Home construction delay has buyers wanting out

By Benny Kass Housing Counsel

Q: My wife and I signed a purchase agreement in June with anticipated delivery of November/December. In September, we were advised that delivery would be delayed until March/April of 2012. When we asked the reason for the delay, we were eventually told that the developer did not have the finances in place yet to begin development of that phase. This is the first we had heard that there even were phases.
We initially stated what lot we wanted, and the sales agent said he had to get permission to release that particular lot. He never stated that, in fact, the lot we had purchased was in Phase 2. Can this be considered nondisclosure? Is there any way out of this contract?
Ten months versus five months is an unreasonable time for the seller to deliver a house, in our opinion. Any guidance you can provide would be greatly appreciated.
A: Yes, it is a long time to wait, and the delay could cause you to have problems getting a good loan.
However, I need more information. Is the home in a community association? If so, does your state have laws requiring the seller to provide you with the right to cancel the contract within so many days after receiving the information about the association (usually called a "public offering statement")? If so, was there any information about phasing?
Equally important is the real estate contract you signed. Does it spell out a time for settlement? The typical new-home sales contract is very friendly to the seller; usual language says "settlement will take place within one year from date of contract execution." However, there is also language regarding "force majeure." That means that if circumstances outside the control of the seller occur — such as bad weather or inability to get bricks from China, etc. — the settlement date can be postponed.
I would have to read your contract before giving you a legal opinion. If you really want to get out from under that contract (something that is not always easy), please consult a local real estate attorney.
Q: My wife and I own a condo that is subject to a mortgage. The mortgage document is an Illinois Single Family Fannie Mae/Freddie Mac Uniform Instrument Form 3014 1/01. It is my understanding that Fannie Mae and Freddie Mac are agencies regulated by HUD. How can I find out whether our mortgage document is regulated by HUD?
A: Great question, easy answer. You are correct that Fannie Mae and Freddie Mac are regulated by the Department of Housing and Urban Development. Both agencies are in deep trouble and debt, based on their activities with subprime mortgages and syndication, but that is a subject for another column.
Typically, when you borrow money to buy (or refinance) a home, you sign two important documents: a promissory note and a deed of trust (although some states still use mortgage documents).
Years ago, when mortgage brokers were making mortgage loans, they often used different legal forms. To get more money so as to make more loans, those loans were sold to such secondary lenders as Fannie Mae and Freddie Mac. The secondary lender would bundle these loans up and sell them to investors throughout the world. But these investors were troubled: The forms were different and thus could cause problems if and when the borrowers went into default.
As a result, Fannie and Freddie created uniform instruments, which all mortgage lenders and brokers had to use. However, the lending laws in the various states also differed, so a separate state form was also created. The state form tracks local law, where applicable, but in general is consistent with all other state forms.
So, long story short: Your loan is on an Illinois state uniform document. It is regulated by HUD, and you have all of the protections under Illinois law as well as federal loan lending laws.
benny@inman.com