Young family loses life savings to housing developers after being screwed by banks

[brentspeak]

You might want to read this in a cold room because it'll make your blood boil:

http://www.nytimes.com/2009/03/22/realestate/22cov.html

Up in Smoke: The Deposit Vanishes

By VIVIAN S. TOY
Published: March 20, 2009
SOME of the buyers who thought they would be moving into new condominiums in the region this year are finding that those plans are in ruins as they are being forced to walk away from the hefty down payments they made a year or more ago.

They can’t complete their deals because the mortgages they lined up before the credit crisis took hold have evaporated and they can no longer get financing.

Elizabeth and James Pham put all their savings into the deposit they made on a $956,990 two-bedroom apartment at Maxwell Place, a new development in Hoboken, N.J.

They signed an agreement for the apartment in 2005, put down $93,199 and were preapproved for a mortgage for the rest of the purchase price.

But when their closing date arrived last September, several banks told them that to get a mortgage, they would have to increase their 10 percent down payment by another 15 to 25 percentage points. With no way to come up with that much money, the Phams notified the developer, Toll Brothers, that they could not get financing for the apartment. http://www.tollbrothers.com/homesearch/servlet/HomeSearch">Toll Brothers declared them in default and kept their deposit.

“It would take us another 15 years to save that money again,” Ms. Pham said

[soothsayer]

1. Outrageous! I hope this publicity gets them their money back.

[XemaSab]

2. While 93K sounds like a lot

It's 500 bucks a month for 15 years. :(

[WhiteTara]

21. that is a lot! n/t

[Leftist Agitator]

27. Um, after rent and bills are paid, I live off of about half that per month.

Groceries, transportation, and everything else has to be paid out of the $300 per month left over after my bills are paid. And no, that doesn't include any credit cards. I had to let those go into default two years ago.

Maybe you're rich or something, but to us poor folks, the notion of saving $500 / month on an $8 / hour income is utterly laughable.

[XemaSab]

31. The notion of saving 250 a month on a 40K income is doable

40K a year is very middle class.

[Leftist Agitator]

38. "40K a year is very middle class."

Not in the NYC metro area, it's not.

http://en.wikipedia.org/wiki/Hoboken,_New_Jersey

"The median income for a household in the city as of the last census was $62,550, while the median income for a family was $67,500 (these figures had risen to $96,786 and $107,375 respectively as of a 2007 estimate<9>)."

They're by no means starving or truly impoverished, but 40k isn't as middle class in North Jersey as you'd think. Lower middle class, maybe...

That aside, if they did manage to save $250 / month, it would only take them 31 years to save another $93,000. Chew on that for a while.

[readmoreoften]

41. 40K is working class in North Jersey. According to Forbes, 40K in the NYC area is

equivalent to 46K a year in Dallas and 15K a year in NYC. Hoboken is only slightly less expensive than Manhattan and in some places more expensive than Brooklyn. More like 17.5K a year if you want to be picky.

[XemaSab]

46. You're missing my math

If both the man and the woman are making 40K, and they're each saving $250 a month, then it's $500 a month for the family.

Hence, $93K in 15 years.

[Leftist Agitator]

48. Well, OK, that's all well and good...

But they still got royally fucked by a bunch of rich, greedy assholes, wouldn't you agree?

[XemaSab]

51. NO DOUBT

If you're making less than 200K, getting ripped off like that SUCKS. x(

[proud patriot]

34. It is a lot , I'm a childcare professional and get about 19,000 per year

I sure hope our values change as a society and we put our children first for a change .

[NC_Nurse]

3. The bank should have to pay them back since THEY are the ones that changed

the terms. F*ck them.

[liberalhistorian]

32. The bank did NOT "change the terms" of the agreement with

the developer. The bank had nothing to do with that agreement and are not responsible for anything. As I said below, these clauses are standard in many development purchase agreements; you have until a certain time to obtain financing and, if you don't do so within that time, for whatever reason, they then have the right to retain the deposit. This couple knew that going in when they signed the agreement and knew the risk. Never sign these kinds of agreements without first obtaining financing or the chances of your finding yourself in this kind of situation is fairly significant.

[dysfunctional press]

50. it said that they were already pre-approved for a mortgage...

so apparently they thought that they DID have financing.

[McCamy Taylor]

4. WTF? Where the hell are the feds on this?

[depakid]

5. a $956,990 two-bedroom apartment?

Wow.

Sory to say, I'm having difficulty mustering sympathy for that.

[L0oniX]

6. Same here ...no sympathy. I only make 25k a year ...they are rich by comparison.

[depakid]

8. That wasn't my point

almost a million bucks for a two bedroom apartment in Homboken is beyond the pale. Not a wise financial decision, to say the least.

[girl gone mad]

10. And this is the asset buble that Geithner, Rubin, Summers, et. al...

are trying so desperately to re-inflate. Their plans will fail because people have come to their senses.

[liberalhistorian]

35. Exactly. And they should never have signed

that agreement with the retention of deposit clause without obtaining financing to begin with. I saw this kind of thing happen many times when I was a real estate paralegal; people would sign development agreements with retention of deposit clauses that gave them a certain time to obtain financing. Then they wouldn't be able to get financing and there went their deposit. Except that they also knew that risk when they signed in the first place.

[depakid]

44. They should have had a subject to buyer obtaining a firm commitment for suitable financing clause

With some much smaller amount on the line as liquidated dameges.

That said, I think an argument can also be made that the contract that they signed was unconscionable with respect to this sum of money.

[bluesbassman]

52. The problem here is that they DID have financing. No builder will

keep you in contract without a commitment letter from a lender. Toll Bros, a nationwide builder, most certainly has that in their purchase contract. What happened between the time they received that commitment and when the home was completed is that the fed guidelines changed, and as all condos in declining market are subject to a 70% to 80% LTV restriction on jumbo loans. No lenders can provide 90% financing at that dollar amount.

Two or three years ago Toll Bros would have probably given them their money back, but now they will have a hard time reselling so that's the reason they are keeping the deposit. I'm not justifying this, it's just the reality of the market. You'll be hearing a lot more of these stories as builders continue to struggle and in a lot of cases go out of business.

[dugaresa]

12. so you have no sympathy that they lost money they earned?

because the rules changed while they were in the midst of buying a place to live?

This isn't even a case where they lost a home because they didn't pay on it...they lost it because the bank changed the rules after they put down hand money for the condo.

I only hope you never have it happen to you.

Typically you have to put anywhere from 2-5K down when you start the buying process for a home, there are ways to legally break the deal without losing the hand money (generally during negotiations). However I have never seen this type of robbery before, it is almost criminal that the bank did this to them and that the developer won't give them that money back. I could see a small penalty but that is just horrible for them and they have small kids too.

[dixiegrrrrl]

16. The purschase agreement should ALWAYS say "subject to financiing"

that way, the deposit is kept in escrow and returned if financing falls thru.

[depakid]

25. Nor defending what the developer did, either

Indeed, I'd like to see them sued and investigated by state authorities for their behavior.

[L0oniX]

37. I bought my first home for 40k. I went to a first time home buyers class.

No excuses ...learn and be aware ...I could have bought 5 homes with 100k and rented 4 of them to pay them and the one I would have as my own. No one forced them to live where they live. Excuse me if buying a million dollar home seems a little extravagant for a first time or naive home buyer. Maybe living in a little more modest community and getting a conventional home loan would have been the wiser choice.

[readmoreoften]

43. According to Forbes: 40K a year is equivalent to 15K in NYC. You make more than they do.

Anyone who thinks 40K is middle class living in Hoboken has never been to the greater NYC area as anything more than a tourist. You simply have no idea what you're talking about.

[L0oniX]

45. huh?

[rufus dog]

11. that attitude just fucking sucks

You don't feel sorry for them because they make more than you?

What, they should move somewhere else.

Did you ever fucking consider they are from the area, have a social and family support network, and moving elsewhere has drawbacks.

From limited knowledge it looks like they did everything right. Worked, saved, paid taxes, then lost 95k. Not sure how anyone couldn't feel sorry for them.

[LisaL]

14. Yea. I know. Boggles the mind. It's not these people fault, though.

[wain]

24. I'm with you on this one

10% down on a million $ mortgage??!! What is a young couple with kids like this thinking of? We see so much of getting screwed passed along. Now it's us the lowly taxpayer that is getting stuck with the tab. Why do we have to bail out the rich, banks and million $ home owners?

[Hannah Bell]

26. what is it the buyers did wrong, exactly?

[FLDCVADem]

28. Huh?

How are the taxpayers getting screwed by this couple? They got screwed by the developers, and it sucks, I don't care how much money they make. They obviously made enough to qualify for the mortgage initially, with 10% down, so what exactly did they do wrong and how is anyone but them getting screwed in this deal?

[readmoreoften]

42. It's called THE NEW YORK CITY AREA.

That's what a modest two-bedroom apartment costs in Hoboken.

[northernlights]

7. It took me till I was almost 50 to save that kind of dough

It will take me another 15 years to save it, now that it's been lost. Or it would if I could find work.

And a young couple spending a million dollars...for a 2-bedroom apartment?

Sorry, not a lot of sympathy here. That's so out of my league. And I thought I was doing well in the 90s. :shrug:

[GoesTo11]

9. Let the law play out on this one

If the "pre-approval" was a commitment, then it's the bank that changed the, i.e., breached contract - if that breach of contract cost them their deposit, that's the tort they suffered and they should get it back from the lender. If the financing was through the builder, then they can get a judgment from the builder for that amount. It probably wasn't an iron-clad commitment. For example, if you're prequalified at current rates of 4.5%, and then rates go up to 7%, you wouldn't automatically qualify.

If there was no actual commitment on the mortgage, then they took a gamble. The only question is whether they have any recourse with the builder, i.e., are they due any of their deposit back? That should also be in the terms of their contract. But normally the point of making the deposit is so that the builder will build a place for you and hold it for you. If the builder could sell it to someone else for the same price, maybe they would give the deposit back (and there might even be legal grounds to do that, if the contract is at all vague). Alternatively, if this family could find someone to give then $93000 for the rights to buy the unit for the rest of the 957000, they might be able get the builder to agree to that.

What's most likely happened, though, is that the property isn't worth 957000 anymore, and no one wants it at that price. If the builder has to find another buyer for 800000, the failure of the mortgage to come through will cost them more than the amount of the deposit they keep.

Sounds like they were planning to be hugely leveraged - almost $1M in a no-no loan, which is something like $60,000/year in payments. Even if they were able to get financing, they would probably be underwater instantly and behind on payments within a month or two (they said that it would take them 15 years to save another 90,000 deposit, so I can't see how they were going to make those paymemts).

A final possibility is that the original sale was unconscionable - if it was obvious there would be no way for them to meet the terms or it was clearly unlikely. That, though, would apply to most of the sales involving sub-prime mortgages over the last few years, and it doesn't seem to have been a compelling legal argument for people to walk away from or renegotiate their mortgages.

Losing all your money is no fun, but they are probably better off without this albatross, learning their lesson, and rebuilding from here.

Sad.

[Laelth]

47. Quite clear, and I agree.

Normally, one has an argument that $93K is unconscionable because it's an improper contract penalty and not a realistic estimate of liquidated damages, but in this case ... it looks like the time granted to secure the loan actually did cost the builder that much, or more. It really is a realistic estimate of damages. If so, they may have a hard time winning their case in Court.

:dem:

-Laelth

[LisaL]

13. Those prices are something else.

For that kind of money they used for the deposit, they could have bought nearly the the whole condo around here.

[jody]

15. Those who wager the most stand to lose the most. Some people who lost a few thousand dollars are

harmed more than the Pham family.

[bbernardini]

17. Toll Brothers are pretty much evil. nt

[Mike 03]

18. Shocking, Appalling and almost definitely Illegal. NT

[formercia]

19. Contracts are for little people.

The big boys screw you at will.

[malaise]

20. If this is allowed can't people with credit cards

and bank loans who lose their jobs tell the banks that they can't repay them either. Whatever happened to contracts?

Do banks take people's home deposits with no guarantees?

[BlueJazz]

22. NEXT !

[Carni]

23. OMG that is insane! eom

[localroger]

29. There is a very good chance the developer doesn't have it

He can't give it back because he, too, has been screwed by the whole crisis and might have 100 families like this wanting their big deposits back, and he's spent those deposits starting up the project thinking he had solid buyers. In this case sueing the guy will yield nothing because he's judgement-proof; there's no blood to be had from that turnip. The money is just gone.

[liberalhistorian]

30. Uh, I'm sorry, but as a former real estate paralegal, I can tell you

that this is standard operating procedure in many purchase and/or development agreements and these people knew the risk of that when they signed the agreement. A standard clause in many of these agreements states that they have until such-and-such a time to obtain financing for the project; if they fail to do so, no matter the reason, the developer then has the right under the clause to retain the full deposit. They are not gettin "ripped off", they knew the risk when they signed. And people who can afford a nearly one million dollar apartment ain't in too bad of a spot to begin with.

[FLDCVADem]

33. Using your logic,

we could say that all of the people that got into mortgages they couldn't afford knew the risks and decided to move forward anyway, so screw 'em, let them go into foreclosure.

And I still fail to see what their income level has to do with it - being screwed over is being screwed over, regardless of income.

[liberalhistorian]

36. Except that they are NOT being "screwed over."

They signed the development agreement with the retention clause before they'd actually obtained financing. They should not have automatically assumed that they would get financing prior to handing over the 93 grand.

[FLDCVADem]

39. Fair enough

Then I take it that you also believe that all of the people that are losing or have lost their homes to foreclosure because they took out loans they couldn't afford deserve what they got as well. After all, they knew the risks and rolled the dice anyway.

Also, I'm wondering how they could have approved financing and then have the terms changed at closing.

[flvegan]

40. 3 years to get a closing date? I'd sue as well.

Aha, on edit, I see it's a condo in NJ.

[bluesbassman]

53. It's going to get worse too. 70% presell requirement now.

There'll be condo projects sitting for a long time.

[GiveMeFreedom]

49. $956,990 two-bedroom apartment?

Is that the right asking price? Were I live in California, you can get 10 acres and a 4000 sq. ft. house with a pool and shop and barn. Man, I do not know how to live!

[TreasonousBastard]

54. Oh, I cry big tears...

So they were "preapproved" for an $870,000 mortgage, but it took three years to actually close on the place. I'll guess it took that long to close because it took that long to get the place ready to move in, but that's neither here nor there.

I have no idea what they were doing during that three years, except maybe yapping at the builder, making changes and choosing paint, but it would seem that they would have had some opportunity to check on the status of their mrtgage preapproval, and put some more money in the bank. A 30 year 7% mortgage on this place would be almost 6 grand a month, so they had to have some serious income to even think about laying that out before utilities, food, car payments, and the nanny. Were they spending 6 grand a month in their old digs? Six grand a month for three years is $288,000, and while they didn't have all 6 to put in the bank, they could well have had half to put away, pretty much covering 15% additional.

But, I don't know that. What I do know is that I visited many houses and condos in Joisey in highly prized areas that had NO FURNITURE. Now, how could that be that people with good incomes lived in a place for over a year and still had NO MONEY TO BUY FURNITURE?

(But they all had fancy new cars, and this was long before the latest housing price insanity)

[KillCapitalism]

55. Why do people feel the need to live in such high COL areas?

Nearly $1,000,000 for a 2-bedroom condo is absolute insanity no matter where the location is. That $90K would have made a great downpayment on a very nice home in a city like Indianapolis, Omaha, Oklahoma City, or Houston.

With the cost of living like it is around New York, I'm surprised anyone who's not an AIG executive could live there.

Oh, and for comparison, this is what $950K can buy here where I live:

http://www.realtor.com/realestateandhomes-detail/351-Merlot-Ln_Saint-Albans_MO_63073_1107272292