Legal advice wanted on failing to complete a house purchase

shakeywakey

Excuse the narrative tone of this email. much to explain!

My partner and I reserved a apartment 2 years ago off plan @ 125k (expected build date May 2008) with the idea that it would be a BTL investment. Seemed a good idea at the time. The builder had a marquee with people going up in ticket order (like at the meat counter !), first come first serve £1000 deposit required to reserve. We were naive and sucked in by the Marketing ploy. At this point you have no idea of the legal aspects - that doesn't arrive until you've already forked out further cash for Solictors etc. We thought about pulling out and losing the deposit, but stayed with the idea. We later exchanged and had to pay our 10% deposit even though we could not source a Mortgage that far in advance.

At the beginning of this year I started trying to find out when the apartments were going to be completed but the builder could not tell me, so it was difficult to know how to source a BTL mortgage without a date (infact several advisors & the builder even told me it was pointless). lo and behold - March came and the credit crunch well and truly bit, with rates increasing, LTVs lowering, rental calcs increasing and valuations decreasing. We managed to source a Mortgage, but the valuation (by countrywide) came in a full 10k below with rental of £485 Given that we didn't have the extra cash to fund this and couldn't raise funds against our own house due to the same damm credit crunch I attempted to negotiate with the builder. However, my pleas fell on deaf ears - they refused to negotiate saying that other customers had not had the same problem. When I asked who'd valued the other properites they said 'Colleys'. Anyway - I kicked up enough fuss as they were still selling at the same price, that they agreed to fund a supposed IFA (that they appointed) to assist. Guess what - the first thing this guy did was suggest using 'Colleys' to do a valuation before anything else - this time the valuation came in at £125k with a rental of £570. Suprise!

The problem is that even with the newer higher valuation, we cannot afford the 25% deposit (at the time of reserving we expected to need 15%, and thought we'd be able to raise more against out existing property. On top of this, it will make a month on month loss due to higher mortgage rates plus leasehold management costs of about £100 per month, and thats assuming its renting. Further to this the builder has been unable to sell 20 of the 60 or so apartments, and has advised that they will be renting all these out rather than selling at a discount. That probably pushes down the rent we can expect.

Now the apartments have yet to be finished - expected end of Sept, but we are seriously considering pulling out and losing our 10% deposit, as we could end up in dire straits if we continue. I just wanted some advice on what we are best doing and the worst case scenerio. i.e what exactly can the builder sue us for, if we fail to complete ? interest payments from day one on the full amount outstanding, or on the cost of the building the damm thing i.e their loan? does the builder have to follow a code of conduct when mitigating their losses or could they just auction the property off at a stupid price, or refuse to rent it out themselves etc

Now - I know there will be plenty of people out there who will say that we deserve what we get and that we shouldn't be allowed to pull out. I agree that contracts should be honoured and I would if it was feasible, but to me, it doesn't make sense to end up defaulting on multiple mortgages / being repo'd etc. At the end of the day, the builder will still have £12,500 of our money and based on the rebuilding costs of 50k (on the higher valuation report), thats about a 25% of the cost and they still have the apartment to rent / re-sell at a later date.

Advice greatly appreciated - apologies for the story telling!

GDB2222

They have to mitigate their loss, but they may reasonably wish to sell the flat at auction. Then they can hound you for their loss (ie £125k less what they get at auction plus their costs, less your 10% deposit). It's not just the building cost, is it. There's the land value, the marketing, the finance, and yes their profit. They are entitled to all that under the contract.

I think you should get legal advice about your position, not here, but proper paid-for advice from a professional.

It would be interesting to know whether the builders have any more flats to sell in that block, still?

Treadmill

10K below the price you are paying is about right for a new build valuation because the property is valued as it would be on the first resale, nothing is added because its brand new. The valuation is what the mortgage company could expect to recoup if they have to sell it if you default. I wouldn't let that aspect of it worry you but I would agree that you need to seek proper legal device before deciding what to do. Builders are ruthless in these situations.

silvercar

Bet you used the builders solicitors. Did the builder even pay your legal fees?

Get yourself an independent solicitor. The solicitor you used should have advised you on the risks of exchanging without a mortgage offer in place. With a solicitor shouting your case loudly enough, the builders should either reduce the price to a level that their brilliant advisor can source a mortgage for you or let you walk away. You may also be able to use the fact that the build has been delayed.

Richard_Webster

If anyone came to me as a solicitor buying a new build property I would have
warned them that it was very dangerous indeed to exchange contracts on an off-plan situation without a mortgage offer that would still be valid when the property was completed. Whatever actually happened in the market since then I think a solicitor (even in a rising market) would have a duty to warn about the possibility of a change in valuation downwards or a change in lender's attitudes over LTV ratios/mortgage payment to rent ratios.

Did OP get that kind of warning? If not, then possibly he should claim against his conveyancing solicitor.