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Such lawsuits uncommon in a bull market

Derrick Penner
Sun

Another Metro Vancouver developer has launched a flurry of lawsuits against buyers attempting to walk away from pre-sale contracts in one of its developments.

In January, Amacon filed suit against seven buyers in its Morgan Heights project.

This time it is Onni, the developer that is also attempting to unload hundreds of unsold condominium units in developments around Metro Vancouver, that is suing 20 buyers in the Aria 2 building of its Suter Brook community in Port Moody.

The statements of claim, filed on Jan. 21, accuse the buyers of breaching their contracts for not closing on their specified purchase dates, and seek to claim the deposits buyers paid as well as additional potential damages.

In the claim, Onni said it “has suffered and will continue to suffer additional loss, damages and expense,” including reduced property value at resale, commissions to realtors, marketing costs and legal fees.

None of the claims have been proven in court.

Real estate lawyer Ron Usher, with the firm Bell Alliance, said that for decades, it has been a standard provision of condominium pre-sale contracts in Vancouver to include clauses covering the forfeiture of deposits, as well as additional damages.

“Imagine a scenario where a developer, now in this market, sells a property for $100,000 less than your contract price,” Usher said. “Your deposit was $50,000, but [the developer] still has suffered a loss, plus interest charges, of at least $50,000.”

Usher said contracts give the developers the right to seek more damages if their losses — from selling unclaimed units at market prices below the original contract prices — exceed the deposits buyers put down.

“These clauses were rarely, if ever, invoked in a bull market,” Usher said. “In a rising market, the developer is almost happy if someone drops out, because they could resell at a higher price and keep the profit for themselves.”

However, in a falling market, Usher said there are challenges for both developers and buyers when it comes to the financing of projects and purchases.

Developers, he said, are being squeezed by their financiers for payment of the construction loans secured to build projects.

Buyers, Usher added, often find their banks reluctant to grant mortgages for the full amount of the contract purchase price of units because the current market value of the homes has declined.

Usher said a developer has an obligation to limit its losses in such suits by properly marketing and selling units that are unclaimed by pre-sale buyers at fair market prices.

Onni, in January, attracted attention for launching a “liquidation sale” of 375 condominiums in developments across the Lower Mainland, including the Suter Brook community, at prices it claimed were as much as 40-per-cent off original prices.

Onni Group vice-president Chris Evans said at the time that the company faced high financing costs to continue carrying the units, so it made sense to try to sell its remaining inventory.

Evans did not return calls from The Sun for comment about the lawsuits, and it is unknown whether the unclaimed units from these 20 suits were included in the so-called liquidation sale, or what discount might have been attached to their prices.

There may be more such lawsuits in the offing.

“What we’re coming into now is a perfect storm,” Usher said, “of buildings built through the highest and most costly time of construction and contracts that were perhaps at their peak of planning.”

© Copyright (c) The Vancouver Sun

It took the government a long time to act, but now buyers are better protected

Owen Dickie and Bill Sutherland
Sun

A thorough home inspection is recommended for everyone before buying a house, and requiring licences will help ensure inspectors are qualified. TONY HARPES/ CNS

It’s been a long strange trip for British Columbia‘s trained and qualified home inspectors and the consumers who depend on them, but last week the B.C. government finally announced it will take action to license B.C.’s home inspectors.

What will it mean for B.C. consumers? Quite a lot, actually. But let’s begin with what home inspectors actually do, and how it took Victoria seven years of procrastination, false starts, and foolish positions before it acted on behalf of consumers.

Home inspections began in the early 1970s as a direct response to the growing demand of homebuyers wanting to learn about the condition of a house before purchase. Since then, more and more people — along with an increasing number of lending institutions — have come to rely on a home inspection, because more information equals a more informed purchase decision, which equals fewer surprises.

A home inspection itself is a comprehensive visual examination of the home’s overall structure, major systems, components, and property conditions. A properly trained home inspector will review your house as a system, looking at how one component of the house might affect the operability or lifespan of another. Components that are not performing properly are identified, as well as items that are beyond their useful life or are unsafe.

The idea, of course, is to minimize the risk to your investment, because no one wants to face serious unexpected costs shortly after a purchase.

It was back in 2002 that the Canadian Association of Home and Property Inspectors of British Columbia — CAHPI(BC) — asked the B.C. government to take action to ensure the highest standards for those seeking to call themselves home and property inspectors. Because in B.C., anyone with a business card could call themselves a home inspector.

At first, it was a lonely effort.

The B.C. government passed, saying it was busy cutting red tape. Then, under pressure, the government announced that prospective homebuyers in B.C. were covered by the Trade Practices Act and the Consumer Protection Act. But those Acts merely provided recourse after a purchase, not protection in advance of it. They offered nothing to consumers when they needed protection the most — when they were making the biggest spending decision of their lives and were seeking expert advice to aid them in making an informed decision. There were all kinds of excuses offered by the provincial government for not acting, and one by one, we exposed each excuse as sillier than the one before it. Progress was non-existent: In six years, five ministers carried the file.

But then, we reached out to the media for help. And to B.C.’s mayors and councils. And they stepped up for consumers in ways we never imagined.

The B.C. media launched exposes on untrained and unqualified home inspectors, The Vancouver Sun wrote editorials demanding high standards, and more than 50 mayors and councils from across B.C. wrote the premier asking for high inspection standards.

Last week, under Solicitor-General John van Dongen, the B.C. government finally responded, announcing that by March 31, all home inspectors in B.C. must meet the required qualifications of CAHPI(BC), the National Certification Program, or the Association of Applied Science Technologists. CAHPI(BC) members have carried Errors and Omissions and General Liability Insurance for years, and now, all home inspectors will have to do the same — if they are going to be licensed in this province.

With this single move, B.C. becomes the provincial leader in home and property inspection standards in this country. It took a long time, but ultimately, with government embracing our recommended approach, B.C. consumers are the real winners.

Owen Dickie is a registered home inspector in Lake Country, and is president of the Canadian Association of Home and Property Inspectors of British Columbia. Bill Sutherland, also an RHI and is from Kamloops, and is the past-president of CAHPI(BC).

© Copyright (c) The Vancouver Sun

Stephanie Armour
USA Today

Real estate agent Tim Foy looks at a home for sale in Menlo Park, Calif., last month. The market for jumbo loans, mortgages above $625,000, is “tumbling,” a housing industry expert says.

Some frustrated consumers are discovering that today’s lower mortgage interest rates don’t apply to buying or refinancing higher-priced homes, sparking calls for help from Congress.

Last year, Congress temporarily raised the loan limit for conventional mortgage financing to $729,750, but the limit dropped to $625,000 in December.

The cap means that loans for homes above $625,000 can’t be sold to Freddie Mac and Fannie Mae. Lenders generally must hold those so-called jumbo loans, and with credit markets tight, they’re more reluctant to make them.

When they do make those loans, borrowers are generally required to pay interest rates up to 2 percentage points above conventional rates. That’s stalling both lending and refinancing activity in the higher-end market.

“You’re looking at modest, middle-class homes. Why are they being punished? It’s an issue of fairness,” says Lawrence Yun, the National Association of Realtors’ chief economist. “Given the historic 5% interest rates, who’s going to be crazy to pay 6% or 7% while everyone else gets lower rates? The effect is that jumbo loans are tumbling.”

The impact of the drop in maximum loan limits is acute in high-price housing markets such as San Francisco and New York, where the median home price is $600,000.

“Clients that have loan amounts that exceed Fannie Mae and Freddie Mac’s guidelines are having an extremely difficult time getting loans,” says Tony Petruzzella, managing director of Veritas Financial in San Francisco. “There are no lenders willing to do any 30-year notes above this loan limit of $625,000.”

Housing industry leaders say the loan amounts eligible for conventional financing should be permanently raised to stimulate the housing market. Congress is considering raising the limit.

A potential beneficiary is Paul Jarratt in San Francisco. In September 2007, he bought his two-bedroom condo for a fixed rate of 6.375%. He wants to refinance, but because the amount he needs to borrow is above the jumbo-loan cap, he’s unable to take advantage of lower rates available now.

“They’re doing stuff for the lower-end (loans) but not paying attention to the higher end of the market,” says Jarratt.

If conventional-financing limits were raised to $729,750, the mortgage payment on such a loan would drop by $942 a month by lowering the interest rate 2 percentage points. Over the life of a 30-year loan, the homeowner would save $338,000, according to NAR.

Derrick Penner
Sun

Real estate sales across the Lower Mainland crawled along in January, real estate boards reported Tuesday, with consumers reluctant to buy in recessionary times when they expect prices will continue to decline.

In Metro Vancouver, realtors recorded 762 Multiple Listing Service sales in January, down 58 per cent from the same month a year ago. The so-called benchmark price for a typical detached home was down 11 per cent to $659,638 compared with January of 2008.

In the Fraser Valley, realtors booked a similar 59-per-cent decline in sales at 359. The benchmark price for a typical single-family home was down 9.6 per cent from the same month a year ago.

Both the Real Estate Board of Greater Vancouver, which covers most of Metro except Surrey, and the Fraser Valley Real Estate Board, which takes in Surrey and White Rock, said sales were at levels not seen since the early 1980s.

“We’re seeing the same factors at play: uncertainty in people’s minds about where the economy is going and where their jobs are going,” Robyn Adamache, a market analyst with Canada Mortgage and Housing Corp., said in an interview. “As well, I think at least some people are expecting further price reductions and perhaps are holding off on buying, waiting for that to happen.”

The B.C. Real Estate Association on Monday released its latest forecast that predicted prices will decline 14 per cent in Metro Vancouver during 2009.

Adamache said January is traditionally a slow sales month and can’t be used to gauge how the year will go, but “we’re sort of well below [sales levels] we’ve seen in previous Januaries.”

Both real estate boards also saw inventories of unsold homes decline in January. In Metro Vancouver, covered by the Greater Vancouver board, January new listings were down 30 per cent to 3,700, and current active listings of 13,966 are down 6,000 from October.

However, Adamache said sales have slowed so much that there is now an 11-month supply of unsold inventory, the highest in 10 years.

She said the ratio of sales to new listings has dropped to a level not seen since at least 1984, the first year for which she has records.

In the Fraser Valley, total inventory of unsold homes in January stood at 8,630 units, 26-per-cent higher than January 2008, but 30-per-cent lower than the record high inventory recorded last September.

Tsur Somerville, director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C., said comparisons between the early months of this year with the same months of last year aren’t a true indication of what’s going on because the market was still robust in early 2008.

Later in 2009, when we reach the same months that the market began to drop off in 2008, we will know whether sales are still declining or beginning to stabilize, he said.

“I think we’re still declining just because the [sale decline] is 60 per cent versus 40 to 50 per cent,” Somerville said, which is the amount sales were off during the summer and fall months of 2008, “but we won’t get a sense of how much and at what rate until later.”

Dave Watt, president of the Real Estate Board of Greater Vancouver, said the last 10 days of January did see realtor showings and sales pick up relative to the beginning of the month.

Watt said the buyers are “back to looking for a home to purchase and are very much thinking long-term.”

© Copyright (c) The Vancouver Sun

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USA Today

WASHINGTON (AP) — Pending U.S. home sales rebounded in December, as buyers snapped up properties at deep discounts, especially in the South and Midwest.

The National Association of Realtors said Tuesday its seasonally adjusted index of pending sales for preowned homes for December rose 6.3% to 87.7 from an upwardly revised November reading of 82.5. That’s better than the 82.3 reading economists expected, according to a survey by Thomson Reuters.

The reading also was up 2.1% from December 2007.

“In an otherwise bleak landscape, this represents a ray of hope, as it’s a leading indicator for existing home sales. I’m sure it’s foreclosure-driven, so it could be a hollow number,” said Brian Dolan, chief currency strategist at Forex.com.

Data from the housing market, which is at the center of the worst financial and economic crisis in decades, has sent conflicting signals in recent days.

Last week, the NAR reported an unexpected rise in existing home sales in December, driven mainly by distressed sales, with prices falling from a year earlier by the biggest margin in over 40 years.

The NAR’s housing affordability index jumped 10.9% in December to 158.8, the highest since it began tracking records in 1970. The index rose on falling home prices and low mortgage rates.

But government data Thursday showed sales of new U.S. single-family homes dropped in December by their biggest margin since 1994.

Stability in the housing market is critical to the U.S. economy’s recovery. The economy slipped into recession in December 2007.

The pending sales index tracks signed contracts to purchase existing homes. Typically there is a one- to two-month lag between a contract and a done deal. Home sales that were pending in December are likely to be completed in the coming weeks.

Contributing: Reuters

Copyright 2009 The Associated Press