Expert: Diann Tonnesen - 6/21/2009

Question
I have a crazy question.  I am buying a home through a builder who is building in another builder's community.  The builder who is building the community went bankrupt since or right around when signed my loan papers in early June.  I am now extremely concerned about the neighborhood and am not sure I want to close on the house this Thursday.  I put $3k down on the house, have the builder expecting me to be buying their house, have committed to buying their house by signing a contract and filing for a loan through their mortgage company.  Is there anyway I can get out of the contract if I want to or do I just have to close on the loan and be done with it?  The house is in Ohio in the Cincinnati area.

Answer
Hi Nathan, This is not a crazy question at all. You have every right to be concerned about the neighborhood, especially if the builder who started the development has gone bankrupt since you signed the contracts.

You can choose to not close on the home, but you may have to forfeit your earnest deposit. In most contracts the provisions only call for loss of the earnest deposit if the buyer defaults. But you will have to read your particular contract carefully to make certain that there are no other penalties besides loss of the earnest deposit in it. Make sure that the builder does not have the right to sue for "specific performance" or other damages. But, generally speaking, usually the earnest deposit is the only thing that the builder can claim.

You may have the right to also try and get your earnest deposit back as you have discovered a "material fact" (the bankruptcy) that affects the value of the property you are buying. Again, you will have to read your contract carefully to see if that is a possibility.

Hope this helps and good luck!