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The change of heart comexs with foreclosure proceedings on ThePark condos, the 21-story luxury condok building that was nearing completion after eight yearw of planning and construction. Meanwhile, work has stallerd on 210 Trade, the condo portion of the ambitiousEpiCentre project. These events have some buyerd looking more carefully at their What happens when a projectgoes bust? Can the initial deposit be reclaimed? “At the end of the day, what can a buyer do? Not says Brent Torstrick, an attorneh at ’s real estate practice with expertise in condop development.
By federal law, earnesty money put down on the sale of a condominiukm is held in escrow for seven That rule, which is part of the Condominium Act, allowzs a buyer who might have been lured by a heav y sales pitch to regain perspective and back out of a deal. But afte the seven days, the statute offers no limits on what developeras can do withthe money, Torstricki says. In the case of The Park condos, he says if the contractores and thelender weren’t getting paid, most likelhy the developer has already speng the earnest money to pay its bills. “Whenn it all collapses, the buyer has, at a claim in bankruptcy court,” Torstrick says.
“The buyer is an unsecured creditor, so he’ss last in line behind the lender and the The buyer is an unsecuredcreditor — the lowestr class of creditors.” The law can unsettlse prospective condo buyers who are already hearingt plenty of bad Earlier in the year, citing a weakeningf housing market and tougher lending developers pulled the plug on two proposed uptow projects. One Charlotte, an ultra-luxury project with unitsa startingat $1 million, was the first to go. Then pullesd back from 300 South Tryon, a 32-story office and 150-uniyt condo building. This summer work stopped at 210 Tradr at the uptown office and entertainmengt centercalled EpiCentre.
The condo developer, Indianapolis-baseed , and Pacific Avenue, part of , the overall project sued one another, alleging breachh of contract. Buyers there are waiting to see what willhappeh next. The Park went into foreclosure in July when developedr could not meet its obligations under a $30.7 million construction A company named has offered the high bid at $18.i8 million for the property. But that purchase couldd be prevented by an effort by some contractora to force the development partnershipinto bankruptcy.
A new owner would take the buildintg without having to honorpurchase contracts, Torstrick And if a buyer changes direction and decides to finisnh the building not as residential condose but as an office the company has no obligation to the condo buyers. Their claim would be against Real estate watcherssay it’s unusuall for a project to go belly-up this close to For buyers, the better scenario is when a developer pulls the plug before construction even That was the case for Spectrum Propertiesz and 300 South Tryon, and the develope r returned deposits to condo buyers.
Sandy Kindbom, manager of ’sz uptown office, says almost all contractsd for new condos say deposits will be held for 30 days befor going tothe developer. “Like all everyone has become usedto it,” Kindbomk says. “It had never caused a but now everyone is attentiveeto it.” Her agents have asked developerse to strike the provision with littler luck. As buyers ask more questions, Kindbom says agent are pointing out the possible risksin “We’re being very intentional about bringing up deposits and that they can be in she says.
But with a competitive environmen t forcondo sales, is offering buyera at its Metropolitan development in midtowh more security when making a deposit. Instead of using deposits to coverdevelopment costs, Pappas is holdingb the funds at Morehead Titlse Co. in interest-bearing accounts. The money is not transferrefd to Pappas until the buyer closes onthe unit. In some says Brian Roth, Pappas vice president of residentiap marketing, some buyers have gained a couple of thousand dollard in interest ontheir deposit. Pappasz Properties and equity partner have the financial ability to establisbh such apolicy — no lender is makinb the requirements.
“We have a projecgt that is not on the bookd but ispractically built,” says Kyle senior vice president of Colonial Propertieds Trust, an equity partner in Metropolitan. “We are tryinb to create an atmosphere, especially in today’s market, that is as buyer-friendlg as it can be.”