What would happen if i buy into a new condo development, and put down 10% downpayment, and the developer declares bankruptcy.... what happens next?

Ha Ha

total loss

Is the 10% not held in escrow? If so, you are safe and the deposit is returned to you.

Actually, it all depends on the specific offering plan in place for the new condo development. Always have an excellent real estate attorney fully review any offering plan before you sign and hand over the check.

What are the chances that the sponsor will negotiate with you on lowering the price since - you put 10% down and had planned on getting a 2nd mortgage for the other 10% to avoid the PMI charges. However, since things have changed when you planned this about 7 months ago, you now can't do that. So you're looking at paying about $200 in PMI a month and more money on interest rate AND you're not to sure you can afford the condo now. You think the sponsor would knock a few thousand off instead of losing a buyer, but they would keep the 10% because there was no finance contingency in the contract???????

Agree with cmtsuk and malraux. If the deposit was put into escrow, typically you should get that back because the release of the funds from escrow are contingent on the delivery of the condo. So at no point did the developer have access to those funds. So if developer goes under, your money is still free and clear. However, if the funds were not put into escrow, then the developer likey used those funds in constructing the property and/or reducing his contruction financing. In that case, you have to slug it out in bankrupcy court and file a claim as an unsecured creditor. But even then, you may still get something back, its just a lot more painful.

My 10% was put into escrow because I had to make the check to the escrow company. But the contract specifically said no finance contingency?? So if I can't get the financing, I can get the money back?

Again - you need to review the offering plan. Most of these are indeed boilerplate, but they can have some differences when it comes issues such as these. There is no 'one rule applies to all situations.'

"But the contract specifically said no finance contingency?? So if I can't get the financing, I can get the money back?"
Depends, if the condo is ready for delivery and you can't get financing and there's no contingency, then your deposit could be at risk. If the develop goes under before completion and delivery, then shouldn't affect your escrow. Read the offering plan and if you can't figure it out or are not sure, hire a lawyer - it will be money well spent.

If you can't afford to lose your 10% then you shouldn't even be considering.

It reads "The Plan provides that there is no financing contingency for the purchase of any Unit. The Sponsor and Selling Agent may recommend XXX Bank or other specified lenders, as a convenience to prospective purchasers, but neither Sponor nor Selling Agent are stating or guaranteeing that mortgage financing by XXX Bank or any othe rlender will be available for the purchase of any unit. Proscpective purchasers should perform their own due diligence in determining the availability and terms for financing, and should not rely on XXX Bank or any other lender indentified by the Sponsor or Selling Agent"

I believe the finance contingency is a related to whether the buyer could obtain financing. For example, "no financing contintency" means that you pay your deposit, but if the unit is appraised lower than what the bank's willing to lend you, or if you're unable to secure a mortgage (not unusual in today's market) you have to make up the difference or forfeit your deposit.

I doubt it has anything to do with whether the developer goes belly-up.

why are bothering with this forum...call your lawyer ASAP!

Daerox- Your story will be repeated thousands of times, in the next 12 months, as these units begin to go to closing. You are not alone and this is a problem, that is going to cause NYC RE, to drop 30-40% in the next 18 months. Thousands of units that were once considered "sold", by developers, will see first hand how difficult it is for buyers to a mortgage. Thousands of people just like you, have signed contracts that will never close. Which means all of those units, will go back on the market, adding to the thousands of others currently on the market, and the thousands of others being artificial held by developers.

Inventory this time next year will be between 13,000-15,000 for in Manhattan alone. Double what it currently is today. Getting a mortgage has never been harder, since the great depression. How in the world is this inventory going to be absorbed in the next 18-24 months. Answer... It's not.

DCO - what you are saying is a gross exaggeration.
Daerox, yes, no finance contingency has nothing to do with your 10% down in the event of bankruptcy. If you are in Escrow then you will get your money back. An offering plan must include a delivery date, if the developer is not able to deliver your apartment by that date (typically 2 years from the date the plan is filed) then you get your deposit back (even if they do not file bacnkruptcy).

It is very rare that a NY development offer a contract with a fincnacing contingency.

A mortgage with 20% down and good credit is not at all difficult to get right now. 10% is more difficult but there are still plenty of banks out there offering it -- you just may not get the rate that you were expecting.

If the appraised value is less than your contract price then yes you do have a bigger problem. Best thing is to get a few differnt banks and hope that one of the appraisers comes in at the contract price.

Back to your question about negotiating - you can always try. If there is a time where developers will be flexible it is now. There is a good possibility that they will cut the price if it goes back on the market but remember they can automatically cut the price 10% and still break even ... so they do hold most of the chips.

What you have in your favor is a developer that wants to unload all of the units as quickly as possible so it's always worth a try. Especially when you explain that you are at risk of walking away (if that is indeed serious)

I agree with Lincolnramses though - advice from the people on this board is not what you need ... you need to speak to your lawyer if you are seriously concerned.