However hard it is for builders to sell a condominium these days, it gets a heck of a lot harder when the development isn’t finished. More developers are seeing their funding yanked in the middle of a project- and they are suing their lenders: [Thanks L!]
The love affair between banks and builders during the housing boom has deteriorated into a series of divorces now spilling into the courts.
As lenders rush to curtail their real-estate exposure and preserve sorely needed capital, they are triggering lawsuits from builders that say the banks have unfairly cut off their construction financing, stopped their projects midstream and forced their companies to the brink of bankruptcy.
"Lender-liability lawsuits are coming. It’s only just beginning," says Michael Hackard, a lawyer in Sacramento, Calif., who focuses on real-estate law. "There are going to be builders who argue that the lender forced me into insolvency by not acting in good faith."
Certainly how viable some projects are, even after completion, is questionable. Lenders are under pressure to cut their losses, and are probably trying to avoid "good money after bad". In other instances, lenders lost the wherewithal to continue promised funding.
Whatever the lenders reasons may be, expect more of them to be pursued by developers in court.
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Are the banks obligated to loan money? I guess it all comes down to how the documnets are written. This stuff will probably stay tied up in contract litigation for years.
It sounds like the Construction companies are effectively declaring bankruptcy and when their previous lenders come after them, they’re pointing to these new lenders who have cut off financing and saying “Blame them!”
Two years ago, I remember reading about the coming bull market in litigation.
I love this. ‘I made a stupid decision, and started an unwanted project… someone else must be to blame…” Frankly, I’d be craven enough to do the same thing.
And these guys are the entrepreneurs that the Libertarians say we can’t do without?
I guess I just wonder… do the attorneys get paid very well for this work? How do they get paid, if everyone is claiming they don’t have money?
Without risk there is no reward. Many of the smaller mom and pop builders built too many spec homes and weren’t able to sustain an extended period of vacancy. The lenders are stuck with the note. It’s an unfortunate situation. However, builders shouldn’t speculate as much as they’ve done. Grow gradually…grow successfully..
Jason
Austin Home Mortgages