Thread by @ronmortgageguy

What Happens When A Whole Condo Tower Cannot Close?

Quick outline of Condo Final Closings

The Developer finances the build till the condo tower is finished: they sold 97% of the units to individuals taking deposits in trust it takes 4 to 7 years to complete

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As the lower floors are finished first the buyers are required to occupy those units and pay rent this is Interim Occupancy

Finally all units are done and the Builder's lawyer contacts all the Buyer's lawyers and sets a date for the Condo Corp to take over the ownership

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Everyone who bought a unit pays up and the Condo Corp takes over: the Builder is paid off

This means hundreds of Condo buyers may need mortgages all on one day

What if they can't do it?

Here's a real example from this week

It's a cautionary tale that could be the future

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462 Units need to close but 62 can't close on time

BTW it's not unusual for 10 or 15 units to have difficulty closing, in this case the units were bought in 2018 so alot can happen in 4 years

Builder's lawyers expect 10 or 15 problems BUT NOT 62 PROBLEMS

What now?

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That's close to 15% of all units so the Condo Corp can't form a quorum and nothing can happen

Likely people will scramble and eventually this building will close

Thing is for the last couple of decades these projects have closed quite smoothly, 2% or 3% of problem closings

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That's manageable, worst case the builder retains 10 units ownership and the Condo Building closes

That's okay

15% not closing is a real problem

Likely a function of much higher than expected mortgage rates, higher Stress Test and trouble qualifying

Things get interesting