Summary of December 26, 2006 Omnibus Hearing

On December 26, 2006, the Court held an omnibus hearing addressing the following items:

1. Debtors' Motion to pay pre-petition expenses and wages to Kara Birbach Geller & Co., Ltd.'s employees: Kara Birbach Geller & Co., Ltd. is a non-debtor affiliate and employs salespersons that assist the Debtors in connection with the sale of homes to the public. The Committee did not object to the Motion provided that the Debtors confirm that as a condition to receiving pre-petition expenses and wages, any eligible employee must currently work at Kara Birbach Geller & Co., Ltd. National City Bank and TD Banknorth also filed objections to the Debtors' motion. The Court denied the Motion without prejudice.

2. Debtors’ Motion to incur post-petition debt for winterization and completion of construction of Kara at Enclave II, LLC.: The Debtors entered into an agreement with First Constitution Bank, the pre-petition bank lender to Kara at Enclave II, LLC, to provide financing for winterization and completion of a residential real estate development owned by Kara at Enclave II, LLC and known as Country Meadow. The terms of the post-petition loan provided for $75,369.00 for winterization and preservation of the assets and $1,316,831.00 for completion of the construction. The court approved the portion of the financing that provided for winterization and rescheduled the remainder of the financing for the project until the hearing date scheduled for January 8, 2007.

3. Motion enjoining Atlantic City Electric from altering, refusing and/or discontinuing utility service to Debtors: This motion was resolved and a consent order will be submitted to the Court.

4. Debtors' application to pay expense reimbursement fees to Bear Stearns with respect to securing construction financing facility on a first priority lien basis: The Debtors are seeking to pay $75,000 to Bear Stearns as reimbursement for fees and expenses in connection with securing a $40 million construction financing facility. There were several objections to the Motion and as a consequence, the hearing was adjourned until January 8, 2007 at 11:00 am.

5. Re-hearing on December 14, 2006 Order allowing Debtors to sell designated homes: The Debtors moved to re-hear the motion to sell homes granted on December 14, 2006 because certain construction lien holders did not receive service and the title company refused to issue a policy to allow closings to take place. This motion was reopened and the Court granted the motion to sell designated homes.

6. Motion by Landlord, Metropark South, LLC ("Metropark"), to lift automatic stay to permit (a) physical inspection of premises; (b) initiation of legal action in surrender of premises; and (c) exercise of set-off rights against security deposit: Metropark is the landlord of certain of the Debtors' administrative offices located in Matawan, New Jersey. The Debtors do not need the offices for an effective reorganization and did not object. The Court granted this motion.

7. Motion for relief from the stay to resume superior court matters filed on behalf of Jose Gualberto, Assis Braulio and Jose Ferreira: This issue was resolved and the parties will submit a consent order allowing the civil cases to proceed with the provision that plaintiffs will not seek affirmative recovery against the estates, but rather, will seek recovery from the insurance policy in effect.

8. Barry Rosengarten's motion for reconsideration of the Court’s order authorizing the sale of real property located at 11 Marissa Court, Middletown, New Jersey: This motion was adjourned until January 8, 2006 at 11:00 am.

9. H&D Prime Construction's ("H&D") motion for limited relief from the stay with respect to 10 Tradewinds Lane, Sea Bright, New Jersey: H&D's motion sought relief from the automatic stay to enforce its construction lien claim filed against the real property known as 10 Tradewinds Lane, Sea Bright, New Jersey. H&D is a roofing and siding contractor that provided work and supplied materials to the Debtors. The Debtors did not object to H&D proceeding in Superior Court of New Jersey to enforce its construction lien against the property located at 10 Tradewinds Lane, Sea Bright, New Jersey. The Court granted H&D’s requested relief from the stay.

10. Debtors' request for entry of a Bridge Order: The Debtors filed the request for entry of a Bridge Order to extend the time that the Debtors have to comply with Section 362(d)(3) of the Bankruptcy Code until the Court hears the motion to extend the date by which Debtors must file plans of reorganization or commence monthly payments to pre-petition secured creditors pursuant to Section 362(d)(3) of the Bankruptcy Code (the "Motion"). The Motion is scheduled to be heard on January 8, 2007. The Court denied the request for a Bridge Order because the 90 day time period provided in Section 362(d)(3) will not expire prior to January 8, 2007 and therefore the relief is not necessary.

The next omnibus hearing date is scheduled for January 8, 2006 at 11:00 am in Trenton, New Jersey.

Motion to Pay Expense Reimbursement Fees to Bear Stearns

The Debtors have filed a motion to pay an expense reimbursement to Bear Stearns Investment Products, Inc. ("Bear Stearns") in connection with exploring and seeking to secure a $40 million construction financing facility that would be secured by a first priority priming lien on the Debtors' assets. The fee sought to be paid initially is $75,000. In addition, in the event a commitment for financing is issued by Bear Stearns, the Debtors seek authority to pay an additional $100,000 on account of fees and expenses to be incurred in consummating the financing transaction.

Bear Stearns is willing to explore construction financing to fund construction on certain projects that are subject to existing contracts of sale, however, in order to move forward, Bear Stearns requires an initial expense reimbursement for due diligence fees, advisory fees and legal fees associated with the negotiation and preparation of the financing documents. The $75,000 would be paid from the existing facility previously provided by Bear Stearns. The second $100,000 fee is to be paid from the existing facility as well, however only on the issuance of a commitment to finance from Bear Stearns. The Motion indicates that if the fees are less, Bear Stearns will remit the difference from the $100,000 expense reimbursement.

Retention of Special Transactional Counsel

The Debtors have filed an Application to Retain Rabinowitz, Trenk, et al., as special transactional counsel to the Debtors. The retention application is to allow the Debtors to employ special counsel to assist with transactions the Debtors will be seeking to complete pursuant to Sections 363 and 364 of the Bankruptcy Code. Those transactions include sales of assets as well as the obtaining of credit on the debtors' behalf. Given the number of issues that the Debtors and their professionals are dealing with at the same time, the retention of special transactional counsel will allow the CRO and the Debtors' other professionals to remain focused on the reorganization prospects of the Debtors' business.

Important Website Links

United States Bankruptcy Court for the District of New Jersey: http://www.njb.uscourts.gov/

Office of the United States Trustee: http://www.usdoj.gov/ust/r03/nj.htm

Kara Homes Corporate Website: http://www.karahomes.com/

Summary of December 11 Hearing

On December 11, 2006, the Court held an omnibus hearing addressing the following items:

1. Motion to sell additional 12 homes: This motion was approved over the objections of several lenders to the form of the order. An order will be submitted to the Court in accordance with the Court's directive and will be entered shortly allowing the closings of the homes identified on the Exhibit in the ordinary course.

2. Motion for an Order to comply with Section 1102 of the Bankruptcy Code: This motion was granted without objection. The motion provides for the establishment of this website and the posting of information relevant to the bankruptcy cases for general unsecured creditors to access and for the Committee to fulfill their duties and obligations.

3. Motion to Compel Closing on Real Estate: This motion was resolved to allow the closing to move forward with some minor contract adjustments.

4. Retention Application of Sullivan & Co as consultants to the Debtors: This application was adjourned to January 8, 2007 at 1:00 pm.

5. Motion to Compel assumption or Rejection of Contracts by Bonding Companies: This motion was adjourned to January 8, 2007 at 1:00 pm.

6. Motion to Lift Automatic Stay to allow certain personal injury cases to move forward and continue in state court: This motion was adjourned to January 22, 2007 at 1:00 pm.

The next omnibus hearing date is scheduled for December 26, 2006 at 1:00 pm in Trenton, New Jersey.

Summary of December 1 Hearing

DIP Financing

On December 1, 2006, the Court, over the objections of the secured lenders and other creditors, granted the Debtors' motion to obtain post-petition financing from Bear Stearns Investment Products, Inc. ("Bear Stearns"). The Order entered on December 5, 2006 authorized the Debtor to receive the balance of a $2,600,000 revolving line of credit from Bear Stearns. The post-petition financing is necessary for the Debtors to continue their businesses and to manage and preserve the assets of their estates. The interest on the loan is due monthly and accrues at a rate of 15% per annum. The entire loan is due on the earlier of the confirmation of the plan of reorganization; conversion to a Chapter 7 case; the 180th day following entry of the order approving the loan; appointment of a trustee; or a default under the loan agreement.
In order to secure the post-petition loan, Bear Stearns received a first priority security interest in all assets that were not otherwise encumbered, including all proceeds from avoidance actions up to the first $350,000 of the recovery and then half of all recoveries over $700,000. In addition, Bear Stearns received a perfected lien and security interest in all of the Debtors' collateral junior to all other security interests in the collateral that were validly perfected before the post-petition loan was approved. Lastly, Bear Stearns was granted a superpriority administrative claim for the loan.

Motion authorizing the Debtors to pay employees of Kara Birbach Geller & Co., Ltd.
Kara Birbach Geller & Co. is a non-debtor affiliate that employs salepeople involved in the sale of homes to the public. The employees continue to work for the Debtors and this motion sought to continue to pay the employees of Kara Birbach Geller & Co. in the ordinary course. There were no objections to this motion and the Court granted the motion.

Motion enjoining Atlantic City Electric from discontinuing utility service
The Court rescheduled this Motion to December 26, 2006 at 1:00 pm.

Summary of November 27, 2006 Hearing

On November 27, 2006, the Court held an omnibus hearing to address the following matters:
1. Motion for authority to continue to sell homes;
2. Application for retention of Sullivan & Co. as financial advisor to Debtors;
3. Bond Safeguard's and Lexon's motion to compel Debtor to assume or reject
executory contracts;
4. Motion for termination of contract of Seoung and Donna Baik;
5. Cross-motion for order converting Debtors cases to Chapter 7; and
6. Motion to amend November 13 Order authorizing payment of outstanding taxes to
Monroe Township from the proceeds of sale of the 9 properties.

Motion for authority to continue to sell homes
Several creditors filed objections to this motion based on the broad language of the motion. The creditors did not object to selling homes that were completed and did not need additional work, however, they objected to the general language of the motion to permit Debtors to continue to sell all homes without providing other critical information. Based on the objections and pre-hearing discussions, the Debtors agreed to withdraw the motion and file motions to sell specific homes as they are completed and prepared to close. In fact, such a motion has been filed with regard to 12 specific homes for which the Debtors seek authority to close and is returnable on December 11, 2006 at 1:00 p.m.

Application for retention of Sullivan & Co. as financial advisor to Debtors
This application was rescheduled until a date in January, 2007.

Bond Safeguard's and Lexon's motion to compel Debtor to assume or reject executory contracts
Three parties filed objections to this motion. The Committee filed an objection arguing that the bankruptcy case was still in its infancy and therefore it was premature to require the Debtors to decide whether or not the contracts were beneficial to the estate and should be assumed. Another bonding company filed an objection arguing that a bonding/surety contract is not executory and therefore the relief requested is not appropriate. At the hearing, counsel for Bond Safeguard and Lexon consented to an adjournment of the motion until the next omnibus hearing date on December 11, 2006 at 1:00pm.

Motion for termination of contract of Seoung and Donna Baik
The Debtors objected to this motion and the Committee joined in the objection to the extent that the relief requested by Seoung and Donna Baik was inappropriate. The Court agreed with the Debtors and the Committee and denied the motion, subject to entrynrty of a consent order which provided that the movants could take reasonable steps to protect the structure from the elements and winterize the property and that the Debtors shall file a motion to assume or reject this contract returnable on or before January 8, 2007.

Cross-motion for order converting Debtors cases to Chapter 7
The cross-motion to convert to Chapter 7 filed by North Fork Bank was rescheduled for the omnibus hearing on January 8, 2007 at 1:00 pm.

Motion to amend November 13 Order authorizing payment of outstanding taxes to Monroe Township from the proceeds of sale of the 9 properties
A certificate of consent was filed to the court and a consent order was entered to amend the November 13 Order authorizing sale of 9 properties to direct payment of outstanding taxes to Monroe Township at closing of the sale of Monroe property.

Future Court Dates
The final hearing on DIP Financing is scheduled for Friday, December 1, 2006 at 9:00 a.m.
The next omnibus hearing date is scheduled for Monday, December 11, 2006 at 1:00 p.m.