Shores of Panama: Incentives to Close Sales
Strictly speaking, the bankrupt home builder is the one who gets to choose whether a home buyer’s sale contract is rejected or assumed. This stems from one of the cornerstones of bankruptcy protection - the ability of the party in bankruptcy to assume or reject unexpired leases or executory contracts. It allows the party to rid itself of onerous contracts and preserve contracts which can generate value.
However, this doesn’t mean that home buyers cannot negotiate for incentives to close the sales. When Shores of Panama first received court approval to proceed with home closings in May’08, there were at least 2 purchasers who decided they did not want to consummate the contracts. What followed was some degree of wrangling, eventually leading to Shores of Panama revising the sale contract terms to make them more attractive.
What are these incentives?
One of the purchasers was given a reserved parking space and a $15,000 credit towards closing costs. The other was provided with a furniture package from Malouf Furniture and Design and a promise from the developer to pay the first two years’ of homeowner’s assessments based at the current assessment rate for 2008 (of course, the value of this contractual promise depends on the risk of the builder defaulting on it).
