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]
No offense taken Dave. As you probably know by now, I’ll be the first one to admit what areas I know nothing about. Which is why I ask so many questions about real estate and finance. There are plenty of people out there who will hold themselves out as experts or even semi-knowledgeable when they in fact are as clueless as I am. It’s scary, but people have got to be careful and surround themselves with true experts before jumping into all of this. It may save some heartache or at the very least make them aware of the heartache-inducing possibilities, no matter how remote.
I never understood the logic of contracting to by condo just on floor plans and brochures for bldgs barely in construction. You’d never know when they’d be finished or really what looked like (and views). And now I’m I hear people put deposit down with no mortgage contingincy?
and no other way to back out?
Developers in 2005 were pretty aggressive, and in my experience in 2006, new developments came with an ‘exclusive’ mortgage broker. Who would invariably be a slimebag. We briefly considered a new condo, but the policy (exactly like this one) sent us running. I could totally see, though, how someone could be bullied into it.
Snappy….this is definitely not meant to pick on you but to be held up as a real life example. I don’t remember what kind of law you said was your specialty but you are a lawyer. This should serve as an example that just because a friend is a lawyer, said lawyer knows the ins and outs of residential real estate. Get a real estate lawyer, people.
When I bought my condo in Manhattan, the seller, a bartender, got one of the patrons from some swanky Park Ave law fiorm to represent him. My lawyer had to hand hold him through the entire process.
Again, apologies to Snappy.
If all they had was the 10%, why were they buying a condo this expensive in the first place? Where was their rainy day fund?
And why on earth, especially given that Mr. Pham was a real estate professional, did they sign this sort of noncontingent contract?
Mortgage contingency was the norm during the bubble – even after it. Hell even now. With the RE crash, that is SLOWLY changing. More devs are offering contracts that have removed that provision. It was nothing you can do really when you where buying a new condo during the boom. Virtually EVERYONE was doing it. Your only other choice was NOT to buy a new condo. Go for a traditional single, co-op, etc.
It is sad and hopefully this insanity will go away.
Unfortunately, I think this experience is likely one shared by many more potential buyers than we realize. As I said above, during the boom years, most brokers I spoke to when looking told me that people just don’t accept mortgage and inspection contingencies and suggested buyers who insisted on them would be left out in the cold. For people who have less experience with the New York market, it is easy for them to assume this is how it works – just like the co-op process/concept is new to most people not originally from this area. Of course, one should consult with counsel when being told such things, but most real estate agents can sound very convincing to the uninitiated. This is why brokers and developers don’t exactly have stellar reputations. Fool me once…
“But who would have guessed we’d be in this economic situation?”
The What.
“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?”
In this case, the market.
Hoboken real estate is in particularly bad shape and they just had a significant property tax increase.
http://hobokenrealestatenews.com/