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]
Miss Muffet, I’m all for personal responsibility, hence my annoyance at the Phams for signing this thing without the mortgage contingency, but I still think in this type of situation the bank has a bit of blood on their hands.
Why in the hell are we bailing out banks, etc. and f’ing with interest rates and the like in a push to get banks to lend $$ to home buyers when the bank turns around and yanks funding and is thereafter reluctant, if not out right refusing, to give loans on previously guaranteed terms? Again, I say it’s not fair for the bank to wait until closing and change the game to Gin Rummy instead of Uno. It all stinks to high heaven.
Thanks for the clarification K91.
“If the non-savvy drove up R.E. prices with their, for lack of a better phrase, real estate ineptitude, what is the excuse of the savvy? Why don’t they just refuse to buy until the market looks like it does now?”
I think there are a lot of us who have been refusing to buy for many years now…
Some of us were savvy and some of us were lucky.
I can’t claim to be all that savvy, because I was in no position to think about buying before 2006, and by that time things were pretty clearly overpriced (compared to renting).
Snappy,
You are right and wrong. You are right in thinking that a sponsor’s attorney can draft a purchase agreement as he/she sees fit. And trust me, a sponsor’s attorney would love to draft language such as what you have proposed and have it stick.
However, you are wrong in thinking that if there’s a conflict between the offering plan and the purchase agreement, the PA controls. New construction purchase agreements MUST ALWAYS defer to what is in the offering plan, and if they don’t then the AG/courts will make it defer. And offering plan’s are required by law to notify a purchaser’s right (also by law) to apply for a down payment dispute determinations by the AG’s office.
So in this order – 1) Law 2)Offering plan: which is basically law 3)Purchase agreement
In case of a RESALE, you are correct. There’s no AG or plan to look out for buyers.
Here’s more:
“(viii) Disputes.
(a) In the event of a dispute, the sponsor shall apply and the purchaser or the escrow agent holding the down payments in escrow may apply to the Attorney General for a determination on the disposition of the down payment and any interest earned thereon. Forms for this purpose will be available from the Department of Law. The party applying shall contemporaneously send to all other
parties a copy of such application.”
I hear you, snappy, but I certainly never had the guts to buy something with 10% down. In fact, all during the bubble, mortgage brokers were practically throwing huge mortgage offers our way (the same way we got tons of credit card solicitations, which we routinely turned down). Despite the brokers’ assurances that we could “afford” such high mortgages, it always struck me that they were living in some parallel universe, since I could see by my down-to-earth budget that the mortgage payments they would would require would put us under too much financial strain. But then, I’m the kind of person who pays off my credit card balance in full each month. I guess what I’m saying is that while yes, the banks are at fault (the same way that credit card companies are), I also think it’s wrong to absolve buyers of all responsibility when they were in many cases simply over-stretching, with no Plan B. This is why I think in the current crisis, everybody needs to also look inwards and adopt more personal responsibility. I am to the left politically, by the way, so think the gov’t does have a big role to play in this with regulation etc but individual responsibility must factor into the equation too.
“my answer to this was to ensure my mortgage before buying – that is, I would never have signed a contract to buy something unless I knew that I could get the mortgage.”
Sounds to me like the people getting screwed now also “knew” they could get a mortgage, then closing time came and the Bank decided the game was Gin Rummy instead of Uno. This hardly sounds like something the buyer could be faulted for.
Miss Muffett…you’re right, under normal 30-60 day closing situations. These buyers signed a contract in 2005 but the story says that it wasn’t until Sept 2007 that the closing was to occur. The terms of 99.9% of mortgages wouldn’t hold that long. If this was a mortgage offered by a captive broker to the developer its even more egregious.
If I was the developer, I would return them their deposit. I don’t care what the contracts say, TB stole their money, legally or not. They still stole it.
Contracts are written by lawyers for lawyers. These people just thought they were buying a condo. I guarantee they had no clue that there was a chance they would lose their entire deposit due to technical clauses in a contract that was probably over 50 pages long.
TB, being a recognized name, should return their deposit, and also to whoever else got screwed by the bank. How do we know that there wasn’t any backroom deals between TB and the banks. Could easily be the case. Both would make millions extra by having the banks change their policies at the last second.
DIBS and Snappy – In my statement above I was operating under the assumption that the contract was void as the buyer was unable to close and the developer declared them in default. I was not viewing it from a perspective of ongoing litigation were the deposit funds were still being held in escrow. I understand that is what the story states but it was not clear to me that that was the same scenario you were both discussing above. My apologies for not following your question and answer exchange correctly.
bxgrl – I think DIBS’s first post sums up the lesson to be learned here. I am not trying to be disingenuous, I am just trying to be rational. Moving forward with a non-contingent (mortgage) contract with only a pre-approval letter from a bank is like walking the high-wire without a net. Macro economic conditions did conspire against many like these buyers, but to suggest that the buyer be absolved from all responsibility in the matter is a bit much.
I am pretty sure the buyer in this case had other options at their disposal and not all developers were offering non-contingent contracts. While I, as a seller, proposed non-contingent contracts I was, on occasion, willing to remove the contingency if other particulars of the deal met with my approval.
Also, the developers lender probably required non-contingent contracts.