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) (no longer available) :

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.