Lisa Simpson
Oct 16,2009
In: Finance, Real Estate

New Construction Developments Have Been Devastated in the Last Ten Years

It is there for all to see – new construction developments have been devastated in the last ten years. Should the blame fall squarely on the developers? What are the risks involved for taking a loan to buy a property in one such unfinished site? These questions are interlinked and need to be addressed.
A couple bought their unit in a condo couple of years ago with high hopes about their nest. But when the developer fell upon hard days their rosy days too are over. Developers are no longer able to keep their promises. The city has not given a certificate of occupancy. Certificate of compliance for the property too is pending. Tax exemptions had been promised but due to lack of these certificates this is no longer possible.

The developers are no longer able to maintain the units and the whole edifice is running to seed. They have lost their will and finances to keep the show going. Meanwhile developers continue to advertise for renters while the security lapses turn from bad to worse. The owners who had kept their reliance on the developers have to continue paying their mortgage dues for units that are slowly becoming more and more worthless with each passing day. No buyers can be found for these condo units.

Some experts opine that this situation could have been avoided if banking laws had been formulated in such a manner that the bank takes on part of the risk with the purchaser in these circumstances. The mortgage agreement should say that if certain conditions are not met with within a certain period the purchasers should be permitted to be let out of their mortgage commitments with a deed-in-lieu-of-foreclosure without staining credit ratings.

It is not right that the buyers should be compelled to go on paying for a house loan when the developer fails to live up to promises. A clause should be inserted in the mortgage covering this important aspect.

If this is not possible then the lender should be made to underline and stress in clear language that the mortgage has to be paid even if the developer fails. The buyers are all involved in civil suits with the developers that are going on dragging because of ambiguity and lack of clarity.

The banks are availing of TARP funds and yet they are not giving attention to the pitiable plight of the condo owners as well as the developers.

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