Builders within the Peninsula at Amberly development in western Cary will be able to apply for building permits through a new arrangement with the town that'll require them to offer a substitute cash payment on a per lot basis, sidestepping the original financial guarantees required by the developer.

The town had placed a hold on the issuance of new building permits at the Peninsula at Amberly in June, after developer Sandler at Amberly was unable to follow through on its construction guarantees.

The developer, a subsidiary of Virginia Beach, Va., company L.M. Sandler & Sons, was slowed when its lender collapsed.

Cary requires construction guarantees from developers at all subdivisions. The fees help fund improvements to public infrastructure, such as roads and water and sewer lines.

The guarantees - letters of credit or cash - are required if the infrastructure isn't in place by the time homes are built.

Sandler couldn't follow through.

Messages seeking comment from Sandler were not immediately returned.

"This is truly an unexpected and unprecedented event in the town," Councilman Don Frantz said. "It's nobody's fault."

Sandler at Amberly submitted letters of credit worth $158,642.24 for two phases of the project that already had homes in place or had sold plots to builders. That was in 2006 and 2007.

In 2008 and 2009, the town pressed the developer to complete the work and, when it didn't, issued claims against the developer for the financial guarantees. That's when the Federal Deposit Insurance Corporation told the town that the issuing bank, AmTrust Bank, had closed.

Builders and neighbors have been concerned about the status of the neighborhood ever since.

Cary is still trying to get the work completed by the developer. But town engineers aren't sure when it'll happen.

The new substitute agreement would be due prior to issuing a building permit. Builders would pay half up front and the rest when the certificate of occupancy is issued. The money would be collected in place of the letters of credit, offsetting capital expenditures the town might incur to complete the work.

All the funds would be pooled together to make the infrastructure improvements.

Once there's enough money, the town would start a public infrastructure program in each phase. The completion of the work will depend on the pace of development.

If development is slow, it could mean a considerable amount of time before enough funds are in place.

The town estimated that the cost of the improvements is higher now because some of the improvements that were in place have already been worn down. "Time hurt us," engineering director Tim Bailey said. "What was there deteriorated."

The estimated cost for both phases of development is now about $295,610, a difference of 139,967.76 from the value of the original letters of credit.

But the town council voted last week to charge the builders based on the original letters of credit. The town also plans to amend an ordinance so that substitute financial guarantees could be applied in developments where banks fail.

"I really don't like it," Councilman Jack Smith said. "At the same time, when you weigh doing nothing, I think the situation is worse. We really have to keep working on how do we work differently in today's world?"

Only Cary Mayor Harold Weinbrecht voted against the proposal.

He worried about setting a precedent - one that could be felt by taxpayers if other developers sought similar relief.

Town staff also warned that using the smaller amount could be a financial risk.

"[The original letters of credit] did not include cost for warranty items such as defects in workmanship and materials and using these figures would result in increased financial risk to the town if the town were to make the improvements," an engineering staff report said.

There are 26 lots without building permits remaining in those phases of the project. There are three independent builders who own undeveloped lots within those two phases. Sandler of Amberly still owns the majority of the property in phases three and four of the development, which weren't considered.