Articles

Rights Under A Builder’s Contract

By John Jorgensen, Esq.

   It is no secret that homebuilder contracts are totally one sided in favor of the builder, yet many of us, including yours truly, have signed a contract to purchase a new home. Most of these contracts are nonnegotiable but nevertheless, you should read them carefully before signing to understand what your obligations are under the contract. You should take particular care in reviewing the "financing contingency" language in the contract, which very often, is no contingency at all.


   Frequently, after a buyer has put up a substantial deposit, he or she cannot meet the requirements and cannot close the sale. The builder will then declare the buyer in default and keep the deposit as "liquidated damages". Is there anyway for a buyer to be refunded the deposit?


   The Interstate Land Sales Full Disclosure Act can often be used as a weapon by a buyer to defeat the builder and obtain a refund. The Act is well known by the drafters of home- builder contracts, but it is amazing how often a builder contract will violate the Act. In simple terms, in order to be exempt from certain disclosure and rescission provisions the Act requires that the builder unconditionally guarantee that the home will be completed within two years. This appears to be a simple request but builders cannot seem to make an unqualified promise in their contracts about anything. In order for the promise to complete within two years to be unconditional, the builder must give the buyer, in the event of default by the builder, the full range of remedies provided by law, including the right to sue for specific performance and the right to sue for damages. A simple return of the deposit upon default by the builder is not sufficient. Also, a builder cannot extend the two year period by qualifying language such as material shortages, strikes or other events beyond the control of the builder.


   Our firm has been successful many times in obtaining refunds of deposit for buyers by using the Act. If there is a violation of the Act, a buyer is entitled to rescission of the contract, a return of all deposits and attorney's fees if suit is filed. It makes no difference whether the buyer is otherwise in breach; the buyer is still entitled to a refund of all deposits.


   Each contract must be looked at on a case by case basis because of variations in attempted compliance with the Act. There are other technical requirements that are beyond the scope of this article. However, if you or someone you know is attempting to get out of a builder's contract, the first issue to be addressed is whether the contract complies with the Interstate Land Sales Full Disclosure Act.