topic Re: Legal Question: New Home Construction in Mortgage Loans

Legal Question: New Home Construction

ficonovice — Thu, 08 May 2008 03:28:37 GMT

I just signed a contract for new home construction in Maryland. The contract was signed last Wednesday and ratified by the builder on Friday. The contract was for a specific Lot (#4) and a specific home type (Avalon).

I got a call today from the builder saying that they appealed with the county, but unfortunately the Avalon model can't be built on Lot #4 because the home is too large for the boundaries. We had discussed the specific Lot numerous times and I was assured that the Avalon model would fit and wouldn't be a problem on the Lot site.

The builder has offered other lot sites, but they each have slight problems and I'd rather not build on them. Additionally, one of the sites has a spec home about to be built and the builder says I could take that one, but the price of that home is $20,000 more than I contracted for.

The builder does say I can back out of the contract and they'll refund my $15K deposit.

Questions:

Since the builder made the mistake and can't deliver what they contracted for, are they obligated to honor the price I contracted for, or do we re-negotiate based on the other available lot sites?

Does this require another new contract or just an addendum if I choose to take another Lot site?

What penalties/incentives should I ask from the builder?

Any advice will be greatly appreciated.

Thanks!

Re: Legal Question: New Home Construction

Lel — Thu, 08 May 2008 19:09:11 GMT

Since the builder made the mistake and can't deliver what they contracted for, are they obligated to honor the price I contracted for, or do we re-negotiate based on the other available lot sites?

Check the fine print of the contract. If yours is anything like the construction/remodel contracts that I've encountered, there are going to be ample clauses that protect the builder from contingencies such as this. This is a building code issue, and escape clauses for builders due to unexpected code restrictions are commonplace.

Does this require another new contract or just an addendum if I choose to take another Lot site?

You probably want a new contract, which shouldn't be such a big deal. That way, there will be no strikeouts or insertions in the document that could lead to confusion in the future.

What penalties/incentives should I ask from the builder?

If the real estate market in your area is suffering just like other parts of the nation, then you should have a significant amount of bargaining power when negotiating with the builder. Unless people are flocking to this development, then the builder is not going to want you to walk away over a few thousand dollars. The incentives you could ask for are innumerable - you could ask for a price break, for them to honor the original price (as you suggested), upgraded appliances, hardwood floors vs carpet, etc.

Having said that, the developer really should have known what the restrictions were for that lot. What would have happened if this was discovered only after the house was built and you had moved in? You would have been looking at an agonizing and prolonged legal battle with the city and the developer. It makes me suspicious that the developer was trying to pull a bait and switch on you. If you do proceed with a different home design or different lot, you should probably check with the local code enforcement officials to make sure that there won't be any unpleasant surprises.

Re: Legal Question: New Home Construction

ficonovice — Thu, 08 May 2008 19:22:53 GMT

Thanks for your response. The builder is being apologetic about the problem and completely acknowledges it was a "big" mistake on their end.

The contract does state it's at the builders discretion to modify lots based on building codes etc...

At least they're not giving us a hard time if we choose to cancel the contract and we'll get our deposit back if we choose to walk.

Most likely I'm going to ask for a major concession/upgrade such as a finished basement or hardwoods throughout. Or maybe a major financial concession at settlement like full closing costs (though they're already offering $10K) or $10-20K down payment assistance.

Which do you think is more reasonable or likely to b accepted?

Re: Legal Question: New Home Construction

demi — Thu, 08 May 2008 19:26:42 GMT

This is pretty ridiculous...it doesn't sound like they just found out it would be a problem if they had already appealed to the city. It would be one thing if they had found after they sold it, but from what you are saying, thats not likely. I would ask them to sell you the one 20,000 over for the same price...what do you have to lose? (assuming you like the house). Not a legal opinion, just my humble

This should have been checked, rechecked, and rechecked before it got this far. And that is my professional opinion ! (but still not legal ) Was a Planner for 17 years.

Re: Legal Question: New Home Construction

ficonovice — Thu, 08 May 2008 19:52:43 GMT

Thanks Demi. I've been trying to figure out what the builder knew and when they knew it. I trust I'm going to get a little something extra out of them if I choose to stay, but it's tough knowing/thinking I was lied to or misled....

Re: Legal Question: New Home Construction

Lel — Thu, 08 May 2008 19:52:51 GMT

@ficonovice wrote:
Thanks for your response. The builder is being apologetic about the problem and completely acknowledges it was a "big" mistake on their end.
The contract does state it's at the builders discretion to modify lots based on building codes etc...
At least they're not giving us a hard time if we choose to cancel the contract and we'll get our deposit back if we choose to walk.
Most likely I'm going to ask for a major concession/upgrade such as a finished basement or hardwoods throughout. Or maybe a major financial concession at settlement like full closing costs (though they're already offering $10K) or $10-20K down payment assistance.
Which do you think is more reasonable or likely to b accepted?

I think either suggestion has a reasonable likelihood of being accepted by the developer. If I were in your shoes, I'd ask for some sort of house upgrade. The upgrade might not be worth as much as a cash incentive, but if you decide that you want the improvements in the future, it can be a hassle. You'd have to find contractors, solicit offers, apply for construction permits (though the contractors will be happy to do this for an added fee), and have your life disrupted for the duration of the work. We're about to go through this right now - we're replacing the carpet with hardwood floors for medical reasons. Our floors are going to be in various stages of disarray for about 2 weeks, which will be hard on us and our young kids.

Re: Legal Question: New Home Construction

DallasLoanGuy — Fri, 09 May 2008 04:36:48 GMT

I don't answer legal questions.....

But, I do comment about some situations....

You got your earnest money back?!?!?! Then move on!!!!!!!!!!!!

Re: Legal Question: New Home Construction

ficonovice — Fri, 09 May 2008 14:26:45 GMT

I can get back my earnest money deposit if I choose to void the deal and not take another Lot site. It's a tough decision and I'm weighing my options. I'm thinking about what concessions I should ask for if I choose to pursue the new construction with them...