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what is the down side for buying a house in a neighborhood where the builder went bust?

Ths neighborhood has a lot of empty lots, so I assume that's the reason...
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October 03 2010 - Cape Coral
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One important consideration when purchasing a home in a subdivision where the builder when out of business is who has control over the Home Owner's Association (HOA). Many times the developer reserves the right and control over the Association until completion. When company goes out of business, the bankrupsy court (judge) will taken this control. The homeowners in the subdivision have limit rights and no control over decision making. This is particularly important when it involves collecting dues and paying bills such as power (street lights), water, landscaping and security - the little things that help maintain the value and resaleability of the subdivision.
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October 05 2010

Sunnyview, that was a perfect answer!

Eve in Orlando

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October 05 2010
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I see it a bit differently. Empty lots can be a magnet for long term trouble in a market like this. If the market does not turn around quickly or the original builder sells them off to cover other debts, those checkerboard lots often get build out by small contractors with cheap spec houses that can be substantially lower quality than the existing neighborhood. If those houses do not sell, they are then bought by portfolio investors who rent them. That can permanently change a neighborhood for the worse. 

Due Diligence is important, but in housing you have to buy what is, not buy what you hope will be unless the price is so cheap that you can move out and run it as your own positive cash flow rental when you get fed up your new "neighbors".
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October 05 2010
There are a lot of questions that would need answers to really determine the ultimate answer to your question. I would suggest you do a complete due diligence on the financial situation of the community, fees, etc. If the property is on a street in a section of a neighborhood, with no fees, there is no impact other than seeing empty lots. Good Luck with your search and DD on this issue.
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October 05 2010
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I could not buy in a neighborhood like this. The instability often means problems with the HOA if there is one, spotty neighbors, lots of rentals and problems with the general feel of the area that can take years to resolve. A house is a big purchase and to me it is simply not worth the risk with no benefit.
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October 05 2010

The downside may be that your new neighbors in the "busted builder" community may not be too happy!  Why?  Because you should be buying the home for MUCH less than your neighbors paid who bought from the builder that went under. Arizona (where I'm at) like Florida experienced many builders going bust.  However, buyers in AZ are taking advantage of these great opportunities to buy both homes and lots. 

Yes, there are many cautions as other Realtors have covered here.  But, the upside is that many communities across the US have local incentives to assist new developers coming in to clean up and finish homes, or even to build new homes on existing empty lots.  Those incentives are most often passed onto buyers via much lower prices.  The investors in the lots and unfinished homes may also be offering a great price, low interest rates, and upgrades (even green upgrades) you can take advantage of.  A local Realtor can help you find the best deal, review comparables and guide you so you don't pay too much.  Inspections are key to be sure the property doesn't have defects. 

However, you may find similarities to other markets across the country where the homes that were taken over are now better quality, have more features, better finishes, and have much coveted energy-saving green features than the busted builder-finished homes.  You can check Google and other search engines to find articles from FL on buying in these communities, and you may look to "sister states" like AZ, CA and NV where many people who bought from "busted builders" are thrilled with their purchase price and the quality in the home that another company picked up and finished.  Today's builders have to work harder for that sale and you will benefit.  An experienced Realtor in your local community will provide you with your team of professionals that is critical for you in this purchase.  He or she should also be able to provide you with comparable sales in the community and perhaps in other similar communities to help you make  a sound decision for your investment.

Good luck!

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October 04 2010

The lenders can be anxious to lend money-this can lead the existing houses to even depreciate more. But at the same time you can get a bargain. It is hard to say. I would try to talk to local people and get a feeling what they think about this subdivision. I would even contact building and zoning department. The more information you can obtain the more idea you will have. If the subdivision supposed to be gated, with clubhouse, pools etc who will finish the project, or maybe the project is already finished, but the existing and future homeowners may get a special assessment to run it properly (there are still vacant lots and HOA fees are usually divided into all homeowners or part of unsold houses or land should be covered by developer-and he went bust)

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October 04 2010
I haven't been in Cape Coral for a few years but as I recall it was once popular for northerners to buy lots in undeveloped parts of Florida with the hopes that one day they would retire, build a home and move to Florida. So those empty lots may not be held by the defunct builder, but by landowners. My grandfather owned three lots in Citrus Springs for over 30 years but ended up selling them for the value of the back taxes.

Plus there was a period maybe 6 plus years ago where lots in Cape Coral went from $30,000 to $90,000, which sparked a lot of speculative buying. Needless to say lots are quite a bit less expensive today than they were back in the days of the land rush.

If you buy a home that has been built in the last 10 years, find out if the defunct builder self insured for defects or whether they bought an insurance policy. If there are any known or unknown defects that pop up in the first 10 years of the life of the house and the builder has gone belly up, the warranty may or may not be useless, depending on who holds the warranty.
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October 03 2010

There is a lot to be concerned about, but depends upon what stage of completition the community is in.  If little has been developed, I would not recommend buying...if it is almost done, than you need to evaluate.

For example...If you pay $400K for your home, the rest of the lots may be sold to a developer that will put in homes for $200K, devaluing your purchase.

If the community is supposed to have ammenities like pool, clubhouse, kiddie park. chances are that they will never be completed.  Please also note that when a developer has "proposed" plans for developement, that does not mean that someone has to do it.

When a developer goes bust the neighborhood ususally suffers and there is no rules for what can happen next.

Erika in Orlando

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October 03 2010
Was the builder maintaining any of the property such as common areas or the entrance to the subdivision? If so, this may now become the responsibility of the homeowners to keep the area looking nice and attractive to other buyers. Are there numerous vacant homes, or homes under construction that someone needs to keep an eye on to prevent vandalism? Lastly, I doubt you will be receiving any type of warranty if the builder is out of business, so be sure to obtain a good home inspection and make sure the title has no leins from subcontractors.

Other than that, if you are buying a quality built home at a good price, sounds like it may be a deal ... good luck!
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October 03 2010
 
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