Hi Guys, A number of hypothetical scenarios that may become useful as more new developments become distressed. There are a few, especially in Brooklyn and Queens, that are really chopping prices to try to get over the 50% sold mark. Assuming that one would consider their offerings attractive, what are the risks of buying in one of them?. If, after you buy, the developer still cannot raise enough... [more]
Hi Guys,
A number of hypothetical scenarios that may become useful as more new developments become distressed. There are a few, especially in Brooklyn and Queens, that are really chopping prices to try to get over the 50% sold mark. Assuming that one would consider their offerings attractive, what are the risks of buying in one of them?. If, after you buy, the developer still cannot raise enough to pay off construction loans and building goes back to bank (i.e. Forte) you get your deposit back, right? You haven't lost anything, except time, some sleep over the general stress, and the annoyance of moving twice. For guys who bought at peak it may even be a boon, a bank intervention that gets them off the hook. Are there any other possibilities?
Could you not be given the opportunity to vacate your purchase? Could the building spend years in limbo? would you lose the amount of principal you've already paid off? Could your common charges skyrocket after bank takes over? If the building stagnates for years below the 50% sold mark, and you're already in, the developer still controls the board and could raise your C/C 1000% to cover his own shortfall, right? Any other scenarios?
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Response by pineapple
almost 16 years ago
Posts: 2
Member since: Feb 2010
Hi,
I am currently in the process of purchasing a new development condo. How can I be sure that my downpayment will be returned (in the case of bankruptcy as you mentioned)? Should it be included in the contract to guarantee this? Has anyone been in this situation before? Any help asap would be appreciated. Thanks!
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Response by NWT
almost 16 years ago
Posts: 6643
Member since: Sep 2008
If however many units close, their owners own them. No going back. The sponsor still owns the remainder. If the sponsor loses those unsold units to the bank, the bank owns them. Whoever owns them (sponsor or bank) owes the CCs. If the sponsor jacks up the CCs, that just increases the amount the sponsor owes the condo. The sponsor can't say "Some owners pay $x per PCI and others pay $y per PCI."
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Response by aboutready
almost 16 years ago
Posts: 16354
Member since: Oct 2007
NWT, until the sponsor has sold its units, no? or whatever resolution occurs. some might have better outcomes than others.
but there have been condo end situations that have been awful. and i fully expect there will be those here as well.
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Response by NWT
almost 16 years ago
Posts: 6643
Member since: Sep 2008
Yes, lots of nasty situations, but they do resolve in the end.
Let's say the sponsor still owns half the units, still controls the board, and has no intention of paying its CCs. The sponsor would double the CCs, so the cash flow from the non-sponsor owners covers the bills. The amount the sponsor owes the condo increases month by month. Eventually it gets paid off when the sponsor's units sell or the bank takes them over. The CCs go back down, and the condo has an instant reserve fund, or the CCs go way down until the recovered cash is depleted.
IIRC the sponsor's load docs cover the possibilities.
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Response by pineapple
almost 16 years ago
Posts: 2
Member since: Feb 2010
aboutready can you talk about some of those awful situations?
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Response by apt23
almost 16 years ago
Posts: 2041
Member since: Jul 2009
If the bank takes over, they are likely to sell to a bulk buyer. The bulk buyer will pay a small percentage of what the original buyers paid. Therefore, your purchase is immediately underwater. If you have to sell, there is no way you can compete with the bulk buyer who could sell for very low prices and still make a profit. So not only are you frozen in place for the years it takes for the bulk buyer to sell all his units, you are then competing with people who bought from the bulk vulture for low prices and you can't compete when they sell their apartments either. You and your neighbors who were also original buyers could be underwater for years.
Eventually, original buyers might walk away from their obligations --either strategically or out of need. When that happens, the CC's go up as all owners need to cover the CC's of those who walked until it can be determined who the holder of the debt is. In Miami, because mortgages were packaged and sold so many times, it often took months before the debt holder could be determined.
Hi,
I am currently in the process of purchasing a new development condo. How can I be sure that my downpayment will be returned (in the case of bankruptcy as you mentioned)? Should it be included in the contract to guarantee this? Has anyone been in this situation before? Any help asap would be appreciated. Thanks!
If however many units close, their owners own them. No going back. The sponsor still owns the remainder. If the sponsor loses those unsold units to the bank, the bank owns them. Whoever owns them (sponsor or bank) owes the CCs. If the sponsor jacks up the CCs, that just increases the amount the sponsor owes the condo. The sponsor can't say "Some owners pay $x per PCI and others pay $y per PCI."
NWT, until the sponsor has sold its units, no? or whatever resolution occurs. some might have better outcomes than others.
but there have been condo end situations that have been awful. and i fully expect there will be those here as well.
Yes, lots of nasty situations, but they do resolve in the end.
Let's say the sponsor still owns half the units, still controls the board, and has no intention of paying its CCs. The sponsor would double the CCs, so the cash flow from the non-sponsor owners covers the bills. The amount the sponsor owes the condo increases month by month. Eventually it gets paid off when the sponsor's units sell or the bank takes them over. The CCs go back down, and the condo has an instant reserve fund, or the CCs go way down until the recovered cash is depleted.
IIRC the sponsor's load docs cover the possibilities.
aboutready can you talk about some of those awful situations?
If the bank takes over, they are likely to sell to a bulk buyer. The bulk buyer will pay a small percentage of what the original buyers paid. Therefore, your purchase is immediately underwater. If you have to sell, there is no way you can compete with the bulk buyer who could sell for very low prices and still make a profit. So not only are you frozen in place for the years it takes for the bulk buyer to sell all his units, you are then competing with people who bought from the bulk vulture for low prices and you can't compete when they sell their apartments either. You and your neighbors who were also original buyers could be underwater for years.
Eventually, original buyers might walk away from their obligations --either strategically or out of need. When that happens, the CC's go up as all owners need to cover the CC's of those who walked until it can be determined who the holder of the debt is. In Miami, because mortgages were packaged and sold so many times, it often took months before the debt holder could be determined.