Florida Condo Buyers sue to get out of purchase contracts

The Related Group and GDC Premier Communities are the targets of two federal lawsuits filed Thursday by contract holders trying to get out of condo purchases in the worst housing slump in 16 years.
The buyers are seeking to get back their deposits on units at Related's Ocean Four in Sunny Isles Beach, Fla., and Alaqua, an Aventura, Fla., project by a GDC. The suits claim that excessive construction delays and increased maintenance fees should allow them to cancel the contracts.
The suits were filed as proposed class actions, but it's not known how many contract holders would qualify to join in the suit.
An Ocean Four sales center receptionist who declined to give her name said the 273-unit building is sold out and most buyers already have closed.
The 193-unit Alaqua has about 20 units left to close, according to Michele Kvaska, a sales associate at International Sales Group, which is handling sales for the project.
Executives at Related and GDC Premier Communities did not return several calls seeking comment.
"I sent the developers' attorneys a rough draft of the complaint about a month ago," said Robert Cooper, an Aventura real estate attorney representing the plaintiffs in both cases. "The attorney for Ocean Four at Greenberg Traurig said, 'Go ahead with the suit.' I can't remember if Alaqua responded, but the general answer I've been getting from developers are either 'I did nothing wrong' or 'sue me.'"
Miami resident Alejandro Itkin and Memrich Realty, owned by Bal Harbour resident John Meyerovich, are the plaintiffs suing Ocean Four.
They claim Related raised the condo association's operating budget by more than 65 percent between contract signings and completion. The monthly maintenance fee for Meyerovich's unit jumped from the initial estimate of $748 to $1,240, according to Cooper.
Under state law, buyers are allowed to cancel condo purchase contracts if "material and adverse" changes are made to condo documents filed with the state. But state regulators and developer's attorneys disagree about whether higher maintenance fees open the door on rescission.
The developer blamed the fee increase on rising property insurance costs, Cooper said. Other fees totaling about $100 per month also were added to monthly fees, the complaint states.
The contract promised units would be delivered within two years of signing, but the buyers said they weren't asked to close until several months beyond the two-year window.
Related didn't own the site when it started building the condos, but contract holders were not notified of that at signing, the complaint said.
Amended disclosure documents submitted in November 2006 -- about 18 months after contracts were signed -- stated the "developer has a contractual interest in acquiring title to the property which is intended to be developed as the condominium."
As of last December, Staci Rutman, a Greenberg Taurig attorney representing the developer, confirmed Related still did not own the property, Cooper said.
The lawsuit also questioned whether Related complied with a federal law requiring projects to be registered with federal Department of Housing and Urban Development.
The case has been assigned to U.S. District Judge Joan A. Lenard in Miami.
A developer who commits to complete the building within two years of a contract signing receives a HUD registration exemption, Cooper said.
Some developers choose to register and provide estimated delivery dates, which can later change without penalty if considered reasonable. Many developers, including Related, have opted for the two-year commitment and skip the federal registration process, he said.
As in most contracts, Related's contract states the "unit" will be completed but not the building in its entirety.
Cooper argues the language does not exempt Related from federal registration, and the lack of registration would make the contract invalid.
"You shouldn't have to move into a place that's half done," Cooper said. "People don't want to move into a construction site."
Robert Chasnow, a Washington, D.C.-based partner with Holland & Knight who is not involved in the litigation, said there is no question the exemption requires the unit, not the building, to be completed.
"The standard is whether the unit is completed," he said. "HUD focuses on the unit. But if there is no certificate of occupancy and the purchaser can not have lawful access to the unit, then that unit is not completed."
Cooper said "the courts are obligated to interpret the law. The courts have the final word, not HUD."
ALAQUA COMPLAINT
The complaint against Alaqua also alleges unreasonable project delays and cites the lack of federal registration. Budget changes were not raised as an issue in the suit against GDC.
The plaintiffs in the Alaqua case signed contracts to buy four units. Alan Ahmad Mourad deposited about $100,000 on a $492,000 unit. Mourad and his son Ahmad also combined to put down $100,000 on another unit priced at $500,000. Friends Ruben Corso and Manuel Cabeza signed a contract for a $324,000 unit and deposited $65,000 with the developer. And Francisco Lopes is on the hook for a $497,000 unit on which he put down $100,000.
Like the Ocean Four complaint, the Alaqua suit was filed under the federal Interstate Land Sales Full Disclosure Act, which was enacted in 1968 to protect consumers from fraud and abuse following and earlier spike in Florida swampland sales. The case was assigned to U.S. District Judge Adalberto J. Jordan in Miami.
The federal law has become a common tool for attorneys since South Florida's condo market started to crash in the past 18 months.
Cooper, who has been taking buyer's cases on a contingency basis, said he receives about 30 calls a week from desperate contract holders, who want to get out of their contracts. He has filed or is preparing about 60 condo cases. Eighty percent of those are in South Florida; others are in Orlando, Tampa and the Florida Panhandle.
"Of course not every case has grounds for a lawsuit, but this shows the downward trend in the condo market is continuing," he said. "When real estate prices were going up, you had sellers trying to get out of contracts because they thought they could resell for a higher price. Some would simply not show up for closing. Now it's obviously the opposite."
The wave of panicky contract holders includes sophisticated investors, speculators and users.
In many cases, lawsuits have become a last resort for investors who didn't anticipate the condo slowdown when they were signing contracts and annual appreciation was in double digits. Florida became one of the nation's leading markets for real estate speculators.
About 80 percent of buyers who have contacted Cooper say they were convinced by sales pitches that buyers would be able to flip units at a profit before closing, which was common before the market peaked.
Itkin, who is suing the Related Group trying to recover a $240,000 deposit on a $960,000 unit, was one of those people.
"I bought it with the hope of reselling it," he said. "I wasn't expecting I would have to close, but I was prepared to close if there were no adverse materials in the contract. The main reason why I want out is they sent me a new budget with a monthly assessment that went from $798 to $1,291. Now I would have to carry with higher expenses, and it makes it more difficult to sell."
Itkin said he is an experienced investor who owns six other condo units in South Florida, including others by Related.
He also questioned Related's resale program and whether or not they were trying to sell his unit as agreed.
"I sent three different people to the office and told them to ask for a unit in the line where my condo is." Itkin said. "They were showed other units but not mine."
ORDINARY INVESTORS
Cooper said his clients include police officers, teachers and retirees who used nest eggs as deposits on units worth up to $1 million.
"You see the sophisticated investors, but there also are those people who really had no business in the investment world," he said. "They simply can't weather the negative cash flow even if they rent those units when you factor in operating expenses like property taxes, insurance and maintenance fees."
Privately held home-builders have not disclosed their walkaway rates, but publicly held companies must say how they stand on contracts.
Bonita Springs, Fla.-based WCI Communities, one of Florida's most active luxury home and condo builders, reported this month that 17 percent of buyers defaulted on closings since the beginning of the year.
A large number of contract holders who follow through on closings are quickly putting the units back on the market for resale, holding down prices.
Kvaska said about 30 Alaqua units are up for resale.
"The developers should have known this was coming," Cooper said. "They knew they were selling to people who wouldn't occupy these units. They should have looked at these people's finances. They put a blind eye, took their deposits and didn't care what happened from then."
Law Offices of Eric L. Bronfeld, P.A.
PO Box 22506
Fort Lauderdale, Florida 33335
954-527-1512(South Florida Area)
1-877-527-1512 (Toll Free outside South Florida)
info@go2closing.com
http://www.go2closing.com/

The Miami Condo crash. Deposit Recovery Services can help.

The champagne-popping days are over for Natalie and David Luongo, who banked enough money flipping a South Florida condo three years ago to stage a $100,000 wedding.Now the couple are spending restless nights wrestling with the question that looms like a guillotine: Should they walk away from the $117,000 deposit they plunked down on another investment condo in the ritzy Miami-Dade enclave of Bal Harbour?Or should they close on the one-bedroom unit, which is similar to others now on the market for less than the $585,000 they agreed to pay?
"It's painful and scary," Natalie Luongo, 31, said. "We saw the frenzy, and we bought in. Now we're paying the consequences."Just how many other speculators face the same dilemma in the nation's most glutted condo market will become clear during the next two years. That is when 25,000 new condo units, most of them rising in or near Miami's downtown, will flood an area already saturated with 23,000 condos listed for sale. An additional 40,000 units have been approved, but analysts doubt the majority will break ground.Orlando and other Florida cities -- Naples, Fort Myers, Tampa and Sarasota among them -- also have huge condo gluts. With 4,440 condos listed for sale, Orlando has an unprecedented 29-month supply, and last month sales plummeted 64 percent lower than a year ago.But Miami, with its unmatched volume and untold number of speculative buyers, is ripe for the hardest fall in the U.S."Miami is the poster child for the condo bust," said Jack McCabe, CEO of McCabe Research & Consulting, a real-estate market-analysis firm located in Deerfield Beach. "There are probably only two cities in the world with more construction: Shanghai and Dubai. Unfortunately, there is going to be a lot of foreclosures . . ., and developers, lenders, title companies and real-estate companies will go under."Many analysts, McCabe among them, predict the area's condo collapse will drag the rest of the state into recession. Other experts scoff at that notion. But nearly all agree grim times lie ahead.Usually joyous milestones, closings in Miami are about to become somber days of reckoning for electricians, waiters, retirees and other amateur speculators who counted on making a quick killing in a market they thought would rise forever.No one knows how many units speculators bought. But as early as 2004, McCabe and Lew Goodkin of Miami-based Goodkin Consulting warned that up to 70 percent of the condos rising in Miami were being snapped up by people who didn't plan to hold on to them, much less live in them.That was evident from the hordes who camped overnight, fought over lottery numbers, even paid homeless men $20 and a pack of cigarettes to hold their places in long lines, all for the chance to put 20 percent deposits on condos that existed only in brochures. The frenzy for some projects was so fevered that some developers raised their prices hourly."It was a nightmare. Lines around the corner. People screaming into phones. I would look at them, and think, 'You don't know what you're doing,' " said Mark Zilbert, president of Zilbert Realty Group.Many told a similar story: They had a friend who made $100,000 flipping a new condo, and they planned to ride the same wave of escalating prices. All they had to do was put down $60,000 on a $300,000 pre-construction unit and resell it when the value climbed to $400,000 -- before the building opened, and before closing and mortgage payments, maintenance fees, insurance and taxes kicked in.That meant anyone could risk $60,000 and pocket $100,000 without actually buying anything.Some investors were experienced players like Barry Beschel of Aventura. After the dot-com stock-market crash in 2000, he said he had no trouble persuading his buddies to park their money in Miami's sizzling condo market."All my guys in New York were like, 'Yeah, flipping condos in Miami.' It was a sexy commodity, and it was fun to make money," Beschel said.It was also easy. Beschel, 50, said his group followed well-known developers such as The Related Group's Jorge Perez to their next project. The king of Florida's condo market, Perez has built or manages more than 55,000 units in the state and is building at least nine new towers in Miami as well as a 441-unit, luxury condo hotel in Celebration.From 2001 to 2005, Beschel said his group bought about 50 pre-construction condos, sometimes 10 or 12 at a time. They would pay about $300 a square foot and, once the building sold out, return the condos to the developer, who would resell them at $350 a square foot. The difference between the original contract price and the new one -- $100,000 on a 2,000-square-foot unit -- would go to Beschel's group, minus a commission."The developer would take his commission, and we'd take our profit and everybody was happy. When the market was cranking, it was a brilliant business model," Beschel said.
DepositRecoveryServices.com can work to help recover lost deposits and protect individuals who have bad been sucked in by the allure of "easy money" in the condo preconstruction boom in South Florida and around the country.
But beginning in 2006, Goodkin said, it became clear the market was saturated. Speculators, at least the wise ones, had fled. Buyers stopped walking through the sales-office door. Some developers halted resale programs to concentrate on their own inventory.And whoever held a contract was stuck -- with prices at their peak. Now, foreclosure filings are up by 30 percent in greater Miami over last year.For Beschel, whose group still holds contracts on two condos with falling values and looming closing dates, financial ruin isn't a worry. He figures his group made "a few million dollars," so walking away from two $100,000 deposits is no big deal.But for untold others, such as the Luongos, losses could be devastating. Owners of a gourmet shop, the transplanted New Yorkers poured their life savings into deposits on four condos they had planned to flip for a quick profit.The plan worked for a one-bedroom condo conversion at The Residence in Hollywood. They agreed to buy it in 2004 for $207,000 and sold it before closing for $330,000.But they were forced to close on a condo in Boynton Beach, where they now live, and they face the prospect of losing nearly $200,000 they put down on two condo conversions at the Harbour House in north Miami-Dade County. One is a $350,900 studio, which Natalie Luongo said is smaller and in a different location than the one she agreed to buy in December 2005. It is the subject of litigation.The other is a $585,000 one-bedroom unit similar to others now available for about 25 percent less. As the September closing looms, the Luongos are distraught. If they can't secure another mortgage, the decision will be made for them. They will have to walk away from their $117,000 deposit.But if they secure financing, they know they will be stuck with a property that could be as difficult to rent as it is to sell.Gregg and Mary Mullins, 70-year-old retirees living near Fort Myers, learned that the hard way.Last month, they finally rented out the two-story $885,500 penthouse they closed on last year in Blue, a concave tower overlooking Biscayne Bay. But the $2,800-a-month rent they're collecting is less than half their monthly mortgage payment, maintenance fees and property taxes. Yet, as Mary Mullins said, something is better than nothing.The couple never planned to live in the condo, but jumped at buying it at pre-construction prices in 2004 after friends shared a familiar story."They said they made lots of money, so they told us to try it and maybe we could make lots of money, too," Mary Mullins said. "But that didn't happen. We don't know what happened."A sheepish Tom Leon says he knows. deposit recovery sevrvices .com, Broward and Miami-Dade county florida. Condo and preconstruction deposits.The retired businessman from Illinois said he knew he had made a mistake about six months after he put down $200,000 on two $500,000 condos at the end of 2004."Every 2 inches, I'd see another [construction] crane, and I knew: There is no market that can absorb these many units," said Leon, 72. "It doesn't take a rocket scientist to say, 'Gee, who's going to live in all these buildings?' "


Law Offices of Eric L. Bronfeld, P.A.
PO Box 22506
Fort Lauderdale, Florida 33335
954-527-1512(South Florida Area)
1-877-527-1512 (Toll Free outside South Florida)
info@go2closing.com
http://www.go2closing.com/
http://www.rupee.us