Breaking Contract: How Do You Get Your Deposit Back?
Maybe a couple of years ago, when the future had only two colors, rosy and rosier, you put down a deposit on a new condominium. Then something, maybe many things, happened: Lehman Brothers crashed; you might have lost a job; maybe you suspected that the developer used Chinese drywall.
And now you want to get your deposit back. Is it possible?
The answer is "maybe" -- the same answer if you put down a deposit on a new home and changed your mind.
The question arises because in New York State last week, Attorney General Andrew Cuomo ordered the developer of the Rushmore, a condo on the West Side of Manhattan, to refund $15 million in down payments.
A story by Craig Karmin and Josh Barbanel of the Wall Street Journal notes that the developer must offer the condo deposit refunds because it didn't meet the state's "first closing" rule. Essentially, when the building is developed, the Attorney General's office approves an offering plan, and if the first unit doesn't close quickly enough, the plan doesn't become effective.
This pro-buyer ruling comes on the heels of a pro-developer ruling at Fifth on the Park, a Harlem condo where a Federal judge ruled in January that the developers did not have to offer deposit refunds. The story, by Adam Pincus of The Real Deal, a real estate trade magazine, indicates that the development was not subject to the "100-unit" rule of the Interstate Land Sales Full Disclosure Act. In essence, if a building is selling more than 100 units, it has a higher standard of disclosures to meet. But Fifth on the Park argued that since it hadn't sold 100 units by the time the disputatious buyers went into contract, that standard hadn't kicked in yet. The buyers, Pincus notes, are appealing the ruling.
Now with a disclaimer that I've had clients who have closed and clients who have fought to walk away, it does look like the two rulings give us three guidelines:
- Make your case for why you want to walk away. Judges are sworn to uphold the law, but they are human like everybody else (disclosure: judge's daughter). You're more likely to find a sympathetic ear if your reason for wanting to walk is that the contract was not fulfilled (say, poor quality construction or late delivery of your apartment) rather than "buyer's remorse" (say, changing your mind or deciding that the unit is no longer worth what you contracted to pay for it.)
- Hire an attorney. You no longer trust the seller of your dream home, and possibly even your agent; this stuff gets adversarial very quickly. But be aware that even though your attorney might tell you that you're probably going to win, he or she might not be certain of it. Evaluate the risk that you'll be throwing good money after bad.
- Have a Plan B. If the ruling turns out that you need to close, will you close and resell -- even at a loss? If the ruling will let you walk away, are you ever going to buy again? Come up with a plan, so that the you-versus-seller cutthroat relationship doesn't happen in the future.