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On the subject of liability beyond the amount of your deposit: there are several factors to consider before you assume that the developer will or will be able to sue people to close. First off it is extremely rare to hear of anyone being sued for damages above and beyond their initial deposit especially when the deposits are significant as they are in the Vue (10-20%). In fact I can’t think of a single large condo tower that has done so, there probably is one, but I would have thought that it would have gotten a lot of press and I couldn’t find it. Obviously your liability will vary by state laws and I know that although California is much less developer friendly they really can’t sue there to close effectively, Florida as well I haven’t seen stories of people large scale being sued successfully to close.
You can bring up the Celadon case where the buyer was forced to close, however I think there are significant differences that make the case hard to compare. First off that was 21 months between signing of the contract and the closing date vs. over 5 years for some at the Vue. Second, it is a townhome that is eligible for federal mortgages (financing was available) basically the only reason that the people backed out is that they value had gone down and they weren’t moving to Charlotte. A developer like MCL will be given a lot less leeway than a smaller developer that is building units in a subdivision. There are generally a separate set of laws and regulations that apply for a large 100+ unit condo tower. A judge is going to feel that the “hardship” put upon the developer is much smaller in the case of one person not closing in a huge condo tower and more likely to side with a depositor. Additionally there are numerous factors at the Vue that I think could not reasonably have been expected by depositors at the time of signing: 1.) Mortgages are not available, the mortgage market is almost 100% run by government sponsored entities and the Vue is not eligible for these mortgages yet (this is a financing out, but it is different when the whole market of people is locked out and not just you would have qualified but you lost your job or trashed your credit) 2.) Five years has passed since many people signed their contracts, this is an unreasonable amount of time and very different than the 21 months in the Celadon case 3.) The building is not full and very few people have closed, a valid argument could be made that people did not sign up to be in a mostly empty building and the larger HOA obligations potential (this is a little but of a chicken or the egg argument, but may be compelling since it is a valid risk) 4.) Was there “unequal bargaining”? This is a serious question and at the initial signing there very well may have been equal bargaining… but there are likely subsequent documents that were signed to allow for the multiple year delay… with MCL holding your deposit hostage is there really equal bargaining? The huge risk to MCL here if they did do this is that it may give depositors a way to challenge the contract in general and sue for their deposits back…
There are more issue that I could come up with, but needless to say I don’t think that you can look at one person being sued to close in a 20 unit townhome development as proof that MCL would win or even has a strong case.
The other issue is can and or will MCL decide to sue? There are a number of lenders that will probably take over for MCL at some point, is BofA the largest lender here? There is no way that they would want the bad publicity of forcing people to close, I guarantee that there is a sob story of a 70 year old grandmother who would be destroying her retirement that a Charlotte news station could pick up on, the headlines would be BRUTAL! Its not clear how much longer MCL will have control of the project or how much control they really have. If I were a depositor I would simply wait and see how things played out. MCL hasn’t even officially done anything, all that they have done is anonymously try and scare some people into closing on a very questionable investment. Remember here that the developer is almost certainly desperate, he has multiple personal guarantees out on projects that have already gone bad and been seized by lenders, this is likely one of his last hopes for a hail mary that saves his personal finances, he is going to fight tooth and nail to get it through. The key will be how much rope did his investors give him when they restarted construction on the project and how soon will they and can they take over control. I don’t think that any local lender (whoever holds the mortgage assuming that it wasn’t securitized) wants to be associated with forcing people to close, trying to get deficiency judgments and potentially forcing people into bankruptcy.
(I am not a lawyer and my ramblings in no way should be considered legal advice)
Last edited by CharlotteJW; 10-15-2010 at 08:38 AM..
Very well said CharlotteJW! I absolutely agree with your reasoning. I think MCL is threatening those under contract hoping that it will force a few more people to close. He knows it is just a matter of time before the lender takes the project over - every closing is money in his pocket.
CharlotteJW needs to come join my vuebuyer.wordpress.com blog writing team. Very eloquent and convincing! The blog on Monday is going to refocus on appraisals. I did not fully realize until today the impact of appraisals coming in at 20-40% of contract price, which at present is what is happening. Someone walked me through the numbers today of a person that buys say a $400,000 unit but the appraisal comes in at 20% less or $320,000. The additional cash that the buyer has to put up in this scenario makes the probability of the transaction happening very small. Take for example a 10% downpayment, which would be $40,000, which would leave $360,000 due at closing. I go to the bank to borrow this money, and the appraiser comes back and says the unit comes in at $320,000. The bank will give me 80% of $320,000, or $256,000. But I need $360,000 to close. That means I have to come up with $104,000. If it had appraised at contract price, I would only have had to come up with $40,000. How many buyers of $400,000 condos can come up with an additional $64,000 cash? Lawsuits or no lawsuits, most of these folks will simply not be able to close, even if they wanted to and even if they wanted to honor their contractual obligation. Do you all agree with this?
Vuebuyer10 you are absolutely right. BTW - Lots of luck finding a lender that will lend you 80% of the appraised value in a declining market - especially on a condominum unit - especially on The VUE condominium project that is well-known to to be doomed! Appraisers are required to disclose condominium project information to the lender concerning the number of units, number of sold units, marketing time, number of current listings, current list prices, etc. The appraiser must also disclose the current market conditions which are very obviously still in a decline. I doubt there is a lender anywhere that will finance one of these units at anywhere near 80%.
I have been keeping up with your Vuebuyers blog and you have made some excellent points. So sorry that you and others are in this situation - good luck.
I don't know what is in the contract, but based on what has been posted, the issues put up by CharlotteJW should not serve as some sort of comfort and/or reason to believe there won't be any liability repercussions if one simply chooses to walk away. Every contract should have terms for voiding the contract and what constitutes default and the penalties. A judge in a court case has to decide the case simply on what is in the contract and what is allowed by state law, and he has to do it to protect the interests of both contract holders. Please keep this in mind.
Will the developer sue? I have no idea, but don't take that because some people have not heard of people being sued on a mass basis, that it won't happen. This is going to depend highly on who actually invested in the building and how they intend to protect their investment via the legal proceedings available to them. Ultimately it comes down to who ends up paying for this project. The investors can very rightfully claim, the building would not have gone up without promises, via these pre-sales contracts committing those who signed to purchase once complete.
My advice, if you are looking for a way not to close, then the first thing you should do is find a good lawyer and consult with him/her. Your options are highly dependent upon the paper you signed and there may be some significant differences in the individual sales contracts. Maybe some of you were represented by one of the better real estate agents who might have made a critical addition that now will pay off. With that said, I can't imagine anyone signing a real estate contract without a financing contingency.
Great feedback here folks, thank you. I can tell you that the contracts were not contingent on financing. So "imagine it" because a lot of smart people signed them. (maybe this makes them no so smart!) Many "good lawyers" have been consulted according to folks I have spoken with and the contract has been found to be rock solid. From what I can tell, some think lawsuits are a remote possibility; others think it is inevitable that they will happen. The default terms are pretty clear: you forfeit your deposit or damages, whichever is greater. My blog post on Monday will argue however that the biggest threat to the project owners is the appraisals, which if they continue to come in at the numbers they are now, will make it virtually impossible for most people to close. I don't know of cases, maybe there are some, where appraisals came in so much lower than the contract prices as they are coming in at the VUE. I think this could be a very unique situation and it will be interesting to see what happens as a result. Thus lots of drama to unfold in the days ahead.
It appears that MCL is confident that the project will succeed (see below). I know many of us are looking for employment, but I would be quite uneasy about applying for this position! It may not be too hard of a job at this time, as you would be resposible for hand-holding 2 residents (according to the blog and city-data).
Lead Concierge (Charlotte)
Date: 2010-10-15, 2:44PM EDT
Reply to: job-32dsr-2007917873@craigslist.org [Errors when replying to ads?]
POSITION RESPONSIBILITIES: We are seeking a Lead Concierge for a new, luxury; 462-unit property located Uptown Charlotte. Individuals will work closely with outside vendors, answer questions, assist with directions, transportation and recommend local events/venues. Facilitate communication between management office and concierge team.
SKILLS AND QUALIFICATIONS REQUIRED: Applicants must have 2+ years concierge experience. Must be people-oriented, patient, diplomatic, self-motivated, organized, have strong communications skills and a positive attitude. Must be computer proficient in Word and Excel.
Location: Charlotte
Compensation: tbd
Principals only. Recruiters, please don't contact this job poster.
Please, no phone calls about this job!
Please do not contact job poster about other services, products or commercial interests.
.... So "imagine it" because a lot of smart people signed them. ....
Indeed. When I said I can't believe, I didn't mean to say that it wasn't true, but rather it was an expression of amazement that people actually would do such a thing. I apologise for making it sound otherwise.
I should imagine the test on these contracts that would be applied by a reasonable judge would be this.... What would happen had the real estate market was absolutely booming right now, and the developer decided to cancel these sales contracts and return the earnest money because he could make a lot more money by selling at a higher price. Would the buyers be happy about this? I don't know however and this might be entirely irrelevant.
I think a lot will depend upon the wording on what might happen in such an eventuality. Since there is no contingency, the fact that someone can't close would seem to be irrelevant to the liability they have on the property. I don't think it is unusual in contract law from the standpoint of there being no precedent, in fact this is why one puts a financing contingency in these things, but possibly usual that people would sign such a one sided deal. It is a bit disappointing that people's real estate agents didn't provide ample warnings and one of the reasons that I think the real estate industry hasn't taken it's share of the flack for this huge mess in the USA now.
If it were me, and I really didn't want to close on this property, I would engage a lawyer to get in there now and attempt some to reach a settlement with the developer even if it meant paying a little more to get out.
It sounds to me like many of those under contract have consulted a lawyer. Vuebuyer10 explained that the default terms are clear.
I would not spend even more of my money on a lawyer at this point unless it was a group effort. From what I have read of the developer, I doubt he would agree to any type of settlement. He probably would love to have more of their money though!
It it were me I would wait and see how this plays out. I certainly would not close on one of these units. My guess is that those under contract will lose their deposits eventually but who knows what will happen when this project is taken over.
This situation reminds me of the importance of having a good buyers agent. Never sign a contract without a financing contingency!
Wow, some excellent news appearing in this forum. Let's first take the concierge ad. That is actually quite new to me. And while I have a tendency to read doom and gloom into most happenings at the VUE of late, this one actually might warrant some. I need to look into what is behind this ad, thank you for posting it.
I also want to address this sentence: What would happen had the real estate market was absolutely booming right now, and the developer decided to cancel these sales contracts and return the earnest money because he could make a lot more money by selling at a higher price. Would the buyers be happy about this? I don't know however and this might be entirely irrelevant.
I have actually considered this, and i would argue it is irrelevant. The reason being the property was sold on the premise that "get in now, before prices go up." I think very few purchasers at the VUE didn't fully expect for prices to rise, and if they weren't going to rise, and weren't led to believe they were going to rise, why would they have invested at pre-construction prices? I have heard this same argument has been used by the Vue sales team, and sorry, I find it entirely unconvincing. What a judge would say, I have no idea. But it is certainly the truth, at least in my case.
The legal avenues are also very interesting as I learn behind the scenes. Some feel they need to get a good lawyer and play defense. Others feel they don't need a lawyer. Still others feel they need a lawyer to play offense.
There are some folks that were trying to "settle" beginning several years ago. No one that I know of has been able to.
When folks bought the property early on, many just went in to the sales office, were sold a unit, and signed. No real estate broker; no lawyer. That was a hard lesson learned.
Thanks for all the discussion. It is really helping me sort through a very complex and difficult situation for all parties in this transaction.
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Opportunity at The Vue
