Developer Went Bankrupt! Who Pays?

F.S. from Tolland County, Connecticut writes:

Dear Mister Condo,

The original developer of our new condominium community has gone bankrupt before completing all of the work that was to be done to create the common elements of our community. A new developer has taken over the project and is continuing the work but looking for the current unit owners to pay for the newly constructed common elements. Shouldn’t the new developer be shouldering these costs or do the existing unit owners have to bear the expense?

Mister Condo replies:

F.S., purchasing into a new condominium association before the developer has fully finished constructing the development is not uncommon. Unfortunately, when a developer goes bankrupt prior to completing the necessary work, it is often the new community members that are left to shoulder the financial burden of completing the construction. However, that does not mean you and your fellow association members have no recourse.

As I have done in the past, let me first point out that I am not an attorney and my advice here is to be taken as friendly but not as legal expertise. Since the actual process of developer transition, especially when complicated with a developer bankruptcy, is of a particularly legal nature, I strongly urge you to consult with a qualified attorney. A great resource for finding experienced community association attorneys is available for your consideration at http://www.caict.org/?page=Directory#Attorney – Law Firms. I strongly recommend you speak with a qualified attorney regarding this matter soon.

For the most part, you entered into a purchase and sale agreement for your new condo with the understanding that the community would be constructed as planned. There are, no doubt, clauses in your purchase agreement that outline your responsibilities as well as the developer’s obligations to make the sale complete. If either you or the developer defaulted on the agreement, there may be a possible lawsuit involved in getting what is rightfully yours.

The developer’s bankruptcy provides legal and financial protection to the developer which is why you may need an attorney to help you bring suit against the developer and/or the developer’s insurer. These suits are routinely called construction defect suits and they are not uncommon in the Connecticut court system. The challenge can be weathering the storm of legal proceedings and court dates as you attempt to reach a settlement. In the meanwhile, it might make sense for the community’s Board of Directors to speak with a bank about obtaining a loan to help finish the construction of the common areas. Otherwise, these areas may be left unfinished or special assessments of the existing owners may be required to complete the work.

I am sorry you and your fellow new condo neighbors find yourselves in this bind. Rest assured, this problem will resolve itself with some patience and fortitude. It is an ugly side of the condo construction business that can certainly tarnish the reputation of condo living. I wish you all the success required to turn it around in your favor.