Join our daily blog discussion about What Happens When a Home Builder Closes Down or Files for Bankruptcy?
Comment of the Day
David, a home buyer, says:
We have given a substantial deposit to this builder and have had 7 different closing dates. They tried to push us into closing at the end of December - we figured out why on Jan 17, 2009 when they filed bankruptcy. We want to know whether we can get a refund, whether we should proceed further and if so, should we ask for a price concession due to the uncertainty of future development in the neighborhood and potential warranty claims that might go unanwswered. Laura Height Estates has a projected build out of 155 homes and currently has approximately 30 closed with 3 under construction. They have also started offering their lots to other builders.
Asking for a refund or a price concession and other incentives are potentially actions which you can take. Whatever you decide, you have to note that (unless your deposit is in escrow) you are an UNSECURED creditor.
Historically, recovery for unsecured creditors is extremely low (an average under 10%) because they are a low-priority claimant and there is typically a huge pool of unsecured creditors. In a way, you are “fighting” with your neighbors to get your money back. So do more research on your options, get legal advice and act fast!
If you haven’t seen it yet, take a look at our post on 10 Things Home Buyers Should Know About their Deposits if the Builder Goes Bankrupt.
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Issues to consider:
- Is the developer going to be making a fire sale? When I will know?
- Which properties are going to be cheap but still any good?
- How low can the developer go during price negotiations?
- Will the developer survive? What happens if it doesn’t?
- Who are the parties in the homebuilder’s bankruptcy?
- Are there important parties and contractors who aren’t going to finish the job?
- How do I know I have clean title?
- Will the warranty be honored? To what extent?
- How much are HOA fees going to be? How many neighbors am I going to get to share them with?
- Will the development be completed?
- Which of my homebuilder’s legal troubles might reduce the development’s value?
If you already bought a home from a developer which then declared bankruptcy, you need to start asking even more questions. Here are several, which depend on your circumstances (but you should read all of them):
If the house has been contracted for but not been built:
- Will they actually build my house?
- If not, am I going to get my deposits back?
- Will my house be what I contracted for?
- How long will it take for these issues to be decided?
- What if I need my house right now? I already sold my other house!
- If I feel like I’m being cheated, can I sue for my deposit?
- If I can’t get my deposit back, what can I get back? and when?
- Will the developer survive? What happens if it liquidates?
- When do I get the keys?
- What will happen to the common areas, e.g. the pool?
- Will there still be warranties on defects and other things?
- Is the neighborhood still going to be a desirable one?
- How much are HOA fees going to be? Are they going up?
- Will the development be completed?
