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This weekend, the NY Times real estate section looks at tales of would-be condo buyers who have lost their deposits (many in the six-figure range) with banks now suddenly worried about lending. In 2005, one couple put down a 10% deposit—and were approved for a mortgage—for a Toll Brothers two-bedroom in Hoboken; when they tried to close last fall, many banks told them to increase the deposit by 15-25% for a mortgage. Since the couple couldn't, "Toll Brothers declared them in default and kept their deposit" of $93,199. That couple is suing, as is another who forfeited their 10% deposit ($173,000) on a (non-Toll Brothers) Chelsea two-bedroom, because "mortgage brokers told them that 90 percent financing no longer existed." Some buyers buying smaller units or scraping up more money for deposits, but many contracts before last fall required buyers to be committed to the property "regardless of whether they could get financing." Jonathan J. Miller, of research and appraisal firm Miller Samuel, tells the Times, “It’s going to get worse before it gets better, because it will only start to ease when credit stabilizes.”
City Of Lost Deposits
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Sounds like the condos and banks are working together to screw people over for their deposit.
If they signed an agreement for a certain deposit amount, I don't see how they can move the goal posts in the middle of the game like that. But then again, as congress has amply demonstrated this week over AIG, contracts are meaningless in this country now. We're a banana republic.
What condo developer wants to keep the deposit -at the expense of losing the other 90% of a sale and getting bad press and word of mouth to boot? This is their worst nightmare. Now, not only did the financing fall through but they're having to defend themselves in lawsuits and really can't return the disputed units to market until all claim is settled. That clause must have sounded good when there were long lines at openings and buyers with cash to burn but the banks are killing everything, even as they soak up the entire U.S. Treasury to "return to normal lending". Even for a republican, Ides, you are a paragon of Ur-Cluelessness.
Oh yes, just when its health or auto workers, its renegotiating. When its absurdly overcompensated and criminally negligent white-collar management, suddenly we're in the land of the lawless.
There's a perfectly legal way to renegotiate contracts and one that's best for the overall economy and I think should have been used in AIG's case as well --- bankruptcy.
Real estate contracts and mortgages are two totally different entities. Basically, you put up whatever deposit you want thinking you can get a mortgage for the remainder. In the past 10% down payment and a 90% mortgage would work, but now banks won't loan more than 80% so unless you have 20% (or more for big loans) you have to cough up the rest. The real estate contract you signed is binding for whatever amount you put up unless you have a contingent upon financing clause in the contract - which has always been typical in the other 50 states but not here in the city for some strange reason. So basically your real estate contract with deposit (sometimes called earnest money) is one thing, and the banks and mortgage is another unrelated thing. A savvy RE purchaser with a good buyers broker would have put that clause in the contract seeing how the credit crisis has been occurring for almost a year now. I bet they will get some or all of that back in court though since congress and the fed are now involved in the mess.
Seems like this couple did everything wrong. First, they signed a contract to buy a 2-bed apt. in Hoboken for a hair under ONE MILLION DOLLARS. That right there is crazy. Then, they took all the equity out of their present apt. to put down on the new apt. So they now have a second mort. on the apt. they have to stay in. Then, the guy is in real estate-- his income is almost zero now! Even if they could close on their new condo, how would they make their mortgage payments? They look pretty young. They will have start over.
That Chelsea couple was way too aggressive in their purchase. Not only did they think that they could get a 10% down mortgage but they thought they could do with it WITH NO INCOME VERIFICATION. That's just stupid. Plus, in any suit they are going to have to show damages. But since the apartment they were going to buy has probably dropped in value more than their lost deposit they haven't been harmed. In fact, they may be significantly better off then if they had closed.
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