Watchcase in Sag Harbor From the Long Island Market Report: Older homeowners downsizing and younger couples moving from the city have fueled a recent surge in the number of Long Island condominium projects and their trend toward city-style designs and amenities, according to developers and brokers. An analysis of attorney general filings for condo projects…
The Real Deal has put together a guide to more than Manhattan 70 new condo projects with units for sale. http://therealdeal.com/new-development-show-case-2014/
If anyone has copies of offering plans for any of these projects, please forward them so that they can be posted on Offering Planet (www.offeringplanet.com) and made available to everyone. Thanks.
The real estate economy is slowly picking up encouraged by an abundance of condominium units on the market, Sellers motivated to move them, historically low mortgage interest rates and the first time home buyer tax credit due to expire (unless extended) at the end of April, 2010. I feel the need to revisit certain items of due diligence a prospective purchaser must look at when buying a condo.
As posted on this blog on September 17, 2007: There are currently a great number of sponsor sold condominium units in the New York City market place. A sponsor is the person or entity who is developing a building as a condominium (or cooperative). Like everything else, there are condominium developments that have been built well and others that have been built poorly. Prior to entering into contract, the offering plan and all amendments should be reviewed. The offering plan is a full disclosure of a project to the public that is filed through the New York State Attorney General’s Office. The offering plan lists the name of the sponsor of a condominium building, its principals and other developments built by them. Research the names of the principals and their other developments on the internet. You may find references to any of the above and if the buildings and the units are built well or poorly. Even if the price is right, the carrying charges low and the location of the building prime, you do not want to invest in a building or unit that is poorly constructed. It is more likely that you will have problems in the future. Even if a warranty is given by the Sponsor, if a history of poorly constructed buildings exists, you may still need to go to court to enforce your warranty behind other disgruntled purchasers.
Another thing a potential purchaser of a condominium unit can do is speak with the current occupants of a condominium building. Unlike real estate brokers who have an underlying motivation to sell a condo unit, an existing owner of a condo unit in a building typically does not have an agenda to hide the truth from anyone who asks. People love to complain. If there are problems you will hear about it. I would ask more than one person just to make sure that the complaint spoken of, is not the exception and but the rule. One complaining unit owner may have a particular set of circumstances that do not necessarily apply to the entire condominium building and taint one’s decision to buy.
It may be beneficial for the prospective purchaser of a condominium unit (whether a resale or a Sponsor sold-newly constructed Unit) to engage the services of an engineer or home inspector before purchasing a condominium unit. It is not only good to know what the physical condition of the unit you are purchasing, but it is important to know the overall condition of the condominium building. The need for repairs to the common elements and infrastructure of a condominium building may result in unplanned assessments that may not fit into a prospective purchaser’s budget.
One of the things prospective purchasers need to look at is the number of the units in a particular condominium building that are sold or in contract. If the number of unsold units is too great, banks will refuse to give mortgages in that particular building and prevent a person from buying a unit in a building despite good credit. Some developments are able to get a building “pre-approved” by a particular lender and may even require a purchaser obtain a pre-approval letter from a particular lender who has already consented to providing mortgages in a particular building.
I came across a recent New York Times article written by Elizabeth Harris that highlighted certain things a prospective purchaser must look at prior to signing on the dotted line. I thought it was informative and encourage you to read it.
I do not do this very often but I will tell you that I have worked a number of times with Tom Le of the Corcoran Group who was quoted in the article. I have found him to be very knowledgeable in the field of condominiums. He is a very savvy customer orientated broker. All of my clients who have used him (developer and consumer alike) have been very happy with the services provided.
As an attorney who represents a fair number of purchasers of Sponsor sold condominium units, I have noticed a pattern that raises a red flag regarding my representation of purchasers. On more than one occasion, a sponsor and/or its’ attorney has refused to return the down payment deposited by a purchaser despite the existence of a seemingly unequivocal obligation under the purchase agreement to return it.
Pursuant to a typical purchase agreement in conformity with New York State General Business Law sections 352-e(2b) and 352-h, any dispute over the disposition of a down payment tendered by the Purchaser of a condominium unit can be submitted to the New York State Attorney General’s Office (“AG’s office”). The conflict can be resolved through litigation but the more “cost-effective” way is through the AG’s office.
The New York State Attorney General’s office is flooded with these types of applications. In speaking with a staff member, they are still working through applications submitted in 2008. Various accounts seem to indicate that it will take over a year to have the application processed and a determination made by the AG’s office.
Where the down payment is less than $100,000.00, it does not make sense to spend more than $50,000.00 + in legal fees to recover a $40,000.00 down payment. Additionally, seeking judicial intervention could very well take over a year to come to a resolution.
Where the contract of sale to purchase agreement has been effectively cancelled by the parties and they are disputing over who receives the down payment, purchasers are faced with making a hard business decision. Typically, the down payment deposited on contract represents all or substantially all of the life savings of a prospective purchaser. Tying up the money for such a long period of time results in the purchasers being held in limbo, prevents them from going somewhere else to purchase a home, the loss of potential income where the money was raised from liquidating stock portfolios, withdrawals from 401K plans, pensions and the loss of the first time home buyers tax credit due to expire at the end of November, 2009 (unless extended).
Developers face economic collapse where withdrawing purchasers mean, not only reduced sales but, the inability to meet guidelines established by lenders needed to fund loans of current or future purchasers of units.
Armed with this knowledge, developers have the ability to oppose the release of the down payment, seek a renegotiated purchase price (if the cause for cancellation was an insufficient appraisal of the unit) or seek money to cover the cost of keeping the project afloat (where interest on the underlying construction mortgage continues to accrue). The sponsor of a condominium project really has nothing to lose by contesting the release of a down payment. If the AG’s office decides in favor of the purchaser all the Sponsor is required to do is return the down payment and any interest that may have accrued. Due to legal fees generated from the litigious environment of condominium development paired with collection of legal fees resulting from the boiler plate closing of multiple units customarily paid by purchasers, it is very likely that the law firm who would act on behalf of the sponsor would likely discount or absorb the cost of contesting the disposition.
Rather than lose tens of thousands of dollars and be faced with the uncertainty of the decision of the dispute over the down payment (whether it is a judge or the AG’s office), some purchasers make the decision to settle with the Sponsor and negotiate the release of their money by giving them the interest earned (if there is any) or giving them a portion of the down payment.
The next logical question is how do you avoid this? I don’t know if you can really answer this question. Language could be added to a contract that awards legal fees and expenses to the prevailing party of a dispute over a down payment. This may also act as a deterrent where a purchaser seeks to get out of a contract due to the decline in value of a condominium unit being purchased by asserting a material change in the condominium project or a default in the contract by a sponsor. Some say that this may have a chilling effect on the exercise of the right to dispute of the down payment. I think it may cause a party take a really careful look at the circumstances surrounding disputing the release of a down payment and allow the AG’s office to avoid wasting time on less than meritorious disputes.
Are there any attorneys who have information or contract language that may address this problem?
Your feed back is greatly appreciated.
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