Before entering into any real estate transaction, buyers must have a thorough understanding of everything that is — and isn’t — stipulated in the contracts. Prospective buyers who do not have legal or real estate professionals review the contracts before signing may find themselves in a sticky situation as one group of Detroit residents is now discovering.

The future of the Gratiot McDougall housing project is in jeopardy, and what is sure to be a long legal battle involving landlord-tenant disagreements is currently playing out in a Wayne County court. Involved in the dispute are the current tenants in the project as well as the Oakland County developer who currently owns the property.

The developer constructed 18 houses to begin the project in 2006. He received grants from HUD’s HOME program, which the city of Detroit was supposed to administer, and supplemented the funds with financing from Charter One Bank. The developer guaranteed 58 percent of the bank loan, and the HUD funds were intended to cover the rest.

Residents moved into the development under a lease with an option to purchase the homes. The developer’s attorney states that the rental payments were intended to be temporary until the buyers obtain mortgages, but papers filed in court suggest that at least some of the residents believed that the developer told them they were approved for mortgages and would close at some point in the future. As of July, 2014, only five residents obtained mortgages and purchased their homes.

Meanwhile, the city of Detroit failed to meet its HUD obligations, and the grants were pulled, leaving the developer and the bank in the lurch. Residents heard that the developer was behind on property taxes and the homes were to be foreclosed on and withheld rent, but the developer asserts that if the rent were paid, he would not be behind on taxes.

This complicated situation could have been avoided if the residents understood what they were signing when they moved in. Anyone entering any type of real estate transaction should have the contracts reviewed by a legal professional who can determine how much risk is involved.

Source: Metro Times, “Detroit residents continue protest to remain in homes” Jul. 15, 2014