Will I be sued?

[matchstick]

Hi, I am pleading here if someone could point me to the right direction. My wife and I bought an apartment off the plan last year and paid around xk as a deposit. I was shown the brochure and some figure that made the investment look convincing, of course after some hard selling. I wasn't told if there was a cool-off period or not. It is now probably another 6 months before we settle. Unfortunately my wife has lost her job and we don't think we will be able to get the mortgage. We asked our lawyer what our options are. Obviously we can't simply cancel the contract but have to sell it to someone else. If we can't sell it by settlement date, we will lose our deposit of xk. We thought that would be the worst case, but our lawyer told us that the developer might sue us for his loss. We approached a real estate agent today who told us it was very hard to sell an off-the-plan apartment, especially lease hold. Even with good luck, we find a buyer, the price will probably be just about half of the purchase price, which means we will be over 200k in debt for nothing!

[Keithw]

I would suggest beginning talks with the developer now so that they understand your situation and have time to minimise any loss before they have a vacant property costing them money.

I can assure you that you are not the only one in this situation. I understand many developers are stuck with property that hasn't been settled due to loans not being available.

I think the most important thing you need to make clear is that you wish to settle but cannot get finance.
If it appears that you aren't going to settle just because you don't want to, then I would say that is one time a developer would be looking to recover any losses.

Talk to them & see if they can help out with vendor finance or something else. It is in their best interest that you settle somehow, although many will not have funds available for vendor finance.

If it is going to be a rental anyway, then the developer can get tenants in until such time as you can settle.
You may be up for penalty interest for late settlement but again that can be negotiable if they have plenty of time to get things organised.

[matchstick]

KeithW, thanks a lot for your prompt reply. Finance is not my only problem. I doubt if the property is worth that much at all. We were shown the "independent valuation" which was 45k higher than the purchase price. The agent we met with today told us it could sell for 200k less. If that's the case, what's point of settling on something that is not even worth the debt. Vendor finance is simply adding more debt. I am just hoping that the agent is trying to scare me so I can sell it for a loss.

[Stevegoodey]

Would it be worth seeing what sort of funds you could raise and then renegotiating with the developer?

You might get a nice discount and still be able to settle.

[[email protected]]

Understand in this market Match the developers don't call the shots, the banks do. The developers bank will sue you and bankrupt you if you can't pay.
The other posters advice is good in a "normal" market but in this market you are potentially in trouble.
There are several things to consider.

1. What entity is on the contract. You may be able to hide behind a corporate trustee and minimise the damage. If in your own name then that is not good.

2. Quantify the likely loss. What is the apartment likely to sell for now. Let's say it is 200 grand less than your contract. The bank is likely to pursue you for that without mercy. Could you afford to pay off or at least service the interest on a 200k debt?

3. If it obvious after quantifying your losses that you are in trouble get into see Matt Giligan at GRA ASAP and he will advise how to minimise your exposure. You will need a copy of the S&P and the relevant info about the entity that has signed the S&P, shareholders, directors, trust deed etc.

Don't muck around, get onto this now. It is NOT going to go away. The banks wil not allow developers to let buyers off the hook in this market.

[watchful]

I suggest before you make any rash decisions that you elaborate a little. Sorry Matt at GRA but seeking their advice will probably push you further into the red or end up easing you into a deal that will cripple you.
What are the numbers?

[Keithw]

A question or 2 for Dean / Matt

what happens in the case of the S&P being in the name of an entity and or nominee ?
Are they going to chase both the entity & any associated entity/ person.

what happens if the S&P is assigned to an entity that has no assets ?
Can it be assigned - ie resold prior to settlement, or does the assignment not come into effect until contemporaneous settlement takes place ?

is it worth finding out which bank the developer uses. If it is the same as the one the purchaser uses, are they likely to bankrupt their own customer ?
I suppose that depends what equity they have in existing property

[OllyN]

In reply

Matchstick
You have been getting a lot of very bad advice so far. People who know very little about the realities of a situation such as yours are offering suggestions which is frankly dangerous. Do not run to the real estate agent, or the bank or the developer because all you are doing is giving them early warning signals, with which they will hang you when the time comes.
Go instead to a sharp lawyer, accountant or advisor who will analyse the whole deal for you to see if there are any loop holes which can be used to your advantage. There are usually enough of these to drive a horse and cart through with room to spare. Total silence and quiet preparation should be your first course of action.

[Viking]

Agree with Ollie. Do your homework first. and if the worst comes to the worst can you live in the apartment? May not have been your intention but time tends to assist some cases like this. You said finance was an issue so have you something else you can sell, you have some time to do so. You made some mistakes but property can be kind to you unlike many other investments. Long term is of the essence.

[Davo36]

Olly seems right to me here. Do your homework and then take action when you can.

If you go to the developers or your bankers and tell them you can't/won't settle they'll just start taking steps to force you to.

[MoatMaster]

I assume that, as you are dealing with real estate company, you are purchasing directly off the developer i.e. you are not going through one of the investment marketing companies e.g. NZ Invest, Key2 etc.

Who produced the "convincing" numbers? Were they supplied by the developer or the agent. Do you still have any of this information? As the market wasn't looking good this time last year either - perhaps there is some way to challenge the information you were given, which influenced your decision to purchase.
Leasehold properties in particular were getting alot of bad press then - particularly with the problems surrounding ground rent increases i.e Beaumont Quarter.

[matchstick]

Many thanks to all the above comments and advice. We have had many sleepless nights so far but are still trying to figure out the best way to get through this in a best possible shape. The numbers we are talking about here may not be an issue to the wealthy family, but are very scary to us wage earners.

[matchstick]

We purchased the property through an investment marketing company who is still operating at the moment. I just learnt that one of the apartment blocks they sold previously are now suffering no tenants or huge loss if sold, ie Valued at ridiculous 700k and bought for 550k but can only sell for 320k now.
Honestly we didn't what we were doing. If the worst happens, we will have to raise high interest debt to buy and just hope in 5-7 years time we will be able to off load it debt free. Or if any one see a couple of beggers in downtown queen st at Christmas, you know what happened.

[MoatMaster]

I am not saying you will find anything but given the whole Bluechip issue, it could definitely be worthwhile doing a bit of homework.
Are you purchasing off the investment marketing company, or off the developer. Is the marketing company acting acting as an agent for the developer? Is the information they supplied at the time credible?
Is the valuation you were shown reliable?
Could you have a valid case against the marketing company creating unrealistic expectations?

You stand to take a huge loss so it would definitely be worthwhile doing some digging. Don't bother with a real estate agent for now as they can only tell you want you don't want to hear and will do nothing to improve your situation at the moment.
I would be looking closely at the strength of the contract you have entered into.

[matchstick]

Thanks Moatmaster. Yes the marketing company was acting as an agent for the developer. I was shown the independent valuation and didn't check its credibility thinking it was "independent". I was also shown the plan and some calculations on the investment incl. tax return etc. The company said the developer would offer rebate or vendor finance to help purchasers settle if need be. I was also told the contract had been proof read by their lawyer and was complete and sound. but now I doubt if those promises would be in the contract at all. My lawyer didn't check the contract until I asked them to a couple of weeks ago and told me it was too late to cancel or modify anything. MoatMaster, I feel you have much experience dealing with this kind of situation. Am I able to email you for more discussion?