What happens when the bank takes ownership of a building from the developer

The bank becomes the owner. They'll perform the functions of the developer, seek to maximize their return and exit the picture as the units are sold. If the developer is bankrupt I view this as positive. If the building is unfinished they will look to see that is finished and in accordance with the offering plan. They might also switch managing agents if they feel the current one is not in the best interests of all(contract issues not withstanding). Sheffield 57 is a current example. 3 Lincoln Center is an example from the 1990's.

Thanks Riversider.
Would that process normally lead to the bank selling the units at big discounts to get them moving?

tobytoby.
I imagine they seek to maximize their return. This is no different than what an individual owner thinks about...
1) Rent units until market ticks up
2) Hold on price and try new gimmicks,staging, ad campaign,etc
3) Reduce price to what my experts tell me is necessary to clear within a given time frame.

There's no way to answer what this hypothetical bank will do any more than a hypothetical owner. But I do believe that if they do offer big discounts they will be more inclined to offer the discount to a bulk buyer who can take large numbers of units if not the entire unsold inventory.

Great thank you.

If the lender takes ownership of the building ,and they are liquid and believes in the appreciation of the building and the location they would probably weather the storm and rent if they believe depreciation they will probably discount units a little bit at a time. If the lender is not liquid then no matter what their view on the building or area they would have to have a fire sale. Does anyone know an easy way to find out the lender for a particular building?

As units are closed, they do a partial release of the mortgage. This is posted on ACRIS.
Not clear to me what happens if the loan is partially resold.

If the lender is not liquid then no matter what their view on the building or area they would have to have a fire sale

HH11231, not necessarily so. Since they have assumed ownership, the primary lien is now extinguished. They could now borrow against the asset.

The Building and Area would have to be very desirable for another Bank to risk lending against an illiquid asset. But it's a catch-22 if it was desirable then they wouldn't have retain ownership in the first place no matter how high the offering prices were. Does that make sense?

The subsequent financing would be influenced by LTV AND DSCR. They not be able to borrow 75% of LTV, but might be able to do 50%(use your own numbers).

I seem to recall hearing once that, in the case of a lender taking over a significant amount of equity in the building, that existing owners ended up with much higher condo fees, since the lender was not required to pay those fees. Come to think of it, i don't think this was in the instance of a developer (or, as they seem to be called in NYC, the "sponsor") going under. I think it was in the context of lenders on individual units...that if the bank took possession of a unit, they were not required (per the terms of the loan) to pay condo fees like the other unit owners. Should you have enough individual units get in trouble in one building (as happened in Miami), the remaining owners would be stuck w/ higher fees.

I've seen this in Florida. Anyone ever see that in NYC?

Perhaps 1 or 2 years ago before the V in LTV took a nose dive.

http://www.washingtonpost.com/wp-dyn/content/article/2006/10/13/AR2006101300626.html

If you are the first buyer in a multi-unit project, and the developer files for Chapter 11 bankruptcy protection, there is some protection. Whoever ultimately will own the rest of the units will be obligated to pay the assessments for those units.

While this sounds good in theory, as a practical matter it can be disastrous. The bankruptcy court may take a long time before deciding on the disposition of the unsold units, and there will be no money in the association to pay monthly expenses such as insurance, utility bills and maintenance.

Here is where lender protection comes into the picture. Most mortgage loans are sold in the secondary market, through such organizations as Freddie Mac or Fannie Mae. And these entities have established pre-sale requirements that originating mortgage lenders theoretically are required to follow. Pre-sales should ensure that the developer has some money coming in.

· Ask the developer how many units are under contract.

· Insist that the developer and your mortgage lender strictly adhere to a requirement that at least 50 percent of the units be under contract before you are obligated to go to settlement.

· Try to get the developer to agree that should comparable units in the project be discounted more than 10 percent below your sales price, you would be allowed to either match that lower price or get your money back. This may not be possible, but it is worth asking.

Whether you are considering buying in a new building or in a conversion, after you sign a sales contract, you will receive a lengthy document called a Public Offering Statement. You will have several days in which to unilaterally terminate the purchase contract. The number of days varies depending on the jurisdiction.

Thanks everyone for all the postings. Great information. Thank you

Riv good info! Thanks

I bet most buyers have a similar out clause that would cause a Domino affect if the developers dropped prices, which is why most haven't yet.

Not really a domino affect more like a snow ball, you know what I mean.

"more like a snow ball, you know what I mean."

I just googled "snowballing" on wikipedia...is that what you had in mind??

Snowballing,that sounds perverse.

It certainly was, on Wikipedia!