Re: Selling a property in new subdivision - Posted by Peter_MD
Posted by Peter_MD on July 16, 2003 at 12:23:48:
My answer would be yes, however, I don’t know if it will work where you are.
About 5 years ago, our tax client, got together three other guys and put together a very basic (rough) partnership agreement that they would contract to buy a single family house in my housing development (the last phase of the development because the builder only had enough land and lots approved for 26 more houses).
Our client discussed the issues with us and got everyone to put up $10,000 each for the deposit. Then they all signed the purchase agreement with the builder and specified the color carpets and tile. They were supposed to settle within 90 days, however, a couple of strange things happened. The builder could not start on time since all the houses needed the foundations dug for the basements and we had a really long hard freeze that winter. Needless to say, the loan was going through fine with my mortgage broker, but the builder was requesting a delay (basically a revised contract).
Long story short, the four partners and I sat down with the builder’s salesperson and he had the gumption to request $17,500 to extend the contract (for a problem that the builder was experiencing…since the house would not be delivered within the contract specified date). Well, the salesman kept telling me that if my clients weren’t going to pay $17,500, he (the builder) wanted $10,000 to extend the contract for an additional 30 days. Since I had bought in the neighborhood years earlier, had several clients in that housing development, and knew the builder personally, I called him to complain that we were going to have our attorney contact his attorney and make some trouble. The builder agreed to give the group of buyers a $2,500 fee for the delay in providing the house on time, allowed them to change the carpet and tile up to 2 weeks before settlement, and threw in an extra skylight over the family room.
I truly thought the guys were going to live there as roomates, but about a week later we met and they started talking about selling the house without even moving in…all the time my mortgage broker is having fits because he’s not getting any money for the work he did to get the loan.
Finally, the weather starting to get really nice a few weeks later, they showed the house, a buyer came in and wanted the house. The contract was assigned (because I do remember the guys never went to settlement…but I kind of remember the builder agreeing to allow an assignment as part of the extension request). The buyers selected the color carpet and tile and the guys made the appropriate change with the builder. Our mortgage broker got the loan processed for the buyers (moving in from another state), and our settlement agent took care of the closing.
…anyway, after almost 5 months from the date these guys signed the original purchase contract with the builder to receiving their check from the settlement, they each received their initial $10,000 deposit back … and an additional $10,000 in income.
Then the sparks started to fly because they had to pay taxes on all of that $10,000 in income. Then again, that’s another story, but basically they loved the money but didn’t want to part with any for Federal and State taxes.
Do some research, get with your attorney and CPA, and see if something like this can work for you.