NYT: What Contract? COULD the days of the iron-clad contract be numbered?

How ironic is it that all those people who proclaimed "Buy! Buy! Buy!" just one year ago are now all trying to get out of their contracts.

Whats ironic about someone buying an apartment 16 months ago and then having lending laws change so dramatically (in a way that no one could have forseen) that they can no longer get a loan when its time to close?

The only buyers with a legal leg to stand on are the ones who were able to negotiate mortgage contingency clauses into their contracts.

Correction - the only buyers with a legal leg to stand on are those who:

a) were about to negotiate mortgage contingency clauses into their contracts
b) had the misfortune of going with a developer who decided to ignore the interstate land sales full disclosure act

From the article “It didn’t seem to be of the same quality that they basically represented in the showroom,” he said. “We definitely have the money. It’s not that at all.”

The above statement couldn't be any more accuarate...

I'll be surprised if that Land Sales Act technicality works to any large degree.

LICComment - it has already worked for some NYC developments (e.g. 20 Pine).

From the Act:

Sec. 1403.

(a) Unless the method of disposition is adopted for the purpose of evasion of this title, the provisions of this title shall not apply to --

(2) the sale or lease of any improved land on which there is a residential, commercial, condominium, or industrial building, or the sale or lease of land under a contract obligating the seller or lessor to erect such a building thereon within a period of two years;

That is why I qualified what I said. It may apply in some circumstances, but for the most part I don't think people should get their hopes up that they have a way to undo their contract and get their deposit back. How many new developments have a completion date longer than two years?

Buy now, or be priced out forever!

LICCComment - The developer has to guarantee deliver of your unit within 2 years. Sure, a lot of developers may have put that kind of guarantee in their contracts - but many, many, didn't.

This is one of the major complaints I have with the developers. They made people suck it up and sign contracts without mortgage contingency clauses for product that wouldn't be delivered for a couple of years.

I would never sign such a contract, but I know many smart people who did. The mortgage contingency clause should be a no-brainer, particularly if a development is asking for 20% down (and they could run a credit check on you in 5 minutes as well). Not allowing mortgage contingency clauses, to me, is a good sign that the market is overheated. Hell, I got one in the contract in 2000.

LICComment - and think about his from a practical perspective, lawyers (like Lawrence) only get paid if they win or get a concession. They would have no economic interest in pursuing cases like this unless they though they could win.

Nocondo - agreed. However, I would be surprised if the majority of developers did not have in their contracts delivery dates within 2 years. If a buyer who wants out is lucky enough to have a contract that allows them this loophole, good for them.

As for the lawyers, I don't know anything about them. But what if they expect developers to settle for a relatively small amount just to avoid the nuisance of litigation. If the lawyer gets a few hundred buyers to retain him and pulls $5,000 to $10,000 settlements each from developers - well you do the math but it could pull a few hundred thousand in legal fees and buyers still lose most of their deposits. If a buyer knows they are walking on their contract no matter what, then they have nothing to lose. But if a buyer is undecided and thinks this is a way to undo the contract and not lose their money, they should carefully read their contract first and see if this technicality really applies before they make any decision.

LICComment - from my interactions with them, no-condo will check the purchase agreement and offering plan before agreeing to proceed - they don't want to waste their time on cases where the developer has (or may have) complied.

Are you really surprised that some developers may not have had a 2 year delivery guarantee? Frankly, given how pre-construction purchase agreements have historically been heavily skewed in developers' favor, I wouldn't be surprised if this was not uncommon.

Some developers building apartments in NY (e.g. Lucia, Visonnaire) were smart enough to register with HUD: http://hhhqunp003.hud.gov/HSNG/ILS/ILSSubdivisions.nsf/

Developers that didn't frankly only have themselves to blame.

I am confused -- and perhaps someone can help clarify the situation:

1. By law (not by contract) does a developer have to complete a unit to a purchaser within two years?
2. Or, if a developer does not put two year guarantee in the contract, then the buyer is stuck?

Thanks,
Mlwest

ML West, ILSA (the land sales act referred to in the Times article) sets out HUD rules for new developments.

I am not a lawyer and I should not be relied on for legal advice, but I'm a little shocked that posters on this board are giving it, especially because as far as I know, there have been ILSA rulings in Florida both ways -- pro-purchaser AND pro-developer.

ali r.
{downtown broker}

StellaBlue: The irony is that all those people in the "Buy now or be priced out forever" camp - the people who so vehemently argued that NYC prices would only go up, that NYC was immune to economic realities, that only fools were exercising caution, that loose and easy financing would be available forever - are now trying to get out of the very same situations they so fervently advocated. You seem to imply that buyers who are trapped in their out-of-the-money contracts are innocent victims of random, unforseen circumstances. In fact, the signs that we were on the precipice of an economic tsunami were clearly evident, stated, discussed and vetted. Perhaps I'm giving you too much credit, but it seemed pretty obvious to many, many people that the frothy days of a ginormous real estate bubble were coming to an end. Now all those people who screamed "Buy! Buy! Buy!" are trying everything they can to back out, get their 6-figure deposits back and probably wished they had listened to those who were warning of imminent disaster on the horizon. All those buyers who were foolish enough to a) ignore the clear and vocal warnings of impending danger, b) enter into agreements 12-18 months in the future in front of such economic uncertainty and c) fail to included mortgage-contingency clauses in their contracts to protect against such uncertainty, are now relying on technicalities to bail themselves out of their mistakes. I'm actually happy for the lawyers who started No-Condo.com. I applaud them for recognizing a promising business opportunity to make money from the mistakes of those foolish enough to make such poor decisions with their money. So to you and all those who don't see the irony in this story, all I have to say is "So how do you like your decision to buy now, hmmm?"

stella blue: be glad you're only out the 20%...supposing you had closed a year ago at full price....where would you be now?

front_porch/ali r. said "I am not a lawyer and I should not be relied on for legal advice, but I'm a little shocked that posters on this board are giving it"

You shouldn't be shocked, Ali. LICComment has been talking nonsensical gibberish all along. He/she thinks he knows everything and thinks of himself as an expert on all matters involving economics, finance, real estate and law.

Columbia- I wish I would have had the chance to close a year ago, I had more cash. Unfortunately they didnt start closings until February 2009. Aprapos of nothing, I have a question: How do people get mortgages in buildings like the Laurel that are only 53% in contract?

"You shouldn't be shocked, Ali. LICComment has been talking nonsensical gibberish all along. He/she thinks he knows everything and thinks of himself as an expert on all matters involving economics, finance, real estate and law."

wait, aren't you referring to stevejhx???

jsmith- steve has been more right than wrong over the last year. He's been the most vocal bear and no one can argue which direction the RE market has gone. If anything, it's been the RE bulls that have proved to be completely off-base.

iMom is still living in fantasyland. I've been reading these boards for about a year and a half, and I haven't seen all these "Buy now or be priced out forever" people with whom iMom is now so angry. She just doesn't like that in the past when we have been discussing the same topics and she wasn't making sense, I would give rational counterpoints.

LICC, funny, but not in a good way. You haven't seen the buy now or... people? Really? I got shit kicked almost into the next century for admitting that I sold a Chelsea condo loft late 2004 and chose to live (modestly) in Peter Cooper instead. And this was about a year or so ago.

LICComment: You're too funny! Let's take a look at some of your posts from last year, shall we?

From May, 2008: “Take it from someone in investment banking, the market indicators show that we are in the final stages of the subprime downturn. Most banks in the US have written their subprime assets down. They are still in the delevering process, which could play out for up to a year (if not sooner) before the banks get comfortable increasing risk levels. There is a tremendous level of assets on the sidelines now waiting for credit markets to stabilize. Once this happens, we will see a growth trend in real estate markets again, albeit at a much more moderate pace than the last growth spurt. We will also see the financial services companies and banks increase staff again.”

From May, 2008: “Prices aren't going to crash in NYC my friends, and in a year you will be kicking yourselves for not getting in during the narrow window of the soft market we just went through.”

From July, 2008: “Would I recommend buying now? I have answered that question several times on these boards, so of course dco lies again and says that I haven't. If a person finds a place they like, that fits their budget, and plans to stay in their place for more than 2-3 years, then yes I would say they should buy and they would be better off for it.”

From August, 2008: “You are jealous of those who have bought their homes and are enjoying the benefits of owning in their life”

From August, 2008: “As more people move into the area in the new developments, more services and amenities will follow, the community will develop more, and the area will become more desirable and bring even greater demand.”

From July, 2008: “Starbucks just announced they are opening their first shop in LIC. More and more retail establishments are coming in every time you look.”

From September, 2008: “Wow, Star Tower is half sold already! Powerhouse is almost half sold.”

From July, 2008: “True, the mortgage deduction will decrease over time, but your net equity will increase at the same time by your principal paydowns.”

From June, 2008: “I can see why you think RE must come down because you don't realize how many high income earners are out there in NYC.”

LICComment: If anyone has been living in fantasyland, it's been you. Remember, you're the one who said:

“Prices aren't going to crash in NYC my friends, and in a year you will be kicking yourselves for not getting in during the narrow window of the soft market we just went through.”

Really? I don't think anyone who didn't buy in 2008 is really kicking themselves. It's the unfortunate people like you or people who listened to you that are the ones kicking themselves.

"I should not be relied on"

ali r.
{downtown broker}

- At last, Ali and I agree on something...

iMom - I don't know what you think you proved with those quotes. Most of them are accurate or opinions. LIC is becoming a more active residential area and is holding up relatively well. As for the projections, the jury is still out. Obviously, my statement was that the market will soften, prices will come down and it will be a good time to buy. I said a long time ago that I thought NYC prices would drop, but not to the crash 50-70% levels that other people on the boards predicted. So far, even in the middle of the worst financial and economic crisis in decades, they haven't. We'll see what happens. You seem awfully angry and bitter.

Aboutready - I've been reading these boards for about a year and a half, and other than a very few, I haven't seen many "You have to buy now!" comments.

"You shouldn't be shocked, Ali. LICComment has been talking nonsensical gibberish all along. He/she thinks he knows everything and thinks of himself as an expert on all matters involving economics, finance, real estate and law."

"You shouldn't be shocked, Ali. LICComment has been talking nonsensical gibberish all along. He/she thinks he knows everything and thinks of himself as an expert on all matters involving economics, finance, real estate and law."

wait, aren't you referring to stevejhx???"

I forgot to add linguistics as well.. who could forget this classic in this thread - http://www.streeteasy.com/nyc/talk/discussion/6284-approaching-10000-manhattan-listings

Oh my lord, nyc10022. You are as bad as the people who when I said "riddance," thought I meant "good riddance."
Here is from Oxford:
"to head: move in a specified direction: he was heading for the exit."
"He was heading for the exit." Did he exit?
Not necessarily. It indicates a direction. So stop. You are now proving to be moronic. If you were remotely familiar with language - if you were smarter than a 5th grader - you would also note that Aristotle has a long passage about the multiple meanings of "is."
You just don't know what you're talking about.
"I'm sorry, but its just too comical."
Oh: "IT'S" just too comical.

"I've been reading these boards for about a year and a half, and other than a very few, I haven't seen many "You have to buy now!" comments."

Really? LICComment said in May 2008: "in a year you will be kicking yourselves for not getting in during the narrow window of the soft market we just went through."

LICComment: What I proved was that you (and all those who were advocating to buy) were completely wrong. Maybe it hasn't occurred to you but the market is in much worse shape today that it was in May, 2008.

Oh, by the way, here are a couple more gems from the GREAT-PROGNOSTICATOR:

"The banks may even increase their risk tolerances this year depending on what happens in the market. Most of the bad debt assets have been written down by the banks at this point, and their balance sheets have nowhere to go but up." LICComment, May, 2008

"Despite what our own eyes tell us (“I live in Tribeca and can count 40 separate construction projects in my neighborhood right now,” says Roubini), new construction is not adding nearly enough units to glut the market." LICComment, May, 2008

LICC- you've made this SOOO easy! You're like the portfolio manager who goes on CNBC to proclaim that DJIA has bottomed at 10,000 and that now is the time to buy! Then when the DJIA falls to 6,600, you come back on the air to deny you ever made those statements! But the saddest thing is that you probably take yourself seriously and are in complete denial about how utterly wrong you were. I'm just holding you accountable to your statements and showing everyone how bad your advice was.

I'm not angry or bitter...I'm just right. I only seem angry and bitter to you because you were so wrong.

Oh wait...who am I to disagree with you? After all you said:

"I graduated cum laude with an economics degree, was a member of Omicron Delta Epsilon, and work for one of the most prestigious investment firms in the world." LICComment, July 2008

I guess they never taught you how to admit when you're wrong.

iMom - how is a statement that the market will be coming down so buying within the next year is a good move the same as "You have to buy now!" You are so desperate to try to convince yourself that I was wrong that you are grasping to make your case.
By the way, the banks are lending. Credit is available. The issue with bank lending isn't the availability of funds but the renewed increase in lending standards. The lending from securitization markets is not there, but banks are lending to people with good credit.
Also, stop being in denial about your anger and bitterness. I own my home and I am happy that I do. It's been great for my life to own my home and its been a great investment for many years. I'm not sure why this bothers you so much.

"How is a statement that the market will be coming down so buying within the next year is a good move the same as "You have to buy now!"

LICComment: Funny how you're changing your story now. Don't even think about claiming you weren't a RE-bull. Every comment you've made in 2008 was pro-buying, pro-LIC, pro-"Prices aren't going to crash in NYC" and look what happened....

1) RE prices down 25-40%
2) Sales volume dramatically down
3) Inventory dramatically up
4) Buyers struggling to get out of their contracts
5) Buyers giving up hundreds of thousands of dollars in deposits because the value of their new condos have fallen be even more than that
6) Buyers have had their common charges raised because other tenants are defaulting on theirs
7) Developers have even resorted to auctioning off their unsold units because they need the cash to pay off their construction loans or risk going bankrupt
8) Some developers have already gone bankrupt, abandoning their unfinished worksites

And you have the gall to claim you weren't bullish on RE. Admit it - you couldn't have been more wrong about the market. The RE-bears and anyone else who has followed these posts know you were an ardent-bull. I'm just holding your feet to the fire. I'm glad you're enjoying your home so much. Think about how much more you'd be enjoying it had it not just depreciated 25-40%.

This blog by a Miami lawyer has a lot of good information on the Interstate Land Sales Full Disclosure Act: http://beckandlee.wordpress.com

My home hasn't depreciated 25%. More like 5-10% from the peak. I bought into the market in 1998. Not only is my home worth tremendously more now, just think how much I have saved not having to pay rising rents, and with my mortgage deductions over the years. Sorry this irritates you so much iMom.
To your points:
1) In some areas. In others, prices are not down as much.
2) So what
3) So what
4) 10% of buyers are walking away. Of course this would happen in a down market
5) Same answer
6) In limited numbers
7 and 8) Same answer

Also, I never said "You have to buy now, real estate is going up!" Everyone who knows what I have said on these boards knows that. I have often countered bad analysis and bad facts from some bears. I am more positive than others. I was and still am positive on LIC. But you are distorting things. You seem obsessed with me, but you are way off in your assertions about me.

LICComment: Denial...denial...denial... If the analysis and facts from the bears have been so bad, why is it that the bears have been proven so right, hmm? Yes, you were positive - but the market went negative. Very, Very Negative. So that means you were wrong. Very, Very Wrong. I'm singling you out because it was YOUR analysis that was sooo bad. Your facts and opinions sooo off. And now it is abundantly clear to everyone except for you that we were in a ginormous RE bubble that burst and isn't coming back anytime soon. And yet you still cling to your delusional notion that you had the right call all along. Sorry LICC, you can keep posting as much garbage as you want. I'll always have a better response because the market has proven me and the other RE-bears right. The market has spoken and the market agreed with us bears.

“Prices aren't going to crash in NYC my friends, and in a year you will be kicking yourselves for not getting in during the narrow window of the soft market we just went through.”

LIC this is great. i bet that it could open you a door or two at Elliman or Corcoran provided you say it with enough enthusiasm, just in case that IB doesn't work out. thinking that your place only went down 5-10% from peak... if it's in nyc i'm afraid that shows you are in denial.

iMom - do you always just declare yourself proven right with every argument, even when you are not?

admin: Unfortunately for LICC, there are no IB's anymore. They've all been taken over by banks or have become bank-holding-companies so they could access capital from the FED. They did that because the economy was so strong. Oh, wait....

LICComment: Now who's distorting things? I've been a bear. You've been a bull. Which way do you think the market has moved in the last 12-months, hmm? Keep trying. It's fun watching you spew nonsense.