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I am seeing a trend in builders who are selling some of their lots in a short sale and requiring the buyer to use them to build the home to offset their loss. Would you think an average buyer would do this? One particular builder said that he is in good financial shape and there would be no worries. I find this hard to believe and would not recommend any buyer to even consider it. However, it has me wondering if anyone else has encountered this same situation and your views on it. Thx.
I haven't seen this yet in my market. They can still get financing to build if they are short selling lots?
As a buyer I'd have big concerns about the subs being paid and liens going up on my home, cutting corners, or my draws being stolen if I did a construction loan.
Well, if the bank was on board from the get go, and knew they would benefit from the home sale, i.e., use proceeds towards an outstanding builder note/credit line, and would proceed without the buyer having excess skin in a shaky game, I would think it would be OK.
Oh, yeah....
I would surely have an attorney involved for my client.
Last edited by MikeJaquish; 01-05-2012 at 09:48 AM..
Like rug stores that from the day they open the festoon the place with "going out of business" banners some "advertising" is not really saying what it seems to.
On a very basic level any builder that CLAIMS to be "selling lots at a loss" is engaging in dishonest practices. No sane lander ever extends much credit to even the BIGGEST builder based on land that they own outright, let alone land that they already have mortaged. In simple legal terms mortgaged land is no longer an asset when its value falls below the mortgage amount...
As the above posters suggest I would be EXTREMELY leary of doing any kind of business with a builder that claimed to be selling land at loss. Building is VERY capital intensive and if the builder truly is unable to hang on to their land they will be unable to get credit to buy materials or hire subcontractors.
Frankly I woukld RUN from such a situation as the odds of the whole development turning into an unfinished swamp / nightmare is very very high.
I have seen first hand the mess that results when a prime developer does not pay his subcontractors and they hire lawyers to slap mechanics leins on all the finished and parttially finished homes. It destroy the resale of the whole area and wipes out even home owners that have been in the long completed phases of the development...
To go further I personally know of a largish townhome development near my home where the first developer went broke. The lender took possession of thhe partially started development and brought in a much more financialy secure developer to partner with and hopefully turn the loss to at least a break-even. They are consciusly avoiding any mention of the previous financial difficulties and STILL are having a very very tough time of getting anyone interested in what appears a very nice high quality development largely becuase of the tainted memory of everyone that knows the previous developer went broke and sucked a lot people's deposits into the blackhole of bankruptcy. This is in an area where you cannot touch a developable lot for under $250K and many nicer single family homes are still valued at well into the seven figures!!
I am seeing a trend in builders who are selling some of their lots in a short sale and requiring the buyer to use them to build the home to offset their loss. Would you think an average buyer would do this? One particular builder said that he is in good financial shape and there would be no worries. I find this hard to believe and would not recommend any buyer to even consider it. However, it has me wondering if anyone else has encountered this same situation and your views on it. Thx.
Never seen it, but wow!
Sooo... the builder is stiffing their lender, but they'll honor a contract with a buyer 100%...
Like rug stores that from the day they open the festoon the place with "going out of business" banners some "advertising" is not really saying what it seems to.
On a very basic level any builder that CLAIMS to be "selling lots at a loss" is engaging in dishonest practices. No sane lander ever extends much credit to even the BIGGEST builder based on land that they own outright, let alone land that they already have mortaged. In simple legal terms mortgaged land is no longer an asset when its value falls below the mortgage amount...
As the above posters suggest I would be EXTREMELY leary of doing any kind of business with a builder that claimed to be selling land at loss. Building is VERY capital intensive and if the builder truly is unable to hang on to their land they will be unable to get credit to buy materials or hire subcontractors.
Frankly I woukld RUN from such a situation as the odds of the whole development turning into an unfinished swamp / nightmare is very very high.
I have seen first hand the mess that results when a prime developer does not pay his subcontractors and they hire lawyers to slap mechanics leins on all the finished and parttially finished homes. It destroy the resale of the whole area and wipes out even home owners that have been in the long completed phases of the development...
To go further I personally know of a largish townhome development near my home where the first developer went broke. The lender took possession of thhe partially started development and brought in a much more financialy secure developer to partner with and hopefully turn the loss to at least a break-even. They are consciusly avoiding any mention of the previous financial difficulties and STILL are having a very very tough time of getting anyone interested in what appears a very nice high quality development largely becuase of the tainted memory of everyone that knows the previous developer went broke and sucked a lot people's deposits into the blackhole of bankruptcy. This is in an area where you cannot touch a developable lot for under $250K and many nicer single family homes are still valued at well into the seven figures!!
That is what I was thinking. I think that the seller/builder is going to have the buyer get the construction loan upon the sale. However, I can't believe the bank would approve of a sale with the stipulation of the buyer having to use that builder (probably didn't disclose that to the bank is my guess). It should be a short sale with a choice of builder. Now I also found out that the builder is the developer. And one development (high end homes above 600K) actually states in the covenants that you must use this builder if you buy their lot. I didn't think this was possible and wonder if it is really enforceable. I suspect they will still be for sale in the foreseeable future.
If the builder is selling the lots as a short sale and their bank accepts that, will the bank also give them financing to build the home? I'd be concerned about my buyer. Having a home built by a builder that is having financial issues would be a bit scary to me!
Vicki
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