That's Me In The Corner, Losing My Deposit
While there have been a few tales of people voluntarily walking away from their down payments because their equity was already annihilated before it was time to close, there’s another side to the coin: Those people who are involuntarily losing their deposits because the declining market is causing banks to require buyers put up more…
While there have been a few tales of people voluntarily walking away from their down payments because their equity was already annihilated before it was time to close, there’s another side to the coin: Those people who are involuntarily losing their deposits because the declining market is causing banks to require buyers put up more than their original 10 percent. And in many cases, the buyers can’t come up with the extra cash so they are losing what they already put down. In these cases, the developer gets to keep the cash, but has to go out and try to resell the apartment at much lower prices. The poster children for this phenomenon are the Pham family, who scraped together every last penny they had to put down $93,199 on a two-bedroom condo in Hoboken in 2005; when it came time to finally close last fall the they found they were going to need to put up another $150,000 or so. It would take us another 15 years to save that money again, Ms. Pham said. End of story: The Phams remain in their old apartment and Toll Brothers keeps the dough. Another buyer had a slightly better ending: They were able to end up buying a smaller unit than the one they were originally in contract for from the same developer. Anyone know instances of this type of thing happening in Brooklyn?
Up in Smoke: The Deposit Vanishes [NY Times]
Full disclosure….I went into contract without an inspection (I’ve done so many houses that I can do that myself) and without a mortgage contingency. I had a commitment letter for more than I needed already and the house was vacant so there’d be no drawn out move in issues. Contract was in May and closed in June of 2007. There was no sign of anything turning down and I got a full docs 30 year mortgage. It was an individual seller, not a developer.
“In these cases, the developer gets to keep the cash, but has to go out and try to resell the apartment at much lower prices.”
Who, if anyone, polices that? What would stop Toll Bros. from selling that same apt. for the same price the Pham’s agreed to pay?
“Who in their right mind agrees to that garbage???”
maybe people who drank the koolaid for 4 years about how they were fools not to buy and were flushing their money away by renting?
BIff, you are correct. During the bubble there were those that would pay without inspections and mortgage or lawyer contingencies. They did so at their own peril but hopefully most of them either had the cash or were more certain of the mortgage. These people were most likely certain of their mortgage but things changed! I’m wondering how much of a delay ocurrred due to the developer. Toll Brothers is usually a reputable organization.
The behavior of the developers may be legal, but it is disgusting. Should I ever find myself in a position to buy a condo, I won’t. I can’t imagine anyone who ever read that article would.
“the developer made them sign”….
Who in their right mind agrees to that garbage??? Foolishness.
I thought during the housing bubble that most sellers were not agreeing to contracts contingent on financing or even contingent on inspections as there were always other buyers that would pay close to asking or above without requesting to include such contingencies in their contracts. I assumed this was yet just another quirk of the unique and very bizarre New York real estate process.
article says “until late last year, virtually all developers required buyers to sign noncontingent contracts”.
That surprised me – I thought, at least for existing houses/coops/condos as opposed to new construction , pretty much everybody did contracts w/ mortgage contingencies. The exceptions might have been during the height of the bubble when a buyer would try to win out in a bidding war by agreeing to no contingency if they planned to pay cash.
Snappy…the developer made them sign contracts that did not allow for a mortgage contingency. That, in and of itself, should have been a red flag, especially to a real estate agent.