Builder delays could kill condo deal

Q: I am having serious problems with the new condo I am trying to buy. We have been in escrow since early March, when we gave the builder a $5,000 deposit, and have had nothing but issues ever since.

First, the lender that the builder said I had to use couldn't close the loan, so the loan was moved to a second lender. Then the builder lost its FHA approval and just got it back last week. Since they have delayed the process so much, interest rates have risen to the point that the builder cannot live up to the deal it sold me on: I was promised a 4.75 percent interest rate with 6 percent closing-cost credit.

At today's interest rates we can't afford the condo. We have met every deadline the builder has given us, and it has not lived up to its end of the bargain. I feel the builder should somehow make it right, but I don't even know what it could do at this point.

A: You're definitely in a tough spot. Unfortunately, many buyers of new construction are not aware that they are entitled to use a lender and a real estate agent of their own choice, rather than the builder's lender and sales representative. Often, the builder will even pay your Realtor's commission if the agent accompanies you on your first visit to the property.

Opting to use a lender other than the builder's is a little bit more complicated, as the builder often makes buyer incentives -- like that 6 percent closing-cost credit of yours -- contingent on working with the builder's mortgage connection. What a tough set of factors to weigh and balance! Good thing you've continued to meet your deadlines -- it will stand you in good stead no matter what you decide to do going forward.

Mindset Management

First off, get clear on what outcome you would like. Would you move forward with the purchase if the terms worked for you? If so, your Action Plan A should be designed to see if you can get the builder/seller to "make it right," in your words. If you'd rather ditch the deal and get your deposit back, that will take an entirely different course of action.

Next, because you might end up trying to close this transaction working with the builder's lender and sales rep, get clear on who works for whom. The loan officer works for a bank that has a relationship with the builder. The sales representative is likely employed by the builder. Neither of these folks works for you. I don't say that to engender hostility or foment an oppositional stance, but I want you to go forward in this transaction (if you choose to) with the understanding that you are the defender of your own rights here -- watching out for your interests is neither their job nor their primary concern.

It might be worthwhile to hire a real estate attorney or consult with a buyer's real estate broker on an hourly or flat-fee basis until you've worked the kinks out of this deal. That would help you manage the feeling of overwhelm and the sense that you are totally alone in this David vs. Goliath-type situation. If you hire someone to watch out for you, they might even be able to negotiate the deal so that the builder covers some of their compensation.

Need-to-Knows

If you want to get your deposit back, and the builder is not and has not been able to put the deal together as promised, you might be entitled to do so. Without seeing the contract, though, I can't give you a firm answer on that, because many builders use their own contracts that lean heavily in their favor, rather than using the more neutral state association of Realtors purchase contract forms.

In order to know whether you are entitled to a refund of your deposit, it would be important to know whether there was any sort of guarantee of interest rate or other financing terms in the contract between you and the builder -- if so, you might be able to recoup your deposit; if not, it's less likely. Hiring a real estate attorney to review the contract and see if you have any ways to get out of it without losing your deposit is probably the quickest and easiest way to deal with this. ...CONTINUED

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