Builder fights deluge of buyers unable to close deals

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An Ontario real estate developer has unleashed a deluge of litigation against dozens of buyers of preconstruction homes who allegedly defaulted on purchases in a Windsor-area subdivision.

Starting in November 2022, Coco Developments Ltd. filed more than two dozen claims related to houses it built at the River Ridge Estates project in Lakeshore, Ont., just east of Windsor. The claims describe preconstruction sales in the late summer and fall of 2021 followed by failures to close and complete transactions in the fall and winter of 2022. According to the court documents, most of the buyers are not local to Windsor, with addresses mainly in the Toronto region.

According to Mark Morris, a real estate lawyer with Legalclosing.ca, the lawsuits are a sign of a burgeoning issue in the new-build home market where more buyers are unable to find anyone to take over their contracts (known as an assignment sale), some buyers can’t afford to complete the transactions and more developers are turning to litigation to recoup losses.

“This was at first an individual issue, but it’s becoming more systemic,” Mr. Morris said. “Builders that are facing five or six failed closings are turning to their only recourse, to see if, in fact, there’s any money in ‘them thar hills.’”

The damages sought in each claim begin with the $40,000 deposit buyers placed for detached homes that ranged in price from $850,000 to $970,000. But the final damages could end up being much higher.

“You don’t just lose your deposit if you walk away from any real estate deal – you can lose everything,” said David Feld, a real estate lawyer with Feld Kalia Professional Corp.

The damages Coco could seek to recover from the 26 claims The Globe and Mail reviewed could add up to millions, mainly because the buyers could be required to pay the difference between what their initial sale price was before they walked away from a deal and what the ultimate selling price will be if Coco can resell the home.

None of the claims and counterclaims have been proven in court.

One example illustrates the issue: On Feb. 21, 2023, Coco issued a claim against Balkar Singh Dhanju for his $40,000 deposit and “damages for breach of contract in an amount to be specified prior to trial.” According to the claim, Mr. Dhanju signed a contract in September, 2021, to buy a five-bedroom house (1,262 square feet of finished area) at 395 Cypress Lane for $853,757. The house was to be finished by September, 2022, but Coco’s claim says Mr. Dhanju informed them on Nov. 28, 2022, that he wouldn’t be able to close the deal.

The property at 395 Cypress Lane is currently for sale with an asking price of $759,000 – a price substantially below what Mr. Dhanju agreed to pay and well above the local going rate for detached homes in the Windsor area. The listing has been active for more than four months. Even if it were to get a full-price offer tomorrow, the damages Coco could seek from Mr. Dhanju would include not only the almost $100,000 gap between sale prices, but also any interest in carrying costs related to a house that has sat vacant for more than a year.

Mr. Dhanju could not be reached, and his lawyer declined to respond to request for comment.

According to property records, many of the homes in the claims have been listed for sale but few have been successfully resold. Two successful sales appeared to have left Coco ahead: 389 Magnolia Lane was originally sold in 2021 for $870,153 and then resold in 2023 for $877,611; 1061 Aspen Ridge sold for $871,848 in 2021, and was resold in 2024 for $873,000. There are currently six other River Ridge Estates houses for sale, all listed below the original preconstruction contracted price.

Even at their reduced asking prices, the homes are priced significantly above the Windsor market according to Joyce Blackmere, director of sales with Dan Gemus Real Estate Team Ltd. The average home in Windsor sold for $550,000 in 2023, with sales activity falling from its peaks in 2021, when there were 7,700 transactions, to 4,900 sales. Ms. Blackmere notes that the resale market and the new-build market diverge in several ways, and the average price of a new-build home was about $800,000 in late 2022, when the majority of the Coco defaults happened. In her company’s research of new-build sales, things slowed significantly once interest rates began to rise in the latter half of 2022. “In the first half 2022, there were 190 new and precon sales, in the next 18 months it was about 152,” she said.

For several of the homebuyers who filed statements of defence or counterclaim, the inability to qualify for a mortgage appears to be the primary reason the deals fell through. Some cite rising interest rates, others claim a changing market undermined the assessed value of the home and some describe personal financial issues.

One defendant, Shazia Sabir, claims her closing was delayed because she was injured in a car accident. She also alleges her money for closing was stolen by another individual who she claims used it to buy a different Coco home. Ms. Sabir was contracted to buy 391 Hemlock Lane for $851,130. It is currently for sale with an asking price of $762,000. The listing has been active for more than four months. Neither Ms. Sabir nor her lawyer responded to requests for comment.

Another set of defendants – Jasbir Singh Kapoor and Lavinder Kaur Kapoor, a couple in their 70s – allege they were rushed into a deal to pay $865,565 for 394 Mulberry Lane and that health issues have plagued them since they were unable to complete the purchase in 2022. “Lavinder Kaur Kapoor could not go to work either for the entire last year trying to take care of their health,” a statement of defence filed in September, 2023, states. “With no work, no income left, defendants ended up using all their savings to pay for groceries and rent and now living on borrowing from credit.” The Kapoors did not respond to a request for comment.

Jenny Coco, who owns Coco Developments, also has millions at risk in the insolvency of builder Sam Mizrahi’s The One, a 91-storey condominium tower at Yonge and Bloor streets in Toronto. She is also a defendant in litigation surrounding the collapse of Bridging Finance Inc. Ms. Coco’s lawyer in the Windsor cases, Nina Perfetto of Fogler, Rubinoff LLP, didn’t respond to requests for comment.

Mr. Morris said he has seen developers willing to work with sellers to avoid litigation – using mechanisms such as vendor-take-back mortgages or assisting the buyer in finding an assignment – but only if they have the balance sheet to manage delaying final payment.

“It’s much easier to be benevolent in this industry when you are Scrooge McDucking it into a vault filled with money, than when you’re down to pennies,” he said.