Los Angeles Living

I discussed the contract my first-time buyer is faced with while considering the purchase of a condo in a brand-new 5-unit development in Echo Park.

The contract looked daunting on the surface, but I thought, reading through and using my knowledge of the real estate transaction would go much of the way towards ensuring that my buyer would be protected.  Wrong!

There is no way any of us who are not attorneys should be attempting to decipher a developer's own contract.  There is way too much to look out for, at least in California.

I mentioned a few points points in my previous post:  the request for the homeowner to pay two extra months towards the homeowners reserves; the seller being able to cancel the contract at any time if a better offer comes in; the tract map not having been approved, and there needing to be a certain amount of units sold before the seller's lender removes the blanket monetary encumbrance, and the buyer can obtain a loan.

In discussion with the buyer's mortgage broker, I learned that some developers don't understand that they have to get the project Fannie Mae approved (and FHA, but this is a conforming loan), and that I should check whether it has been approved.  The listing agent didn't know but found out that it is in process.  Another hurdle.

I decided to contact a real estate attorney, Scott, who is very generous with his time on the phone before he agrees to take your business.  We should all have someone like him to consult.  This is what he had to say after I asked if he would be prepared to review the contract for my client.  He basically said he would not touch it with a ten foot pole.  These contracts are a nightmare and you cannot change them.  It would take hours to read.  Then he taught me some things about new projects.

Scott asked who the developer was and whether there had been any actions against him, explaining that if there had been then even though the contract states that the developer is responsible for major repairs, getting him to perform is another matter.  He suggested I do due diligence by knocking on doors and asking previous buyers about their experience. He also told me to google the developer to see if there were any complaints agains him.  As it happens, this is the first larger scale project the developer has completed with one still in construction. I am pleased to say nothing showed up in Google.

Another question is, who is going to pay the homeowner assessments if the building does not fully sell?  Are the existing owners going to be liable?

Who is going to manage the building?  Is that in place?

Scott pointed out that this could sit in limbo after the contract is signed and earnest money deposited, for six months.

And he said that the arbitration in these contracts is going to benefit the Seller not the Buyer.

In closing, Scott said that if we could satisfy ourselves that we are comfortable with all the issues, he would be prepared to go over the contract.

The moral of this tale is that if there is the slightest doubt, err on the side of caution and advise the client to seek legal counsel.