Question-and-Answer Session
Operator
Your first question comes from the line of David Goldberg - UBS.
David Goldberg - UBS
If you could maybe start by talking about how comfortable you are with the liquidity position that your land bankers have and just give some general ideas of how the land banks adjust; how that’s financed and any concerns that you might have about liquidity problems for the bankers.
Larry W. Seay
Yes, we have leans recorded on the assets that are controlled by the land bankers. So we have Memorandums of Option recorded and so that gives us lean rights to the extent that those lean rights are subordinated to first lenders of the land bankers.
We typically get some tri-party agreement and a recognition agreement where the lender agrees to honor the option agreement even if the loan is in default because the land banker’s defaulted. Accordingly, we think we’re very well protected from issues that land bankers themselves might have regarding the liquidity.
Steven J. Hilton
I’ll just add to that, David, we haven’t had any situations that we can recall, where we wanted to buy a lot and we couldn’t because the land banker couldn’t deliver it to us.
David Goldberg - UBS
That’s great. And my follow up question was, Steve, you mentioned the four JVs that have gotten notices of default?
Steven J. Hilton
Yes.
David Goldberg - UBS
I was wondering if you could give us an idea of the potential scenarios, how that might play out? Is there any chance you might end up just consolidating it and buying the JVs out? And maybe just how the negotiations are structured and what the possible outcomes are?
Larry W. Seay
We think we’re well protected on the legal side from somehow that debt ever becoming recourse and us having to pay it off and having to consolidate the venture. On the other hand, there may be occasions where we think it’s the best interest to Meritage two potentially buy the lots out of a venture. I don’t think that’s going to be a scenario that happens often, but it could be a potential scenario.
David Goldberg - UBS
So it’s not clear how those four are going to work out, if we just look forward?
Steven J. Hilton
I think it’s pretty clear. It’s pretty clear and we really tried to make it clear with the slides and the presentation that we made today that the risk of us making a significant investment in any of those ventures is pretty minimal.
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