Failed Developments, Unfinished Roads, Who Pays?

Prior to the real estate market plunge of the recent past, there seemed to be the attitude among certain real estate developers that any corn field could sprout houses and make the developer a millionaire.  This proved to be untrue.

However, many developers with that or something similar in mind did purchase land and put together plans for developing lots and roads.  A number of these developments began in earnest, but stopped in their tracks when the housing market crashed.  This left platted land and unfinished roads.  Some unfortunate home owners were also left in the lurch, with finished homes on unfinished roads.

This general set of facts led to a number of situations where the local municipality had to step in and either finish the road and pay for it out of general funds, or special assess the current homeowners, usually a mix of private residential owners, banks which had foreclosed on the developers, and sometimes some investors or the developers themselves.  Since general taxpayers pretty generally did not want to bail out failed developments, many municipalities turned to special assessments to at least finish roads.

With that background, we come to the recent case of Runkle, et al. v. Town of Albany.  This case focused on the narrow question of whether, by accepting a plat, the Town had accepted a road.  The short answer is yes.  The slightly longer answer is that it appears a town can conditionally accept a plat, which then doesn’t become official until those conditions are met.  However, the conditions had better be spelled out because vague or overly general conditions may be deemed to have been met by very little action on the part of the developer.

The bottom line is, if you want the developer to do something, for example build a road, make sure you get your agreements and financial assurances (e.g. a bond or letter of credit) in place before accepting a plat which dedicates roads to the town or you may end up with an unfinished road you didn’t think you had.  Then you’ll have the homeowners expecting you to finish the road.  But they won’t want you to special assess them, they’ll want you to sue the developer. Aside from the legal challenges and expense of mounting such a lawsuit, the whole reason the development tanked is the developer ran out of money.  If you sue someone who doesn’t have any money, you may win in court, but you won’t get any money.

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