Having second thoughts about that High-End Condo presale?

As with any blog, this is not legal advice. If you want legal advice, consult an attorney in your area.

Escala. 1521 second avenue. Olive 8. Just a few of the many luxury, high-end condominiums going up in the Emerald City. Needless to say, when its “designed exclusively for the confident few,” you can be sure there will be a stiff price of admission. Indeed, these developers not only charge a high price, they also typically require a substantial earnest money deposit, usually 5% of the purchase price. On a million dollar condo, thats $50k. You’ll pony up this sum months, and even years, before the condo is complete and ready to close.

So what happens if you change your mind between the time you signed the presale contract and when the closing date approaches? What happens if the market goes in the tank and you want out of the deal? Or you foolishly went long on a can’t-miss investment opportunity, and now you’re not so sure you’re one of the “confident few”? Can you get your money back?

The short answer is “no.” Developers typically structure their contracts so that the earnest money will be forfeited if the buyer does not close. Buyers backing out of the deal is every developer’s nightmare — they need to sell the units and move on to the next project. Accordingly, developers do everything they can to “lock in” a buyer.

That said, there are typically a few avenues of attack if you really want out of the deal. To determine whether you are really serious about getting out of the deal (versus typical “buyer’s remorse”), ask yourself: “What would be worse, buying this condo or losing my earnest money?” If buying the condo is the worst possible outcome, worse even than losing your earnest money, then you’re ready to head for the exits.

One fertile area of inquiry is the Public Offering Statement (POS). By law, the seller of a new condo must provide the buyer with POS, which contains a variety of information about the condo development. Upon receipt, the buyer has a 7 day right of rescission and can therefore rescind the contract within that period with a full return of the earnest money. The seller must also provide the buyer with “all material amendments” to the POS, and upon receipt the buyer has another right of rescission if the “purchaser would have that right under generally applicable legal principles.”

Therein lies the rub, of course. These “generally applicable legal principles” are not spelled out in the statute, so it is a bit of an open question as to the extent of a change in the POS (between when provided to the buyer initially and when finalized) that gives rise to another right of rescission. Regardless, however, it creates an arguable point with attendant risk to all parties if they are unable to voluntarily resolve the dispute. Since every POS changes between the initial, presale version and the final version, a buyer can usually use these changes to negotiate at least a partial return of the earnest money.

There are other “arguable points” as well, all of which can lead to a negotiated resolution and a return of at least some of the money. Many developers are apparently unaware of the Interstate Land Sales Disclosure Act, a federal law that applies to large-scale developments. This statute has several requirements, including a disclosure requirement similar to the POS. If the seller fails to abide by the requirements of this federal statute, the buyer may have a right of rescission. There are many exceptions to this statue, but as long as there is some doubt, it will assist the buyer in negotiating a resolution.

In the final analysis, it is probably worth it to hire an attorney if there is a substantial amount of earnest money at issue (almost guaranteed if you’re talking about a luxury condo). The attorney will be able to identify those legal issues that can be used to negotiate a resolution. In doing so, you will probably get some of your earnest money back, and that total will probably be more than what you spent on attorney’s fees.

Foreclosure or Buyer Remorse?

Well, I promised I’d report in if I saw anything really good sitting around with no offers, or signs of foreclosure woes, on “the Eastside”.

As to good properties sitting around with no offers…not!  I showed a few properties on Sunday, turned around and one went STI two hours later.  Of course, very close to Microsoft.  A few others left over there, but doubt they will last.  Even then, those were not of the quality I would recommend.  The best of day was a For Sale by Owner and not in the MLS at all.  Interesting day.  Literally only 5 to show from Juanita to Issaquah in the price range.

But today, I was shocked!!  An agent asked me, “What does this mean ‘commission may be modified by lender'”? I said, “WHERE?”  They said Kirkland.  I said, Oh No!

Then I took a closer look.  Who the heck bought that piece of crap at that price last year?! What lender did 100% funding in there?  Don’t they know there was a huge suit against the builder for basically irresolvable drainage problems?

That’s not a foreclosure.  That’s someone who walked into the bank and said, “Here!  You can HAVE it BACK!

Now don’t ask me where it is.  I can’t point fingers, but I promised to tell you if I saw “a short sale on the Eastside”, so here’s the first one I’m seeing.  Based on the purchase date, there’s no way this should be selling for less today.  But it will.  Someone overpaid for it back then, never should have bought in there with the problems, and some lender wasn’t paying attention.  Some Buyer Agent as well.  Buyer Agents should have stripes so we can “strip them of their stripes” when they are responsible for someone buying a distressed property, for too much money, with zero down.

When you didn’t spend a dime on it, no downpayment, stacked closing costs, your credit was already crap which is why it was subprime…why not just walk away if you decide you don’t want it?

That wasn’t a foreclosure…it was a RETURN! No need to ask for their money back.  They had not a penny invested in the first place.  Don’t like it…walk away and bring the key to the lender.

That one was easy to figure out.  But let’s keep our eyes open, because even though there seems to be a frenzy with three offers on one unit in that condo conversion up in Bothell on Sunday, it is definitely time to proceed with extreme caution.  Make sure the value is there, before you buy.