Mecklenburg Times: News for Mecklenburg, Union and Iredell counties Real Estate, Development, Construction, and Community News in the Charlotte area and throughout Mecklenburg, Union and Iredell counties
Developers of The Vue at 404 W. 5th St. in Charlotte have sued the potential purchasers of four homes in the high-rise condominium because they failed to close on the units after signing agreements between 2006 and 2008 to do so. The agreements lock in the purchase prices of the units, but falling home values due to a slow economy have lowered the appraisals of the condos, and that ultimately could mean those individuals would have to pay more out of pocket for their homes than the homes are currently worth. Photo by Tara Ramsey
In 2005, buyers began signing sales agreements for The Vue, a condominium project in uptown Charlotte.
Today, The Vue’s developers are suing at least four buyers over claims that they failed to finalize the sales.
Such litigation is uncommon and could be a sign of the difficult housing market in Charlotte, real estate industry officials say.
The developers say some of the buyers who haven’t closed on the sales signed contracts as far back as in 2006.
Much has changed in the housing market since then, and buyers have expressed concerns that the appraisals of the condos have fallen below the original sales prices.
David Powell, a real estate attorney with Charlotte-based Horack Talley law firm, said that in the past developers would have kept deposits from buyers when signing sales contracts and simply sold homes to someone else if they failed to close — and no lawsuits would have been filed.
The current economy seems to be why The Vue’s developers have decided to enforce a “specific performance requirement” that could force the buyers to close on the condos, Powell said.
“In the old days, they would have probably just kept the deposit and sold it to someone else,” he said. “I guess in these days, they don’t have the luxury to sell it to someone else. No one is waiting in the wings.”
Powell said he doesn’t have firsthand knowledge of the lawsuits or the reasons behind them. But The Vue’s developers might be trying to make an example of the potential buyers of the four condos, he said.
“They’re doing it to head off a stampede, I guess,” he said.
The individuals named in the lawsuits are Mary and Richard Sherman of Troutman, who made a $27,990 down payment on a $279,900 condo; Christopher McAuliffe of Cornelius, who made a $29,990 down payment on a $299,900 condo; John Morris of Belmont, who made a $26,999 down payment on a $269,900 condo; and Albeiro and Giovanny Torres of Mooresville, who made a $19,999 down payment on a $499,900 condo.
Morris declined to comment because he had not filed a response to the lawsuit. He would not say if he had hired an attorney. The other buyers named in the suit were not available for comment.
The four were scheduled to close in September and October, according to the lawsuits, which say that they failed to show up for their closings.
Values fall
The buyers had the option to terminate the sales agreement within seven days of signing it, the lawsuits say. The contracts were signed in 2006 through 2008.
Since then, property values have fallen in Mecklenburg County and nationwide.
Homes in the Charlotte metropolitan area are expected to lose $1.3 billion in 2010, according to a Zillow Real Estate Market report released this month. In 2009, Charlotte homes lost $8.7 billion in value. The value of the metro area’s homes declined 5.2 percent in October 2010 from October 2009. Overall, homes in the Charlotte metro area have an estimated value of $102.3 billion.
As home values fall, appraisals coming in lower than anticipated could be a major hurdle for potential homebuyers, Powell said.
Not only would potential homebuyers feel they are getting a bad deal for their new home, a low appraisal also affects their ability to receiving full financing.
Homebuyers only get a loan for a certain percentage of the appraised value of a property, usually between 80 and 90 percent, Powell said. If an appraisal is lower than the asking price, it affects the loan amount and means the buyer will have to pay more out of their pocket.
“Who would want to buy something that has a purchase price above its fair market value?” he said.
Clear and unambiguous
But The Vue’s developers said the sales agreement was clear and unambiguous, and the potential buyers are in default of their agreements.
When asked to comment, The Vue’s developers, in a written response, said they have fulfilled their end of the deal by building the condos. Now, the potential homebuyers should honor their commitment, the developers say.
“We expect buyers of residences at The Vue to honor their contractual commitments to complete the purchase of their homes,” the statement says. “We have been more than willing to work with buyers to try to accommodate their individual needs and regret that we have been forced to pursue legal remedies in the case of buyers who have not performed under their contracts.”
If recent history is any indication, the law may be on the side of the developers.
In August, Mecklenburg County Superior Court Judge Yvonne Mims Evans ruled in favor of Origin Development and ordered that Mike and Betsy Day, who lived in Georgia at the time of the decision, fulfill their agreement with the developer and purchase a condo at Celadon Condominium Project for $315,000.
According to the court order, Mike Day was not transferred to Charlotte for his job as he had thought he would be. The judge ordered that the developer should not have to “endure the hardship” of the Days not fulfilling the contract and that the Days should have considered that Mike Day’s job might not be transferred to Charlotte.
Despite the case involving Celadon, Powell said such lawsuits are not common.
“In the Celadon case, they had a specific performance requirement and they enforced it,” he said.
Tara Ramsey can be reached at [email protected].
