Miami Condo and preconstruction lawsuits continue to grow against developers

ƒWith momentum building in the courts, your opportunity to break your condo contract is improving. But keep in mind, developers are lobbying hard in Tallahassee to have the laws changed. This will make it incredibly difficult to recover your deposit money and you may be forced to close. Please call us today for a free consultation.

With formerly strong condominium markets across the country in sharp decline, angry buyers are taking developers to court, alleging everything from breach of contract to Florida mortgage fraud.

Some of the lawsuits claim the amenities featured in glossy marketing brochures and model apartments never made it into the final product. Others involve much-hyped projects that went bust, leaving hundreds of buyers with contracts for condos that will never materialize.

In the Florida housing market, for example, 2,557 individual complaints against developers were filed in fiscal year 2006, which ended June 30, up from 1,825 two years ago, according to the state’s Department of Business and Professional Regulation.

Legal professionals say the increase in litigation isn’t surprising, given the furious pace of construction in the past few years, and that some suits may rely on dubious legal strategies.

Still, industry analysts say, the increase in litigation is shedding light on the problems facing many people who got caught up in the rush to buy during the recent run-up, particularly in the condo market. Real-estate professionals attribute this latest wave of legal actions to the recent surge in preconstruction purchases.

HIGH-END HASSLES

Another new wrinkle is the number of high-end buildings involved in court actions - a rarity in the past, industry analysts say.

”You’ve got buyers out there who paid one and two million dollars or more for a [Florida condominium] and are now dealing with everyday construction defects,” says Ross Feinberg, a California attorney who specializes in construction litigation.

The rise in litigation comes as the market for condos is slumping. Nationwide, sales of existing condos and cooperatives fell 16 percent in September compared with the same period a year earlier, according to the National Association of Realtors.

Sales of existing condominiums in the Miami housing market fell 45 percent in September compared with the same 2005 period, the Florida Association of Realtors says.

”Right now, the condo market is a disaster,” says Lewis Goodkin, a Miami economist and real-estate analyst. The crash in some areas was inevitable, he adds. “These markets were essentially propped up by speculators.”

Investors accounted for as much as 80 percent of the preconstruction purchases of luxury condos in Miami, according to a 2004 study by Esslinger-Wooten-Maxwell Realtors.

Dried-up demand and rising construction costs have forced many developers and home builders to stall or cancel projects. And as the number of scrapped projects increases, so too do the complaints. In Florida, many condo suits involve delayed, canceled or recently completed projects in the southern part of the state.

Maritza Pena, a 33-year-old attorney in Miami, says she was surprised when she got a letter in February advising her that the development where she had agreed to purchase a two-bedroom apartment in 2004 for $579,980 had been canceled. The developers of the proposed 49-story tower near Miami’s Brickell Avenue had only seven months earlier hosted a cocktail party to celebrate the condominium’s groundbreaking.

”They never hinted that something was wrong,” said Pena, a first-time home buyer. ”When I read the letter, it felt like I got punched in the stomach.”

Pena says the two-story unit she agreed to purchase on the 42nd floor was to have stainless-steel kitchen appliances, a marble bathtub and views of Biscayne Bay.

So she joined 58 fellow buyers who filed a lawsuit in April against the developer, South Bayshore Tower, in Miami-Dade Circuit Court, claiming breach of contract. The lawsuit seeks the gain they would have realized if the condos had been built plus the unconditional return of deposits with interest.

DEVELOPER’S STANCE

Lee Stapleton Milford, an attorney representing the developer, says it denies all of the claims cited in the lawsuit and says hurricane-related delays and rising construction costs led to the cancellation of the project, called 1390 Brickell Bay.

Some experts say the Florida mortgage loan cases may be tough to prove.

Indeed, two of the three original claims in the lawsuit have been dismissed or withdrawn. Moreover, as required in the purchasing agreement in the event that the project was canceled, the company has already returned buyers’ deposits, in most cases 20 percent of the purchase price, with interest, according to Milford. The plaintiffs may also find it difficult proving future financial losses, because the condo wasn’t built.

”The court looks for hard-and-fast evidence that you were harmed,” says Georgette Chapman Phillips, chair of the real-estate department at the Wharton School of the University of Pennsylvania. “Lost profits are always hard to prove because they are speculative.”

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)
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Florida Condo and Preconstruction Laws set to change. Act now for Deposit Recovery

Two bills floating around Tallahassee could make it more difficult for condominium investors to back out of contracts with developers, a process builders say has been a big contributor to increased construction costs.
Legislators are working to put together compromise language from Senate Bill 396 and House Bill 7031, which initially focused on lower insurance rates for condominium complexes and expanded to deal with the increasing number of contracts terminated by buyers.
But it’s not all about protecting developers, said State Rep. Kevin Ambler, R-Lutz, who is sponsoring the House bill.
“We’re being pretty tough on them,” Ambler said of the developers. “We want to make sure they are not using the changes to the insurance law [made last January] as a means for them to escape their responsibilities to finish out their obligation.”
More protection from storms
The bills, in their current form, could help lower insurance rates for condominium communities by allowing homeowner associations to pool with other associations across the state to spread out risk, instead of simply taking into account the one area in which a complex is located. The legislation also requires complex owners to provide Florida mortgage holders with reports that include improvements not yet completed.
----continued below-------------
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

With that, developers won’t be able to make agreements with buyers based on planned improvements, but at the same time, buyers won’t be able to take guarantees made by developers and use them later as loopholes out of sales agreements.
“If the developer makes a good faith estimate on his budget, and there are changes in that amount resulting from insurance costs or other costs, then that wouldn’t constitute a material and adverse change any longer,” said Robert S. Freedman, a shareholder with Carlton Fields in Tampa. “That’s what buyers have been using to get out of their contracts. By having this, it will help the business community, it will help [Florida mortgage lenders], and it will help with construction costs.”
No hard numbers are available, but the change in the Florida real estate market has left many investors holding the bag with condo units they were hoping to flip.
Many developers tried to limit investor purchases of units, but that hasn’t stopped them from being a large part of the market, said Joseph Narkiewicz, executive VP of the Tampa Bay Builders Association.
“Builders have tried to limit the number of units that are sold to investors because a high number of investor-purchased units can wreak havoc on their sales programs,” Narkiewicz said. “They tried to prevent investors from flipping units and competing with homebuyers for those same units, which ended up driving up the cost of housing. If there are mechanisms that can help alleviate that problem, that could be helpful.”
Keeping everyone accountable
A compromise bill could be on the governor’s desk before the end of May in time for hurricane season, Ambler said. While the bills could protect developers overall, the main issue remains an insurance one, the legislator said.
“Developers are making the argument, ‘Yes, we made all these representations and guarantees, and we sold you your home and your unit,’” Ambler said. “‘We didn’t foresee a total destruction of your home from a hurricane, so you can’t hold us accountable.’ Hurricanes were a very real risk when you made that prospectus, but that unforeseen increase from a storm does not count as a material change to the offering circular.”
The bill is all about keeping Florida home mortgage loan contracts, said Ken Stoltenberg, director for Mercury Advisors, which is building two condominium projects in Tampa’s Channelside District.
“It’s just to a point that if a contract isn’t a contract, then people tend not to build things,” he said.
“This is a significant change for Florida’s condominium development because, up until this point, there really was no check and balance for what a purchaser should reasonably expect when he signed his contract,” said Carlton Fields’ Freedman. “This will help to ensure that the developer acts in a good-faith manner.
The time to act is NOW, Please contact us for a free consultation.

Wealthy condo buyers eager to get out of pre-construction contracts
Judge: Pre-construction contracts binding if you can pay
Wealthy condo buyers eager to get out of pre-construction contracts signed during the recent real estate frenzy, were dealt a blow this month by a Palm Beach County judge.
BY ALEXANDRA CLOUGH - Palm Beach Post
ot apply the new law to the D&T case because the purchase contract was signed before the laTrying to back out of a pre-construction purchase on a condo? If you're rich, forget it. If you have money troubles, it might be easier.
That's the finding of a Palm Beach County judge. Earlier this month Judge Jonathan Gerber ruled that D&T Properties could not back out of a contract to buy a $495,000 unit at Marina Grande, a $200 million waterfront condominium in Riviera Beach, based on higher-than-expected maintenance costs.
In short, Gerber concluded, the buyer could afford it.
The ruling is important because condo buyers throughout South Florida are eager to get out of pre-construction contracts signed during the recent real estate frenzy. Now that the market has turned and the flippers market has died, many buyers are trying to undo their deals based on even minor changes to a project by a developer.
Nowhere in Palm Beach County is this battle raging more hotly than at Marina Grande. During the past year, more than two dozen lawsuits have been filed by buyers wanting out of pre-construction contracts for more than 30 units. Buyers claim in lawsuits that Marina Grande Ltd., a developer associated with Deerfield Beach's Boca Developers, changed the terms of the deal, giving them a possible escape clause. D&T's 2006 lawsuit was the first of these cases to go to trial in May.
AMBIGUOUS LAW
In its lawsuit, D&T, a partnership of two investors, objected to a proposed 30 percent increase in Marina Grande's maintenance fees. D&T said the increase triggered a Florida law allowing D&T to undo its 2005 pre-construction contract. Under Florida law, buyers can void purchase contracts if developers make changes a buyer considers ``material and adverse.''
Unfortunately, the law is vague about what ''material and adverse'' means, creating confusion among buyers and developers. In his July 6 ruling, Gerber for the first time sought to clarify the law when it comes to examining changes in a condo's proposed budget -- a big issue for buyers facing sky-high insurance increases.
Gerber wrote that a budget change is adverse only if a buyer cannot afford the proposed cost increases, based on that buyer's specific financial condition. If a buyer shows evidence the rise in costs ''outweigh the buyer's financial capabilities . . . the buyer should be able to void the agreement,'' he wrote.
Marina Grande attorney Manuel Garcia said he was pleased with the ruling, saying it was right to consider a buyer's individual circumstances. ''We think the conclusion is correct,'' said Garcia, of Fort Lauderdale.
But D&T lawyer Gary Nagle said Gerber's financial litmus test will create an unequal playing field.
''If you're a well-to-do buyer, you won't get out of this contract,'' said Nagle of Juno Beach. ``But if you're a marginal buyer with minimal financial resources, you can get out of that deal. We're going to appeal.''

NON-BINDING RULING
Gerber's ruling is not binding on dozens of other cases now in the works because the ruling does not come from an appeals court, said Charles W. Edgar III, a Palm Beach Gardens real estate lawyer not involved in this case.
But it is the first time a judge has tried to define the law's meaning, he said. ''It's not precedent, but it is a predictor of where other judges would go,'' Edgar said.
Although ruling for Marina Grande, Gerber rejected several arguments by the developer.
Gerber said he was not moved by Marina Grande's assertion that D&T was reneging simply because the flippers' market had died.
Gerber also would not toss the D&T lawsuit based on a recent change in the law. In May, Gov. Charlie Crist signed a bill that specifies that budget cost increases are not considered ``materially adverse.'' Gerber said he would not apply the new law to the D&T case because the purchase contract was signed before the law took effect.