• Fri. Mar 1st, 2024

The Risks of Bankruptcy for New Home Buyers: Protecting Your Investment Amid Uncertainty


Feb 10, 2024
Buyers of new apartments may not receive their homes if the developer goes bankrupt

The bankruptcy of builders in the construction industry can be a nightmare for new home buyers. When a builder goes bankrupt, it can leave the buyer without a new home and with large sums of money lost. This is particularly difficult when the buyer has made a sale of an apartment or terraced house while the construction work is ongoing. If the purchase price installments have been paid in advance, it complicates the situation even further.

In Finland, many new projects include RS properties or apartments that are already sold during the construction phase. In contrast, other New Destinations sell apartments only after building control approves them for use. When a developer goes awry during construction, bankruptcy could take the project to its end. However, this does not happen in practice. If the building was almost finished, there might be some chance that the bankruptcy estate would have assets and interest in completing the project.

If liquidation occurs on an apartment sale, there’s no guarantee that buyers will get their money back if there are no funds left in the bankruptcy estate. The alternative is for home buyers to continue with the project themselves by finding a new company to complete it at a higher cost than what was previously paid for it. There may be additional costs associated with this option as well.

When construction is in progress, security for buyers is limited to security during construction phases, which must be at least five percent of contract prices at first and ten percent later on. However, these amounts cannot complete an object that is still being built after completion of construction phases according to Tapio Nevala of Consumer Disputes Board and real estate brokerage and housing trade division chairman Tapio Haltia legal expert points out that if liquidation happens on an apartment sale, there’s no guarantee that buyers will get their money back if there are no funds left in bankruptcy estate Marianne Palo deputy judge and chairman of legal and opinion committee Central Association Real Estate Agents also mentions that since insurance only compensates repair costs errors found after annual inspection guarantee valid nine years in practice Latent errors can be revealed even after long time Talon after completion shareholders are protected by post-construction bond at least two percent of total trading prices of shares sold which must be valid for 15 months after building approval Marianne Palo mentions deficiency law obligation external entity monitor part completed construction work stage buyers often trust developer word pay installments accordingly Talon Nevala lawyer Consumer Disputes Board real estate brokerage housing trade division notes that having own auditor who can see transactions purchase price accounts useful especially when payments made from account aimed specifically at construction object i

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