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If You Walk Away, Expect to Pay
Home builders are seeing cancellation rates around 30 percent, and many of them are asking buyers for a promissory note for an amount equal to their cash deposit.
(By F. Carter Smith -- Bloomberg News)
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Those lawyers are seeing a steady stream of would-have-been buyers looking for help getting their deposits back.
Arthur G. Kahn, a partner with the Brincefield, Hartnett & Kahn law firm in Alexandria, said the procession started in fall 2006.
Sometimes, there are technical aspects to the contract that could become a convincing argument for a refund, he said. For example, he cited a "relatively arcane and complex statute," the Interstate Land Sales Full Disclosure Act. With some exceptions, it requires developers to register subdivisions of 100 lots or more with the Department of Housing and Urban Development. If the development is covered under that law, buyers are supposed to be given a disclosure document, called a "property report," before they sign a purchase contract.
Registration "is a time-consuming process, and you're not allowed to market until HUD has approved the registration of the project," Kahn said. Especially during the real estate boom, he said, some developers didn't want the delay. If the developer should have registered with HUD or should have given the buyer the property report but failed to do so, that could be a route out of the deal and toward a refund.
There are other avenues lawyers might take to recover deposits. For example, contracts often allow builders as long as two years to complete construction. But, especially with condo projects, some deliveries have been closing in on that two-year deadline. No rational buyer wants to pay 2006 prices for a condo now. These deals are ripe for cancellation. Your argument for getting back the deposit may focus on the details about when that two-year clock started ticking, and when the home qualified for an occupancy permit.
The greater the size of the deposit in question, the greater the incentive to hire a lawyer to fight for the money. "Twenty thousand dollars is a lot of money, but if a lawsuit has to be filed, a purchaser may be spending as much on legal fees to get back the $20,000," Kahn said.
New-home sales contracts are drawn up by builders' lawyers, and they favor the builders at every turn. But don't believe the myth that their terms can't be negotiated. In particular, negotiate to have your deposit money held in escrow by a title company or other third party. With the staggering financial losses being reported by home-building companies lately, buyers need to ensure that cash is available if things don't turn out as planned.
E-mail Elizabeth Razzi atrazzie@washpost.com.
