Potential SS Deal in a Defect Ridden New Neighborhood

Request feedback… Thanks in advance

I have a client that lives in a community in which the HOA is not correcting faulty construction on the exterior (and possible interior) of the 203 homes community. From what it sounds like they threw these together too quickly, used poor materials and had poor inspection practices. The reason is that they want the contractors who performed the work years ago to pay for the poor workmanship. So there is a Special Assessment being enacted to determine the next step on the process. They are getting lawyers involved for a potential suits against the many contractors involved. Note: this is a very nice house built in 2005 and the problems are just now being discovered. Why the inspectors did not find these defects – don’t know, but they should be held accountable as well if it goes that far. I find this risky because we don’t know the extent of the issues. On the other hand this home would easily sell once under contract, but the end buyer may have issues knowing the HOA problems as well. My client wants out and is willing to do short sale at less than what is owed. I’m not sure quite what to do in this situation. Furthermore the lender is Bank of America – oh crap!

Any advice? If more information is needed let me know.

Best Regards,



The community through the HOA is just starting "Discovery" and feels the community has builder defects and seeks to mitigate the damages.

Property owner (Seller) makes full disclosure and convey’s position for claims to new owner!

I don’t know what the original cost of these homes were? I will give you an example of a track home development I was involved in, in Orange County, CA. (We were doing the forensic analysis and construction cost mitigation.) The original sales value of the 1100 homes was roughly $550m and after discovery, construction forensic analysis, mitigating the construction in sections and going through court for 11 years, the association recieved less than $20m for a combination of legal fees and damages.

At that point each home owner had been assessed almost half of this in out of pocket legal fees, which home owners did not get directly back, and the association HOA decided to build onto there club house and recreation facility and no repairs were done to individual homes, if I remember correctly the original suit was brought for $110m but in order to avoid going another ten years in depositions and a trial it was settled.

Just sell the property, convey all rights to new owner, and make full disclosure! (A lot of these homes were sold and changed hands during these years, and B of A having the mortgage has nothing to do with the original development, construction or litigation.)

You’re seller may be asked to make price consessions or make a cash contribution back to buyer at closing for estimated legal fees and cost’s and any immediate repairs of specific wall cracks, slab cracks, etc. Since you did not state the extent or type of damages I can’t say whether repairs would need to be made prior to seller and buyer closing?

Good luck,


Thanks for the response Gold River. I decided not to take the risk at this point in time. Since I am relatively new to Short Sales and REI in general - I can’t afford to make a significant mistake.

Thanks much and best regards,