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]
Ok, I get it now. Thanks for having the patience to deal with my slow hooked-on-phonics pace of learning about real estate and finance 🙂
So sad. It’s easy to look back and think, “Who would be so stupid?” But who would have guessed we’d be in this economic situation? And I’m sure they had countless professionals advising them to sign…
Agreed, bxgrl.
Yes, Snappy…up to the size of the deposit. If they contracted to buy it at $950k and put up $95k, they, theoretically would get money back as long as TB sold it for more than $855k. TB may have thrown in other fees that would get taken out as well.
From what the article said, they got mortgage approval and everything was on track and they were going to close. It was the bank, after the fact, that told them they had now had to come up with more money. Seems to me, the bank is the real bad guy- crash or no crash, these people were already approved. And screwed.
“Most likely the contract states that they would give back the difference.”
I’m a little slow this morning…are you saying TB would have to give the Phams the difference between what they eventually sold for and their contracted price?
Yes, Mr. B., it’d be a rare case that they did.
Well, they can try to resell the condo at whatever price they want, but good look getting market-peak prices today…
Snappy, come on. Of course they’d try to get the same but they most likely cannot. Holding the deposit, Toll Bros. is not incentivized to get the same though. Most likely the contract states that they would give back the difference.