Contract Re-Assignments: A Sign of the Times?
A: For all you guys that want front line reporting. I just went through my first contract re-assignment closing for a buyer client of mine; so basically, a buyer goes into contract for a property but for whatever reason CAN NOT close on the deal. Likely culprit is inability to get financing. Instead of going through the headache of litigation over the down payment and who can claim it, the original buyer attempts to assign the contract to a new buyer. The positives for the new buyer include getting a deal that was in a previous pricing amendment or a unit that was in a sold out line. The negative is that the terms of the deal with the sponsor are non-negotiable and will be the same as the original deal; but that doesn't mean you can't work something out with the assigner on incentives for taking on the transaction!
Lets go back 5 1/2 months when I published a post titled, "New Dev Closings: A Potential Problem?", where I stated in an unbiased discussion:
"I want to discuss something that has NOT happened, is not even in the very near term horizon, but very well may impact the Manhattan marketplace at some point in 2008; buyers with expected new development closings amidst the new credit world.The post back in October is a great example of me discussing my true feelings on what could be on the horizon, that was not a trend yet, but due to the macro fundamentals that were building at the time seemed a likely result for our marketplace. Its all about being one step AHEAD OF THE CURVE!What happens to all those new development buyers that are currently in contract, waiting for building completion to close, if the jumbo credit markets continue to be in distress and there is a much different lending world than when the original contract was signed?
What if the buyer doesn't have the doc's to get the commitment, if lending/underwriting standards have tightened so much in the past 3-6 months? What if the buyer gets a much higher interest rate than was originally anticipated? What if the bonus doesn't come in as expected? What if they lose their job? What if the property becomes unaffordable?"
Anyway, back to the assignment. What I discussed back in October is now reality; albeit a rare one at this point in time. There are actually a few other assignment requests in the same building that we just completed our deal for a few days ago. This was confirmed by the attorney who has done a number of deals in this building, and by this different ad in craigslist that I found this morning (all details, building, etc. were not included for privacy):
In an environment of tighter underwriting standards & credit quality based lending rates, contract assignments become a very real option for those that can't secure financing due to the credit crunch. I would expect this trend to continue, especially for those financially borderline buyers & speculative investors who signed new development contracts of sale BEFORE the credit crisis began in July 2007. Quite simply, it was a different world back then.
Now this is very important, I do NOT view this as anything that will take down our market; and is likely to be more of a rising 'pockets of distress' trend since contract assignments occur in strong markets too. It is just another sign of the times and tells you that the world we live in today is quite different than the world that existed during the boom times. For my client, they got to purchase a desired unit that was part of a sold-out line as of many months ago in a nearly sold out desirable building; plus a minor incentive by the original buyer to take on the assignment.
Anyone else hearing about contract re-assignments in their neighborhood/building? I would be interested to see how widespread this trend is at this point in time.
Comments (10)
Dont many developers have restrictions on reassignments ?
Posted by Anthony | April 29, 2008 12:34 PM
I dont know. I'm sure some have restrictions, but this one didnt. In the end, its not so easy to just take a buyers deposit, and requires legal fees, time, and filing claim with atty general. And even that process won't always favor the developer. Usually there is a negotiation if buyer cant close on non fin contigent deal.
Posted by Noah | April 29, 2008 12:42 PM
I know someone who is trying to do the same (or at least keep her options open for the time being). In a re-assignment, does the original price transfer through or can the original contract holder flip it at the appreciated price? Am I understanding it correctly that there's no need for the original purchaser to close on the property first (pay transfer tax) and then sell the property?
Posted by nyc_eastsider | April 29, 2008 3:25 PM
Im sure every situation is unique based on how the sponsor, original buyer and new buyer's terms for the assignment.
However, as far as I know, NO, the original terms of the deal are WHAT IS BEING TRANSFERRED! In fact, the original buyer is NOT CLOSING, and the assignment actual gets done at the closing, even though paperwork for the assignment is done previously! At least that is how this one worked, all new to me!
In this case, my client paid transfer taxes at closing, but we got a small dollar incentive from original buyer that went towards closing costs for my buyer.
Posted by Noah | April 29, 2008 3:42 PM
I just signed a contract to purchase a new development condo. The contract did indeed had transfer restriction on it. If I wanted to transfer the contract to someone, the property would be subject to 5% premium of the original stated price. This is to prevent people from flipping buy simply getting in the market early. I think this is a common clause in new development. I'm surprised your client's didn't have one.
Posted by blingbling | April 29, 2008 10:16 PM
Contract reassignments are rare in the city. Most new developments prohibit them outright. In many ways this is a positive for our market- just look at what happened in Miami where flipping a contract was commonplace.
Posted by Andrew Fine | April 30, 2008 7:57 AM
well this one happened to be in Brooklyn! That prob explains why it was more liberal! I have only heard of one re-assignment in Manhattan from a colleague, but I never did one here on the island
Posted by Noah | April 30, 2008 8:52 AM
this just seems pretty far fetched, and I could only imagine working with a very unsophisticated or small-time developer that needed to get rid of units ASAP.
Posted by bill | April 30, 2008 4:24 PM
I almost signed a contract in July 2007 for Spring 2008 closing and occupancy. At the time my mortgage broker told me I could get a fixed 30-year for 80% of the loan, with 10% down and a 10% piggy-back HELOC. I decided against it. If I had signed the contract, I would have been able to come up with 20% now, but it would have left me with only retirement accounts in case of emergency. I'm really glad I passed, but many people didn't and one wonders how all the people who signed in 2006-Aug. 2007 intending to put down 10% are going to close.
Posted by Brenda | May 1, 2008 2:57 PM
I think another reason fees are not being paid and free months not offered is that prices have come down. Apartments are moving but part of the reason is that prices came down to a point at which they will move.
Posted by Mbt | June 2, 2010 11:40 PM