in any property to the extent that such grant of a security interest is prohibited by any applicable Law of an Official Body, requires a consent not obtained of any Official Body pursuant to such Law or is prohibited by, or constitutes a breach or default under or results in the termination of or gives rise to any right of acceleration, modification or cancellation or requires any consent not obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such property, except to the extent that such Law or the term in such contract, license, agreement, instrument or other document or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is ineffective under applicable Law including Sections 9-406, 9-407, 9-408 or 9-409 of the New York UCC (or any successor provision or provisions); provided, further, that no security interest shall be granted in any United States “intent-to-use” trademark or service mark applications unless and until acceptable evidence of use of the trademark or service mark has been filed with and accepted by the U.S. Patent and Trademark Office pursuant to Section 1(c) or Section 1(d) of the Lanham Act (U.S.C. 1051, et seq.), and to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such “intent-to-use” trademark or service mark applications under applicable federal Law. After such period and after such evidence of use has been filed and accepted, the Grantor acknowledges that such interest in such trademark or service mark applications will become part of the Collateral. The Agent agrees that, at the Grantor’s reasonable request and expense, it will provide such Grantor confirmation that the assets described in this paragraph are in fact excluded from the Collateral during such limited period only upon receipt of an Officer’s Certificate or an Opinion of Counsel to that effect.

3.     The Grantor covenants and warrants that:

(a)     To the knowledge of the Grantor, on the date hereof, all material Intellectual Property owned by the Grantor is valid, subsisting and unexpired, has not been abandoned and does not, to the knowledge of the Grantor, infringe the intellectual property rights of any other Person;

(b)     The Grantor is the owner of each item of Intellectual Property listed on Schedule A, free and clear of any and all Liens or claims of others except for the Permitted Liens. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except as permitted pursuant to this Agreement or as permitted by the Credit Agreement and any other applicable Loan Documents;

4.     The Grantor agrees that, until all of the Secured Obligations shall have been indefeasibly satisfied in full, it will not enter into any agreement which is inconsistent with the Grantor’s obligations under this Agreement, without the Agent’s prior written consent which shall not be unreasonably withheld. For clarity, the Grantor may license technology in the ordinary course of business without the Agent’s consent to suppliers and customers to facilitate the manufacture and use of the Grantor’s products.

5.     The Agent shall have, in addition to all other rights and remedies given it by this Agreement and those rights and remedies set forth in the Security Agreement and the Credit Agreement and any other applicable Loan Documents, those allowed by applicable Law and the rights and remedies of a secured party under the Uniform Commercial Code as enacted in any jurisdiction in which the Intellectual Property may be located and, without limiting the generality of the foregoing, solely if an Event of Default has occurred and is continuing, the Agent may immediately, without demand of performance and without other notice (except as set forth below) or demand whatsoever to the Grantor, all of which are hereby expressly waived, and without advertisement, sell at public or private sale or otherwise realize upon, in a city that the Agent shall designate by notice to the Grantor, the whole or from time to time any part of the Intellectual Property, or any interest which the Grantor may have therein and, after deducting from the proceeds of sale or other disposition of the Intellectual Property all expenses (including fees and expenses for brokers and attorneys), shall apply the remainder of such proceeds toward the payment of the Secured Obligations as the Agent, in its sole discretion, shall determine. Any remainder of the proceeds after payment in full of the Secured Obligations shall be paid over to the Grantor. Notice of any sale or other disposition of the Intellectual Property shall be given to the Grantor at least ten (10) days before the time of any intended public or private sale or other disposition of the Intellectual Property is to be made, which the Grantor hereby agrees shall be reasonable notice of such sale or other disposition. At any such sale or other disposition, the Agent may, to the extent permissible under applicable Law, purchase the whole or any part of the Intellectual Property sold, free from any right of redemption on the part of the Grantor, which right is hereby waived and released. The Agent shall endeavor to provide the Grantor with notice at or about the time of the exercise of remedies in the preceding sentence, provided that the failure to provide such notice shall not in any way compromise or adversely affect the exercise of such remedies or the Agent’s rights hereunder.

6.      All of the Agent’s rights and remedies with respect to the Intellectual Property, whether established hereby, by the Security Agreement or by the Credit Agreement or any other applicable Loan Documents or by any other agreements or by Law, shall be cumulative and may be exercised singularly or concurrently. In the event of any irreconcilable inconsistency in the terms of this Agreement and the Security Agreement, the Security Agreement shall control.

7.      The provisions of this Agreement are severable, and if any clause or provision shall be held invalid and unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any clause or provision of this Agreement in any jurisdiction.

8.      The benefits and burdens of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties, provided, however, that except as permitted by the Credit Agreement and any other applicable Loan Documents, the Grantor may not assign or transfer any of its rights or obligations hereunder or any interest herein and any such purported assignment or transfer shall be null and void.

 9.      This Agreement and the rights and obligations of the parties under this agreement shall be governed by, and construed and interpreted in accordance with, the Law of the State of New York.

10.     The Grantor (i) hereby irrevocably submits to the nonexclusive general jurisdiction of the courts of the State of New York and the courts of the United States of America for the Southern District of New York, or any successor to said court (hereinafter referred to as the “New York Courts”) for purposes of any suit, action or other proceeding which relates to this Agreement or any other Loan Document, (ii) to the extent permitted by applicable Law, hereby waives and agrees not to assert by way of motion, as a defense or otherwise in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of the New York Courts, that such suit, action or proceeding is brought in an inconvenient forum, that the venue of such suit, action or proceeding is improper, or that this Agreement or any Loan Document may not be enforced in or by the New York Courts, (iii) hereby agrees not to seek, and hereby waives, any collateral review by any other court, which may be called upon to enforce the judgment of any of the New York Courts, of the merits of any such suit, action or proceeding or the jurisdiction of the New York Courts, and (iv) waives personal service of any and all process upon it and consents that all such service of process be made by certified or registered mail addressed as provided in Section 13 hereof or at such other address of which the Agent shall have been notified pursuant thereto and service so made shall be deemed to be completed upon actual receipt thereof. Nothing herein shall limit any Secured Party’s right to bring any suit, action or other proceeding against the Grantor or any of any of the Grantor’s assets or to serve process on the Grantor by any means authorized by Law.

11.     This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

12.     THE GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY A JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

13.     All notices, requests and demands to or upon the Agent or the Grantor shall be effected in the manner provided for in Section 9.02 of the Credit Agreement and the related provisions of any other applicable Loan Documents.

14.     In the performance of its obligations, powers and rights hereunder, the Agent shall be entitled to the rights, benefits, privileges, powers and immunities afforded to it as Agent under the Credit Agreement and the other applicable Loan Documents. The Agent shall be entitled to refuse to take or refrain from taking any discretionary action or exercise any discretionary powers set forth in the Security Agreement unless it has received with respect thereto written direction of the Borrower or Required Lenders in accordance with the Credit Agreement. Notwithstanding anything to the contrary contained herein, the Agent shall have no responsibility for the creation, perfection, priority, sufficiency or protection of any liens securing Secured Obligations (including, but not limited to, no obligation to prepare, record, file, re-record or re-file any financing statement, continuation statement or other instrument in any public office). The permissive rights and authorizations of the Agent hereunder shall not be construed as duties. The Agent shall be entitled to exercise its powers and duties hereunder through designees, specialists, experts or other appointees selected by it in good faith.

[SIGNATURES APPEAR ON FOLLOWING PAGE]

IN WITNESS WHEREOF, each of the undersigned has caused this Trademark Security Agreement to be duly executed and delivered as of the date first above written.

WILMINGTON TRUST, NATIONAL ASSOCIATION, as Agent

By: /s/ Jeffery Rose

Name: Jeffery Rose

Title: Vice President

Grantor:

K HOV IP, II, INC.

By: /s/ Michael Discafani

Name: Michael Discafani

Title: Vice President and Secretary

Schedule A

Trademark Registrations and Applications

Trademark	Application No. / Registration No.
55 NEVER LOOKED SO GOOD	4035326
FROM YOUR HOME TO OURS	3682068
HOME DESIGN GALLERY	3017498
HOVNANIAN ENTERPRISES	3782845
HOVNANIAN ENTERPRISES, INC. and Design	3786278
IF YOU'RE NOT 55, YOU'LL WISH YOU WERE	3564614
K HOVNANIAN HOMES and Design	3493815
K. HOVNANIAN	3579682
KHOV	2710008
KHOV.COM	2544720
LET'S BUILD IT TOGETHER	2965030
LIFE. STYLE. CHOICES.	2725754
M&M MATZEL & MUMFORD Design	3485602
NATURE TECHNOLOGY EFFICIENCY and Design	4152642
NATURE TECHNOLOGY EFFICIENCY and Design	4204392
NATURE TECHNOLOGY EFFICIENCY	4116384
NATURE TECHNOLOGY EFFICIENCY	4116385
THE FIRST NAME IN LASTING VALUE	1418620
THE NAME BEHIND THE DREAM	3832465
WONDER HOMES	2671912
STYLESUITE	4126920
Design	2040802
BRIGHTON HOMES	2412033
BRIGHTON HOMES	2395356
MISSION EXCELLENCE	5179939

EX-10.XXX

Exhibit 10(xxx)

Execution Version

PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT, dated as of September 10, 2018 (as restated, amended, modified or supplemented from time to time, the “Agreement”), is given by K. HOVNANIAN ENTERPRISES, INC., a California corporation (the “Borrower”), HOVNANIAN ENTERPRISES, INC., a Delaware corporation (“Holdings”), each of the undersigned parties listed on SCHEDULE A hereto AND EACH OF THE OTHER PERSONS AND ENTITIES THAT BECOME BOUND HEREBY FROM TIME TO TIME BY JOINDER, ASSUMPTION OR OTHERWISE (together with the Borrower and Holdings, each a “Pledgor” and collectively the “Pledgors”), as a Pledgor of the equity interests in the Companies (as defined herein), as more fully set forth herein, to WILMINGTON TRUST, NATIONAL ASSOCIATION, as Administrative Agent in its capacity as collateral agent (in such capacity, the “Agent”), for the benefit of itself and the Lenders.

WHEREAS, the Borrower, Holdings, and each of the other Pledgors have entered into the Credit Agreement dated as of January 29, 2018, as amended by the First Amendment dated as of May 14, 2018 (as amended, supplemented, amended and restated or otherwise modified from time to time, the “Credit Agreement”) with Wilmington Trust, National Association, as Administrative Agent, and the Lenders from time to time party thereto;

WHEREAS, the Borrower, Holdings, the Guarantors party thereto, Wilmington Trust, National Association, in its capacity as Senior Credit Agreement Administrative Agent (as defined therein), Wilmington Trust, National Association, in its capacity as Mortgage Tax Collateral Agent (as defined therein) and Wilmington Trust, National Association, in its capacity as the Junior Joint Collateral Agent (as defined therein) have entered into the Amended and Restated Intercreditor Agreement dated as of September 8, 2016 and the Borrower, Holdings, the Subsidiary Guarantors named therein, Wilmington Trust, National Association, as Trustee (as defined therein) and Notes Collateral Agent (as defined therein), Wilmington Trust, National Association, as Senior Credit Agreement Administrative Agent, Wilmington Trust, National Association, as Junior Joint Collateral Agent and Wilmington Trust, National Association, as Mortgage Tax Collateral Agent have entered into the Joinder to the Amended and Restated Intercreditor Agreement dated as of July 27, 2017 (as amended, supplemented, amended or restated or otherwise modified from time to time, the “Amended and Restated Intercreditor Agreement”);

WHEREAS, the Administrative Agent is entering into the Joinder to the Amended and Restated Intercreditor Agreement dated as of the date hereof, pursuant to which the Agent becomes party to the Amended and Restated Intercreditor Agreement for the benefit of itself and the Lenders.

WHEREAS, the Loans constitute First-Lien Indebtedness under the Amended and Restated Intercreditor Agreement;

WHEREAS, in connection with the Credit Agreement, the Pledgors are required to execute and deliver this Agreement to secure their obligations with respect to the Credit Agreement and the Loans; and

WHEREAS, each Pledgor owns the outstanding capital stock, shares, securities, member interests, partnership interests and other ownership interests of the Companies.

NOW, THEREFORE, intending to be legally bound hereby, the parties hereto hereby agree as follows:

1.     Defined Terms.

(a)     Except as otherwise expressly provided herein, capitalized terms used in this Agreement (including the recitals above) shall have the respective meanings assigned to them in the Credit Agreement. Where applicable and except as otherwise expressly provided herein, terms used herein (whether or not capitalized) that are defined in Article 8 or Article 9 of the Uniform Commercial Code as enacted in the State of New York, as amended from time to time (the “Code”), and are not otherwise defined herein or in the Credit Agreement shall have the same meanings herein as set forth therein.

(b)     “Agreement” shall mean this Pledge Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time.

(c)      “Collateral” shall have the meaning ascribed to such term in Article 2 of the Security Agreement.

(d)     “Company” shall mean individually each Restricted Subsidiary, and “Companies” shall mean, collectively, all Restricted Subsidiaries.

(e)     “Guarantors” shall mean the collective reference to each Pledgor other than the Borrower.

(f)     “Law” shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree, bond, judgment, authorization or approval, lien or award of or settlement agreement with any Official Body.

(g)     “Loan Document” shall mean collectively (a) the Credit Agreement and the Collateral Documents and (b) any other related document or instrument executed and delivered pursuant to any Loan Document described in clause (a) above evidencing or governing any Secured Obligations as the same may be amended, restated or otherwise modified from time to time.

(h)     “Margin Stock” shall have the meaning specified in Section 4(a).

(i)     “Official Body” shall mean any national, federal, state, local or other governmental or political subdivision or any agency, authority, board, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic.

(j)     “Perfection Certificate” shall mean with respect to any Pledgor, a certificate substantially in the form of Schedule C to the Security Agreement, completed and supplemented with the schedules contemplated thereby, and signed by an officer of such Pledgor.

(k)     “Pledged Collateral” shall mean and include the following with respect to each Company: (i) the capital stock, shares, securities, investment property, member interests, partnership interests, warrants, options, put rights, call rights, similar rights, and all other ownership or participation interests, in any Company and K. Hovnanian JV Holdings, L.L.C. owned or held by any Pledgor at any time including those in any Company hereafter formed or acquired, and (ii) all rights and privileges pertaining thereto, including without limitation, all present and future securities, shares, capital stock, investment property, dividends, distributions and other ownership interests receivable in respect of or in exchange for any of the foregoing, all present and future rights to subscribe for securities, shares, capital stock, investment property or other ownership interests incident to or arising from ownership of any of the foregoing, all present and future cash, interest, stock or other dividends or distributions paid or payable on any of the foregoing, and all present and future books and records (whether paper, electronic or any other medium) pertaining to any of the foregoing, including, without limitation, all stock record and transfer books and (iii) whatever is received when any of the foregoing is sold, exchanged, replaced or otherwise disposed of, including all proceeds, as such term is defined in the Code, thereof; provided, however, that notwithstanding any of the other provisions set forth in this Agreement, this Agreement shall not constitute a grant of a security interest in, and the Pledged Collateral shall not include, (A) any property or assets constituting “Excluded Property” (as defined in the Credit Agreement) or (B) any property to the extent that such grant of a security interest is prohibited by any applicable Law of an Official Body, requires a consent not obtained of any Official Body pursuant to such Law or is prohibited by, or constitutes a breach or default under or results in the termination of or gives rise to any right of acceleration, modification or cancellation or requires any consent not obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such property or any applicable shareholder or similar agreement, except to the extent that such Law or the term in such contract, license, agreement, instrument or other document or shareholder or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is ineffective under applicable Law including Sections 9-406, 9-407, 9-408 or 9-409 of the New York UCC (or any successor provision or provisions). The Agent agrees that, at any Pledgor’s reasonable request and expense, it will provide such Pledgor confirmation that the assets described in this paragraph are in fact excluded from the Pledged Collateral during such limited period only upon receipt of an Officers’ Certificate and an Opinion of Counsel to that effect. Notwithstanding the foregoing, in the event that Rule 3-16 of Regulation S-X under the Securities Act requires (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would require) the filing with the SEC of separate financial statements (including if the Loans were “Securities” under the Securities Act) of the Borrower, any Guarantor or K. Hovnanian JV Holdings, L.L.C., then the capital stock or other securities of the Borrower, such Guarantor or K. Hovnanian JV Holdings, L.L.C., as applicable, shall automatically be deemed released and not to be and not to have been part of the Pledged Collateral but only to the extent necessary to not be subject to such requirement. In such event, this Agreement may be amended or modified, without the consent of any Lender upon the Agent’s receipt of a written authorization from the Borrower stating that such amendment is permitted hereunder, which the Agent shall be entitled to conclusively rely upon, to the extent necessary to evidence the release of the lien created hereby on the shares of capital stock or other securities that are so deemed to no longer constitute part of the Pledged Collateral.

(l)     “Secured Obligations” shall mean all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding. Without limiting the generality of the foregoing, the Loan Obligations of the Loan Parties under the Loan Documents include the obligation to pay principal, interest, charges, expenses, fees, Attorney Costs indemnities and other amounts payable by any Loan Party under any Loan Document.

(m)     “Secured Parties” shall mean, collectively, the Administrative Agent, the Agent, the Mortgage Tax Collateral Agent, the Lenders, the Supplemental Administrative Agent, if any, and each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 8.05 of the Credit Agreement.

(n)     “Security Agreement” shall mean the Security Agreement dated as September 10, 2018 among the Borrower, Holdings and the Grantors party thereto and the Agent, as amended, supplemented, amended and restated or otherwise modified from time to time.

(o)     “Security Documents” shall have the meaning specified in Section 3.

2.     Grant of Security Interests.

(a)     To secure on a first priority perfected basis the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all Secured Obligations, in full, each Pledgor hereby grants to the Agent a continuing first priority security interest under the Code in and hereby pledges to the Agent, in each case for its benefit and the ratable benefit of the Secured Parties, all of such Pledgor’s now existing and hereafter acquired or arising right, title and interest in, to, and under the Pledged Collateral, whether now or hereafter existing and wherever located.

(b)     Upon the execution and delivery of this Agreement, each Pledgor shall deliver to the Agent (or with a Person designated by the Agent to hold the Pledged Collateral on behalf of the Agent) in pledge, all of such Pledgor’s certificates, instruments or other documents comprising or evidencing the Pledged Collateral, together with undated stock powers or similar transfer documents signed in blank by such Pledgor. In the event that any Pledgor should ever acquire or receive certificates, securities, instruments or other documents evidencing the Pledged Collateral, such Pledgor shall deliver to the Agent in pledge, all such certificates, securities, instruments or other documents which evidence the Pledged Collateral.

3.     Further Assurances.

Prior to or concurrently with the execution of this Agreement, and thereafter at any time and from time to time, each Pledgor (in its capacity as a Pledgor and in its capacity as a Company) shall execute and deliver to the Agent all financing statements, continuation financing statements, assignments, certificates and documents of title, affidavits, reports, notices, schedules of account, letters of authority, further pledges, powers of attorney and all other documents (collectively, the “Security Documents”) as may be required under applicable law to perfect and continue perfecting and to create and maintain the first priority status of the Agent’s security interest in the Pledged Collateral and to fully consummate the transactions contemplated under this Agreement. Each Pledgor authorizes the Agent to record any one or more financing statements under the applicable Uniform Commercial Code with respect to the pledge and security interest herein granted. Each Pledgor hereby irrevocably makes, constitutes and appoints the Agent (and any of the Agent’s officers or employees or agents designated by the Agent) as such Pledgor’s true and lawful attorney with power to sign the name of such Pledgor on all or any of the Security Documents which, pursuant to applicable law, must be executed, filed, recorded or sent in order to perfect or continue perfecting the Agent’s security interest in the Pledged Collateral in any jurisdiction. Such power, being coupled with an interest, is irrevocable until all of the Secured Obligations have been indefeasibly paid, in cash, in full.

4.     Representations and Warranties.

Each Pledgor hereby, jointly and severally, represents and warrants to the Agent as follows:

(a)     The Pledged Collateral of such Pledgor does not include Margin Stock. “Margin Stock” as used in this clause (a) shall have the meaning ascribed to such term by Regulation U of the Board of Governors of the Federal Reserve System of the United States;

(b)     The Pledgor has and will continue to have (or, in the case of after-acquired Pledged Collateral, at the time such Pledgor acquires rights in such Pledged Collateral, will have and will continue to have), title to its Pledged Collateral, free and clear of all Liens other than Permitted Liens;

(c)     The capital stock, shares, securities, member interests, partnership interests and other ownership interests constituting the Pledged Collateral of such Pledgor have been duly authorized and validly issued to such Pledgor, are fully paid and nonassessable and constitute one hundred percent (100%) of the issued and outstanding capital stock, member interests or partnership interests of each Company;

(d)     Upon the completion of the filings and other actions specified on Schedule B attached hereto, the security interests in the Pledged Collateral granted hereunder by such Pledgor shall be valid, perfected and of first priority, subject to the Lien of no other Person (other than Permitted Liens);

(e)     There are no restrictions upon the transfer of the Pledged Collateral (other than restrictions that have been waived pursuant to Section 24 hereof) and such Pledgor has the power and authority and unencumbered right to transfer the Pledged Collateral owned by such Pledgor free of any Lien (other than Permitted Liens) and without obtaining the consent of any other Person;

(f)     Such Pledgor has all necessary power to execute, deliver and perform this Agreement;

(g)     This Agreement has been duly executed and delivered and constitutes the valid and legally binding obligation of each Pledgor, enforceable in accordance with its terms, except to the extent that enforceability of this Agreement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforceability of creditors’ rights generally or limiting the right of specific performance;

(h)     Neither the execution or delivery by each Pledgor of this Agreement, nor the compliance with the terms and provisions hereof, will violate any provision of any Law or conflict with or result in a breach of any of the terms, conditions or provisions of any judgment, order, injunction, decree or ruling of any Official Body to which any Pledgor or any of its property is subject or any provision of any material agreement or instrument to which Pledgor is a party or by which such Pledgor or any of its property is bound;

(i)     Each Pledgor’s exact legal name is as set forth on such Pledgor’s signature page hereto;

(j)     The jurisdiction of incorporation, formation or organization, as applicable, of each Pledgor is as set forth on Schedule 1(a) and Schedule 1(b) to the Perfection Certificate;

(k)     Such Pledgor’s chief executive office is as set forth on Schedule 2(a) to the Perfection Certificate; and

(l)     All rights of such Pledgor in connection with its ownership of each of the Companies are evidenced and governed solely by the stock certificates, instruments or other documents (if any) evidencing ownership of each of the Companies and the organizational documents of each of the Companies, and no shareholder, voting, or other similar agreements are applicable to any of the Pledged Collateral or any of any Pledgor’s rights with respect thereto, and no such certificate, instrument or other document provides that any member interest, partnership interest or other intangible ownership interest in any limited liability company or partnership constituting Pledged Collateral is a “security” within the meaning of and subject to Article 8 of the Code, except pursuant to Section 5(f) hereof; and the organizational documents of each Company contain no restrictions (other than restrictions that have been waived pursuant to Section 24 hereof) on the rights of shareholders, members or partners other than those that normally would apply to a company organized under the laws of the jurisdiction of organization of each of the Companies.

5.     General Covenants.

Each Pledgor, jointly and severally, hereby covenants and agrees as follows:

(a)     Each Pledgor shall do all reasonable acts that may be necessary and appropriate to maintain, preserve and protect the Pledged Collateral; and each Pledgor shall be responsible for the risk of loss of, damage to, or destruction of the Pledged Collateral owned by such Pledgor, unless such loss is the result of the gross negligence or willful misconduct of the Agent;

(b)     Each Pledgor shall appear in and defend any action or proceeding of which such Pledgor is aware which could reasonably be expected to affect, in any material respect, any Pledgor’s title to, or the Agent’s interest in, the Pledged Collateral or the proceeds thereof; provided, however, that with the prior written consent of the Agent, such Pledgor may settle such actions or proceedings with respect to the Pledged Collateral;

(c)     The books and records of each of the Pledgors and Companies, as applicable, shall disclose the Agent’s security interest in the Pledged Collateral;

(d)     To the extent, following the date hereof, any Pledgor acquires capital stock, shares, securities, member interests, partnership interests, investment property and other ownership interests of any of the Companies or any other Restricted Subsidiary or any of the rights, property or securities, shares, capital stock, member interests, partnership interests, investment property or any other ownership interests described in the definition of Pledged Collateral with respect to any of the Companies or any other Restricted Subsidiary, all such ownership interests shall be subject to the terms hereof and, upon such acquisition, shall be deemed to be hereby pledged to the Agent; and each Pledgor thereupon, in confirmation thereof, shall promptly deliver all such securities, shares, capital stock, member interests, partnership interests, investment property and other ownership interests (to the extent such items are certificated), to the Agent, together with undated stock powers or other similar transfer documents, and all such control agreements, financing statements, and any other documents necessary to implement the provisions and purposes of this Agreement and any other documents as the Agent may request related thereto;

(e)     Each Pledgor shall notify the Agent in writing within thirty (30) calendar days after any change in any Pledgor’s chief executive office address, legal name, or state of incorporation, formation or organization; and

(f)     During the term of this Agreement, no Pledgor shall permit or cause any Company which is a limited liability company or a limited partnership to (and no Pledgor (in its capacity as Company) shall) issue any certificates evidencing the ownership interests of such Company or elect to treat any ownership interests as securities that are subject to Article 8 of the Code unless such securities are immediately delivered to the Agent upon issuance, together with all evidence of such election and issuance and all Security Documents as set forth in Section 3 hereof.

6.     Other Rights With Respect to Pledged Collateral.

In addition to the other rights with respect to the Pledged Collateral granted to the Agent hereunder, at any time and from time to time, after and during the continuation of an Event of Default, the Agent, at its option and at the expense of the Pledgors, may, subject to the Amended and Restated Intercreditor Agreement, any collateral agency agreement and any other intercreditor agreement entered into in connection with Indebtedness permitted under the Credit Agreement, (a) transfer into its own name, or into the name of its nominee, all or any part of the Pledged Collateral, thereafter receiving all dividends, income or other distributions upon the Pledged Collateral; (b) take control of and manage all or any of the Pledged Collateral; (c) apply to the payment of any of the Secured Obligations, whether any be due and payable or not, any moneys, including cash dividends and income from any Pledged Collateral, now or hereafter in the hands of the Agent or any Affiliate of the Agent, on deposit or otherwise, belonging to any Pledgor, as the Agent in its sole discretion shall determine; and (d) do anything which any Pledgor is required but fails to do hereunder. The Agent shall endeavor to provide the Borrower with notice at or about the time of the exercise of its rights pursuant to the preceding sentence, provided that the failure to provide such notice shall not in any way compromise or adversely affect the exercise of any rights or remedies hereunder.

7.     Additional Remedies Upon Event of Default.

Upon the occurrence of any Event of Default and while such Event of Default shall be continuing, the Agent shall have, in addition to all rights and remedies of a secured party under the Code or other applicable Law, and in addition to its rights under Section 6 above and under the other Loan Documents, the following rights and remedies, in each case subject to the Amended and Restated Intercreditor Agreement, any collateral agency agreement and any other intercreditor agreement entered into in connection with Indebtedness permitted under the Credit Agreement:

(a)     The Agent may, after ten (10) days’ advance notice to a Pledgor, sell, assign, give an option or options to purchase or otherwise dispose of such Pledgor’s Pledged Collateral or any part thereof at public or private sale, at any of the Agent’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. Each Pledgor agrees that ten (10) days’ advance notice of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Pledgor recognizes that the Agent may be compelled to resort to one or more private sales of the Pledged Collateral to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities, shares, capital stock, member interests, partnership interests, investment property or ownership interests for their own account for investment and not with a view to the distribution or resale thereof.

(b)     The proceeds of any collection, sale or other disposition of the Pledged Collateral, or any part thereof, shall, after the Agent has made all deductions of expenses, including, without limitation, reasonable attorneys’ fees and disbursements as provided in Section 9.05 of the Credit Agreement, and other expenses incurred in connection with repossession, collection, sale or disposition of such Pledged Collateral or in connection with the enforcement of the Agent’s rights with respect to the Pledged Collateral, including in any insolvency, bankruptcy or reorganization proceedings, be applied against the Secured Obligations, whether or not all the same be then due and payable, as provided in the Credit Agreement. The Agent shall incur no liability as a result of the sale of the Pledged Collateral, or any part thereof, at any private sale pursuant to this Section 7 conducted in accordance with the requirements of applicable laws and provided such sale shall not have resulted from the gross negligence, willful misconduct or fraud of the Agent. Each Pledgor hereby waives any claims against the Agent and the other Secured Parties arising by reason of the fact that the price at which the Pledged Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if the Agent accepts the first offer received and does not offer the Pledged Collateral to more than one offeree, provided that such private sale is conducted in accordance with applicable laws and this Agreement. Each Pledgor hereby agrees that in respect of any sale of any of the Pledged Collateral pursuant to the terms hereof, the Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable laws, or in order to obtain any required approval of the sale or of the purchaser by any governmental authority or official, nor shall the Agent be liable or accountable to any Pledgor for any discount allowed by reason of the fact that such Pledged Collateral is sold in compliance with any such limitation or restriction.

8.     Agent’s Duties.

The powers conferred on the Agent hereunder are solely to protect its interest (on behalf of itself and the Lenders) in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, the Agent shall have no duty as to any Pledged Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Pledged Collateral.

9.     Additional Pledgors.

It is anticipated that additional persons may from time to time become Subsidiaries of the Borrower or a Guarantor, each of whom will be required to join this Agreement as a Pledgor hereunder to the extent that such new Subsidiary is required to become a Guarantor under the Credit Agreement and owns equity interests in any other Person that is a Restricted Subsidiary. It is acknowledged and agreed that such new Subsidiaries of the Borrower or a Guarantor may become Pledgors hereunder and will be bound hereby simply by executing and delivering to the Agent a Supplemental Guarantee (in the form of Exhibit I to the Credit Agreement) and a Joinder Agreement in the form of Exhibit B to the Security Agreement. No notice of the addition of any Pledgor shall be required to be given to any pre-existing Pledgor, and each Pledgor hereby consents thereto.

10.     No Waiver; Cumulative Remedies.

No failure to exercise, and no delay in exercising, on the part of the Agent, any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any further exercise thereof or the exercise of any other right, power or privilege. No waiver of a single Event of Default shall be deemed a waiver of a subsequent Event of Default. The remedies herein provided are cumulative and not exclusive of any remedies provided under the other Loan Documents or by Law, rule or regulation and the Agent may enforce any one or more remedies hereunder successively or concurrently at its option. Each Pledgor waives any right to require the Agent to proceed against any other Person or to exhaust any of the Pledged Collateral or other security for the Secured Obligations or to pursue any remedy in the Agent’s power.

11.     Waivers.

Each Pledgor hereby waives any and all defenses which any Pledgor may now or hereafter have based on principles of suretyship, impairment of collateral, or the like and each Pledgor hereby waives any defense to or limitation on its obligations under this Agreement arising out of or based on any event or circumstance referred to in the immediately preceding Section hereof. Without limiting the generality of the foregoing and to the fullest extent permitted by applicable law, each Pledgor hereby further waives each of the following:

(i)     All notices, disclosures and demands of any nature which otherwise might be required from time to time to preserve intact any rights against such Pledgor, including the following: any notice of any event or circumstance described in the immediately preceding Section hereof; any notice required by any law, regulation or order now or hereafter in effect in any jurisdiction; any notice of nonpayment, nonperformance, dishonor, or protest under any Loan Document or any of the Secured Obligations; any notice of the incurrence of any Secured Obligation; any notice of any default or any failure on the part of such Pledgor or the Borrower or any other Person to comply with any Loan Document or any of the Secured Obligations or any requirement pertaining to any direct or indirect security for any of the Secured Obligations; and any notice or other information pertaining to the business, operations, condition (financial or otherwise), or prospects of the Borrower or any other Person;

(ii)     Any right to any marshalling of assets, to the filing of any claim against such Pledgor or the Borrower or any other Person in the event of any bankruptcy, insolvency, reorganization, or similar proceeding, or to the exercise against such Pledgor or the Borrower, or any other Person of any other right or remedy under or in connection with any Loan Document or any of the Secured Obligations or any direct or indirect security for any of the Secured Obligations; any requirement of promptness or diligence on the part of the Agent, the Administrative Agent, the Lenders or any other Person; any requirement to exhaust any remedies under or in connection with, or to mitigate the damages resulting from default under, any Loan Document or any of the Secured Obligations or any direct or indirect security for any of the Secured Obligations; any benefit of any statute of limitations; and any requirement of acceptance of this Agreement or any other Loan Document, and any requirement that any Pledgor receive notice of any such acceptance; and

(iii)     Any defense or other right arising by reason of any Law now or hereafter in effect in any jurisdiction pertaining to election of remedies (including anti-deficiency laws, “one action” laws, or the like), or by reason of any election of remedies or other action or inaction by the Agent, the Administrative Agent or the Lenders (including commencement or completion of any judicial proceeding or nonjudicial sale or other action in respect of collateral security for any of the Secured Obligations), which results in denial or impairment of the right of the Agent, the Administrative Agent or the Lenders to seek a deficiency against the Borrower or any other Person or which otherwise discharges or impairs any of the Secured Obligations.

12.     Assignment.

All rights of the Agent under this Agreement shall inure to the benefit of its successors and assigns. All obligations of each Pledgor shall bind its successors and assigns; provided, however, that no Pledgor may assign or transfer any of its rights and obligations hereunder or any interest herein, and any such purported assignment or transfer shall be null and void.

13.     Severability.

Any provision (or portion thereof) of this Agreement which shall be held invalid or unenforceable shall be ineffective without invalidating the remaining provisions hereof (or portions thereof).

14.     Governing Law.

This Agreement and the rights and obligations of the parties under this Agreement shall be governed by, and construed and interpreted in accordance with, the Law of the State of New York, except to the extent the Law of the State of New York provides for perfection of the security interests or the remedies hereunder in respect of any Pledged Collateral are to be governed by the law of a jurisdiction other than the State of New York.

15.     Notices.

All notices, requests, demands, directions and other communications (collectively, “notices”) given to or made upon any party hereto under the provisions of this Agreement shall be given or made as set forth in Section 9.02 of the Credit Agreement, and the Pledgors (in their capacity as Pledgors and in their capacity as Companies) shall simultaneously send to the Agent any notices such Pledgor or such Company delivers to each other regarding any of the Pledged Collateral.

16.     Specific Performance.

Each Pledgor acknowledges and agrees that, in addition to the other rights of the Agent hereunder and under the other Loan Documents, because the Agent’s remedies at law for failure of any Pledgor to comply with the provisions hereof relating to the Agent’s rights (i) to inspect the books and records related to the Pledged Collateral, (ii) to receive the various notifications any Pledgor is required to deliver hereunder, (iii) to obtain copies of agreements and documents as provided herein with respect to the Pledged Collateral, (iv) to enforce the provisions hereof pursuant to which any Pledgor has appointed the Agent its attorney-in-fact, and (v) to enforce the Agent’s remedies hereunder, would be inadequate and that any such failure would not be adequately compensable in damages, such Pledgor agrees that each such provision hereof may be specifically enforced.

17.     Voting Rights in Respect of the Pledged Collateral.

So long as no Event of Default shall occur and be continuing under the Credit Agreement, each Pledgor may exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the other Loan Documents; provided, however, that such Pledgor will not exercise or will refrain from exercising any such voting and other consensual right pertaining to the Pledged Collateral, as the case may be, if such action would have a material adverse effect on the value of any Pledged Collateral. At any time and from time to time, after and during the continuation of an Event of Default, no Pledgor shall be permitted to exercise any of its respective voting and other consensual rights whatsoever pertaining to the Pledged Collateral or any part thereof; provided, however, in addition to the other rights with respect to the Pledged Collateral granted to the Agent, the Administrative Agent and the Lenders for the benefit of itself and the Lenders, hereunder, at any time and from time to time, after and during the continuation of an Event of Default and subject to the Amended and Restated Intercreditor Agreement, any collateral agency agreement and any other intercreditor agreement entered into in connection with Indebtedness permitted under the Credit Agreement, the Agent may exercise any and all voting and other consensual rights of each and every Pledgor pertaining to the Pledged Collateral or any part thereof. The Agent shall endeavor to provide the Borrower with notice at or about the time of the exercise by Agent of the voting or other consensual rights of such Pledgor pertaining to the Pledged Collateral, provided that the failure to provide such notice shall not in any way compromise or adversely affect the exercise of Agent’s rights or remedies hereunder. Without limiting the generality of the foregoing and in addition thereto, Pledgors shall not vote to enable, or take any other action to permit, any Company to: (i) issue any other ownership interests of any nature or to issue any other securities, investment property or other ownership interests convertible into or granting the right to purchase or exchange for any other ownership interests of any nature of any such Company, except as permitted by the Credit Agreement; or (ii) enter into any agreement or undertaking restricting the right or ability of such Pledgor or the Agent to sell, assign or transfer any of the Pledged Collateral without the Agent’s prior written consent, except as permitted by the Credit Agreement.

18.     Consent to Jurisdiction.

Each Pledgor (as a Pledgor and as a Company) hereby irrevocably and unconditionally:

(a)     submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof;

(b)     consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c)     agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Pledgor at its address referred to in Schedule 9.02 of the Credit Agreement or at such other address of which the Agent shall have been notified pursuant thereto;

(d)     agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

(e)     waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

19.     Waiver of Jury Trial.

EXCEPT AS PROHIBITED BY LAW, EACH PLEDGOR (AS A PLEDGOR AND AS A COMPANY), EACH OF THE COMPANIES AND THE AGENT, ON BEHALF OF ITSELF, THE ADMINISTRATIVE AGENT AND THE LENDERS, HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY A JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER DOCUMENTS OR TRANSACTIONS RELATING THERETO.

20.     Entire Agreement; Amendments.

(a)     This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to a grant of a security interest in the Pledged Collateral by any Pledgor to the Agent.

(b)     Except as expressly provided in (i) Section 9.01 of the Credit Agreement, (ii) Section 9 with respect to additional Pledgors, (iii) Section 21 with respect to the release of Pledgors and Companies, (iv) Section 10.03 of the Credit Agreement and (v) Section 8.01 of the Security Agreement, this Agreement may not be amended or supplemented except by a writing signed by the Agent and the Pledgors.

21.     Automatic Release of Related Collateral and Equity.

At any time after the initial execution and delivery of this Agreement to the Agent, the Pledgors and their respective Pledged Collateral and the Companies and K. Hovnanian JV Holdings, L.L.C. may be released from this Agreement in accordance with and pursuant to Section 10.03 of the Credit Agreement. No notice of such release of any Pledgor or such Pledgor’s Pledged Collateral shall be required to be given to any other Pledgor and each Pledgor hereby consents thereto.

22.     Counterparts; Telecopy Signatures.

This Agreement may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same instrument. Each Pledgor acknowledges and agrees that a telecopy or electronic (i.e., “e-mail” or “portable document folio” (“pdf”)) transmission to the Agent of the signature pages hereof purporting to be signed on behalf of any Pledgor shall constitute effective and binding execution and delivery hereof by such Pledgor.

23.     Construction.

The rules of construction contained in Section 1.02 of the Credit Agreement apply to this Agreement.

24.     Waiver of Restrictions.

Each Pledgor agrees that any restriction on transfer (if any) of the Pledged Collateral contained in the organizational documents to which such Pledgor is a party, is hereby waived, and further agrees that any such restriction does not apply to the grant of security interest made hereunder or to any transfer of the Pledged Collateral to a Secured Party or any third party in connection with an exercise of remedies hereunder.

25.     Agent Privileges, Powers and Immunities.

In the performance of its obligations, powers and rights hereunder, the Agent shall be entitled to the rights, benefits, privileges, powers and immunities afforded to it as Administrative Agent under the Credit Agreement. The Agent shall take or refrain from taking any discretionary action or exercise any discretionary powers set forth in this Agreement in accordance with, and subject to, the Credit Agreement. Notwithstanding anything to the contrary contained herein and notwithstanding anything contained in Section 9-207 of the New York UCC, the Agent shall have no responsibility for the creation, perfection, priority, sufficiency or protection of any liens securing Secured Obligations (including, but not limited to, no obligation to prepare, record, file, re-record or re-file any financing statement, continuation statement or other instrument in any public office). The permissive rights and authorizations of the Agent hereunder shall not be construed as duties. The Agent shall be entitled to exercise its powers and duties hereunder through designees, specialists, experts or other appointees selected by it in good faith.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, and intending to be legally bound, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

WILMINGTON TRUST, NATIONAL ASSOCIATION, as Agent

By:     /s/ Jeffery Rose

Name: Jeffery Rose

Title: Vice President

Pledgors:

K. HOVNANIAN ENTERPRISES, INC.

By:     /s/ J. Larry Sorsby

Name: J. Larry Sorsby

Title: Executive Vice President and Chief Financial Officer

HOVNANIAN ENTERPRISES, INC.

By:     /s/ J. Larry Sorsby

Name: J. Larry Sorsby

Title: Executive Vice President and Chief Financial Officer

K. HOV IP, II, INC.

By:     /s/ Michael Discafani

Name: Michael Discafani

Title: Vice President and Secretary

ON BEHALF OF EACH OTHER ENTITY NAMED IN SCHEDULE A HERETO

By:     /s/ J. Larry Sorsby

Name: J. Larry Sorsby

Title: Executive Vice President and Chief Financial Officer

SCHEDULE A – LIST OF ENTITIES

Arbor Trails, LLC

Builder Services NJ, L.L.C.

Builder Services PA, L.L.C.

Eastern National Title Agency, LLC

Eastern Title Agency of Illinois, LLC

EASTERN TITLE AGENCY, INC.

F&W MECHANICAL SERVICES, L.L.C.

Founders Title Agency of Maryland, L.L.C.

FOUNDERS TITLE AGENCY, INC.

Glenrise Grove, L.L.C.

Governor's Abstract Co., Inc.

Hilltop at Cedar Grove Urban Renewal, LLC

Homebuyers Financial Services, L.L.C.

HOVNANIAN DEVELOPMENTS OF FLORIDA, INC.

Hovnanian Land Investment Group of Florida, L.L.C.

Hovnanian Land Investment Group of Maryland, L.L.C.

Hovnanian Land Investment Group, L.L.C.

K Hovnanian Homes at Maxwell Place, L.L.C.

K. Hovnanian Aberdeen, LLC

K. Hovnanian Acquisitions, Inc.

K. Hovnanian Aspire at Bellevue Ranch, LLC

K. Hovnanian at 240 Missouri, LLC

K. Hovnanian at 4S, LLC

K. Hovnanian at Aire on McDowell, LLC

K. Hovnanian at Aliso, LLC

K. Hovnanian at Allentown, L.L.C.

K. Hovnanian at Andalusia, LLC

K. Hovnanian at Asbury Park Urban Renewal, LLC

K. Hovnanian at Ashby Place, LLC

K. Hovnanian at Ashley Pointe LLC

K. HOVNANIAN AT AVENUE ONE, L.L.C.

K. Hovnanian at Bakersfield 463, L.L.C.

K. Hovnanian at Barnegat II, L.L.C.

K. Hovnanian at Beacon Park Area 129 II, LLC

K. Hovnanian at Beacon Park Area 129, LLC

K. Hovnanian at Beacon Park Area 137, LLC

K. Hovnanian at Bella Lago, LLC

K. Hovnanian at Blackstone, LLC

K. Hovnanian at Boca Dunes, LLC

K. Hovnanian at Branchburg II, LLC

K. Hovnanian at Branchburg, L.L.C.

K. Hovnanian at Branchburg-Vollers, LLC

K. Hovnanian at Brenford Station, LLC

K. Hovnanian at Bridgewater I, L.L.C.

K. Hovnanian at Burch Kove, LLC

K. HOVNANIAN AT CAMP HILL, L.L.C.

K. HOVNANIAN AT CAPISTRANO, L.L.C.

K. Hovnanian at Carlsbad, LLC

K. Hovnanian at Catania, LLC

K. Hovnanian at Caton's Reserve, LLC

K. Hovnanian at Cedar Grove III, L.L.C.

K. Hovnanian at Cedar Lane, LLC

K. Hovnanian at Charter Way, LLC

K. Hovnanian at Chesterfield, L.L.C.

K. Hovnanian at Christina Court, LLC

K. Hovnanian at Churchill Farms LLC

K. Hovnanian at Cielo, L.L.C.

K. Hovnanian at Coastline, L.L.C.

K. Hovnanian at Coosaw Point, LLC

K. Hovnanian at Coral Lago, LLC

K. Hovnanian at Cortez Hill, LLC

K. Hovnanian at Crestview, LLC

K. Hovnanian at Deptford Township, L.L.C.

K. Hovnanian at Doylestown, LLC

K. Hovnanian at Dunellen Urban Renewal, LLC

K. Hovnanian at East Brunswick III, LLC

K. Hovnanian at East Brunswick, LLC

K. Hovnanian at East Windsor, LLC

K. Hovnanian at Eden Terrace, L.L.C.

K. Hovnanian at Edgewater II, L.L.C.

K. Hovnanian at Edgewater, L.L.C.

K. Hovnanian at Egg Harbor Township II, L.L.C.

K. Hovnanian at El Dorado Ranch II, L.L.C.

K. Hovnanian at El Dorado Ranch, L.L.C.

K. Hovnanian at Embrey Mill Village, LLC

K. Hovnanian at Estates at Wheatlands, LLC

K. Hovnanian at Estates of Fox Chase, LLC

K. Hovnanian at Fairfield Ridge, LLC

K. Hovnanian at Fiddyment Ranch, LLC

K. Hovnanian at Fifth Avenue, L.L.C.

K. Hovnanian at Florence I, L.L.C.

K. Hovnanian at Florence II, L.L.C.

K. Hovnanian at Forest Meadows, L.L.C.

K. Hovnanian at Fox Path at Hampton Lake, LLC

K. Hovnanian at Franklin II, L.L.C.

K. Hovnanian at Franklin, L.L.C.

K. Hovnanian at Freehold Township III, LLC

K. Hovnanian at Fresno, LLC

K. Hovnanian at Gallery, LLC

K. HOVNANIAN AT GASLAMP SQUARE, L.L.C.

K. Hovnanian at Gilroy 60, LLC

K. Hovnanian at GIlroy, LLC

K. Hovnanian at Great Notch, L.L.C.

K. Hovnanian at Hackettstown II, L.L.C.

K. Hovnanian at Hampton Cove, LLC

K. Hovnanian at Hampton Lake, LLC

K. Hovnanian at Hanover Estates, LLC

K. Hovnanian at Hershey's Mill, Inc.

K. Hovnanian at Hidden Brook, LLC

K. Hovnanian at Hillsborough, LLC

K. Hovnanian at Hilltop Reserve II, LLC

K. Hovnanian at Hilltop Reserve, LLC

K. Hovnanian at Howell Fort Plains, LLC

K. Hovnanian at Howell II, LLC

K. Hovnanian at Howell, LLC

K. HOVNANIAN AT HUDSON POINTE, L.L.C.

K. Hovnanian at Huntfield, LLC

K. Hovnanian at Indian Wells, LLC

K. Hovnanian at Island Lake, LLC

K. Hovnanian at Jackson I, L.L.C.

K. Hovnanian at Jackson, L.L.C.

K. Hovnanian at Jaeger Ranch, LLC

K. Hovnanian at Jersey City IV, L.L.C.

K. Hovnanian at Keyport, L.L.C.

K. Hovnanian at La Laguna, L.L.C.

K. Hovnanian at Lake Burden, LLC

K. Hovnanian at Lake Florence, LLC

K. Hovnanian at Lake LeClare, LLC

K. Hovnanian at Lake Rancho Viejo, LLC

K. Hovnanian at Lake Ridge Estates, LLC

K. Hovnanian at Lee Square, L.L.C.

K. Hovnanian at Lenah Woods, LLC

K. Hovnanian at Liberty Hill Farm, LLC

K. Hovnanian at Lily Orchard, LLC

K. Hovnanian at Link Farm, LLC

K. Hovnanian at Little Egg Harbor Township II, L.L.C.

K. Hovnanian at Lower Macungie Township I, L.L.C.

K. Hovnanian at Lower Macungie Township II, L.L.C.

K. Hovnanian at Lower Makefield Township I, L.L.C.

K. Hovnanian at Lower Moreland II, L.L.C.

K. Hovnanian at Luna Vista, LLC

K. Hovnanian at Magnolia Place, LLC

K. Hovnanian at Mahwah VI, Inc.

K. Hovnanian at Main Street Square, LLC

K. Hovnanian at Malan Park, L.L.C.

K. Hovnanian at Manalapan Crossing, LLC

K. HOVNANIAN AT MANALAPAN II, L.L.C.

K. Hovnanian at Manalapan III, L.L.C.

K. Hovnanian at Manalapan V, LLC

K. Hovnanian at Manalapan VI, LLC

K. Hovnanian at Mansfield II, L.L.C.

K. Hovnanian at Manteca, LLC

K. Hovnanian at Maple Avenue, L.L.C.

K. Hovnanian at Marlboro Township IX, L.L.C.

K. Hovnanian at Marlboro Township V, L.L.C.

K. Hovnanian at Marlboro VI, L.L.C.

K. Hovnanian at Meadowridge Villas, LLC

K. Hovnanian at Melanie Meadows, LLC

K. Hovnanian at Mendham Township, L.L.C.

K. Hovnanian at Middle Township II, L.L.C.

K. Hovnanian at Middletown III, LLC

K. Hovnanian at Middletown, LLC

K. Hovnanian at Millville I, L.L.C.

K. Hovnanian at Millville II, L.L.C.

K. Hovnanian at Monroe IV, L.L.C.

K. Hovnanian at Monroe NJ II, LLC

K. Hovnanian at Monroe NJ III, LLC

K. Hovnanian at Monroe NJ, L.L.C.

K. Hovnanian at Montana Vista Dobbins, LLC

K. Hovnanian at Montana Vista, LLC

K. Hovnanian at Montgomery, LLC

K. Hovnanian at Montvale II, LLC

K. Hovnanian at Montvale, L.L.C.

K. Hovnanian at Morris Twp, LLC

K. Hovnanian at Muirfield, LLC

K. Hovnanian at North Bergen. L.L.C.

K. HOVNANIAN AT NORTH BRUNSWICK VI, L.L.C.

K. Hovnanian at North Caldwell II, L.L.C.

K. Hovnanian at North Caldwell III, L.L.C.

K. Hovnanian at North Caldwell IV, L.L.C.

K. Hovnanian at North Wildwood, L.L.C.

K. Hovnanian at Northampton, L.L.C.

K. Hovnanian at Northfield, L.L.C.

K. Hovnanian at Northridge Estates, LLC

K. Hovnanian at Norton Lake LLC

K. Hovnanian at Nottingham Meadows, LLC

K. Hovnanian at Oak Pointe, LLC

K. Hovnanian at Oakland, LLC

K. Hovnanian at Ocean Township, Inc

K. Hovnanian at Ocean View Beach Club, LLC

K. Hovnanian at Oceanport, L.L.C.

K. Hovnanian at Old Bridge II, LLC

K. Hovnanian at Old Bridge, L.L.C.

K. Hovnanian at Palm Valley, L.L.C.

K. Hovnanian at Park Paseo, LLC

K. Hovnanian at Parkside, LLC

K. Hovnanian at Parsippany, L.L.C.

K. Hovnanian at Pavilion Park, LLC

K. Hovnanian at Piazza D'Oro, L.L.C.

K. Hovnanian at Piazza Serena, L.L.C

K. Hovnanian at Pickett Reserve, LLC

K. Hovnanian at Plantation Lakes, L.L.C.

K. Hovnanian at Pointe 16, LLC

K. HOVNANIAN AT PORT IMPERIAL URBAN RENEWAL V, L.L.C.

K. HOVNANIAN AT PORT IMPERIAL URBAN RENEWAL VIII, L.L.C.

K. Hovnanian at Positano, LLC

K. Hovnanian at Prado, L.L.C.

K. Hovnanian at Prairie Pointe, LLC

K. Hovnanian at Quail Creek, L.L.C.

K. Hovnanian at Rancho Cabrillo, LLC

K. HOVNANIAN AT RAPHO, L.L.C

K. Hovnanian at Redtail, LLC

K. Hovnanian at Reserves at Wheatlands, LLC

K. Hovnanian at Residence at Discovery Square, LLC

K. Hovnanian at Retreat at Millstone, LLC

K. Hovnanian at Ridgemont, L.L.C.

K. Hovnanian at Rock Ledge, LLC

K. Hovnanian at Roderuck, L.L.C.

K. HOVNANIAN AT ROSEMARY LANTANA, L.L.C.

K. Hovnanian at Sage, L.L.C.

K. Hovnanian at Sagebrook, LLC

K. Hovnanian at Santa Nella, LLC

K. Hovnanian at Sawmill, Inc.

K. Hovnanian at Seabrook, LLC

K. Hovnanian at Seasons Landing, LLC

K. Hovnanian at Sheldon Grove, LLC

K. Hovnanian at Shrewsbury, LLC

K. Hovnanian at Sienna Hills, LLC

K. Hovnanian at Sierra Vista, LLC

K. Hovnanian at Signal Hill, LLC

K. Hovnanian at Silver Spring, L.L.C.

K. Hovnanian at Silverstone G, LLC

K. Hovnanian at Silverstone, LLC

K. Hovnanian at Skye Isle, LLC

K. Hovnanian at Skye on McDowell, LLC

K. Hovnanian at Smithville, Inc.

K. Hovnanian at Somerset, LLC

K. Hovnanian at South Brunswick II, LLC

K. Hovnanian at South Brunswick III, LLC

K. Hovnanian at South Brunswick IV, LLC

K. Hovnanian at Spring Isle, LLC

K. Hovnanian at Stanton, LLC

K. Hovnanian at Station Square, L.L.C.

K. Hovnanian at Summerlake, LLC

K. Hovnanian at Sunridge Park, LLC

K. Hovnanian at Sunrise Trail II, LLC

K. Hovnanian at Sunrise Trail III, LLC

K. Hovnanian at Terra Bella Two, LLC

K. Hovnanian at The Commons at Richmond Hill, LLC

K. Hovnanian at The Meadows 9, LLC

K. Hovnanian at The Monarch, L.L.C.

K. Hovnanian at The Promenade at Beaver Creek, LLC

K. Hovnanian at Thompson Ranch, LLC

K. Hovnanian at Trafford Place, LLC

K. Hovnanian at Trail Ridge, LLC

K. Hovnanian at Tramore LLC

K. Hovnanian at Upper Providence, LLC

K. Hovnanian at Upper Uwchlan II, L.L.C.

K. Hovnanian at Upper Uwchlan, L.L.C.

K. Hovnanian at Valle Del Sol, LLC

K. Hovnanian at Ventana Lakes, LLC

K. Hovnanian at Verona Estates, LLC

K. HOVNANIAN AT VERONA URBAN RENEWAL, L.L.C.

K. Hovnanian at Verrado Cascina, LLC

K. Hovnanian at Verrado Marketside, LLC

K. Hovnanian at Victorville, L.L.C.

K. Hovnanian at Village Center, LLC

K. Hovnanian at Villages at Country View, LLC

K. Hovnanian at Villago, LLC

K. Hovnanian at Vineyard Heights, LLC

K. Hovnanian at Vista Del Sol, L.L.C.

K. Hovnanian at Waldwick, LLC

K. Hovnanian at Walkers Grove, LLC

K. Hovnanian at Wall Donato, LLC

K. Hovnanian at Wall Quail Ridge, LLC

K. Hovnanian at Warren Township II, LLC

K. Hovnanian at Warren Township, L.L.C.

K. Hovnanian at Waterstone, LLC

K. Hovnanian at West View Estates, L.L.C.

K. Hovnanian at Westbrook, LLC

K. Hovnanian at Westshore, LLC

K. Hovnanian at Wheeler Ranch, LLC

K. Hovnanian at Wheeler Woods, LLC

K. Hovnanian at Whitemarsh, LLC

K. Hovnanian at Wildwood Bayside, L.L.C.

K. Hovnanian at Woodcreek West, LLC

K. Hovnanian at Woolwich I, L.L.C.

K. Hovnanian Belden Pointe, LLC

K. Hovnanian Belmont Reserve, LLC

K. Hovnanian Cambridge Homes, L.L.C.

K. Hovnanian Central Acquisitions, L.L.C.

K. Hovnanian Classics, L.L.C.

K. Hovnanian Communities, Inc.

K. Hovnanian Companies of California, Inc.

K. HOVNANIAN COMPANIES OF MARYLAND, INC.

K. HOVNANIAN COMPANIES OF NEW YORK, INC.

K. Hovnanian Companies of Pennsylvania, Inc.

K. Hovnanian Companies of Southern California, Inc.

K. Hovnanian Companies, LLC

K. Hovnanian Construction II, Inc

K. Hovnanian Construction III, Inc

K. Hovnanian Construction Management, Inc.

K. Hovnanian Contractors of Ohio, LLC

K. Hovnanian Cornerstone Farms, LLC

K. Hovnanian CraftBuilt Homes of South Carolina, L.L.C.

K. Hovnanian Cypress Key, LLC

K. HOVNANIAN DEVELOPMENTS OF ARIZONA, INC.

K. Hovnanian Developments of California, Inc.

K. HOVNANIAN Developments OF D.C., INC.

K. HOVNANIAN DEVELOPMENTS OF DELAWARE, INC.

K. Hovnanian Developments of Georgia, Inc.

K. Hovnanian Developments of Illinois, Inc.

K. HOVNANIAN DEVELOPMENTS OF MARYLAND, INC.

K. Hovnanian Developments of Minnesota, Inc.

K. Hovnanian Developments of New Jersey, Inc.

K. Hovnanian Developments of New York, Inc.

K. Hovnanian Developments of North Carolina, Inc.

K. Hovnanian Developments of Ohio, Inc.

K. Hovnanian Developments of Pennsylvania, Inc.

K. Hovnanian Developments of South Carolina, Inc.

K. Hovnanian Developments of Texas, Inc.

K. Hovnanian Developments of Virginia, Inc.

K. Hovnanian Developments of West Virginia, Inc.

K. Hovnanian DFW Auburn Farms, LLC

K. Hovnanian DFW Belmont, LLC

K. Hovnanian DFW Bluff Creek, LLC

K. Hovnanian DFW Creekside Estates II, LLC

K. Hovnanian DFW Creekside Estates, LLC

K. Hovnanian DFW Encore of Las Colinas II, LLC

K. Hovnanian DFW Encore of Las Colinas, LLC

K. Hovnanian DFW Harmon Farms, LLC

K. Hovnanian DFW Heritage Crossing, LLC

K. Hovnanian DFW Homestead, LLC

K. Hovnanian DFW Inspiration, LLC

K. Hovnanian DFW Lexington, LLC

K. Hovnanian DFW Liberty Crossing II, LLC

K. Hovnanian DFW Liberty Crossing, LLC

K. Hovnanian DFW Liberty, LLC

K. Hovnanian DFW Light Farms II, LLC

K. Hovnanian DFW Light Farms, LLC

K. Hovnanian DFW Midtown Park, LLC

K. Hovnanian DFW Palisades, LLC

K. Hovnanian DFW Parkside, LLC

K. Hovnanian DFW Ridgeview, LLC

K. Hovnanian DFW Sanford Park, LLC

K. Hovnanian DFW Seventeen Lakes, LLC

K. Hovnanian DFW The Parks at Rosehill, LLC

K. Hovnanian DFW Trailwood II, LLC

K. Hovnanian DFW Trailwood, LLC

K. Hovnanian DFW Villas at Mustang Park, LLC

K. Hovnanian DFW Wellington, LLC

K. Hovnanian DFW Wildridge, LLC

K. Hovnanian Eastern Pennsylvania, L.L.C.

K. Hovnanian Edgebrook, LLC

K. Hovnanian Estates at Regency, L.L.C.

K. Hovnanian Estates at Wekiva, LLC

K. Hovnanian Falls Pointe, LLC

K. HOVNANIAN FIRST HOMES, L.L.C.

K. Hovnanian Florida Old GC, LLC

K. Hovnanian Florida Realty, L.L.C.

K. Hovnanian Forest Valley, LLC

K. Hovnanian Four Seasons at Chestnut Ridge, LLC

K. Hovnanian Grand Cypress, LLC

K. Hovnanian Grandefield, LLC

K. HOVNANIAN GREAT WESTERN BUILDING COMPANY, LLC

K. HOVNANIAN GREAT WESTERN HOMES, LLC

K. Hovnanian Hamptons at Oak Creek II, L.L.C.

K. Hovnanian Hidden Hollow, LLC

K. Hovnanian Highland Ridge, LLC

K. Hovnanian Holdings NJ, L.L.C.

K. Hovnanian Homes - DFW, L.L.C.

K. Hovnanian Homes at Brook Manor, LLC

K. Hovnanian Homes at Burke Junction, LLC

K. Hovnanian Homes at Camp Springs, L.L.C.

K. Hovnanian Homes at Creekside, LLC

K. Hovnanian Homes at Greenway Farm Park Towns, L.L.C.

K. Hovnanian Homes at Greenway Farm, L.L.C.

K. Hovnanian Homes at Jones Station 1, L.L.C.

K. Hovnanian Homes at Leigh Mill, LLC

K. Hovnanian Homes at Pender Oaks, LLC

K. Hovnanian Homes at Reedy Creek, LLC

K. Hovnanian Homes at Russett, L.L.C.

K. Hovnanian Homes at Salt Creek Landing, LLC

K. Hovnanian Homes at Shell Hall, LLC

K. Hovnanian Homes at Shenandoah Springs, LLC

K. Hovnanian Homes at St. James Place, LLC

K. Hovnanian Homes at The Abby, LLC

K. Hovnanian Homes at the Highlands, LLC

K. Hovnanian Homes at The Paddocks, LLC

K. Hovnanian Homes at Thompson's Grant, LLC

K. Hovnanian Homes at Willowsford Grant II, LLC

K. Hovnanian Homes at Willowsford Grant, LLC

K. Hovnanian Homes at Willowsford Greens, LLC

K. Hovnanian Homes Northern California, Inc.

K. Hovnanian Homes of D.C., L.L.C.

K. HOVNANIAN HOMES OF DELAWARE, L.L.C.

K. Hovnanian Homes of Georgia, L.L.C.

K. Hovnanian Homes of Longacre Village, L.L.C.

K. Hovnanian Homes of Maryland, L.L.C.

K. Hovnanian Homes of Minnesota at Arbor Creek, LLC

K. Hovnanian Homes of Minnesota at Autumn Meadows, LLC

K. Hovnanian Homes of Minnesota at Brynwood, LLC

K. Hovnanian Homes of Minnesota at Cedar Hollow, LLC

K. Hovnanian Homes of Minnesota at Founder's Ridge, LLC

K. Hovnanian Homes of Minnesota at Harpers Street Woods, LLC

K. Hovnanian Homes of Minnesota at Oaks of Oxbow, LLC

K. Hovnanian Homes of Minnesota at Regent's Point, LLC

K. Hovnanian Homes of Minnesota, L.L.C.

K. HOVNANIAN HOMES OF NORTH CAROLINA, INC.

K. HOVNANIAN HOMES OF PENNSYLVANIA, L.L.C.

K. Hovnanian Homes of South Carolina, LLC

K. Hovnanian Homes of Virginia, Inc.

K. HOVNANIAN HOMES OF WEST VIRGINIA, L.L.C.

K. Hovnanian Houston Bayou Oaks at West Orem, LLC

K. Hovnanian Houston Cambridge Heights, LLC

K. Hovnanian Houston City Heights, LLC

K. Hovnanian Houston Creek Bend, LLC

K. Hovnanian Houston Dry Creek Village, LLC

K. Hovnanian Houston Katy Pointe, LLC

K. Hovnanian Houston Property I, LLC

K. Hovnanian Houston Property II, LLC

K. Hovnanian Houston River Farms, LLC

K. Hovnanian Houston Sunset Ranch, LLC

K. Hovnanian Houston Terra Del Sol, LLC

K. Hovnanian Houston Thunder Bay Subdivision, LLC

K. Hovnanian Houston Tranquility Lake Estates, LLC

K. Hovnanian Houston Woodshore, LLC

K. Hovnanian Indian Trails, LLC

K. Hovnanian LaDue Reserve, LLC

K. Hovnanian Lakes of Green, LLC

K. Hovnanian Landings 40s, LLC

K. Hovnanian Legacy at Via Bella, LLC

K. Hovnanian Liberty on Bluff Creek, LLC

K. Hovnanian Magnolia at Westside, LLC

K. Hovnanian Manalapan Acquisition, LLC

K. Hovnanian Meadow View at Mountain House, LLC

K. Hovnanian Monarch Grove, LLC

K. Hovnanian North Central Acquisitions, L.L.C.

K. Hovnanian North Jersey Acquisitions, L.L.C.

K. Hovnanian Northeast Services, L.L.C.

K. Hovnanian Northpointe 40s, LLC

K. Hovnanian Norton Place, LLC

K. Hovnanian of Houston II, L.L.C.

K. Hovnanian of Ohio, LLC

K. Hovnanian Ohio Realty, L.L.C.

K. Hovnanian PA Real Estate, Inc.

K. Hovnanian Pennsylvania Acquisitions, L.L.C.

K. Hovnanian Port Imperial Urban Renewal, Inc.

K. HOVNANIAN PRESERVE AT TURTLE CREEK LLC

K. Hovnanian Properties of Red Bank, LLC

K. Hovnanian Reynolds Ranch, LLC

K. Hovnanian Rivendale, LLC

K. Hovnanian Riverside, LLC

K. Hovnanian Schady Reserve, LLC

K. Hovnanian Sherwood at Regency, LLC

K. Hovnanian Shore Acquisitions, L.L.C.

K. Hovnanian Sola Vista, LLC

K. Hovnanian South Fork, LLC

K. Hovnanian South Jersey Acquisitions, L.L.C.

K. Hovnanian Southern New Jersey, L.L.C.

K. Hovnanian Sterling Ranch, LLC

K. Hovnanian Summit Holdings, L.L.C.

K. Hovnanian Summit Homes of Pennsylvania, L.L.C.

K. Hovnanian Summit Homes of West Virginia, L.L.C.

K. Hovnanian Summit Homes, L.L.C.

K. Hovnanian T&C Homes at Florida, L.L.C.

K. Hovnanian T&C Homes at Illinois, L.L.C.

K. Hovnanian Timbres at Elm Creek, LLC

K. Hovnanian Union Park, LLC

K. Hovnanian Venture I, L.L.C.

K. Hovnanian Village Glen, LLC

K. Hovnanian Waterbury, LLC

K. Hovnanian White Road, LLC

K. Hovnanian Winding Bay Preserve, LLC

K. HOVNANIAN WINDWARD HOMES, LLC

K. Hovnanian Woodland Pointe, LLC

K. Hovnanian Woodridge Place, LLC

K. Hovnanian's Aspire at Union Village, LLC

K. HOVNANIAN'S FOUR SEASONS AT BAKERSFIELD, L.L.C.

K. Hovnanian's Four Seasons at Baymont Farms L.L.C.

K. Hovnanian's Four Seasons at Beaumont, LLC

K. Hovnanian's Four Seasons at Belle Terre, LLC

K. Hovnanian's Four Seasons at Briargate, LLC

K. Hovnanian's Four Seasons at Hemet, LLC

K. Hovnanian's Four Seasons at Kent Island Condominiums, L.L.C.

K. Hovnanian's Four Seasons at Kent Island, L.L.C.

K. Hovnanian's Four Seasons at Los Banos, LLC

K. Hovnanian's Four Seasons at Moreno Valley, L.L.C.

K. Hovnanian's Four Seasons at New Kent Vineyards, L.L.C.

K. Hovnanian's Four Seasons at Palm Springs, LLC

K. Hovnanian's Four Seasons at Rush Creek II, LLC

K. Hovnanian's Four Seasons at Rush Creek, L.L.C.

K. Hovnanian's Four Seasons at Silver Maple Farm, L.L.C.

K. Hovnanian's Four Seasons at St. Margarets Landing, L.L.C.

K. Hovnanian's Four Seasons at The Manor II, LLC

K. Hovnanian's Four Seasons at The Manor, LLC

K. Hovnanian's Parkside at Towngate, L.L.C.

K. Hovnanian's Veranda at RiverPark II, LLC

K. Hovnanian's Veranda at RiverPark, LLC

KHH Shell Hall Loan Acquisition, LLC

KHOV WINDING BAY II, LLC

LANDARAMA, INC.

LAUREL HIGHLANDS, LLC

M & M at Monroe Woods, L.L.C.

M&M at Chesterfield, L.L.C.

M&M AT Crescent Court, L.L.C.

M&M at West Orange, L.L.C.

Matzel & Mumford at Egg Harbor, L.L.C.

MCNJ, Inc.

Midwest Building Products & Contractor Services of Pennsylvania, L.L.C.

Midwest Building Products & Contractor Services of West Virginia, L.L.C.

MIDWEST BUILDING PRODUCTS & CONTRACTOR SERVICES, L.L.C.

MM-Beachfront North I, LLC

New Home Realty, LLC

New Land Title Agency, L.L.C.

PARK TITLE COMPANY, LLC

Pine Ayr, LLC

Ridgemore Utility L.L.C.

Route 1 and Route 522, L.L.C.

SEABROOK ACCUMULATION CORPORATION

Shell Hall Club Amenity Acquisition, LLC

Shell Hall Land Acquisition, LLC

STONEBROOK HOMES, INC.

Terrapin Realty, L.L.C.

The Matzel & Mumford Organization, Inc

Washington Homes, Inc.

WTC VENTURES, L.L.C.

K. Hovnanian Lake Griffin Reserve, LLC

K. Hovnanian Osprey Ranch, LLC

K. Hovnanian's Four Seasons at Bella Vista, LLC

K. Hovnanian DFW Villas at The Station, LLC

K. Hovnanian at Rockland Village Green, LLC

SCHEDULE B

Actions to Perfect

1. With respect to each Pledgor organized under the laws of the state of Arizona as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the Arizona Secretary of State.

2. With respect to each Pledgor organized under the laws of the state of California as identified on Schedule 1(a) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the California Secretary of State.

3. With respect to each Pledgor organized under the laws of the state of Delaware as identified on Schedule 1(a) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the Delaware Secretary of State.

4. With respect to each Pledgor organized under the laws of the District of Columbia as identified on Schedule 1(a) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the District of Columbia Recorder of Deeds.

5. With respect to each Pledgor organized under the laws of the state of Florida as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the Florida Secured Transaction Registry.

6. With respect to each Pledgor organized under the laws of the state of Georgia as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the Office of the Clerk of Superior Court of any County of Georgia.

7. With respect to each Pledgor organized under the laws of the state of Illinois as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the Illinois Secretary of State.

8. With respect to each Pledgor organized under the laws of the state of Kentucky as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the Kentucky Secretary of State.

9. With respect to each Pledgor organized under the laws of the state of Maryland as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the Maryland State Department of Assessments and Taxation.

10. With respect to each Pledgor organized under the laws of the state of Minnesota as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the Minnesota Secretary of State.

11. With respect to each Pledgor organized under the laws of the state of New Jersey as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the New Jersey Division of Commercial Recording.

12. With respect to each Pledgor organized under the laws of the state of New York as identified on Schedule 1(a) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the New York Secretary of State.

13. With respect to each Pledgor organized under the laws of the state of North Carolina as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the North Carolina Secretary of State.

14. With respect to each Pledgor organized under the laws of the state of Ohio as identified on Schedules 1(a) and 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the Ohio Secretary of State.

15. With respect to each Pledgor organized under the laws of the state of Pennsylvania as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the Pennsylvania Secretary of the Commonwealth.

16. With respect to each Pledgor organized under the laws of the state of South Carolina as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the South Carolina Secretary of State.

17. With respect to each Pledgor organized under the laws of the state of Texas as identified on Schedule 1(a) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the Texas Secretary of State.

18. With respect to each Pledgor organized under the laws of the state of Virginia as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the Virginia State Corporation Commission.

19. With respect to each Pledgor organized under the laws of the state of West Virginia as identified on Schedule 1(b) of the Perfection Certificate, the filing of a Uniform Commercial Code Financing Statement that identifies the Pledged Collateral with the West Virginia Secretary of State.

20. With respect to the Pledged Collateral constituting certificated securities, delivery of the certificates representing such Pledged Collateral to the Agent in registered form, indorsed in blank, by an effective endorsement or accompanied by undated stock powers with respect thereto duly indorsed in blank by an effective endorsement.

EX-10.YYY

eXHIBIT 10(yyy)

Execution Version

JOINDER TO INTERCREDITOR AGREEMENT AND MORTGAGE TAX COLLATERAL AGENCY AGREEMENT

Reference is made to (a) that certain Amended and Restated Intercreditor Agreement, dated as of September 8, 2016 (as amended, restated, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”), by and among Hovnanian Enterprises, Inc. (“Holdings”), K. Hovnanian Enterprises, Inc. (the “Borrower”), each other Grantor from time to time party thereto, Wilmington Trust, National Association, in its capacity as the Senior Credit Agreement Administrative Agent under the Senior Credit Agreement Documents, Wilmington Trust, National Association, in its capacity as the Mortgage Tax Collateral Agent, and Wilmington Trust, National Association, in its capacity as the Junior Joint Collateral Agent, among others and (b) that certain Second Amended and Restated Mortgage Tax Collateral Agency Agreement, dated as of July 27, 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “Mortgage Tax Collateral Agency Agreement”), among Holdings, the Borrower, each other Grantor from time to time party thereto, Wilmington Trust, National Association, in its capacity as the Senior Credit Agreement Administrative Agent under the Senior Credit Agreement Documents, Wilmington Trust, National Association, in its capacity as the Mortgage Tax Collateral Agent, and Wilmington Trust, National Association, in its capacity as the Junior Joint Collateral Agent. Capitalized terms used herein without definition shall have the meaning assigned thereto in the Intercreditor Agreement (as supplemented by this Joinder (as defined below)) and the Mortgage Tax Collateral Agency Agreement (as supplemented by this Joinder).

This Joinder to Intercreditor Agreement and Mortgage Tax Collateral Agency Agreement, dated as of September 10, 2018 (this “Joinder”), is being delivered in connection with the closing of that certain Credit Agreement dated as of January 29, 2018, as amended by the First Amendment dated as of May 14, 2018 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”) among Holdings, the Borrower, each other Guarantor (as defined therein) from time to time party thereto, and Wilmington Trust, National Association, in its capacity as administrative agent (in such capacity, the “Revolving Loan Agent”) and acting in such capacity as collateral agent.

Pursuant to the Credit Agreement the Lenders (as defined therein) have agreed to provide to the Borrower a $125,000,000 revolving loan facility (the “Revolving Loan Facility”), the loans and other obligations under which constitute (x) Refinancing Indebtedness in respect of the Senior Credit Agreement, (y) Senior Credit Agreement Claims and (z) First-Lien Indebtedness and Future First-Lien Indebtedness and the Revolving Loan Agent including in such capacity as collateral agent and the Lenders in respect thereof constitute Senior Creditors, in each case, under the Intercreditor Agreement.

In connection with the transactions contemplated by the Intercreditor Agreement, certain of the parties thereto are parties to the Mortgage Tax Collateral Agency Agreement to provide for the Mortgage Tax Collateral Agent (as defined in the Mortgage Tax Collateral Agency Agreement) to enter into mortgages in certain jurisdictions for the benefit of all Senior Creditors and Junior Creditors (each as defined in the Intercreditor Agreement).

In connection with the closing of the Credit Agreement, Holdings, the Borrower and each other Grantor party thereto are entering into (a) that certain Security Agreement dated as of the date hereof among Holdings, the Borrower, each other Grantor party thereto and the Revolving Loan Agent acting in such capacity as collateral agent (as amended, supplemented or otherwise modified from time to time, the “Security Agreement”), and (b) that certain Pledge Agreement dated as of the date hereof among Holdings, the Borrower, each other Grantor party thereto and the Revolving Loan Agent acting in such capacity as collateral agent (as amended, supplemented or otherwise modified from time to time, the “Pledge Agreement”).

NOW, THEREFORE, each of the parties signatory hereto hereby agree as follows:

1.     Appointment of Senior Credit Agreement Collateral Agent. The New Senior Representative (as defined below), on behalf of itself and the New Senior Creditors (as defined below), confirms that (a) pursuant to the Credit Agreement it has been appointed as Revolving Loan Agent acting in such capacity as collateral agent and as such constitutes the Senior Credit Agreement Collateral Agent (as defined in the Intercreditor Agreement and Senior Credit Agreement Collateral Documents) for purposes of the Intercreditor Agreement and the Senior Credit Agreement Collateral Documents, and (b) the Revolving Loan Agent acting in such capacity as collateral agent is irrevocably authorized, pursuant to the Credit Agreement and the other Loan Documents (as defined in the Credit Agreement) to take such actions on behalf of the New Senior Creditors (as defined below) and to exercise such powers as are delegated to the Senior Credit Agreement Collateral Agent in the Intercreditor Agreement, the Senior Credit Agreement and the Senior Credit Agreement Collateral Documents, together with such actions and powers as are reasonably incidental thereto, and that the Senior Credit Agreement Collateral Agent is authorized to execute any Senior Credit Agreement Collateral Documents on behalf of all Senior Creditors and to take such other actions to maintain and preserve the security interests granted pursuant to the Senior Credit Agreement and any Senior Credit Agreement Collateral Documents.

2.     Joinder. The undersigned, Wilmington Trust, National Association (the “New Senior Representative”) in its capacity as the Revolving Loan Agent and acting in such capacity as collateral agent hereby joins (a) the Intercreditor Agreement as Senior Representatives, as Senior Credit Agreement Administrative Agent and as Senior Credit Agreement Collateral Agent, acting for and behalf of themselves and the Lenders as Senior Creditors under, and as defined in, the Intercreditor Agreement for all purposes thereof on the terms set forth therein, and agrees to be bound by the terms, conditions and provisions of the Intercreditor Agreement as fully as if the undersigned had executed and delivered the Intercreditor Agreement as of the date thereof, (b) the Mortgage Tax Collateral Agency Agreement as Senior Credit Agreement Collateral Agent and appoints the Mortgage Tax Collateral Agent to act for and behalf of itself and the Lenders as Secured Parties under, and as defined in, the Mortgage Tax Collateral Agency Agreement for all purposes thereof on the terms set forth therein, and agrees to be bound by the terms, conditions and provisions of the Mortgage Tax Collateral Agency Agreement as fully as if the undersigned had executed and delivered the Mortgage Tax Collateral Agency Agreement as of the date thereof and (c) irrevocably authorizes the Mortgage Tax Collateral Agent to take such actions on its behalf and to exercise such powers as are delegated to the Mortgage Tax Collateral Agent in the Intercreditor Agreement in relation to the Revolving Loan Facility and the Senior Credit Agreement Collateral Documents, together with such actions and powers as are reasonably incidental thereto.

3.     Lien Sharing and Priority Confirmation. The New Senior Representative, on behalf of itself and each Lender (together with the New Senior Representative, the “New Senior Creditors”), hereby agrees, as a condition to having the obligations in respect of the loans made under the Revolving Loan Facility being treated as Future First-Lien Indebtedness, Senior Claims and Senior Credit Agreement Claims under the Intercreditor Agreement that (a) the New Senior Representative and each other New Senior Creditor are bound by the terms, conditions and provisions of the Intercreditor Agreement, including, without limitation, the provisions relating to the ranking of Liens and the order of application of proceeds from the enforcement of Liens; and (b) the New Senior Representative shall perform its obligations under the Intercreditor Agreement.

4.     Authority as Agent. The New Senior Representative represents, warrants and acknowledges that, pursuant to the authorizations set forth in the Credit Agreement and the Senior Credit Agreement Collateral Documents, it has the authority to bind each of the New Senior Creditors to the Intercreditor Agreement and the Mortgage Tax Collateral Agency Agreement.

5.     Construction. (a) From this date hereof, references to the Intercreditor Agreement shall mean and include the Intercreditor Agreement as supplemented by this Joinder and references in the Intercreditor Agreement to the following shall be interpreted to mean as follows:

“Mortgage Tax Collateral Agent” shall include Wilmington Trust, National Association, as the Mortgage Tax Collateral Agent appointed pursuant to this Joinder in respect of the Revolving Loan Facility for all purposes thereof and under the Intercreditor Agreement;

“Senior Credit Agreement” shall mean the Credit Agreement;

“Senior Credit Agreement Administrative Agent” shall mean the Revolving Loan Agent, including any successors thereto in such capacity;

“Senior Credit Agreement Collateral Agent” shall refer to the Revolving Loan Agent acting in such capacity as collateral agent in lieu of the reference to the Senior Credit Agreement Collateral Agent therein; and

“Senior Credit Agreement Documents” shall include the Intercreditor Agreement (as supplemented by this Joinder) and the Mortgage Tax Collateral Agency Agreement (as supplemented by this Joinder).

(b)     From this date hereof, references to the Mortgage Tax Collateral Agency Agreement shall mean and include the Mortgage Tax Collateral Agency Agreement as supplemented by this Joinder and references in the Mortgage Tax Collateral Agency Agreement to the following shall be interpreted to mean as follows:

“Secured Parties” shall include the Revolving Loan Agent including in such capacity as collateral agent;

“Senior Credit Agreement” shall mean the Credit Agreement; and

“Senior Credit Agreement Administrative Agent” shall mean the Revolving Loan Agent, including any successors thereto in such capacity.

6.     Notices. All notices to be delivered to the Revolving Loan Agent including in its capacity as collateral agent under the Intercreditor Agreement and the Mortgage Tax Collateral Agency Agreement, as applicable, shall be delivered in accordance with such agreement to the address listed on the signature pages hereto for the New Senior Representative.

7.     Counterparts. This Joinder may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute one contract.

8.     Governing Law. THIS JOINDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

9.     Miscellaneous. The provisions of Section 8 of the Intercreditor Agreement and Articles 2 and 3 of the Mortgage Tax Collateral Agency Agreement shall apply with like effect to this Joinder.

[Signature Pages Follow]

IN WITNESS WHEREOF, the parties caused this Joinder to be duly executed and delivered as of the day and year first above written.

    Notice Address:   Wilmington Trust, National Association   50 South Sixth Street, Suite 1290 Minneapolis, MN 55402 Attention: K. Hovnanian Administrator Facsimile: (612) 217-5651     Revolving Loan Agent   WILMINGTON TRUST, NATIONAL ASSOCIATION not in its individual capacity but solely in its capacity as Revolving Loan Agent and acting in such capacity as collateral agent     By: /s/ Jeffery Rose Name: Jeffery Rose Title: Vice President

    Notice Address:   Wilmington Trust, National Association   Rodney Square North 1100 North Market Street Wilmington, DE 19890-1600 Attention: K. Hovnanian Administrator Telecopy: 302-636-4149     WILMINGTON TRUST, NATIONAL ASSOCIATION not in its individual capacity but solely as Junior Joint Collateral Agent     By: /s/ John T. Needham, Jr. Name: John T. Needham, Jr. Title: Vice President

    Notice Address:   Wilmington Trust, National Association   Rodney Square North 1100 North Market Street Wilmington, DE 19890-1600 Attention: K. Hovnanian Administrator Telecopy: 302-636-4149     WILMINGTON TRUST, NATIONAL ASSOCIATION not in its individual capacity but solely as Mortgage Tax Collateral Agent     By: /s/ John T. Needham, Jr. Name: John T. Needham, Jr. Title: Vice President

K. HOVNANIAN ENTERPRISES, INC.

By:	/s/ J. Larry Sorsby
Name:J. Larry Sorsby
Title:Executive Vice President and Chief Financial Officer

HOVNANIAN ENTERPRISES, INC.

By:	/s/ J. Larry Sorsby
Name:J. Larry Sorsby
Title:Executive Vice President and Chief Financial Officer

K. HOV IP, II, Inc.

By:	/s/ Michael Discafani
Name: Michael Discafani
Title:Vice President and Secretary

On behalf of each other entity named in Schedule A hereto

By:	/s/ J. Larry Sorsby
Name:J. Larry Sorsby
Title:Executive Vice President and Chief Financial Officer

Schedule A

Arbor Trails, LLC

Builder Services NJ, L.L.C.

Builder Services PA, L.L.C.

Eastern National Title Agency, LLC

Eastern Title Agency of Illinois, LLC

EASTERN TITLE AGENCY, INC.

F&W MECHANICAL SERVICES, L.L.C.

Founders Title Agency of Maryland, L.L.C.

FOUNDERS TITLE AGENCY, INC.

Glenrise Grove, L.L.C.

Governor's Abstract Co., Inc.

Hilltop at Cedar Grove Urban Renewal, LLC

Homebuyers Financial Services, L.L.C.

HOVNANIAN DEVELOPMENTS OF FLORIDA, INC.

Hovnanian Land Investment Group of Florida, L.L.C.

Hovnanian Land Investment Group of Maryland, L.L.C.

Hovnanian Land Investment Group, L.L.C.

K Hovnanian Homes at Maxwell Place, L.L.C.

K. Hovnanian Aberdeen, LLC

K. Hovnanian Acquisitions, Inc.

K. Hovnanian Aspire at Bellevue Ranch, LLC

K. Hovnanian at 240 Missouri, LLC

K. Hovnanian at 4S, LLC

K. Hovnanian at Aire on McDowell, LLC

K. Hovnanian at Aliso, LLC

K. Hovnanian at Allentown, L.L.C.

K. Hovnanian at Andalusia, LLC

K. Hovnanian at Asbury Park Urban Renewal, LLC

K. Hovnanian at Ashby Place, LLC

K. Hovnanian at Ashley Pointe LLC

K. HOVNANIAN AT AVENUE ONE, L.L.C.

K. Hovnanian at Bakersfield 463, L.L.C.

K. Hovnanian at Barnegat II, L.L.C.

K. Hovnanian at Beacon Park Area 129 II, LLC

K. Hovnanian at Beacon Park Area 129, LLC

K. Hovnanian at Beacon Park Area 137, LLC

K. Hovnanian at Bella Lago, LLC

K. Hovnanian at Blackstone, LLC

K. Hovnanian at Boca Dunes, LLC

K. Hovnanian at Branchburg II, LLC

K. Hovnanian at Branchburg, L.L.C.

K. Hovnanian at Branchburg-Vollers, LLC

K. Hovnanian at Brenford Station, LLC

K. Hovnanian at Bridgewater I, L.L.C.

K. Hovnanian at Burch Kove, LLC

K. HOVNANIAN AT CAMP HILL, L.L.C.

K. HOVNANIAN AT CAPISTRANO, L.L.C.

K. Hovnanian at Carlsbad, LLC

K. Hovnanian at Catania, LLC

K. Hovnanian at Caton's Reserve, LLC

K. Hovnanian at Cedar Grove III, L.L.C.

K. Hovnanian at Cedar Lane, LLC

K. Hovnanian at Charter Way, LLC

K. Hovnanian at Chesterfield, L.L.C.

K. Hovnanian at Christina Court, LLC

K. Hovnanian at Churchill Farms LLC

K. Hovnanian at Cielo, L.L.C.

K. Hovnanian at Coastline, L.L.C.

K. Hovnanian at Coosaw Point, LLC

K. Hovnanian at Coral Lago, LLC

K. Hovnanian at Cortez Hill, LLC

K. Hovnanian at Crestview, LLC

K. Hovnanian at Deptford Township, L.L.C.

K. Hovnanian at Doylestown, LLC

K. Hovnanian at Dunellen Urban Renewal, LLC

K. Hovnanian at East Brunswick III, LLC

K. Hovnanian at East Brunswick, LLC

K. Hovnanian at East Windsor, LLC

K. Hovnanian at Eden Terrace, L.L.C.

K. Hovnanian at Edgewater II, L.L.C.

K. Hovnanian at Edgewater, L.L.C.

K. Hovnanian at Egg Harbor Township II, L.L.C.

K. Hovnanian at El Dorado Ranch II, L.L.C.

K. Hovnanian at El Dorado Ranch, L.L.C.

K. Hovnanian at Embrey Mill Village, LLC

K. Hovnanian at Estates at Wheatlands, LLC

K. Hovnanian at Estates of Fox Chase, LLC

K. Hovnanian at Fairfield Ridge, LLC

K. Hovnanian at Fiddyment Ranch, LLC

K. Hovnanian at Fifth Avenue, L.L.C.

K. Hovnanian at Florence I, L.L.C.

K. Hovnanian at Florence II, L.L.C.

K. Hovnanian at Forest Meadows, L.L.C.

K. Hovnanian at Fox Path at Hampton Lake, LLC

K. Hovnanian at Franklin II, L.L.C.

K. Hovnanian at Franklin, L.L.C.

K. Hovnanian at Freehold Township III, LLC

K. Hovnanian at Fresno, LLC

K. Hovnanian at Gallery, LLC

K. HOVNANIAN AT GASLAMP SQUARE, L.L.C.

K. Hovnanian at Gilroy 60, LLC

K. Hovnanian at GIlroy, LLC

K. Hovnanian at Great Notch, L.L.C.

K. Hovnanian at Hackettstown II, L.L.C.

K. Hovnanian at Hampton Cove, LLC

K. Hovnanian at Hampton Lake, LLC

K. Hovnanian at Hanover Estates, LLC

K. Hovnanian at Hershey's Mill, Inc.

K. Hovnanian at Hidden Brook, LLC

K. Hovnanian at Hillsborough, LLC

K. Hovnanian at Hilltop Reserve II, LLC

K. Hovnanian at Hilltop Reserve, LLC

K. Hovnanian at Howell Fort Plains, LLC

K. Hovnanian at Howell II, LLC

K. Hovnanian at Howell, LLC

K. HOVNANIAN AT HUDSON POINTE, L.L.C.

K. Hovnanian at Huntfield, LLC

K. Hovnanian at Indian Wells, LLC

K. Hovnanian at Island Lake, LLC

K. Hovnanian at Jackson I, L.L.C.

K. Hovnanian at Jackson, L.L.C.

K. Hovnanian at Jaeger Ranch, LLC

K. Hovnanian at Jersey City IV, L.L.C.

K. Hovnanian at Keyport, L.L.C.

K. Hovnanian at La Laguna, L.L.C.

K. Hovnanian at Lake Burden, LLC

K. Hovnanian at Lake Florence, LLC

K. Hovnanian at Lake LeClare, LLC

K. Hovnanian at Lake Rancho Viejo, LLC

K. Hovnanian at Lake Ridge Estates, LLC

K. Hovnanian at Lee Square, L.L.C.

K. Hovnanian at Lenah Woods, LLC

K. Hovnanian at Liberty Hill Farm, LLC

K. Hovnanian at Lily Orchard, LLC

K. Hovnanian at Link Farm, LLC

K. Hovnanian at Little Egg Harbor Township II, L.L.C.

K. Hovnanian at Lower Macungie Township I, L.L.C.

K. Hovnanian at Lower Macungie Township II, L.L.C.

K. Hovnanian at Lower Makefield Township I, L.L.C.

K. Hovnanian at Lower Moreland II, L.L.C.

K. Hovnanian at Luna Vista, LLC

K. Hovnanian at Magnolia Place, LLC

K. Hovnanian at Mahwah VI, Inc.

K. Hovnanian at Main Street Square, LLC

K. Hovnanian at Malan Park, L.L.C.

K. Hovnanian at Manalapan Crossing, LLC

K. HOVNANIAN AT MANALAPAN II, L.L.C.

K. Hovnanian at Manalapan III, L.L.C.

K. Hovnanian at Manalapan V, LLC

K. Hovnanian at Manalapan VI, LLC

K. Hovnanian at Mansfield II, L.L.C.

K. Hovnanian at Manteca, LLC

K. Hovnanian at Maple Avenue, L.L.C.

K. Hovnanian at Marlboro Township IX, L.L.C.

K. Hovnanian at Marlboro Township V, L.L.C.

K. Hovnanian at Marlboro VI, L.L.C.

K. Hovnanian at Meadowridge Villas, LLC

K. Hovnanian at Melanie Meadows, LLC

K. Hovnanian at Mendham Township, L.L.C.

K. Hovnanian at Middle Township II, L.L.C.

K. Hovnanian at Middletown III, LLC

K. Hovnanian at Middletown, LLC

K. Hovnanian at Millville I, L.L.C.

K. Hovnanian at Millville II, L.L.C.

K. Hovnanian at Monroe IV, L.L.C.

K. Hovnanian at Monroe NJ II, LLC

K. Hovnanian at Monroe NJ III, LLC

K. Hovnanian at Monroe NJ, L.L.C.

K. Hovnanian at Montana Vista Dobbins, LLC

K. Hovnanian at Montana Vista, LLC

K. Hovnanian at Montgomery, LLC

K. Hovnanian at Montvale II, LLC

K. Hovnanian at Montvale, L.L.C.

K. Hovnanian at Morris Twp, LLC

K. Hovnanian at Muirfield, LLC

K. Hovnanian at North Bergen. L.L.C.

K. HOVNANIAN AT NORTH BRUNSWICK VI, L.L.C.

K. Hovnanian at North Caldwell II, L.L.C.

K. Hovnanian at North Caldwell III, L.L.C.

K. Hovnanian at North Caldwell IV, L.L.C.

K. Hovnanian at North Wildwood, L.L.C.

K. Hovnanian at Northampton, L.L.C.

K. Hovnanian at Northfield, L.L.C.

K. Hovnanian at Northridge Estates, LLC

K. Hovnanian at Norton Lake LLC

K. Hovnanian at Nottingham Meadows, LLC

K. Hovnanian at Oak Pointe, LLC

K. Hovnanian at Oakland, LLC

K. Hovnanian at Ocean Township, Inc

K. Hovnanian at Ocean View Beach Club, LLC

K. Hovnanian at Oceanport, L.L.C.

K. Hovnanian at Old Bridge II, LLC

K. Hovnanian at Old Bridge, L.L.C.

K. Hovnanian at Palm Valley, L.L.C.

K. Hovnanian at Park Paseo, LLC

K. Hovnanian at Parkside, LLC

K. Hovnanian at Parsippany, L.L.C.

K. Hovnanian at Pavilion Park, LLC

K. Hovnanian at Piazza D'Oro, L.L.C.

K. Hovnanian at Piazza Serena, L.L.C

K. Hovnanian at Pickett Reserve, LLC

K. Hovnanian at Plantation Lakes, L.L.C.

K. Hovnanian at Pointe 16, LLC

K. HOVNANIAN AT PORT IMPERIAL URBAN RENEWAL V, L.L.C.

K. HOVNANIAN AT PORT IMPERIAL URBAN RENEWAL VIII, L.L.C.

K. Hovnanian at Positano, LLC

K. Hovnanian at Prado, L.L.C.

K. Hovnanian at Prairie Pointe, LLC

K. Hovnanian at Quail Creek, L.L.C.

K. Hovnanian at Rancho Cabrillo, LLC

K. HOVNANIAN AT RAPHO, L.L.C

K. Hovnanian at Redtail, LLC

K. Hovnanian at Reserves at Wheatlands, LLC

K. Hovnanian at Residence at Discovery Square, LLC

K. Hovnanian at Retreat at Millstone, LLC

K. Hovnanian at Ridgemont, L.L.C.

K. Hovnanian at Rock Ledge, LLC

K. Hovnanian at Roderuck, L.L.C.

K. HOVNANIAN AT ROSEMARY LANTANA, L.L.C.

K. Hovnanian at Sage, L.L.C.

K. Hovnanian at Sagebrook, LLC

K. Hovnanian at Santa Nella, LLC

K. Hovnanian at Sawmill, Inc.

K. Hovnanian at Seabrook, LLC

K. Hovnanian at Seasons Landing, LLC

K. Hovnanian at Sheldon Grove, LLC

K. Hovnanian at Shrewsbury, LLC

K. Hovnanian at Sienna Hills, LLC

K. Hovnanian at Sierra Vista, LLC

K. Hovnanian at Signal Hill, LLC

K. Hovnanian at Silver Spring, L.L.C.

K. Hovnanian at Silverstone G, LLC

K. Hovnanian at Silverstone, LLC

K. Hovnanian at Skye Isle, LLC

K. Hovnanian at Skye on McDowell, LLC

K. Hovnanian at Smithville, Inc.

K. Hovnanian at Somerset, LLC

K. Hovnanian at South Brunswick II, LLC

K. Hovnanian at South Brunswick III, LLC

K. Hovnanian at South Brunswick IV, LLC

K. Hovnanian at Spring Isle, LLC

K. Hovnanian at Stanton, LLC

K. Hovnanian at Station Square, L.L.C.

K. Hovnanian at Summerlake, LLC

K. Hovnanian at Sunridge Park, LLC

K. Hovnanian at Sunrise Trail II, LLC

K. Hovnanian at Sunrise Trail III, LLC

K. Hovnanian at Terra Bella Two, LLC

K. Hovnanian at The Commons at Richmond Hill, LLC

K. Hovnanian at The Meadows 9, LLC

K. Hovnanian at The Monarch, L.L.C.

K. Hovnanian at The Promenade at Beaver Creek, LLC

K. Hovnanian at Thompson Ranch, LLC

K. Hovnanian at Trafford Place, LLC

K. Hovnanian at Trail Ridge, LLC

K. Hovnanian at Tramore LLC

K. Hovnanian at Upper Providence, LLC

K. Hovnanian at Upper Uwchlan II, L.L.C.

K. Hovnanian at Upper Uwchlan, L.L.C.

K. Hovnanian at Valle Del Sol, LLC

K. Hovnanian at Ventana Lakes, LLC

K. Hovnanian at Verona Estates, LLC

K. HOVNANIAN AT VERONA URBAN RENEWAL, L.L.C.

K. Hovnanian at Verrado Cascina, LLC

K. Hovnanian at Verrado Marketside, LLC

K. Hovnanian at Victorville, L.L.C.

K. Hovnanian at Village Center, LLC

K. Hovnanian at Villages at Country View, LLC

K. Hovnanian at Villago, LLC

K. Hovnanian at Vineyard Heights, LLC

K. Hovnanian at Vista Del Sol, L.L.C.

K. Hovnanian at Waldwick, LLC

K. Hovnanian at Walkers Grove, LLC

K. Hovnanian at Wall Donato, LLC

K. Hovnanian at Wall Quail Ridge, LLC

K. Hovnanian at Warren Township II, LLC

K. Hovnanian at Warren Township, L.L.C.

K. Hovnanian at Waterstone, LLC

K. Hovnanian at West View Estates, L.L.C.

K. Hovnanian at Westbrook, LLC

K. Hovnanian at Westshore, LLC

K. Hovnanian at Wheeler Ranch, LLC

K. Hovnanian at Wheeler Woods, LLC

K. Hovnanian at Whitemarsh, LLC

K. Hovnanian at Wildwood Bayside, L.L.C.

K. Hovnanian at Woodcreek West, LLC

K. Hovnanian at Woolwich I, L.L.C.

K. Hovnanian Belden Pointe, LLC

K. Hovnanian Belmont Reserve, LLC

K. Hovnanian Cambridge Homes, L.L.C.

K. Hovnanian Central Acquisitions, L.L.C.

K. Hovnanian Classics, L.L.C.

K. Hovnanian Communities, Inc.

K. Hovnanian Companies of California, Inc.

K. HOVNANIAN COMPANIES OF MARYLAND, INC.

K. HOVNANIAN COMPANIES OF NEW YORK, INC.

K. Hovnanian Companies of Pennsylvania, Inc.

K. Hovnanian Companies of Southern California, Inc.

K. Hovnanian Companies, LLC

K. Hovnanian Construction II, Inc

K. Hovnanian Construction III, Inc

K. Hovnanian Construction Management, Inc.

K. Hovnanian Contractors of Ohio, LLC

K. Hovnanian Cornerstone Farms, LLC

K. Hovnanian CraftBuilt Homes of South Carolina, L.L.C.

K. Hovnanian Cypress Key, LLC

K. HOVNANIAN DEVELOPMENTS OF ARIZONA, INC.

K. Hovnanian Developments of California, Inc.

K. HOVNANIAN Developments OF D.C., INC.

K. HOVNANIAN DEVELOPMENTS OF DELAWARE, INC.

K. Hovnanian Developments of Georgia, Inc.

K. Hovnanian Developments of Illinois, Inc.

K. HOVNANIAN DEVELOPMENTS OF MARYLAND, INC.

K. Hovnanian Developments of Minnesota, Inc.

K. Hovnanian Developments of New Jersey, Inc.

K. Hovnanian Developments of New York, Inc.

K. Hovnanian Developments of North Carolina, Inc.

K. Hovnanian Developments of Ohio, Inc.

K. Hovnanian Developments of Pennsylvania, Inc.

K. Hovnanian Developments of South Carolina, Inc.

K. Hovnanian Developments of Texas, Inc.

K. Hovnanian Developments of Virginia, Inc.

K. Hovnanian Developments of West Virginia, Inc.

K. Hovnanian DFW Auburn Farms, LLC

K. Hovnanian DFW Belmont, LLC

K. Hovnanian DFW Bluff Creek, LLC

K. Hovnanian DFW Creekside Estates II, LLC

K. Hovnanian DFW Creekside Estates, LLC

K. Hovnanian DFW Encore of Las Colinas II, LLC

K. Hovnanian DFW Encore of Las Colinas, LLC

K. Hovnanian DFW Harmon Farms, LLC

K. Hovnanian DFW Heritage Crossing, LLC

K. Hovnanian DFW Homestead, LLC

K. Hovnanian DFW Inspiration, LLC

K. Hovnanian DFW Lexington, LLC

K. Hovnanian DFW Liberty Crossing II, LLC

K. Hovnanian DFW Liberty Crossing, LLC

K. Hovnanian DFW Liberty, LLC

K. Hovnanian DFW Light Farms II, LLC

K. Hovnanian DFW Light Farms, LLC

K. Hovnanian DFW Midtown Park, LLC

K. Hovnanian DFW Palisades, LLC

K. Hovnanian DFW Parkside, LLC

K. Hovnanian DFW Ridgeview, LLC

K. Hovnanian DFW Sanford Park, LLC

K. Hovnanian DFW Seventeen Lakes, LLC

K. Hovnanian DFW The Parks at Rosehill, LLC

K. Hovnanian DFW Trailwood II, LLC

K. Hovnanian DFW Trailwood, LLC

K. Hovnanian DFW Villas at Mustang Park, LLC

K. Hovnanian DFW Wellington, LLC

K. Hovnanian DFW Wildridge, LLC

K. Hovnanian Eastern Pennsylvania, L.L.C.

K. Hovnanian Edgebrook, LLC

K. Hovnanian Estates at Regency, L.L.C.

K. Hovnanian Estates at Wekiva, LLC

K. Hovnanian Falls Pointe, LLC

K. HOVNANIAN FIRST HOMES, L.L.C.

K. Hovnanian Florida Old GC, LLC

K. Hovnanian Florida Realty, L.L.C.

K. Hovnanian Forest Valley, LLC

K. Hovnanian Four Seasons at Chestnut Ridge, LLC

K. Hovnanian Grand Cypress, LLC

K. Hovnanian Grandefield, LLC

K. HOVNANIAN GREAT WESTERN BUILDING COMPANY, LLC

K. HOVNANIAN GREAT WESTERN HOMES, LLC

K. Hovnanian Hamptons at Oak Creek II, L.L.C.

K. Hovnanian Hidden Hollow, LLC

K. Hovnanian Highland Ridge, LLC

K. Hovnanian Holdings NJ, L.L.C.

K. Hovnanian Homes - DFW, L.L.C.

K. Hovnanian Homes at Brook Manor, LLC

K. Hovnanian Homes at Burke Junction, LLC

K. Hovnanian Homes at Camp Springs, L.L.C.

K. Hovnanian Homes at Creekside, LLC

K. Hovnanian Homes at Greenway Farm Park Towns, L.L.C.

K. Hovnanian Homes at Greenway Farm, L.L.C.

K. Hovnanian Homes at Jones Station 1, L.L.C.

K. Hovnanian Homes at Leigh Mill, LLC

K. Hovnanian Homes at Pender Oaks, LLC

K. Hovnanian Homes at Reedy Creek, LLC

K. Hovnanian Homes at Russett, L.L.C.

K. Hovnanian Homes at Salt Creek Landing, LLC

K. Hovnanian Homes at Shell Hall, LLC

K. Hovnanian Homes at Shenandoah Springs, LLC

K. Hovnanian Homes at St. James Place, LLC

K. Hovnanian Homes at The Abby, LLC

K. Hovnanian Homes at the Highlands, LLC

K. Hovnanian Homes at The Paddocks, LLC

K. Hovnanian Homes at Thompson's Grant, LLC

K. Hovnanian Homes at Willowsford Grant II, LLC

K. Hovnanian Homes at Willowsford Grant, LLC

K. Hovnanian Homes at Willowsford Greens, LLC

K. Hovnanian Homes Northern California, Inc.

K. Hovnanian Homes of D.C., L.L.C.

K. HOVNANIAN HOMES OF DELAWARE, L.L.C.

K. Hovnanian Homes of Georgia, L.L.C.

K. Hovnanian Homes of Longacre Village, L.L.C.

K. Hovnanian Homes of Maryland, L.L.C.

K. Hovnanian Homes of Minnesota at Arbor Creek, LLC

K. Hovnanian Homes of Minnesota at Autumn Meadows, LLC

K. Hovnanian Homes of Minnesota at Brynwood, LLC

K. Hovnanian Homes of Minnesota at Cedar Hollow, LLC

K. Hovnanian Homes of Minnesota at Founder's Ridge, LLC

K. Hovnanian Homes of Minnesota at Harpers Street Woods, LLC

K. Hovnanian Homes of Minnesota at Oaks of Oxbow, LLC

K. Hovnanian Homes of Minnesota at Regent's Point, LLC

K. Hovnanian Homes of Minnesota, L.L.C.

K. HOVNANIAN HOMES OF NORTH CAROLINA, INC.

K. HOVNANIAN HOMES OF PENNSYLVANIA, L.L.C.

K. Hovnanian Homes of South Carolina, LLC

K. Hovnanian Homes of Virginia, Inc.

K. HOVNANIAN HOMES OF WEST VIRGINIA, L.L.C.

K. Hovnanian Houston Bayou Oaks at West Orem, LLC

K. Hovnanian Houston Cambridge Heights, LLC

K. Hovnanian Houston City Heights, LLC

K. Hovnanian Houston Creek Bend, LLC

K. Hovnanian Houston Dry Creek Village, LLC

K. Hovnanian Houston Katy Pointe, LLC

K. Hovnanian Houston Property I, LLC

K. Hovnanian Houston Property II, LLC

K. Hovnanian Houston River Farms, LLC

K. Hovnanian Houston Sunset Ranch, LLC

K. Hovnanian Houston Terra Del Sol, LLC

K. Hovnanian Houston Thunder Bay Subdivision, LLC

K. Hovnanian Houston Tranquility Lake Estates, LLC

K. Hovnanian Houston Woodshore, LLC

K. Hovnanian Indian Trails, LLC

K. Hovnanian LaDue Reserve, LLC

K. Hovnanian Lakes of Green, LLC

K. Hovnanian Landings 40s, LLC

K. Hovnanian Legacy at Via Bella, LLC

K. Hovnanian Liberty on Bluff Creek, LLC

K. Hovnanian Magnolia at Westside, LLC

K. Hovnanian Manalapan Acquisition, LLC

K. Hovnanian Meadow View at Mountain House, LLC

K. Hovnanian Monarch Grove, LLC

K. Hovnanian North Central Acquisitions, L.L.C.

K. Hovnanian North Jersey Acquisitions, L.L.C.

K. Hovnanian Northeast Services, L.L.C.

K. Hovnanian Northpointe 40s, LLC

K. Hovnanian Norton Place, LLC

K. Hovnanian of Houston II, L.L.C.

K. Hovnanian of Ohio, LLC

K. Hovnanian Ohio Realty, L.L.C.

K. Hovnanian PA Real Estate, Inc.

K. Hovnanian Pennsylvania Acquisitions, L.L.C.

K. Hovnanian Port Imperial Urban Renewal, Inc.

K. HOVNANIAN PRESERVE AT TURTLE CREEK LLC

K. Hovnanian Properties of Red Bank, LLC

K. Hovnanian Reynolds Ranch, LLC

K. Hovnanian Rivendale, LLC

K. Hovnanian Riverside, LLC

K. Hovnanian Schady Reserve, LLC

K. Hovnanian Sherwood at Regency, LLC

K. Hovnanian Shore Acquisitions, L.L.C.

K. Hovnanian Sola Vista, LLC

K. Hovnanian South Fork, LLC

K. Hovnanian South Jersey Acquisitions, L.L.C.

K. Hovnanian Southern New Jersey, L.L.C.

K. Hovnanian Sterling Ranch, LLC

K. Hovnanian Summit Holdings, L.L.C.

K. Hovnanian Summit Homes of Pennsylvania, L.L.C.

K. Hovnanian Summit Homes of West Virginia, L.L.C.

K. Hovnanian Summit Homes, L.L.C.

K. Hovnanian T&C Homes at Florida, L.L.C.

K. Hovnanian T&C Homes at Illinois, L.L.C.

K. Hovnanian Timbres at Elm Creek, LLC

K. Hovnanian Union Park, LLC

K. Hovnanian Venture I, L.L.C.

K. Hovnanian Village Glen, LLC

K. Hovnanian Waterbury, LLC

K. Hovnanian White Road, LLC

K. Hovnanian Winding Bay Preserve, LLC

K. HOVNANIAN WINDWARD HOMES, LLC

K. Hovnanian Woodland Pointe, LLC

K. Hovnanian Woodridge Place, LLC

K. Hovnanian's Aspire at Union Village, LLC

K. HOVNANIAN'S FOUR SEASONS AT BAKERSFIELD, L.L.C.

K. Hovnanian's Four Seasons at Baymont Farms L.L.C.

K. Hovnanian's Four Seasons at Beaumont, LLC

K. Hovnanian's Four Seasons at Belle Terre, LLC

K. Hovnanian's Four Seasons at Briargate, LLC

K. Hovnanian's Four Seasons at Hemet, LLC

K. Hovnanian's Four Seasons at Kent Island Condominiums, L.L.C.

K. Hovnanian's Four Seasons at Kent Island, L.L.C.

K. Hovnanian's Four Seasons at Los Banos, LLC

K. Hovnanian's Four Seasons at Moreno Valley, L.L.C.

K. Hovnanian's Four Seasons at New Kent Vineyards, L.L.C.

K. Hovnanian's Four Seasons at Palm Springs, LLC

K. Hovnanian's Four Seasons at Rush Creek II, LLC

K. Hovnanian's Four Seasons at Rush Creek, L.L.C.

K. Hovnanian's Four Seasons at Silver Maple Farm, L.L.C.

K. Hovnanian's Four Seasons at St. Margarets Landing, L.L.C.

K. Hovnanian's Four Seasons at The Manor II, LLC

K. Hovnanian's Four Seasons at The Manor, LLC

K. Hovnanian's Parkside at Towngate, L.L.C.

K. Hovnanian's Veranda at RiverPark II, LLC

K. Hovnanian's Veranda at RiverPark, LLC

KHH Shell Hall Loan Acquisition, LLC

KHOV WINDING BAY II, LLC

LANDARAMA, INC.

LAUREL HIGHLANDS, LLC

M & M at Monroe Woods, L.L.C.

M&M at Chesterfield, L.L.C.

M&M AT Crescent Court, L.L.C.

M&M at West Orange, L.L.C.

Matzel & Mumford at Egg Harbor, L.L.C.

MCNJ, Inc.

Midwest Building Products & Contractor Services of Pennsylvania, L.L.C.

Midwest Building Products & Contractor Services of West Virginia, L.L.C.

MIDWEST BUILDING PRODUCTS & CONTRACTOR SERVICES, L.L.C.

MM-Beachfront North I, LLC

New Home Realty, LLC

New Land Title Agency, L.L.C.

PARK TITLE COMPANY, LLC

Pine Ayr, LLC

Ridgemore Utility L.L.C.

Route 1 and Route 522, L.L.C.

SEABROOK ACCUMULATION CORPORATION

Shell Hall Club Amenity Acquisition, LLC

Shell Hall Land Acquisition, LLC

STONEBROOK HOMES, INC.

Terrapin Realty, L.L.C.

The Matzel & Mumford Organization, Inc

Washington Homes, Inc.

WTC Ventures, L.L.C.

K. Hovnanian Lake Griffin Reserve, LLC

K. Hovnanian Osprey Ranch, LLC

K. Hovnanian's Four Seasons at Bella Vista, LLC

K. Hovnanian DFW Villas at The Station, LLC

K. Hovnanian at Rockland Village Green, LLC

EX-21

Exhibit 21

Legal Entity Name	State of Formation
K. Hovnanian at 240 Missouri, LLC	AZ
K. Hovnanian at Aire on McDowell, LLC	AZ
K. Hovnanian at Catania, LLC	AZ
K. Hovnanian at Eagle Heights, LLC	AZ
K. Hovnanian at Gallery, LLC	AZ
K. Hovnanian at Montana Vista Dobbins, LLC	AZ
K. Hovnanian at Montana Vista, LLC	AZ
K. Hovnanian at Palm Valley, L.L.C.	AZ
K. Hovnanian at Park Paseo, LLC	AZ
K. Hovnanian at Pointe 16, LLC	AZ
K. Hovnanian at Quail Creek, L.L.C.	AZ
K. Hovnanian at Rancho Cabrillo, LLC	AZ
K. Hovnanian at Sienna Hills, LLC	AZ
K. Hovnanian at Silverstone G, LLC	AZ
K. Hovnanian at Silverstone, LLC	AZ
K. Hovnanian at Skye on McDowell, LLC	AZ
K. Hovnanian at Solare, LLC	AZ
K. Hovnanian at Sunrise Trail II, LLC	AZ
K. Hovnanian at Sunrise Trail III, LLC	AZ
K. Hovnanian at The Meadows 9, LLC	AZ
K. Hovnanian at The Meadows, LLC	AZ
K. Hovnanian at Ventana Lakes, LLC	AZ
K. Hovnanian at Verrado Cascina, LLC	AZ
K. Hovnanian at Verrado Marketside, LLC	AZ
K. Hovnanian at Villago, LLC	AZ
K. Hovnanian Building Company, LLC	AZ
K. Hovnanian Companies of Arizona, LLC	AZ
K. HOVNANIAN DEVELOPMENTS OF ARIZONA, INC.	AZ
K. HOVNANIAN GREAT WESTERN BUILDING COMPANY, LLC	AZ
K. HOVNANIAN GREAT WESTERN HOMES, LLC	AZ
K. Hovnanian Legacy at Via Bella, LLC	AZ
K. Hovnanian's Four Seasons at The Manor II, LLC	AZ
K. Hovnanian's Four Seasons at The Manor, LLC	AZ
New Land Title Agency, L.L.C.	AZ
2700 Empire, LLC	CA
GTIS-HOV Positano LLC	CA
GTIS-HOV Rancho 79 LLC	CA
K. HOV IP, II, Inc.	CA
K. Hovnanian Aspire at Bellevue Ranch, LLC	CA
K. Hovnanian at 4S, LLC	CA
K. Hovnanian at Aliso, LLC	CA
K. Hovnanian at Andalusia, LLC	CA
K. HOVNANIAN AT AVENUE ONE, L.L.C.	CA
K. Hovnanian at Bakersfield 463, L.L.C.	CA
K. Hovnanian at Beacon Park Area 129 II, LLC	CA
K. Hovnanian at Beacon Park Area 129, LLC	CA
K. Hovnanian at Beacon Park Area 137, LLC	CA
K. Hovnanian at Bella Lago, LLC	CA
K. Hovnanian at Blackstone, LLC	CA
K. Hovnanian at Cadence Park, LLC	CA
K. HOVNANIAN AT CAPISTRANO, L.L.C.	CA
K. Hovnanian at Carlsbad, LLC	CA
K. Hovnanian at Cedar Lane, LLC	CA
K. Hovnanian at Charter Way, LLC	CA
K. Hovnanian at Cielo, L.L.C.	CA
K. Hovnanian at Coastline, L.L.C.	CA
K. Hovnanian at Cortez Hill, LLC	CA
K. Hovnanian at Crestview, LLC	CA
K. Hovnanian at El Dorado Ranch II, L.L.C.	CA
K. Hovnanian at El Dorado Ranch, L.L.C.	CA
K. Hovnanian at Fiddyment Ranch, LLC	CA
K. Hovnanian at Fresno, LLC	CA
K. HOVNANIAN AT GASLAMP SQUARE, L.L.C.	CA
K. Hovnanian at Gilroy 60, LLC	CA
K. Hovnanian at GIlroy, LLC	CA
K. Hovnanian at Jaeger Ranch, LLC	CA
K. Hovnanian at La Laguna, L.L.C.	CA
K. Hovnanian at Lake Rancho Viejo, LLC	CA
K. Hovnanian at Luna Vista, LLC	CA
K. Hovnanian at Malan Park, L.L.C.	CA
K. Hovnanian at Manteca, LLC	CA
K. Hovnanian at Melanie Meadows, LLC	CA
K. Hovnanian at Meridian Hills, LLC	CA
K. Hovnanian at Muirfield, LLC	CA
K. Hovnanian at Parkside, LLC	CA
K. Hovnanian at Pavilion Park, LLC	CA
K. Hovnanian at Piazza D'Oro, L.L.C.	CA
K. Hovnanian at Piazza Serena, L.L.C	CA
K. Hovnanian at Positano, LLC	CA
K. Hovnanian at Prado, L.L.C.	CA
K. HOVNANIAN AT ROSEMARY LANTANA, L.L.C.	CA
K. Hovnanian at Sage, L.L.C.	CA
K. Hovnanian at Santa Nella, LLC	CA
K. Hovnanian at Sheldon Grove, LLC	CA
K. Hovnanian at Sierra Vista, LLC	CA
K. Hovnanian at Skye Isle, LLC	CA
K. Hovnanian at Stanton, LLC	CA
K. Hovnanian at Sunridge Park, LLC	CA
K. Hovnanian at Thompson Ranch, LLC	CA
K. Hovnanian at Trail Ridge, LLC	CA
K. Hovnanian at Valle Del Sol, LLC	CA
K. Hovnanian at Verona Estates, LLC	CA
K. Hovnanian at Victorville, L.L.C.	CA
K. Hovnanian at Village Center, LLC	CA
K. Hovnanian at Vineyard Heights, LLC	CA
K. Hovnanian at Vista Del Sol, L.L.C.	CA
K. Hovnanian at Waterstone, LLC	CA
K. Hovnanian at West View Estates, L.L.C.	CA
K. Hovnanian at Westshore, LLC	CA
K. Hovnanian at Wheeler Ranch, LLC	CA
K. Hovnanian at Woodcreek West, LLC	CA
K. Hovnanian CA Land Holdings, LLC	CA
K. Hovnanian Communities, Inc.	CA
K. Hovnanian Companies of California, Inc.	CA
K. Hovnanian Companies of Southern California, Inc.	CA
K. Hovnanian Companies, LLC	CA
K. Hovnanian Developments of California, Inc.	CA
K. Hovnanian Developments of New Jersey, Inc.	CA
K. Hovnanian Enterprises, Inc.	CA
K. Hovnanian GT Investment, L.L.C.	CA
K. Hovnanian Homes Northern California, Inc.	CA
K. Hovnanian JV Holdings, L.L.C.	CA
K. Hovnanian JV Services Company, L.L.C.	CA
K. Hovnanian Meadow View at Mountain House, LLC	CA
K. Hovnanian Terra Lago Investment, LLC	CA
K. Hovnanian's Aspire at Union Village, LLC	CA
K. HOVNANIAN'S FOUR SEASONS AT BAKERSFIELD, L.L.C.	CA
K. Hovnanian's Four Seasons at Beaumont, LLC	CA
K. Hovnanian's Four Seasons at Hemet, LLC	CA
K. Hovnanian's Four Seasons at Los Banos, LLC	CA
K. Hovnanian's Four Seasons at Moreno Valley, L.L.C.	CA
K. Hovnanian's Four Seasons at Palm Springs, LLC	CA
K. Hovnanian's Parkside at Towngate, L.L.C.	CA
K. Hovnanian's Sonata at The Preserve, LLC	CA
K. Hovnanian's Veranda at RiverPark II, LLC	CA
K. Hovnanian's Veranda at RiverPark, LLC	CA
SEABROOK ACCUMULATION CORPORATION	CA
STONEBROOK HOMES, INC.	CA
K. Hovnanian Parkview at Sterling Meadows, LLC	CA
K. HOVNANIAN Developments OF D.C., INC.	DC
K. Hovnanian Homes at Parkside, LLC	DC
K. Hovnanian Homes of D.C., L.L.C.	DC
K. Hovnanian Parkside Holdings, LLC	DC
GTIS-HOV Dulles Parkway Parent LLC	DE
GTIS-HOV Greenfield Crossing Parent LLC	DE
GTIS-HOV Holdings LLC	DE
Homebuyers Financial USA, LLC	DE
Hovnanian Enterprises, Inc. (PARENT COMPANY)	DE
HovSite Catalina LLC	DE
HovSite Churchill Club LLC	DE
HovSite Cider Grove LLC	DE
HovSite Firenze LLC	DE
HovSite Greenwood Manor LLC	DE
HovSite Hunt Club LLC	DE
HovSite Irish Prairie LLC	DE
HovSite Liberty Lakes LLC	DE
HovSite Monteverde 1 & 2 LLC	DE
HovSite Monteverde 3 & 4 LLC	DE
HovSite Providence LLC	DE
HovSite Southampton LLC	DE
K. Hovnanian at Ashby Place, LLC	DE
K. Hovnanian at Brenford Station, LLC	DE
K. Hovnanian at Cedar Lane Estates, LLC	DE
K. Hovnanian at Hidden Brook, LLC	DE
K. Hovnanian at Mansfield II, L.L.C.	DE
K. HOVNANIAN AT NORTH BRUNSWICK VI, L.L.C.	DE
K. Hovnanian at Nottingham Meadows, LLC	DE
K. Hovnanian at Ocean View Beach Club, LLC	DE
K. Hovnanian at Plantation Lakes, L.L.C.	DE
K. Hovnanian at Retreat at Millstone, LLC	DE
K. Hovnanian at Seabrook, LLC	DE
K. Hovnanian Central Acquisitions, L.L.C.	DE
K. HOVNANIAN DEVELOPMENTS OF DELAWARE, INC.	DE
K. Hovnanian GT V Investment, LLC	DE
K. Hovnanian GT VI Investment, LLC	DE
K. Hovnanian GT VII Investment, LLC	DE
K. Hovnanian Hamptons at Oak Creek II, L.L.C.	DE
K. Hovnanian Homes at Knollac Acres, LLC	DE
K. Hovnanian Homes of Delaware I, LLC	DE
K. HOVNANIAN HOMES OF DELAWARE, L.L.C.	DE
K. Hovnanian Homes of Longacre Village, L.L.C.	DE
K. Hovnanian HovSite II Investment, LLC	DE
K. Hovnanian HovSite III Investment, LLC	DE
K. Hovnanian M.E. Investments, LLC	DE
K. Hovnanian Nassau Grove Holdings, L.L.C.	DE
K. Hovnanian North Central Acquisitions, L.L.C.	DE
K. Hovnanian North Jersey Acquisitions, L.L.C.	DE
K. Hovnanian Shore Acquisitions, L.L.C.	DE
K. Hovnanian South Jersey Acquisitions, L.L.C.	DE
K. Hovnanian's Four Seasons at Baymont Farms L.L.C.	DE
K. Hovnanian's Four Seasons at Belle Terre, LLC	DE
K. Hovnanian's Four Seasons at Silver Maple Farm, L.L.C.	DE
KHH Shell Hall Loan Acquisition, LLC	DE
Washington Homes, Inc.	DE
WTC Ventures, L.L.C.	DE
Eastern National Title Agency, LLC	FL
HOVNANIAN DEVELOPMENTS OF FLORIDA, INC.	FL
Hovnanian Land Investment Group of Florida, L.L.C.	FL
K. Hovnanian Amber Glen, LLC	FL
K. Hovnanian at Boca Dunes, LLC	FL
K. Hovnanian at Coral Lago, LLC	FL
K. Hovnanian at Delray Beach, L.L.C.	FL
K. Hovnanian at Hampton Cove, LLC	FL
K. Hovnanian at Hilltop Reserve II, LLC	FL
K. Hovnanian at Hilltop Reserve, LLC	FL
K. Hovnanian at Lake Burden, LLC	FL
K. Hovnanian at Lake Florence, LLC	FL
K. Hovnanian at Lake LeClare, LLC	FL
K. Hovnanian at Mystic Dunes, LLC	FL
K. Hovnanian at Pickett Reserve, LLC	FL
K. Hovnanian at Redtail, LLC	FL
K. Hovnanian at Spring Isle, LLC	FL
K. Hovnanian at Summerlake, LLC	FL
K. Hovnanian at Terra Bella Two, LLC	FL
K. Hovnanian at The Highlands at Summerlake Grove, LLC	FL
K. Hovnanian at Valletta, LLC	FL
K. Hovnanian at Walkers Grove, LLC	FL
K. Hovnanian Belmont Reserve, LLC	FL
K. Hovnanian Cambridge Homes, L.L.C.	FL
K. Hovnanian Cypress Creek, LLC	FL
K. Hovnanian Cypress Key, LLC	FL
K. Hovnanian Estates at Wekiva, LLC	FL
K. HOVNANIAN FIRST HOMES, L.L.C.	FL
K. Hovnanian Florida New GC, LLC	FL
K. Hovnanian Florida Old GC, LLC	FL
K. Hovnanian Florida Realty, L.L.C.	FL
K. Hovnanian Grand Cypress, LLC	FL
K. Hovnanian Grandefield, LLC	FL
K. Hovnanian Homes of Florida I, LLC	FL
K. Hovnanian Lake Griffin Reserve, LLC	FL
K. Hovnanian Lake Parker, LLC	FL
K. Hovnanian Magnolia at Westside, LLC	FL
K. Hovnanian Montclaire Estates, LLC	FL
K. Hovnanian Ocoee Landings, LLC	FL
K. Hovnanian Osprey Ranch, LLC	FL
K. HOVNANIAN PRESERVE AT TURTLE CREEK LLC	FL
K. Hovnanian Reynolds Ranch, LLC	FL
K. Hovnanian Riverside, LLC	FL
K. Hovnanian San Sebastian, LLC	FL
K. Hovnanian Sereno, LLC	FL
K. Hovnanian Sola Vista, LLC	FL
K. Hovnanian South Fork, LLC	FL
K. Hovnanian Sterling Ranch, LLC	FL
K. Hovnanian T&C Homes at Florida, L.L.C.	FL
K. Hovnanian TerraLargo, LLC	FL
K. Hovnanian Union Park, LLC	FL
K. Hovnanian Winding Bay Preserve, LLC	FL
K. HOVNANIAN WINDWARD HOMES, LLC	FL
KHOV WINDING BAY II, LLC	FL
LINKS AT CALUSA SPRINGS, LLC	FL
K. Hovnanian at The Commons at Richmond Hill, LLC	GA
K. Hovnanian at Westbrook, LLC	GA
K. Hovnanian Developments of Georgia, Inc.	GA
K. Hovnanian Homes at Creekside, LLC	GA
K. Hovnanian Homes of Georgia, L.L.C.	GA
Amber Ridge, LLC	IL
Arbor Trails, LLC	IL
Eastern Title Agency of Illinois, LLC	IL
Glenrise Grove, L.L.C.	IL
K. Hovnanian at Amberley Woods, LLC	IL
K. Hovnanian at Ashley Pointe LLC	IL
K. Hovnanian at Bradwell Estates, LLC	IL
K. Hovnanian at Christina Court, LLC	IL
K. Hovnanian at Churchill Farms LLC	IL
K. Hovnanian at Estates of Fox Chase, LLC	IL
K. Hovnanian at Fairfield Ridge, LLC	IL
K. Hovnanian at Grande Park, LLC	IL
K. Hovnanian at Hanover Estates, LLC	IL
K. Hovnanian at Island Lake, LLC	IL
K. Hovnanian at Link Farm, LLC	IL
K. Hovnanian at Maple Hill LLC	IL
K. Hovnanian at Meadowridge Villas, LLC	IL
K. Hovnanian at North Grove Crossing, LLC	IL
K. Hovnanian at North Pointe Estates LLC	IL
K. Hovnanian at Northridge Estates, LLC	IL
K. Hovnanian at Orchard Meadows, LLC	IL
K. Hovnanian at Prairie Pointe, LLC	IL
K. Hovnanian at Randall Highlands, LLC	IL
K. Hovnanian at River Hills, LLC	IL
K. Hovnanian at Sagebrook, LLC	IL
K. Hovnanian at Silverwood Glen, LLC	IL
K. Hovnanian at Somerset, LLC	IL
K. HOVNANIAN AT TAMARACK SOUTH LLC	IL
K. Hovnanian at Tanglewood Oaks, LLC	IL
K. Hovnanian at Trafford Place, LLC	IL
K. Hovnanian at Tramore LLC	IL
K. Hovnanian Developments of Illinois, Inc.	IL
K. Hovnanian Estates at Regency, L.L.C.	IL
K. Hovnanian T&C Homes at Illinois, L.L.C.	IL
K. Hovnanian's Four Seasons at Briargate, LLC	IL
K. Hovnanian at Norton Lake LLC	IL
Founders Title Agency of Maryland, L.L.C.	MD
GTIS-HOV Villages at Pepper Mill LLC	MD
Homebuyers Financial Services, L.L.C.	MD
Hovnanian Land Investment Group of Maryland, L.L.C.	MD
Hovnanian Land Investment Group, L.L.C.	MD
K Hovnanian Homes at Maxwell Place, L.L.C.	MD
K. Hovnanian at Caton's Reserve, LLC	MD
K. Hovnanian at Eden Terrace, L.L.C.	MD
K. Hovnanian at Roderuck, L.L.C.	MD
K. Hovnanian at Wade's Grant, L.L.C.	MD
K. HOVNANIAN COMPANIES OF MARYLAND, INC.	MD
K. HOVNANIAN DEVELOPMENTS OF MARYLAND, INC.	MD
K. Hovnanian Homes at Camp Springs, L.L.C.	MD
K. Hovnanian Homes at Greenway Farm Park Towns, L.L.C.	MD
K. Hovnanian Homes at Greenway Farm, L.L.C.	MD
K. Hovnanian Homes at Jones Station 1, L.L.C.	MD
K. Hovnanian Homes at Russett, L.L.C.	MD
K. Hovnanian Homes at the Highlands, LLC	MD
K. Hovnanian Homes of Maryland I, LLC	MD
K. Hovnanian Homes of Maryland II, LLC	MD
K. Hovnanian Homes of Maryland, L.L.C.	MD
K. Hovnanian's Four Seasons at Kent Island Condominiums, L.L.C.	MD
K. Hovnanian's Four Seasons at Kent Island, L.L.C.	MD
K. Hovnanian's Four Seasons at St. Margarets Landing, L.L.C.	MD
Pine Ayr, LLC	MD
Ridgemore Utility L.L.C.	MD
K. Hovnanian Developments of Minnesota, Inc.	MN
K. Hovnanian Homes of Minnesota at Arbor Creek, LLC	MN
K. Hovnanian Homes of Minnesota at Autumn Meadows, LLC	MN
K. Hovnanian Homes of Minnesota at Brynwood, LLC	MN
K. Hovnanian Homes of Minnesota at Cedar Hollow, LLC	MN
K. Hovnanian Homes of Minnesota at Founder's Ridge, LLC	MN
K. Hovnanian Homes of Minnesota at Harpers Street Woods, LLC	MN
K. Hovnanian Homes of Minnesota at Oaks of Oxbow, LLC	MN
K. Hovnanian Homes of Minnesota at Regent's Point, LLC	MN
K. Hovnanian Homes of Minnesota, L.L.C.	MN
K. Hovnanian Liberty on Bluff Creek, LLC	MN
K. Hovnanian Timbres at Elm Creek, LLC	MN
K. Hovnanian's Four Seasons at Rush Creek II, LLC	MN
K. Hovnanian's Four Seasons at Rush Creek, L.L.C.	MN
K. Hovnanian at Burch Kove, LLC	NC
K. Hovnanian at Indian Wells, LLC	NC
K. Hovnanian at Lily Orchard, LLC	NC
K. Hovnanian at Main Street Square, LLC	NC
K. Hovnanian at Oak Pointe, LLC	NC
K. Hovnanian at The Promenade at Beaver Creek, LLC	NC
K. Hovnanian at Wheeler Woods, LLC	NC
K. Hovnanian Developments of North Carolina, Inc.	NC
K. Hovnanian Homes at Brook Manor, LLC	NC
K. Hovnanian Homes at Reedy Creek, LLC	NC
K. HOVNANIAN HOMES OF NORTH CAROLINA, INC.	NC
K. Hovnanian Sherwood at Regency, LLC	NC
Builder Services NJ, L.L.C.	NJ
EASTERN TITLE AGENCY, INC.	NJ
F&W MECHANICAL SERVICES, L.L.C.	NJ
Hilltop at Cedar Grove Urban Renewal, LLC	NJ
K. HOVNANIAN 77 HUDSON STREET INVESTMENTS, L.L.C.	NJ
K. Hovnanian Acquisitions, Inc.	NJ
K. Hovnanian American Mortgage, L.L.C.	NJ
K. Hovnanian at Asbury Park Urban Renewal, LLC	NJ
K. Hovnanian at Barnegat II, L.L.C.	NJ
K. Hovnanian at Branchburg II, LLC	NJ
K. Hovnanian at Branchburg, L.L.C.	NJ
K. Hovnanian at Branchburg-Vollers, LLC	NJ
K. Hovnanian at Bridgewater I, L.L.C.	NJ
K. Hovnanian at Cedar Grove III, L.L.C.	NJ
K. Hovnanian at Chesterfield, L.L.C.	NJ
K. Hovnanian at Deptford Township, L.L.C.	NJ
K. Hovnanian at Dunellen Urban Renewal, LLC	NJ
K. Hovnanian at East Brunswick III, LLC	NJ
K. Hovnanian at East Brunswick, LLC	NJ
K. Hovnanian at East Windsor, LLC	NJ
K. Hovnanian at Edgewater II, L.L.C.	NJ
K. Hovnanian at Edgewater, L.L.C.	NJ
K. Hovnanian at Egg Harbor Township II, L.L.C.	NJ
K. Hovnanian at Fifth Avenue, L.L.C.	NJ
K. Hovnanian at Florence I, L.L.C.	NJ
K. Hovnanian at Florence II, L.L.C.	NJ
K. Hovnanian at Forest Meadows, L.L.C.	NJ
K. Hovnanian at Franklin II, L.L.C.	NJ
K. Hovnanian at Franklin, L.L.C.	NJ
K. Hovnanian at Freehold Township III, LLC	NJ
K. Hovnanian at Great Notch, L.L.C.	NJ
K. Hovnanian at Hackettstown II, L.L.C.	NJ
K. Hovnanian at Hillsborough, LLC	NJ
K. Hovnanian at Howell Fort Plains, LLC	NJ
K. Hovnanian at Howell II, LLC	NJ
K. Hovnanian at Howell, LLC	NJ
K. HOVNANIAN AT HUDSON POINTE, L.L.C.	NJ
K. Hovnanian at Jackson I, L.L.C.	NJ
K. Hovnanian at Jackson, L.L.C.	NJ
K. Hovnanian at Jersey City IV, L.L.C.	NJ
K. Hovnanian at Keyport, L.L.C.	NJ
K. Hovnanian at Little Egg Harbor Township II, L.L.C.	NJ
K. Hovnanian at Little Egg Harbor, L.L.C	NJ
K. Hovnanian at Manalapan Crossing, LLC	NJ
K. HOVNANIAN AT MANALAPAN II, L.L.C.	NJ
K. Hovnanian at Manalapan III, L.L.C.	NJ
K. Hovnanian at Manalapan IV, LLC	NJ
K. Hovnanian at Manalapan V, LLC	NJ
K. Hovnanian at Manalapan VI, LLC	NJ
K. Hovnanian at Maple Avenue, L.L.C.	NJ
K. Hovnanian at Marlboro Township IX, L.L.C.	NJ
K. Hovnanian at Marlboro Township V, L.L.C.	NJ
K. Hovnanian at Marlboro VI, L.L.C.	NJ
K. Hovnanian at Mendham Township, L.L.C.	NJ
K. Hovnanian at Middle Township II, L.L.C.	NJ
K. Hovnanian at Middletown III, LLC	NJ
K. Hovnanian at Millville I, L.L.C.	NJ
K. Hovnanian at Millville II, L.L.C.	NJ
K. Hovnanian at Monroe IV, L.L.C.	NJ
K. Hovnanian at Monroe NJ II, LLC	NJ
K. Hovnanian at Monroe NJ III, LLC	NJ
K. Hovnanian at Monroe NJ, L.L.C.	NJ
K. Hovnanian at Montgomery, LLC	NJ
K. Hovnanian at Montvale II, LLC	NJ
K. Hovnanian at Montvale, L.L.C.	NJ
K. Hovnanian at Morris Twp II, LLC	NJ
K. Hovnanian at Morris Twp, LLC	NJ
K. Hovnanian at North Bergen. L.L.C.	NJ
K. Hovnanian at North Caldwell II, L.L.C.	NJ
K. Hovnanian at North Caldwell III, L.L.C.	NJ
K. Hovnanian at North Caldwell IV, L.L.C.	NJ
K. Hovnanian at North Wildwood, L.L.C.	NJ
K. Hovnanian at Northfield, L.L.C.	NJ
K. Hovnanian at Oakland, LLC	NJ
K. Hovnanian at Oceanport, L.L.C.	NJ
K. Hovnanian at Old Bridge II, LLC	NJ
K. Hovnanian at Old Bridge, L.L.C.	NJ
K. Hovnanian at Parsippany, L.L.C.	NJ
K. Hovnanian at Port Imperial Investment, LLC	NJ
K. Hovnanian at Port Imperial Urban Renewal II, L.L.C.	NJ
K. Hovnanian at Port Imperial Urban Renewal III, L.L.C.	NJ
K. HOVNANIAN AT PORT IMPERIAL URBAN RENEWAL V, L.L.C.	NJ
K. HOVNANIAN AT PORT IMPERIAL URBAN RENEWAL VIII, L.L.C.	NJ
K. Hovnanian at Ridgemont, L.L.C.	NJ
K. Hovnanian at Rock Ledge, LLC	NJ
K. Hovnanian at Shrewsbury, LLC	NJ
K. Hovnanian at Smithville, Inc.	NJ
K. Hovnanian at South Brunswick II, LLC	NJ
K. Hovnanian at South Brunswick III, LLC	NJ
K. Hovnanian at South Brunswick IV, LLC	NJ
K. Hovnanian at Station Square, L.L.C.	NJ
K. Hovnanian at The Monarch, L.L.C.	NJ
K. Hovnanian at Trenton II, L.L.C.	NJ
K. Hovnanian at Trenton Urban Renewal, L.L.C.	NJ
K. HOVNANIAN AT VERONA URBAN RENEWAL, L.L.C.	NJ
K. Hovnanian at Villages at Country View, LLC	NJ
K. Hovnanian at Wall Donato, LLC	NJ
K. Hovnanian at Wall Quail Ridge, LLC	NJ
K. Hovnanian at Warren Township II, LLC	NJ
K. Hovnanian at Warren Township, L.L.C.	NJ
K. Hovnanian at Wildwood Bayside, L.L.C.	NJ
K. Hovnanian at Woolwich I, L.L.C.	NJ
K. Hovnanian Construction II, Inc	NJ
K. Hovnanian Construction III, Inc	NJ
K. Hovnanian Construction Management, Inc.	NJ
K. Hovnanian Holdings NJ, L.L.C.	NJ
K. Hovnanian Investments, L.L.C.	NJ
K. Hovnanian Manalapan Acquisition, LLC	NJ
K. Hovnanian Northeast Services, L.L.C.	NJ
K. Hovnanian Port Imperial Urban Renewal, Inc.	NJ
K. Hovnanian Properties of Red Bank, LLC	NJ
K. Hovnanian Southern New Jersey, L.L.C.	NJ
K. Hovnanian Venture I, L.L.C.	NJ
K. Hovnanian's Four Seasons at Bella Vista, LLC	NJ
K. Hovnanian's Four Seasons at Colts Farm, LLC	NJ
LANDARAMA, INC.	NJ
M & M at Monroe Woods, L.L.C.	NJ
M&M at Chesterfield, L.L.C.	NJ
M&M at Crescent Court, L.L.C.	NJ
M&M at West Orange, L.L.C.	NJ
Matzel & Mumford at Egg Harbor, L.L.C.	NJ
MCNJ, Inc.	NJ
MM-Beachfront North I, LLC	NJ
Route 1 and Route 522, L.L.C.	NJ
Terrapin Realty, L.L.C.	NJ
The Matzel & Mumford Organization, Inc	NJ
K. Hovnanian at Waldwick, LLC	NJ
K. Hovnanian Classics, L.L.C.	NJ
K. HOVNANIAN COMPANIES OF NEW YORK, INC.	NY
K. Hovnanian Developments of New York, Inc.	NY
K. Hovnanian Aberdeen, LLC	OH
K. Hovnanian Belden Pointe, LLC	OH
K. Hovnanian Cornerstone Farms, LLC	OH
K. Hovnanian Developments of Ohio, Inc.	OH
K. Hovnanian Edgebrook, LLC	OH
K. Hovnanian Falls Pointe, LLC	OH
K. Hovnanian Forest Valley, LLC	OH
K. Hovnanian Four Seasons at Chestnut Ridge, LLC	OH
K. Hovnanian Hidden Hollow, LLC	OH
K. Hovnanian Highland Ridge, LLC	OH
K. Hovnanian Indian Trails, LLC	OH
K. Hovnanian LaDue Reserve, LLC	OH
K. Hovnanian Lakes of Green, LLC	OH
K. Hovnanian Landings 40s, LLC	OH
K. Hovnanian Monarch Grove, LLC	OH
K. Hovnanian Northpointe 40s, LLC	OH
K. Hovnanian Norton Place, LLC	OH
K. Hovnanian of Ohio, LLC	OH
K. Hovnanian Ohio Realty, L.L.C.	OH
K. Hovnanian Redfern Trails, LLC	OH
K. Hovnanian Rivendale, LLC	OH
K. Hovnanian Schady Reserve, LLC	OH
K. Hovnanian Summit Homes, L.L.C.	OH
K. Hovnanian Village Glen, LLC	OH
K. Hovnanian Waterbury, LLC	OH
K. Hovnanian White Road, LLC	OH
K. Hovnanian Woodland Pointe, LLC	OH
MIDWEST BUILDING PRODUCTS & CONTRACTOR SERVICES, L.L.C.	OH
New Home Realty, LLC	OH
K. Hovnanian Contractors of Ohio, LLC	OH
K. Hovnanian Woodridge Place, LLC	OH
Builder Services PA, L.L.C.	PA
Governor's Abstract Co., Inc.	PA
GTIS-HOV Warminster LLC	PA
K. Hovnanian at Allentown, L.L.C.	PA
K. HOVNANIAN AT CAMP HILL, L.L.C.	PA
K. Hovnanian at Doylestown, LLC	PA
K. Hovnanian at Hershey's Mill, Inc.	PA
K. Hovnanian at Lower Macungie Township I, L.L.C.	PA
K. Hovnanian at Lower Macungie Township II, L.L.C.	PA
K. Hovnanian at Lower Makefield Township I, L.L.C.	PA
K. Hovnanian at Lower Moreland II, L.L.C.	PA
K. Hovnanian at Middletown, LLC	PA
K. Hovnanian at Northampton, L.L.C.	PA
K. HOVNANIAN AT PHILADELPHIA I, L.L.C.	PA
K. HOVNANIAN AT RAPHO, L.L.C	PA
K. Hovnanian at Sawmill, Inc.	PA
K. Hovnanian at Silver Spring, L.L.C.	PA
K. Hovnanian at Upper Uwchlan II, L.L.C.	PA
K. Hovnanian at Upper Uwchlan, L.L.C.	PA
K. Hovnanian at Whitemarsh, LLC	PA
K. Hovnanian Developments of Pennsylvania, Inc.	PA
K. Hovnanian Eastern Pennsylvania, L.L.C.	PA
K. HOVNANIAN HOMES OF PENNSYLVANIA, L.L.C.	PA
K. Hovnanian PA Real Estate, Inc.	PA
K. Hovnanian Pennsylvania Acquisitions, L.L.C.	PA
K. Hovnanian Summit Homes of Pennsylvania, L.L.C.	PA
Midwest Building Products & Contractor Services of Pennsylvania, L.L.C.	PA
K. Hovnanian at Upper Providence, LLC	PA
K. Hovnanian at Coosaw Point, LLC	SC
K. Hovnanian at Fox Path at Hampton Lake, LLC	SC
K. Hovnanian at Hampton Lake, LLC	SC
K. Hovnanian at Liberty Hill Farm, LLC	SC
K. Hovnanian at Magnolia Place, LLC	SC
K. Hovnanian at Ocean Breeze Cottages, LLC	SC
K. Hovnanian at Pinckney Farm, LLC	SC
K. Hovnanian CraftBuilt Homes of South Carolina, L.L.C.	SC
K. Hovnanian Developments of South Carolina, Inc.	SC
K. Hovnanian Homes at Salt Creek Landing, LLC	SC
K. Hovnanian Homes at Shell Hall, LLC	SC
K. Hovnanian Homes at St. James Place, LLC	SC
K. Hovnanian Homes at The Abby, LLC	SC
K. Hovnanian Homes at The Paddocks, LLC	SC
K. Hovnanian Homes of South Carolina, LLC	SC
K. Hovnanian's Four Seasons at Malind Bluff, LLC	SC
K. Hovnanian's Four Seasons Hilton Head, LLC	SC
Shell Hall Club Amenity Acquisition, LLC	SC
Shell Hall Land Acquisition, LLC	SC
Fair Land Title Company, Inc.	TX
K. Hovnanian Developments of Texas, Inc.	TX
K. Hovnanian DFW Auburn Farms, LLC	TX
K. Hovnanian DFW Bayside, LLC	TX
K. Hovnanian DFW Belmont, LLC	TX
K. Hovnanian DFW Berkshire II, LLC	TX
K. Hovnanian DFW Berkshire, LLC	TX
K. Hovnanian DFW Bluff Creek, LLC	TX
K. Hovnanian DFW Calloway Trails, LLC	TX
K. Hovnanian DFW Canyon Falls, LLC	TX
K. Hovnanian DFW Cardinal Crossing, LLC	TX
K. Hovnanian DFW Carillon, LLC	TX
K. Hovnanian DFW Commodore at Preston, LLC	TX
K. Hovnanian DFW Creekside Estates II, LLC	TX
K. Hovnanian DFW Encore of Las Colinas II, LLC	TX
K. Hovnanian DFW Encore of Las Colinas, LLC	TX
K. Hovnanian DFW Harmon Farms, LLC	TX
K. Hovnanian DFW Heritage Crossing, LLC	TX
K. Hovnanian DFW Heron Pond, LLC	TX
K. Hovnanian DFW High Pointe, LLC	TX
K. Hovnanian DFW Homestead, LLC	TX
K. Hovnanian DFW Inspiration, LLC	TX
K. Hovnanian DFW Lexington, LLC	TX
K. Hovnanian DFW Liberty Crossing II, LLC	TX
K. Hovnanian DFW Liberty Crossing, LLC	TX
K. Hovnanian DFW Liberty, LLC	TX
K. Hovnanian DFW Light Farms II, LLC	TX
K. Hovnanian DFW Light Farms, LLC	TX
K. Hovnanian DFW Maxwell Creek, LLC	TX
K. Hovnanian DFW Midtown Park, LLC	TX
K. Hovnanian DFW Mustang Lakes II, LLC	TX
K. Hovnanian DFW Mustang Lakes, LLC	TX
K. Hovnanian DFW Palisades, LLC	TX
K. Hovnanian DFW Parkside, LLC	TX
K. Hovnanian DFW Parkview, LLC	TX
K. Hovnanian DFW Richwoods, LLC	TX
K. Hovnanian DFW Ridgeview, LLC	TX
K. Hovnanian DFW Sanford Park, LLC	TX
K. Hovnanian DFW Seventeen Lakes, LLC	TX
K. Hovnanian DFW The Parks at Rosehill, LLC	TX
K. Hovnanian DFW Trailwood II, LLC	TX
K. Hovnanian DFW Trailwood, LLC	TX
K. Hovnanian DFW Villas at Mustang Park, LLC	TX
K. Hovnanian DFW Villas at The Station, LLC	TX
K. Hovnanian DFW Watson Creek, LLC	TX
K. Hovnanian DFW Wellington, LLC	TX
K. Hovnanian DFW Wildridge, LLC	TX
K. Hovnanian Homes - DFW II, L.L.C.	TX
K. Hovnanian Homes - DFW, L.L.C.	TX
K. Hovnanian Houston Bayou Oaks at West Orem, LLC	TX
K. Hovnanian Houston Cambridge Heights, LLC	TX
K. Hovnanian Houston City Heights, LLC	TX
K. Hovnanian Houston Creek Bend, LLC	TX
K. Hovnanian Houston Dry Creek Village, LLC	TX
K. Hovnanian Houston Katy Pointe, LLC	TX
K. Hovnanian Houston Lakes of Bella Terra West, LLC	TX
K. Hovnanian Houston Laurel Glen, LLC	TX
K. Hovnanian Houston Midtown Park I, LLC	TX
K. Hovnanian Houston Park Lakes East, LLC	TX
K. Hovnanian Houston Parkway Trails, LLC	TX
K. Hovnanian Houston Property I, LLC	TX
K. Hovnanian Houston Property II, LLC	TX
K. Hovnanian Houston River Farms, LLC	TX
K. Hovnanian Houston Sunset Ranch, LLC	TX
K. Hovnanian Houston Terra Del Sol, LLC	TX
K. Hovnanian Houston Thunder Bay Subdivision, LLC	TX
K. Hovnanian Houston Tranquility Lake Estates, LLC	TX
K. Hovnanian Houston Woodshore, LLC	TX
K. Hovnanian of Houston II, L.L.C.	TX
K. Hovnanian of Houston III, L.L.C.	TX
PARK TITLE COMPANY, LLC	TX
K. Hovnanian DFW Creekside Estates, LLC	TX
FOUNDERS TITLE AGENCY, INC.	VA
GTIS-HOV Festival Lakes LLC	VA
GTIS-HOV Leeland Station LLC	VA
GTIS-HOV Residences at Dulles Parkway LLC	VA
GTIS-HOV Residences at Greenfield Crossing LLC	VA
K. Hovnanian at Canter V, LLC	VA
K. Hovnanian at Dominion Crossing, LLC	VA
K. Hovnanian at Embrey Mill Village, LLC	VA
K. Hovnanian at Embrey Mill, LLC	VA
K. Hovnanian at Estates at Wheatlands, LLC	VA
K. Hovnanian at Hunter's Pond, LLC	VA
K. Hovnanian at Jacks Run, LLC	VA
K. Hovnanian at Lake Ridge Estates, LLC	VA
K. Hovnanian at Lee Square, L.L.C.	VA
K. Hovnanian at Lenah Woods, LLC	VA
K. Hovnanian at Madison Square, LLC	VA
K. Hovnanian at Melody Farm, LLC	VA
K. Hovnanian at Pelham's Reach, LLC	VA
K. Hovnanian at Raymond Farm, LLC	VA
K. Hovnanian at Reserves at Wheatlands, LLC	VA
K. Hovnanian at Residence at Discovery Square, LLC	VA
K. Hovnanian at Rockland Village Green, LLC	VA
K. Hovnanian at Seasons Landing, LLC	VA
K. Hovnanian at Signal Hill, LLC	VA
K. Hovnanian at The Boulevards at Westfields, LLC	VA
K. Hovnanian at Townes at County Center, LLC	VA
K. Hovnanian at Village of Round Hill, LLC	VA
K. Hovnanian at Waterford, LLC	VA
K. Hovnanian at Wellsprings, LLC	VA
K. Hovnanian at Willowsford Greens III, LLC	VA
K. Hovnanian Developments of Virginia, Inc.	VA
K. Hovnanian Homes at Bock Farm, LLC	VA
K. Hovnanian Homes at Burke Junction, LLC	VA
K. Hovnanian Homes at Leigh Mill, LLC	VA
K. Hovnanian Homes at Pender Oaks, LLC	VA
K. Hovnanian Homes at Thompson's Grant, LLC	VA
K. Hovnanian Homes at Willowsford Grange, LLC	VA
K. Hovnanian Homes at Willowsford Grant II, LLC	VA
K. Hovnanian Homes at Willowsford Grant, LLC	VA
K. Hovnanian Homes at Willowsford Greens, LLC	VA
K. Hovnanian Homes at Willowsford New, LLC	VA
K. Hovnanian Homes of Virginia I, LLC	VA
K. Hovnanian Homes of Virginia, Inc.	VA
K. Hovnanian Summit Holdings, L.L.C.	VA
K. Hovnanian's Four Seasons at New Kent Vineyards, L.L.C.	VA
K. Hovnanian's Four Seasons at Virginia Crossing, LLC	VA
K. Hovnanian at Huntfield, LLC	WV
K. Hovnanian Developments of West Virginia, Inc.	WV
K. Hovnanian Homes at Shenandoah Springs, LLC	WV
K. HOVNANIAN HOMES OF WEST VIRGINIA, L.L.C.	WV
K. Hovnanian Summit Homes of West Virginia, L.L.C.	WV
Midwest Building Products & Contractor Services of West Virginia, L.L.C.	WV

EX-23.A

EXHIBIT 23(a)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements on Forms S-8 of our report dated December 20, 2018, relating to the consolidated financial statements of Hovnanian Enterprises, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financial reporting appearing in this Annual Report on Form 10-K of Hovnanian Enterprises, Inc. for the year ended October 31, 2018:

1. Registration Statements Nos. 333-113758, 333-106756, and 333-92977 on Form S-8 pertaining to the Amended and Restated 2008 Hovnanian Enterprises, Inc. Stock Incentive Plan (which superseded and replaced the Amended and Restated 1999 Hovnanian Enterprises, Inc. Stock Incentive Plan), and Hovnanian Enterprises. Inc. Senior Executive Short-Term Incentive Plan, as amended and restated;

2. Registration Statement No. 333-56972 on Form S-8 pertaining to the Hovnanian Enterprises, Inc. 1983 Stock Option Plan as amended and restated;

3. Registration Statement No. 333-56640 on Form S-8 pertaining to the Washington Homes Employee Stock Option Plan;

4. Registration Statement No. 333-180668 on Form S-8 pertaining to the 2012 Hovnanian Enterprises, Inc. Stock Incentive Plan; and

5. Registration Statement Nos. 333-194542 and 333-210218 on Form S-8 pertaining to the 2012 Hovnanian Enterprises, Inc. Amended and Restated Stock Incentive Plan.

/s/ Deloitte & Touche LLP

New York, New York

December 20, 2018

EX-23.B

EXHIBIT 23(b)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements on Forms S-8 of our report dated December 20, 2018, relating to the consolidated financial statements of GTIS-HOV Holdings V LLC and subsidiaries as of October 31, 2018 and 2017 and for the years then ended, and for the period from April 29, 2016 (date of inception) through October 31, 2016, appearing in this Annual Report on Form 10-K of Hovnanian Enterprises, Inc. for the year ended October 31, 2018:

1. Registration Statements Nos. 333-113758, 333-106756, and 333-92977 on Form S-8 pertaining to the Amended and Restated 2008 Hovnanian Enterprises, Inc. Stock Incentive Plan (which superseded and replaced the Amended and Restated 1999 Hovnanian Enterprises, Inc. Stock Incentive Plan), and Hovnanian Enterprises. Inc. Senior Executive Short-Term Incentive Plan, as amended and restated;

2. Registration Statement No. 333-56972 on Form S-8 pertaining to the Hovnanian Enterprises, Inc.1983 Stock Option Plan as amended and restated;

3. Registration Statement No. 333-56640 on Form S-8 pertaining to the Washington Homes Employee Stock Option Plan;

4. Registration Statement No. 333-180668 on Form S-8 pertaining to the 2012 Hovnanian Enterprises, Inc. Stock Incentive Plan; and

5. Registration Statement Nos. 333-194542 and 333-210218 on Form S-8 pertaining to the 2012 Hovnanian Enterprises, Inc. Amended and Restated Stock Incentive Plan.

/s/ Deloitte & Touche LLP

New York, New York

December 20, 2018

EX-23.C

EXHIBIT 23(c)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements on Forms S-8 of our report dated December 20, 2018, relating to the consolidated financial statements of GTIS-HOV Holdings VI LLC and subsidiaries as of October 31, 2018, and 2017 and for the year ended October 31, 2018, and for the period from February 24, 2017 (date of inception) through October 31, 2017, appearing in this Annual Report on Form 10-K of Hovnanian Enterprises, Inc. for the year ended October 31, 2018:

1. Registration Statements Nos. 333-113758, 333-106756, and 333-92977 on Form S-8 pertaining to the Amended and Restated 2008 Hovnanian Enterprises, Inc. Stock Incentive Plan (which superseded and replaced the Amended and Restated 1999 Hovnanian Enterprises, Inc. Stock Incentive Plan), and Hovnanian Enterprises. Inc. Senior Executive Short-Term Incentive Plan, as amended and restated;

2. Registration Statement No. 333-56972 on Form S-8 pertaining to the Hovnanian Enterprises, Inc.1983 Stock Option Plan as amended and restated;

3. Registration Statement No. 333-56640 on Form S-8 pertaining to the Washington Homes Employee Stock Option Plan;

4. Registration Statement No. 333-180668 on Form S-8 pertaining to the 2012 Hovnanian Enterprises, Inc. Stock Incentive Plan; and

5. Registration Statement Nos. 333-194542 and 333-210218 on Form S-8 pertaining to the 2012 Hovnanian Enterprises, Inc. Amended and Restated Stock Incentive Plan.

/s/ Deloitte & Touche LLP

New York, New York

December 20, 2018

EX-31.A

CERTIFICATIONS

Exhibit 31(a)

I, Ara K. Hovnanian, certify that:

1.   I have reviewed this Annual Report on Form 10-K for the year ended October 31, 2018 of Hovnanian Enterprises, Inc. (the “registrant”);

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 20, 2018

/s/ARA K. HOVNANIAN
Ara K. Hovnanian
Chairman, President and Chief Executive Officer

EX-31.B

CERTIFICATIONS

Exhibit 31(b)

I, J. Larry Sorsby, certify that:

1.   I have reviewed this Annual Report on Form 10-K for the year ended October 31, 2018 of Hovnanian Enterprises, Inc. (the “registrant”);

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 20, 2018

/s/J. LARRY SORSBY
J. Larry Sorsby
Executive Vice President and Chief Financial Officer

EX-32.A

Exhibit 32(a)

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Hovnanian Enterprises, Inc. (the “Company”) on Form 10-K for the year ended October 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ara K. Hovnanian, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 20, 2018

/s/ARA K. HOVNANIAN
Ara K. Hovnanian
Chairman, President and Chief Executive Officer

EX-32.B

Exhibit 32(b)

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Hovnanian Enterprises, Inc. (the “Company”) on Form 10-K for the year ended October 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Larry Sorsby, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 20, 2018

/s/J. LARRY SORSBY
J. Larry Sorsby
Executive Vice President and Chief Financial Officer

EX-99.A

Exhibit 99.a

Consolidated Financial Statements

GTIS-HOV Holdings V LLC

As Of And For The Years Ended October 31, 2018 And 2017 

and The Period From April 29, 2016 (Inception) Through

October 31, 2016 And Independent Auditors’ Report

GTIS-HOV Holdings V LLC

Consolidated Financial Statements

As Of And For The Years Ended October 31, 2018 And 2017 and

The Period From April 29, 2016 (Inception) Through October 31, 2016

Contents

Independent Auditors' Report 1-2

Consolidated Financial Statements

Consolidated Balance Sheets 3

Consolidated Statements of Operations 4

Consolidated Statements of Changes in Members’ Equity 5

Consolidated Statements of Cash Flows 6

Notes to Consolidated Financial Statements 7-13

INDEPENDENT AUDITORS' REPORT

To the Members of
GTIS-HOV Holdings V LLC
Matawan, New Jersey

We have audited the accompanying consolidated financial statements of GTIS-HOV Holdings V LLC and its subsidiaries (the "Company"), which comprise the consolidated balance sheets as of October 31, 2018 and 2017, and the related consolidated statements of operations, changes in members' equity, and cash flows for the years then ended, and for the period from April 29, 2016 (date of inception) to October 31, 2016, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

1

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GTIS-HOV Holdings V LLC and its subsidiaries as of October 31, 2018 and 2017, and the results of their operations and their cash flows for the years then ended and for the period from April 29, 2016 (date of inception) to October 31, 2016, in accordance with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

December 20, 2018

2

GTIS-HOV Holdings V LLC

Consolidated Balance Sheets

(Dollars in Thousands)

	October 31,
	2018		2017
Assets
Cash	$	16,774	$	23,266
Restricted cash		2,435		886
Receivables and deposits		2,881		2,761
Inventories:
Land and land development		82,951		134,485
Construction in process		39,837		47,142
Consolidated inventory not owned		804		790
Total inventories		123,592		182,417
Prepaid expenses		4,263		6,677
Total assets	$	149,945	$	216,007
Liabilities and Members’ equity
Notes payable, net of debt issuance costs	$	69,897	$	138,215
Liabilities from inventory not owned		593		593
Accounts payable and other liabilities		23,698		16,606
Customers’ deposits		5,600		5,797
Accrued interest		206		20,651
Total liabilities		99,994		181,862
Commitments and contingencies (Note 5)
Members’ equity		49,951		34,145
Total liabilities and members’ equity	$	149,945	$	216,007

See notes to consolidated financial statements.

3

GTIS-HOV Holdings V LLC

Consolidated Statements of Operations

(Dollars in Thousands)

	Year Ended October 31, 2018		Year Ended October 31, 2017			Period From April 29, 2016 (Inception) Through October 31, 2016
Revenue:
Sale of homes	$	326,527	$	148,858		$	5,601
Other revenue		747		180			8
Total revenue		327,274		149,038			5,609
Expenses:
Direct costs:
Land and land development		111,811		53,419			2,377
Construction		128,058		59,494			1,966
Other		15,417		7,216			301
Direct cost of sales		255,286		120,129			4,644
Cost of sales interest		15,427		6,120			449
Indirect cost of sales:
Construction and service overhead		6,907		3,070			258
Inventory impairment loss and land option write-off		722		-			-
Other		4,140		2,067			128
Total indirect cost of sales		11,769		5,137			386
Selling, general and administrative expense		23,722		13,992			2,766
Interest expense		5,264		6,184			1,538
Net income (loss)	$	15,806	$	(2,524	)	$	(4,174	)

See notes to consolidated financial statements.

4

GTIS-HOV Holdings V LLC

Consolidated Statement of Changes in Members’ Equity

(Dollars in Thousands)

For The Years Ended October 31, 2018 and 2017 and The Period From

April 29, 2016 (Inception) Through October 31, 2016

	K. Hovnanian
	GT V			Hov V
	Investment,			Parallel			GTIS Hov V
	LLC			Blocker LLC			Co-Invest LP			Total
Initial Capital Contributions	$	21,786		$	526		$	3,831		$	26,143
Net loss		(3,478	)		(84	)		(612	)		(4,174	)
Balance at October 31, 2016		18,308			442			3,219			21,969
Capital Contributions		12,250			296			2,154			14,700
Net loss		(2,103	)		(51	)		(370	)		(2,524	)
Balance at October 31, 2017		28,455			687			5,003			34,145
Net income		13,172			318			2,316			15,806
Balance at October 31, 2018	$	41,627		$	1,005		$	7,319		$	49,951

See notes to consolidated financial statements. 

5

GTIS-HOV Holdings V LLC

Consolidated Statement of Cash Flows

(Dollars in Thousands)

	Year Ended October 31, 2018			Year Ended October 31, 2017			Period From April 29, 2016 (Inception) Through October 31, 2016
Operating activities
Net income (loss)	$	15,806		$	(2,524	)	$	(4,174	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Inventory impairment loss and land option write-off		722			-			-
Amortization of deferred financing costs		619			1,064			150
Changes in operating assets and liabilities:
Receivables, deposits and prepaid expenses		2,294			(3,070	)		(6,369	)
Inventories		58,103			(78,631	)		(103,786	)
Accounts payable, other liabilities and accrued interest		(13,353	)		23,946			13,311
Customers’ deposits		(197	)		3,498			2,299
Net cash provided by (used in) operating activities		63,994			(55,717	)		(98,569	)
Investing activities
Restricted cash		(1,549	)		(853	)		(33	)
Net cash used in investing activities		(1,549	)		(853	)		(33	)
Financing activities
Member contributions		-			14,700			26,143
Proceeds from notes payable		55,227			88,792			88,770
Payments related to notes payable		(124,019	)		(37,266	)		(934	)
Proceeds from model sale leaseback financing program		-			-			593
Deferred financing costs from model financing program and notes payable		(145	)		(1,371	)		(989	)
Net cash (used in) provided by financing activities		(68,937	)		64,855			113,583
Net increase in cash		(6,492	)		8,285			14,981
Cash balance, beginning of year		23,266			14,981			-
Cash balance, end of year	$	16,774		$	23,266		$	14,981
Supplemental disclosures of cash flows:
Cash paid for interest, net of amounts capitalized	$	36,799		$	53		$	43

See notes to consolidated financial statements.

6

GTIS-HOV Holdings V LLC

Notes to Consolidated Financial Statements

As Of And For The Years Ended October 31, 2018 And 2017 and The

Period From April 29, 2016 (Inception) Through October 31, 2016

1. Description of Business

GTIS-HOV Holdings V LLC (with its subsidiaries, the “Company”) is a residential home developer that markets its products in Arizona, California, Illinois, Maryland, New Jersey, South Carolina and Virginia. All construction activity is performed by subcontractors supervised by the Company.

On April 29, 2016, K. Hovnanian GT V Investment, LLC (“K-Hov”) (a subsidiary of K. Hovnanian Enterprises, Inc.) entered into a joint venture agreement with Hov V Parallel Blocker LLC and GTIS Hov V Co-Invest LP (collectively, “GTIS”) (both affiliates of GTIS Partners) to develop, construct, and sell residential communities. The Company purchased eight properties from other subsidiaries of K. Hovnanian Enterprises, Inc. and one property from a third party. All properties were purchased at fair value. During Fiscal 2017, the Company purchased one property from a subsidiary of K. Hovnanian Enterprises, Inc. and two properties from a third party.

The Company is a limited-life entity. As the existing lots are developed, built on, and sold, operations will decline and cease when all the homes have been delivered. In accordance with the joint venture agreement, dissolution must ultimately occur no later than December 31, 2065. Capital was contributed by K-Hov and GTIS in the following proportion: 83.3333% by K-Hov; and 14.6551% and 2.0116% by GTIS. The joint venture agreement specifies how profits and losses and cash distributions are allocated to the investors. Also in accordance with the joint venture agreement, K-Hov is the managing member, with all significant decisions shared equally by both members.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the Company’s accounts and those of its wholly owned subsidiaries after elimination of all intercompany balances and transactions.

7

GTIS-HOV Holdings V LLC

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Cash

Cash includes deposits in checking accounts. Cash balances are held at a financial institution and may, at times, exceed insurable amounts. The Company believes that it mitigates the risk by depositing the cash in a major financial institution.

Restricted cash 

Restricted cash includes cash collateralizing the per home warranty service dollars discussed below.

Inventories

Inventories are stated at cost unless the inventory is determined to be impaired, in which case the inventory is written down to its fair value. Inventories of houses include all direct costs of construction, plus capitalized costs, including construction administration, property taxes, interest, and legal fees that relate to development projects. Land, land development, and common facility costs are accumulated by development and are allocated to homes within each development based on buildable acres to product types within each community, which, along with direct construction costs, are allocated to each unit and relieved through cost of sales using the specific identification method.

Start-up costs incurred in connection with planned developments are expected to be recovered from the sale of homes and are capitalized. Management periodically reviews the feasibility of planned developments and expenses the costs of developments that are abandoned or which cannot be recovered through the realization of future sales revenue.

The Company records impairment losses on inventories related to communities under development when events and circumstances indicate they may be impaired and the Company will not be able to recover its recorded investment. For the year ended October 31, 2018, the Company recorded inventory impairment losses of $0.7 million. For the year ended October 31, 2017 and the period from April 29, 2016 through October 31, 2016, the company did not record any inventory impairments.

“Consolidated inventory not owned” consists of certain model sale leasebacks that are included on the balance sheet in accordance with GAAP. Some of the assets acquired by the Company included certain model homes sold and leased back with the right to participate in the potential profit when each home is sold to a third party at the end of the respective lease. As a result of this

8

GTIS-HOV Holdings V LLC

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

continued involvement, for accounting purposes in accordance with Accounting Standards Codification 360-20-40-38, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, for purposes of the balance sheet, at October 2018 and 2017, inventory of $0.8 million, was recorded to “Consolidated inventory not owned,” with a corresponding amount of $0.6 million, recorded to “Liabilities from inventories not owned.”

Interest

Interest attributable to properties under development during the land development and home construction period is capitalized and expensed along with the associated cost of sales as the related inventories are sold. Interest incurred in excess of interest capitalized is expensed immediately.

Warranty Allowances

The Company warranties a home for most ordinary defects generally for the first year of ownership and for major structural defects for the first 10 years of ownership. All warranty services will be provided by and are the responsibility of an affiliate of K-Hov. The Company pays a fixed fee per house (varies for each community) at closing. These fees are deposited into restricted cash accounts maintained by the Company until approvals are granted which allow for reimbursement to be paid to such affiliate, K. Hovnanian JV Services Company, L.L.C., to cover the cost of the warranty services after they have been incurred. Additions and charges to the warranty reserve, which is included in other liabilities and accrued expenses on the consolidated balance sheets, were as follows:

(In thousands)	Year Ended October 31, 2018			Year Ended October 31, 2017
Balance, beginning of period	$	883		$	32
Additions		1,757			870
Charges		(517	)		(19	)
Balance, end of period	$	2,123		$	883

9

GTIS-HOV Holdings V LLC

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs expensed totaled $2.5 million, $2.2 million and $0.5 million in the years ended October 31, 2018, October 31, 2017 and in the period from April 29, 2016 through October 31, 2016 and are included in Selling, general and administrative expense on the accompanying consolidated statements of operations.

Income Taxes

A limited liability company is not subject to the payment of federal or state income taxes, as the components of its income and expenses flow through directly to the members. Accordingly, no provision for income taxes has been reflected in the accompanying consolidated financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and these differences could have a significant impact on the consolidated financial statements.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), (“ASU 2014-09”). ASU 2014-09 requires entities to recognize revenue that represents the transfer of promised goods or services to customers in an amount equivalent to the consideration to which the entity expects to be entitled to in exchange for those goods or services. The following steps should be applied to determine this amount: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition,” and most industry-specific guidance in the Accounting Standards Codification. The FASB has also issued a number of updates to this standard. The standard is effective for us for annual and interim periods beginning November 1, 2018, and at that time, we expect to apply the modified retrospective method of adoption. We have substantially completed our evaluation of the impact of adopting ASU 2014-09. Based on our assessment, we do not expect significant changes to our business

10

GTIS-HOV Holdings V LLC

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

processes, systems, or internal controls as a result of adopting the standard. We also do not expect the adoption of ASU 2014-09 to have a material impact on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. ASU 2016-15 is effective for the Company’s fiscal year beginning November 1, 2018. Early adoption is permitted. We do not expect the adoption of ASU 2016-15 to have a material impact on our consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). ASU 2016-18 amends the classification and presentation of changes in restricted cash or restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for the Company’s fiscal year beginning November 1, 2018. Early adoption is permitted. We do not expect the adoption of ASU 2016-18 to have a material impact on our consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). ASU 2018-09 provides amendments to a wide variety of topics in the FASB’s Accounting Standards Codification, which applies to all reporting entities within the scope of the affected accounting guidance. The transition and effective date guidance are based on the facts and circumstances of each amendment. Some of the amendments in ASU 2018-09 do not require transition guidance and were effective upon issuance of ASU 2018-09. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018. We are currently evaluating the potential impact of adopting the applicable guidance on our consolidated financial statements.

3. Related-Party Transactions

As the administrative member of the Company, K-Hov provides certain services to the Company. In connection with providing these services, K-Hov receives fees, which are summarized as follows:

11

GTIS-HOV Holdings V LLC

Notes to Consolidated Financial Statements (continued)

3. Related-Party Transactions (continued)

Administrative charge	4% of home sales revenue
Insurance charge	$6,840 per home sold – Arizona $6,679 per home sold – Illinois
	$6,605 per home sold – California
	$6,348 per home sold – Maryland
	$8,099 per home sold – New Jersey
	$6,605 per home sold – South Carolina
	$6,155 per home sold – Virginia
Warranty services charge	$2,038 per home sold – Arizona
	$5,276 per home sold – California $1,559 per home sold – Illinois
	$5,564 per home sold – Maryland
	$3,597 per home sold – New Jersey
	$2,871 per home sold – South Carolina
	$5,036 per home sold – Virginia

The administrative and insurance charges are included in Selling, general and administrative expense and the warranty services charge is included in Indirect cost of sales – Other on the consolidated statements of operations.

The following table summarizes the related party fees incurred:

(In thousands)	Year Ended October 31, 2018		Year Ended October 31, 2017		The Period from April 29, 2016 Through October 31, 2016
Administrative charge	$	12,736	$	5,803	$	217
Insurance charge	$	3,931	$	1,789	$	59
Warranty services charge	$	1,757	$	870	$	33

4. Notes Payable

The Company has a secured promissory note with a lender that is an affiliate of GTIS that matures on April 30, 2023. As of October 31, 2018 and 2017, the note had a principal balance of $49.4 million and $95.3 million. There is no accrued, unpaid interest as of October 31, 2018 and $20.6 million of accrued, unpaid interest as of October 31, 2017. Interest is payable monthly at a

12

GTIS-HOV Holdings V LLC

Notes to Consolidated Financial Statements (continued)

4. Notes Payable (continued)

rate of 16% per annum, which can be deferred and added to the unpaid principal balance, and thereafter, can be subject to interest at the note rate. The note is secured by all of the Company’s property and improvements, except for properties with separate secured loans described herein. The Company also had community-specific project financing in certain communities, secured by the related property and improvements. The total commitment for these loans as of October 31, 2018 and 2017 was $77.1 million and $90.3 million, respectively. Interest on amounts drawn is payable monthly at a rate ranging from 6.00% to 9.25% and 4.49% to 8.25% per annum as of October 31, 2018 and October 31, 2017, respectively. As of October 31, 2018 and 2017, the total amount drawn on all loans was $21.2 million and $44.1 million, respectively.

5. Commitments and Contingencies

The Company is not currently involved in any claims and legal actions arising in the ordinary course of business. If the Company were to become involved in any, management would decide if the ultimate disposition of these matters will have a material adverse effect or not on the Company’s consolidated financial statements.

6. Subsequent Events

The Company evaluated subsequent events that took place after October 31, 2018, through December 20, 2018, the date the consolidated financial statements were available to be issued. The Company is not aware of any subsequent events that require disclosure in or adjustments to the consolidated financial statements as of October 31, 2018.

******

13

EX-99.B

Exhibit 99.b

Consolidated Financial Statements

GTIS-HOV Holdings VI LLC

As Of And For The Year Ended October 31, 2018 And As Of

And For The Period From February 24, 2017 (Inception)

Through October 31, 2017 And Independent Auditors’ Report

GTIS-HOV Holdings VI LLC

Consolidated Financial Statements

As Of And For The Year Ended October 31, 2018 And As Of And For The

Period From February 24, 2017 (Inception) through October 31, 2017

Contents

Independent Auditors' Report 1-2

Consolidated Financial Statements

Consolidated Balance Sheets 3

Consolidated Statements of Operations 4

Consolidated Statements of Changes in Members’ Equity 5

Consolidated Statements of Cash Flows 6

Notes to Consolidated Financial Statements 7-12

INDEPENDENT AUDITORS' REPORT

To the Members of
GTIS-HOV Holdings VI LLC
Matawan, New Jersey

We have audited the accompanying consolidated financial statements of GTIS-HOV Holdings VI LLC and its subsidiaries (the "Company"), which comprise the consolidated balance sheets as of October 31, 2018 and 2017, and the related consolidated statements of operations, changes in members' equity, and cash flows for the year ended October 31, 2018 and for the period from February 24, 2017 (date of inception) through October 31, 2017, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

1

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GTIS-HOV Holdings VI LLC and its subsidiaries as of October 31, 2018 and 2017, and the results of their operations and their cash flows for the year ended October 31, 2018 and for the period from February 24, 2017 through October 31, 2017, in accordance with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

December 20, 2018

2

GTIS-HOV Holdings VI LLC

Consolidated Balance Sheets

(Dollars in Thousands)

	October 31,
	2018		2017
Assets
Cash	$	4,503	$	2,369
Restricted cash		328		-
Receivables and deposits		2,152		320
Inventories:
Land and land development		25,522		38,841
Construction in process		7,523		3,051
Total inventories		33,045		41,892
Prepaid expenses		1,469		1,361
Total assets	$	41,497	$	45,942
Liabilities and Members’ equity
Notes payable, net of debt issuance costs	$	14,965	$	34,531
Accounts payable and other liabilities		6,161		2,876
Customers’ deposits		1,545		1,821
Accrued interest		2,243		1,885
Total liabilities		24,914		41,113
Commitments and contingencies (Note 5)
Members’ equity		16,583		4,829
Total liabilities and members’ equity	$	41,497	$	45,942

See notes to consolidated financial statements.

3

GTIS-HOV Holdings VI LLC

Consolidated Statements of Operations

(Dollars in Thousands)

	Year Ended October 31, 2018		Period From February 24, 2017 (Inception) Through October 31, 2017
Revenue:
Sale of homes	$	70,790	$	-
Other revenue		7		-
Total revenue		70,797		-
Expenses:
Direct costs:
Land and land development		25,167		-
Construction		21,540		-
Other		2,395		-
Direct cost of sales		49,102		-
Cost of sales interest		1,793		-
Indirect cost of sales:
Construction and service overhead		1,196		24
Other		1,485		-
Total indirect cost of sales		2,681		24
Selling, general and administrative expense		5,203		439
Interest expense		1,020		1,432
Net income (loss)	$	10,998	$	(1,895	)

See notes to consolidated financial statements.

4

GTIS-HOV Holdings VI LLC

Consolidated Statements of Changes in Members’ Equity

(Dollars in Thousands)

For The Years Ended October 31, 2018 and 2017 and The Period From

February 24, 2017 (Inception) Through October 31, 2017

	K. Hovnanian GT VI Investment, LLC			Honeywell Parallel Blocker LLC			GTIS US Residential Strategies Fund II LP			Total
Initial Capital Contributions	$	6,003		$	486		$	235		$	6,724
Net loss		(1,692	)		(137	)		(66	)		(1,895	)
Balance at October 31, 2017		4,311			349			169			4,829
Capital Contributions		675			55			26			756
Net income		9,820			795			383			10,998
Balance at October 31, 2018	$	14,806		$	1,199		$	578		$	16,583

See notes to consolidated financial statements.

5

GTIS-HOV Holdings VI LLC

Consolidated Statements of Cash Flows

(Dollars in Thousands)

	Year Ended October 31, 2018			Period From February 24, 2017 (Inception) Through October 31, 2017
Operating activities
Net income (loss)	$	10,998		$	(1,895	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of deferred financing costs		157			101
Changes in operating assets and liabilities:
Receivables, deposits and prepaid expenses		(1,940	)		(1,681	)
Inventories		8,847			(41,892	)
Accounts payable, other liabilities and accrued interest		3,643			4,761
Customers’ deposits		(276	)		1,821
Net cash provided by (used in) operating activities		21,429			(38,785	)
Investing activities
Restricted cash		(328	)		-
Net cash used in investing activities		(328	)		-
Financing activities
Member contributions		756			6,724
Proceeds from notes payable		24,510			34,884
Payments related to notes payable		(44,233	)		-
Deferred financing costs from notes payable		-			(454	)
Net cash (used in) provided by financing activities		(18,967	)		41,154
Net increase in cash		2,134			2,369
Cash balance, beginning of year		2,369			–
Cash balance, end of year	$	4,503		$	2,369
Supplemental disclosures of cash flows:
Cash paid for interest, net of amounts capitalized	$	4,098		$	471

See notes to consolidated financial statements.

6

GTIS-HOV Holdings VI LLC

Notes to Consolidated Financial Statements

As Of And For The Year Ended October 31, 2018 And As Of And For The

Period From February 24, 2017 (Inception) Through October 31, 2017

1. Description of Business

GTIS-HOV Holdings VI LLC (with its subsidiaries, the “Company”) is a residential home developer that markets its products in New Jersey. All construction activity is performed by subcontractors supervised by the Company.

On February 24, 2017, K. Hovnanian GT VI Investment, LLC (“K-Hov”) (a subsidiary of K. Hovnanian Enterprises, Inc.) entered into a joint venture agreement with Honeywell Parallel Blocker LLC and US Residential Strategies Fund II LP (collectively, “GTIS”) (both affiliates of GTIS Partners) to develop, construct, and sell residential communities. The Company purchased the property from another subsidiary of K. Hovnanian Enterprises, Inc., which was purchased at fair value.

The Company is a limited-life entity. As the existing lots are developed, built on, and sold, operations will decline and cease when all the homes have been delivered. In accordance with the joint venture agreement, dissolution must ultimately occur no later than December 31, 2065. Capital was contributed by K-Hov and GTIS in the following proportion: 89.2857% by K-Hov; and 7.2283% and 3.4860% by GTIS. The joint venture agreement specifies how profits and losses and cash distributions are allocated to the investors. Also in accordance with the joint venture agreement, K-Hov is the managing member, with all significant decisions shared equally by both members.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the Company’s accounts and those of its wholly owned subsidiaries after elimination of all intercompany balances and transactions.

Cash

Cash includes deposits in checking accounts. Cash balances are held at a financial institution and may, at times, exceed insurable amounts. The Company believes that it mitigates the risk by depositing the cash in a major financial institution.

Restricted cash

Restricted cash includes cash collateralizing the per home warranty service dollars discussed below.

7

GTIS-HOV Holdings VI LLC

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Inventories

Inventories are stated at cost unless the inventory is determined to be impaired, in which case the inventory is written down to its fair value. Inventories of houses include all direct costs of construction, plus capitalized costs, including construction administration, property taxes, interest, and legal fees that relate to development projects. Land, land development, and common facility costs are accumulated by development and are allocated to homes within each development based on buildable acres to product types within each community, which, along with direct construction costs, are allocated to each unit and relieved through cost of sales using the specific identification method.

Start-up costs incurred in connection with planned developments are expected to be recovered from the sale of homes and are capitalized. Management periodically reviews the feasibility of planned developments and expenses the costs of developments that are abandoned or which cannot be recovered through the realization of future sales revenue.

The Company records impairment losses on inventories related to communities under development when events and circumstances indicate they may be impaired and the Company will not be able to recover its recorded investment. The Company has not recorded any inventory impairments since inception.

Interest

Interest attributable to properties under development during the land development and home construction period is capitalized and expensed along with the associated cost of sales as the related inventories are sold. Interest incurred in excess of interest capitalized is expensed immediately.

Warranty Allowances

The Company warranties a home for most ordinary defects generally for the first year of ownership and for major structural defects for the first 10 years of ownership. All warranty services will be provided by and are the responsibility of an affiliate of K-Hov. The Company pays a fixed fee per house at closing. These fees are deposited into restricted cash accounts maintained by the Company until approvals are granted which allow for reimbursement to be paid to such affiliate, K. Hovnanian JV Services Company, L.L.C., to cover the cost of the warranty services after they have been incurred. Additions and charges to the warranty reserve were as follows:

8

GTIS-HOV Holdings VI LLC

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

(In thousands)	Year Ended October 31, 2018			The Period from February 24, 2017 Through October 31, 2017
Balance, beginning of period	$	-		$	-
Additions		328			-
Charges		(2	)		-
Balance, end of period	$	326		$	-

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs expensed totaled $0.4 million and $0.1 million in the year ended October 31, 2018 and in the period from February 24, 2017 through October 31, 2017 and are included in Selling, general and administrative expense on the accompanying consolidated statement of operations.

Income Taxes

A limited liability company is not subject to the payment of federal or state income taxes, as the components of its income and expenses flow through directly to the members. Accordingly, no provision for income taxes has been reflected in the accompanying consolidated financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and these differences could have a significant impact on the financial statements.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), (“ASU 2014-09”). ASU 2014-09 requires entities to recognize revenue that represents the transfer of promised goods or services to customers in an amount equivalent to the consideration to which the entity expects to be entitled to in exchange for those goods or services. The following steps should be applied to determine this amount:

9

GTIS-HOV Holdings VI LLC

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

(1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition,” and most industry-specific guidance in the Accounting Standards Codification. The FASB has also issued a number of updates to this standard. The standard is effective for us for annual and interim periods beginning November 1, 2018, and at that time, we expect to apply the modified retrospective method of adoption. We have substantially completed our evaluation of the impact of adopting ASU 2014-09. Based on our assessment, we do not expect significant changes to our business processes, systems, or internal controls as a result of adopting the standard. We also do not expect the adoption of ASU 2014-09 to have a material impact on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. ASU 2016-15 is effective for the Company’s fiscal year beginning November 1, 2018. Early adoption is permitted. We do not expect the adoption of ASU 2016-15 to have a material impact on our consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). ASU 2016-18 amends the classification and presentation of changes in restricted cash or restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for the Company’s fiscal year beginning November 1, 2018. Early adoption is permitted. We do not expect the adoption of ASU 2016-18 to have a material impact on our consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). ASU 2018-09 provides amendments to a wide variety of topics in the FASB’s Accounting Standards Codification, which applies to all reporting entities within the scope of the affected accounting guidance. The transition and effective date guidance are based on the facts and circumstances of each amendment. Some of the amendments in ASU 2018-09 do not require transition guidance and were effective upon issuance of ASU 2018-09. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018. We are currently evaluating the potential impact of adopting the applicable guidance on our consolidated financial statements.

10

GTIS-HOV Holdings VI LLC

Notes to Consolidated Financial Statements (continued)

3. Related-Party Transactions

As the administrative member of the Company, K-Hov provides certain services to the Company. In connection with providing these services, K-Hov receives fees, which are summarized as follows:

Administrative charge	4% of home sales revenue
Warranty services charge	$3,600 per home sold

The administrative charge is included in Selling, general and administrative expense, and the warranty services charge is included in Indirect cost of sales – Other on the consolidated statement of operations.

The following table summarizes the related party fees incurred:

(In thousands)	Year Ended October 31, 2018		The Period from February 24, 2017 Through October 31, 2017
Administrative charge	$	2,699	$	-
Warranty services charge	$	328	$	-

4. Notes Payable

The Company has a secured promissory note with a lender that is an affiliate of GTIS that matures on April 30, 2023. As of October 31, 2018 and 2017, the note had a principal balance of $2.0 million and $17.3 million. Interest is payable monthly at a rate of 10% per annum plus additional interest up to an 18% internal rate of return for the lender, which can be deferred and added to the unpaid principal balance, and thereafter, be subject to interest at the note rate. The note is secured by all of the Company’s property and improvements except for properties with separate secured loans described herein. The Company also had community-specific project financing in its community, secured by the related property and improvements. The total commitment for these loans as of October 31, 2018 and 2017 was $40.0 million. Interest on amounts drawn is payable monthly at a rate of the lender’s prime with a floor of 5.0% per annum. As of October 31, 2018 and 2017, the total amount drawn on all loans was $12.8 million and $17.6 million. As of October 31, 2018 and 2017, total accrued and unpaid interest for all notes payable is $2.2 million and $1.9 million, respectively.

11

GTIS-HOV Holdings VI LLC

Notes to Consolidated Financial Statements (continued)

5. Commitments and Contingencies

The Company is not currently involved in any claims and legal actions arising in the ordinary course of business. If the Company were to become involved in any, management would decide if the ultimate disposition of these matters will have a material adverse effect or not on the Company’s consolidated financial statements.

6. Subsequent Events

The Company evaluated subsequent events that took place after October 31, 2018, through December 20, 2018, the date the consolidated financial statements were available to be issued. The Company is not aware of any subsequent events that require disclosure in or adjustments to the consolidated financial statements as of October 31, 2018.

******

12

XML

Document And Entity Information - USD ($)	12 Months Ended
	Oct. 31, 2018	Dec. 14, 2018	Apr. 30, 2018
Document Information [Line Items]
Entity Registrant Name	HOVNANIAN ENTERPRISES INC
Entity Central Index Key	0000357294
Trading Symbol	hov
Current Fiscal Year End Date	--10-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Public Float			$ 244,113,849
Document Type	10-K
Document Period End Date	Oct. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Shell Company	false
Common Class A [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		132,835,722
Common Class B [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		15,550,099

XML

Consolidated Balance Sheets - USD ($) $ in Thousands		Oct. 31, 2018	Oct. 31, 2017
Investments in and advances to unconsolidated joint ventures		$ 123,694	$ 115,090
Property, plant and equipment, net		20,285	52,919
Assets		1,662,042	1,900,898
Notes payable (net of discount, premium and debt issuance costs) and accrued interest	[1]	1,493,257
Liabilities		2,115,546	2,361,269
Income taxes payable		3,334	2,227
Preferred stock, $0.01 par value - authorized 100,000 shares; issued and outstanding 5,600 shares with a liquidation preference of $140,000 at October 31, 2018 and 2017		135,299	135,299
Paid in capital - common stock		708,805	706,466
Accumulated deficit		(1,183,856)	(1,188,376)
Treasury stock - at cost – 11,760,763 shares of Class A common stock and 691,748 shares of Class B common stock at October 31, 2018 and 2017		(115,360)	(115,360)
Total stockholders' equity deficit		(453,504)	(460,371)
Total liabilities and equity		1,662,042	1,900,898
Common Class A [Member]
Common stock		1,446	1,440
Common Class B [Member]
Common stock		162	160
Homebuilding [Member]
Cash and cash equivalents		187,871	463,697
Restricted cash and cash equivalents		12,808	2,077
Sold and unsold homes and lots under development		878,876	744,119
Land and land options held for future development or sale		111,368	140,924
Consolidated inventory not owned		87,921	124,784
Total inventories		1,078,165	1,009,827
Investments in and advances to unconsolidated joint ventures		123,694	115,090
Receivables, deposits and notes, net		35,189	58,149
Property, plant and equipment, net		20,285	52,919
Prepaid expenses and other assets		39,150	37,026
Assets		1,497,162	1,738,785
Accounts payable and other liabilities		304,899	335,057
Customers’ deposits		30,086	33,772
Liabilities from inventory not owned, net of debt issuance costs		63,387	91,101
Revolving and term loan credit facilities, net of debt issuance costs		201,389	124,987
Notes payable (net of discount, premium and debt issuance costs) and accrued interest		1,273,446	1,554,687
Liabilities		1,968,764	2,217,128
Homebuilding [Member] | Nonrecourse Mortgages Secured By Inventory [Member] | Mortgages [Member]
Nonrecourse mortgages, net of debt issuance costs		95,557	64,512
Homebuilding [Member] | Nonrecourse Mortgages Secured by Operating Properties [Member] | Mortgages [Member]
Nonrecourse mortgages, net of debt issuance costs			13,012
Financial Services [Member]
Cash and cash equivalents		6,948	5,623
Restricted cash and cash equivalents		25,365	22,345
Assets		164,880	162,113
Liabilities		$ 143,448	$ 141,914

[1] Does not include our $125.0 million Senior Secured Revolving Credit Facility under which there were no borrowings outstanding as of October 31, 2018.

XML

Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Millions	Oct. 31, 2018	Oct. 31, 2017
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	100,000	100,000
Preferred stock, shares issued (in shares)	5,600	5,600
Preferred stock, shares outstanding (in shares)	5,600	5,600
Preferred stock, liquidation preference	$ 140	$ 140
Common Class A [Member]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	400,000,000	400,000,000
Common stock, shares issued (in shares)	144,596,485	144,046,073
Common stock, shares held in Treasury (in shares)	11,760,763	11,760,763
Common Class B [Member]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	60,000,000	60,000,000
Common stock, shares issued (in shares)	16,241,847	15,999,355
Common stock, shares held in Treasury (in shares)	691,748	691,748

XML

Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Revenues	$ 1,991,233	$ 2,451,665	$ 2,752,247
Inventory impairment loss and land option write-offs	3,501	17,813	33,353
Total expenses	1,999,584	2,455,008	2,742,265
Corporate general and administrative	69,632	59,367	60,141
Other interest	103,297	97,304	90,967
Other operations	1,584	1,518	4,874
Loss on extinguishment of debt	(7,536)	(34,854)	(3,200)
Income (loss) from unconsolidated joint ventures	24,033	(7,047)	(4,346)
Income (loss) before income taxes	8,146	(45,244)	2,436
State and federal income tax provision	3,626	286,949	5,255
Net income (loss)	$ 4,520	$ (332,193)	$ (2,819)
Net income (loss) per common share (in dollars per share)	$ 0.03	$ (2.25)	$ (0.02)
Weighted-average number of common shares outstanding, basic (in shares)	148,515	147,703	147,451
Net income (loss) per common share (in dollars per share)	$ 0.03	$ (2.25)	$ (0.02)
Weighted-average number of common shares outstanding, assuming dilution (in shares)	151,786	147,703	147,451
State and Local Jurisdiction [Member]
State and federal income tax provision	$ 3,626	$ 11,261	$ 2,457
Domestic Tax Authority [Member]
State and federal income tax provision		275,688	2,798
Homebuilding [Member]
Revenues	1,937,878	2,392,922	2,679,630
Cost of sales, excluding interest	1,566,555	1,961,804	2,230,457
Cost of sales interest	60,685	88,536	92,391
Inventory impairment loss and land option write-offs	3,501	17,813	33,353
Total cost of sales	1,630,741	2,068,153	2,356,201
Selling, general and administrative	159,202	196,320	192,938
Total expenses	1,789,943	2,264,473	2,549,139
Homebuilding [Member] | Home Building [Member]
Revenues	1,906,228	2,340,033	2,600,790
Homebuilding [Member] | Land Sales and Other Revenues [Member]
Revenues	31,650	52,889	78,840
Financial Services [Member]
Revenues	53,355	58,743	72,617
Total expenses	$ 35,128	$ 32,346	$ 37,144

XML

Consolidated Statements of Equity - USD ($) $ in Thousands	Common Stock [Member] Common Class A [Member]	Common Stock [Member] Common Class B [Member]	Preferred Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Balance (in shares) at Oct. 31, 2015	131,532,118	14,985,081	5,600
Balance at Oct. 31, 2015	$ 1,433	$ 157	$ 135,299	$ 703,751	$ (853,364)	$ (115,360)	$ (128,084)
Stock options, amortization and issuances				(1,502)			(1,502)
Restricted stock amortization, issuances and forfeitures (in shares)	445,522	334,352
Restricted stock amortization, issuances and forfeitures	$ 4	$ 3		3,888			3,895
Conversion of Class B to Class A common stock (in shares)	68,372	(68,372)
Conversion of Class B to Class A common stock	$ 1	$ (1)
Net income (loss)					(2,819)		(2,819)
Balance (in shares) at Oct. 31, 2016	132,046,012	15,251,061	5,600
Balance at Oct. 31, 2016	$ 1,438	$ 159	$ 135,299	706,137	(856,183)	(115,360)	(128,510)
Stock options, amortization and issuances				556			556
Restricted stock amortization, issuances and forfeitures (in shares)	188,548	59,046
Restricted stock amortization, issuances and forfeitures	$ 2	$ 1		(227)			(224)
Conversion of Class B to Class A common stock (in shares)	2,500	(2,500)
Conversion of Class B to Class A common stock
Net income (loss)					(332,193)		(332,193)
Stock options, amortization and issuances (in shares)	48,250
Balance (in shares) at Oct. 31, 2017	132,285,310	15,307,607	5,600
Balance at Oct. 31, 2017	$ 1,440	$ 160	$ 135,299	706,466	(1,188,376)	(115,360)	(460,371)
Stock options, amortization and issuances				802			802
Restricted stock amortization, issuances and forfeitures (in shares)	516,814	245,840
Restricted stock amortization, issuances and forfeitures	$ 6	$ 2		1,537			1,545
Conversion of Class B to Class A common stock (in shares)	3,348	(3,348)
Conversion of Class B to Class A common stock
Net income (loss)					4,520		4,520
Stock options, amortization and issuances (in shares)	30,250
Balance (in shares) at Oct. 31, 2018	132,835,722	15,550,099	5,600
Balance at Oct. 31, 2018	$ 1,446	$ 162	$ 135,299	$ 708,805	$ (1,183,856)	$ (115,360)	$ (453,504)

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Cash flows from operating activities:
Net income (loss)	$ 4,520	$ (332,193)	$ (2,819)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation	3,156	4,249	3,565
Compensation from stock options and awards	3,669	557	2,921
Amortization of bond discounts, premiums and deferred financing costs	8,822	13,875	12,830
Gain on sale and retirement of property and assets	(3,619)	(166)	(632)
(Income) loss from unconsolidated joint ventures	(24,033)	7,047	4,346
Distributions of earnings from unconsolidated joint ventures		1,864	1,002
Loss on extinguishment of debt	7,536	34,854	3,200
Inventory impairment and land option write-offs	3,501	17,813	33,353
Deferred income tax provision		285,578	6,851
(Increase) decrease in assets:
Origination of mortgage loans	(1,069,519)	(1,045,991)	(1,274,284)
Sale of mortgage loans	1,071,250	1,078,649	1,239,521
Receivables, prepaids, deposits and other assets	20,669	5,249	22,905
Inventories	(58,801)	255,444	328,141
State and federal income tax payable	1,107	282	(205)
Customers’ deposits	(3,686)	(3,657)	(6,789)
Accounts payable, accrued interest and other accrued liabilities	(31,394)	(21,876)	13,090
Net cash (used in) provided by operating activities	(66,822)	301,578	386,996
Cash flows from investing activities:
Proceeds from sale of property and assets	38,303	270	764
Purchase of property, equipment, and other fixed assets and acquisitions	(5,193)	(6,478)	(8,007)
Investment in and advances to unconsolidated joint ventures	(26,271)	(36,803)	(49,905)
Distributions of capital from unconsolidated joint ventures	28,662	13,304	5,264
Net cash provided by (used in) investing activities	35,501	(29,707)	(51,884)
Cash flows from financing activities:
Proceeds from mortgages and notes	181,101	199,275	211,209
Payments related to mortgages and notes	(162,192)	(218,468)	(272,220)
Proceeds from model sale leaseback financing programs	22,749	10,270	24,297
Payments related to model sale leaseback financing programs	(30,123)	(28,798)	(41,435)
Proceeds from land bank financing programs	18,827	29,190	174,211
Payments related to land bank financing programs	(38,991)	(71,757)	(108,577)
Deferred financing costs from land banking financing programs and note issuances	(8,035)	(14,556)	(11,469)
Net cash used in financing activities	(229,429)	(147,843)	(245,667)
Net (decrease) increase in cash and cash equivalents	(260,750)	124,028	89,445
Cash, cash equivalents and restricted cash and cash equivalents balance, beginning of year	493,742	369,714	280,268
Cash, cash equivalents and restricted cash and cash equivalents balance, end of year	232,992	493,742	369,714
Supplemental disclosures of cash flows:
Interest, net of capitalized interest (see Note 3 to the Consolidated Financial Statements)	112,016	89,836	101,796
Income taxes	2,520	1,089	(1,390)
Cash, cash equivalents and restricted cash and cash equivalents balance, end of year	232,992	493,742	369,714
Homebuilding [Member]
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Inventory impairment and land option write-offs	3,501	17,813	33,353
Supplemental disclosures of cash flows:
Homebuilding: Cash and cash equivalents	187,871	463,697	339,773
Homebuilding: Restricted cash and cash equivalents	12,808	2,077	3,914
Financial Services [Member]
Supplemental disclosures of cash flows:
Homebuilding: Cash and cash equivalents	6,948	5,623	6,992
Homebuilding: Restricted cash and cash equivalents	25,365	22,345	19,035
Senior Secured Term Loan [Member]
Cash flows from financing activities:
Proceeds from senior secured term loan facility			75,000
Payments related to senior secured term loan facility	(76,829)
Senior Unsecured Term Loan Credit Facility [Member]
Cash flows from financing activities:
Proceeds from senior unsecured term loan facility	202,547
Senior Secured Notes [Member]
Cash flows from financing activities:
Proceeds from senior secured term loan facility		840,000	71,250
Senior Secured, Senior, Senior Amortizing and Senior Exchangeable Notes [Member]
Cash flows from financing activities:
Payments related to senior secured term loan facility	(285,095)	(861,976)	(409,646)
Mortgage Warehouse Lines of Credit [Member]
Cash flows from financing activities:
Net payments related to lines of credit	(1,388)	(31,023)	36,713
Unsecured Revolving Credit Facility [Member]
Cash flows from financing activities:
Net payments related to lines of credit	(52,000)
Borrowings from revolving credit facility			$ 5,000

XML

Supplemental Disclosure of Noncash Investing and Financing Activities

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

See notes to consolidated financial statements.

Supplemental disclosure of noncash investing activities:

In the

first

quarter of fiscal

2018,

we acquired the remaining assets of

one

of our joint ventures, resulting in a

$13.0

 million reduction in our investment in the joint venture and a corresponding increase to inventory.

Supplemental disclosure of noncash financing activities:

In the

second

quarter of fiscal

2018,

we completed a debt for debt exchange of existing 

8.0%

Senior Notes due

November 1, 2019

for newly issued 

13.5%

Senior Notes due

2026

and

5.0%

Senior Notes due

2040.

See Note

9

 for further information.

HOVNANIAN ENTERPRISES, INC.

Notes to Consolidated Financial Statements

XML

Note 1 - Basis of Presentation

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

1.

Basis of Presentation

Basis of Presentation

- The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and include Hovnanian Enterprises, Inc.’s (“HEI”) accounts and those of all wholly owned subsidiaries, after elimination of all intercompany balances and transactions. HEI’s fiscal year ends

October 31.

Reclassifications -

In fiscal

2018,

we reclassified our Senior Secured Term Loan due

2019

on the Consolidated Balance Sheets from the line item “Notes payable (net of discount, premium and debt issuance costs) and accrued interest” to “Revolving and term loan credit facilities, net of debt issuance costs”, resulting in a reclassification of the

October 31, 2017

balance of

$73.0

 million.

Effective

October 31, 2018

we early adopted Accounting Standards Update (“ASU”)

2016

-

18

“Statement of Cash Flows (Topic

230

): Restricted Cash” (“ASU

2016

-

18”

). As a result, restricted cash amounts are

no

longer shown within the operating and investing activities as these balances are now included in the beginning and ending cash balances in our Consolidated Statements of Cash Flows. The adoption also resulted in the reclassification of restricted cash in operating and investing activities of

$4.0

million and

$2.6

million, respectively, for the year ended

October 31, 2017,

and

$0.7

million and

$2.9

million, respectively, for the year ended

October 31, 2016.

These amounts are now included in the beginning and ending cash balances for the respective periods. See also the reconciliation of cash, cash equivalents and restricted cash on the Consolidated Statements of Cash Flows.

The Company has changed the presentation of our consolidated balance sheets to present its financial services assets on a combined basis. Prior year amounts have also been combined to reflect this presentation. As a result, “Financial services cash and cash equivalents” of

$5.6

million at

October 31, 2017

is now included in “Financial Services” under the new presentation. Financial services cash and cash equivalents balances are now included in the reconciliation of cash, cash equivalents and restricted cash in our Consolidated Statements of Cash Flows.  

XML

Note 2 - Business

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Nature of Operations [Text Block]

2.

Business

HEI conducts all of its homebuilding and financial services operations through its subsidiaries (references herein to the “Company”, “we”, “us” or “our” refer to HEI and its consolidated subsidiaries and should be understood to reflect the consolidated business of HEI’s subsidiaries). Our operations consist of homebuilding, financial services and corporate. Our homebuilding operations are made up of

six

reportable segments defined as Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West. Homebuilding operations comprise the substantial part of our business, representing approximately

97%

of consolidated revenues for the year ended

October 31, 2018,

approximately

98%

for the year ended

October 31, 2017

and approximately

97%

for the year ended

October 31, 2016.

HEI is a Delaware corporation, which through its subsidiaries, was building and selling homes at

October 31, 2018

in

123

consolidated new home communities in Arizona, California, Delaware, Florida, Georgia, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, South Carolina, Texas, Virginia, Washington, D.C. and West Virginia. Our homebuilding subsidiaries offer a wide variety of homes that are designed to appeal to

first

-time buyers,

first

and

second

-time move-up buyers, luxury buyers, active lifestyle buyers and empty nesters. Our financial services operations, which are a reportable segment, provide mortgage banking and title services to the homebuilding operations’ customers. Our financial services subsidiaries do

not

typically retain or service the mortgages that they originate but rather sell the mortgages and related servicing rights to investors. Corporate primarily includes the operations of our corporate office whose primary purpose is to provide executive services, accounting, information services, human resources, management reporting, training, cash management, internal audit, risk management, and administration of process redesign, quality, and safety.

During fiscal

2016,

we exited the Minneapolis, Minnesota and Raleigh, North Carolina markets and in the

third

quarter of fiscal

2016,

we completed the sale of our portfolios in those markets. During fiscal

2018,

we completed a wind down of our operations in the San Francisco Bay area in Northern California and in Tampa, Florida.

See Note

10

“Operating and Reporting Segments” for further disclosure of our reportable segments.

XML

Note 3 - Summary of Significant Accounting Policies

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Significant Accounting Policies [Text Block]

3.

Summary of Significant Accounting Policies

Use of Estimates

- The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and these differences could have a significant impact on the financial statements.

Income Recognition from Home and Land Sales

- We are primarily engaged in the development, construction, marketing and sale of residential single-family and multi-family homes where the planned construction cycle is less than

12

 months. For these homes, in accordance with Accounting Standards Codification (“ASC”)

360

-

20,

“Property, Plant and Equipment - Real Estate Sales,” revenue is recognized when title is conveyed to the buyer, adequate initial and continuing investments have been received and there is

no

continued involvement. In situations where the buyer’s financing is originated by our mortgage subsidiary and the buyer has

not

made an adequate initial investment or continuing investment as prescribed by ASC

360

-

20,

the profit on such sales is deferred until the sale of the related mortgage loan to a

third

-party investor has been completed.

Income Recognition from Mortgage Loans -

Our Financial Services segment originates mortgages, primarily for our homebuilding customers. We use mandatory investor commitments and forward sales of mortgage-backed securities (“MBS”) to hedge our mortgage-related interest rate exposure on agency and government loans.

We elected the fair value option for our mortgage loans held for sale in accordance with ASC

825,

“Financial Instruments,” which permits us to measure our loans held for sale at fair value. Management believes that the election of the fair value option for loans held for sale improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions.

Substantially all of the mortgage loans originated are sold within a short period of time in the secondary mortgage market on a servicing released, nonrecourse basis, although the Company remains liable for certain limited representations, such as fraud, and warranties related to loan sales. Mortgage investors could seek to have us buy back loans or compensate them from losses incurred on mortgages we have sold based on claims that we breached our limited representations and warranties. We have established reserves for probable losses.  

Cash and Cash Equivalents

- Cash represents cash deposited in checking accounts. Cash equivalents include certificates of deposit, Treasury bills and government money–market funds with maturities of

90

days or less when purchased. Our cash balances are held at a few financial institutions and

may,

at times, exceed insurable amounts. We believe we help to mitigate this risk by depositing our cash in major financial institutions. At

October 31, 2018

and

2017,

$199.6

million and

$13.3

million, respectively, of the total cash and cash equivalents was in cash equivalents, the book value of which approximates fair value.

Fair Value of Financial Instruments

- The fair value of financial instruments is determined by reference to various market data and other valuation techniques as appropriate. Our financial instruments consist of cash and cash equivalents, restricted cash and cash equivalents, receivables, deposits and notes, accounts payable and other liabilities, customer deposits, mortgage loans held for sale, nonrecourse mortgages, mortgage warehouse lines of credit, revolving credit facility, accrued interest, senior secured term loan and the senior secured notes, senior notes, senior amortizing notes and senior exchangeable notes. The fair value of the senior secured notes, senior notes, senior amortizing notes and senior exchangeable notes is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. The fair value of all of our other financial instruments approximates their carrying amounts.

Inventories

- Inventories consist of land, land development, home construction costs, capitalized interest, construction overhead and property taxes. Construction costs are accumulated during the period of construction and charged to cost of sales under specific identification methods. Land, land development and common facility costs are allocated based on buildable acres to product types within each community, then charged to cost of sales equally based upon the number of homes to be constructed in each product type.

We record inventories in our consolidated balance sheets at cost unless the inventory is determined to be impaired, in which case the inventory is written down to its fair value. Our inventories consist of the following

three

components: (

1

) sold and unsold homes and lots under development, which includes all construction, land, capitalized interest and land development costs related to started homes and land under development in our active communities; (

2

) land and land options held for future development or sale, which includes all costs related to land in our communities in planning or mothballed communities; and (

3

) consolidated inventory

not

owned, which includes all costs related to specific performance options, variable interest entities, and other options, which consists primarily of model homes financed with an investor and inventory related to land banking arrangements accounted for as financings.

We decide to mothball (or stop development on) certain communities when we determine that the current performance does

not

justify further investment at the time. When we decide to mothball a community, the inventory is reclassified on our Consolidated Balance Sheets from “Sold and unsold homes and lots under development” to “Land and land options held for future development or sale.” During fiscal

2018,

we did

not

mothball any communities, but we sold

two

previously mothballed communities and re-activated

two

previously mothballed communities. As of

October 31, 2018

and

2017,

the net book value associated with our

18

and

22

total mothballed communities was

$24.5

million and

$36.7

million, respectively, which was net of impairment charges recorded in prior periods of

$186.1

million and

$214.1

million, respectively.

From time to time we enter into option agreements that include specific performance requirements, whereby we are required to purchase a minimum number of lots. Because of our obligation to purchase these lots, for accounting purposes in accordance with Accounting Standards Codification (“ASC”)

360

-

20

-

40

-

38,

we are required to record this inventory on our Consolidated Balance Sheets. As of

October 31, 2018

and

2017,

we had

no

specific performance options.

We sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to a

third

party at the end of the respective lease. As a result of our continued involvement, for accounting purposes in accordance with ASC

360

-

20

-

40

-

38,

these sale and leaseback transactions are considered a financing rather than a sale. Therefore, for purposes of our Consolidated Balance Sheets, at

October 31, 2018

and

2017,

inventory of

$50.5

million and

$58.5

million, respectively, was recorded to “Consolidated inventory

not

owned,” with a corresponding amount of

$43.9

million and

$51.8

million, respectively, recorded to “Liabilities from inventory

not

owned” for the amount of net cash received from the transactions.

We have land banking arrangements, whereby we sell our land parcels to the land banker and they provide us an option to purchase back finished lots on a predetermined schedule. Because of our options to repurchase these parcels, for accounting purposes, in accordance with ASC

360

-

20

-

40

-

38,

these transactions are considered a financing rather than a sale. For purposes of our Consolidated Balance Sheets, at

October 31, 2018

and

2017,

inventory of

$37.4

million and

$66.3

million, respectively, was recorded to “Consolidated inventory

not

owned,” with a corresponding amount of

$19.5

million and

$39.3

million, respectively, recorded to “Liabilities from inventory

not

owned” for the amount of net cash received from the transactions.

The recoverability of inventories and other long-lived assets is assessed in accordance with the provisions of ASC

360

-

10,

“Property, Plant and Equipment – Overall.” ASC

360

-

10

requires long-lived assets, including inventories, held for development to be evaluated for impairment based on undiscounted future cash flows of the assets at the lowest level for which there are identifiable cash flows. As such, we evaluate inventories for impairment at the individual community level, the lowest level of discrete cash flows that we measure.

We evaluate inventories of communities under development and held for future development for impairment when indicators of potential impairment are present. Indicators of impairment include, but are

not

limited to, decreases in local housing market values, decreases in gross margins or sales absorption rates, decreases in net sales prices (base sales price net of sales incentives), or actual or projected operating or cash flow losses. The assessment of communities for indication of impairment is performed quarterly. As part of this process, we prepare detailed budgets for all of our communities at least semi-annually and identify those communities with a projected operating loss. For those communities with projected losses, we estimate the remaining undiscounted future cash flows and compare those to the carrying value of the community, to determine if the carrying value of the asset is recoverable.

The projected operating profits, losses or cash flows of each community can be significantly impacted by our estimates of the following:

● future base selling prices;

● future home sales incentives;

● future home construction and land development costs; and

● future sales absorption pace and cancellation rates.

These estimates are dependent upon specific market conditions for each community. While we consider available information to determine what we believe to be our best estimates as of the end of a quarterly reporting period, these estimates are subject to change in future reporting periods as facts and circumstances change. Local market-specific conditions that

may

impact our estimates for a community include:

● the intensity of competition within a market, including available home sales prices and home sales incentives offered by our competitors;

● the current sales absorption pace for both our communities and competitor communities;

● community-specific attributes, such as location, availability of lots in the market, desirability and uniqueness of our community, and the size and style of homes currently being offered;

● potential for alternative product offerings to respond to local market conditions;

● changes by management in the sales strategy of the community;

● current local market economic and demographic conditions and related trends and forecasts; and

● existing home inventory supplies, including foreclosures and short sales.

These and other local market-specific conditions that

may

be present are considered by management in preparing projection assumptions for each community. The sales objectives can differ between our communities, even within a given market. For example, facts and circumstances in a given community

may

lead us to price our homes with the objective of yielding a higher sales absorption pace, while facts and circumstances in another community

may

lead us to price our homes to minimize deterioration in our gross margins, although it

may

result in a slower sales absorption pace. In addition, the key assumptions included in our estimate of future undiscounted cash flows

may

be interrelated. For example, a decrease in estimated base sales price or an increase in homes sales incentives

may

result in a corresponding increase in sales absorption pace. Additionally, a decrease in the average sales price of homes to be sold and closed in future reporting periods for

one

community that has

not

been generating what management believes to be an adequate sales absorption pace

may

impact the estimated cash flow assumptions of a nearby community. Changes in our key assumptions, including estimated construction and development costs, absorption pace and selling strategies, could materially impact future cash flow and fair value estimates. Due to the number of possible scenarios that would result from various changes in these factors, we do

not

believe it is possible to develop a sensitivity analysis with a level of precision that would be meaningful to an investor.

If the undiscounted cash flows are more than the carrying value of the community, then the carrying amount is recoverable, and

no

impairment adjustment is required. However, if the undiscounted cash flows are less than the carrying amount, then the community is deemed impaired and is written down to its fair value. We determine the estimated fair value of each community by determining the present value of its estimated future cash flows at a discount rate commensurate with the risk of the respective community, or in limited circumstances, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale), and recent bona fide offers received from outside

third

parties. Our discount rates used for all impairments recorded from

October 31, 2016

to

October 31, 2018

ranged from

16.8%

to

19.8%.

The estimated future cash flow assumptions are virtually the same for both our recoverability and fair value assessments. Should the estimates or expectations used in determining estimated cash flows or fair value, including discount rates, decrease or differ from current estimates in the future, we

may

be required to recognize additional impairments related to current and future communities. The impairment of a community is allocated to each lot on a relative fair value basis.

From time to time, we write off deposits and approval, engineering and capitalized interest costs when we determine that it is

no

longer probable that we will exercise options to buy land in specific locations or when we redesign communities and/or abandon certain engineering costs. In deciding

not

to exercise a land option, we take into consideration changes in market conditions, the timing of required land takedowns, the willingness of land sellers to modify terms of the land option contract (including timing of land takedowns), and the availability and best use of our capital, among other factors. The write-off is recorded in the period it is deemed

not

probable that the optioned property will be acquired. In certain instances, we have been able to recover deposits and other pre-acquisition costs that were previously written off. These recoveries have

not

been significant in comparison to the total costs written off.

Inventories held for sale are land parcels ready for sale in their current condition, where we have decided

not

to build homes but are instead actively marketing for sale. These land parcels represented

$6.4

 million and

$23.6

million of our total inventories at

October 31, 2018

and

2017,

respectively, and are reported at the lower of carrying amount or fair value less costs to sell. In determining fair value for land held for sale, management considers, among other things, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale) and recent bona fide offers received from outside

third

parties.

Post-Development Completion, Warranty Costs

and

Insurance Deductible Reserves

- In those instances where a development is substantially completed and sold and we have additional construction work to be incurred, an estimated liability is provided to cover the cost of such work. We accrue for warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. This accrual is expensed as selling, general and administrative costs. For homes delivered in fiscal

2018

and

2017,

our deductible under our general liability insurance is a

$20

million aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal

2018

and

2017

is

$0.25

million, up to a

$5

million limit. Our aggregate retention for construction defect, warranty and bodily injury claims is

$20

million for fiscal

2018

and

$21

million for fiscal

2017.

 We do

not

have a deductible on our worker's compensation insurance. Reserves for estimated losses for construction defects, warranty and bodily injury claims have been established using the assistance of a

third

-party actuary. We engage a

third

-party actuary that uses our historical warranty and construction defect data to assist our management in estimating our unpaid claims, claim adjustment expenses and incurred but

not

reported claims reserves for the risks that we are assuming under the general liability and construction defect programs. The estimates include provisions for inflation, claims handling and legal fees. These estimates are subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to our markets and the types of products we build, claim settlement patterns, insurance industry practices and legal interpretations, among others. Because of the high degree of judgment required in determining these estimated liability amounts, actual future costs could differ significantly from our currently estimated amounts. In addition, we establish a warranty accrual for lower cost-related issues to cover home repairs, community amenities and land development infrastructure that are

not

covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and title and possession have been transferred to the homebuyer. See Note

16

for additional information on the amount of warranty costs recognized in cost of goods sold and administrative expenses.

Interest

- Interest attributable to properties under development during the land development and home construction period is capitalized and expensed along with the associated cost of sales as the related inventories are sold. Interest incurred in excess of interest capitalized, which occurs when assets qualifying for interest capitalization are less than our outstanding debt balances, is expensed as incurred in “Other interest.”

Interest costs incurred, expensed and capitalized were:

	Year Ended
(In thousands)	October 31, 2018	October 31, 2017	October 31, 2016
Interest capitalized at beginning of year	$71,051	$96,688	$123,898
Plus interest incurred(1)	161,048	160,203	166,824
Less cost of sales interest expensed	60,685	88,536	92,391
Less other interest expensed(2)(3)	103,297	97,304	90,967
Less interest contributed to unconsolidated joint venture(4)	-	-	10,676
Interest capitalized at end of year(5)	$68,117	$71,051	$96,688

( 1 ) Data does not include interest incurred by our mortgage and finance subsidiaries.

( 2 ) Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $76.2 million, $69.1 million and $50.4 million for the years ended October 31, 2018, 2017 and 2016, respectively. Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization, and therefore, is expensed. This component of other interest was $27.1 million, $28.2 million and $40.6 million for the years ended October 31, 2018, 2017 and 2016.

( 3 ) Cash paid for interest, net of capitalized interest, is the sum of other interest expensed, as defined above, and interest paid by our mortgage and finance subsidiaries adjusted for the change in accrued interest on notes payable, which is calculated as follows:

	Year Ended
(In thousands)	October 31, 2018	October 31, 2017		October 31, 2016
Other interest expensed	$103,297	$97,304		$90,967
Interest paid by our mortgage and finance subsidiaries	2,478	1,944		2,866
Decrease (increase) in accrued interest	6,241	(9,412	)	7,963
Cash paid for interest, net of capitalized interest	$112,016	$89,836		$101,796

( 4 ) Represents capitalized interest which was included as part of the assets contributed to the joint venture the Company entered into in November 2015, as discussed in Note 20. There was no impact to the Consolidated Statement of Operations as a result of this transaction.

( 5 ) Capitalized interest amounts are shown gross before allocating any portion of impairments, if any, to capitalized interest.

Land Options -

Costs incurred to obtain options to acquire improved or unimproved home sites are capitalized. Such amounts are either included as part of the purchase price if the land is acquired or charged to “Inventory impairments loss and land option write-offs” if we determine we will

not

exercise the option. If the options are with variable interest entities and we are the primary beneficiary, we record the land under option on the Consolidated Balance Sheets under “Consolidated inventory

not

owned” with an offset under “Liabilities from inventory

not

owned.” If the option includes an obligation to purchase land under specific performance or has terms that require us to record it as financing, then we record the option on the Consolidated Balance Sheets under “Consolidated inventory

not

owned” with an offset under “Liabilities from inventory

not

owned.” In accordance with ASC

810

-

10

“Consolidation – Overall,” we record costs associated with other options on the Consolidated Balance Sheets under “Land and land options held for future development or sale.”

Unconsolidated Homebuilding and Land Development Joint Ventures -

Investments in unconsolidated homebuilding and land development joint ventures are accounted for under the equity method of accounting. Under the equity method, we recognize our proportionate share of earnings and losses earned by the joint venture upon the delivery of lots or homes to

third

parties. Our ownership interests in the joint ventures vary but our voting interests are generally

50%

or less. In determining whether or

not

we must consolidate joint ventures where we are the managing member of the joint venture, we assess whether the other partners have specific rights to overcome the presumption of control by us as the manager of the joint venture. In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the significant operating and capital decisions of the partnership, including budgets, in the ordinary course of business. The evaluation of whether or

not

we control a venture can require significant judgment. In accordance with ASC

323

-

10,

“Investments - Equity Method and Joint Ventures – Overall,” we assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment below its carrying amount is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint venture’s projected cash flows. This process requires significant management judgment and estimates. During fiscal

2017,

we wrote down certain joint venture investments by

$2.8

million. There were

no

write-downs in fiscal

2018

or

2016.

Deferred Bond Issuance Costs -

Costs associated with borrowings under our revolving credit facility and senior secured term loan and the issuance of senior secured, senior, senior amortizing and senior exchangeable notes are capitalized and amortized over the term of each note’s issuance. The capitalization of the costs are recorded as a contra liability within our debt balances, except for the revolving credit facility costs, which are recorded as a prepaid asset.

Debt Issued At a Discount -

Debt issued at a discount to the face amount is accreted up to its face amount utilizing the effective interest method over the term of the note and recorded as a component of interest on the Consolidated Statements of Operations.

Debt Issued At a Premium -

Debt issued at a premium to the face amount is accreted down to its face amount utilizing the effective interest method over the term of the note and recorded as a component of interest on the Consolidated Statements of Operations. 

Advertising Costs

- Advertising costs are expensed as incurred. During the years ended

October 

31,

2018,

2017

and

2016,

advertising costs expensed totaled

$16.4

million,

$17.9

million and

$21.4

million, respectively.

Deferred Income Taxes -

Deferred income taxes are provided for temporary differences between amounts recorded for financial reporting and for income tax purposes. If the combination of future years’ income (or loss) combined with the reversal of the timing differences results in a loss, such losses can be carried back to prior years or carried forward to future years to recover the deferred tax assets. In accordance with ASC

740

-

10,

“Income Taxes – Overall,” we evaluate our deferred tax assets quarterly to determine if valuation allowances are required. ASC

740

-

10

requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more-likely-than-

not”

standard.

In evaluating the exposures associated with our various tax filing positions, we recognize tax liabilities in accordance with ASC

740

-

10,

for more likely than

not

exposures. We re-evaluate the exposures associated with our tax positions on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity by taxing authorities, and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision. A number of years

may

elapse before a particular matter for which we have established a liability is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled, or the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Due to the complexity of some of these uncertainties, the ultimate resolution

may

result in a liability that is materially different from our current estimate. Any such changes will be reflected as increases or decreases to income tax expense in the period in which they are determined.

Prepaid Expenses -

Prepaid expenses which relate to specific housing communities (model setup, architectural fees, homeowner warranty program fees, etc.) are amortized to cost of sales as the applicable inventories are sold. All other prepaid expenses are amortized over a specific time period or as used and charged to overhead expense.

Allowance for Doubtful Accounts

– We regularly review our receivable balances, which are included in Receivables, deposits and notes on the Consolidated Balance Sheets, for collectability and record an allowance against a receivable when it is deemed that collectability is uncertain. These receivables include receivables from our insurance carriers, receivables from municipalities related to the development of utilities or other infrastructure, and other miscellaneous receivables. The balance for allowance for doubtful accounts was

$11.4

million and

$7.3

million at

October 31, 2018

and

2017,

respectively, which primarily related to allowances for receivables from municipalities and an allowance for a receivable for a prior year land sale. During fiscal

2018

and

2017,

we recorded

$0.6

million and

$0.2

million, respectively, in recoveries. In addition, there were

$0.1

million and

$0.1

million of write-offs in fiscal

2018

and

2017,

respectively. During fiscal

2018,

we recorded

$4.8

million of additional reserves.

Stock Options -

We account for our stock options under ASC

718

-

10,

“Compensation - Stock Compensation – Overall,” which requires the fair-value based method of accounting for stock awards granted to employees and measures and records the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.

Compensation cost arising from nonvested stock granted to employees and from nonemployee stock awards is based on the fair value of the awards at the grant date recognized as expense using the straight-line method over the vesting period.

Per Share Calculations -

Basic earnings per share is computed by dividing net income (loss) (the “numerator”) by the weighted-average number of common shares outstanding, adjusted for nonvested shares of restricted stock (the “denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of options and nonvested shares of restricted stock, as well as common shares issuable upon exchange of our Senior Exchangeable Notes issued as part of our

6.0%

Exchangeable Note Units (which matured and were paid in full in fiscal

2018

). Any options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation.  

All outstanding nonvested shares that contain nonforfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in computing earnings per share pursuant to the

two

-class method. The

two

-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings in periods where we have net income. The Company’s restricted common stock (“nonvested shares”) are considered participating securities.

Recent Accounting Pronouncements

 

In

May 2014,

the Financial Accounting Standards Board (“FASB”) issued ASU 

No.

2014

-

09,

“Revenue from Contracts with Customers” (Topic

606

), (“ASU

2014

-

09”

). ASU

2014

-

09

requires entities to recognize revenue that represents the transfer of promised goods or services to customers in an amount equivalent to the consideration to which the entity expects to be entitled to in exchange for those goods or services. The following steps should be applied to determine this amount: (

1

) identify the contract(s) with a customer; (

2

) identify the performance obligations in the contract; (

3

) determine the transaction price; (

4

) allocate the transaction price to the performance obligations in the contract; and (

5

) recognize revenue when (or as) the entity satisfies a performance obligation. ASU

2014

-

09

supersedes the revenue recognition requirements in ASC

605,

“Revenue Recognition,” and most industry-specific guidance in the Accounting Standards Codification. The FASB has also issued a number of updates to this standard. The standard is effective for us for annual and interim periods beginning

November 1, 2018,

and at that time, we expect to apply the modified retrospective method of adoption. We have substantially completed our evaluation of the impact of adopting ASU

2014

-

09.

Based on our assessment, we do

not

expect significant changes to our business processes, systems, or internal controls as a result of adopting the standard. We also do

not

expect the adoption of ASU

2014

-

09

to have a material impact on our financial statements. 

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

“Leases (Topic

842

)” (“ASU

2016

-

02”

), which provides guidance for accounting for leases. ASU

2016

-

02

requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than

12

months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight line basis over the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU

2016

-

02

is effective for the Company beginning

November 1, 2019.

Early adoption is permitted. In

July 2018,

the FASB issued ASU

No.

2018

-

10

“Codification Improvements to Topic

842,

Leases” (“ASU

2018

-

10”

) and ASU

No.

2018

-

11

“Leases (Topic

842

) Targeted Improvements” (“ASU

2018

-

11”

). ASU

2018

-

10

provides certain amendments that affect narrow aspects of the guidance issued in ASU

2016

-

02.

ASU

2018

-

11

allows all entities adopting ASU

2016

-

02

to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU

2018

-

11

also allows lessors to

not

separate nonlease components from the associated lease component if certain conditions are met. We are currently evaluating both the method and the impact of adopting this guidance on our Consolidated Financial Statements.

In

August 2016,

the FASB issued ASU

No.

2016

-

15,

“Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments” (“ASU

2016

-

15”

). ASU

2016

-

15

provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. We early adopted ASU

2016

-

15

effective

October 31, 2018

and there was

no

impact of adopting this guidance on our Consolidated Financial Statements.

In

November 2016,

the FASB issued ASU

No.

2016

-

18,

which amends the classification and presentation of changes in restricted cash or restricted cash equivalents in the statement of cash flows. We early adopted ASU

2016

-

18

effective

October 31, 2018.

See Note

1

for further information on the reclassification of prior period amounts.

In

October 2016,

the FASB issued ASU

No.

2016

-

16,

“Income Taxes (Topic

740

): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU

2016

-

16”

). ASU

2016

-

16

provides guidance for the accounting of income taxes related to intra-entity transfers of assets other than inventory. ASU

2016

-

16

is effective for the Company’s fiscal year beginning

November 1, 2018.

Early adoption is permitted. We do

not

expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

In

July 2018,

the FASB issued ASU

No.

2018

-

09,

“Codification Improvements” (“ASU

2018

-

09”

). ASU

2018

-

09

provides amendments to a wide variety of topics in the FASB’s Accounting Standards Codification, which applies to all reporting entities within the scope of the affected accounting guidance. The transition and effective date guidance are based on the facts and circumstances of each amendment. Some of the amendments in ASU

2018

-

09

do

not

require transition guidance and were effective upon issuance of ASU

2018

-

09.

However, many of the amendments do have transition guidance with effective dates for annual periods beginning after

December 15, 2018.

We are currently evaluating the potential impact of adopting the applicable guidance on our Consolidated Financial Statements.

In

August 2018,

the FASB issued

No.

ASU

2018

-

13,

“Fair Value Measurement (Topic

820

) - Disclosure Framework” (“ASU

2018

-

13”

), which improves the disclosure requirements for fair value measurements. ASU

2018

-

13

is effective for us beginning

November 

1,

2020.

Early adoption is permitted for any removed or modified disclosures. We are currently assessing the impact of adopting this guidance on our Consolidated Financial Statements.

In

August 2018,

the FASB issued

No.

ASU

2018

-

15

“Intangibles-Goodwill and Other-Internal-Use Software (Subtopic

350

-

40

): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract” (“ASU

2018

-

15”

). ASU

2018

-

15

aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU

2018

-

15

is effective for us beginning

November 1, 2020.

Early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements.

XML

Note 4 - Leases

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Leases of Lessee Disclosure [Text Block]

4.

Leases

We lease certain property under non-cancelable leases. Office leases are generally for terms of

three

to

five

years and generally provide renewal options. Model home leases are generally for shorter terms of approximately

one

to

three

years with renewal options on a month-to-month basis. In most cases, we expect that in the normal course of business, leases that will expire will be renewed or replaced by other leases. The future lease payments required under operating leases that have initial or remaining non-cancelable terms in excess of

one

year are as follows:

Years Ending October 31,	(In Thousands)
2019	$9,297
2020	6,388
2021	3,903
2022	2,946
2023	2,026
Thereafter	2,482
Total	$27,042

Net rental expense for the

three

years ended

October 31, 2018,

2017

and

2016,

was

$14.4

million,

$10.8

million and

$12.8

million, respectively. These amounts represent all of the above described lease types and also include rent expense for our corporate headquarters and various month-to-month leases on model homes, furniture and equipment. Certain leases contain renewal or purchase options and generally provide that the Company shall pay for insurance, taxes and maintenance.

XML

Note 5 - Property, Plant and Equipment

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

5.

Property, Plant and Equipment

Homebuilding property, plant, and equipment consists of land, land improvements, buildings, building improvements, furniture and equipment used to conduct day-to-day business and are recorded at cost less accumulated depreciation. Included in the

October 31, 2017

amounts are

$1.0

million in land, 

$60.1

million in buildings and

$26.4

million in accumulated depreciation for our former corporate headquarters, for a net book value of

$34.7

million, which was held for sale at

October 31, 2017

and sold on

November 1, 2017.

Property, plant, and equipment balances as of

October 31, 2018

and

2017

were as follows:

	October 31,
(In thousands)	2018	2017
Land and land improvements	$1,639	$2,625
Buildings	9,155	69,279
Building improvements	10,958	9,458
Furniture	5,305	5,571
Equipment, including capitalized software	33,015	35,328
Total	60,072	122,261
Less accumulated depreciation	39,787	69,342
Total	20,285	$52,919

XML

Note 6 - Restricted Cash and Deposits

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Cash and Cash Equivalents Disclosure [Text Block]

6.

Restricted Cash and Deposits

Homebuilding - Restricted cash and cash equivalents on the Consolidated Balance Sheets totaled

$12.8

million and

$2.1

million as of

October 31, 2018

and

2017,

respectively, which included cash collateralizing our letter of credit agreements and facilities as discussed in Note

9.

Also included in these balances were homebuilding customers’ deposits of

$0.1

million and

$0.4

million at

October 31, 2018

and

2017,

respectively, which are subject to restrictions on our use.

Financial services restricted cash and cash equivalents, which are included in Financial services other assets on the Consolidated Balance Sheets, totaled

$25.4

million and

$22.3

million as of

October 31, 2018

and

2017,

respectively. Included in these balances were (

1

) financial services customers’ deposits of

$23.4

million at

October 31, 2018

and

$20.0

million as of

October 31, 2017,

which are subject to restrictions on our use, and (

2

)

$2.0

million at

October 31, 2018

and

$2.3

million at

October 31, 2017,

respectively, of restricted cash under the terms of our mortgage warehouse lines of credit.

Total Homebuilding Customers’ deposits are shown as a liability on the Consolidated Balance Sheets. These liabilities are significantly more than the applicable periods’ restricted cash balances because in some states the deposits are

not

restricted from use and, in other states, we are able to release the majority of these customer deposits to cash by pledging letters of credit and surety bonds.

XML

Note 7 - Mortgage Loans Held for Sale

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

7.

Mortgage Loans Held for Sale

Our wholly owned mortgage banking subsidiary, K. Hovnanian American Mortgage, LLC (“K. Hovnanian Mortgage”) originates mortgage loans, primarily from the sale of our homes. Such mortgage loans are sold in the secondary mortgage market within a short period of time of origination. Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property. We have elected the fair value option to record loans held for sale and therefore these loans are recorded at fair value with the changes in the value recognized in the Consolidated Statements of Operations in “Revenues: Financial services.” We currently use forward sales of mortgage-backed securities (“MBS”), interest rate commitments from borrowers and mandatory and/or best efforts forward commitments to sell loans to

third

-party purchasers to protect us from interest rate fluctuations. These short-term instruments, which do

not

require any payments to be made to the counterparty or purchaser in connection with the execution of the commitments, are recorded at fair value. Gains and losses on changes in the fair value are recognized in the Consolidated Statements of Operations in “Revenues: Financial services.”

At

October 31, 2018

and

2017,

$115.2

million and

$119.6

million, respectively, of mortgages held for sale were pledged against our mortgage warehouse lines of credit (see Note

8

). We

may

incur losses with respect to mortgages that were previously sold that are delinquent and which had underwriting defects, but only to the extent the losses are

not

covered by mortgage insurance or resale value of the home. The reserves for these estimated losses are included in the “Financial services” liability balances on the Consolidated Balance Sheets. As of

October 31, 2018

and

2017,

we had reserves specifically for

46

and

45

identified mortgage loans, respectively, as well as reserves for an estimate for future losses on mortgages sold but

not

yet identified to us. In both fiscal

2018

and

2017,

the adjustments to pre-existing provisions for losses from changes in estimates were primarily due to the settlements of disputes for significantly less than the amounts that had been previously reserved.

The activity in our loan origination reserves in fiscal

2018

and

2017

was as follows:

	Year Ended
	October 31,
(In thousands)	2018		2017
Loan origination reserves, beginning of period	$3,158		$8,137
Provisions for losses during the period	160		165
Adjustments to pre-existing provisions for losses from changes in estimates	(755	)	(4,571	)
Payments/settlements	-		(573	)
Loan origination reserves, end of period	$2,563		$3,158

XML

Note 8 - Mortgages

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Line of Credit [Text Block]

8.

Mortgages

We have nonrecourse mortgage loans for certain communities totaling

$95.6

million and

$64.5

million (net of debt issuance costs) at

October 31, 2018

and

2017,

respectively, which are secured by the related real property, including any improvements, with an aggregate book value of

$241.9

 million and

$157.8

million, respectively. The weighted-average interest rate on these obligations was

6.1%

and

5.3%

at

October 31, 2018

and

2017,

respectively, and the mortgage loan payments on each community primarily correspond to home deliveries. We also had nonrecourse mortgage loans on our former corporate headquarters totaling

$13.0

million at

October 31, 2017.

On

November 1, 2017,

these loans were paid in full in connection with the sale of this corporate headquarters building.

K. Hovnanian Mortgage originates mortgage loans primarily from the sale of our homes. Such mortgage loans and related servicing rights are sold in the secondary mortgage market within a short period of time. In certain instances, we retain the servicing rights for a small amount of loans. K. Hovnanian Mortgage finances the origination of mortgage loans through various master repurchase agreements, which are recorded in financial services liabilities on the Consolidated Balance Sheets.

Our secured Master Repurchase Agreement with JPMorgan Chase Bank, N.A. (“Chase Master Repurchase Agreement”) is a short-term borrowing facility that provides up to

$50.0

million through its maturity on

July 31, 2019.

The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable monthly on outstanding advances at an adjusted LIBOR rate, which was

2.31%

at

October 31, 2018,

plus the applicable margin of

2.5%

or

2.63%

based upon type of loan. As of

October 31, 2018

and

2017,

the aggregate principal amount of all borrowings outstanding under the Chase Master Repurchase Agreement was

$40.3

million and

$41.5

million, respectively.

K. Hovnanian Mortgage has another secured Master Repurchase Agreement with Customers Bank (“Customers Master Repurchase Agreement”) which is a short-term borrowing facility that provides up to

$50.0

million through its maturity on

February 15, 2019.

The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable daily or as loans are sold to permanent investors on outstanding advances at the current LIBOR rate, plus the applicable margin ranging from

2.38%

to

5.13%

based on the type of loan and the number of days outstanding on the warehouse line. As of

October 31, 2018

and

2017,

the aggregate principal amount of all borrowings outstanding under the Customers Master Repurchase Agreement was

$40.2

million and

$40.7

million, respectively.

K. Hovnanian Mortgage also has a secured Master Repurchase Agreement with Comerica Bank (“Comerica Master Repurchase Agreement”) which is a short-term borrowing facility that provides up to

$50.0

million through

June 10, 2019.

The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable monthly at the current LIBOR rate, subject to a floor of

0.25%,

plus the applicable margin of

2.25%

or

3.25%

based upon the type of loan. As of

October 31, 2018

and

2017,

the aggregate principal amount of all borrowings outstanding under the Comerica Master Repurchase Agreement was

$32.7

million and

$32.4

million, respectively.

The Chase Master Repurchase Agreement, Customers Master Repurchase Agreement and Comerica Master Repurchase Agreement (together, the “Master Repurchase Agreements”) require K. Hovnanian Mortgage to satisfy and maintain specified financial ratios and other financial condition tests. Because of the extremely short period of time mortgages are held by K. Hovnanian Mortgage before the mortgages are sold to investors (generally a period of a few weeks), the immateriality to us on a consolidated basis of the size of the Master Repurchase Agreements, the levels required by these financial covenants, our ability based on our immediately available resources to contribute sufficient capital to cure any default, were such conditions to occur, and our right to cure any conditions of default based on the terms of the applicable agreement, we do

not

consider any of these covenants to be substantive or material. As of

October 31, 2018,

we believe we were in compliance with the covenants under the Master Repurchase Agreements.

XML

Note 9 - Senior Notes and Credit Facilities

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Long-term Debt [Text Block]

9.

  Senior Notes and Credit Facilities

Senior notes and credit facilities balances as of

October 31, 2018

and

October 

31,

2017,

were as follows:

(In thousands)	October 31, 2018(1)(2)	October 31, 2017(1)(2)
Senior Secured Term Loan due 2019, net of debt issuance costs	$-	$72,987
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$74,561	$74,350
2.0% Senior Secured Notes due November 1, 2021 (net of discount)	53,094	53,058
5.0% Senior Secured Notes due November 1, 2021 (net of discount)	135,571	133,732
10.0% Senior Secured Notes due July 15, 2022	435,461	434,543
10.5% Senior Secured Notes due July 15, 2024	394,736	394,953
Total Senior Secured Notes, net of debt issuance costs	$1,093,423	$1,090,636
Senior Notes:
7.0% Senior Notes due January 15, 2019	$-	$131,957
8.0% Senior Notes due November 1, 2019 (3)	-	234,293
13.5% Senior Notes due February 1, 2026 (including premium)	101,162	-
5.0% Senior Notes due February 1, 2040 (net of discount)	43,264	-
Total Senior Notes, net of debt issuance costs	$144,426	$366,250
11.0% Senior Amortizing Notes due December 1, 2017, net of debt issuance costs	$-	$2,045
Senior Exchangeable Notes due December 1, 2017, net of debt issuance costs	$-	$53,919
Senior Unsecured Term Loan Credit Facility due February 1, 2027, net of debt issuance costs	$201,389	$-
Unsecured Revolving Credit Facility due September 2018	$-	$52,000
Senior Secured Revolving Credit Facility (4)	$-	$-

(

1

) “Notes payable” on our Consolidated Balance Sheets as of

October 31, 2018

and

2017

consists of the total senior secured, senior, senior amortizing and senior exchangeable notes shown above, as well as accrued interest of

$35.6

million and

$41.8

million, respectively.

(

2

) Unamortized debt issuance costs at

October 31, 2018

and

2017

were

$14.1

million and

$16.1

million, respectively.

(

3

) 

$26.0

million of

8.0%

Senior Notes due

2019

are owned by a wholly-owned consolidated subsidiary of HEI. Therefore, in accordance with GAAP, such notes are

not

reflected on the Consolidated Balance Sheets of HEI.

(

4

) Availability under the Senior Secured Revolving Credit Facility will terminate on

December 28, 2019

and any loans thereunder on such date shall convert to secured term loans maturing on

December 28, 2022.

As of

October 31, 2018,

future maturities of our borrowings were as follows (

in thousands

):

Fiscal Year Ended October 31, (1)
2019	$-
2020	-
2021	75,000
2022	635,000
2023	-
Thereafter	783,257
Total	$1,493,257

(

1

) Does

not

include our

$125.0

million Senior Secured Revolving Credit Facility under which there were

no

borrowings outstanding as of

October 31, 2018.

General

Except for K. Hovnanian, the issuer of the notes and borrower under the Credit Facilities (as defined below), our home mortgage subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures and certain of our title insurance subsidiaries, we and each of our subsidiaries are guarantors of the Credit Facilities, the senior secured notes and senior notes outstanding at

October 31, 2018 (

collectively, the “Notes Guarantors”). In addition to the Notes Guarantors, the

5.0%

Senior Secured Notes due

2021

(the

“5.0%

2021

Notes”), the

2.0%

Senior Secured Notes due

2021

(the

“2.0%

2021

Notes” and together with the

5.0%

2021

Notes, the

“2021

Notes”) and the

9.50%

Senior Secured Notes due

2020

(the

“9.50%

2020

Notes” and collectively with the

2021

Notes, the “JV Holdings Secured Group Notes”) are guaranteed by K. Hovnanian JV Holdings, L.L.C. and its subsidiaries, except for certain joint ventures and joint venture holding companies (collectively, the “JV Holdings Secured Group”). Members of the JV Holdings Secured Group do

not

guarantee K. Hovnanian's other indebtedness.  

The credit agreements governing the Credit Facilities and the indentures governing the notes (together, the “Debt Instruments”) outstanding at

October 31, 2018

do

not

contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the Company’s ability and that of certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness (other than nonrecourse indebtedness, certain permitted indebtedness and refinancing indebtedness (under the

9.50%

2020

Notes, any new or refinancing indebtedness

may

not

be scheduled to mature earlier than

January 15, 2021 (

so long as

no

member of the JV Holdings Secured Group is an obligor thereon), or

February 15, 2021 (

if otherwise), and under the

10.0%

Senior Secured Notes due

2022

(the

“10.0%

2022

Notes”), any refinancing indebtedness of the

7.0%

Senior Notes due

2019

(the

“7.0%

Notes”) (which includes the Term Loans (as defined below)) and

8.0%

Senior Notes due

2019

(the

“8.0%

Notes” and together with the

7.0%

Notes, the

“2019

Notes”) (which includes the New Notes (as defined below) and the Term Loans)

may

not

be scheduled to mature earlier than

July 16, 2024 (

such restrictive covenant in respect of the

10.5%

Senior Secured Notes due

2024

(the

“10.5%

2024

Notes”) was eliminated as described below under “—Fiscal

2018”

)), pay dividends and make distributions on common and preferred stock, repurchase subordinated indebtedness and common and preferred stock, make other restricted payments, including investments, sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all assets, enter into certain transactions with affiliates and make cash repayments of the

2019

Notes and refinancing indebtedness in respect thereof (with respect to the

10.0%

2022

Notes). The Debt Instruments also contain events of default which would permit the lenders or holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans made under the Term Loan Facility (defined below) (the “Term Loans”) and loans made under the Secured Credit Facility (as defined below) (the “Secured Revolving Loans”) or notes to be immediately due and payable if

not

cured within applicable grace periods, including the failure to make timely payments on the Term Loans, Secured Revolving Loans or notes or other material indebtedness, cross default to other material indebtedness, the failure to comply with agreements and covenants and specified events of bankruptcy and insolvency, with respect to the Term Loans and Secured Revolving Loans, material inaccuracy of representations and warranties and with respect to the Term Loans and Secured Revolving Loans, a change of control, and, with respect to the Secured Revolving Loans and senior secured notes, the failure of the documents granting security for the Secured Revolving Loans and senior secured notes to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the Secured Revolving Loans and senior secured notes to be valid and perfected. As of

October 31, 2018,

we believe we were in compliance with the covenants of the Debt Instruments.

If our consolidated fixed charge coverage ratio, as defined in the agreements governing our debt instruments, is less than

2.0

to

1.0,

we are restricted from making certain payments, including dividends, and from incurring indebtedness other than certain permitted indebtedness, refinancing indebtedness and nonrecourse indebtedness. As a result of this ratio restriction, we are currently restricted from paying dividends, which are

not

cumulative, on our

7.625%

Series A Preferred Stock. We anticipate that we will continue to be restricted from paying dividends for the foreseeable future. Our inability to pay dividends is in accordance with covenant restrictions and will

not

result in a default under our debt instruments or otherwise affect compliance with any of the covenants contained in our debt instruments.

Under the terms of our Debt Instruments, we have the right to make certain redemptions and prepayments and, depending on market conditions and covenant restrictions,

may

do so from time to time. We also continue to evaluate our capital structure and

may

also continue to make debt purchases and/or exchanges for debt or equity from time to time through tender offers, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions.

Any liquidity-enhancing or other capital raising or refinancing transaction will depend on identifying counterparties, negotiation of documentation and applicable closing conditions and any required approvals. Due to covenant restrictions in our Debt Instruments, we are currently limited in the amount of debt we can incur that does

not

qualify as refinancing indebtedness with certain maturity requirements as discussed above (a limitation that we expect to continue for the foreseeable future), even if market conditions would otherwise be favorable, which could also impact our ability to grow our business. 

 

Fiscal

2018

On

December 1, 2017,

our

6.0%

Senior Exchangeable Note Units were paid in full, which units consisted of 

$53.9

million principal amount of our Senior Exchangeable Notes that matured and the final installment payment of 

$2.1

million on our

11.0%

Senior Amortizing Notes.

On

December 28, 2017,

the Company and K. Hovnanian announced that they had entered into a commitment letter (the “Commitment Letter”) in respect of certain financing transactions with GSO Capital Partners LP (“GSO”) on its own behalf and on behalf of

one

or more funds managed, advised or sub-advised by GSO (collectively, the “GSO Entities”), and had commenced a private offer to exchange with respect to the

8.0%

Notes (the “Exchange Offer”).

Pursuant to the Commitment Letter, the GSO Entities agreed to, among other things, provide the principal amount of the following: (i) a senior unsecured term loan credit facility (the “Term Loan Facility”) to be borrowed by K. Hovnanian and guaranteed by the Company and the Notes Guarantors, pursuant to which the GSO Entities committed to lend K. Hovnanian Term Loans consisting of

$132.5

million of initial term loans (the “Initial Term Loans”) on the settlement date of the Exchange Offer for purposes of refinancing K. Hovnanian’s

7.0%

Notes, and up to

$80.0

million of delayed draw term loans (the “Delayed Draw Term Loans”) for purposes of refinancing certain of K. Hovnanian’s

8.0%

Notes, in each case, upon the terms and subject to the conditions set forth therein, and (ii) a senior secured

first

lien credit facility (the “Secured Credit Facility” and together with the Term Loan Facility, the “Credit Facilities”) to be borrowed by K. Hovnanian and guaranteed by the Notes Guarantors, pursuant to which the GSO Entities committed to lend to K. Hovnanian the Secured Revolving Loans, consisting of up to

$125.0

million of senior secured

first

priority loans to fund the repayment of K. Hovnanian’s then-outstanding secured term loans (the “Secured Term Loans”) and for general corporate purposes, upon the terms and subject to the conditions set forth therein. In addition, pursuant to the Commitment Letter, the GSO Entities have committed to purchase, and K. Hovnanian has agreed to issue and sell, on

January 15, 2019 (

or such later date within

five

business days as mutually agreed by the parties working in good faith),

$25.0

million in aggregate principal amount of additional

10.5%

2024

Notes (the “Additional

10.5%

2024

Notes”) at a purchase price, for each

$1,000

principal amount of Additional

10.5%

2024

Notes, that would imply a yield to maturity equal to (a) the volume weighted average yield to maturity (calculated based on the yield to maturity during the

30

calendar day period ending on

one

business day prior to the settlement date of the Additional

10.5%

2024

Notes, which is expected to be

January 15, 2019)

for the

10.5%

2024

Notes, minus (b)

0.50%,

upon the terms and subject to conditions set forth therein.

On

January 29, 2018,

K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the Term Loan Facility. K. Hovnanian borrowed the Initial Term Loans on

February 1, 2018

to fund, together with cash on hand, the redemption on

February 1, 2018

of all

$132.5

million aggregate principal amount of

7.0%

Notes, which resulted in a loss on extinguishment of debt of

$0.5

million. On

May 29, 2018,

K. Hovnanian completed the redemption of

$65.7

million aggregate principal amount of the

8.0%

Notes (representing all of the outstanding

8.0%

Notes, excluding the

$26

million of

8%

Notes held by the Subsidiary Purchaser (as defined below)) with approximately

$70.0

million in borrowings on the Delayed Draw Term Loans under the Term Loan Facility (with the completion of this redemption, the remaining committed amounts under the Delayed Draw Term Loans

may

not

be borrowed). This transaction resulted in a loss on extinguishment of debt of

$4.3

million for year ended

October 31, 2018.

The Term Loans bear interest at a rate equal to

5.0%

per annum and interest is payable in arrears, on the last business day of each fiscal quarter. The Term Loans will mature on

February 1, 2027,

which is the

ninth

anniversary of the

first

closing date of the Term Loan Facility.

On

January 29, 2018,

K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the Secured Credit Facility. Availability under the Secured Credit Facility will terminate on

December 28, 2019

and any outstanding Secured Revolving Loans on such date shall convert to secured term loans maturing on

December 28, 2022.

On

September 10, 2018,

K. Hovnanian borrowed

$35.0

million of Secured Revolving Loans under the Secured Credit Facility and used

$41.0

million of cash on hand to repay the Secured Term Loans in full, plus unpaid interest and closing costs (in the

fourth

quarter of fiscal

2018,

K. Hovnanian repaid the borrowed Secured Revolving Loans and as of

October 31, 2018,

there were

no

amounts outstanding under the Secured Credit Facility). This transaction resulted in a loss on extinguishment of debt of

$1.8

million for the year ended

October 31, 2018.

The Secured Revolving Loans and the guarantees thereof are secured (subject to perfection requirements under the terms of the Secured Credit Facility) by substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, subject to permitted liens and certain exceptions, on a

first

lien basis relative to the liens securing K. Hovnanian’s

10.0%

2022

Notes and

10.5%

2024

Notes pursuant to an intercreditor agreement. The collateral securing the Secured Revolving Loans will be the same as that securing the

10.0%

2022

Notes and the

10.5%

2024

Notes (see –“Fiscal

2017”

below). The Secured Revolving Loans bear interest at a rate equal to

10.0%

per annum, and interest is payable in arrears, on the last business day of each fiscal quarter.

On

February 1, 2018,

K. Hovnanian accepted all of the

$170.2

million aggregate principal amount of

8.0%

Notes validly tendered and

not

validly withdrawn in the Exchange Offer (representing

72.14%

of the aggregate principal amount of

8.0%

Notes outstanding prior to the Exchange Offer), and in connection therewith, K. Hovnanian issued

$90.6

million aggregate principal amount of its

13.5%

Senior Notes due

2026

(the “New

2026

Notes”) and

$90.1

million aggregate principal amount of its

5.0%

Senior Notes due

2040

(the “New

2040

Notes” and together with the New

2026

Notes, the “New Notes”) under a new indenture. Also, as part of the Exchange Offer, K. Hovnanian at Sunrise Trail III, LLC, a wholly-owned subsidiary of the Company (the “Subsidiary Purchaser”), purchased for

$26.5

million in cash an aggregate of

$26.0

million in principal amount of the

8.0%

Notes (the “Purchased

8.0%

Notes”). The New Notes were issued by K. Hovnanian and guaranteed by the Notes Guarantors, except the Subsidiary Purchaser, which does

not

guarantee the New Notes. The New

2026

Notes bear interest at

13.5%

per annum and mature on

February 1, 2026.

The New

2040

Notes bear interest at

5.0%

per annum and mature on

February 1, 2040.

Interest on the New Notes is payable semi-annually on

February 1

and

August 1

of each year to holders of record at the close of business on

January 15

or

July 15,

as the case

may

be, immediately preceding each such interest payment date. The Exchange Offer was treated as a substantial modification of debt. The New Notes were recorded at fair value (based on management's estimate using available trades for similar debt instruments) on the date of the issuance of the New Notes, which equaled

$103.0

 million for the New

2026

Notes and

$44.0

 million for the New

2040

Notes, resulting in a premium on the New

2026

Notes and a discount on the New

2040

Notes, and a loss on extinguishment of debt of

$0.9

million for the year ended

October 31, 2018.

K. Hovnanian’s New

2026

Notes are redeemable in whole or in part at K. Hovnanian’s option at any time prior to

February 1, 2026

at a redemption price equal to

100.0%

of their principal amount plus an applicable “Make-Whole Amount.” At any time and from time to time on or after

February 1, 2019,

K. Hovnanian

may

also redeem some or all of the New

2026

Notes at a redemption price equal to

100.0%

of their principal amount. 

K. Hovnanian’s New

2040

Notes are redeemable in whole or in part at K. Hovnanian’s option at any time prior to

February 1, 2040

at a redemption price equal to

100.0%

of their principal amount plus an applicable “Make-Whole Amount.” At any time and from time to time on or after

February 1, 2040,

K. Hovnanian

may

also redeem some or all of the New

2040

Notes at a redemption price equal to

100.0%

of their principal amount.

On

May 30, 2018,

K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee, executed the Second Supplemental Indenture, dated as of

May 30, 2018 (

the “Supplemental Indenture”), to the Indenture governing the New Notes. The Supplemental Indenture eliminated the covenant restricting certain actions with respect to the Purchased

8.0%

Notes, which covenant had included requirements that (A) K. Hovnanian and the guarantors of the New Notes would

not,

(i) prior to

June 6, 2018,

redeem, cancel or otherwise retire, purchase or acquire any Purchased

8.0%

Notes or (ii) make any interest payments on the Purchased

8.0%

Notes prior to their stated maturity, and (B) K. Hovnanian and the guarantors of the New Notes would

not,

and would

not

permit any of their subsidiaries to (i) sell, transfer, convey, lease or otherwise dispose of any Purchased

8.0%

Notes other than to any subsidiary of the Company that is

not

K. Hovnanian or a guarantor of the New Notes or (ii) amend, supplement or otherwise modify the Purchased

8.0%

Notes or the indenture under which they were issued with respect to the Purchased

8.0%

Notes, subject to certain exceptions. In addition, the Supplemental Indenture eliminated events of default related to the eliminated covenant. On

May 30, 2018,

K. Hovnanian paid the overdue interest on the Purchased

8.0%

Notes that was originally due on

May 1, 2018

and as a result of such payment, the “Default” under the Indenture governing the

8.0%

Notes was cured.

On

January 16, 2018,

K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee and Collateral Agent, executed the Second Supplemental Indenture, dated as of

January 16, 2018,

to the indenture governing the

10.0%

2022

Notes and

10.5%

2024

Notes, dated as of

July 27, 2017 (

as supplemented, amended or otherwise modified), among K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee and Collateral Agent, giving effect to the proposed amendments to such indenture solely with respect to the

10.5%

2024

Notes, which were obtained in a consent solicitation of the holders of the

10.5%

2024

Notes, and which eliminated the restrictions on K. Hovnanian’s ability to purchase, repurchase, redeem, acquire or retire for value the

2019

 Notes and refinancing or replacement indebtedness in respect thereof.

Fiscal

2017

During the year ended

October 31, 2017,

we repurchased in open market transactions

$17.5

million aggregate principal amount of

7.0%

Notes,

$14.0

million aggregate principal amount of

8.0%

Notes and

6,925

 senior exchangeable note units representing

$6.9

million stated amount of senior exchangeable note units. The aggregate purchase price for these transactions was

$30.8

million, plus accrued and unpaid interest. These transactions resulted in a gain on extinguishment of debt of

$7.8

million, which is included as “Loss on Extinguishment of Debt” on the Consolidated Statement of Operations. This gain was offset by

$0.4

million of costs associated with the

9.50%

 

2020

Notes issued during the

fourth

quarter of fiscal

2016

and the debt transactions during the

third

quarter of fiscal

2017

discussed below.

On

July 27, 2017, 

K. Hovnanian issued

$440.0

million aggregate principal amount of

10.0%

2022

Notes and

$400.0

million aggregate principal amount of

10.5%

2024

Notes. The net proceeds from these issuances together with available cash were used to (i) purchase

$575,912,000

principal amount of

7.25%

Senior Secured First Lien Notes due

2020

(the

“7.25%

First Lien Notes”),

$87,321,000

principal amount of

9.125%

Senior Secured Second Lien Notes due

2020

(the

“9.125%

Second Lien Notes” and, together with the

7.25%

First Lien Notes, the “ 

2020

Secured Notes”) and all

$75,000,000

principal amount of

10.0%

Senior Secured Second Lien Notes due

2018

(the

“10.0%

Second Lien Notes”) that were tendered and accepted for purchase pursuant to K. Hovnanian’s offers to purchase for cash (the “Tender Offers”) any and all of the

7.25%

First Lien Notes, the

9.125%

Second Lien Notes and the

10.0%

Second Lien Notes and to pay related tender premiums and accrued and unpaid interest thereon to the date of purchase and (ii) satisfy and discharge all obligations (and cause the release of the liens on the collateral securing such indebtedness) under the indentures under which the

7.25%

First Lien Notes, the

9.125%

Second Lien Notes and the

10.0%

Second Lien Notes were issued and in connection therewith to call for redemption on

October 15, 2017

and on

November 15, 2017

all remaining

$1,088,000

principal amount of

7.25%

First Lien Notes and all remaining

$57,679,000

principal amount of

9.125%

Second Lien Notes, respectively, that were

not

validly tendered and purchased in the applicable Tender Offer in accordance with the redemption provisions of the indentures governing the

2020

Secured Notes. These transactions resulted in a loss on extinguishment of debt of

$42.3

million for fiscal

2017,

which is included as “Loss on Extinguishment of Debt” on the Consolidated Statement of Operations.

The

10.0%

2022

Notes have a maturity of

July 15, 2022

and bear interest at a rate of

10.0%

per annum payable semi-annually on

January 15

and

July 15

of each year, to holders of record at the close of business on

January 1

and

July 1,

as the case

may

be, immediately preceding such interest payment dates. The

10.0%

2022

Notes are redeemable in whole or in part at our option at any time prior to

July 15, 2019

at

100.0%

of their principal amount plus an applicable “Make-Whole Amount.” K. Hovnanian

may

also redeem some or all of the

10.0%

2022

Notes at

105.0%

of principal commencing

July 15, 2019,

at

102.50%

of principal commencing

July 15, 2020

and at

100.0%

of principal commencing

July 15, 2021.

In addition, K. Hovnanian

may

also redeem up to

35.0%

of the aggregate principal amount of the

10.0%

2022

Notes prior to

July 15, 2019

with the net cash proceeds from certain equity offerings at

110.0%

of principal.

The

10.5%

2024

Notes have a maturity of

July 15, 2024

and bear interest at a rate of

10.5%

per annum payable semi-annually on

January 15

and

July 15

of each year, to holders of record at the close of business on

January 1

and

July 1,

as the case

may

be, immediately preceding such interest payment dates. The

10.5%

2024

Notes are redeemable in whole or in part at our option at any time prior to

July 15, 2020

at

100.0%

of their principal amount plus an applicable “Make-Whole Amount.” K. Hovnanian

may

also redeem some or all of the

10.5%

2024

Notes at

105.25%

of principal commencing

July 15, 2020,

at

102.625%

of principal commencing

July 15, 2021

and at

100.0%

of principal commencing

July 15, 2022.

In addition, K. Hovnanian

may

also redeem up to

35.0%

of the aggregate principal amount of the

10.5%

2024

Notes prior to

July 15, 2020

with the net cash proceeds from certain equity offerings at

110.50%

of principal.

All of K. Hovnanian’s obligations under the

10.0%

2022

Notes and the

10.5%

2024

Notes are guaranteed by the Notes Guarantors. In addition to pledges of the equity interests in K. Hovnanian and the subsidiary Notes Guarantors which secure the

10.0%

2022

Notes and the

10.5%

2024

Notes, the

10.0%

2022

Notes and the

10.5%

2024

Notes and the guarantees thereof are also secured in accordance with the terms of the indenture governing such Notes and the security documents related thereto by pari passu liens on substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, in each case, subject to permitted liens and certain exceptions (the collateral securing the

10.0%

2022

Notes and the

10.5%

2024

Notes is the same as that which will secure the Secured Revolving Loans). The liens securing the

10.0%

2022

Notes and the

10.5%

2024

Notes rank junior to the liens securing the Secured Revolving Loans and any other future secured obligations that are senior in priority with respect to the assets securing the

10.0%

2022

Notes and the

10.5%

2024

Notes.

At

October 31, 2018,

the aggregate book value of the real property that constituted collateral securing the

10.0%

2022

Notes and the

10.5%

2024

Notes was

$437.9

million, which does

not

include the impact of inventory investments, home deliveries or impairments thereafter and which

may

differ from the value if it were appraised. Cash and cash equivalents collateral that secured the

10.0%

2022

Notes and the

10.5%

2024

Notes was

$125.6

million as of

October 31, 2018,

which included

$11.9

million of restricted cash collateralizing certain letters of credit. Subsequent to such date, fluctuations as a result of cash uses include general business operations and real estate and other investments along with cash inflow primarily from deliveries.  

Fiscal

2016

On

January 15, 2016,

$172.7

million principal amount of our

6.25%

Senior Notes due

2016

matured and was paid and on

May 15, 2016,

$86.5

million principal amount of our

7.5%

Senior Notes due

2016

matured and was paid. On

October 11, 2016 (

the next business day following the redemption date of

October 8, 2016),

all

$121.0

million principal amount of our

8.625%

Senior Notes due

2017

were redeemed for a redemption price of approximately

$126.1

million, which included accrued and unpaid interest.

On

September 8, 2016,

the Company and K. Hovnanian completed certain financing transactions with certain investment funds managed by affiliates of

H/2

Capital Partners LLC (collectively, the “Investor”) pursuant to which the Investor (

1

) funded a

$75.0

million senior secured term loan facility, which was borrowed by K. Hovnanian and guaranteed by the Notes Guarantors, (

2

) purchased

$75.0

million aggregate principal amount of

10.0%

Second Lien Notes issued by K. Hovnanian and guaranteed by the Notes Guarantors (all such notes were subsequently purchased in the Tender Offers as described above under “-Fiscal

2017”

), and (

3

) exchanged

$75.0

million aggregate principal amount of

9.125%

Second Lien Notes held by such Investor for

$75.0

million of newly issued

9.50%

2020

Notes issued by K. Hovnanian and guaranteed by the Notes Guarantors and the members of the JV Holdings Secured Group, for aggregate cash proceeds of approximately 

$146.3

million, before expenses. On

September 10, 2018,

K. Hovnanian repaid the Secured Term Loans in full, as described under “—Fiscal

2018.”

The

9.50%

2020

Notes have a maturity of

November 15, 2020,

and bear interest at a rate of

9.50%

per annum, payable semi-annually on 

February 15

and 

August 15

of each year, to holders of record at the close of business on 

February 1

and 

August 1,

as the case

may

be, immediately preceding such interest payment dates. The

9.50%

2020

Notes are redeemable in whole or in part at our option at any time prior to

November 15, 2018

at

100%

of their principal amount plus an applicable “Make-Whole Amount.” At any time and from time to time on or after

November 15, 2018,

K. Hovnanian

may

also redeem some or all of the

9.50%

2020

Notes at a redemption price equal to

100%

of their principal amount.

The

9.50%

2020

Notes are guaranteed by the Notes Guarantors and the members of the JV Holdings Secured Group. The

9.50%

2020

Notes are secured on a pari passu

first

lien basis with K. Hovnanian’s

2021

Notes, by substantially all of the assets of the members of the JV Holdings Secured Group, subject to permitted liens and certain exceptions. See “—Other Secured Obligations” below.

Other Secured Obligations

 On

November 1, 2011, 

K. Hovnanian issued

$141.8

million aggregate principal amount of

5.0%

2021

Notes and

$53.2

million aggregate principal amount of

2.0%

2021

Notes. The

5.0%

2021

Notes and the

2.0%

2021

Notes were issued as separate series under an indenture, but have substantially the same terms other than with respect to interest rate and related redemption provisions, and vote together as a single class. The

2021

Notes are redeemable in whole or in part at our option at any time, at

100.0%

of the principal amount plus the greater of

1%

of the principal amount and an applicable “Make-Whole Amount.”

The guarantees of the JV Holdings Secured Group with respect to the

2021

Notes and the

9.50%

2020

Notes are secured, subject to permitted liens and certain exceptions, by a

first

-priority lien on substantially all of the assets of the members of the JV Holdings Secured Group. As of

October 31, 2018,

the collateral securing the guarantees included (

1

)

$75.0

million of cash and cash equivalents, which included

$0.8

million of restricted cash collateralizing certain letters of credit (subsequent to such date, fluctuations as a result of cash uses include general business operations and real estate and other investments along with cash inflow primarily from deliveries); (

2

)

$139.2

million aggregate book value of real property of the JV Holdings Secured Group, which does

not

include the impact of inventory investments, home deliveries or impairments thereafter and which

may

differ from the value if it were appraised; and (

3

) equity interests owned by guarantors that are members of the JV Holdings Secured Group. Members of the JV Holdings Secured Group also own equity in joint ventures, either directly or indirectly through ownership of joint venture holding companies, with a book value of

$114.8

million as of

October 31, 2018;

this equity is

not

pledged to secure, and is

not

collateral for, the

2021

Notes. Members of the JV Holdings Secured Group are “unrestricted subsidiaries” under K. Hovnanian's other senior secured notes and senior notes and the Credit Facilities, and thus have

not

guaranteed such indebtedness. 

Senior Notes

On

February 1, 2018,

K. Hovnanian borrowed the Initial Term Loans in the amount of

$132.5

million under the Term Loan Facility, and proceeds of such Initial Term Loans, together with cash on hand, were used to redeem all of its outstanding

$132.5

million aggregate principal amount of

7.0%

Notes (upon redemption, all

7.0%

Notes were cancelled).  

As discussed above, the

8.0%

Notes were the subject of the Exchange Offer that closed on

February 1, 2018

and, on

May 29, 2018,

K. Hovnanian completed the redemption of

$65.7

million aggregate principal amount of the

8.0%

Notes, which was funded with borrowings of the Delayed Draw Term Loans under the Term Loan Facility (upon redemption, such redeemed

8.0%

Notes were cancelled). 

Other

 In

June 2013,

K. Hovnanian, as borrower, and we and certain of our subsidiaries, as guarantors, entered into a

five

-year,

$75.0

million unsecured revolving credit facility (the “Unsecured Revolving Credit Facility”) with Citicorp USA, Inc., as administrative agent and issuing bank, and Citibank, N.A., as a lender. This facility matured and was paid in full in

September 2018

with borrowings under the Secured Credit Facility and cash on hand. As of

October 31, 2017,

there were

$52.0

million of borrowings and

$14.6

million of letters of credit outstanding under the Unsecured Revolving Credit Facility.

We have certain stand–alone cash collateralized letter of credit agreements and facilities under which there was a total of

$12.5

 million and

$1.7

million letters of credit outstanding at

October 31, 2018

and

October 31, 2017,

respectively. These agreements and facilities require us to maintain specified amounts of cash as collateral in segregated accounts to support the letters of credit issued thereunder, which will affect the amount of cash we have available for other uses. At

October 31, 2018

and

October 31, 2017,

the amount of cash collateral in these segregated accounts was

$12.7

million and

$1.7

million, respectively, which is reflected in “Restricted cash and cash equivalents” on the Consolidated Balance Sheets.

XML

Note 10 - Operating and Reporting Segments

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

10.

Operating and Reporting Segments

HEI’s operating segments are components of the Company’s business for which discrete financial information is available and reviewed regularly by the chief operating decision maker, our Chief Executive Officer, to evaluate performance and make operating decisions. Based on this criteria, each of the Company's communities qualifies as an operating segment, and therefore, it is impractical to provide segment disclosures for this many segments. As such, HEI has aggregated the homebuilding operating segments into

six

reportable segments.

HEI’s homebuilding operating segments are aggregated into reportable segments based primarily upon geographic proximity, similar regulatory environments, land acquisition characteristics and similar methods used to construct and sell homes. HEI’s reportable segments consist of the following

six

homebuilding segments and a financial services segment noted below.

Homebuilding:

( 1 )	Northeast (New Jersey and Pennsylvania)
( 2 )	Mid-Atlantic (Delaware, Maryland, Virginia, Washington D.C. and West Virginia)
( 3 )	Midwest (Illinois and Ohio)
( 4 )	Southeast (Florida, Georgia and South Carolina)
( 5 )	Southwest (Arizona and Texas)
( 6 )	West (California)

Financial Services

Operations of the Homebuilding segments primarily include the sale and construction of single-family attached and detached homes, attached townhomes and condominiums, urban infill and active lifestyle homes in planned residential developments. In addition, from time to time, operations of the homebuilding segments include sales of land. Operations of the Financial Services segment include mortgage banking and title services provided to the homebuilding operations’ customers. Our financial services subsidiaries do

not

typically retain or service mortgages that we originate but rather sell the mortgages and related servicing rights to investors. 

Corporate and unallocated primarily represents operations at our headquarters in New Jersey. This includes our executive offices, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, construction services, and administration of insurance, quality and safety. It also includes interest income and interest expense resulting from interest incurred that cannot be capitalized in inventory in the Homebuilding segments, as well as the gains or losses on extinguishment of debt from any debt repurchases or exchanges.  

Evaluation of segment performance is based primarily on operating earnings from continuing operations before provision for income taxes (“Income (loss) before income taxes”). Income (loss) before income taxes for the Homebuilding segments consist of revenues generated from the sales of homes and land, income (loss) from unconsolidated entities, management fees and other income, less the cost of homes and land sold, selling, general and administrative expenses and interest expense. Income (loss) before income taxes for the Financial Services segment consist of revenues generated from mortgage financing, title insurance and closing services, less the cost of such services and selling, general and administrative expenses incurred by the Financial Services segment. 

Operational results of each segment are

not

necessarily indicative of the results that would have occurred had the segment been an independent stand-alone entity during the periods presented.  

Financial information relating to HEI’s segment operations was as follows:

	Year Ended October 31,
(In thousands)	2018		2017		2016
Revenues:
Northeast	$116,296		$209,509		$278,028
Mid-Atlantic	354,690		464,126		458,579
Midwest	196,599		199,770		311,322
Southeast	241,620		260,402		260,584
Southwest	638,282		827,503		1,028,529
West	384,627		430,546		342,447
Total homebuilding	1,932,114		2,391,856		2,679,489
Financial services	53,355		58,743		72,617
Corporate and unallocated	5,764		1,066		141
Total revenues	$1,991,233		$2,451,665		$2,752,247
Income (loss) before income taxes:
Northeast	$20,869		$2,300		$(3,869	)
Mid-Atlantic	18,757		17,191		17,476
Midwest	1,528		(1,151	)	(11,416	)
Southeast	(9,914	)	(6,199	)	(17,791	)
Southwest	49,852		71,540		84,424
West	47,987		19,636		3,445
Total homebuilding	129,079		103,317		72,269
Financial services	18,227		26,397		35,473
Corporate and unallocated (1)	(139,160	)	(174,958	)	(105,306	)
Income (loss) before income taxes	$8,146		$(45,244	)	$2,436

(

1

) Corporate and unallocated for the year ended

October 31, 2018

included corporate general and administrative costs of $

69.6

million, interest expense of $

76.2

million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of $

7.5

million, and $

14.1

million of other income and expenses primarily related to interest income and gain

on the sale of our former corporate headquarters building, along with the adjustment to our insurance reserves

.

Corporate and unallocated for the year ended

October 31, 2017

included corporate general and administrative costs of

$59.4

million, interest expense of

$69.1

million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of

$34.9

million,

$12.5

million adjustment for construction defect reserves (discussed in Note

16

) and

$0.9

million of other income and expenses primarily related to interest income, rental income, bond amortization and stock compensation.

Corporate and unallocated for the year ended

October 31, 2016

included corporate general and administrative costs of

$60.1

million, interest expense of

$50.4

million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of

$3.2

million, $(

9.2

) million adjustment for construction defect reserves (discussed in Note

16

) and

$0.8

million of other income and expenses primarily related to bond amortization, stock compensation and rental income.

	October 31,
(In thousands)	2018	2017
Assets:
Northeast	$152,607	$180,545
Mid-Atlantic	217,807	224,398
Midwest	85,398	84,960
Southeast	246,497	231,644
Southwest	320,452	294,337
West	244,886	175,347
Total homebuilding	1,267,647	1,191,231
Financial services	164,880	162,113
Corporate and unallocated	229,515	547,554
Total assets	$1,662,042	$1,900,898

	October 31,
(In thousands)	2018	2017
Investments in and advances to unconsolidated joint ventures:
Northeast	$51,094	$36,411
Mid-Atlantic	7,307	20,873
Midwest	3,738	4,268
Southeast	39,509	36,320
Southwest	18,219	11,832
West	2,445	4,451
Total homebuilding	122,312	114,155
Corporate and unallocated	1,382	935
Total investments in and advances to unconsolidated joint ventures	$123,694	$115,090

	Year Ended October 31,
(In thousands)	2018	2017		2016
Homebuilding interest expense:
Northeast	$11,811	$20,308		$19,417
Mid-Atlantic	15,051	23,886		23,662
Midwest	5,874	7,799		12,275
Southeast	14,934	13,646		16,770
Southwest	21,820	25,278		37,552
West	18,309	25,799		23,295
Total homebuilding	87,799	116,716		132,971
Corporate and unallocated	76,183	69,124		50,387
Financial services interest expense (1)	104	(630	)	(763	)
Total interest expense, net	$164,086	$185,210		$182,595

( 1 ) Financial services interest expenses are included in the Financial services lines on the Consolidated Statements of Operations in the respective revenues and expenses sections.

	Year Ended October 31,
(In thousands)	2018	2017	2016
Depreciation:
Northeast	$135	$71	$62
Mid-Atlantic	63	50	56
Midwest	1,106	858	497
Southeast	124	83	82
Southwest	70	78	104
West	45	94	92
Total homebuilding	1,543	1,234	893
Financial services	14	16	41
Corporate and unallocated	1,599	2,999	2,631
Total depreciation	$3,156	$4,249	$3,565

	Year Ended October 31,
(In thousands)	2018	2017	2016
Net additions to operating properties and equipment:
Northeast	$142	$442	$78
Mid-Atlantic	318	71	208
Midwest	621	3,773	3,180
Southeast	701	28	233
Southwest	23	18	199
West	55	80	91
Total homebuilding	1,860	4,412	3,989
Financial services	-	-	30
Corporate and unallocated	3,333	2,066	3,988
Total net additions to operating properties and equipment	$5,193	$6,478	$8,007

	Year Ended October 31,
(In thousands)	2018		2017		2016
Equity in earnings (losses) from unconsolidated joint ventures:
Northeast	$20,231		$(4,376	)	$(2,639	)
Mid-Atlantic	799		1,180		(27	)
Midwest	(775	)	(1,424	)	(1,304	)
Southeast	(2,032	)	837		(1,774	)
Southwest	5,165		(306	)	(64	)
West	645		(2,958	)	1,462
Total equity in earnings (losses) from unconsolidated joint ventures	$24,033		$(7,047	)	$(4,346	)

XML

Note 11 - Income Taxes

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

11.

Income Taxes

Income taxes payable (receivable), including deferred benefits, consists of the following:

	Year Ended October 31,
(In thousands)	2018	2017
State income taxes:
Current	$3,334	$2,227
Deferred	-	-
Federal income taxes:
Current	-	-
Deferred	-	-
Total	$3,334	$2,227

The provision for income taxes is composed of the following charges (benefits):

	Year Ended October 31,
(In thousands)	2018	2017	2016
Current income tax expense (benefit):
Federal (1)	$-	$-	$(2,796	)
State (2)	3,626	1,371	1,200
Total current income tax expense (benefit):	3,626	1,371	(1,596	)
Federal	-	275,688	5,594
State	-	9,890	1,257
Total deferred income tax expense (benefit):	-	285,578	6,851
Total	$3,626	$286,949	$5,255

( 1 ) The current federal income tax expense did not include the use of federal net operating losses for the year s ended October 31, 2018 and 2017. The current federal income tax benefit is net of the use of federal net operating losses totaling $4.4 million for the year ended October  31,   2016 .

( 2 ) The current state income tax expense (benefit) is net of the use of state net operating losses totaling $4.4 million, $18.2 million and $16.4 million for the years ended October  31,   2018,   2017 and 2016, respectively.

The total income tax expense of

$3.6

million for the period ending

October 31, 2018

was primarily related to state tax expense from income generated that was

not

offset by tax benefits in states where we fully reserve the tax benefit from net operating losses. The total income tax expense of

$286.9

million for the period ended

October 31, 2017

was primarily due to increasing our valuation allowance to fully reserve against our deferred tax assets (“DTAs”). In addition, the same periods were also impacted by state tax expense from income generated in some states, which was

not

offset by tax benefits in other states that had losses for which we fully reserve the net operating losses. The total income tax expense of

$5.3

million for the period ended

October 31, 2016

was primarily due to current state taxes and permanent differences related to stock compensation, partially offset by a federal tax benefit related to receiving a specified liability loss refund of taxes paid in fiscal year

2002

.

The permanent difference in fiscal

2016

related to stock compensation arose because for tax purposes, the amount of stock compensation the Company expenses is the amount reported on an associate’s W-

2

when the equity award is exercised or received, whereas for accounting purposes, the amount the Company expenses is based on the fair value of the equity award on the date of grant. The amount was significant because of the issuance in fiscal

2016

of stock to Company executives in respect of awards that had been granted over

ten

years ago at significantly higher stock prices and thus significantly higher fair values as compared to the time of issuance to the executive. As a result, at the time the stock awards were issued in fiscal

2016,

a significant permanent difference between book and tax was created impacting the effective tax rate for

2016.

The federal specified liability loss refund of taxes in fiscal year

2002

was due to an amendment of a prior year’s tax return. The Internal Revenue Service issued the refund following the Company’s application therefore during the year ended

October 31, 2016.

The refund related to the portion of the fiscal year

2012

NOL attributable to a specified liability loss which, pursuant to Internal Revenue Code Section

172

(b)(

1

)(C), can be carried back

ten

years to

October 31, 2002.

A specified liability is any amount allowable as a deduction attributable to a product liability or expense incurred in investigation or settlement of claims because of a product liability. The refund was received in

February 2016

and therefore the tax credit was recorded in the

second

quarter of fiscal

2016.

Our federal net operating losses of

$1.6

billion expire between

2028

and

2037,

and

$16.4

million have an indefinite carryforward period. Our state NOLs of

$2.5

billion expire between

2019

and

2038,

and some have an indefinite carryforward period. Of the total state amount

$145.3

million will expire between

2019

through

2023;

$691.2

million will expire between

2024

through

2028;

$1.3

billion will expire between

2029

through

2033;

$320.0

 million will expire between

2034

through

2038;

and

$43.3

 million have an indefinite carryforward period

.

On

December 22, 2017,

the President of the United States signed into law the Tax Cuts and Jobs Act of

2017

(the “Act”). Effective

January 1, 2018,

the comprehensive U.S. tax reform package, among other things, lowered the corporate tax rate from

35%

to

21%.

Under the accounting rules, companies are required to recognize the effects of changes in tax laws and tax rates on deferred tax assets and liabilities in the period in which the new legislation is enacted. The effects of the Act on the Company include

one

major category which is the remeasurement of deferred taxes. Consequently, we have recorded a decrease related to deferred tax assets and liabilities of

$298.5

million and

$12.2

million, respectively, with a corresponding net adjustment to the valuation allowance in fiscal 

2018,

and there was

no

income tax expense or benefit as a result of the tax law changes. The Act contained additional changes that will impact our taxable income determinations, including, but

not

limited to elimination of the corporate alternative minimum tax and limitations on the deductibility of certain executive compensation. Although these provisions are

not

applicable until our fiscal year

2019,

we anticipated limitations on the deductibility of executive compensation in our fiscal year

2018.

We will continue to evaluate the impact of the tax reform as additional regulatory guidance is obtained. The ultimate impact of tax reform

may

differ from our interpretations and assumptions due to additional regulatory guidance that

may

be issued. As of

October 31, 2018,

we have completed our analysis of the impacts of the Act under SAB

118

with immaterial differences to our provisional amounts previously recorded.

Deferred federal and state income tax assets (“DTAs”) primarily represent the deferred tax benefits arising from NOL carryforwards and temporary differences between book and tax income which will be recognized in future years as an offset against future taxable income. If the combination of future years’ income (or loss) and the reversal of the timing differences results in a loss, such losses can be carried forward to future years. In accordance with ASC

740,

we evaluate our DTAs quarterly to determine if valuation allowances are required. ASC

740

requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than

not”

standard.  

As of

October 31, 2018

,

we considered all available positive and negative evidence to determine whether, based on the weight of that evidence, our valuation allowance for our DTAs was appropriate in accordance with ASC

740

.

Listed below, in order of the weighting of each factor, is the available positive and negative evidence that we considered in determining that it is more likely than

not

that all of our DTAs will

not

be realized. In analyzing these factors, overall the negative evidence, both objective and subjective, outweighed the positive evidence. Based on this analysis, we determined that the current valuation allowance for deferred taxes of

$638.2

million as of

October 31, 2018,

which fully reserves for our DTAs, is appropriate.

1. Fiscal 2017 financial results, especially the $50.2 million pre-tax loss in the third quarter of 2017 primarily from the $42.3 million loss on extinguishment of debt during the quarter, that put us in a cumulative three -year pretax loss position as of July 31, 2017. We are still in a cumulative three -year US GAAP pretax loss position as of October 31, 2018. Per ASC 740, cumulative losses are one of the most objectively verifiable forms of negative evidence. (Negative Objective Evidence)

2. In the third quarter of fiscal 2017 and second  and third quarters of fiscal 2018, we completed debt refinancing/restructuring transactions which, by extending our debt maturities, will enable us to allocate cash to invest in new communities and grow our community count to get back to sustained profitability. (Positive Objective Evidence)

3. Recent financial results of $48.1 million pre-tax income in the fourth quarter of 2018 and $8.1 million pre-tax income for the twelve months ending October 31, 2018. ( Positive Objective Evidence)

4. Our net contracts per community declined in the fourth quarter of fiscal 2018 compared to the fourth quarter of 2017, consistent with data for the overall housing market. This recent slow down may be the beginning of a cyclical housing downturn or may just be temporary because of recent increases in mortgage rates. (Negative Objective Evidence)

5. The refinancing in the third quarter of fiscal 2017 discussed in item 2 above will increase our interest incurred in fiscal 2018  and future years (based on our longer term modeling) by $23.4 million per year. (Negative Objective Evidence)

6. We incurred pre-tax losses during the housing market decline and the slower than expected housing market recovery. (Negative Objective Evidence)

7. We exited two geographic markets in fiscal 2016  and completed the wind down of operations in two  other markets in fiscal 2018, that have historically had losses. By exiting these underperforming markets, the Company will be able to redeploy capital to better performing markets, which over time should improve our profitability. (Positive Subjective Evidence)

8. The historical cyclicality of the U.S. housing market, a more restrictive mortgage lending environment compared to before the housing downturn, the uncertainty of the overall US economy and government policies and consumer confidence, all or any of which could continue to hamper a faster, stronger recovery of the housing market. (Negative Subjective Evidence)

The deferred tax assets and liabilities have been recognized in the Consolidated Balance Sheets as follows:

	Year Ended October 31,
(In thousands)	2018		2017
Deferred tax assets:
Inventory impairment loss	$60,854		$122,584
Uniform capitalization of overhead	4,183		5,766
Warranty and legal reserves	4,774		8,763
Acquisition intangibles	1,185		4,420
Restricted stock bonus	1,344		4,202
Stock options	4,358		6,539
Provision for losses	18,044		38,831
Joint venture loss	3,384		12,028
Federal net operating losses	334,971		549,862
State net operating losses	191,064		172,307
Other	14,030		23,366
Total deferred tax assets	638,191		948,668
Deferred tax liabilities:
Debt repurchase income	-		30,465
Total deferred tax liabilities	-		30,465
Valuation allowance	(638,191	)	(918,203	)
Net deferred income taxes	$-		$-

The effective tax rate varied from the statutory federal income tax rate. The effective tax rate is affected by a number of factors, the most significant of which has been the valuation allowance related to our deferred tax assets. Due to the effects of these factors, our effective tax rates for

2018,

2017

and

2016

are

not

correlated to the amount of our income or loss before income taxes. The sources of these factors were as follows:

	Year Ended October 31,
	2018			2017			2016
Computed “expected” tax rate		21.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		17.2			1.0			65.4
Permanent differences, net		74.0			(2.4	)		222.2
Deferred tax asset valuation allowance impact		(70.8	)		(667.8	)		-
Tax contingencies		1.0			-			0.3
Adjustments to prior years’ tax accruals(1)		2.1			-			(107.2	)
Effective tax rate		44.5	%		(634.2	)%		215.7	%

( 1 ) For the year ended October 31, 2017, the adjustments to prior years’ tax accruals includes the impact of a federal specified liability loss refund of taxes paid in fiscal year 2002 of ( 114.8% ).

ASC

740

-

10

provides that a tax benefit from an uncertain tax position

may

be recognized when it is more likely than

not

that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

Income tax positions must meet a more-likely-than-

not

recognition threshold at the effective date to be recognized upon the adoption of ASC

740

-

10

and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

We recognize tax liabilities in accordance with ASC

740

-

10

and we adjust these liabilities when our judgment changes as a result of the evaluation of new information

not

previously available. Due to the complexity of some of these uncertainties, the ultimate resolution

may

result in a liability that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.

We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Statements of Operations. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheets. 

The following is a tabular reconciliation of the total amount of unrecognized tax benefits for the year (in millions) excluding interest and penalties:

	Year Ended October 31,
		2018		2017
Unrecognized tax benefit—November 1,		$1.1		$1.1
Gross increases—tax positions in current period		0.3		0.2
Lapse of statute of limitations		(0.2	)	(0.2	)
Unrecognized tax benefit—October 31,		$1.2		$1.1

Related to the unrecognized tax benefits noted above, as of both

October 

31,

2018

and

2017,

we have recognized a liability for interest and penalties of 

$0.3

million. For the years ended

October 

31,

2018,

2017

and

2016,

we recognized $(

41

) thousand, $(

45

) thousand and $(

2

) thousand respectively, of interest and penalties in income tax benefit.

It is likely that, within the next year, the amount of the Company's unrecognized tax benefits will decrease by

$0.2

million, excluding penalties and interest. This reduction is expected primarily due to the expiration of the statutes of limitation. The portion of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate (excluding any related impact to the valuation allowance) is

$1.2

million and

$1.1

million for the years ended

October 31, 2018

and

2017

.

The recognition of unrecognized tax benefits could have an impact on the Company’s deferred tax assets and the valuation allowance.

The consolidated federal tax returns have been audited through

October 31, 2017

and these years are closed. We are also subject to various income tax examinations in the states in which we do business. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit, appeal, and in some cases, litigation process. As each audit is concluded, adjustments, if any, are appropriately recorded in the period determined. To provide for potential exposures, tax reserves are recorded, if applicable, based on reasonable estimates of potential audit results. However, if the reserves are insufficient upon completion of an audit, there could be an adverse impact on our financial position and results of operations. The statute of limitations for our major tax jurisdictions remains open for examination for tax years

2014

through

2017

.

 

XML

Note 12 - Reduction of Inventory to Fair Value

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Inventory Impairments and Land Option Cost Write-offs [Text Block]

12.

  Reduction of Inventory to Fair Value

We record impairment losses on inventories related to communities under development and held for future development when events and circumstances indicate that they

may

be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. If the expected undiscounted cash flows are less than the carrying amount, then the community is written down to its fair value. We estimate the fair value of each impaired community by determining the present value of the estimated future cash flows at a discount rate commensurate with the risk of the respective community. For the years ended

October 31, 2018,

2017

and

2016,

our discount rates used for the impairments recorded ranged from

16.8%

to

19.8%,

18.3%

to

19.8%

and

16.8%

to

18.8%,

respectively. Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we

may

need to recognize additional impairments. 

During the years ended

October 31, 2018

and

2017,

we evaluated inventories of all

391

and

372

communities under development and held for future development or sale, respectively, for impairment indicators through preparation and review of detailed budgets or other market indicators of impairment. We performed detailed impairment calculations during the years ended

October 31, 2018

and

2017

for

five

and

12

of those communities (i.e., those with a projected operating loss or other impairment indicators), respectively, with an aggregate carrying value of

$11.2

million and

$98.0

million, respectively. As impairment indicators are assessed on a quarterly basis, some of the communities evaluated during the years ended

October 31, 2018

and

2017

were evaluated in more than

one

quarterly period. As a result of our impairment analysis, we recorded aggregate impairment losses, which are included in the Consolidated Statement of Operations on the line entitled “Homebuilding: Inventory impairment loss and land option write-offs” and deducted from inventory, of

$2.1

million,

$15.1

million and

$24.5

million for the years ended

October 31, 2018,

2017

and

2016,

respectively. The pre-impairment value represents the carrying value, net of prior period impairments, if any, at the time of recording the impairment. Of those communities tested for impairment during the year ended

October 31, 2018,

all

five

communities were impaired, which resulted in recording aggregate impairment losses of

$2.1

million. Of those communities tested for impairment during the year ended

October 31, 2017,

two

communities with an aggregate carrying value of

$45.0

million had undiscounted future cash flows that exceeded the carrying amount by less than

20%.

The following table represents impairments by segment for fiscal

2018,

2017

and

2016:

(Dollars in millions)	Year Ended October 31, 2018
	Number of Communities	Dollar Amount of Impairment	Pre- Impairment Value (1)
Northeast	1	$0.4	$1.0
Mid-Atlantic	-	-	-
Midwest	1	0.1	0.5
Southeast	3	1.6	9.7
Southwest	-	-	-
West	-	-	-
Total	5	$2.1	$11.2

(Dollars in millions)	Year Ended October 31, 2017
	Number of Communities	Dollar Amount of Impairment	Pre- Impairment Value (1)
Northeast	2	$3.3	$22.2
Mid-Atlantic	1	1.5	8.5
Midwest	2	0.2	0.8
Southeast	3	8.1	18.3
Southwest	-	-	-
West	2	2.0	3.1
Total	10	$15.1	$52.9

(Dollars in millions)	Year Ended October 31, 2016
	Number of Communities	Dollar Amount of Impairment	Pre- Impairment Value (1)
Northeast	5	$9.5	$33.8
Mid-Atlantic	-	-	-
Midwest	12	13.5	43.7
Southeast	3	1.5	10.9
Southwest	-	-	-
West	-	-	-
Total	20	$24.5	$88.4

( 1 ) Represents carrying value, net of prior period impairments, if any, at the time of recording the applicable period’s impairments.

The Consolidated Statements of Operations line entitled “Homebuilding: Inventory impairment loss and land option write-offs” also includes write-offs of options and approval, engineering and capitalized interest costs that we record when we redesign communities and/or abandon certain engineering costs and we do

not

exercise options in various locations because the communities’ pro forma profitability is

not

projected to produce adequate returns on investment commensurate with the risk. The total aggregate write-offs related to these items were

$1.4

million,

$2.7

million and

$8.9

million for the years ended

October 

31,

2018,

2017

and

2016,

respectively. Occasionally, these write-offs are offset by recovered deposits (sometimes through legal action) that had been written off in a prior period as walk-away costs. Historically, these recoveries have

not

been significant in comparison to the total costs written off.

The following table represents write-offs of such costs by segment for fiscal

2018,

2017

and

2016:

	Year Ended October 31,
(In millions)	2018	2017	2016
Northeast	$0.6	$0.5	$1.6
Mid-Atlantic	0.2	0.6	0.8
Midwest	0.1	0.3	1.3
Southeast	-	0.8	1.8
Southwest	0.2	0.4	3.2
West	0.3	0.1	0.2
Total	$1.4	$2.7	$8.9

XML

Note 13 - Per Share Calculations

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

13.

Per Share Calculations

Basic earnings per share is computed by dividing net income (loss) (the “numerator”) by the weighted-average number of common shares outstanding, adjusted for nonvested shares of restricted stock (the “denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of options and nonvested shares of restricted stock, and common shares issuable upon exchange of our Senior Exchangeable Notes issued as part of our

6.0%

Exchangeable Note Units (which matured and were fully paid in

December 2017). 

Any options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation.   

All outstanding nonvested shares that contain nonforfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in computing earnings per share pursuant to the

two

-class method. The

two

-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings in periods when we have net income. The Company’s restricted common stock (“nonvested shares”) are considered participating securities.

Basic and diluted earnings per share for the periods presented below were calculated as follows:

	Year Ended October 31,
(In thousands, except per share data)	2018		2017		2016
Numerator:
Net earnings (loss) attributable to Hovnanian	$4,520		$(332,193	)	$(2,819	)
Less: undistributed earnings allocated to nonvested shares	(159	)	-		-
Numerator for basic earnings per share	$4,361		$(332,193	)	$(2,819	)
Plus: undistributed earnings allocated to nonvested shares	159		-		-
Less: undistributed earnings reallocated to nonvested shares	(159	)	-		-
Numerator for diluted earnings per share	$4,361		$(332,193	)	$(2,819	)
Denominator:
Denominator for basic earnings per share	148,515		147,703		147,451
Effect of dilutive securities:
Share-based payments	3,271		-		-
Denominator for diluted earnings per share – weighted-average shares outstanding	151,786		147,703		147,451
Basic earnings (loss) per share	$0.03		$(2.25	)	$(0.02	)
Diluted earnings (loss) per share	$0.03		$(2.25	)	$(0.02	)

Incremental shares attributed to nonvested stock and outstanding options to purchase common stock of

2.7

million and

4.4

million for the years ended

October 31, 2017

and

2016

respectively, were excluded from the computation of diluted earnings per share because we had a net loss for the period, and any incremental shares would

not

be dilutive. For the year ended 

October 31, 2018,

0.8

million shares of common stock issuable upon the exchange of our senior exchangeable notes (which were issued in fiscal

2012

), were excluded from the computation of diluted earnings per share because they were anti-dilutive. Also, for the years ended

October 31, 2017

and

2016,

10.0

million and

14.6

million shares, respectively, of common stock issuable upon the exchange of our senior exchangeable notes were excluded from the computation of diluted earnings per share because we had a net loss for the period.

In addition, shares related to out-of-the money stock options that could potentially dilute basic earnings per share in the future that were

not

included in the computation of diluted earnings per share were

5.4

million,

4.6

million and

7.3

million for the years ended

October 31, 2018,

2017

and

2016,

respectively, because to do so would have been anti-dilutive for the periods presented.

XML

Note 14 - Capital Stock

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

14.

Capital Stock

Common Stock -

Each share of Class A Common Stock entitles its holder to

one

vote per share, and each share of Class B Common Stock generally entitles its holder to

ten

votes per share. The amount of any regular cash dividend payable on a share of Class A Common Stock will be an amount equal to

110%

of the corresponding regular cash dividend payable on a share of Class B Common Stock. If a shareholder desires to sell shares of Class B Common Stock, such stock must be converted into shares of Class A Common Stock at a

one

to

one

conversion rate.

On

August 

4,

2008,

our Board of Directors adopted a shareholder rights plan (the “Rights Plan”), which was amended on

January 11, 2018,

designed to preserve shareholder value and the value of certain tax assets primarily associated with net operating loss (NOL) carryforwards and built-in losses under Section 

382

of the Internal Revenue Code. Our ability to use NOLs and built-in losses would be limited if there was an “ownership change” under Section 

382.

This would occur if shareholders owning (or deemed under Section 

382

to own)

5%

or more of our stock increase their collective ownership of the aggregate amount of our outstanding shares by more than

50

 percentage points over a defined period of time. The Rights Plan was adopted to reduce the likelihood of an “ownership change” occurring as defined by Section 

382.

Under the Rights Plan,

one

right was distributed for each share of Class A Common Stock and Class B Common Stock outstanding as of the close of business on

August 

15,

2008.

Effective

August 

15,

2008,

if any person or group acquires

4.9%

or more of the outstanding shares of Class A Common Stock without the approval of the Board of Directors, there would be a triggering event causing significant dilution in the voting power of such person or group. However, existing stockholders who owned, at the time of the Rights Plan’s initial adoption on

August 4, 2008,

4.9%

or more of the outstanding shares of Class A Common Stock will trigger a dilutive event only if they acquire additional shares. The approval of the Board of Directors’ decision to adopt the Rights Plan

may

be terminated by the Board of Directors at any time, prior to the Rights being triggered. The Rights Plan will continue in effect until

August 

14,

2021,

unless it expires earlier in accordance with its terms. The approval of the Board of Directors’ decision to initially adopt the Rights Plan was approved by shareholders at a special meeting of stockholders held on

December 

5,

2008

and the amendment to the Rights Plan adopted by the Board on

January 11, 2018

was approved by shareholders at the Company's annual meeting of shareholders held on

March 13, 2018.

Also at the special meeting on

December 

5,

2008,

our stockholders approved an amendment to our Certificate of Incorporation to restrict certain transfers of Class A Common Stock in order to preserve the tax treatment of our NOLs and built-in losses under Section 

382

of the Internal Revenue Code. Subject to certain exceptions pertaining to pre-existing

5%

stockholders and Class B stockholders, the transfer restrictions in our Restated Certificate of Incorporation generally restrict any direct or indirect transfer (such as transfers of our stock that result from the transfer of interests in other entities that own our stock) if the effect would be to (i) increase the direct or indirect ownership of our stock by any person (or public group) from less than

5%

to

5%

or more of our common stock; (ii) increase the percentage of our common stock owned directly or indirectly by a person (or public group) owning or deemed to own

5%

or more of our common stock; or (iii) create a new “public group” (as defined in the applicable United States Treasury regulations). Transfers included under the transfer restrictions include sales to persons (or public groups) whose resulting percentage ownership (direct or indirect) of common stock would exceed the

5%

thresholds discussed above, or to persons whose direct or indirect ownership of common stock would by attribution cause another person (or public group) to exceed such threshold.

On

July 3, 2001,

our Board of Directors authorized a stock repurchase program to purchase up to

4

million shares of Class A Common Stock. There were

no

shares purchased during year ended

October 31, 2018. 

As of

October 31, 2018,

the maximum number of shares of Class A Common Stock that

may

yet be purchased under this program is

0.5

million.

Preferred Stock -

On

July 

12,

2005,

we issued

5,600

shares of

7.625%

Series A Preferred Stock, with a liquidation preference of

$25,000

per share. Dividends on the Series A Preferred Stock are

not

cumulative and are payable at an annual rate of

7.625%.

The Series A Preferred Stock is

not

convertible into the Company’s common stock and is redeemable in whole or in part at our option at the liquidation preference of the shares. The Series A Preferred Stock is traded as depositary shares, with each depositary share representing

1/1000th

 of a share of Series A Preferred Stock. The depositary shares are listed on the NASDAQ Global Market under the symbol “HOVNP.” In fiscal

2018,

2017

and

2016,

we did

not

pay any dividends on the Series A Preferred Stock due to covenant restrictions in our debt instruments. We anticipate that we will continue to be restricted from paying dividends, which are

not

cumulative, for the foreseeable future.

Retirement Plan

- We have established a tax-qualified, defined contribution savings and investment retirement plan (a

401

(k) plan). All associates are eligible to participate in the retirement plan, and employer contributions are based on a percentage of associate contributions and our operating results. Plan costs charged to operations were

$7.0

million,

$6.8

million and

$6.6

million for the years ended

October 31, 2018,

2017

and

2016,

respectively.

XML

Note 15 - Stock Plans

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

15.

Stock Plans 

The fair value of option awards is established at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the years ended

October 

31,

2018,

2017

and

2016:

risk free interest rate of 

2.8%,

2.05%

and

1.38%,

respectively; dividend yield of zero; historical volatility factor of the expected market price of our common stock of 

0.50,

0.53

and

0.61,

respectively; a weighted-average expected life of the option of

8.0

years,

7.64

years and

7.36

years, respectively; and an estimated forfeiture rate of

9.90%,

9.92%

and

10.90%,

respectively. 

For the years ended

October 31, 2018,

2017

and

2016,

total stock-based compensation expense was

$3.7

million (

$2.0

million post tax),

$0.6

million and

$2.9

million (

$2.3

million post tax), respectively. Included in this total stock-based compensation expense was expense from stock options of

$0.7

million and

$0.5

million for the years ended

October 31, 2018

and

2017,

respectively, and income for stock options of

$1.5

million for the year ended

October 

31,

2016.

 The fiscal

2017

expense includes income of

$2.0

million from previously recognized expense of certain performance based restricted stock grants for which the performance metrics are

no

longer expected to be satisfied. This income was offset by the vesting of restricted stock of

$2.1

million during the year ended

October 31, 2017.

The fiscal

2016

expense included income of

$2.1

million from previously recognized expense of certain performance based restricted stock grants for which the performance metrics are

no

longer expected to be satisfied. This income was offset by the vesting of stock options of

$0.5

million during the year ended

October 31, 2016.

We have a stock incentive plan for certain officers and key employees and directors. Options are granted by a committee appointed by the Board of Directors or its delegate in accordance with the stock incentive plan. The exercise price of all stock options must be at least equal to the fair market value of the underlying shares on the date of the grant. Stock options granted to officers and associates generally vest in

four

equal installments on the second, third,

fourth

and

fifth

anniversaries of the date of the grant. All options expire

10

years after the date of the grant. At the time of our annual stock grant in the

second

quarter of fiscal

2018,

 each of the

five

of our existing non-employee directors of the Company were given the choice to receive stock options or a reduced number of shares of restricted stock units subject to a

two

-year post-vesting holding period, or a combination thereof, with restricted stock units based on the fair market value on the date of grant and stock options based on grant date Black-Scholes value. All such directors elected to receive restricted stock units. Additionally, our new non-employee director was granted restricted stock units during fiscal

2018.

Non-employee directors’ stock options and restricted stock units vest in

three

equal installments on the first,

second

and

third

anniversaries of the date of the grant. Stock option transactions are summarized as follows:

	October 31, 2018		Weighted-Average Exercise Price		October 31, 2017		Weighted-Average Exercise Price		October 31, 2016		Weighted-Average Exercise Price
Options outstanding at beginning of period		6,860,701	$	3.40		7,373,951	$	4.03		6,393,876	$	4.78
Granted		945,625	$	2.25		236,250	$	2.34		1,148,481	$	1.95
Exercised		30,250	$	2.00		48,250	$	2.07		-	$	-
Forfeited		50,000	$	2.57		452,375	$	5.85		51,125	$	2.73
Expired		761,750	$	6.28		248,875	$	16.68		117,281	$	25.05
Options outstanding at end of period		6,964,326	$	2.95		6,860,701	$	3.40		7,373,951	$	4.03
Options exercisable at end of period		4,793,490				5,259,011				5,071,181

The total intrinsic value of options exercised during fiscal

2018

and

2017

was

$26

thousand and

$12

thousand, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. At

October 31, 2016,

there were

no

options exercisable which had an intrinsic value. Exercise prices for options outstanding at

October 

31,

2018

ranged from

$1.54

to

$6.28.

The weighted-average fair value of grants made in fiscal

2018,

2017

and

2016

was

$1.08,

$1.33

and

$1.00

per share, respectively. Based on the fair value at the time they were granted, the weighted-average fair value of options vested in fiscal

2018,

2017

and

2016

was

$2.78,

$2.60

and

$2.55

per share, respectively.

The following table summarizes the exercise price range and related number of options outstanding at

October 

31,

2018:

			Number		Weighted- Average		Weighted- Average Remaining Contractual
Range of Exercise Prices			Outstanding		Exercise Price		Life
$1.54	–	$2.41		2,645,784	$	2.00		6.32
$2.42	–	$4.41		3,004,042	$	2.77		3.57
$4.42	–	$6.28		1,314,500	$	5.27		2.66
				6,964,326	$	2.95		4.44

The following table summarizes the exercise price range and related number of exercisable options at

October 

31,

2018:

			Number		Weighted- Average		Weighted- Average Remaining Contractual
Range of Exercise Prices			Exercisable		Exercise Price		Life
$1.54	–	$2.41		1,108,534	$	1.97		3.65
$2.42	–	$4.41		2,370,456	$	2.81		2.09
$4.42	–	$6.28		1,314,500	$	5.27		2.66
				4,793,490	$	3.29		2.61

Officers and key associates who are eligible to receive equity grants

may

elect to receive either a stated number of stock options, or a reduced number of shares of restricted stock units, or a combination thereof. Shares underlying restricted stock units granted to officers and associates generally vest in

four

equal installments on the second, third,

fourth

and

fifth

anniversaries of the grant date. Participants aged

60

years or older, or aged

58

with

15

 years of service, are eligible to vest in their equity awards on an accelerated basis on their retirement (which in the case of the restricted stock units only applies to a retirement that is at least

one

year after the date of grant). During the years ended

October 

31,

2018,

2017

and

2016,

we granted

507,278

(including

397,590

units to certain of our non-employee directors),

366,513

(including

298,388

units to certain of our non-employee directors) and

456,070

(including

356,382

units to certain of our non-employee directors) restricted stock units, respectively, and also issued

148,424,

101,218

and

176,944

units, relating to awards granted in prior fiscal years, respectively. During the years ended

October 

31,

2017

and

2016,

452,500

and

33,125

restricted stock units were forfeited, respectively.

For the years ended

October 

31,

2018,

2017

and

2016

total compensation cost recognized in the Consolidated Statement of Operations for the annual restricted stock unit grants, market share unit grants (discussed below), and the stock portion of the long-term incentive plan (also discussed below) was

$2.8

million,

$21

thousand and

$4.3

million, respectively. In addition to nonvested share awards summarized in the following table, there were

540,229,

312,419

and

224,326

vested share awards at

October 31, 2018,

2017

and

2016,

respectively, which were deferred at the participants' election.

A summary of the Company’s nonvested share awards as of and for the year ended

October 

31,

2018,

is as follows:

	Shares		Weighted-Average Grant Date Fair Value
Nonvested at beginning of period		6,174,477	$	2.36
Granted		2,129,073	$	2.55
Vested		705,144	$	2.31
Forfeited		2,423,148	$	1.98
Nonvested at end of period		5,175,258	$	2.62

Included in the above table are awards for the share portion of long-term incentive plans (“LTIPs”) for certain officers and associates, which are performance based plans. This includes

0.3

 million

2016

LTIP shares which were granted during fiscal

2016

and based on performance outcomes between

2016

and

2018

were reduced from

2.4

million shares during fiscal

2018.

This also includes

0.8

million target

2018

LTIP shares which were granted during fiscal year

2018.

 

Also included in the table above are

3.0

million target Market Share Units (“MSUs”) of which

850,000

were granted to certain officers in both fiscal

2018

and fiscal

2017.

In addition,

675,000,

400,000

and

200,000

MSUs are included from the fiscal

2016,

fiscal

2015

and fiscal

2014

MSU grants, of which the

2015

and

2014

grants were adjusted by

104,377

and

200,000,

respectively, in fiscal

2018,

as certain performance conditions at the

second

and

third

measurement periods were

not

met and only a portion of the shares were vested, resulting in the reversal of

$0.8

million of expense during the period. Additionally,

58,733

from the

2016

MSUs  and

96,925

from the

2015

MSUs net shares were issued during fiscal

2018.

Fifty

percent of the MSUs will vest in

four

equal annual installments, commencing on the

second

anniversary of the grant date subject to stock price performance conditions, pursuant to which the actual number of shares issuable with respect to vested MSUs

may

range from

0%

to

200%

of the target number of shares covered by the MSU awards, generally depending on the growth in the

60

-day average trading price of the Company’s shares during the period between the grant date and the relevant vesting dates. The remaining

fifty

percent of the MSUs are also subject to financial performance conditions in addition to the stock price performance conditions applicable to all MSUs. These additional performance-based MSUs vest in

four

equal installments with the

first

installment vesting on

January 1

st

,

three

years after the MSU grant date (for example,

January 1, 2021

for the

2018

MSU grant) and the remaining annual installments commencing on the

third

anniversary of the grant date, except that

no

portion of the award will vest unless the Committee determines that the Company achieved (

1

) for the

2018

MSU grants, specified community count improvement (as to

25%

of the MSU amount) and pre-tax profit (as to

25%

of the MSU amount) goals comparing the fiscal year of the grant date and the

second

fiscal year following the grant date (fiscal

2020

compared to fiscal

2018

), (

2

) for the

2017

and

2016

MSU grants, specified gross margin improvement (as to

25%

of the MSU amount) and debt reduction (as to

25%

of the MSU amount) goals comparing the fiscal year of the grant date and the

second

fiscal year following the grant date (fiscal

2019

compared to fiscal

2017

).

The fair value of the MSU grants is determined using the Monte-Carlo simulation model, which simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. This model uses the average closing trading price of the Company’s Class A Common Stock on the New York Stock Exchange over the

60

calendar day period ending on the grant date. This model also incorporates the following ranges of assumptions:

● The expected volatility is based on our stock’s historical volatility commensurate with the life 2 years, 2.6 years, 3 years, 4 years and 5 years.

● The risk-free interest rate is based on the U.S. Treasury rate assumption ranging from 2 - 5 years.

● The expected dividend yield is not applicable since we do not currently pay dividends.

The following assumptions were used for

2018

MSU grants: historical volatility factor of the expected market price of our common stock of 

48.41%,

51.92%,

56.11%,

52.59%

and

49.57%

for the

2

year,

2.6

year,

3

year,

4

year and

5

year vesting tranches, respectively; the concluded risk free rate assumptions of 

2.56%

and

2.68%

equals the continuously compounded

2.56

year and

4

year yield, respectively and dividend yield of

zero

for all time periods. The following assumptions were used for

2017

MSU grants: historical volatility factor of the expected market price of our common stock of 

57.93%,

54.61%,

52.66%,

48.85%

and

50.78%

for the

2

year,

2.6

year,

3

year,

4

year and

5

year vesting tranches, respectively; risk free interest rates of 

1.35%,

1.43%,

1.49%,

1.63%

and

1.76%

for each vesting tranche, respectively; and dividend yield of

zero

for all time periods. The following assumptions were used for

2016

MSU Grants: historical volatility factor of the expected market price of our common stock of 

56.50%,

52.77%,

50.34%,

52.36%

and

61.08%

for the

2

year,

2.5

year,

3

year,

4

year and

5

year vesting tranches, respectively; risk free interest rates of 

0.73%,

0.81%,

0.87%,

1.02%

and

1.17%

for each vesting tranche, respectively; and dividend yield of

zero

for all time periods.

Based on the terms of our equity compensation plans, awards that are forfeited become available to us for future grants under the plan. As of

October 

31,

2018,

we had

5.0

 million shares authorized and remaining (inclusive of the

2.1

million shares forfeited as of

October 

31,

2018

) for future issuance under our equity compensation plans. In addition, as of

October 

31,

2018,

there were

$5.1

million of total unrecognized compensation costs related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of

1.5

years. 

XML

Note 16 - Warranty Costs

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Product Warranty Disclosure [Text Block]

16.

Warranty Costs

General liability insurance for homebuilding companies and their suppliers and subcontractors is very difficult to obtain. The availability of general liability insurance is limited due to a decreased number of insurance companies willing to underwrite for the industry. In addition, those few insurers willing to underwrite liability insurance have significantly increased the premium costs. To date, we have been able to obtain general liability insurance but at higher premium costs with higher deductibles. Our subcontractors and suppliers have advised us that they have also had difficulty obtaining insurance that also provides us coverage. As a result, we have an owner controlled insurance program for certain of our subcontractors whereby the subcontractors pay us an insurance premium (through a reduction of amounts we would otherwise owe such subcontractors for their work on our homes) based on the risk type of the trade. We absorb the liability associated with their work on our homes as part of our overall general liability insurance at

no

additional cost to us because our existing general liability and construction defect insurance policy and related reserves for amounts under our deductible covers construction defects regardless of whether we or our subcontractors are responsible for the defect. For the fiscal years ended

October 31, 2018

and

2017,

we received

$4.6

million and

$4.1

million, respectively, from subcontractors related to the owner controlled insurance program, which we accounted for as reductions to inventory.

We accrue for warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. This accrual is expensed as selling, general and administrative costs. For homes delivered in fiscal

2018

and

2017,

our deductible under our general liability insurance is a

$20

million aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal

2018

and

2017

is

$0.25

million, up to a

$5

million limit. Our aggregate retention for construction defect, warranty and bodily injury claims is

$20

million for fiscal

2018

and 

$21

million for fiscal

2017.

In addition, we establish a warranty accrual for lower cost-related issues to cover home repairs, community amenities and land development infrastructure that are

not

covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and title and possession have been transferred to the homebuyer. Additions and charges in the warranty reserve and general liability reserve for the fiscal years ended

October 31, 2018

and

2017

were as follows:

	Year Ended October 31,
(In thousands)	2018		2017
Balance, beginning of period	$127,702		$121,144
Additions – Selling, general and administrative	9,024		10,870
Additions – Cost of sales	17,180		15,835
Charges incurred during the period	(43,462	)	(28,019	)
Changes to pre-existing reserves	(15,380	)	7,872
Balance, end of period	$95,064		$127,702

Warranty accruals are based upon historical experience. We engage a

third

-party actuary that uses our historical warranty and construction defect data to assist our management in estimating our unpaid claims, claim adjustment expenses and incurred but

not

reported claims reserves for the risks that we are assuming under the general liability and construction defect programs. The estimates include provisions for inflation, claims handling and legal fees. The charges incurred during fiscal

2018

are higher than those for fiscal

2017

 due to the payment for construction defect reserves related to the settlement of a litigation matter in the

second

quarter of fiscal

2018.

Also, as a result of reductions in our construction defect claims in recent years and the impact of these reductions on the actuarial analysis on our total reserves, we recorded a

$10.2

million reduction in our construction defect reserves during the

fourth

quarter of fiscal

2018.

These reductions are reflected in the changes to pre-existing reserves in the table above. During the

fourth

quarter of fiscal

2017,

we recorded a

$12.5

million adjustment to increase our construction defect reserves related to litigation. We also recorded a

$4.6

million reduction in our warranty accruals during the

fourth

quarter of fiscal

2017.

Insurance claims paid by our insurance carriers, excluding insurance deductibles paid, were

$0.2

million and

$0.9

million for the fiscal years ended

October 31, 2018

and

2017,

respectively, for prior year deliveries.

XML

Note 17 - Transactions With Related Parties

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

17.

Transactions with Related Parties

During the years ended

October 31, 2018,

2017

and

2016,

an engineering firm owned by Tavit Najarian, a relative of Ara K. Hovnanian, our Chairman of the Board and

one

of our executive officers, provided services to the Company totaling

$0.7

million,

$0.8

million and

$1.0

million, respectively. Neither the Company nor Mr. Hovnanian has a financial interest in the relative’s company from whom the services were provided.

Mr. Carson Sorsby, the son of J. Larry Sorsby,

one

of our directors and executive officers, is employed by the Company’s mortgage subsidiary. His total commissions from the Company’s mortgage affiliate totaled approximately 

$148,000,

$191,000

and

$152,000

in fiscal

2018,

2017

and

2016,

respectively.

Mr. Alexander Hovnanian, the son of Ara K. Hovnanian, our Chairman of the Board and

one

of our executive officers, is employed by the Company. Mr. Hovnanian was an Area Vice President in the Company’s Hudson/North Jersey Area during fiscal

2018

and was promoted to Division President of the Northeast Division in fiscal

2019.

His total compensation was approximately

$514,000,

$336,000

 and

$166,000

in fiscal

2018,

2017

and

2016,

respectively.

XML

Note 18 - Commitments and Contingent Liabilities

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

18.

Commitments and Contingent Liabilities

We are involved in litigation arising in the ordinary course of business,

none

of which is expected to have a material adverse effect on our financial position, results of operations or cash flows, and we are subject to extensive and complex laws and regulations that affect the development of land and home building, sales and customer financing processes, including zoning, density, building standards and mortgage financing. These laws and regulations often provide broad discretion to the administering governmental authorities. This can delay or increase the cost of development or homebuilding. The significant majority of our litigation matters are related to construction defect claims. Our estimated losses from construction defect litigation matters, if any, are included in our construction defect reserves as discussed in Note

16.

We also are subject to a variety of local, state, federal and foreign laws and regulations concerning protection of health and the environment, including those regulating the emission or discharge of materials into the environment, the management of storm water runoff at construction sites, the handling, use, storage and disposal of hazardous substances, impacts to wetlands and other sensitive environments, and the remediation of contamination at properties that we have owned or developed or currently own or are developing (“environmental laws”). The particular environmental laws that apply to a site

may

vary greatly according to the community site, for example, due to the community, the environmental conditions at or near the site, and the present and former uses of the site. These environmental laws

may

result in delays,

may

cause us to incur substantial compliance, remediation and/or other costs, and can prohibit or severely restrict development and homebuilding activity. In addition, noncompliance with these laws and regulations could result in fines and penalties, obligations to remediate, permit revocations or other sanctions; and contamination or other environmental conditions at or in the vicinity of our developments

may

result in claims against us for personal injury, property damage or other losses.

We anticipate that increasingly stringent requirements will be imposed on developers and homebuilders in the future. For example, for a number of years, the EPA and U.S. Army Corps of Engineers have been engaged in rulemakings to clarify the scope of federally regulated wetlands, which included a

June 2015

rule many affected businesses contend impermissibly expanded the scope of such wetlands that was challenged in court, stayed, and remains in litigation. A proposal was made in

June 2017

to formally rescind the

June 2015

rule and reinstate the rule scheme previously in place while the agencies initiate a new substantive rulemaking on the issue. A

February 2018

rule delays the effective date of the

June 2015

rule until

February 2020,

but was enjoined nationwide in

August 2018

by a federal district court in South Carolina in response to a lawsuit by a coalition of environmental advocacy groups (the result of which, according to the EPA, is that the

June 2015

rule applies in

22

states, the District of Columbia, and the United States territories, and that the pre-

June 2015

regime applies in the rest). The district court’s

August 2018

decision is being appealed, and the EPA and U.S. Army Corps of Engineers are seeking a stay of the decision. It is unclear how these and related developments, including at the state or local level, ultimately

may

affect the scope of regulated wetlands where we operate. Although we cannot reliably predict the extent of any effect these developments regarding wetlands, or any other requirements that

may

take effect

may

have on us, they could result in time-consuming and expensive compliance programs and in substantial expenditures, which could cause delays and increase our cost of operations. In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained is dependent upon many factors, some of which are beyond our control, such as changes in policies, rules and regulations and their interpretations and application.

In

March 2013,

we received a letter from the Environmental Protection Agency (“EPA”) requesting information about our involvement in a housing redevelopment project in Newark, New Jersey that a Company entity undertook during the

1990s.

We understand that the development is in the vicinity of a former lead smelter and that tests on soil samples from properties within the development conducted by the EPA showed elevated levels of lead. We also understand that the smelter ceased operations many years before the Company entity involved acquired the properties in the area and carried out the re-development project. We responded to the EPA’s request. In

August 

2013,

we were notified that the EPA considers us a potentially responsible party (or “PRP”) with respect to the site, that the EPA will clean up the site, and that the EPA is proposing that we fund and/or contribute towards the cleanup of the contamination at the site. We began preliminary discussions with the EPA concerning a possible resolution but do

not

know the scope or extent of the Company’s obligations, if any, that

may

arise from the site and therefore cannot provide any assurance that this matter will

not

have a material impact on the Company. The EPA requested additional information in

April 2014

and again in

March 2017

and the Company responded to the information requests. On

May 2, 2018

the EPA sent a letter to the Company entity demanding reimbursement for

100%

of the EPA’s costs to clean-up the site in the amount of

$2.7

million. The Company responded to the EPA’s demand letter on

June 15, 2018

setting forth the Company’s defenses and expressing its willingness to enter into settlement negotiations. We believe that we have adequate reserves for this matter.

The Grandview at Riverwalk Port Imperial Condominium Association, Inc. (the “Grandview Plaintiff”) filed a construction defect lawsuit against Hovnanian Enterprises, Inc. and several of its affiliates, including K. Hovnanian at Port Imperial Urban Renewal II, LLC, K. Hovnanian Construction Management, Inc., K. Hovnanian Companies, LLC, K. Hovnanian Enterprises, Inc., K. Hovnanian North East, Inc. aka and/or dba K. Hovnanian Companies North East, Inc., K. Hovnanian Construction II, Inc., K. Hovnanian Cooperative, Inc., K. Hovnanian Developments of New Jersey, Inc., and K. Hovnanian Holdings NJ, LLC, as well as the project architect, the geotechnical engineers and various construction contractors for the project alleging various construction defects, design defects and geotechnical issues totaling approximately

$41.3

million. The lawsuit included claims against the geotechnical engineers for differential soil settlement under the building, against the architects for failing to design the correct type of structure allowable under the New Jersey Building Code, and against the Hovnanian-affiliated developer entity (K. Hovnanian at Port Imperial Urban Renewal II, LLC ) alleging that it: (

1

) had knowledge of and failed to disclose the improper building classification to unit purchasers and was therefore liable for treble damages under the New Jersey Consumer Fraud Act; and (

2

) breached an express warranty set forth in the Public Offering Statements that the common elements at the building were fit for their intended purpose. The Grandview Plaintiff further alleged that Hovnanian Enterprises, Inc., K. Hovnanian Holdings NJ, LLC, K. Hovnanian Developments of New Jersey, Inc., and K. Hovnanian Developments of New Jersey II, Inc. were jointly liable for any damages owed by the Hovnanian development entity under a veil piercing theory.

After the parties reached a pre-trial settlement on the construction defect issues, trial commenced on

April 17, 2017

in Hudson County, New Jersey. The Hovnanian-affiliated defendants resolved the geotechnical claims mid-trial for an amount immaterial to the Company, but the balance of the case continued to be tried before the jury. On

June 1, 2017,

the jury rendered a verdict against K. Hovnanian at Port Imperial Urban Renewal II, LLC on the breach of warranty and New Jersey Consumer Fraud claims in the total amount of

$3

million, which resulted in a total verdict of

$9

million against that entity due to statutory trebling, plus a portion of Grandview Plaintiff’s attorneys’ fees and costs. The Court subsequently awarded

$1.4

million in attorneys’ fees and costs. The jury also found in favor of Grandview Plaintiff on its veil piercing theory. After the Court denied the Hovnanian-affiliated defendants’ filed post-trial motions, including a motion for contractual indemnification against the project architect, the Court entered final judgment in the amount of approximately

$10.4

million on

January 12, 2018. 

On

January 24, 2018, 

the relevant Hovnanian-affiliated defendants appealed all aspects of the verdict against them. On

February 16, 2018,

the Court entered an order staying execution of the judgment provided that the Hovnanian-affiliated defendants post a bond in the amount of approximately

$11.1

million. On

March 9, 2018,

the Hovnanian-affiliated defendants filed the Court-approved bond. On

July 30, 2018,

during the pendency of the appeal, the Hovnanian-affiliated defendants settled the Grandview Plaintiff's claims for an amount less than the bond, which amount was paid on

September 12, 2018. 

As part of the settlement, all appeals were dismissed other than the appeal of the Court’s denial of the Hovnanian-affiliated defendant’s contractual indemnification claim against the project architect.

In

2015,

the condominium association of the Four Seasons at Great Notch condominium community (the “Great Notch Plaintiff”) filed a lawsuit in the Superior Court of New Jersey, Law Division, Passaic County (the “Court”) alleging various construction defects, design defects, and geotechnical issues relating to the community. The operative complaint (“Complaint”) asserts claims against Hovnanian Enterprises, Inc. and several of its affiliates, including K. Hovnanian at Great Notch, LLC, K. Hovnanian Construction Management, Inc., and K. Hovnanian Companies, LLC. The Complaint also asserts claims against various other design professionals and contractors. The Great Notch Plaintiff has also filed a motion, which remains pending, to permit it to pursue a claim to pierce the corporate veil of K. Hovnanian at Great Notch, LLC to hold its alleged parent entities liable for any damages awarded against it. To date, the Hovnanian-affiliated defendants have reached a partial settlement with the Great Notch Plaintiff as to a portion of the Great Notch Plaintiff’s claims against them for an amount immaterial to the Company. On its remaining claims against the Hovnanian-affiliated defendants, the Great Notch Plaintiff recently asserted damages of approximately

$119.5

million, which amount is potentially subject to treble damages pursuant to the Great Notch Plaintiff’s claim under the New Jersey Consumer Fraud Act. On

August 17, 2018,

the Hovnanian-affiliated defendants filed a motion for summary judgment seeking dismissal of all of the Great Notch Plaintiff’s remaining claims against them, which remains pending. Trial is currently scheduled for

March 25, 2019.

Court ordered mediation sessions have been scheduled for

January 2019.

The Hovnanian-affiliated defendants intend to defend these claims vigorously.

XML

Note 19 - Variable Interest Entities

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Variable Interest Entity Disclosure [Text Block]

19.

Variable Interest Entities

The Company enters into land and lot option purchase contracts to procure land or lots for the construction of homes. Under these contracts, the Company will fund a stated deposit in consideration for the right, but

not

the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of the option purchase contracts, many of the option deposits are

not

refundable at the Company's discretion. Under the requirements of ASC 

810,

certain option purchase contracts

may

result in the creation of a variable interest in the entity (“VIE”) that owns the land parcel under option.

In compliance with ASC 

810,

the Company analyzes its option purchase contracts to determine whether the corresponding land sellers are VIEs and, if so, whether the Company is the primary beneficiary. Although the Company does

not

have legal title to the underlying land, ASC 

810

requires the Company to consolidate a VIE if the Company is determined to be the primary beneficiary. In determining whether it is the primary beneficiary, the Company considers, among other things, whether it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE. The Company also considers whether it has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. As a result of its analyses, the Company determined that as of

October 31, 2018

and

2017,

it was

not

the primary beneficiary of any VIEs from which it is purchasing land under option purchase contracts.

We will continue to secure land and lots using options, some of which are with VIEs. Including deposits on our unconsolidated VIEs, at

October 31, 2018,

we had total cash deposits amounting to

$59.0

million to purchase land and lots with a total purchase price of

$1.2

billion. The maximum exposure to loss with respect to our land and lot options is limited to the deposits plus any pre-development costs invested in the property, although some deposits are refundable at our request or refundable if certain conditions are

not

met.

XML

Note 20 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

20.

Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

We enter into homebuilding and land development joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile, leveraging our capital base and enhancing returns on capital. Our homebuilding joint ventures are generally entered into with

third

-party investors to develop land and construct homes that are sold directly to

third

-party home buyers. Our land development joint ventures include those entered into with developers and other homebuilders as well as financial investors to develop finished lots for sale to the joint venture’s members or other

third

parties.

During the

first

quarter of fiscal

2017,

we transferred

one

community we owned and our option to buy

three

communities to an existing joint venture, resulting in our receiving

$11.2

million of net cash. During the

first

quarter of fiscal

2018,

we acquired the remaining assets of

one

of our joint ventures, resulting in a

$13.0

 million reduction in our investment in the joint venture and a corresponding increase to inventory.

The tables set forth below summarize the combined financial information related to our unconsolidated homebuilding and land development joint ventures that are accounted for under the equity method.

	October 31, 2018
(Dollars in thousands)	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$50,010		$2,275		$52,285
Inventories	506,650		8,004		514,654
Other assets	35,105		-		35,105
Total assets	$591,765		$10,279		$602,044
Liabilities and equity:
Accounts payable and accrued liabilities	$79,108		$746		$79,854
Notes payable	236,665		-		236,665
Total liabilities	315,773		746		316,519
Equity of:
Hovnanian Enterprises, Inc.	114,950		4,369		119,319
Others	161,042		5,164		166,206
Total equity	275,992		9,533		285,525
Total liabilities and equity	$591,765		$10,279		$602,044
Debt to capitalization ratio	46	%	0	%	45	%

	October 31, 2017
(Dollars in thousands)	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$60,580		$194		$60,774
Inventories	666,017		9,162		675,179
Other assets	36,026		-		36,026
Total assets	$762,623		$9,356		$771,979
Liabilities and equity:
Accounts payable and accrued liabilities	$121,646		$429		$122,075
Notes payable	330,642		-		330,642
Total liabilities	452,288		429		452,717
Equity of:
Hovnanian Enterprises, Inc.	88,884		3,746		92,630
Others	221,451		5,181		226,632
Total equity	310,335		8,927		319,262
Total liabilities and equity	$762,623		$9,356		$771,979
Debt to capitalization ratio	52	%	0	%	51	%

As of

October 31, 2018

and

2017,

we had advances and a note receivable outstanding of

$4.6

million and

$22.4

million, respectively, to these unconsolidated joint ventures. These amounts were included in the “Accounts payable and accrued liabilities” balances in the tables above. On our Consolidated Balance Sheets, our “Investments in and advances to unconsolidated joint ventures” amounted to

$123.7

million and

$115.1

million at

October 31, 2018

and

2017,

respectively. In some cases our net investment in these joint ventures is less than our proportionate share of the equity reflected in the table above because of the differences between asset impairments recorded against our joint venture investments and any impairments recorded in the applicable joint venture. Impairments of joint venture investments are recorded at fair value while impairments recorded in the joint venture are recorded when undiscounted cash flows trigger the impairment. During the year ended

October 31, 2018,

we did

not

write-down any of our joint venture investments; however,

one

of our joint ventures in the Northeast and

one

of our joint ventures in the Mid-Atlantic recorded asset impairments. We recorded our proportionate share of these impairment charges of

$0.7

million and

$0.6

million, respectively, as part of our share of the net income(loss) of the ventures.

	For The Year Ended October 31, 2018
(Dollars in thousands)	Homebuilding		Land Development		Total
Revenues	$602,681		$6,418		$609,099
Cost of sales and expenses	(577,106	)	(5,173	)	(582,279	)
Joint venture net income	$25,575		$1,245		$26,820
Our share of net income	$23,904		$623		$24,527

	For The Year Ended October 31, 2017
(Dollars in thousands)	Homebuilding		Land Development		Total
Revenues	$312,164		$5,685		$317,849
Cost of sales and expenses	(324,514	)	(4,633	)	(329,147	)
Joint venture net (loss) income	$(12,350	)	$1,052		$(11,298	)
Our share of net (loss) income	$(7,189	)	$526		$(6,663	)

	For The Year Ended October 31, 2016
(Dollars in thousands)	Homebuilding		Land Development		Total
Revenues	$141,418		$6,299		$147,717
Cost of sales and expenses	(159,431	)	(6,103	)	(165,534	)
Joint venture net (loss) income	$(18,013	)	$196		$(17,817	)
Our share of net income	$(4,424	)	$98		$(4,326	)

“Income (loss) from unconsolidated joint ventures” is reflected as a separate line in the accompanying Consolidated Statements of Operations and reflects our proportionate share of the income or loss of these unconsolidated homebuilding and land development joint ventures. The difference between our share of the income or loss from these unconsolidated joint ventures in the tables above compared to the Consolidated Statements of Operations is due primarily to the reclassification of the intercompany portion of management fee income from certain joint ventures and the deferral of income for lots purchased by us from certain joint ventures. To compensate us for the administrative services we provide as the manager of certain joint ventures we receive a management fee based on a percentage of the applicable joint venture’s revenues. These management fees, which totaled

$21.1

million,

$11.3

million and

$5.8

million for the years ended

October 31, 2018,

2017

and

2016,

are recorded in “Homebuilding: Selling, general and administrative” on the Consolidated Statements of Operations.

In determining whether or

not

we must consolidate joint ventures that we manage, we assess whether the other partners have specific rights to overcome the presumption of control by us as the manager of the joint venture. In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the operations and capital decisions of the partnership, including budgets in the ordinary course of business.

Typically, our unconsolidated joint ventures obtain separate project specific mortgage financing. For some of our joint ventures, obtaining financing was challenging, therefore, some of our joint ventures are capitalized only with equity. The total debt to capitalization ratio of all our joint ventures is currently

45%.

 Any joint venture financing is on a nonrecourse basis, with guarantees from us limited only to performance and completion of development, environmental warranties and indemnification, standard indemnification for fraud, misrepresentation and other similar actions, including a voluntary bankruptcy filing. In some instances, the joint venture entity is considered a VIE under ASC

810

-

10

“Consolidation – Overall” due to the returns being capped to the equity holders; however, in these instances, we have determined that we are

not

the primary beneficiary, and therefore we do

not

consolidate these entities. 

XML

Note 21 - Fair Value of Financial Instruments

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

21.

Fair Value of Financial Instruments

ASC

820,

"Fair Value Measurements and Disclosures," provides a framework for measuring fair value, expands disclosures about fair-value measurements and establishes a fair-value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:

Level

1:

                      Fair value determined based on quoted prices in active markets for identical assets.

Level

2:

                      Fair value determined using significant other observable inputs.

Level

3:

                      Fair value determined using significant unobservable inputs.

Our financial instruments measured at fair value on a recurring basis are summarized below:

(In thousands)	Fair Value Hierarchy	Fair Value at October 31, 2018		Fair Value at October 31, 2017
Mortgage loans held for sale (1)	Level 2	$130,709		$132,424
Interest rate lock commitments	Level 2	(28	)	(14	)
Forward contracts	Level 2	13		15
Total		$130,694		$132,425

(

1

)  The aggregate unpaid principal balance was

$127.6

 million and

$128.4

million at

October 31, 2018

and

2017,

respectively.

We elected the fair value option for our loans held for sale for mortgage loans originated subsequent to

October 31, 2008,

in accordance with ASC

825,

“Financial Instruments,” which permits us to measure financial instruments at fair value on a contract-by-contract basis. Management believes that the election of the fair value option for loans held for sale improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions. Fair value of loans held for sale is based on independent quoted market prices, where available, or the prices for other mortgage loans with similar characteristics.

The Financial Services segment had a pipeline of loan applications in process of

$429.0

million at

October 31, 2018.

Loans in process for which interest rates were committed to the borrowers totaled

$41.5

million as of

October 31, 2018.

Substantially all of these commitments were for periods of

60

days or less. Since a portion of these commitments is expected to expire without being exercised by the borrowers, the total commitments do

not

necessarily represent future cash requirements.

The Financial Services segment uses investor commitments and forward sales of mandatory MBS to hedge its mortgage-related interest rate exposure. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering into MBS forward commitments, option contracts with investment banks, federally regulated bank affiliates and loan sales transactions with permanent investors meeting the segment’s credit standards. The segment’s risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments and option contracts. At

October 31, 2018,

the segment had open commitments amounting to

$26.5

million to sell MBS with varying settlement dates through

December 19, 2018.

The assets accounted for using the fair value option are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in the Consolidated Financial Statements in “Revenues: Financial services.” The fair values that are included in income are shown, by financial instrument and financial statement line item, below: 

	Year Ended October 31, 2018
(In thousands)	Mortgage Loans Held for Sale	Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$3,115	$(28	)	$13

	Year Ended October 31, 2017
(In thousands)	Mortgage Loans Held for Sale	Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$4,256	$(14	)	$15

	Year Ended October 31, 2016
(In thousands)	Mortgage Loans Held for Sale	Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$4,711	$(73	)	$(422	)

The Company's assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs during the fiscal years ended

October 31, 2018

and

2017.

 The assets measured at fair value on a nonrecurring basis are all within the Company's Homebuilding operations and are summarized below:

Nonfinancial Assets

	Year Ended
	October 31, 2018
(In thousands)	Fair Value Hierarchy	Pre- Impairment Amount	Total Losses		Fair Value
Sold and unsold homes and lots under development	Level 3	$11,170	$(2,117	)	$9,053
Land and land options held for future development or sale	Level 3	$-	$-		$-

	Year Ended
	October 31, 2017
(In thousands)	Fair Value Hierarchy	Pre- Impairment Amount	Total Losses		Fair Value
Sold and unsold homes and lots under development	Level 3	$30,022	$(11,658	)	$18,364
Land and land options held for future development or sale	Level 3	$22,850	$(3,403	)	$19,447

We record impairment losses on inventories related to communities under development and held for future development when events and circumstances indicate that they

may

be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. If the expected undiscounted cash flows are less than the carrying amount, then the community is written down to its fair value. We estimate the fair value of each impaired community by determining the present value of its estimated future cash flows at a discount rate commensurate with the risk of the respective community. Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we

may

be required to recognize additional impairments. We recorded inventory impairments, which are included in the Consolidated Statements of Operations as “Inventory impairment loss and land option write-offs” and deducted from inventory, of

$2.1

million,

$15.1

million and

$24.5

million for the years ended

October 31, 2018,

2017

and

2016,

respectively. See Note

12

for further detail of the communities evaluated for impairment.

The fair value of our cash equivalents, restricted cash and cash equivalents and customer’s deposits approximates their carrying amount, based on Level

1

inputs.

The fair value of each series of our Notes are listed below. Level

2

measurements are estimated based on recent trades or quoted market prices for the same issues or based on recent trades or quoted market prices for our debt of similar security and maturity to achieve comparable yields. Level

3

measurements are estimated based on

third

-party broker quotes or management’s estimate of the fair value based on available trades for similar debt instruments.

Fair Value as of

October 31, 2018

(In thousands)	Level 1	Level 2	Level 3	Total
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$-	$-	$74,250	$74,250
2.0% Senior Secured Notes due November 1, 2021	-	-	40,434	40,434
5.0% Senior Secured Notes due November 1, 2021	-	124,781	-	124,781
10.0% Senior Secured Notes due July 15, 2022	-	424,670	-	424,670
10.5% Senior Secured Notes due July 15, 2024	-	366,720	-	366,720
Senior Notes:
13.5% Senior Notes due February 1, 2026	-	88,148	-	88,148
5.0% Senior Notes due February 1, 2040	-	35,628	-	35,628
Total fair value	$-	$1,039,947	$114,684	$1,154,631

Fair Value as of

October 31, 2017

(In thousands)	Level 1	Level 2	Level 3	Total
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$-	$-	$75,750	$75,750
2.0% Senior Secured Notes due November 1, 2021	-	-	44,425	44,425
5.0% Senior Secured Notes due November 1, 2021	-	-	132,580	132,580
10.0% Senior Secured Notes due July 15, 2022	-	-	479,600	479,600
10.5% Senior Secured Notes due July 15, 2024	-	-	448,000	448,000
Senior Notes:
7.0% Senior Notes due January 15, 2019	-	131,221	-	$131,221
8.0% Senior Notes due November 1, 2019	-	252,478	-	252,478
11.0% Senior Amortizing Notes due December 1, 2017	-	-	2,055	2,055
Senior Exchangeable Notes due December 1, 2017	-	-	54,217	54,217
Total fair value	$-	$383,699	$1,236,627	$1,620,326

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Note 22 - Unaudited Summarized Consolidated Quarterly Information

12 Months Ended

Oct. 31, 2018

Notes to Financial Statements

Quarterly Financial Information [Text Block]

22.

Unaudited Summarized Consolidated Quarterly Information

Summarized quarterly financial information for the years ended

October 

31,

2018

and

2017

is as follows:

	Three Months Ended
(In thousands, except per share data)	October 31, 2018		July 31, 2018		April 30, 2018		January 31, 2018
Revenues	$614,811		$456,712		$502,544		$417,166
Expenses	581,680		463,004		509,352		442,047
Inventory impairment loss and land option write-offs	318		96		2,673		414
Loss on extinguishment of debt	(1,830	)	(4,266	)	(1,440	)	-
Income (loss) from unconsolidated joint ventures	17,134		10,732		1,343		(5,176	)
Income (loss) before income taxes	48,117		78		(9,578	)	(30,471	)
State and federal income tax provision	1,939		1,104		245		338
Net income (loss)	$46,178		$(1,026	)	$(9,823	)	$(30,809	)
Per share data:
Basic:
Net income (loss) per common share	$0.30		$(0.01	)	$(0.07	)	$(0.21	)
Weighted-average number of common shares outstanding	148,925		148,669		148,435		148,028
Assuming dilution:
Net income (loss) per common share	$0.29		$(0.01	)	$(0.07	)	$(0.21	)
Weighted-average number of common shares outstanding	151,929		148,669		148,435		148,028

	Three Months Ended
(In thousands, except per share data)	October 31, 2017	July 31, 2017		April 30, 2017		January 31, 2017
Revenues	$721,686	$592,035		$585,935		$552,009
Expenses	703,964	591,872		586,877		554,482
Inventory impairment loss and land option write-offs	8,479	4,197		1,953		3,184
(Loss) gain on extinguishment of debt	-	(42,258	)	(242	)	7,646
Income (loss) from unconsolidated joint ventures	3,062	(3,881	)	(4,562	)	(1,666	)
Income (loss) before income taxes	12,305	(50,173	)	(7,699	)	323
State and federal income tax provision (benefit)	464	287,036		(1,017	)	466
Net income (loss)	$11,841	$(337,209	)	$(6,682	)	$(143	)
Per share data:
Basic:
Net income (loss) per common share	$0.08	$(2.28	)	$(0.05	)	$(0.00	)
Weighted-average number of common shares outstanding	147,905	147,748		147,558		147,535
Assuming dilution:
Net Income (loss) per common share	$0.08	$(2.28	)	$(0.05	)	$(0.00	)
Weighted-average number of common shares outstanding	160,548	147,748		147,558		147,535

XML

Significant Accounting Policies (Policies)

12 Months Ended

Oct. 31, 2018

Accounting Policies [Abstract]

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

- The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and these differences could have a significant impact on the financial statements.

Revenue Recognition, Policy [Policy Text Block]

Income Recognition from Home and Land Sales

- We are primarily engaged in the development, construction, marketing and sale of residential single-family and multi-family homes where the planned construction cycle is less than

12

 months. For these homes, in accordance with Accounting Standards Codification (“ASC”)

360

-

20,

“Property, Plant and Equipment - Real Estate Sales,” revenue is recognized when title is conveyed to the buyer, adequate initial and continuing investments have been received and there is

no

continued involvement. In situations where the buyer’s financing is originated by our mortgage subsidiary and the buyer has

not

made an adequate initial investment or continuing investment as prescribed by ASC

360

-

20,

the profit on such sales is deferred until the sale of the related mortgage loan to a

third

-party investor has been completed.

Income Recognition from Mortgage Loans -

Our Financial Services segment originates mortgages, primarily for our homebuilding customers. We use mandatory investor commitments and forward sales of mortgage-backed securities (“MBS”) to hedge our mortgage-related interest rate exposure on agency and government loans.

We elected the fair value option for our mortgage loans held for sale in accordance with ASC

825,

“Financial Instruments,” which permits us to measure our loans held for sale at fair value. Management believes that the election of the fair value option for loans held for sale improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions.

Substantially all of the mortgage loans originated are sold within a short period of time in the secondary mortgage market on a servicing released, nonrecourse basis, although the Company remains liable for certain limited representations, such as fraud, and warranties related to loan sales. Mortgage investors could seek to have us buy back loans or compensate them from losses incurred on mortgages we have sold based on claims that we breached our limited representations and warranties. We have established reserves for probable losses. 

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

- Cash represents cash deposited in checking accounts. Cash equivalents include certificates of deposit, Treasury bills and government money–market funds with maturities of

90

days or less when purchased. Our cash balances are held at a few financial institutions and

may,

at times, exceed insurable amounts. We believe we help to mitigate this risk by depositing our cash in major financial institutions. At

October 31, 2018

and

2017,

$199.6

million and

$13.3

million, respectively, of the total cash and cash equivalents was in cash equivalents, the book value of which approximates fair value.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

- The fair value of financial instruments is determined by reference to various market data and other valuation techniques as appropriate. Our financial instruments consist of cash and cash equivalents, restricted cash and cash equivalents, receivables, deposits and notes, accounts payable and other liabilities, customer deposits, mortgage loans held for sale, nonrecourse mortgages, mortgage warehouse lines of credit, revolving credit facility, accrued interest, senior secured term loan and the senior secured notes, senior notes, senior amortizing notes and senior exchangeable notes. The fair value of the senior secured notes, senior notes, senior amortizing notes and senior exchangeable notes is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. The fair value of all of our other financial instruments approximates their carrying amounts.

Inventory, Policy [Policy Text Block]

Inventories

- Inventories consist of land, land development, home construction costs, capitalized interest, construction overhead and property taxes. Construction costs are accumulated during the period of construction and charged to cost of sales under specific identification methods. Land, land development and common facility costs are allocated based on buildable acres to product types within each community, then charged to cost of sales equally based upon the number of homes to be constructed in each product type.

We record inventories in our consolidated balance sheets at cost unless the inventory is determined to be impaired, in which case the inventory is written down to its fair value. Our inventories consist of the following

three

components: (

1

) sold and unsold homes and lots under development, which includes all construction, land, capitalized interest and land development costs related to started homes and land under development in our active communities; (

2

) land and land options held for future development or sale, which includes all costs related to land in our communities in planning or mothballed communities; and (

3

) consolidated inventory

not

owned, which includes all costs related to specific performance options, variable interest entities, and other options, which consists primarily of model homes financed with an investor and inventory related to land banking arrangements accounted for as financings.

We decide to mothball (or stop development on) certain communities when we determine that the current performance does

not

justify further investment at the time. When we decide to mothball a community, the inventory is reclassified on our Consolidated Balance Sheets from “Sold and unsold homes and lots under development” to “Land and land options held for future development or sale.” During fiscal

2018,

we did

not

mothball any communities, but we sold

two

previously mothballed communities and re-activated

two

previously mothballed communities. As of

October 31, 2018

and

2017,

the net book value associated with our

18

and

22

total mothballed communities was

$24.5

million and

$36.7

million, respectively, which was net of impairment charges recorded in prior periods of

$186.1

million and

$214.1

million, respectively.

From time to time we enter into option agreements that include specific performance requirements, whereby we are required to purchase a minimum number of lots. Because of our obligation to purchase these lots, for accounting purposes in accordance with Accounting Standards Codification (“ASC”)

360

-

20

-

40

-

38,

we are required to record this inventory on our Consolidated Balance Sheets. As of

October 31, 2018

and

2017,

we had

no

specific performance options.

We sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to a

third

party at the end of the respective lease. As a result of our continued involvement, for accounting purposes in accordance with ASC

360

-

20

-

40

-

38,

these sale and leaseback transactions are considered a financing rather than a sale. Therefore, for purposes of our Consolidated Balance Sheets, at

October 31, 2018

and

2017,

inventory of

$50.5

million and

$58.5

million, respectively, was recorded to “Consolidated inventory

not

owned,” with a corresponding amount of

$43.9

million and

$51.8

million, respectively, recorded to “Liabilities from inventory

not

owned” for the amount of net cash received from the transactions.

We have land banking arrangements, whereby we sell our land parcels to the land banker and they provide us an option to purchase back finished lots on a predetermined schedule. Because of our options to repurchase these parcels, for accounting purposes, in accordance with ASC

360

-

20

-

40

-

38,

these transactions are considered a financing rather than a sale. For purposes of our Consolidated Balance Sheets, at

October 31, 2018

and

2017,

inventory of

$37.4

million and

$66.3

million, respectively, was recorded to “Consolidated inventory

not

owned,” with a corresponding amount of

$19.5

million and

$39.3

million, respectively, recorded to “Liabilities from inventory

not

owned” for the amount of net cash received from the transactions.

The recoverability of inventories and other long-lived assets is assessed in accordance with the provisions of ASC

360

-

10,

“Property, Plant and Equipment – Overall.” ASC

360

-

10

requires long-lived assets, including inventories, held for development to be evaluated for impairment based on undiscounted future cash flows of the assets at the lowest level for which there are identifiable cash flows. As such, we evaluate inventories for impairment at the individual community level, the lowest level of discrete cash flows that we measure.

We evaluate inventories of communities under development and held for future development for impairment when indicators of potential impairment are present. Indicators of impairment include, but are

not

limited to, decreases in local housing market values, decreases in gross margins or sales absorption rates, decreases in net sales prices (base sales price net of sales incentives), or actual or projected operating or cash flow losses. The assessment of communities for indication of impairment is performed quarterly. As part of this process, we prepare detailed budgets for all of our communities at least semi-annually and identify those communities with a projected operating loss. For those communities with projected losses, we estimate the remaining undiscounted future cash flows and compare those to the carrying value of the community, to determine if the carrying value of the asset is recoverable.

The projected operating profits, losses or cash flows of each community can be significantly impacted by our estimates of the following:

● future base selling prices;

● future home sales incentives;

● future home construction and land development costs; and

● future sales absorption pace and cancellation rates.

These estimates are dependent upon specific market conditions for each community. While we consider available information to determine what we believe to be our best estimates as of the end of a quarterly reporting period, these estimates are subject to change in future reporting periods as facts and circumstances change. Local market-specific conditions that

may

impact our estimates for a community include:

● the intensity of competition within a market, including available home sales prices and home sales incentives offered by our competitors;

● the current sales absorption pace for both our communities and competitor communities;

● community-specific attributes, such as location, availability of lots in the market, desirability and uniqueness of our community, and the size and style of homes currently being offered;

● potential for alternative product offerings to respond to local market conditions;

● changes by management in the sales strategy of the community;

● current local market economic and demographic conditions and related trends and forecasts; and

● existing home inventory supplies, including foreclosures and short sales.

These and other local market-specific conditions that

may

be present are considered by management in preparing projection assumptions for each community. The sales objectives can differ between our communities, even within a given market. For example, facts and circumstances in a given community

may

lead us to price our homes with the objective of yielding a higher sales absorption pace, while facts and circumstances in another community

may

lead us to price our homes to minimize deterioration in our gross margins, although it

may

result in a slower sales absorption pace. In addition, the key assumptions included in our estimate of future undiscounted cash flows

may

be interrelated. For example, a decrease in estimated base sales price or an increase in homes sales incentives

may

result in a corresponding increase in sales absorption pace. Additionally, a decrease in the average sales price of homes to be sold and closed in future reporting periods for

one

community that has

not

been generating what management believes to be an adequate sales absorption pace

may

impact the estimated cash flow assumptions of a nearby community. Changes in our key assumptions, including estimated construction and development costs, absorption pace and selling strategies, could materially impact future cash flow and fair value estimates. Due to the number of possible scenarios that would result from various changes in these factors, we do

not

believe it is possible to develop a sensitivity analysis with a level of precision that would be meaningful to an investor.

If the undiscounted cash flows are more than the carrying value of the community, then the carrying amount is recoverable, and

no

impairment adjustment is required. However, if the undiscounted cash flows are less than the carrying amount, then the community is deemed impaired and is written down to its fair value. We determine the estimated fair value of each community by determining the present value of its estimated future cash flows at a discount rate commensurate with the risk of the respective community, or in limited circumstances, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale), and recent bona fide offers received from outside

third

parties. Our discount rates used for all impairments recorded from

October 31, 2016

to

October 31, 2018

ranged from

16.8%

to

19.8%.

The estimated future cash flow assumptions are virtually the same for both our recoverability and fair value assessments. Should the estimates or expectations used in determining estimated cash flows or fair value, including discount rates, decrease or differ from current estimates in the future, we

may

be required to recognize additional impairments related to current and future communities. The impairment of a community is allocated to each lot on a relative fair value basis.

From time to time, we write off deposits and approval, engineering and capitalized interest costs when we determine that it is

no

longer probable that we will exercise options to buy land in specific locations or when we redesign communities and/or abandon certain engineering costs. In deciding

not

to exercise a land option, we take into consideration changes in market conditions, the timing of required land takedowns, the willingness of land sellers to modify terms of the land option contract (including timing of land takedowns), and the availability and best use of our capital, among other factors. The write-off is recorded in the period it is deemed

not

probable that the optioned property will be acquired. In certain instances, we have been able to recover deposits and other pre-acquisition costs that were previously written off. These recoveries have

not

been significant in comparison to the total costs written off.

Inventories held for sale are land parcels ready for sale in their current condition, where we have decided

not

to build homes but are instead actively marketing for sale. These land parcels represented

$6.4

 million and

$23.6

million of our total inventories at

October 31, 2018

and

2017,

respectively, and are reported at the lower of carrying amount or fair value less costs to sell. In determining fair value for land held for sale, management considers, among other things, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale) and recent bona fide offers received from outside

third

parties.

Post-development Completion Warranty Costs and Insurance Deductible Reserves, Policy [Policy Text Block]

Post-Development Completion, Warranty Costs

and

Insurance Deductible Reserves

- In those instances where a development is substantially completed and sold and we have additional construction work to be incurred, an estimated liability is provided to cover the cost of such work. We accrue for warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. This accrual is expensed as selling, general and administrative costs. For homes delivered in fiscal

2018

and

2017,

our deductible under our general liability insurance is a

$20

million aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal

2018

and

2017

is

$0.25

million, up to a

$5

million limit. Our aggregate retention for construction defect, warranty and bodily injury claims is

$20

million for fiscal

2018

and

$21

million for fiscal

2017.

 We do

not

have a deductible on our worker's compensation insurance. Reserves for estimated losses for construction defects, warranty and bodily injury claims have been established using the assistance of a

third

-party actuary. We engage a

third

-party actuary that uses our historical warranty and construction defect data to assist our management in estimating our unpaid claims, claim adjustment expenses and incurred but

not

reported claims reserves for the risks that we are assuming under the general liability and construction defect programs. The estimates include provisions for inflation, claims handling and legal fees. These estimates are subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to our markets and the types of products we build, claim settlement patterns, insurance industry practices and legal interpretations, among others. Because of the high degree of judgment required in determining these estimated liability amounts, actual future costs could differ significantly from our currently estimated amounts. In addition, we establish a warranty accrual for lower cost-related issues to cover home repairs, community amenities and land development infrastructure that are

not

covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and title and possession have been transferred to the homebuyer. See Note

16

for additional information on the amount of warranty costs recognized in cost of goods sold and administrative expenses.

Inventory, Interest Capitalization Policy [Policy Text Block]

Interest

- Interest attributable to properties under development during the land development and home construction period is capitalized and expensed along with the associated cost of sales as the related inventories are sold. Interest incurred in excess of interest capitalized, which occurs when assets qualifying for interest capitalization are less than our outstanding debt balances, is expensed as incurred in “Other interest.”

Interest costs incurred, expensed and capitalized were:

	Year Ended
(In thousands)	October 31, 2018	October 31, 2017	October 31, 2016
Interest capitalized at beginning of year	$71,051	$96,688	$123,898
Plus interest incurred(1)	161,048	160,203	166,824
Less cost of sales interest expensed	60,685	88,536	92,391
Less other interest expensed(2)(3)	103,297	97,304	90,967
Less interest contributed to unconsolidated joint venture(4)	-	-	10,676
Interest capitalized at end of year(5)	$68,117	$71,051	$96,688

( 1 ) Data does not include interest incurred by our mortgage and finance subsidiaries.

( 2 ) Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $76.2 million, $69.1 million and $50.4 million for the years ended October 31, 2018, 2017 and 2016, respectively. Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization, and therefore, is expensed. This component of other interest was $27.1 million, $28.2 million and $40.6 million for the years ended October 31, 2018, 2017 and 2016.

( 3 ) Cash paid for interest, net of capitalized interest, is the sum of other interest expensed, as defined above, and interest paid by our mortgage and finance subsidiaries adjusted for the change in accrued interest on notes payable, which is calculated as follows:

	Year Ended
(In thousands)	October 31, 2018	October 31, 2017		October 31, 2016
Other interest expensed	$103,297	$97,304		$90,967
Interest paid by our mortgage and finance subsidiaries	2,478	1,944		2,866
Decrease (increase) in accrued interest	6,241	(9,412	)	7,963
Cash paid for interest, net of capitalized interest	$112,016	$89,836		$101,796

( 4 ) Represents capitalized interest which was included as part of the assets contributed to the joint venture the Company entered into in November 2015, as discussed in Note 20. There was no impact to the Consolidated Statement of Operations as a result of this transaction.

( 5 ) Capitalized interest amounts are shown gross before allocating any portion of impairments, if any, to capitalized interest.

Land under Option Arrangements, Policy [Policy Text Block]

Land Options -

Costs incurred to obtain options to acquire improved or unimproved home sites are capitalized. Such amounts are either included as part of the purchase price if the land is acquired or charged to “Inventory impairments loss and land option write-offs” if we determine we will

not

exercise the option. If the options are with variable interest entities and we are the primary beneficiary, we record the land under option on the Consolidated Balance Sheets under “Consolidated inventory

not

owned” with an offset under “Liabilities from inventory

not

owned.” If the option includes an obligation to purchase land under specific performance or has terms that require us to record it as financing, then we record the option on the Consolidated Balance Sheets under “Consolidated inventory

not

owned” with an offset under “Liabilities from inventory

not

owned.” In accordance with ASC

810

-

10

“Consolidation – Overall,” we record costs associated with other options on the Consolidated Balance Sheets under “Land and land options held for future development or sale.”

Equity Method Investments [Policy Text Block]

Unconsolidated Homebuilding and Land Development Joint Ventures -

Investments in unconsolidated homebuilding and land development joint ventures are accounted for under the equity method of accounting. Under the equity method, we recognize our proportionate share of earnings and losses earned by the joint venture upon the delivery of lots or homes to

third

parties. Our ownership interests in the joint ventures vary but our voting interests are generally

50%

or less. In determining whether or

not

we must consolidate joint ventures where we are the managing member of the joint venture, we assess whether the other partners have specific rights to overcome the presumption of control by us as the manager of the joint venture. In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the significant operating and capital decisions of the partnership, including budgets, in the ordinary course of business. The evaluation of whether or

not

we control a venture can require significant judgment. In accordance with ASC

323

-

10,

“Investments - Equity Method and Joint Ventures – Overall,” we assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment below its carrying amount is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint venture’s projected cash flows. This process requires significant management judgment and estimates. During fiscal

2017,

we wrote down certain joint venture investments by

$2.8

million. There were

no

write-downs in fiscal

2018

or

2016.

Deferred Charges, Policy [Policy Text Block]

Deferred Bond Issuance Costs -

Costs associated with borrowings under our revolving credit facility and senior secured term loan and the issuance of senior secured, senior, senior amortizing and senior exchangeable notes are capitalized and amortized over the term of each note’s issuance. The capitalization of the costs are recorded as a contra liability within our debt balances, except for the revolving credit facility costs, which are recorded as a prepaid asset.

Debt, Policy [Policy Text Block]

Debt Issued At a Discount -

Debt issued at a discount to the face amount is accreted up to its face amount utilizing the effective interest method over the term of the note and recorded as a component of interest on the Consolidated Statements of Operations.

Debt Issued At a Premium -

Debt issued at a premium to the face amount is accreted down to its face amount utilizing the effective interest method over the term of the note and recorded as a component of interest on the Consolidated Statements of Operations. 

Advertising Costs, Policy [Policy Text Block]

Advertising Costs

- Advertising costs are expensed as incurred. During the years ended

October 

31,

2018,

2017

and

2016,

advertising costs expensed totaled

$16.4

million,

$17.9

million and

$21.4

million, respectively.

Income Tax, Policy [Policy Text Block]

Deferred Income Taxes -

Deferred income taxes are provided for temporary differences between amounts recorded for financial reporting and for income tax purposes. If the combination of future years’ income (or loss) combined with the reversal of the timing differences results in a loss, such losses can be carried back to prior years or carried forward to future years to recover the deferred tax assets. In accordance with ASC

740

-

10,

“Income Taxes – Overall,” we evaluate our deferred tax assets quarterly to determine if valuation allowances are required. ASC

740

-

10

requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more-likely-than-

not”

standard.

In evaluating the exposures associated with our various tax filing positions, we recognize tax liabilities in accordance with ASC

740

-

10,

for more likely than

not

exposures. We re-evaluate the exposures associated with our tax positions on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity by taxing authorities, and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision. A number of years

may

elapse before a particular matter for which we have established a liability is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled, or the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Due to the complexity of some of these uncertainties, the ultimate resolution

may

result in a liability that is materially different from our current estimate. Any such changes will be reflected as increases or decreases to income tax expense in the period in which they are determined.

Prepaid Expenses, Policy [Policy Text Block]

Prepaid Expenses -

Prepaid expenses which relate to specific housing communities (model setup, architectural fees, homeowner warranty program fees, etc.) are amortized to cost of sales as the applicable inventories are sold. All other prepaid expenses are amortized over a specific time period or as used and charged to overhead expense.

Receivables, Trade and Other Accounts Receivable, Allowance for Doubtful Accounts, Policy [Policy Text Block]

Allowance for Doubtful Accounts

– We regularly review our receivable balances, which are included in Receivables, deposits and notes on the Consolidated Balance Sheets, for collectability and record an allowance against a receivable when it is deemed that collectability is uncertain. These receivables include receivables from our insurance carriers, receivables from municipalities related to the development of utilities or other infrastructure, and other miscellaneous receivables. The balance for allowance for doubtful accounts was

$11.4

million and

$7.3

million at

October 31, 2018

and

2017,

respectively, which primarily related to allowances for receivables from municipalities and an allowance for a receivable for a prior year land sale. During fiscal

2018

and

2017,

we recorded

$0.6

million and

$0.2

million, respectively, in recoveries. In addition, there were

$0.1

million and

$0.1

million of write-offs in fiscal

2018

and

2017,

respectively. During fiscal

2018,

we recorded

$4.8

million of additional reserves.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock Options -

We account for our stock options under ASC

718

-

10,

“Compensation - Stock Compensation – Overall,” which requires the fair-value based method of accounting for stock awards granted to employees and measures and records the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.

Compensation cost arising from nonvested stock granted to employees and from nonemployee stock awards is based on the fair value of the awards at the grant date recognized as expense using the straight-line method over the vesting period.

Earnings Per Share, Policy [Policy Text Block]

Per Share Calculations -

Basic earnings per share is computed by dividing net income (loss) (the “numerator”) by the weighted-average number of common shares outstanding, adjusted for nonvested shares of restricted stock (the “denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of options and nonvested shares of restricted stock, as well as common shares issuable upon exchange of our Senior Exchangeable Notes issued as part of our

6.0%

Exchangeable Note Units (which matured and were paid in full in fiscal

2018

). Any options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation.  

All outstanding nonvested shares that contain nonforfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in computing earnings per share pursuant to the

two

-class method. The

two

-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings in periods where we have net income. The Company’s restricted common stock (“nonvested shares”) are considered participating securities.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

 

In

May 2014,

the Financial Accounting Standards Board (“FASB”) issued ASU 

No.

2014

-

09,

“Revenue from Contracts with Customers” (Topic

606

), (“ASU

2014

-

09”

). ASU

2014

-

09

requires entities to recognize revenue that represents the transfer of promised goods or services to customers in an amount equivalent to the consideration to which the entity expects to be entitled to in exchange for those goods or services. The following steps should be applied to determine this amount: (

1

) identify the contract(s) with a customer; (

2

) identify the performance obligations in the contract; (

3

) determine the transaction price; (

4

) allocate the transaction price to the performance obligations in the contract; and (

5

) recognize revenue when (or as) the entity satisfies a performance obligation. ASU

2014

-

09

supersedes the revenue recognition requirements in ASC

605,

“Revenue Recognition,” and most industry-specific guidance in the Accounting Standards Codification. The FASB has also issued a number of updates to this standard. The standard is effective for us for annual and interim periods beginning

November 1, 2018,

and at that time, we expect to apply the modified retrospective method of adoption. We have substantially completed our evaluation of the impact of adopting ASU

2014

-

09.

Based on our assessment, we do

not

expect significant changes to our business processes, systems, or internal controls as a result of adopting the standard. We also do

not

expect the adoption of ASU

2014

-

09

to have a material impact on our financial statements. 

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

“Leases (Topic

842

)” (“ASU

2016

-

02”

), which provides guidance for accounting for leases. ASU

2016

-

02

requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than

12

months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight line basis over the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU

2016

-

02

is effective for the Company beginning

November 1, 2019.

Early adoption is permitted. In

July 2018,

the FASB issued ASU

No.

2018

-

10

“Codification Improvements to Topic

842,

Leases” (“ASU

2018

-

10”

) and ASU

No.

2018

-

11

“Leases (Topic

842

) Targeted Improvements” (“ASU

2018

-

11”

). ASU

2018

-

10

provides certain amendments that affect narrow aspects of the guidance issued in ASU

2016

-

02.

ASU

2018

-

11

allows all entities adopting ASU

2016

-

02

to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU

2018

-

11

also allows lessors to

not

separate nonlease components from the associated lease component if certain conditions are met. We are currently evaluating both the method and the impact of adopting this guidance on our Consolidated Financial Statements.

In

August 2016,

the FASB issued ASU

No.

2016

-

15,

“Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments” (“ASU

2016

-

15”

). ASU

2016

-

15

provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. We early adopted ASU

2016

-

15

effective

October 31, 2018

and there was

no

impact of adopting this guidance on our Consolidated Financial Statements.

In

November 2016,

the FASB issued ASU

No.

2016

-

18,

which amends the classification and presentation of changes in restricted cash or restricted cash equivalents in the statement of cash flows. We early adopted ASU

2016

-

18

effective

October 31, 2018.

See Note

1

for further information on the reclassification of prior period amounts.

In

October 2016,

the FASB issued ASU

No.

2016

-

16,

“Income Taxes (Topic

740

): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU

2016

-

16”

). ASU

2016

-

16

provides guidance for the accounting of income taxes related to intra-entity transfers of assets other than inventory. ASU

2016

-

16

is effective for the Company’s fiscal year beginning

November 1, 2018.

Early adoption is permitted. We do

not

expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

In

July 2018,

the FASB issued ASU

No.

2018

-

09,

“Codification Improvements” (“ASU

2018

-

09”

). ASU

2018

-

09

provides amendments to a wide variety of topics in the FASB’s Accounting Standards Codification, which applies to all reporting entities within the scope of the affected accounting guidance. The transition and effective date guidance are based on the facts and circumstances of each amendment. Some of the amendments in ASU

2018

-

09

do

not

require transition guidance and were effective upon issuance of ASU

2018

-

09.

However, many of the amendments do have transition guidance with effective dates for annual periods beginning after

December 15, 2018.

We are currently evaluating the potential impact of adopting the applicable guidance on our Consolidated Financial Statements.

In

August 2018,

the FASB issued

No.

ASU

2018

-

13,

“Fair Value Measurement (Topic

820

) - Disclosure Framework” (“ASU

2018

-

13”

), which improves the disclosure requirements for fair value measurements. ASU

2018

-

13

is effective for us beginning

November 

1,

2020.

Early adoption is permitted for any removed or modified disclosures. We are currently assessing the impact of adopting this guidance on our Consolidated Financial Statements.

In

August 2018,

the FASB issued

No.

ASU

2018

-

15

“Intangibles-Goodwill and Other-Internal-Use Software (Subtopic

350

-

40

): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract” (“ASU

2018

-

15”

). ASU

2018

-

15

aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU

2018

-

15

is effective for us beginning

November 1, 2020.

Early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements.

XML

Note 3 - Summary of Significant Accounting Policies (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Schedule of Real Estate Inventory, Capitalized Interest Costs [Table Text Block]

	Year Ended
(In thousands)	October 31, 2018	October 31, 2017	October 31, 2016
Interest capitalized at beginning of year	$71,051	$96,688	$123,898
Plus interest incurred(1)	161,048	160,203	166,824
Less cost of sales interest expensed	60,685	88,536	92,391
Less other interest expensed(2)(3)	103,297	97,304	90,967
Less interest contributed to unconsolidated joint venture(4)	-	-	10,676
Interest capitalized at end of year(5)	$68,117	$71,051	$96,688

Cash Paid for Interest Net of Capitalized Interest [Table Text Block]

	Year Ended
(In thousands)	October 31, 2018	October 31, 2017		October 31, 2016
Other interest expensed	$103,297	$97,304		$90,967
Interest paid by our mortgage and finance subsidiaries	2,478	1,944		2,866
Decrease (increase) in accrued interest	6,241	(9,412	)	7,963
Cash paid for interest, net of capitalized interest	$112,016	$89,836		$101,796

XML

Note 4 - Leases (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Years Ending October 31,	(In Thousands)
2019	$9,297
2020	6,388
2021	3,903
2022	2,946
2023	2,026
Thereafter	2,482
Total	$27,042

XML

Note 5 - Property, Plant and Equipment (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Property, Plant and Equipment [Table Text Block]

	October 31,
(In thousands)	2018	2017
Land and land improvements	$1,639	$2,625
Buildings	9,155	69,279
Building improvements	10,958	9,458
Furniture	5,305	5,571
Equipment, including capitalized software	33,015	35,328
Total	60,072	122,261
Less accumulated depreciation	39,787	69,342
Total	20,285	$52,919

XML

Note 7 - Mortgage Loans Held for Sale (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Allowance for Credit Losses on Financing Receivables [Table Text Block]

	Year Ended
	October 31,
(In thousands)	2018		2017
Loan origination reserves, beginning of period	$3,158		$8,137
Provisions for losses during the period	160		165
Adjustments to pre-existing provisions for losses from changes in estimates	(755	)	(4,571	)
Payments/settlements	-		(573	)
Loan origination reserves, end of period	$2,563		$3,158

XML

Note 9 - Senior Notes and Credit Facilities (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

(In thousands)	October 31, 2018(1)(2)	October 31, 2017(1)(2)
Senior Secured Term Loan due 2019, net of debt issuance costs	$-	$72,987
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$74,561	$74,350
2.0% Senior Secured Notes due November 1, 2021 (net of discount)	53,094	53,058
5.0% Senior Secured Notes due November 1, 2021 (net of discount)	135,571	133,732
10.0% Senior Secured Notes due July 15, 2022	435,461	434,543
10.5% Senior Secured Notes due July 15, 2024	394,736	394,953
Total Senior Secured Notes, net of debt issuance costs	$1,093,423	$1,090,636
Senior Notes:
7.0% Senior Notes due January 15, 2019	$-	$131,957
8.0% Senior Notes due November 1, 2019 (3)	-	234,293
13.5% Senior Notes due February 1, 2026 (including premium)	101,162	-
5.0% Senior Notes due February 1, 2040 (net of discount)	43,264	-
Total Senior Notes, net of debt issuance costs	$144,426	$366,250
11.0% Senior Amortizing Notes due December 1, 2017, net of debt issuance costs	$-	$2,045
Senior Exchangeable Notes due December 1, 2017, net of debt issuance costs	$-	$53,919
Senior Unsecured Term Loan Credit Facility due February 1, 2027, net of debt issuance costs	$201,389	$-
Unsecured Revolving Credit Facility due September 2018	$-	$52,000
Senior Secured Revolving Credit Facility (4)	$-	$-

Schedule of Maturities of Long-term Debt [Table Text Block]

Fiscal Year Ended October 31, (1)
2019	$-
2020	-
2021	75,000
2022	635,000
2023	-
Thereafter	783,257
Total	$1,493,257

XML

Note 10 - Operating and Reporting Segments (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	October 31,
(In thousands)	2018	2017
Assets:
Northeast	$152,607	$180,545
Mid-Atlantic	217,807	224,398
Midwest	85,398	84,960
Southeast	246,497	231,644
Southwest	320,452	294,337
West	244,886	175,347
Total homebuilding	1,267,647	1,191,231
Financial services	164,880	162,113
Corporate and unallocated	229,515	547,554
Total assets	$1,662,042	$1,900,898

	October 31,
(In thousands)	2018	2017
Investments in and advances to unconsolidated joint ventures:
Northeast	$51,094	$36,411
Mid-Atlantic	7,307	20,873
Midwest	3,738	4,268
Southeast	39,509	36,320
Southwest	18,219	11,832
West	2,445	4,451
Total homebuilding	122,312	114,155
Corporate and unallocated	1,382	935
Total investments in and advances to unconsolidated joint ventures	$123,694	$115,090

Operating Segments [Member]

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Year Ended October 31,
(In thousands)	2018		2017		2016
Revenues:
Northeast	$116,296		$209,509		$278,028
Mid-Atlantic	354,690		464,126		458,579
Midwest	196,599		199,770		311,322
Southeast	241,620		260,402		260,584
Southwest	638,282		827,503		1,028,529
West	384,627		430,546		342,447
Total homebuilding	1,932,114		2,391,856		2,679,489
Financial services	53,355		58,743		72,617
Corporate and unallocated	5,764		1,066		141
Total revenues	$1,991,233		$2,451,665		$2,752,247
Income (loss) before income taxes:
Northeast	$20,869		$2,300		$(3,869	)
Mid-Atlantic	18,757		17,191		17,476
Midwest	1,528		(1,151	)	(11,416	)
Southeast	(9,914	)	(6,199	)	(17,791	)
Southwest	49,852		71,540		84,424
West	47,987		19,636		3,445
Total homebuilding	129,079		103,317		72,269
Financial services	18,227		26,397		35,473
Corporate and unallocated (1)	(139,160	)	(174,958	)	(105,306	)
Income (loss) before income taxes	$8,146		$(45,244	)	$2,436

	Year Ended October 31,
(In thousands)	2018	2017		2016
Homebuilding interest expense:
Northeast	$11,811	$20,308		$19,417
Mid-Atlantic	15,051	23,886		23,662
Midwest	5,874	7,799		12,275
Southeast	14,934	13,646		16,770
Southwest	21,820	25,278		37,552
West	18,309	25,799		23,295
Total homebuilding	87,799	116,716		132,971
Corporate and unallocated	76,183	69,124		50,387
Financial services interest expense (1)	104	(630	)	(763	)
Total interest expense, net	$164,086	$185,210		$182,595

	Year Ended October 31,
(In thousands)	2018	2017	2016
Depreciation:
Northeast	$135	$71	$62
Mid-Atlantic	63	50	56
Midwest	1,106	858	497
Southeast	124	83	82
Southwest	70	78	104
West	45	94	92
Total homebuilding	1,543	1,234	893
Financial services	14	16	41
Corporate and unallocated	1,599	2,999	2,631
Total depreciation	$3,156	$4,249	$3,565

	Year Ended October 31,
(In thousands)	2018	2017	2016
Net additions to operating properties and equipment:
Northeast	$142	$442	$78
Mid-Atlantic	318	71	208
Midwest	621	3,773	3,180
Southeast	701	28	233
Southwest	23	18	199
West	55	80	91
Total homebuilding	1,860	4,412	3,989
Financial services	-	-	30
Corporate and unallocated	3,333	2,066	3,988
Total net additions to operating properties and equipment	$5,193	$6,478	$8,007

	Year Ended October 31,
(In thousands)	2018		2017		2016
Equity in earnings (losses) from unconsolidated joint ventures:
Northeast	$20,231		$(4,376	)	$(2,639	)
Mid-Atlantic	799		1,180		(27	)
Midwest	(775	)	(1,424	)	(1,304	)
Southeast	(2,032	)	837		(1,774	)
Southwest	5,165		(306	)	(64	)
West	645		(2,958	)	1,462
Total equity in earnings (losses) from unconsolidated joint ventures	$24,033		$(7,047	)	$(4,346	)

XML

Note 11 - Income Taxes (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Schedule of Components of Income Tax Payable Receivable [Table Text Block]

	Year Ended October 31,
(In thousands)	2018	2017
State income taxes:
Current	$3,334	$2,227
Deferred	-	-
Federal income taxes:
Current	-	-
Deferred	-	-
Total	$3,334	$2,227

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	Year Ended October 31,
(In thousands)	2018	2017	2016
Current income tax expense (benefit):
Federal (1)	$-	$-	$(2,796	)
State (2)	3,626	1,371	1,200
Total current income tax expense (benefit):	3,626	1,371	(1,596	)
Federal	-	275,688	5,594
State	-	9,890	1,257
Total deferred income tax expense (benefit):	-	285,578	6,851
Total	$3,626	$286,949	$5,255

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	Year Ended October 31,
(In thousands)	2018		2017
Deferred tax assets:
Inventory impairment loss	$60,854		$122,584
Uniform capitalization of overhead	4,183		5,766
Warranty and legal reserves	4,774		8,763
Acquisition intangibles	1,185		4,420
Restricted stock bonus	1,344		4,202
Stock options	4,358		6,539
Provision for losses	18,044		38,831
Joint venture loss	3,384		12,028
Federal net operating losses	334,971		549,862
State net operating losses	191,064		172,307
Other	14,030		23,366
Total deferred tax assets	638,191		948,668
Deferred tax liabilities:
Debt repurchase income	-		30,465
Total deferred tax liabilities	-		30,465
Valuation allowance	(638,191	)	(918,203	)
Net deferred income taxes	$-		$-

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Year Ended October 31,
	2018			2017			2016
Computed “expected” tax rate		21.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		17.2			1.0			65.4
Permanent differences, net		74.0			(2.4	)		222.2
Deferred tax asset valuation allowance impact		(70.8	)		(667.8	)		-
Tax contingencies		1.0			-			0.3
Adjustments to prior years’ tax accruals(1)		2.1			-			(107.2	)
Effective tax rate		44.5	%		(634.2	)%		215.7	%

Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block]

	Year Ended October 31,
		2018		2017
Unrecognized tax benefit—November 1,		$1.1		$1.1
Gross increases—tax positions in current period		0.3		0.2
Lapse of statute of limitations		(0.2	)	(0.2	)
Unrecognized tax benefit—October 31,		$1.2		$1.1

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Note 12 - Reduction of Inventory to Fair Value (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Inventory Impairment [Table Text Block]

(Dollars in millions)	Year Ended October 31, 2018
	Number of Communities	Dollar Amount of Impairment	Pre- Impairment Value (1)
Northeast	1	$0.4	$1.0
Mid-Atlantic	-	-	-
Midwest	1	0.1	0.5
Southeast	3	1.6	9.7
Southwest	-	-	-
West	-	-	-
Total	5	$2.1	$11.2

(Dollars in millions)	Year Ended October 31, 2017
	Number of Communities	Dollar Amount of Impairment	Pre- Impairment Value (1)
Northeast	2	$3.3	$22.2
Mid-Atlantic	1	1.5	8.5
Midwest	2	0.2	0.8
Southeast	3	8.1	18.3
Southwest	-	-	-
West	2	2.0	3.1
Total	10	$15.1	$52.9

(Dollars in millions)	Year Ended October 31, 2016
	Number of Communities	Dollar Amount of Impairment	Pre- Impairment Value (1)
Northeast	5	$9.5	$33.8
Mid-Atlantic	-	-	-
Midwest	12	13.5	43.7
Southeast	3	1.5	10.9
Southwest	-	-	-
West	-	-	-
Total	20	$24.5	$88.4

Write Offs and Lots Walked Away From [Table Text Block]

	Year Ended October 31,
(In millions)	2018	2017	2016
Northeast	$0.6	$0.5	$1.6
Mid-Atlantic	0.2	0.6	0.8
Midwest	0.1	0.3	1.3
Southeast	-	0.8	1.8
Southwest	0.2	0.4	3.2
West	0.3	0.1	0.2
Total	$1.4	$2.7	$8.9

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Note 13 - Per Share Calculations (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Year Ended October 31,
(In thousands, except per share data)	2018		2017		2016
Numerator:
Net earnings (loss) attributable to Hovnanian	$4,520		$(332,193	)	$(2,819	)
Less: undistributed earnings allocated to nonvested shares	(159	)	-		-
Numerator for basic earnings per share	$4,361		$(332,193	)	$(2,819	)
Plus: undistributed earnings allocated to nonvested shares	159		-		-
Less: undistributed earnings reallocated to nonvested shares	(159	)	-		-
Numerator for diluted earnings per share	$4,361		$(332,193	)	$(2,819	)
Denominator:
Denominator for basic earnings per share	148,515		147,703		147,451
Effect of dilutive securities:
Share-based payments	3,271		-		-
Denominator for diluted earnings per share – weighted-average shares outstanding	151,786		147,703		147,451
Basic earnings (loss) per share	$0.03		$(2.25	)	$(0.02	)
Diluted earnings (loss) per share	$0.03		$(2.25	)	$(0.02	)

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Note 15 - Stock Plans (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Share-based Compensation, Stock Options, Activity [Table Text Block]

	October 31, 2018		Weighted-Average Exercise Price		October 31, 2017		Weighted-Average Exercise Price		October 31, 2016		Weighted-Average Exercise Price
Options outstanding at beginning of period		6,860,701	$	3.40		7,373,951	$	4.03		6,393,876	$	4.78
Granted		945,625	$	2.25		236,250	$	2.34		1,148,481	$	1.95
Exercised		30,250	$	2.00		48,250	$	2.07		-	$	-
Forfeited		50,000	$	2.57		452,375	$	5.85		51,125	$	2.73
Expired		761,750	$	6.28		248,875	$	16.68		117,281	$	25.05
Options outstanding at end of period		6,964,326	$	2.95		6,860,701	$	3.40		7,373,951	$	4.03
Options exercisable at end of period		4,793,490				5,259,011				5,071,181

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

			Number		Weighted- Average		Weighted- Average Remaining Contractual
Range of Exercise Prices			Outstanding		Exercise Price		Life
$1.54	–	$2.41		2,645,784	$	2.00		6.32
$2.42	–	$4.41		3,004,042	$	2.77		3.57
$4.42	–	$6.28		1,314,500	$	5.27		2.66
				6,964,326	$	2.95		4.44

			Number		Weighted- Average		Weighted- Average Remaining Contractual
Range of Exercise Prices			Exercisable		Exercise Price		Life
$1.54	–	$2.41		1,108,534	$	1.97		3.65
$2.42	–	$4.41		2,370,456	$	2.81		2.09
$4.42	–	$6.28		1,314,500	$	5.27		2.66
				4,793,490	$	3.29		2.61

Schedule of Nonvested Share Activity [Table Text Block]

	Shares		Weighted-Average Grant Date Fair Value
Nonvested at beginning of period		6,174,477	$	2.36
Granted		2,129,073	$	2.55
Vested		705,144	$	2.31
Forfeited		2,423,148	$	1.98
Nonvested at end of period		5,175,258	$	2.62

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Note 16 - Warranty Costs (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

	Year Ended October 31,
(In thousands)	2018		2017
Balance, beginning of period	$127,702		$121,144
Additions – Selling, general and administrative	9,024		10,870
Additions – Cost of sales	17,180		15,835
Charges incurred during the period	(43,462	)	(28,019	)
Changes to pre-existing reserves	(15,380	)	7,872
Balance, end of period	$95,064		$127,702

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Note 20 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Equity Method Investments [Table Text Block]

	October 31, 2018
(Dollars in thousands)	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$50,010		$2,275		$52,285
Inventories	506,650		8,004		514,654
Other assets	35,105		-		35,105
Total assets	$591,765		$10,279		$602,044
Liabilities and equity:
Accounts payable and accrued liabilities	$79,108		$746		$79,854
Notes payable	236,665		-		236,665
Total liabilities	315,773		746		316,519
Equity of:
Hovnanian Enterprises, Inc.	114,950		4,369		119,319
Others	161,042		5,164		166,206
Total equity	275,992		9,533		285,525
Total liabilities and equity	$591,765		$10,279		$602,044
Debt to capitalization ratio	46	%	0	%	45	%

	October 31, 2017
(Dollars in thousands)	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$60,580		$194		$60,774
Inventories	666,017		9,162		675,179
Other assets	36,026		-		36,026
Total assets	$762,623		$9,356		$771,979
Liabilities and equity:
Accounts payable and accrued liabilities	$121,646		$429		$122,075
Notes payable	330,642		-		330,642
Total liabilities	452,288		429		452,717
Equity of:
Hovnanian Enterprises, Inc.	88,884		3,746		92,630
Others	221,451		5,181		226,632
Total equity	310,335		8,927		319,262
Total liabilities and equity	$762,623		$9,356		$771,979
Debt to capitalization ratio	52	%	0	%	51	%

	For The Year Ended October 31, 2018
(Dollars in thousands)	Homebuilding		Land Development		Total
Revenues	$602,681		$6,418		$609,099
Cost of sales and expenses	(577,106	)	(5,173	)	(582,279	)
Joint venture net income	$25,575		$1,245		$26,820
Our share of net income	$23,904		$623		$24,527

	For The Year Ended October 31, 2017
(Dollars in thousands)	Homebuilding		Land Development		Total
Revenues	$312,164		$5,685		$317,849
Cost of sales and expenses	(324,514	)	(4,633	)	(329,147	)
Joint venture net (loss) income	$(12,350	)	$1,052		$(11,298	)
Our share of net (loss) income	$(7,189	)	$526		$(6,663	)

	For The Year Ended October 31, 2016
(Dollars in thousands)	Homebuilding		Land Development		Total
Revenues	$141,418		$6,299		$147,717
Cost of sales and expenses	(159,431	)	(6,103	)	(165,534	)
Joint venture net (loss) income	$(18,013	)	$196		$(17,817	)
Our share of net income	$(4,424	)	$98		$(4,326	)

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Note 21 - Fair Value of Financial Instruments (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

(In thousands)	Fair Value Hierarchy	Fair Value at October 31, 2018		Fair Value at October 31, 2017
Mortgage loans held for sale (1)	Level 2	$130,709		$132,424
Interest rate lock commitments	Level 2	(28	)	(14	)
Forward contracts	Level 2	13		15
Total		$130,694		$132,425

Fair Value Option, Disclosures [Table Text Block]

	Year Ended October 31, 2018
(In thousands)	Mortgage Loans Held for Sale	Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$3,115	$(28	)	$13

	Year Ended October 31, 2017
(In thousands)	Mortgage Loans Held for Sale	Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$4,256	$(14	)	$15

	Year Ended October 31, 2016
(In thousands)	Mortgage Loans Held for Sale	Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$4,711	$(73	)	$(422	)

Fair Value Measurements, Nonrecurring [Table Text Block]

	Year Ended
	October 31, 2018
(In thousands)	Fair Value Hierarchy	Pre- Impairment Amount	Total Losses		Fair Value
Sold and unsold homes and lots under development	Level 3	$11,170	$(2,117	)	$9,053
Land and land options held for future development or sale	Level 3	$-	$-		$-

	Year Ended
	October 31, 2017
(In thousands)	Fair Value Hierarchy	Pre- Impairment Amount	Total Losses		Fair Value
Sold and unsold homes and lots under development	Level 3	$30,022	$(11,658	)	$18,364
Land and land options held for future development or sale	Level 3	$22,850	$(3,403	)	$19,447

Fair Value, Liabilities Measured on Recurring and Nonrecurring Basis 2 [Table Text Block]

(In thousands)	Level 1	Level 2	Level 3	Total
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$-	$-	$74,250	$74,250
2.0% Senior Secured Notes due November 1, 2021	-	-	40,434	40,434
5.0% Senior Secured Notes due November 1, 2021	-	124,781	-	124,781
10.0% Senior Secured Notes due July 15, 2022	-	424,670	-	424,670
10.5% Senior Secured Notes due July 15, 2024	-	366,720	-	366,720
Senior Notes:
13.5% Senior Notes due February 1, 2026	-	88,148	-	88,148
5.0% Senior Notes due February 1, 2040	-	35,628	-	35,628
Total fair value	$-	$1,039,947	$114,684	$1,154,631

(In thousands)	Level 1	Level 2	Level 3	Total
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$-	$-	$75,750	$75,750
2.0% Senior Secured Notes due November 1, 2021	-	-	44,425	44,425
5.0% Senior Secured Notes due November 1, 2021	-	-	132,580	132,580
10.0% Senior Secured Notes due July 15, 2022	-	-	479,600	479,600
10.5% Senior Secured Notes due July 15, 2024	-	-	448,000	448,000
Senior Notes:
7.0% Senior Notes due January 15, 2019	-	131,221	-	$131,221
8.0% Senior Notes due November 1, 2019	-	252,478	-	252,478
11.0% Senior Amortizing Notes due December 1, 2017	-	-	2,055	2,055
Senior Exchangeable Notes due December 1, 2017	-	-	54,217	54,217
Total fair value	$-	$383,699	$1,236,627	$1,620,326

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Note 22 - Unaudited Summarized Consolidated Quarterly Information (Tables)

12 Months Ended

Oct. 31, 2018

Notes Tables

Quarterly Financial Information [Table Text Block]

	Three Months Ended
(In thousands, except per share data)	October 31, 2018		July 31, 2018		April 30, 2018		January 31, 2018
Revenues	$614,811		$456,712		$502,544		$417,166
Expenses	581,680		463,004		509,352		442,047
Inventory impairment loss and land option write-offs	318		96		2,673		414
Loss on extinguishment of debt	(1,830	)	(4,266	)	(1,440	)	-
Income (loss) from unconsolidated joint ventures	17,134		10,732		1,343		(5,176	)
Income (loss) before income taxes	48,117		78		(9,578	)	(30,471	)
State and federal income tax provision	1,939		1,104		245		338
Net income (loss)	$46,178		$(1,026	)	$(9,823	)	$(30,809	)
Per share data:
Basic:
Net income (loss) per common share	$0.30		$(0.01	)	$(0.07	)	$(0.21	)
Weighted-average number of common shares outstanding	148,925		148,669		148,435		148,028
Assuming dilution:
Net income (loss) per common share	$0.29		$(0.01	)	$(0.07	)	$(0.21	)
Weighted-average number of common shares outstanding	151,929		148,669		148,435		148,028

	Three Months Ended
(In thousands, except per share data)	October 31, 2017	July 31, 2017		April 30, 2017		January 31, 2017
Revenues	$721,686	$592,035		$585,935		$552,009
Expenses	703,964	591,872		586,877		554,482
Inventory impairment loss and land option write-offs	8,479	4,197		1,953		3,184
(Loss) gain on extinguishment of debt	-	(42,258	)	(242	)	7,646
Income (loss) from unconsolidated joint ventures	3,062	(3,881	)	(4,562	)	(1,666	)
Income (loss) before income taxes	12,305	(50,173	)	(7,699	)	323
State and federal income tax provision (benefit)	464	287,036		(1,017	)	466
Net income (loss)	$11,841	$(337,209	)	$(6,682	)	$(143	)
Per share data:
Basic:
Net income (loss) per common share	$0.08	$(2.28	)	$(0.05	)	$(0.00	)
Weighted-average number of common shares outstanding	147,905	147,748		147,558		147,535
Assuming dilution:
Net Income (loss) per common share	$0.08	$(2.28	)	$(0.05	)	$(0.00	)
Weighted-average number of common shares outstanding	160,548	147,748		147,558		147,535

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Supplemental Disclosure of Noncash Investing and Financing Activities (Details Textual) - USD ($) $ in Millions	3 Months Ended
	Apr. 30, 2018	Jan. 31, 2018
8.0% Senior Notes Due 2019 [Member]
Debt Conversion, Original Debt, Interest Rate of Debt	8.00%
Debt Conversion, Original Debt, Issuance Date of Debt	Nov. 01, 2019
The 13.5% 2026 Notes [Member]
Debt Conversion, Converted Instrument, Rate	13.50%
Debt Conversion, Converted Instrument, Expiration or Due Date, Year	2026
Five Percent Senior Notes due 2040 [Member]
Debt Conversion, Converted Instrument, Rate	5.00%
Debt Conversion, Converted Instrument, Expiration or Due Date, Year	2040
Corporate Joint Venture [Member]
Noncash or Part Noncash Acquisition, Investments Reduction		$ 13
Noncash or Part Noncash Acquisition, Inventory Acquired		$ 13

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Note 1 - Basis of Presentation (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Net Cash Provided by (Used in) Operating Activities, Total	$ (66,822)	$ 301,578	$ 386,996
Net Cash Provided by (Used in) Investing Activities, Total	35,501	(29,707)	(51,884)
Assets, Total	1,662,042	1,900,898
Financial Services [Member]
Cash and Cash Equivalents, at Carrying Value, Ending Balance	6,948	5,623	6,992
Assets, Total	164,880	162,113
Accounting Standards Update 2016-18 [Member] | New Accounting Pronouncement, Early Adoption, Effect [Member]
Net Cash Provided by (Used in) Operating Activities, Total		(4,000)	700
Net Cash Provided by (Used in) Investing Activities, Total		(2,600)	$ (2,900)
Reclassification from Notes Payable, Net of Discount, Premium and Debt Issuance Costs and Accrued Interest to Revolving and Term Loan Credit Facilities, Net of Debt Issuance Costs [Member] | As of October 31, 2017 [Member]
Prior Period Reclassification Adjustment	$ 73,000
Changed Balance Sheet Presentation on a Combined Basis [Member] | Financial Services [Member]
Cash and Cash Equivalents, at Carrying Value, Ending Balance		(5,600)
Assets, Total		$ 5,600

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Note 2 - Business (Details Textual)	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Number of Communities	123
Homebuilding [Member]
Number of Reportable Segments	6
Homebuilding [Member] | Segment Concentration Risk [Member] | Sales Revenue, Net [Member]
Concentration Risk, Percentage	97.00%	98.00%	97.00%

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Note 3 - Summary of Significant Accounting Policies (Details Textual) $ in Thousands	12 Months Ended
	Oct. 31, 2018 USD ($)	Oct. 31, 2017 USD ($)	Oct. 31, 2016 USD ($)
Cash Equivalents, at Carrying Value, Total	$ 199,600	$ 13,300
Number of Previously Mothballed Communities Sold During the Period	2
Number of Mothballed Communities Reactivated	2
Number of Communities Mothballed	18	22
Inventory Real Estate Mothballed Communities	$ 24,500	$ 36,700
Inventory Real Estate Mothballed Communities Accumulated Impairment Charges	186,100	214,100
Inventory, Land Held-for-sale	6,400	23,600
General Liability Insurance Deductible	20,000	20,000
Bodily Injury Insurance Deductible	250	250
Bodily Injury Insurance Limit	5,000	5,000
Aggregate Retention for Construction Defects Warranty and Bodily Injury Claims	20,000	21,000
Real Estate Inventory Expense Not Eligible for Capitalization	103,297	97,304	$ 90,967
Advertising Expense	16,400	17,900	21,400
Allowance for Doubtful Accounts Receivable, Ending Balance	11,400	7,300
Allowance for Doubtful Accounts Receivable, Recoveries	600	200
Allowance for Doubtful Accounts Receivable, Write-offs	100	100
Provision for Doubtful Accounts	$ 4,800
Senior Exchangeable Note Units [Member]
Debt Instrument, Interest Rate, Stated Percentage	6.00%
Joint Venture Investments [Member]
Equity Method Investment, Other than Temporary Impairment	$ 0	2,800	0
Qualifying Assets Not Exceeding Debt [Member]
Real Estate Inventory Expense Not Eligible for Capitalization	76,200	69,100	50,400
Completed Homes, Land in Planning and Fully Developed Lots without Homes under Construction [Member]
Real Estate Inventory Expense Not Eligible for Capitalization	$ 27,100	28,200	$ 40,600
Maximum [Member]
Joint Venture Voting Interest Percentage	50.00%
Measurement Input, Discount Rate [Member] | Minimum [Member]
Community, Measurement Input	0.168
Measurement Input, Discount Rate [Member] | Maximum [Member]
Community, Measurement Input	0.198
Homebuilding [Member]
Liabilities from Inventory Real Estate Not Owned	$ 63,387	91,101
Homebuilding [Member] | Model Sale Leaseback Financing Arrangements [Member]
Inventory Real Estate, Other Options	50,500	58,500
Liabilities from Inventory Real Estate Not Owned	43,900	51,800
Homebuilding [Member] | Land Banking Arrangement [Member]
Inventory Real Estate, Other Options	37,400	66,300
Liabilities from Inventory Real Estate Not Owned	$ 19,500	$ 39,300

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Note 3 - Summary of Significant Accounting Policies - Interest Costs Incurred, Expensed and Capitalized (Details) - USD ($) $ in Thousands		12 Months Ended
		Oct. 31, 2018		Oct. 31, 2017		Oct. 31, 2016
Interest capitalized at beginning of year		$ 71,051	[1]	$ 96,688	[1]	$ 123,898
Plus interest incurred(1)	[2]	161,048		160,203		166,824
Less cost of sales interest expensed		60,685		88,536		92,391
Less other interest expensed(2)(3)	[3],[4]	103,297		97,304		90,967
Less interest contributed to unconsolidated joint venture(4)	[5]					10,676
Interest capitalized at end of year(5)	[1]	$ 68,117		$ 71,051		$ 96,688

[1] Capitalized interest amounts are shown gross before allocating any portion of impairments, if any, to capitalized interest.

[2] Data does not include interest incurred by our mortgage and finance subsidiaries.

[3] Cash paid for interest, net of capitalized interest, is the sum of other interest expensed, as defined above, and interest paid by our mortgage and finance subsidiaries adjusted for the change in accrued interest on notes payable, which is calculated as follows: Year Ended (In thousands) October 31, 2018 October 31, 2017 October 31, 2016 Other interest expensed $103,297 $97,304 $90,967 Interest paid by our mortgage and finance subsidiaries 2,478 1,944 2,866 Decrease (increase) in accrued interest 6,241 (9,412) 7,963 Cash paid for interest, net of capitalized interest $112,016 $89,836 $101,796

[4] Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $76.2 million, $69.1 million and $50.4 million for the years ended October 31, 2018, 2017 and 2016, respectively. Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization, and therefore, is expensed. This component of other interest was $27.1 million, $28.2 million and $40.6 million for the years ended October 31, 2018, 2017 and 2016.

[5] Represents capitalized interest which was included as part of the assets contributed to the joint venture the Company entered into in November 2015, as discussed in Note 20. There was no impact to the Consolidated Statement of Operations as a result of this transaction.

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Note 3 - Summary of Significant Accounting Policies - Cash Paid for Interest, Net of Capitalized Interest (Details) - USD ($) $ in Thousands	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Other interest expensed	$ 103,297	$ 97,304	$ 90,967
Interest paid by our mortgage and finance subsidiaries	2,478	1,944	2,866
Decrease (increase) in accrued interest	6,241	(9,412)	7,963
Cash paid for interest, net of capitalized interest	$ 112,016	$ 89,836	$ 101,796

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Note 4 - Leases (Details Textual) - USD ($) $ in Millions	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Operating Leases, Rent Expense, Total	$ 14.4	$ 10.8	$ 12.8
Minimum [Member] | Office Leases [Member]
Lessee, Operating Lease, Term of Contract	3 years
Minimum [Member] | Model Home Leases [Member]
Lessee, Operating Lease, Term of Contract	1 year
Maximum [Member] | Office Leases [Member]
Lessee, Operating Lease, Term of Contract	5 years
Maximum [Member] | Model Home Leases [Member]
Lessee, Operating Lease, Term of Contract	3 years

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Note 4 - Leases - Future Lease Payments (Details) $ in Thousands	Oct. 31, 2018 USD ($)
2019	$ 9,297
2020	6,388
2021	3,903
2022	2,946
2023	2,026
Thereafter	2,482
Total	$ 27,042

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Note 5 - Property, Plant and Equipment (Details Textual) - USD ($) $ in Thousands	Oct. 31, 2018	Oct. 31, 2017
Property, Plant and Equipment, Net, Ending Balance	$ 20,285	$ 52,919
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment, Ending Balance	$ 39,787	69,342
Corporate Headquarters Building [Member]
Property, Plant and Equipment, Net, Ending Balance		34,700
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment, Ending Balance		26,400
Land [Member] | Corporate Headquarters Building [Member]
Property, Plant and Equipment, Net, Ending Balance		1,000
Building [Member] | Corporate Headquarters Building [Member]
Property, Plant and Equipment, Net, Ending Balance		$ 60,100

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Note 5 - Property, Plant and Equipment - Property, Plant and Equipment (Details) - USD ($) $ in Thousands	Oct. 31, 2018	Oct. 31, 2017
Property, plant and equipment, gross	$ 60,072	$ 122,261
Less accumulated depreciation	39,787	69,342
Total	20,285	52,919
Land and Land Improvements [Member]
Property, plant and equipment, gross	1,639	2,625
Building [Member]
Property, plant and equipment, gross	9,155	69,279
Building Improvements [Member]
Property, plant and equipment, gross	10,958	9,458
Furniture and Fixtures [Member]
Property, plant and equipment, gross	5,305	5,571
Equipment, Including Capitalized Software [Member]
Property, plant and equipment, gross	$ 33,015	$ 35,328

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Note 6 - Restricted Cash and Deposits (Details Textual) - USD ($) $ in Thousands	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Mortgage Warehouse Lines of Credit [Member]
Restricted Cash and Cash Equivalents, Total	$ 2,000	$ 2,300
Homebuilding [Member]
Restricted Cash and Cash Equivalents, Total	12,808	2,077	$ 3,914
Homebuilding [Member] | Customer Deposits [Member]
Restricted Cash and Cash Equivalents, Total	100	400
Financial Services [Member]
Restricted Cash and Cash Equivalents, Total	25,365	22,345	$ 19,035
Financial Services [Member] | Other Assets [Member]
Restricted Cash and Cash Equivalents, Total	25,400	22,300
Financial Services [Member] | Customer Deposits [Member]
Restricted Cash and Cash Equivalents, Total	$ 23,400	$ 20,000

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Note 7 - Mortgage Loans Held for Sale (Details Textual) $ in Millions	Oct. 31, 2018 USD ($)	Oct. 31, 2017 USD ($)
Loans Pledged as Collateral	$ 115.2	$ 119.6
Number of Loans Reserved For	46	45

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Note 7 - Mortgage Loans Held for Sale - Loan Origination Reserves (Details) - USD ($) $ in Thousands	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017
Loan origination reserves, beginning of period	$ 3,158	$ 8,137
Provisions for losses during the period	160	165
Adjustments to pre-existing provisions for losses from changes in estimates	(755)	(4,571)
Payments/settlements		(573)
Loan origination reserves, end of period	$ 2,563	$ 3,158

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Note 8 - Mortgages (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017
JP Morgan Chase Bank [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 50,000
Warehouse Agreement Borrowings, Total	$ 40,300	$ 41,500
JP Morgan Chase Bank [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument Variable Rate Basis Adjusted London Interbank Offered Rate LIBOR	2.31%
JP Morgan Chase Bank [Member] | London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member]
Debt Instrument, Basis Spread on Variable Rate	2.50%
JP Morgan Chase Bank [Member] | London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member]
Debt Instrument, Basis Spread on Variable Rate	2.63%
Customers Bank [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 50,000
Warehouse Agreement Borrowings, Total	$ 40,200	40,700
Customers Bank [Member] | London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member]
Debt Instrument, Basis Spread on Variable Rate	2.38%
Customers Bank [Member] | London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member]
Debt Instrument, Basis Spread on Variable Rate	5.13%
Nonrecourse Mortgages Secured By Inventory [Member] | Mortgages [Member] | Homebuilding [Member]
Secured Debt, Total	$ 95,557	64,512
Debt Instrument, Collateral Amount	$ 241,900	$ 157,800
Debt, Weighted Average Interest Rate	6.10%	5.30%
Nonrecourse Mortgages Secured by Operating Properties [Member] | Mortgages [Member] | Corporate, Non-Segment [Member]
Secured Debt, Total		$ 13,000
Nonrecourse Mortgages Secured by Operating Properties [Member] | Mortgages [Member] | Homebuilding [Member]
Secured Debt, Total		13,012
Comerica Master Repurchase Agreement [Member]
Line of Credit Facility, Maximum Borrowing Capacity	50,000
Warehouse Agreement Borrowings, Total	$ 32,700	$ 32,400
Comerica Master Repurchase Agreement [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument Variable Rate Basis Floor Rate	0.25%
Comerica Master Repurchase Agreement [Member] | London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member]
Debt Instrument, Basis Spread on Variable Rate	2.25%
Comerica Master Repurchase Agreement [Member] | London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member]
Debt Instrument, Basis Spread on Variable Rate	3.25%

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Note 9 - Senior Notes and Credit Facilities (Details Textual)											1 Months Ended	3 Months Ended										12 Months Ended
		Jan. 15, 2019 USD ($)	Sep. 10, 2018 USD ($)	May 29, 2018 USD ($)	Feb. 01, 2018 USD ($)	Dec. 01, 2017 USD ($)	Jul. 27, 2017 USD ($)	Sep. 08, 2016 USD ($)	May 15, 2016 USD ($)	Jan. 15, 2016 USD ($)	Jun. 30, 2013 USD ($)	Oct. 31, 2018 USD ($)		Jul. 31, 2018 USD ($)	Apr. 30, 2018 USD ($)	Jan. 31, 2018 USD ($)	Oct. 31, 2017 USD ($)		Jul. 31, 2017 USD ($)	Apr. 30, 2017 USD ($)	Jan. 31, 2017 USD ($)	Oct. 31, 2018 USD ($)		Oct. 31, 2017 USD ($) shares		Oct. 31, 2016 USD ($)	Dec. 28, 2017 USD ($)	Nov. 15, 2017 USD ($)	Oct. 11, 2016 USD ($)	Nov. 01, 2011 USD ($)
Interest Payable												$ 35,600,000					$ 41,800,000					$ 35,600,000		$ 41,800,000
Debt Issuance Costs, Net, Total												$ 14,100,000					16,100,000					$ 14,100,000		16,100,000
Debt Covenant Fixed Charge Coverage Ratio Minimum												2										2
Gain (Loss) on Extinguishment of Debt, Total												$ (1,830,000)		$ (4,266,000)	$ (1,440,000)				$ (42,258,000)	$ (242,000)	$ 7,646,000	$ (7,536,000)		(34,854,000)		$ (3,200,000)
Debt Instrument, Fair Value Disclosure, Total												1,154,631,000					1,620,326,000					1,154,631,000		1,620,326,000
Proceeds from Issuance of Debt								$ 146,300,000
Investments in and Advance to Affiliates, Subsidiaries, Associates, and Joint Ventures, Total												123,694,000					$ 115,090,000					123,694,000		$ 115,090,000
The 7% 2019 Notes [Member]
Gain (Loss) on Extinguishment of Debt, Total					$ (500,000)
The 8.0% Senior Notes Due 2019 [Member]
Debt Instrument, Interest Rate, Stated Percentage				8.00%
Repayments of Long-term Debt, Total				$ 65,700,000
The 8.0% Senior Notes Due 2019 and Delayed Draw Term Loans [Member]
Gain (Loss) on Extinguishment of Debt, Total																						(4,300,000)
Secured Term Loans [Member]
Gain (Loss) on Extinguishment of Debt, Total																						(1,800,000)
8.0% Senior Notes Due 2019 [Member]
Gain (Loss) on Extinguishment of Debt, Total																						$ (900,000)
Series A Preferred Stock [Member]
Preferred Stock, Dividend Rate, Percentage																						7.625%
Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage																	9.50%							9.50%
Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage						6.00%
Repayments of Senior Debt, Total						$ 53,900,000
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1]																8.00%							8.00%
Secured Term Loans [Member]
Repayments of Long-term Debt, Total			$ 41,000,000
Senior Notes and Senior Exchangeable Note Units [Member]
Gain (Loss) on Extinguishment of Debt, Total																								$ 7,800,000
Debt Instrument, Repurchase Amount																	$ 30,800,000							30,800,000
9.5 % Senior Secured Notes [Member]
Gain (Loss) on Extinguishment of Debt, Total																								(400,000)
Stand-alone Cash Collateralized Letter of Credit Agreements and Facilities [Member]
Letters of Credit Outstanding, Amount												12,500,000					1,700,000					$ 12,500,000		1,700,000
Stand-alone Cash Collateralized Letter of Credit Agreements and Facilities [Member] | Restricted Cash [Member]
Debt Instrument, Collateral Amount												$ 12,700,000					1,700,000					$ 12,700,000		1,700,000
GSO [Member] | Unsecured Senior Notes [Member]
Debt Instrument, Face Amount					132,500,000																						$ 132,500,000
GSO [Member] | Delayed Draw Term Loans [Member]
Debt Agreement Maximum Borrowing Capacity																											80,000,000
GSO [Member] | Revolving Credit Facility [Member]
Debt Instrument, Interest Rate, Stated Percentage												10.00%										10.00%
Line of Credit Facility, Maximum Borrowing Capacity												$ 125,000,000										$ 125,000,000					$ 125,000,000
Long-term Line of Credit, Total												0										0
Proceeds from Long-term Lines of Credit			$ 35,000,000
Citi Bank [Member] | Unsecured Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity											$ 75,000,000
Long-term Line of Credit, Total																	52,000,000							52,000,000
Debt Instrument, Term											5 years
Letters of Credit Outstanding, Amount																	$ 14,600,000							$ 14,600,000
8.0% Senior Notes Due 2019 [Member]
Debt Instrument, Face Amount				$ 26,000,000	$ 170,200,000							$ 26,000,000										$ 26,000,000
Debt Instrument, Interest Rate, Stated Percentage				8.00%	8.00%							8.00%										8.00%
Repayments of Long-term Debt, Total				$ 65,700,000
8.0% Senior Notes Due 2019 [Member] | K. Hovnanian at Sunrise Trail III, LLC [Member]
Repayments of Senior Debt, Total					$ 26,500,000
8.0% Senior Notes Due 2019 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage																	8.00%							8.00%			8.00%
Debt Instrument, Repurchased Face Amount																	$ 14,000,000							$ 14,000,000
The 5.0% 2021 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Face Amount																														$ 141,800,000
Debt Instrument, Interest Rate, Stated Percentage												5.00%	[2],[3]				5.00%	[2],[3]				5.00%	[2],[3]	5.00%	[2],[3]					5.00%
Debt Instrument, Fair Value Disclosure, Total												$ 124,781,000					$ 132,580,000					$ 124,781,000		$ 132,580,000
The 2.0% 2021 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Face Amount																														$ 53,200,000
Debt Instrument, Interest Rate, Stated Percentage												2.00%	[2],[3]				2.00%	[2],[3]				2.00%	[2],[3]	2.00%	[2],[3]					2.00%
Debt Instrument, Fair Value Disclosure, Total												$ 40,434,000					$ 44,425,000					$ 40,434,000		$ 44,425,000
The 9.50% 2020 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Face Amount								$ 75,000,000
Debt Instrument, Interest Rate, Stated Percentage								9.50%				9.50%	[2],[3]				9.50%	[2],[3]				9.50%	[2],[3]	9.50%	[2],[3]
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Face Amount							$ 440,000,000
Debt Instrument, Interest Rate, Stated Percentage							10.00%					10.00%	[2],[3]				10.00%	[2],[3]				10.00%	[2],[3]	10.00%	[2],[3]
Debt Instrument, Fair Value Disclosure, Total												$ 424,670,000					$ 479,600,000					$ 424,670,000		$ 479,600,000
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period One [Member]
Debt Instrument, Redemption Price, Percentage																						100.00%
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period Two [Member]
Debt Instrument, Redemption Price, Percentage																						105.00%
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period Three [Member]
Debt Instrument, Redemption Price, Percentage																						102.50%
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period Four [Member]
Debt Instrument, Redemption Price, Percentage																						100.00%
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member] | Redemption with Net Cash Proceeds from Certain Equity Offerings [Member] | Debt Instrument, Redemption, Period One [Member]
Debt Instrument, Redemption Price, Percentage																						110.00%
Debt Instrument, Redemption Price, Percentage of Principal Amount Redeemed																						35.00%
The 7.0% 2019 Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage					7.00%
The 7.0% 2019 Notes [Member] | Senior Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage												7.00%					7.00%					7.00%		7.00%
Debt Instrument, Repurchased Face Amount																	$ 17,500,000							$ 17,500,000
Debt Instrument, Fair Value Disclosure, Total																	$ 131,221,000							$ 131,221,000
The 7.0% 2019 Notes [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[2],[3]											7.00%					7.00%					7.00%		7.00%
Repayments of Senior Debt, Total					$ 132,500,000
The 10.5% 2024 Notes [Member] | GSO [Member] | Scenario, Forecast [Member]
Debt Instrument, Face Amount		$ 25,000,000
Debt Instrument, Interest Rate, Stated Percentage		10.50%
Debt Instrument, Purchase Price		$ 1,000
Increase (Decrease) in Stated Rate Due to Terms		0.50%
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Face Amount							$ 400,000,000
Debt Instrument, Interest Rate, Stated Percentage							10.50%					10.50%	[2],[3]				10.50%	[2],[3]				10.50%	[2],[3]	10.50%	[2],[3]
Debt Instrument, Fair Value Disclosure, Total												$ 366,720,000					$ 448,000,000					$ 366,720,000		$ 448,000,000
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period One [Member]
Debt Instrument, Redemption Price, Percentage																						100.00%
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period Two [Member]
Debt Instrument, Redemption Price, Percentage																						105.25%
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period Three [Member]
Debt Instrument, Redemption Price, Percentage																						102.625%
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period Four [Member]
Debt Instrument, Redemption Price, Percentage																						100.00%
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member] | Redemption with Net Cash Proceeds from Certain Equity Offerings [Member] | Debt Instrument, Redemption, Period One [Member]
Debt Instrument, Redemption Price, Percentage																						110.50%
Debt Instrument, Redemption Price, Percentage of Principal Amount Redeemed																						35.00%
The 10.5% 2024 Notes [Member] | Senior Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage												10.50%										10.50%
The 11.0% 2017 Amortizing Note [Member] | Senior Amortizing Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage						11.00%											11.00%	[2],[3]						11.00%	[2],[3]
Repayments of Senior Debt, Total						$ 2,100,000
Debt Instrument, Fair Value Disclosure, Total																	$ 2,055,000							$ 2,055,000
The 7% 2019 Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage					7.00%
Senior Unsecured Term Loan Credit Facility [Member]
Debt Instrument, Additional Borrowings				$ 70,000,000
The 5.0% Notes Due 2027 [Member]
Debt Instrument, Interest Rate, Stated Percentage					5.00%
The 8.0% Senior Notes Due 2019 [Member]
Debt Instrument, Aggregate Principal Outstanding, Percentage					72.14%
The 8.0% Senior Notes Due 2019 [Member] | Senior Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage																	8.00%							8.00%
Debt Instrument, Fair Value Disclosure, Total																	$ 252,478,000							$ 252,478,000
Thirteen and a Half Percent Senior Notes Due 2026 [Member]
Debt Instrument, Face Amount					$ 90,600,000
Debt Instrument, Interest Rate, Stated Percentage					13.50%
Debt Instrument, Fair Value Disclosure, Total					$ 103,000,000
Thirteen and a Half Percent Senior Notes Due 2026 [Member] | Debt Instrument, Redemption, Period One [Member]
Debt Instrument, Redemption Price, Percentage																						100.00%
Thirteen and a Half Percent Senior Notes Due 2026 [Member] | Debt Instrument, Redemption, Period Two [Member]
Debt Instrument, Redemption Price, Percentage																						100.00%
Thirteen and a Half Percent Senior Notes Due 2026 [Member] | Senior Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage												13.50%										13.50%
Debt Instrument, Fair Value Disclosure, Total												$ 88,148,000										$ 88,148,000
Thirteen and a Half Percent Senior Notes Due 2026 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[2],[3]											13.50%										13.50%
Five Percent Senior Notes due 2040 [Member]
Debt Instrument, Face Amount					$ 90,100,000
Debt Instrument, Interest Rate, Stated Percentage					5.00%
Debt Instrument, Fair Value Disclosure, Total					$ 44,000,000
Five Percent Senior Notes due 2040 [Member] | Debt Instrument, Redemption, Period One [Member]
Debt Instrument, Redemption Price, Percentage																						100.00%
Five Percent Senior Notes due 2040 [Member] | Debt Instrument, Redemption, Period Two [Member]
Debt Instrument, Redemption Price, Percentage																						100.00%
Five Percent Senior Notes due 2040 [Member] | Senior Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage												5.00%										5.00%
Debt Instrument, Fair Value Disclosure, Total												$ 35,628,000										$ 35,628,000
Five Percent Senior Notes due 2040 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[2],[3]											5.00%										5.00%
The Purchased 8% Notes [Member] | K. Hovnanian at Sunrise Trail III, LLC [Member]
Debt Instrument, Interest Rate, Stated Percentage					8.00%
Debt Instrument, Repurchased Face Amount					$ 26,000,000
The 6.00% Exchangeable Note Units [Member] | Senior Exchangeable Note Units [Member]
Debt Instrument, Repurchased Face Amount																	$ 6,900,000							$ 6,900,000
Debt Instrument, Exchangeable, Number of Units Repurchased | shares																								6,925
The 7.25% 2020 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage							7.25%
Debt Instrument, Repurchased Face Amount							$ 575,912,000																					$ 1,088,000
The 9.125% 2020 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage							9.125%
Debt Instrument, Repurchased Face Amount							$ 87,321,000																					$ 57,679,000
Extinguishment of Debt, Amount								$ 75,000,000
The 10.0% 2018 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Face Amount								75,000,000
Debt Instrument, Interest Rate, Stated Percentage							10.00%
Debt Instrument, Repurchased Face Amount							$ 75,000,000
The 7.25% 2020 Notes, The 9.125% 2020 Notes, and The 10.0% 2018 Notes [Member] | Senior Secured Notes [Member]
Gain (Loss) on Extinguishment of Debt, Total							$ (42,300,000)
The 10% 2022 Notes and 10.5% 2024 Notes [Member] | Senior Secured Notes [Member] | Real Estate Inventory [Member]
Debt Instrument, Collateral Amount												$ 437,900,000										$ 437,900,000
The 10% 2022 Notes and 10.5% 2024 Notes [Member] | Senior Secured Notes [Member] | Cash and Cash Equivalents Collateral [Member]
Debt Instrument, Collateral Amount												125,600,000										125,600,000
The 10% 2022 Notes and 10.5% 2024 Notes [Member] | Senior Secured Notes [Member] | Restricted Cash [Member]
Debt Instrument, Collateral Amount												$ 11,900,000										$ 11,900,000
The 6.25% 2016 Notes [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage										6.25%
Repayments of Senior Debt, Total										$ 172,700,000
The 7.5% 2016 Notes [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Repayments of Senior Debt, Total									$ 86,500,000
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member] | The 7.5% 2016 Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage									7.50%
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member] | The 8.625% 2017 Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage																													8.625%
Long-term Debt, Gross																													$ 121,000,000
Debt Instrument, Redemption, Aggregate Price																													$ 126,100,000
Term Loan [Member]
Debt Instrument, Face Amount								$ 75,000,000
9.5% Senior Secured Notes Due 2020 [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage												9.50%					9.50%					9.50%		9.50%
Debt Instrument, Fair Value Disclosure, Total												$ 74,250,000					$ 75,750,000					$ 74,250,000		$ 75,750,000
Debt Instrument, Redemption Price, Percentage																								100.00%
9.5% Senior Secured Notes Due 2020 [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period One [Member]
Debt Instrument, Redemption Price, Percentage																								100.00%
The 2.0% 2021 Notes Member and 5.0% 2021 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Redemption Price, Percentage																						100.00%
Debt Instrument, Voluntary Prepayment Premium, Aggregate Principal Amount, Percentage												1.00%										1.00%
The 2.0% 2021 Notes Member and 5.0% 2021 Notes [Member] | Senior Secured Notes [Member] | Cash and Cash Equivalents Collateral [Member]
Debt Instrument, Collateral Amount												$ 75,000,000										$ 75,000,000
The 2021 Notes and 9.5% 2020 Notes [Member] | Senior Secured Notes [Member] | Restricted Cash [Member]
Debt Instrument, Collateral Amount												800,000										800,000
The 2021 Notes and 9.5% 2020 Notes [Member] | Senior Secured Notes [Member] | Real Estate [Member]
Debt Instrument, Collateral Amount												139,200,000										139,200,000
The 2021 Notes and 9.5% 2020 Notes [Member] | Senior Secured Notes [Member] | Secured Group [Member]
Investments in and Advance to Affiliates, Subsidiaries, Associates, and Joint Ventures, Total												$ 114,800,000										$ 114,800,000

[1] $26.0 million of 8.0% Senior Notes due 2019 are owned by a wholly-owned consolidated subsidiary of HEI. Therefore, in accordance with GAAP, such notes are not reflected on the Consolidated Balance Sheets of HEI.

[2] "Notes payable" on our Consolidated Balance Sheets as of October 31, 2018 and 2017 consists of the total senior secured, senior, senior amortizing and senior exchangeable notes shown above, as well as accrued interest of $35.6 million and $41.8 million, respectively.

[3] Unamortized debt issuance costs at October 31, 2018 and 2017 were $14.1 million and $16.1 million, respectively.

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Note 9 - Senior Notes and Credit Facilities - Senior Notes and Credit Facilities Balances (Details) - USD ($)		Oct. 31, 2018	Oct. 31, 2017
Senior debt	[1]	$ 1,493,257,000
Senior Secured Term Loan [Member]
Long-term Line of Credit, Total	[2],[3]		$ 72,987,000
Senior Secured Notes [Member]
Senior debt	[2],[3]	1,093,423,000	1,090,636,000
Senior Secured Notes [Member] | The 9.50% 2020 Notes [Member]
Senior debt	[2],[3]	74,561,000	74,350,000
Senior Secured Notes [Member] | The 2.0% 2021 Notes [Member]
Senior debt	[2],[3]	53,094,000	53,058,000
Senior Secured Notes [Member] | The 5.0% 2021 Notes [Member]
Senior debt	[2],[3]	135,571,000	133,732,000
Senior Secured Notes [Member] | The 10.0% 2022 Notes [Member]
Senior debt	[2],[3]	435,461,000	434,543,000
Senior Secured Notes [Member] | The 10.5% 2024 Notes [Member]
Senior debt	[2],[3]	394,736,000	394,953,000
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Senior debt	[2],[3]	144,426,000	366,250,000
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member] | The 7.0% 2019 Notes [Member]
Senior debt	[2],[3]		131,957,000
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member] | The 8.0% Senior Notes Due 2019 [Member]
Senior debt	[2],[3],[4]		234,293,000
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member] | Thirteen and a Half Percent Senior Notes Due 2026 [Member]
Senior debt	[2],[3]	101,162,000
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member] | Five Percent Senior Notes due 2040 [Member]
Senior debt	[2],[3]	43,264,000
Senior Amortizing Notes [Member] | The 11.0% 2017 Amortizing Note [Member]
Senior debt	[2],[3]		2,045,000
Senior Amortizing Notes [Member] | Senior Exchangeable Notes Due 2017 [Member]
Senior debt	[2],[3]		53,919,000
Senior Unsecured Term Loan Credit Facility Due 2027 [Member]
Long-term Line of Credit, Total		201,389
Unsecured Revolving Credit Facility [Member]
Long-term Line of Credit, Total	[2],[3]		52,000,000
Senior Secured Revolving Credit Facility [Member]
Long-term Line of Credit, Total	[2],[3],[5]

[1] Does not include our $125.0 million Senior Secured Revolving Credit Facility under which there were no borrowings outstanding as of October 31, 2018.

[2] "Notes payable" on our Consolidated Balance Sheets as of October 31, 2018 and 2017 consists of the total senior secured, senior, senior amortizing and senior exchangeable notes shown above, as well as accrued interest of $35.6 million and $41.8 million, respectively.

[3] Unamortized debt issuance costs at October 31, 2018 and 2017 were $14.1 million and $16.1 million, respectively.

[4] $26.0 million of 8.0% Senior Notes due 2019 are owned by a wholly-owned consolidated subsidiary of HEI. Therefore, in accordance with GAAP, such notes are not reflected on the Consolidated Balance Sheets of HEI.

[5] Availability under the Senior Secured Revolving Credit Facility will terminate on December 28, 2019 and any loans thereunder on such date shall convert to secured term loans maturing on December 28, 2022.

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Note 9 - Senior Notes and Credit Facilities - Senior Notes and Credit Facilities Balances (Details) (Parentheticals)		12 Months Ended
		Oct. 31, 2018		Oct. 31, 2017		Feb. 01, 2018	Dec. 01, 2017	Jul. 27, 2017	Sep. 08, 2016	Nov. 01, 2011
Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage				9.50%
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1]			8.00%
Debt Instrument, Maturity Date	[1]			Nov. 01, 2019
Senior Unsecured Term Loan Credit Facility Due 2027 [Member]
Debt Instrument, Maturity Date		Feb. 01, 2027
The 9.50% 2020 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage		9.50%	[2],[3]	9.50%	[2],[3]				9.50%
Debt Instrument, Maturity Date	[2],[3]	Nov. 15, 2020		Nov. 15, 2020
The 2.0% 2021 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage		2.00%	[2],[3]	2.00%	[2],[3]					2.00%
Debt Instrument, Maturity Date	[2],[3]	Nov. 01, 2021		Nov. 01, 2021
The 5.0% 2021 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage		5.00%	[2],[3]	5.00%	[2],[3]					5.00%
Debt Instrument, Maturity Date	[2],[3]	Nov. 01, 2021		Nov. 01, 2021
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage		10.00%	[2],[3]	10.00%	[2],[3]			10.00%
Debt Instrument, Maturity Date	[2],[3]	Jul. 15, 2022		Jul. 15, 2022
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage		10.50%	[2],[3]	10.50%	[2],[3]			10.50%
Debt Instrument, Maturity Date	[2],[3]	Jul. 15, 2024		Jul. 15, 2024
The 7.0% 2019 Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage						7.00%
The 7.0% 2019 Notes [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[2],[3]	7.00%		7.00%
Debt Instrument, Maturity Date	[2],[3]	Jan. 15, 2019		Jan. 15, 2019
Thirteen and a Half Percent Senior Notes Due 2026 [Member]
Debt Instrument, Interest Rate, Stated Percentage						13.50%
Thirteen and a Half Percent Senior Notes Due 2026 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[2],[3]	13.50%
Debt Instrument, Maturity Date	[2],[3]	Feb. 01, 2026
Five Percent Senior Notes due 2040 [Member]
Debt Instrument, Interest Rate, Stated Percentage						5.00%
Five Percent Senior Notes due 2040 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[2],[3]	5.00%
Debt Instrument, Maturity Date	[2],[3]	Feb. 01, 2040
The 11.0% 2017 Amortizing Note [Member] | Senior Amortizing Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage				11.00%	[2],[3]		11.00%
Debt Instrument, Maturity Date	[2],[3]			Dec. 01, 2017
Senior Exchangeable Notes Due 2017 [Member] | Senior Amortizing Notes [Member]
Debt Instrument, Maturity Date	[2],[3]			Dec. 01, 2017

[1] $26.0 million of 8.0% Senior Notes due 2019 are owned by a wholly-owned consolidated subsidiary of HEI. Therefore, in accordance with GAAP, such notes are not reflected on the Consolidated Balance Sheets of HEI.

[2] "Notes payable" on our Consolidated Balance Sheets as of October 31, 2018 and 2017 consists of the total senior secured, senior, senior amortizing and senior exchangeable notes shown above, as well as accrued interest of $35.6 million and $41.8 million, respectively.

[3] Unamortized debt issuance costs at October 31, 2018 and 2017 were $14.1 million and $16.1 million, respectively.

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Note 9 - Senior Notes and Credit Facilities - Future Maturities of Borrowings (Details) $ in Thousands	Oct. 31, 2018 USD ($)	[1]
2019
2020
2021	75,000
2022	635,000
2023
Thereafter	783,257
Total	$ 1,493,257

[1] Does not include our $125.0 million Senior Secured Revolving Credit Facility under which there were no borrowings outstanding as of October 31, 2018.

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Note 10 - Operating and Reporting Segments (Details Textual) $ in Thousands	3 Months Ended								12 Months Ended
	Oct. 31, 2018 USD ($)	Jul. 31, 2018 USD ($)	Apr. 30, 2018 USD ($)	Jan. 31, 2018 USD ($)	Oct. 31, 2017 USD ($)	Jul. 31, 2017 USD ($)	Apr. 30, 2017 USD ($)	Jan. 31, 2017 USD ($)	Oct. 31, 2018 USD ($)	Oct. 31, 2017 USD ($)	Oct. 31, 2016 USD ($)
Real Estate Inventory Expense Not Eligible for Capitalization									$ 103,297	$ 97,304	$ 90,967
Gain (Loss) on Extinguishment of Debt, Total	$ (1,830)	$ (4,266)	$ (1,440)			$ (42,258)	$ (242)	$ 7,646	(7,536)	(34,854)	(3,200)
Increase (Decrease) In Construction Defect Reserves	$ (10,200)				$ 12,500
Qualifying Assets Not Exceeding Debt [Member]
Real Estate Inventory Expense Not Eligible for Capitalization									76,200	69,100	50,400
Corporate, Non-Segment [Member]
General and Administrative Expense, Total									69,600	59,400	60,100
Gain (Loss) on Extinguishment of Debt, Total									(7,500)	(34,900)	(3,200)
Other Nonoperating Income (Expense), Total									14,100	900	800
Increase (Decrease) In Construction Defect Reserves										12,500	(9,200)
Corporate, Non-Segment [Member] | Qualifying Assets Not Exceeding Debt [Member]
Real Estate Inventory Expense Not Eligible for Capitalization									$ 76,200	$ 69,100	$ 50,400
Homebuilding [Member]
Number of Reportable Segments									6

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Note 10 - Operating and Reporting Segments - Financial Information Relating to Segment Operations (Details) - USD ($) $ in Thousands		3 Months Ended								12 Months Ended
		Oct. 31, 2018	Jul. 31, 2018	Apr. 30, 2018	Jan. 31, 2018	Oct. 31, 2017	Jul. 31, 2017	Apr. 30, 2017	Jan. 31, 2017	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Revenues, Total		$ 614,811	$ 456,712	$ 502,544	$ 417,166	$ 721,686	$ 592,035	$ 585,935	$ 552,009	$ 1,991,233	$ 2,451,665	$ 2,752,247
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total		48,117	78	(9,578)	(30,471)	12,305	(50,173)	(7,699)	323	8,146	(45,244)	2,436
Total interest expense, net										164,086	185,210	182,595
Total depreciation										3,156	4,249	3,565
Net additions to operating properties and equipment										5,193	6,478	8,007
Income from unconsolidated joint ventures		$ 17,134	$ 10,732	$ 1,343	$ (5,176)	$ 3,062	$ (3,881)	$ (4,562)	$ (1,666)	24,033	(7,047)	(4,346)
Corporate, Non-Segment [Member]
Revenues, Total	[1]									5,764	1,066	141
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total	[1]									(139,160)	(174,958)	(105,306)
Total interest expense, net										76,183	69,124	50,387
Total depreciation										1,599	2,999	2,631
Net additions to operating properties and equipment										3,333	2,066	3,988
Homebuilding [Member]
Revenues, Total										1,937,878	2,392,922	2,679,630
Homebuilding [Member] | Operating Segments [Member]
Revenues, Total										1,932,114	2,391,856	2,679,489
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total										129,079	103,317	72,269
Total interest expense, net										87,799	116,716	132,971
Total depreciation										1,543	1,234	893
Net additions to operating properties and equipment										1,860	4,412	3,989
Homebuilding [Member] | Northeast [Member] | Operating Segments [Member]
Revenues, Total										116,296	209,509	278,028
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total										20,869	2,300	(3,869)
Total interest expense, net										11,811	20,308	19,417
Total depreciation										135	71	62
Net additions to operating properties and equipment										142	442	78
Income from unconsolidated joint ventures										20,231	(4,376)	(2,639)
Homebuilding [Member] | Mid-Atlantic [Member] | Operating Segments [Member]
Revenues, Total										354,690	464,126	458,579
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total										18,757	17,191	17,476
Total interest expense, net										15,051	23,886	23,662
Total depreciation										63	50	56
Net additions to operating properties and equipment										318	71	208
Income from unconsolidated joint ventures										799	1,180	(27)
Homebuilding [Member] | Midwest [Member] | Operating Segments [Member]
Revenues, Total										196,599	199,770	311,322
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total										1,528	(1,151)	(11,416)
Total interest expense, net										5,874	7,799	12,275
Total depreciation										1,106	858	497
Net additions to operating properties and equipment										621	3,773	3,180
Income from unconsolidated joint ventures										(775)	(1,424)	(1,304)
Homebuilding [Member] | Southeast [Member] | Operating Segments [Member]
Revenues, Total										241,620	260,402	260,584
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total										(9,914)	(6,199)	(17,791)
Total interest expense, net										14,934	13,646	16,770
Total depreciation										124	83	82
Net additions to operating properties and equipment										701	28	233
Income from unconsolidated joint ventures										(2,032)	837	(1,774)
Homebuilding [Member] | Southwest [Member] | Operating Segments [Member]
Revenues, Total										638,282	827,503	1,028,529
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total										49,852	71,540	84,424
Total interest expense, net										21,820	25,278	37,552
Total depreciation										70	78	104
Net additions to operating properties and equipment										23	18	199
Income from unconsolidated joint ventures										5,165	(306)	(64)
Homebuilding [Member] | West [Member] | Operating Segments [Member]
Revenues, Total										384,627	430,546	342,447
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total										47,987	19,636	3,445
Total interest expense, net										18,309	25,799	23,295
Total depreciation										45	94	92
Net additions to operating properties and equipment										55	80	91
Income from unconsolidated joint ventures										645	(2,958)	1,462
Financial Services [Member]
Revenues, Total										53,355	58,743	72,617
Financial Services [Member] | Operating Segments [Member]
Revenues, Total										53,355	58,743	72,617
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total										18,227	26,397	35,473
Financial services interest expense (1)	[2]									104	(630)	(763)
Total depreciation										14	16	41
Net additions to operating properties and equipment												$ 30

[1] Corporate and unallocated for the year ended October 31, 2018 included corporate general and administrative costs of $69.6 million, interest expense of $76.2 million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of $7.5 million, and $14.1 million of other income and expenses primarily related to interest income and gain on the sale of our former corporate headquarters building, along with the adjustment to our insurance reserves. Corporate and unallocated for the year ended October 31, 2017 included corporate general and administrative costs of $59.4 million, interest expense of $69.1 million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of $34.9 million, $12.5 million adjustment for construction defect reserves (discussed in Note 16) and $0.9 million of other income and expenses primarily related to interest income, rental income, bond amortization and stock compensation. Corporate and unallocated for the year ended October 31, 2016 included corporate general and administrative costs of $60.1 million, interest expense of $50.4 million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of $3.2 million, $(9.2) million adjustment for construction defect reserves (discussed in Note 16) and $0.8 million of other income and expenses primarily related to bond amortization, stock compensation and rental income.

[2] Financial services interest expenses are included in the Financial services lines on the Consolidated Statements of Operations in the respective revenues and expenses sections.

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Note 10 - Operating and Reporting Segments - Financial Information Relating to Segment Financial Position (Details) - USD ($) $ in Thousands	Oct. 31, 2018	Oct. 31, 2017
Assets	$ 1,662,042	$ 1,900,898
Investments in and advances to unconsolidated joint ventures	123,694	115,090
Corporate, Non-Segment [Member]
Assets	229,515	547,554
Investments in and advances to unconsolidated joint ventures	1,382	935
Homebuilding [Member]
Assets	1,497,162	1,738,785
Investments in and advances to unconsolidated joint ventures	123,694	115,090
Homebuilding [Member] | Operating Segments [Member]
Assets	1,267,647	1,191,231
Investments in and advances to unconsolidated joint ventures	122,312	114,155
Homebuilding [Member] | Northeast [Member] | Operating Segments [Member]
Assets	152,607	180,545
Investments in and advances to unconsolidated joint ventures	51,094	36,411
Homebuilding [Member] | Mid-Atlantic [Member] | Operating Segments [Member]
Assets	217,807	224,398
Investments in and advances to unconsolidated joint ventures	7,307	20,873
Homebuilding [Member] | Midwest [Member] | Operating Segments [Member]
Assets	85,398	84,960
Investments in and advances to unconsolidated joint ventures	3,738	4,268
Homebuilding [Member] | Southeast [Member] | Operating Segments [Member]
Assets	246,497	231,644
Investments in and advances to unconsolidated joint ventures	39,509	36,320
Homebuilding [Member] | Southwest [Member] | Operating Segments [Member]
Assets	320,452	294,337
Investments in and advances to unconsolidated joint ventures	18,219	11,832
Homebuilding [Member] | West [Member] | Operating Segments [Member]
Assets	244,886	175,347
Investments in and advances to unconsolidated joint ventures	2,445	4,451
Financial Services [Member]
Assets	164,880	162,113
Financial Services [Member] | Operating Segments [Member]
Assets	$ 164,880	$ 162,113

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Note 11 - Income Taxes (Details Textual) - USD ($) $ in Thousands		3 Months Ended								10 Months Ended	12 Months Ended
	Dec. 22, 2017	Oct. 31, 2018	Jul. 31, 2018	Apr. 30, 2018	Jan. 31, 2018	Oct. 31, 2017	Jul. 31, 2017	Apr. 30, 2017	Jan. 31, 2017	Oct. 31, 2018	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Income Tax Expense (Benefit), Total		$ 1,939	$ 1,104	$ 245	$ 338	$ 464	$ 287,036	$ (1,017)	$ 466		$ 3,626	$ 286,949	$ 5,255
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	35.00%									21.00%	21.00%	35.00%	35.00%
Revaluation of Deferred Tax Asset, Decrease											$ 298,500
Revaluation of Deferred Tax Liabilities, Decrease											12,200
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability											0
Deferred Tax Assets, Valuation Allowance, Total		638,191				918,203				$ 638,191	638,191	$ 918,203
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total		48,117	78	(9,578)	(30,471)	12,305	(50,173)	(7,699)	323		8,146	(45,244)	$ 2,436
Gain (Loss) on Extinguishment of Debt, Total		(1,830)	$ (4,266)	$ (1,440)			$ (42,258)	$ (242)	$ 7,646		(7,536)	$ (34,854)	(3,200)
Increase in Interest Incurred Per Year, Amount											23,400
Effective Income Tax Rate Reconciliation, Prior Year Income Taxes, Refunds on Previous Taxes Paid, Percent												(114.80%)
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued, Total		300								300	300
Unrecognized Tax Benefits, Income Tax Penalties and Interest Expense, Total											41	$ 45	2
Unrecognized Tax Benefits, Period Increase (Decrease), Total												200
Unrecognized Tax Benefits that Would Impact Effective Tax Rate		1,200				$ 1,100				1,200	1,200	1,100
Domestic Tax Authority [Member]
Operating Income (Loss), Total											0	0	(4,400)
Income Tax Expense (Benefit), Total												275,688	2,798
Domestic Tax Authority [Member] | Between 2028 and 2037 [Member]
Operating Loss Carryforwards, Total		1,600,000								1,600,000	1,600,000
Domestic Tax Authority [Member] | Indefinite Tax Period [Member]
Operating Loss Carryforwards, Total		16,400								16,400	16,400
State and Local Jurisdiction [Member]
Operating Income (Loss), Total											(4,400)	(18,200)	(16,400)
Income Tax Expense (Benefit), Total											3,626	$ 11,261	$ 2,457
State and Local Jurisdiction [Member] | Indefinite Tax Period [Member]
Operating Loss Carryforwards, Total		43,300								43,300	43,300
State and Local Jurisdiction [Member] | Between 2019 and 2038 [Member]
Operating Loss Carryforwards, Total		2,500,000								2,500,000	2,500,000
State and Local Jurisdiction [Member] | Between 2019 and 2023 [Member]
Operating Loss Carryforwards, Total		145,300								145,300	145,300
State and Local Jurisdiction [Member] | Between 2024 and 2028 [Member]
Operating Loss Carryforwards, Total		691,200								691,200	691,200
State and Local Jurisdiction [Member] | Between 2029 and 2033 [Member]
Operating Loss Carryforwards, Total		1,300,000								1,300,000	1,300,000
State and Local Jurisdiction [Member] | Between 2034 and 2038 [Member]
Operating Loss Carryforwards, Total		$ 320,000								$ 320,000	$ 320,000

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Note 11 - Income Taxes - Income Taxes Payable (Details) - USD ($) $ in Thousands	Oct. 31, 2018	Oct. 31, 2017
Deferred
Total	3,334	2,227
State and Local Jurisdiction [Member]
Current	3,334	2,227
Deferred
Domestic Tax Authority [Member]
Current
Deferred

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Note 11 - Income Taxes - Provision for Income Taxes (Details) - USD ($) $ in Thousands		3 Months Ended								12 Months Ended
		Oct. 31, 2018	Jul. 31, 2018	Apr. 30, 2018	Jan. 31, 2018	Oct. 31, 2017	Jul. 31, 2017	Apr. 30, 2017	Jan. 31, 2017	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Federal (1)	[1]											$ (2,796)
State (2)	[2]									3,626	1,371	1,200
Total current income tax expense (benefit):										3,626	1,371	(1,596)
Federal											275,688	5,594
State											9,890	1,257
Total deferred income tax expense (benefit):											285,578	6,851
Total		$ 1,939	$ 1,104	$ 245	$ 338	$ 464	$ 287,036	$ (1,017)	$ 466	$ 3,626	$ 286,949	$ 5,255

[1] The current federal income tax expense did not include the use of federal net operating losses for the years ended October 31, 2018 and 2017. The current federal income tax benefit is net of the use of federal net operating losses totaling $4.4 million for the year ended October 31, 2016.

[2] The current state income tax expense (benefit) is net of the use of state net operating losses totaling $4.4 million, $18.2 million and $16.4 million for the years ended October 31, 2018, 2017 and 2016, respectively.

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Note 11 - Income Taxes - Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands	Oct. 31, 2018	Oct. 31, 2017
Inventory impairment loss	$ 60,854	$ 122,584
Uniform capitalization of overhead	4,183	5,766
Warranty and legal reserves	4,774	8,763
Acquisition intangibles	1,185	4,420
Other	14,030	23,366
Joint venture loss	3,384	12,028
Federal net operating losses	334,971	549,862
State net operating losses	191,064	172,307
Total deferred tax assets	638,191	948,668
Debt repurchase income		30,465
Total deferred tax liabilities		30,465
Valuation allowance	(638,191)	(918,203)
Net deferred income taxes
Provision for Losses [Member]
Other	18,044	38,831
Restricted Stock [Member]
Share based compensation	1,344	4,202
Employee Stock Option [Member]
Share based compensation	$ 4,358	$ 6,539

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Note 11 - Income Taxes - Effective Tax Rate (Details)			10 Months Ended	12 Months Ended
		Dec. 22, 2017	Oct. 31, 2018	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Computed “expected” tax rate		35.00%	21.00%	21.00%	35.00%	35.00%
State income taxes, net of federal income tax benefit				17.20%	1.00%	65.40%
Permanent differences, net				74.00%	(2.40%)	222.20%
Deferred tax asset valuation allowance impact				(70.80%)	(667.80%)
Tax contingencies				1.00%		0.30%
Adjustments to prior years’ tax accruals(1)	[1]			2.10%		(107.20%)
Effective tax rate				44.50%	(634.20%)	215.70%

[1] For the year ended October 31, 2017, the adjustments to prior years’ tax accruals includes the impact of a federal specified liability loss refund of taxes paid in fiscal year 2002 of (114.8%).

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Note 11 - Income Taxes - Unrecognized Benefits (Details) - USD ($) $ in Millions	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017
Unrecognized tax benefit—November 1,	$ 1.1	$ 1.1
Gross increases—tax positions in current period	0.3	0.2
Lapse of statute of limitations	(0.2)	(0.2)
Unrecognized tax benefit—October 31,	$ 1.2	$ 1.1

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Note 12 - Reduction of Inventory to Fair Value (Details Textual) $ in Millions	12 Months Ended
	Oct. 31, 2018 USD ($)	Oct. 31, 2017 USD ($)	Oct. 31, 2016 USD ($)
Number of Communities Evaluated for Impairment	391	372
Number of Communities Performed Detailed Impairment Calculations	5	12
Carrying Value of Communities Tested for Impairment	$ 11.2	$ 98.0
Impairment of Real Estate	2.1	15.1	$ 24.5
Land Option Write Offs	1.4	2.7	8.9
Homebuilding [Member]
Impairment of Real Estate	$ 2.1	$ 15.1	$ 24.5
Number of Communities Impaired	5	10	20
Number of Communities Tested for Impairment for Which Undiscounted Future Cash Flow Only Exceeded Carrying Amount By Less Than 20 Percent		2
Carrying Value of Communities Tested for Impairment for Which Undiscounted Future Cash Flow Only Exceeded Carrying Amount by Less than 20 Percent		$ 45.0
Percentage Undiscounted Cash Flow Exceeds Carrying Amount		20.00%
Land Option Write Offs	$ 1.4	$ 2.7	$ 8.9
Homebuilding [Member] | Minimum [Member] | Measurement Input, Discount Rate [Member]
Inventory, Measurement Input	0.168	0.183	0.168
Homebuilding [Member] | Maximum [Member] | Measurement Input, Discount Rate [Member]
Inventory, Measurement Input	0.198	0.198	0.188

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Note 12 - Reduction of Inventory to Fair Value - Inventory Impairments by Homebuilding Segment (Details) $ in Millions		12 Months Ended
		Oct. 31, 2018 USD ($)	Oct. 31, 2017 USD ($)	Oct. 31, 2016 USD ($)
Dollar amount of impairment		$ 2.1	$ 15.1	$ 24.5
Homebuilding [Member]
Number of communities		5	10	20
Dollar amount of impairment		$ 2.1	$ 15.1	$ 24.5
Pre-impairment value	[1]	$ 11.2	$ 52.9	$ 88.4
Homebuilding [Member] | Northeast [Member]
Number of communities		1	2	5
Dollar amount of impairment		$ 0.4	$ 3.3	$ 9.5
Pre-impairment value	[1]	$ 1.0	$ 22.2	$ 33.8
Homebuilding [Member] | Mid-Atlantic [Member]
Number of communities			1
Dollar amount of impairment			$ 1.5
Pre-impairment value	[1]		$ 8.5
Homebuilding [Member] | Midwest [Member]
Number of communities		1	2	12
Dollar amount of impairment		$ 0.1	$ 0.2	$ 13.5
Pre-impairment value	[1]	$ 0.5	$ 0.8	$ 43.7
Homebuilding [Member] | Southeast [Member]
Number of communities		3	3	3
Dollar amount of impairment		$ 1.6	$ 8.1	$ 1.5
Pre-impairment value	[1]	$ 9.7	$ 18.3	$ 10.9
Homebuilding [Member] | Southwest [Member]
Number of communities
Dollar amount of impairment
Pre-impairment value	[1]
Homebuilding [Member] | West [Member]
Number of communities			2
Dollar amount of impairment			$ 2.0
Pre-impairment value	[1]		$ 3.1

[1] Represents carrying value, net of prior period impairments, if any, at the time of recording the applicable period's impairments.

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Note 12 - Reduction of Inventory to Fair Value - Write-offs and Lots Walked Away From (Details) - USD ($) $ in Millions	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Amount of write-offs	$ 1.4	$ 2.7	$ 8.9
Homebuilding [Member]
Amount of write-offs	1.4	2.7	8.9
Homebuilding [Member] | Northeast [Member]
Amount of write-offs	0.6	0.5	1.6
Homebuilding [Member] | Mid-Atlantic [Member]
Amount of write-offs	0.2	0.6	0.8
Homebuilding [Member] | Midwest [Member]
Amount of write-offs	0.1	0.3	1.3
Homebuilding [Member] | Southeast [Member]
Amount of write-offs		0.8	1.8
Homebuilding [Member] | Southwest [Member]
Amount of write-offs	0.2	0.4	3.2
Homebuilding [Member] | West [Member]
Amount of write-offs	$ 0.3	$ 0.1	$ 0.2

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Note 13 - Per Share Calculations (Details Textual) - shares shares in Millions	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Exchangeable Note Unit Rate Stated Percentage	6.00%
Non Vested Stock and Outstanding Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount		2.7	4.4
Convertible Debt Securities [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0.8	10.0	14.6
Out of the Money Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	5.4	4.6	7.3

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Note 13 - Per Share Calculations - Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended								12 Months Ended
	Oct. 31, 2018	Jul. 31, 2018	Apr. 30, 2018	Jan. 31, 2018	Oct. 31, 2017	Jul. 31, 2017	Apr. 30, 2017	Jan. 31, 2017	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Net earnings (loss) attributable to Hovnanian	$ 46,178	$ (1,026)	$ (9,823)	$ (30,809)	$ 11,841	$ (337,209)	$ (6,682)	$ (143)	$ 4,520	$ (332,193)	$ (2,819)
Less: undistributed earnings allocated to nonvested shares									(159)
Numerator for basic earnings per share									4,361	(332,193)	(2,819)
Plus: undistributed earnings allocated to nonvested shares									159
Less: undistributed earnings reallocated to nonvested shares									(159)
Numerator for diluted earnings per share									$ 4,361	$ (332,193)	$ (2,819)
Denominator for basic earnings per share (in shares)	148,925	148,669	148,435	148,028	147,905	147,748	147,558	147,535	148,515	147,703	147,451
Share-based payments (in shares)									3,271
Denominator for diluted earnings per share – weighted-average shares outstanding (in shares)	151,929	148,669	148,435	148,028	160,548	147,748	147,558	147,535	151,786	147,703	147,451
Net income (loss) per common share (in dollars per share)	$ 0.30	$ (0.01)	$ (0.07)	$ (0.21)	$ 0.08	$ (2.28)	$ (0.05)	$ 0	$ 0.03	$ (2.25)	$ (0.02)
Diluted earnings (loss) per share (in dollars per share)	$ 0.29	$ (0.01)	$ (0.07)	$ (0.21)	$ 0.08	$ (2.28)	$ (0.05)	$ 0	$ 0.03	$ (2.25)	$ (0.02)

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Note 14 - Capital Stock (Details Textual) $ / shares in Units, $ in Thousands		12 Months Ended
	Jul. 12, 2005 $ / shares shares	Oct. 31, 2018 USD ($) shares	Oct. 31, 2017 USD ($) shares	Oct. 31, 2016 USD ($)	Dec. 05, 2008	Aug. 15, 2008	Aug. 04, 2008	Jul. 03, 2001 shares
Common Stock Dividends Percent of Increase from Class A to Class B		110.00%
Conversion of Stock From Class B to Class A Conversion Ratio		1
Shareholder Ownership Percentage of Increase							50.00%
Preferred Stock, Shares Issued, Total		5,600	5,600
Defined Benefit Plan, Plan Assets, Contributions by Employer | $		$ 7,000	$ 6,800	$ 6,600
Minimum [Member]
Shareholder Ownership Percentage							5.00%
Common Class A [Member]
Common Stock Voting Rights Votes per Share Number		1
Shareholder Ownership Percentage						4.90%
Number of Rights						1
Shareholders Pre Existing Ownership Percentage					5.00%
Shareholders Current Ownership Percentage					5.00%
Shareholders Ownership Percentage on Transfers					5.00%
Shareholders Ownership Percentage Threshold					5.00%
Stock Repurchase Program, Number of Shares Authorized to be Repurchased								4,000,000
Stock Repurchased During Period, Shares		0
Stock Repurchase Program, Remaining Number of Shares Authorized to be Repurchased		500,000
Common Class B [Member]
Common Stock Voting Rights Votes per Share Number		10
Preferred Class A [Member]
Preferred Stock, Shares Issued, Total	5,600
Preferred Stock, Dividend Rate, Percentage	7.625%
Preferred Stock, Liquidation Preference Per Share | $ / shares	$ 25,000
Preferred Stock, Depositary Shares, Number of Shares of Preferred Stock in Each Depositary Share	0.001
Payments of Dividends, Total | $		$ 0	$ 0	$ 0

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Note 15 - Stock Plans (Details Textual) $ / shares in Units, $ in Thousands	12 Months Ended
	Oct. 31, 2018 USD ($) $ / shares shares	Oct. 31, 2017 USD ($) $ / shares shares	Oct. 31, 2016 USD ($) $ / shares shares
Allocated Share-based Compensation Expense, Total | $	$ 3,700	$ 600	$ 2,900
Allocated Share-based Compensation Expense, Net of Tax | $	$ 2,000		2,300
Share-based Compensation Arrangement by Share-based Payment Award, Number of Installments	4
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value | $	$ 26	$ 12
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value | $			$ 0
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Lower Range Limit | $ / shares	$ 1.54
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Upper Range Limit | $ / shares	6.28
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares	1.08	$ 1.33	$ 1
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Weighted Average Exercise Price | $ / shares	$ 2.78	$ 2.60	$ 2.55
Share-based Compensation Arrangement by Share-based Payment Award, Participants Years of Service	15 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	2,423,148
Share-based Compensation, Total | $	$ 3,669	$ 557	$ 2,921
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	2,129,073
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance	5,175,258	6,174,477
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	5,000,000
Stock Issued During Period, Shares, Share-based Compensation, Forfeited	2,100,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total | $	$ 5,100
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	1 year 182 days
Nonemployee Director [Member]
Number of Directors	5
Employee Stock Option [Member]
Allocated Share-based Compensation Expense, Total | $	$ 700	$ 500	500
Share-based Compensation Income | $			$ 1,500
Performance Shares, Including LTIP [Member]
Share-based Compensation, Reverse of Previously Recognized Expense | $		2,000
Restricted Stock [Member]
Allocated Share-based Compensation Expense, Total | $		$ 2,100
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period	507,278	366,513	456,070
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period		452,500	33,125
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other Than Options Vested, Number	540,229	312,419	224,326
Restricted Stock [Member] | Prior Period [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period	148,424	101,218	176,944
Restricted Stock [Member] | Participants With Service Requirement [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Participants Age	58 years
Restricted Stock [Member] | Nonemployee Director [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Installments	3
Share-based Compensation Arrangement by Share-based Payment Award, Post-vesting Holding Period	2 years
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period	397,590	298,388	356,382
Restricted Stock [Member] | Participants Without Service Requirement [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Participants Age	60 years
Performance Shares [Member]
Share-based Compensation, Reverse of Previously Recognized Expense | $			$ 2,100
Awards Other Than Options [Member]
Share-based Compensation, Total | $	$ 2,800	$ 21	$ 4,300
Target 2016 LTIP Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	2,400,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Previous Period, Net of Forfeited in Current Period	300,000
Target 2018 LTIP Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	800,000
Market Stock Units [Member]
Share-based Compensation, Reverse of Previously Recognized Expense | $	$ 800
Share-based Compensation Arrangement by Share-based Payment Award, Number of Installments	4
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	850,000	850,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance	3,000,000
Share-based Compensation Arrangement By Share-based Compensation Award Fair Value Measurement Period	60 days
Market Stock Units [Member] | Two Year [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate		1.35%	0.73%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate	48.41%	57.93%	56.50%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%	0.00%	0.00%
Market Stock Units [Member] | Two and a Half Year [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate	2.56%	1.43%	0.81%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate	51.92%	54.61%	52.77%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%	0.00%	0.00%
Market Stock Units [Member] | Three Year [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate		1.49%	0.87%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate	56.11%	52.66%	50.34%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%	0.00%	0.00%
Market Stock Units [Member] | Four Year [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate	2.68%	1.63%	1.02%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate	52.59%	48.85%	52.36%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%	0.00%	0.00%
Market Stock Units [Member] | Five Year [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate		1.76%	1.17%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate	49.57%	50.78%	61.08%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%	0.00%	0.00%
Market Stock Units [Member] | Share-based Compensation Award, Tranche One [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	50.00%
Market Stock Units [Member] | Minimum [Member]
Percentage of Target Number of Shares Covered by MSU Awards	0.00%
Market Stock Units [Member] | Maximum [Member]
Percentage of Target Number of Shares Covered by MSU Awards	200.00%
Market Stock Units [Member] | Fiscal Year 2016 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period	58,733
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance	675,000
Market Stock Units [Member] | Fiscal Year 2015 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period	96,925
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance	400,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Adjustment for Shares Grants in Previous Period	104,377
Market Stock Units [Member] | Fiscal Year 2014 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance	200,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Adjustment for Shares Grants in Previous Period	200,000
Performance Based MSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Installments	4
Performance Based MSUs [Member] | Share-based Compensation Award, Tranche Two [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	50.00%
Equity Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate	2.80%	2.05%	1.38%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate	0.50%	0.53%	0.61%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term	8 years	7 years 233 days	7 years 131 days
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Estimated Forfeiture Rate	9.90%	9.92%	10.90%

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Note 15 - Stock Plans - Stock Option Activity (Details) - $ / shares	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Options outstanding at beginning of period (in shares)	6,860,701	7,373,951	6,393,876
Options outstanding at beginning of period (in dollars per share)	$ 3.40	$ 4.03	$ 4.78
Granted (in shares)	945,625	236,250	1,148,481
Granted (in dollars per share)	$ 2.25	$ 2.34	$ 1.95
Exercised (in shares)	30,250	48,250
Exercised (in dollars per share)	$ 2	$ 2.07
Forfeited (in shares)	50,000	452,375	51,125
Forfeited (in dollars per share)	$ 2.57	$ 5.85	$ 2.73
Expired (in shares)	761,750	248,875	117,281
Expired (in dollars per share)	$ 6.28	$ 16.68	$ 25.05
Options outstanding at end of period (in shares)	6,964,326	6,860,701	7,373,951
Options outstanding at end of period (in dollars per share)	$ 2.95	$ 3.40	$ 4.03
Options exercisable at end of period (in shares)	4,793,490	5,259,011	5,071,181

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Note 15 - Stock Plans - Stock Options Outstanding and Exercisable (Details)	12 Months Ended
	Oct. 31, 2018 $ / shares shares
Lower limit exercise price (in dollars per share)	$ 1.54
Upper limit exercise price (in dollars per share)	$ 6.28
Number outstanding (in shares) | shares	6,964,326
Weighted-average exercise price - outstanding (in dollars per share)	$ 2.95
Weighted-average remaining contractual life - outstanding (Year)	4 years 160 days
Number exercisable (in shares) | shares	4,793,490
Weighted-average exercise price - exercisable (in dollars per share)	$ 3.29
Weighted-average remaining contractual life - exercisable (Year)	2 years 222 days
Range One [Member]
Lower limit exercise price (in dollars per share)	$ 1.54
Upper limit exercise price (in dollars per share)	$ 2.41
Number outstanding (in shares) | shares	2,645,784
Weighted-average exercise price - outstanding (in dollars per share)	$ 2
Weighted-average remaining contractual life - outstanding (Year)	6 years 116 days
Number exercisable (in shares) | shares	1,108,534
Weighted-average exercise price - exercisable (in dollars per share)	$ 1.97
Weighted-average remaining contractual life - exercisable (Year)	3 years 237 days
Range Two [Member]
Lower limit exercise price (in dollars per share)	$ 2.42
Upper limit exercise price (in dollars per share)	$ 4.41
Number outstanding (in shares) | shares	3,004,042
Weighted-average exercise price - outstanding (in dollars per share)	$ 2.77
Weighted-average remaining contractual life - outstanding (Year)	3 years 208 days
Number exercisable (in shares) | shares	2,370,456
Weighted-average exercise price - exercisable (in dollars per share)	$ 2.81
Weighted-average remaining contractual life - exercisable (Year)	2 years 32 days
Range Three [Member]
Lower limit exercise price (in dollars per share)	$ 4.42
Upper limit exercise price (in dollars per share)	$ 6.28
Number outstanding (in shares) | shares	1,314,500
Weighted-average exercise price - outstanding (in dollars per share)	$ 5.27
Weighted-average remaining contractual life - outstanding (Year)	2 years 240 days
Number exercisable (in shares) | shares	1,314,500
Weighted-average exercise price - exercisable (in dollars per share)	$ 5.27
Weighted-average remaining contractual life - exercisable (Year)	2 years 240 days

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Note 15 - Stock Plans - Nonvested Share Awards (Details)	12 Months Ended
	Oct. 31, 2018 $ / shares shares
Nonvested at beginning of period (in shares) | shares	6,174,477
Nonvested at beginning of period (in dollars per share) | $ / shares	$ 2.36
Granted (in shares) | shares	2,129,073
Granted (in dollars per share) | $ / shares	$ 2.55
Vested (in shares) | shares	705,144
Vested (in dollars per share) | $ / shares	$ 2.31
Forfeited (in shares) | shares	2,423,148
Forfeited (in dollars per share) | $ / shares	$ 1.98
Nonvested at end of period (in shares) | shares	5,175,258
Nonvested at end of period (in dollars per share) | $ / shares	$ 2.62

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Note 16 - Warranty Costs (Details Textual) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2018	Oct. 31, 2017
Cash Received from Subcontractors for Owner Controlled Insurance Program			$ 4,600	$ 4,100
General Liability Insurance Deductible	$ 20,000	$ 20,000	20,000	20,000
Bodily Injury Insurance Deductible	250	250	250	250
Bodily Injury Insurance Limit	5,000	5,000	5,000	5,000
Aggregate Retention for Construction Defects Warranty and Bodily Injury Claims	20,000	21,000	20,000	21,000
Increase (Decrease) In Construction Defect Reserves	$ (10,200)	12,500
Standard Product Warranty Accrual, Period Increase (Decrease), Total		$ 4,600
Payments by Insurance Companies for Claims			$ 200	$ 900

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Note 16 - Warranty Costs - Warranty and General Liability Reserve (Details) - USD ($) $ in Thousands	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017
Balance, beginning of period	$ 127,702	$ 121,144
Charges incurred during the period	(43,462)	(28,019)
Changes to pre-existing reserves	(15,380)	7,872
Balance, end of period	95,064	127,702
Selling, General and Administrative Expenses [Member]
Additions	9,024	10,870
Cost of Sales [Member]
Additions	$ 17,180	$ 15,835

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Note 17 - Transactions With Related Parties (Details Textual) - USD ($)	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Tavit Najarian [Member]
Related Party Transaction, Amounts of Transaction	$ 700,000	$ 800,000	$ 1,000,000
Carson Sorsby [Member] | Compensation [Member]
Related Party Transaction, Amounts of Transaction	148,000	191,000	152,000
Alexander Hovnanian [Member] | Compensation [Member]
Related Party Transaction, Amounts of Transaction	$ 514,000	$ 336,000	$ 166,000

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Note 18 - Commitments and Contingent Liabilities (Details Textual) - USD ($) $ in Millions					12 Months Ended
	May 02, 2018	Jan. 12, 2018	Dec. 15, 2017	Jun. 01, 2017	Oct. 31, 2018	Feb. 16, 2018
EPA Case Involving a Housing Redevelopment Project in Newark, New Jersey [Member]
Loss Contingency, Percentage of Plaintiff's Costs for Which Reimbursement is Demanded	100.00%
Loss Contingency, Damages Sought, Value	$ 2.7
Grandview at Riverwalk Port Imperial Condominium Association Construction Defect Lawsuit [Member]
Loss Contingency, Damages Sought, Value					$ 41.3
Loss Contingency, Damages Awarded, Value				$ 9.0
Litigation Settlement, Amount Awarded to Other Party		$ 10.4
Loss Contingency, Supersedeas Bond						$ 11.1
Grandview at Riverwalk Port Imperial Condominium Association Construction Defect Lawsuit [Member] | Breach of Warranty and New Jersey Fraud Claims Prior to Statutory Trebling [Member]
Loss Contingency, Damages Awarded, Value				$ 3.0
Grandview at Riverwalk Port Imperial Condominium Association Construction Defect Lawsuit [Member] | Attorney Fees and Costs [Member]
Litigation Settlement, Amount Awarded to Other Party			$ 1.4
Great Notch Condominium Claims[Member]
Loss Contingency, Damages Sought, Value					$ 119.5

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Note 19 - Variable Interest Entities (Details Textual) $ in Millions	Oct. 31, 2018 USD ($)
Deposits Associated with Land and Lot Options of Unconsolidated Variable Interest Entities	$ 59
Purchase Price Associated with Land and Lot Options of Unconsolidated Variable Interest Entities	$ 1,200

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Note 20 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures (Details Textual) $ in Thousands	3 Months Ended								12 Months Ended
	Oct. 31, 2018 USD ($)	Jul. 31, 2018 USD ($)	Apr. 30, 2018 USD ($)	Jan. 31, 2018 USD ($)	Oct. 31, 2017 USD ($)	Jul. 31, 2017 USD ($)	Apr. 30, 2017 USD ($)	Jan. 31, 2017 USD ($)	Oct. 31, 2018 USD ($)	Oct. 31, 2017 USD ($)	Oct. 31, 2016 USD ($)
Number of Owned Communities Transferred to the Joint Venture								1
Number of Optioned Communities Transferred to the Joint Venture								3
Proceeds from Transfer of Land to Joint Venture								$ 11,200
Fair Value of Assets Acquired				$ 13,000
Investments in and Advance to Affiliates, Subsidiaries, Associates, and Joint Ventures, Total	$ 123,694				$ 115,090				$ 123,694	$ 115,090
Revenues, Total	$ 614,811	$ 456,712	$ 502,544	$ 417,166	721,686	$ 592,035	$ 585,935	$ 552,009	$ 1,991,233	2,451,665	$ 2,752,247
Joint Venture Total Debt to Capitalization Ratio	45.00%								45.00%
Joint Ventures in Northeast [Member]
Joint Venture Impairment Charge									$ 700
Joint Ventures in Mid-Atlantic [Member]
Joint Venture Impairment Charge									600
Homebuilding [Member]
Investments in and Advance to Affiliates, Subsidiaries, Associates, and Joint Ventures, Total	$ 123,694				115,090				123,694	115,090
Revenues, Total									1,937,878	2,392,922	2,679,630
Homebuilding [Member] | Management Fees [Member]
Revenues, Total									21,100	11,300	$ 5,800
Corporate Joint Venture [Member]
Advances to Affiliate	$ 4,600				$ 22,400				$ 4,600	$ 22,400
Joint Venture Total Debt to Capitalization Ratio	45.00%				51.00%				45.00%	51.00%

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Note 20 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures - Unconsolidated Homebuilding and Land Development Joint Ventures (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Oct. 31, 2018	Jul. 31, 2018	Apr. 30, 2018	Jan. 31, 2018	Oct. 31, 2017	Jul. 31, 2017	Apr. 30, 2017	Jan. 31, 2017	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Debt to capitalization ratio	45.00%								45.00%
Our share of net income (loss)	$ 17,134	$ 10,732	$ 1,343	$ (5,176)	$ 3,062	$ (3,881)	$ (4,562)	$ (1,666)	$ 24,033	$ (7,047)	$ (4,346)
Corporate Joint Venture [Member]
Cash and cash equivalents	52,285				60,774				52,285	60,774
Inventories	514,654				675,179				514,654	675,179
Other assets	35,105				36,026				35,105	36,026
Total assets	602,044				771,979				602,044	771,979
Accounts payable and accrued liabilities	79,854				122,075				79,854	122,075
Notes payable	236,665				330,642				236,665	330,642
Total liabilities	316,519				452,717				316,519	452,717
Hovnanian Enterprises, Inc.	119,319				92,630				119,319	92,630
Others	166,206				226,632				166,206	226,632
Total equity	285,525				319,262				285,525	319,262
Total liabilities and equity	$ 602,044				$ 771,979				$ 602,044	$ 771,979
Debt to capitalization ratio	45.00%				51.00%				45.00%	51.00%
Revenues									$ 609,099	$ 317,849	147,717
Cost of sales and expenses									(582,279)	(329,147)	(165,534)
Joint venture net income (loss)									26,820	(11,298)	(17,817)
Our share of net income (loss)									24,527	(6,663)	(4,326)
Homebuilding Joint Venture [Member] | Corporate Joint Venture [Member]
Cash and cash equivalents	$ 50,010				$ 60,580				50,010	60,580
Inventories	506,650				666,017				506,650	666,017
Other assets	35,105				36,026				35,105	36,026
Total assets	591,765				762,623				591,765	762,623
Accounts payable and accrued liabilities	79,108				121,646				79,108	121,646
Notes payable	236,665				330,642				236,665	330,642
Total liabilities	315,773				452,288				315,773	452,288
Hovnanian Enterprises, Inc.	114,950				88,884				114,950	88,884
Others	161,042				221,451				161,042	221,451
Total equity	275,992				310,335				275,992	310,335
Total liabilities and equity	$ 591,765				$ 762,623				$ 591,765	$ 762,623
Debt to capitalization ratio	46.00%				52.00%				46.00%	52.00%
Revenues									$ 602,681	$ 312,164	141,418
Cost of sales and expenses									(577,106)	(324,514)	(159,431)
Joint venture net income (loss)									25,575	(12,350)	(18,013)
Our share of net income (loss)									23,904	(7,189)	(4,424)
Land Development Joint Venture [Member] | Corporate Joint Venture [Member]
Cash and cash equivalents	$ 2,275				$ 194				2,275	194
Inventories	8,004				9,162				8,004	9,162
Other assets
Total assets	10,279				9,356				10,279	9,356
Accounts payable and accrued liabilities	746				429				746	429
Notes payable
Total liabilities	746				429				746	429
Hovnanian Enterprises, Inc.	4,369				3,746				4,369	3,746
Others	5,164				5,181				5,164	5,181
Total equity	9,533				8,927				9,533	8,927
Total liabilities and equity	$ 10,279				$ 9,356				$ 10,279	$ 9,356
Debt to capitalization ratio	0.00%				0.00%				0.00%	0.00%
Revenues									$ 6,418	$ 5,685	6,299
Cost of sales and expenses									(5,173)	(4,633)	(6,103)
Joint venture net income (loss)									1,245	1,052	196
Our share of net income (loss)									$ 623	$ 526	$ 98

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Note 21 - Fair Value of Financial Instruments (Details Textual) - USD ($) $ in Millions	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Loans Held for Sale Mortgages Unpaid Principal	$ 127.6	$ 128.4
Other Commitment, Total	26.5
Impairment of Real Estate	2.1	$ 15.1	$ 24.5
Loan Origination Commitments [Member]
Loan Applications in Process	$ 429.0
Loan Origination Commitments [Member] | Maximum [Member]
Number of Days in Committment	60 days
Interest Rate Committed Loan Applications [Member]
Interest Rate Committed Loan Applications	$ 41.5

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Note 21 - Fair Value of Financial Instruments - Financial Instruments Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands		Oct. 31, 2018	Oct. 31, 2017
Total		$ 130,694	$ 132,425
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Mortgage loans held for sale	[1]	130,709	132,424
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Interest Rate Lock Commitments [Member]
Derivative Fair Value		(28)	(14)
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Forward Contracts [Member]
Derivative Fair Value		$ 13	$ 15

[1] The aggregate unpaid principal balance was $127.6 million and $128.4 million at October 31, 2018 and 2017, respectively.

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Note 21 - Fair Value of Financial Instruments - Changes in Fair Values Included in Income (Loss) (Details) - Financial Services Revenue Line Item [Member] - USD ($) $ in Thousands	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Loans Held for Sale [Member]
Fair value included in net loss all reflected in financial services revenues	$ 3,115	$ 4,256	$ 4,711
Interest Rate Lock Commitments [Member]
Fair value included in net loss all reflected in financial services revenues	(28)	(14)	(73)
Forward Contracts [Member]
Fair value included in net loss all reflected in financial services revenues	$ 13	$ 15	$ (422)

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Note 21 - Fair Value of Financial Instruments - Assets Measured at Fair Value on a Nonrecurring Basis (Details) - USD ($) $ in Thousands	12 Months Ended
	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Total Losses	$ (2,100)	$ (15,100)	$ (24,500)
Sold and Unsold Homes and Lots Under Development [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Pre-impairment value	11,170	30,022
Total Losses	(2,117)	(11,658)
Fair Value of Inventory	9,053	18,364
Land and Land Options Held for Future Development or Sale [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Pre-impairment value		22,850
Total Losses		(3,403)
Fair Value of Inventory		$ 19,447

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Note 21 - Fair Value of Financial Instruments - Fair Value of Notes (Details) - USD ($)	Oct. 31, 2018	Feb. 01, 2018	Oct. 31, 2017
Notes, Fair Value	$ 1,154,631,000		$ 1,620,326,000
Fair Value, Inputs, Level 1 [Member]
Notes, Fair Value
Fair Value, Inputs, Level 2 [Member]
Notes, Fair Value	1,039,947,000		383,699,000
Fair Value, Inputs, Level 3 [Member]
Notes, Fair Value	114,684,000		1,236,627,000
Thirteen and a Half Percent Senior Notes Due 2026 [Member]
Notes, Fair Value		$ 103,000,000
Five Percent Senior Notes due 2040 [Member]
Notes, Fair Value		$ 44,000,000
Senior Secured Notes [Member] | 9.5% Senior Secured Notes Due 2020 [Member]
Notes, Fair Value	74,250,000		75,750,000
Senior Secured Notes [Member] | 9.5% Senior Secured Notes Due 2020 [Member] | Fair Value, Inputs, Level 1 [Member]
Notes, Fair Value
Senior Secured Notes [Member] | 9.5% Senior Secured Notes Due 2020 [Member] | Fair Value, Inputs, Level 2 [Member]
Notes, Fair Value
Senior Secured Notes [Member] | 9.5% Senior Secured Notes Due 2020 [Member] | Fair Value, Inputs, Level 3 [Member]
Notes, Fair Value	74,250,000		75,750,000
Senior Secured Notes [Member] | The 2.0% 2021 Notes [Member]
Notes, Fair Value	40,434,000		44,425,000
Senior Secured Notes [Member] | The 2.0% 2021 Notes [Member] | Fair Value, Inputs, Level 1 [Member]
Notes, Fair Value
Senior Secured Notes [Member] | The 2.0% 2021 Notes [Member] | Fair Value, Inputs, Level 2 [Member]
Notes, Fair Value
Senior Secured Notes [Member] | The 2.0% 2021 Notes [Member] | Fair Value, Inputs, Level 3 [Member]
Notes, Fair Value	40,434,000		44,425,000
Senior Secured Notes [Member] | The 5.0% 2021 Notes [Member]
Notes, Fair Value	124,781,000		132,580,000
Senior Secured Notes [Member] | The 5.0% 2021 Notes [Member] | Fair Value, Inputs, Level 1 [Member]
Notes, Fair Value
Senior Secured Notes [Member] | The 5.0% 2021 Notes [Member] | Fair Value, Inputs, Level 2 [Member]
Notes, Fair Value	124,781,000
Senior Secured Notes [Member] | The 5.0% 2021 Notes [Member] | Fair Value, Inputs, Level 3 [Member]
Notes, Fair Value			132,580,000
Senior Secured Notes [Member] | The 10.0% 2022 Notes [Member]
Notes, Fair Value	424,670,000		479,600,000
Senior Secured Notes [Member] | The 10.0% 2022 Notes [Member] | Fair Value, Inputs, Level 1 [Member]
Notes, Fair Value
Senior Secured Notes [Member] | The 10.0% 2022 Notes [Member] | Fair Value, Inputs, Level 2 [Member]
Notes, Fair Value	424,670,000
Senior Secured Notes [Member] | The 10.0% 2022 Notes [Member] | Fair Value, Inputs, Level 3 [Member]
Notes, Fair Value			479,600,000
Senior Secured Notes [Member] | The 10.5% 2024 Notes [Member]
Notes, Fair Value	366,720,000		448,000,000
Senior Secured Notes [Member] | The 10.5% 2024 Notes [Member] | Fair Value, Inputs, Level 1 [Member]
Notes, Fair Value
Senior Secured Notes [Member] | The 10.5% 2024 Notes [Member] | Fair Value, Inputs, Level 2 [Member]
Notes, Fair Value	366,720,000
Senior Secured Notes [Member] | The 10.5% 2024 Notes [Member] | Fair Value, Inputs, Level 3 [Member]
Notes, Fair Value			448,000,000
Senior Notes [Member] | Thirteen and a Half Percent Senior Notes Due 2026 [Member]
Notes, Fair Value	88,148,000
Senior Notes [Member] | Thirteen and a Half Percent Senior Notes Due 2026 [Member] | Fair Value, Inputs, Level 1 [Member]
Notes, Fair Value
Senior Notes [Member] | Thirteen and a Half Percent Senior Notes Due 2026 [Member] | Fair Value, Inputs, Level 2 [Member]
Notes, Fair Value	88,148,000
Senior Notes [Member] | Thirteen and a Half Percent Senior Notes Due 2026 [Member] | Fair Value, Inputs, Level 3 [Member]
Notes, Fair Value
Senior Notes [Member] | The 7.0% 2019 Notes [Member]
Notes, Fair Value			131,221,000
Senior Notes [Member] | The 7.0% 2019 Notes [Member] | Fair Value, Inputs, Level 1 [Member]
Notes, Fair Value
Senior Notes [Member] | The 7.0% 2019 Notes [Member] | Fair Value, Inputs, Level 2 [Member]
Notes, Fair Value			131,221,000
Senior Notes [Member] | The 7.0% 2019 Notes [Member] | Fair Value, Inputs, Level 3 [Member]
Notes, Fair Value
Senior Notes [Member] | Five Percent Senior Notes due 2040 [Member]
Notes, Fair Value	35,628,000
Senior Notes [Member] | Five Percent Senior Notes due 2040 [Member] | Fair Value, Inputs, Level 1 [Member]
Notes, Fair Value
Senior Notes [Member] | Five Percent Senior Notes due 2040 [Member] | Fair Value, Inputs, Level 2 [Member]
Notes, Fair Value	35,628,000
Senior Notes [Member] | Five Percent Senior Notes due 2040 [Member] | Fair Value, Inputs, Level 3 [Member]
Notes, Fair Value
Senior Notes [Member] | The 8.0% Senior Notes Due 2019 [Member]
Notes, Fair Value			252,478,000
Senior Notes [Member] | The 8.0% Senior Notes Due 2019 [Member] | Fair Value, Inputs, Level 1 [Member]
Notes, Fair Value
Senior Notes [Member] | The 8.0% Senior Notes Due 2019 [Member] | Fair Value, Inputs, Level 2 [Member]
Notes, Fair Value			252,478,000
Senior Notes [Member] | The 8.0% Senior Notes Due 2019 [Member] | Fair Value, Inputs, Level 3 [Member]
Notes, Fair Value
Senior Amortizing Notes [Member] | The 11.0% 2017 Amortizing Note [Member]
Notes, Fair Value			2,055,000
Senior Amortizing Notes [Member] | The 11.0% 2017 Amortizing Note [Member] | Fair Value, Inputs, Level 1 [Member]
Notes, Fair Value
Senior Amortizing Notes [Member] | The 11.0% 2017 Amortizing Note [Member] | Fair Value, Inputs, Level 2 [Member]
Notes, Fair Value
Senior Amortizing Notes [Member] | The 11.0% 2017 Amortizing Note [Member] | Fair Value, Inputs, Level 3 [Member]
Notes, Fair Value			2,055,000
Senior Exchangeable Notes [Member] | Senior Exchangeable Notes Due 2017 [Member]
Notes, Fair Value			54,217,000
Senior Exchangeable Notes [Member] | Senior Exchangeable Notes Due 2017 [Member] | Fair Value, Inputs, Level 1 [Member]
Notes, Fair Value
Senior Exchangeable Notes [Member] | Senior Exchangeable Notes Due 2017 [Member] | Fair Value, Inputs, Level 2 [Member]
Notes, Fair Value
Senior Exchangeable Notes [Member] | Senior Exchangeable Notes Due 2017 [Member] | Fair Value, Inputs, Level 3 [Member]
Notes, Fair Value			$ 54,217,000

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Note 21 - Fair Value of Financial Instruments - Fair Value of Notes (Details) (Parentheticals)		12 Months Ended
		Oct. 31, 2018		Oct. 31, 2017		Feb. 01, 2018	Dec. 01, 2017	Jul. 27, 2017	Nov. 01, 2011
Senior Secured Notes [Member]
Debt Instrument, Stated Interest Rate				9.50%
Senior Exchangeable Notes [Member]
Debt Instrument, Stated Interest Rate							6.00%
9.5% Senior Secured Notes Due 2020 [Member] | Senior Secured Notes [Member]
Debt Instrument, Stated Interest Rate		9.50%		9.50%
Debt Instrument, Maturity Date		Nov. 15, 2020		Nov. 15, 2020
The 2.0% 2021 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Stated Interest Rate		2.00%	[1],[2]	2.00%	[1],[2]				2.00%
Debt Instrument, Maturity Date	[1],[2]	Nov. 01, 2021		Nov. 01, 2021
The 5.0% 2021 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Stated Interest Rate		5.00%	[1],[2]	5.00%	[1],[2]				5.00%
Debt Instrument, Maturity Date	[1],[2]	Nov. 01, 2021		Nov. 01, 2021
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Stated Interest Rate		10.00%	[1],[2]	10.00%	[1],[2]			10.00%
Debt Instrument, Maturity Date	[1],[2]	Jul. 15, 2022		Jul. 15, 2022
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Stated Interest Rate		10.50%	[1],[2]	10.50%	[1],[2]			10.50%
Debt Instrument, Maturity Date	[1],[2]	Jul. 15, 2024		Jul. 15, 2024
The 10.5% 2024 Notes [Member] | Senior Notes [Member]
Debt Instrument, Stated Interest Rate		10.50%
Thirteen and a Half Percent Senior Notes Due 2026 [Member]
Debt Instrument, Stated Interest Rate						13.50%
Thirteen and a Half Percent Senior Notes Due 2026 [Member] | Senior Notes [Member]
Debt Instrument, Stated Interest Rate		13.50%
Debt Instrument, Maturity Date		Feb. 01, 2026
The 7.0% 2019 Notes [Member]
Debt Instrument, Stated Interest Rate						7.00%
The 7.0% 2019 Notes [Member] | Senior Notes [Member]
Debt Instrument, Stated Interest Rate		7.00%		7.00%
Debt Instrument, Maturity Date				Jan. 15, 2019
Five Percent Senior Notes due 2040 [Member]
Debt Instrument, Stated Interest Rate						5.00%
Five Percent Senior Notes due 2040 [Member] | Senior Notes [Member]
Debt Instrument, Stated Interest Rate		5.00%
Debt Instrument, Maturity Date		Feb. 01, 2040
The 8.0% Senior Notes Due 2019 [Member] | Senior Notes [Member]
Debt Instrument, Stated Interest Rate				8.00%
Debt Instrument, Maturity Date				Nov. 01, 2019
The 11.0% 2017 Amortizing Note [Member] | Senior Amortizing Notes [Member]
Debt Instrument, Stated Interest Rate				11.00%	[1],[2]		11.00%
Debt Instrument, Maturity Date	[1],[2]			Dec. 01, 2017
Senior Exchangeable Notes Due 2017 [Member] | Senior Amortizing Notes [Member]
Debt Instrument, Maturity Date	[1],[2]			Dec. 01, 2017
Senior Exchangeable Notes Due 2017 [Member] | Senior Exchangeable Notes [Member]
Debt Instrument, Maturity Date				Dec. 01, 2017

[1] "Notes payable" on our Consolidated Balance Sheets as of October 31, 2018 and 2017 consists of the total senior secured, senior, senior amortizing and senior exchangeable notes shown above, as well as accrued interest of $35.6 million and $41.8 million, respectively.

[2] Unamortized debt issuance costs at October 31, 2018 and 2017 were $14.1 million and $16.1 million, respectively.

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Note 22 - Unaudited Summarized Consolidated Quarterly Information - Summarized Quarterly Financial Information (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended								12 Months Ended
	Oct. 31, 2018	Jul. 31, 2018	Apr. 30, 2018	Jan. 31, 2018	Oct. 31, 2017	Jul. 31, 2017	Apr. 30, 2017	Jan. 31, 2017	Oct. 31, 2018	Oct. 31, 2017	Oct. 31, 2016
Revenues	$ 614,811	$ 456,712	$ 502,544	$ 417,166	$ 721,686	$ 592,035	$ 585,935	$ 552,009	$ 1,991,233	$ 2,451,665	$ 2,752,247
Expenses	581,680	463,004	509,352	442,047	703,964	591,872	586,877	554,482
Inventory impairment loss and land option write-offs	318	96	2,673	414	8,479	4,197	1,953	3,184	3,501	17,813	33,353
Loss on extinguishment of debt	(1,830)	(4,266)	(1,440)			(42,258)	(242)	7,646	(7,536)	(34,854)	(3,200)
Income (loss) from unconsolidated joint ventures	17,134	10,732	1,343	(5,176)	3,062	(3,881)	(4,562)	(1,666)	24,033	(7,047)	(4,346)
Income (loss) before income taxes	48,117	78	(9,578)	(30,471)	12,305	(50,173)	(7,699)	323	8,146	(45,244)	2,436
State and federal income tax provision	1,939	1,104	245	338	464	287,036	(1,017)	466	3,626	286,949	5,255
Net income (loss)	$ 46,178	$ (1,026)	$ (9,823)	$ (30,809)	$ 11,841	$ (337,209)	$ (6,682)	$ (143)	$ 4,520	$ (332,193)	$ (2,819)
Net income (loss) per common share (in dollars per share)	$ 0.30	$ (0.01)	$ (0.07)	$ (0.21)	$ 0.08	$ (2.28)	$ (0.05)	$ 0	$ 0.03	$ (2.25)	$ (0.02)
Weighted-average number of common shares outstanding (in shares)	148,925	148,669	148,435	148,028	147,905	147,748	147,558	147,535	148,515	147,703	147,451
Net income (loss) per common share (in dollars per share)	$ 0.29	$ (0.01)	$ (0.07)	$ (0.21)	$ 0.08	$ (2.28)	$ (0.05)	$ 0	$ 0.03	$ (2.25)	$ (0.02)
Weighted-average number of common shares outstanding (in shares)	151,929	148,669	148,435	148,028	160,548	147,748	147,558	147,535	151,786	147,703	147,451