Long Term Construction Defects Liability Awaits Lenders Who Foreclose New Condominium and Tract Housing Projects

California Senate Bill 800 is complex legislation that requires those who develop and construct for-sale housing to be responsible for construction defects in those housing projects for ten years from the completion of any construction preceding the retail sale of that housing. In the case of condominium projects, it is actually ten years from the date that the developer turns over control of the homeowners association to homeowners. There is no special post-foreclosure protection for lenders who take title to new housing projects.

Low Sales Rates Produce Overvalued Appraisals

Lenders beware!  Your current mark-to-market housing appraisals may contain really low sales absorption rates, resulting in significantly overpriced housing units and overvalued housing projects. This means that your mark-to-market loan write downs on housing projects won’t yet be written down low enough to successfully reserve for, work out and/or sell housing units at current open market pricing.  At the very least, this means your appraisals may not be accurate tools for good decision making.

Where’s The Bottom of the Housing Market?

By most estimates, Wall Street’s easy credit allowed home builders to produce about 2 million new homes for which there was never a creditworthy buyer.  The resulting slow-motion economic train wreck has now produced over 5 million vacant homes currently listed for sale, with several million more for listed for sale but still occupied by owners or their tenants. Housing prices continue to fall, and everyone wants to know: Where’s the bottom?