Only 2 houses sold out of Subdivision...Exit Strategy? (Atlanta: foreclosures, rent)

[Atlantasfinest]

Kovacks...what is your knowledge/opinion on when a developer attempts to sell a project they cannot complete to another investor/developer? Or what happens if they aren't able to sell the property and it becomes bank owned? How long would it take for a serious investor/developer to start back on the project for completion for this small scale development ?

[BobKovacs]

Well, the hard part would be finding a willing investor and developer, and that'd be the case whether it was the current developer or the bank searching for someone to flip the project to. Assuming you found an interested party today, I'd say you'd be looking at anywhere from 3-6 months to do due-diligence, determine who has liens on the property, sign a deal, and fund it. From there, the new investor would need to re-permit the project, which could take a few months, and find new subs to finish the work. The timeframe to complete the units could be anywhere from a month to probably 3 months, depending on what's left to be done.

The problems here are many- you've probably got liens against the property and work to be complete that combined exceed the value of what's actually left on the bank note, so the bank is going to take a hit. They're not going to be in a big hurry to do that, so they're not going to just give the project away. You're likely going to have to pay for work a second time, because I can guarantee that there's not an ounce of copper piping, wiring, or AC refrigerant lines left on the property- it's all been torn out and sold for crack money if the property has been abandoned for more than a week.

At the same time, you've got a soured real estate market that's probably in worse shape than it was when the project was started, so the sales prices used in the original proforma likely don't pencil out anymore, which makes the deal even tougher. Even with reduced prices, you're still going to have a hard time getting buyers for the remaining units, given the market and the stigma that's going to be attached to the project now that it's been sitting there vacant and vandalized. I wouldn't be surprised if the remaining units had to be finished with much lower-level finishes, and blown out at a rock-bottom price- I'd be willing to bet that you'll see them selling for $130-140k if/when a new developer is found, just to get the project off the bank's books, so your friend will lose any equity she has anyway unless she wants to sit around for 10 years and wait to break even.

I know this all sounds very doom-and-gloom, but it's an unfortunate reality.

[RoslynHolcomb]

Wow. This sounds like a tragedy just waiting to happen. Under normal circumstances I would think walking away sounds just, wrong, but this really sounds like a matter of personal safety. Clearly when up against that, I suppose you just have to take the hit on your credit (not to mention personal ethics).

[postprime]

Originally Posted by Atlantasfinest

My friend bought into a small subdivision of townhomes priced from 185K (12) in November of 2006 that had 8 under contract at the time but as of today only one additional unit completed and closed. The rest of the buildings are completed on the outside but they are boarded up and lots are overgrown and the developer has no intentions of moving forward at this point and there hasn't been any construction in over a year. The unit is very nice Tri-Level, 3bedrooms, 3.5 baths, 1 car-garage, hardwood floors, huge jetted tub in the master, granite countertops throughout, berber carpet and good views of downtown Atlanta, Hardcoat Stucco/Hardiplank, Fireplace, balcony and french doors.

The developer was shafted by his builder & subs and the bank has discontinued their funds for them to build. There have been many break-ins and vagrants all around the property as well since it almost looks abandoned. My friend really wants out of this bad deal and is wondering what her options are? She can’t really sell it because of the other buildings around it or even rent it out section 8 because of the boarded up buildings around it. Could she possibly work out something with the mortgage company? Any suggestions woul dbe greatly appreciated.

Your friend has my sympathy. Unless 24/7 security patrol is an option, I say take the credit hit. It is far from the worst thing that could happen. There may be a mortgage company out there who would underwrite your friend if all other aspects of her credit history are and remain perfect for a year or so. One thought: If she goes to a rental, she should sign a lease before the credit ding shows up on a credit check.

[postprime]

Originally Posted by RoslynHolcomb

Wow. This sounds like a tragedy just waiting to happen. Under normal circumstances I would think walking away sounds just, wrong, but this really sounds like a matter of personal safety. Clearly when up against that, I suppose you just have to take the hit on your credit (not to mention personal ethics).

IMO, in a situation like this the safety issue is personal, the credit hit is business.

[Windu]

I agree that she should at least consult a real estate attorney. She needs to understand all options. I'm no RE attorney, but I bet someone is in breach of their obligations regarding HOA duties and common area upkeep. Also, she could pursue reliance arguments (i.e., I wouldn't have bought if they didn't promise to finish the other units and sell them) against the developer, but there may be no one left to sue (unless they didn't incorporate properly and can be sued personally).

Another approach is to contact the city's urban planning or housing department, and the local schools, since none will want more blight added to the AUC area. Maybe politicians will see an opportunity to look like geniuses/heroes by turning this nightmare into student housing subsidized by the city. (If cities can fund stadiums for rich ball teams, surely they can fund housing for students to avoid having six new crackhouses.) Remember when some AUC students had to be housed in a downtown hotel several years ago because there weren't enough dorms?

[applejuice]

I feel so bad for your friend. I can only imagine being in her situation and having to decide between my personal safety and the credit ding. I would take the credit ding.

Does she have friends or family she can live with until she can rent or sell? That what family is for...right?

[atlantagreg30127]

I'm going to have to vote on taking the credit hit and moving on. Well, unless your friend is willing to offer someone free rent in exchange of their sitting outside on the deck with a shotgun in their hands at night to ward off the dangers. (Works well in Alabama, maybe not so much here).

They MIGHT find someone who will take over that property, but in this market who might that be? Someone who turns them all into rental units? Section 8 units? No - too many "ifs" in today's market. I'd opt out and suffer the credit score limbo for a while.

Just up the road from me is an entire shopping center of 20+ shops that was built to near-completion over a year ago, and the builder like many, got hit. As far as shopping centers go it's actually nice looking and designed much nicer than standard stucco jobs. The bank can't get rid of it. It's been sitting there empty with an unfinished overgrown parking lot for well over a year. Hey, if you can't get investors to snatch up a shopping center in a prime location right now - what chances that a good one will take a handful of townhomes in an iffy part of town today?

Costco has moving boxes on sale. I'd unfortunately have to take advantage of it.

[JPD]

The moral of this story: NEVER buy new.

What a nightmare.

[Merin]

Originally Posted by JPD

The moral of this story: NEVER buy new.

What a nightmare.

I agree that its risky, but I bought new and am doing fine.