Real Estate News
The condo conversion nightmare
When buyer loses job, selling becomes impossible
By Ilyce Glink
12/12/2008 8:00:00 AM
Q: Our son purchased a condo that was converted from an apartment. Only 25 percent of the condos sold and now the developer has rented out the remaining condos as apartments again. So, my son now owns and lives in a condo in an apartment complex.
The atmosphere has changed in the complex and crime is skyrocketing. The lender at the sales department offered him a home loan and an equity loan at the same time to get him into the condo.
He has called them twice and they don't offer any help. He lost his job and will be moving in with us. He can no longer make his payments. He had unblemished credit. He can't sell the condo, since not even the developer was able to sell the rest of the condos with incentives. Is there any recourse for him? We all have credit scores over 800 and we told him to walk away. He is becoming distraught over this. What should he do?
A: Unfortunately your son has become a victim of the mortgage woes that have affected millions of homeowners in the United States. As the real estate market has soured, real estate developers have been unable to complete developments and unable to sell units in buildings, and are unable to get developments started to get them ready to sell.
Your son has a couple of options. He can seek the advice of a real estate attorney where the property is located to determine whether the developer has satisfied its requirements under the contract for the purchase of the condominium; whether the developer satisfied the requirements under the master condominium documents; and whether the lender satisfied the requirements under the laws in the state in which the property is located to develop the condominium complex.
In addition, some buyers of new construction properties are also finding that certain lenders' relationships with developers were too close, and that the lenders may have given loans to buyers that should not have been given to those buyers given the specifics of the buyer or the developer.
Depending on where the property is located and the method the lender used to secure the loan given to your son or specific mortgage laws in the state in which the property is located, your son may be able to walk away from the property and not have the lender go after him for any deficiency.
A deficiency is created when the lender takes back a property and then sells it off and there isn't enough money from that sale to pay off the full amount owed to the lender. While walking away may not be the best option, for some in this current environment, it is their only option particularly if the lender can't go after the borrower for the deficiency.
In many cases, developers and lenders acted properly in a new construction real estate transaction, but market conditions have created an unfortunate situation. Your son may be a part of that unfortunate situation.
If your son finds himself in a position where he doesn't have recourse against the seller or the lender, he should certainly continue to try to talk to someone at the lender's office to see if they have any options available for him.
As there are thousands of homeowners in a similar situation to your son's position, many lenders are now trying to work with their borrowers to keep them in their homes. Some lenders may offer no options. Others may work with their borrowers and offer a forbearance period in which a lower amount is owed the lender or no money is owed the lender, and that money is added to the loan amount to be paid later.
Now to the specifics of your question, it appears that your seller has leased the unsold units to people that would not have qualified for the purchase of those units. In addition, the developer may be in a conflict-of-interest position in managing the association and also having ownership of most of the units in the building but leasing those units without regard to the qualifications of those renters and without managing the association to keep the problem tenants out.
Your son should immediately contact a real estate attorney to determine whether he can rescind the sale of the unit and force the developer to buy back the unit. This remedy might be limited, but certainly worth looking into in light of the developer's actions in marketing and then managing the building.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.