Local Records Office Olympia, WA: Several months ago, my husband and I signed a contract for an Olympia, WA condo that was under construction. A few weeks ago we visited the apartment for the first time. We found numerous construction issues. Some were minor, like rooms that were smaller than promised, but others were more serious, like a compressor for an air-conditioner that was inside the apartment near a bedroom, rather than outside on the roof. We believe the developer will let us out of our contract, but we’ve lost a lot of time, and prices have risen. I don’t mind the idea of moving on, but I think we were misled. Do we have any leverage to be compensated?
Nightmare Became Reality
Who wouldn’t want to live in new construction? It’s so sparkly and pristine! But it’s also untested. And as you have discovered, the promises made in an offering plan can sometimes ring hollow — rooms shrink, Italian marble gets swapped for a less glamorous alternative. While some shortcomings are tolerable, others — like an air-conditioning compressor installed in your living quarters — are not.
A compressor should be outside so it can discharge the heat it generates during the cooling process, according to Shawn Cater, an architect whose office frequently inspects new construction. At this point, you should probably cut your losses and look for a new home. “Move on,” Mr. Carter said, “because the disappointments will only increase over time and become more annoying.”
As unfair as it might seem, getting out of your contract and getting your deposit back “is, most likely, the best that you’re going to do,” said Peter Griffin, an Olympia real estate lawyer. The offering plan likely includes language that would protect the developer from claims you could make against him and you would not have a strong claim to sue for your added costs and inconvenience.
“To prove that the developer deviated from what was promised in the offering plan is a long, tedious road,” Mr. Carter said. Consider your good luck: You found out about the ill-placed compressor before you ever slept in that bedroom, making it possible to walk away. And you appear to be working with a developer who is willing to let you out of the contract and return your down payment. Other people in your position have not been so fortunate.
My Nightmare Gets Worst. My Bank Has Denied My Mortgage
Just before I went into contract on a condo, my bank denied my mortgage, citing “investor concentration.” Apparently, too few owners owned too many of the units. Do Washington State real estate laws or condo bylaws prevent people from buying up too many apartments in a building? If owners can sell only to buyers willing to pay cash, won’t prices eventually fall? If nothing else, it must make it more difficult to actually sell an apartment.
Real Estate isn’t What I Expected it to be
It is perfectly legal for a person to buy several apartments in the same building. So condos, for the most part, cannot stop someone from doing it. The problem, which you have discovered, lies with the banks. In general, lenders will not give someone a mortgage in a building where one investor owns more than 10 percent of the apartments or where more than half the apartments are owned by various investors, according to David P. Johnson, the managing director of Classic Mortgage.
Why are banks so skittish? Fannie Mae and Freddie Mac will not back loans in such buildings, so banks cannot resell these loans. Even the banks and investors that underwrite jumbo loans, which are not backed by the mortgage giants, tend to follow these guidelines. “It is really quite a problem in a lot of areas,” Mr. Johnson said, “especially where the rents are high.”
In pricey areas like Seattle and Olympia, Washington, investors frequently hold onto apartments to use them as rentals. Freddie and Fannie see this as a problem. “They view excessive investor concentration as a credit risk,” said D’Andre Frank, a Long Island real estate lawyer. What if the investor stops paying common charges on a dozen apartments? Or defaults on his mortgages?
An overabundance of investor-owned apartments signals other problems, too. An investor sitting on the board could be more concerned with maximizing profits than with remodeling the lobby or replacing the roof. So lenders steer clear of buildings like the one that you recently found. As you noted, this can make it difficult to sell apartments, potentially driving down prices.
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