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Problems with New Home Builder

Ask the Real Estate Lawyer: Real Estate Law Q&A

REM #LAW 722

By Ilyce R. Glink and Samuel J. Tamkin

Summary: A ThinkGlink reader has made a large down payment for a new construction home. One year later, the builder still doesn't have any permits. Ilyce and Sam help the reader to unwind this deal with the builder and the construction loan.

Q: Everything has gone to pot with my builder. It’s been a year since I gave my builder a hefty down payment on our contract and he still does not have the permits to build.
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I don’t want to throw good money after bad and I definitely don’t want to use this builder. I have a construction loan that I want to get out of as well. Can I cancel this deal and get rid of the builder?

A: Hopefully. But let’s start at the top.

When you got your construction loan, you should have signed papers that outlined the terms of the loan and what had to happen in order for the builder to get paid.

Depending on your loan documentation, you may be able to request that the lender give you a payoff letter for any funds outstanding on the construction loan, pay the lender off and cancel the construction loan. That may be the easy part for you.

If you have an agreement for the construction of your home with the builder, you will need to determine whether the builder is in default under the agreement and what rights you have after the default. If the builder is in default and you have the right to terminate the contract, you must follow the procedures dictated in the contract to cancel it.

If the contract is not clear whether the builder is in default, you may want to seek the help of a real estate attorney to review the documentation and assist you.

While it seems as if the builder should have obtained the permits by now, there could be peculiar circumstances in your case that might deem that kind of time period reasonable -- particularly if the home you want requires multiple variations from the local zoning board or other governmental agency.

If you’ve designed a home that make it too high, too wide, or too big for your lot, it isn’t unusual to wait months to get approval from a local zoning board..

If on the other hand, your home requires no special variances and the builder hasn’t done much to get the process moving with the local municipality, you have the right to be annoyed with your builder and should find a builder that is more responsive to you and may actually be able to get the ball rolling on your home building plans.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website




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