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]
Snappy – i saw the same show and was horrified. especially since the old owners had 2 children living there – they were just plain and simple people who did not care to notice their surroundings.
this article is sad. i have bought a few houses and have always had a mortgage contigency. DIBS – it’s just simple prudent to have one, even if you are confident that you don’t need one.
The Pham’s condo was in Hoboken? In NJ both the seller and the buyer are required to have an attorney represent them. So I’m quite surprised that the attorney didn’t strongly advise against this. I know our attorney insisted that we have the provision included in our contract (private home, not a condo).
That said, how many years did we go with nobody having any problems getting mortgages. Then very suddenly the rules changed. Now it seems crazy to us to do this but back in the day it was the norm.
A lot of these people got caught in the eye f the storm just when the rug got yanked away.
Hard lessons learned.
The article also says that they borrowed on their equity in the Hoboken place. If things were that tight they also should have only gone for a place ciontingent upon the sale of their existing property whic; in that environment, would have been impossible to find anyway.
NY’ers who bought new construction and are faced with this kind of situation should immediately file a down payment dispute (it’s in your offering plan) with AG’s office. NY AG is NOTORIOUSLY, and rightfully so, buyer friendly. They take the regulation of new construction condos very seriously. Part of that is making sure sophisticated developers do not take advantage of less-sophisticated buyers.
Snappy;
I guess the only way to explain it is the old formula:
irrational exuberance = bubble!
DIBS, you’re probably right that the bubble peaked after I purchased my place, but I can tell you that is was certainly getting “frothy” at that time.
Benson, it’s nice to know that not everyone during this time was making such crazy demands, but it again begs the question, why would anyone sign something that didn’t allow for such contingencies? I guess folks truly were without good guidance and/or were easily pressured.
benson…i think the bubble ran well into 2007. Some would argue that it didn’t peak until sometime in early 2008. But, you’re right, traditionally, a mortgage contingency was always allowed. I suspect things changed somewhere in 2006 though.
Folks;
This is just one data point. I purchased a Boymelgreen-Katan condo at almost the peak of the bubble – late 2004. In the case of this development team, they certainly allowed both a mortgage and inspection contingency. I am somewhat shocked to find that other developers did not allow these contingencies, and that people would accept such a deal. Just want to point out, however, that not every developer was demanding these terms.
I’m sure the developers also promised that the building would be complete in a few months time.