There can be different ways in which real estate in Ohio currently in development can be purchased. For example, the transaction can be structured in such a way that you own the plot of land before construction is completed, or in the alternative, the developer keeps the title to the property until it is fully built and ready for the buyer to move in.
Q: Which of the transaction types is better for the buyer?
As a lawyer, I would prefer the one where the builder builds it and then releases title to me. I don’t own that property and I am not going to own it until it is fully built.
The other type of transaction, where I own the ground and the builder is building on it, if things go awry, or the builder goes bankrupt, it’s my property and I have to deal with the aftermath of liens being filed against the property.
We have been involved in both of these types of transactions.
Q: If the developer goes bankrupt, how do I get my deposit back?
If the developer has gone bankrupt, you will be referred to a bankruptcy lawyer. It is hugely problematic, and it is really going to depend on the bankruptcy situation. That is why you need to put in place a procedure for draws and other safe guard procedures to help avoid a disaster. .
You should also keep money back so that you are not getting in too deep with the contractor. Then if things go awry, you have enough money to complete the project.
Q: Would title insurance help?
Yes, we recommend title insurance. We recommend that things be done in draws and that for each draw that the title insurance be brought up to date so that we know there are no liens filed , each time money is paid out.
We also recommend lien waivers each time.
Q: What’s a Lien Waiver?
A lien waiver is where the contractor, as part of the draw procedure, gets waivers from all subcontractors and materialmen waiving the right to file a lien on the property in exchange for being paid.
Q: What if the developer delivers a property according to what they believe was the arrangement and the buyer believes that the arrangement was very different?
That is why you need to hire an experienced real estate lawyer at the onset of the transactionto help avoid the risk of a vague contract.
In Ohio, as real estate lawyers, we look at the four corners of the contract to see what it says. If it is clear what it means, then the parties cannot go outside the four corners of the contract. If it is vague, then you risk having to litigate the ambiguity with a court.
If we are representing the contractor, we will file a lien and let the dispute occur on that level.The buyer would have to go through the process of getting the lien removed, or the contractor will begin his foreclosure upon that lien. That’s where the contract dispute occurs, and that’s when the lien becomes very important.
Q: Is an oral contract with a real estate developer enforceable in Ohio?
It is not recommended. You are asking for trouble if you are going into an oral contract or a handshake with someone to build something for you.