I recently took some buyers out looking at houses in an area with a lot of bankrupt subdivisions.  The houses were, in many cases, quite attractive and priced very competitively.

But there are a lot of considerations that buyers need to weigh before buying a home in a subdivision where the developer has gone out of business…

We’ll start with the dangers…

• The amenities may not be complete… and they may NEVER be complete.  If you are buying a property because of the pool or tennis facilities, and those items aren’t there, they might never be built.
• There is NO telling what might be built on the currently vacant lots… The bank that gets control of the lots wants to SELL them.  And they likely aren’t going to quiz the buyer as to their plans for the neighborhood.  Your 5,000 square foot home could get a 2,500 square foot neighbor.
• Warranties may just fly out of the window… Defunct builders won’t be around to honor warranties, and the bank that sells the property isn’t going to warrant the builders work.  Also, since the builder may have had financial pressures while the were building the homes, the quality might be challenged.
• Important items like HOAs and CCRs might not have been assembled… This can be remediated by the residents… maybe.  The residents can form a Home Owners Association (HOA) and put together Community Covenants and Restrictions (CCR), but depending on the local laws, might require 100% of current residents to enact.
• The community might have a stigma… from having been bankrupt.  This could affect future resale value… especially if the community isn’t built out completely.

But there can be a reward…

• Price… That is the real draw.  One might be able to buy in a community and type of house that could otherwise be unattainable.
• Opportunity for appreciation… If the neighborhood turns the corner and gets built out appropriately, the reward could be higher than average price appreciation.  Buying under-priced property and then selling at market is a good business decision.

Do the math!

While searching for a home, make sure that the home meets your needs… and the neighborhood meets your needs… AS IT IS.  Also, don’t forget to weigh the risks.  What if smaller homes are built in the neighborhood?  What if there are no amenities?  What if the guy next door is able to build a tar-paper shed in the back yard?

For some buyers, these properties represent a GREAT value.  For others, they represent a big risk.  By honestly examining lifestyle and options, one can determine if a home in a bankrupt subdivision is a good value for them.