Backing out of a mortgage gracefully

You might want to talk to your attorney first. You'll probably find that as far as the mortgage goes, neither you nor your bank is irrevocably committed until the property closes. Your real problem may be that the vendor will want you to close, and may seek damages if they are unable to find a purchaser at the price you contracted to purchase at. Your attorney will be able to let you know what your options are.

Hi, i am in the same situation. should be closing soon and am seriously considering backing out (also losing my 10%). My attorney tells me according to my contract the only repercussion is the loss of the 10% but i'm not 100% convinced and not sure how to definitely make sure there will be no credit impact.

Yes - our attorney said that we would basically lose out on the 10% deposit. Although heartbreaking to lose that much cash(~120k), after looking at our own financials, it is not worth it for us to be strapped into such a large investment in an unstable market. we have great credit (~800) and we just are trying to figure out the best way to not have this negatively impact us, for future mortgage approvals...or anything else credit related.

The only negative impact you will have from walking away from your mortgage broker is hurting their feelings. If you paid anything upfront then you probably wont get that back. But this will not affect your credit nor future mortgage approvals.

120 is quite a chunk, is there any chance you can sell the unit for 100 less then your contract price? at least you would save 20k

Just curious, what is your approx net worth? I'm interested to know the type of person willing to walk on 120k..

We thought about trying to resell the property. But between $80k in closing costs (which is money we would never get back) and then the realtor fee on relisting the property, it just does not make financial sense.

Hmmmmm any tax experts know if these guys can at least turn the 120k in a capital loss or offset against future income?

There must be some kind of loophole (setting up an LLC etc etc)

bugelrex - that's a fantastic idea...we are calling our accountant right now.

i am in the same boat. backing out of the deal with 5% at stake. My attorneys told me that its the downpayment only that I lost. I consulted another attny, had him go through the contract he confirmed the same - forfeit just the downpayment. the sponsor cannot contractually come after me for other damages. I paid 600 bucks to my mtg broker and I was told thats what I would lose there. as far as credit score is concerned, i think it would have gone down only because of the dings made by the lenders while pulling your credit report.

jwalkin - please post here your accountant's thoughts regarding the downpayment loss.

is the contract assignable? did you review the contract of sale? also many buyers in florida had attorneys review ways out of their contract, one of the biggest things they fought was the actual square footage versus promised footage in the contract, if they were different they argued and sued (it doesn't cost a lot, good chance of settlement, or threaten with suit) since that is a cash out lay to the developer and a headache he doesn't need in this market. and you by your self time,

Jwalkin - Your deposit is likely a payment for an option to the apartment you are contracted to buy. If you walk away, your loss is limited to the deposit you have made, with no further obligation on your part. Were you purchasing this apartment as an investment? If so, you should be able to claim a capital loss.
What building are/were you buying in?

Your crazy to walk away from $120,000. That's not pocket change. Why don't you buy the apartment? Even if the value goes down, at least your enjoying your $1.2 million condo.

Jwalkin - ignore alpine292, as they are giving you terrible advice. Your only decision is whether you think the apartment is worth the unpaid portion of the purchase price plus closing costs. Although it may hurt, the amount of the down payment is a sunk cost - it is irrelevant at this point and should not be considered in any analysis of whether you should close. I am in the same situation and have also decided not to close. This is happening at new developments and conversions all over the city. I have been in touch with many people in the same situation. Many of these projects will fail - consider yourself lucky to have only lost the down payment.

Also walked away from a 10% deposit before closing. It hurt to lose the money, and I felt terrible for the mortgage broker, who was very nice, but being unable to sell my original apt. in this unstable market, I decided it was the most prudent thing to do.

My heart goes out to all of you. Whatever the down payment, it is your hard earned money. This is a tragedy. Just wondering, if enough of you back out of a building, and it is no longer 51% sold anymore and mortgage companies won't write mortgages for the building (as I have read here in another thread) could you get your deposit back? I know I'm grasping at straws, but that is a lot of money and multiply it by untold others who are feeling the same way about the development as you and maybe something could be done. You ought to post a thread for others in your position in the same development and see if you can organize. All may not be lost. Does anyone else think this might be possible?

Hi - thanks for everyone's comments. Still waiting to hear from our accountant, but will post his remarks once we receive them. Hopefully there may be some positive news to come from this.

We purchased at the District - 111 Fulton/60 Ann in the Financial District. NYRENewbie - I do think I will start a thread and see if others at the development are in the same situation.

I am also walking away. I am concerned about two things,
1. will they have enough money to finish the construction and
2. who will pay the common charges on the unsold units. If Sponsor goes bust, the remaining owners must pick up the slack.
I am also concerned about the prices.
I have a friend at another Leviev building 15 Broad and they never completed the Theater room and other amenities, and that building sold out. Plus, 20 Pine is also in trouble - many unsold units and resellers competing for buyers with the Sponsors. I fear the District will not be financially sound, esp. since it sounds like a lot of buyers may walk. The latest I heard is 75% in contract, but that will likely fall. I will likely try to delay my closing until all the amenities are done A friend of mine suggested informing the NY Attorney General about the financial condition of the developer (that article would be good), misrepresentations about sales activity and the incomplete construction and see if they will step in. He also said it was a long shot, but worth trying.
Hope this helps.

jwalkin - It occurs to me that you should consult with your attorney before attempting to do what NYRENewbie suggests. It sounds faintly criminal. As a broker, I know that if I did the inverse of what you suggest, I would lose my license.
http://en.wikipedia.org/wiki/Collusion

i am prob walking away from my deposit as well. (>350k), which absolutely sux. that said, using the same analysis as many of you, btwn closing costs (~200k) and likely needing to resell into a down market (broker closing costs, amy depreciation), we'll sleep better at night capping our loss at 10%. i never would have imagined this. i dont believe theyre any "write off" from a tax perspective.

Jwalkin, I am also under contract for District and will be walking away as well. Hence, the developer is on the verge of becoming bankrupt. I really don't want to sit in the unit where the building is half vacant. Anyway, look forward to hear your comments regarding possible tax effects.

Mr. Chow - if you bought the apartment as an investment - to rent or to flip, you may be able to claim a capital loss.

i bought it to live in it. guess theres no points awarded for that. just too risky now.

My partner and I have bought a condo that we've yet to close on. Our financing is in place so that's not an issue. The main reason we will proceed to closing is that the cost of living in our condo will be comparable to the costs we were paying to rent two apartments and pay for parking. Our condo will have nice accoutrements like a laundry closet, dishwasher and two bathrooms, so it's very much a lifestyle decision. This downturn too will pass, if you can afford to close on a condo that you intend to live in, you may end up happier than renting a shoebox.

Has anyone successfully gotten their deposit refunded due to material problems with the unit seen during the walkthrough/inspection? Not cosmetic issues... other issues such as slanted cabinets in the kitchen or floors not being flat. ceiling having cracks... etc.

I would be curious about the above poster's question, as well. Any other ways to get out of a contract, or at least delay closing? Also, anyone know how seller financing works? We're considering walking away from 10% (~75k) or doing the deal with seller financing for 5 or 10 years (possibly interest only) - this would give us a place to live at a reasonable monthly cost and would give us the chance to break even in 3-5 years with a resale. I realize rates would be much higher in 3-5 years, though still could work out well considering saving the down payment (minus the closing costs). We're still deciding...