Buyers’ Recourse if Builder goes Bankrupt

Back in November, I discussed what recourse buyers may have the builder were to go bankrupt, specifically with regards to builders’ warranties. Now, Brant Meyer at CvilleDevelopment has further insight into this matter (read the whole thing) :

You mentioned previously, that the developer’s lender would have a specific agreement in terms of completion of infrastructure. Is that something that’s public information? If I’m a prospective homebuyer, could I see a copy of that agreement?

No. All you can do (as a homeowner) is look around and see what the developer has done. Look at his other communities, see what amenities get completed. Ask around. Ask your builder. Ask them how many developments they’ve done with them. You can ask for the developer’s financials, but you’re not likely to get them.

It seems typical for developments to involve a intentional layer of liability protection where one LLC might be the land owner, and another will be the development company doing the work on a fee basis. In reality, this may all be the same shop – but legally it’s two distinct entities. In this type of setup, who is responsible for the development obligations?

Either way, you need to name both on the purchase contract. I did that recently for a client who was buying in a mixed use condominium and I wasn’t convinced that the declarant had any assets. The LLC was building it, but I wanted to tie it to their development company as well. That way if the LLC folded or went away, I had the development company obligated for performance as well.

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  1. Cheri Lewis January 28, 2009 at 20:16

    Jim –
    In the interest of making sure that my friend Brant Meyer doesn’t get blamed for anything wrong that I say, I’d like to note that the “insights” that appear above that are pulled from Brant’s Cville Development are actually my words. The bold face type questions are Brant’s; the unbolded type face are my legal opinions responding to his questions. In general, your blog has pretty good integrity about attributing original source of material. Thanks for letting me enter this clarification.
    Cheri Lewis

  2. Jim Duncan January 28, 2009 at 20:25

    Cheri –

    Thanks for the clarification … even with the “in general” qualifier. 🙂

    I appreciate your taking the time to provide such valuable insight. You educated quite a few people with your time; thanks.


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