As Market Cools....

As Market Cools, Home Buyers Seek a Way Out

Builders Face Lawsuits, A Rash of Complaints; The $266,000 Refund

By MICHAEL CORKERY and RUTH SIMON

The Wall Street Journal May 4, 2007

In the latest fallout from the housing market's decline, disputes are breaking out between builders and buyers who signed contracts for new homes and condos when the market was hot -- and now want to get out of them.

Even as many of the new buildings are completed, buyers are filing lawsuits claiming they were duped into purchases they couldn't afford, or victimized through fraudulent investment schemes. Some are scrutinizing their contracts looking for loopholes, or searching out tiny flaws in finished homes that might allow them to back out without losing their deposits.

For some builders, the disputes are contributing to cancellation rates as high as 30% and writedowns in some markets. "People will go to great lengths to get out of a legally binding transaction," said Larry Sorsby, chief financial officer of Hovnanian Enterprises Inc. "They were willing to ride the real-estate boom on the way up, but some are not willing to ride it on the way down."

Newly constructed homes make up only about 15% of total home sales. But a wave of building helped fuel the run-up in housing prices during the real-estate boom, especially in Florida and California. As the marketstarted turning last year, prices on new homes and condos quickly stalled, then began dropping. That gave skittish buyers time to get cold feet.

Florida, a magnet for housing speculators in the boom, is ground zero for such disputes. The state long has been a boon to housing attorneys, some of whom are now filing lawsuits against developers.

One lawyer recently took out an ad in a Palm Beach newspaper reading: "Do you want your money back? Your contract for purchase of a new house or condominium may be illegal...To see if you are entitled to a refund, call us for a free consultation."

Typically, buyers of new homes and condos put down a cash deposit when they decide to buy, then pay the balance when the home closes and is ready to occupy. But condo buyers, in particular, have a lot to lose by walking away from their contracts because their deposits can total as high as 20% -- and some buy multiple units.

Consequently, some condo buyers are aggressively seeking ways to back out, said Brad Hunter, director of the South Florida region for Metrostudy, a residential real-estate market research firm. He expects more to do so in the next year as projects sold during the boom become ready for occupancy.

"If they can find some way in which the developer has not delivered according to the contract, they're using that as a way to get out," he said.

Dennis Freeman, an attorney in Aventura, Fla., said he is representing a family who bought a roughly $1.6 million condo in a waterfront high rise, expecting a private entrance. But, he said, the family has now learned that the door to the garbage chute, which is shared with neighbors, cannot be locked. "The privacy of my client's apartment has been lost," said Mr.
Freeman. He is suing to rescind the contract.

Mr. Freeman recently settled another case in which the developer agreed to return a $266,000 deposit to a condo buyer who claimed that the size of the pool deck and gym were smaller than the developer promised. Mr. Freeman said he was surprised by the settlement. "To me, it's a reach," he said.

Other disputes are more heated. Red Bank, N.J.-based Hovnanian, one of the largest builders in the U.S., currently is embroiled in one such dispute with buyers in Florida.

One of those buyers, Daphne Sewell, received three construction loans, totaling about $750,000, to buy three houses in Cape Coral and Lehigh Acres, Fla., in May 2005.

An administrative assistant in Broward County government, Ms. Sewell said she and her husband, a carpenter, earned $90,000 a year at the time of the deal and never should have qualified for their mortgages. She also claims a real-estate firm involved in the deal promised that it would find them tenants to rent out the houses. But the renters never materialized, her
houses are vacant, and two of her loans are in foreclosure.

"If I close on them I deplete my savings in two or three months," said Ms. Sewell. "It's worth the fight."

After she was served with foreclosure lawsuits by the lender, she filed a countersuit, which names the builder, First Home Builders of Florida, the lender and a real-estate firm that she alleges promoted the deal, claiming she was defrauded by an investment scheme that promised minimal risk. A lawyer for First Home Builders said his client denies any wrongdoing.

Hovnanian, which bought the assets and contracts to build homes from First Home Builders in August 2005, said it has not been served by Ms. Sewell's
lawsuit and that she took out her construction loans before Hovnanian bought
out the assets of First Home Builders.

Still, complaints like Ms. Sewell's are causing a major headache for the company, which says it is trying to help buyers close on the homes by lowering prices by as much as $100,000 while fending off allegations of fraud. Hovnanian took a charge of $175 million in over the fourth and first quarters related to the Fort Myers market, partly because it had to lower prices on the First Home Builders homes.

Mr. Sorsby, the chief financial officer, said many of these complaints are from regretful buyers trying to take advantage of a public backlash against the housing industry amid the subprime mortgage meltdown. "They are going to great lengths to paint somebody other than themselves the bad guy," Mr. Sorsby said.

In Alexandria, Va., real-estate attorney Beau Brincefield said he has settled roughly 50 contract disputes and has another "50 or more" in the pipeline. They include a case brought last year by more than a dozen buyers who had contracts to purchase homes from NVR Inc., a Reston, Va., builder that sells homes in 13 states.

Mr. Brincefield said the terms of that settlement are confidential. In general, he said, builders have agreed to lower purchase prices by as much as 35% or refund 25% to 100% of a would-be buyer's deposit. NVR declined to comment.

Mr. Brincefield said that in many of the contracts he's seen, "the remedies are very one-sided." These contracts allow the builder to retain the borrower's deposit or sue for damages if the buyer cancels, he said, but only allow buyers to get their deposits back if the builder doesn't meet its
obligations. In some cases, he said, builders may have violated the Interstate Land Sales Full Disclosure Act, which requires them to make certain disclosures and meet other requirements.

Some developers are not backing down. Ceebraid-Signal, a West Palm Beach developer of condominiums and condo-hotels across Florida, and its affiliated development entities are suing about 30 buyers who are trying to cancel their contracts. Ceebraid-Signal said it is citing a "specific performance" provision in its contracts requiring buyers to hold up their end of the deal and close.

"That's called chutzpah," said Marvin Moss, a lawyer in Aventura, Fla. He represents a client who did not want to close on a $375,000 condo because real-estate values had fallen dramatically since she put down her 10% deposit, from which she was willing to walk away, he said.

"This is to frighten people and force them to close," said Mr. Moss. "It costs a lot of money in legal fees to defend these actions." A couple of buyers hit with such lawsuits have backed down and gone through with the sale.

Said Richard Schlesinger, managing director of Ceebraid-Signal: "I don't think there is anything that we are doing that is inappropriate." "These are not situations where a woman bought a unit and she's now a widow and can't pay," he said. "These are people who don't want to close because they can't flip and make $100,000."

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Article by Jason Garcia, The Orlando Sentinel May 21, 2007


TALLAHASSEE - Local governments across Florida are spending millions of dollars lobbying the Florida Legislature this year as they battle efforts by lawmakers to slash billions of dollars in property taxes.

An Orlando Sentinel review of recent state records shows that during the first three months of this year, Florida cities, counties and school boards spent at least $1.7 million and perhaps as much as $4.3 million on lobbyists hired to influence the Legislature. Separate government districts and local government associations spent hundreds of thousands of dollars more.

Nearly three dozen Central Florida governments were among those pouring money into the lawmaking process, from Orange County and Orlando to Eatonville and Mount Dora.

The money paid for an elite roster of lobbyists that includes former lawmakers, governor's office aides and other insiders, many of whom were intimately involved in the property-tax fight that consumed the Legislature during its 60-day regular session this spring.

Lawmakers were unable to agree on property-tax changes and have been forced to schedule a special session beginning June 12 to tackle the issue again.

Critics call the lobbying efforts a perfect example of overspending by cities and counties that experienced a property-tax windfall during the state's recent real-estate boom.

"The fact is that all of these cities and counties -- for the most part -- have bloated budgets, and they've been spending taxpayer money over the last five years like drunken sailors," said Jose Cancela, co-chairman of the anti-tax group Floridians for Property Tax Reform.

Cities and counties, however, say lobbying is a necessary investment -- and that it isn't just about fighting property-tax cuts.

They say lobbyists help them compete for millions of dollars in state grants handed out for everything from sewer lines to road construction, as well as monitor the thousands of bills legislators debate every year, many of which have significant impacts on local governments.

"It's money well-spent," said Volusia County Chairman Frank Bruno, whose government spent from $50,000 to $70,000 on lobbyists in three months.

"Lobbyists are very important to keep us informed as to what the Legislature is doing. It also enables the Legislature to have our input," Bruno added. "Those folks up there cannot be operating in a vacuum."

Year-old disclosure law

The records released last week were made available under a year-old state law requiring Tallahassee's more than 2,000 lobbyists to disclose details about their fees. The reports must list each client who hires a lobbying firm and how much it paid. But the range is so wide -- from $1.7 million to $4.3 million -- because fees are reported in broad ranges rather than exact figures.

The first wave of reports covers Jan. 1 through March 31, or about halfway through the 60-day legislative session. They cover only contract lobbyists, not in-house lobbyists who are employed directly by a business or a government.

As they were a year ago, utilities such as cable, power and phone companies were among the heaviest spenders in the $20 million to $48 million of legislative lobbying expenses that were reported.

Records show that BellSouth, for instance, spent $800,000 to $1.1 million lobbying the Legislature. It and other telecom giants were battling cable companies for a measure designed to help phone companies break into the cable business. The Legislature approved the bill, and Gov. Charlie Crist signed it last week.

But the amount spent on lobbyists by local government is drawing particular attention in light of the property-tax debate.

The Sentinel's review focused on cities, counties and school boards, as well as related countywide agencies, such as sheriffs' and court clerks' offices. It did not include other local governments, such as hospital districts or airport authorities, or groups such as the Florida Association of Counties and the Florida League of Cities.

South Florida governments were the biggest spenders. Miami spent from $148,000 to $168,000 on more than a dozen lobbyists. Miami-Dade County spent at least $92,000 and as much as $122,000.

But Central Florida communities also paid handsomely for access in Tallahassee. Orange County Sheriff Kevin Beary's office spent from $30,000 to $40,000 on lobbyists. Winter Garden paid from $20,000 to $40,000.

Orlando spent from $10,000 to $40,000, while Orange County spent from $10,000 to $30,000. And nearly a dozen Central Florida governments spent from $10,000 to $20,000.

Is 'diet' needed?

For critics of local government spending, the lobbying expenses offer easy fodder.

"I think it's clear that, as tax reform does take place, [is] what they can cut first," said Senate Finance and Tax Chairman Mike Haridopolos, R-Melbourne, who has repeatedly said cities and counties need to be put on a "diet."

Still, local officials say that lobbyist spending, as ripe a target as it might be, is a crucial expense.

It's especially important now as lawmakers weigh property-tax plans that could slash billions of dollars from local government tax rolls, Orange County Mayor Rich Crotty said.

Crotty has warned that Orange County could lose as much as $150 million under some of the plans being considered in the Capitol, jeopardizing a host of local services and projects, including a $530 million plan to build roads, buy environmentally sensitive land and pave sidewalks.

"This session is the greatest example of why" local governments need lobbyists, said Crotty, a former state legislator. "If you're from Miami or Fort Lauderdale or Palm Beach or Orlando, you've got to have those eyes and ears there at all times."


Jason Garcia can be reached at jrgarcia@orlandosentinel.com or 850-222-5564.

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Do we really care about our money?

Do we really care about where our tax money goes?

I have found this article by Michael Mayo, from the Sun Sentinel to be very illustrative about why the tax reduction talk might mostly end up in…talk. Budgets have grown so fat that, unless citizens’ action occurs promptly, cities and counties will strongly resist before allowing any tax reduction.

If a politician engineers an outrageous pay raise, it doesn't take long for citizens to snap to attention.

Funny, then, how the bigger, more outrageous things can slide along more subtly.

Such is the story in Hallandale Beach, where Vice Mayor Bill Julian's rescinded attempt to boost city commissioners' salaries from $20,500 to $75,000 triggered angry howls and brought camera-toting media hordes to City Hall last week.

"I feel like a leper. I'm public enemy No. 1," Julian said Monday. "I would have been better off getting an intern pregnant."

It's easy to go off on Julian, because he still doesn't get it. One minute he's apologizing for his "dumb" and "stupid" maneuvers, the next he's unapologetically detailing plans to push for a smaller raise, "maybe $6,000-8,000," in upcoming budget hearings.

But where's the outrage that the city's budget has gone from $68 million to $93 million in the past two years, a 36 percent increase?

Where's the outrage that the city has seen its cash reserves dwindle from $52.6 million in 2005 to a projected $30.3 million at the end of this budget year?

Where's the outrage that the current budget includes a discretionary $2.1 million fund for the city manager to hire outside consultants and additional personnel?

With one dunderheaded move, Julian has become the symbol for all that's wrong with municipal government: the bloat, the sense of entitlement, the sneaky tactics to bypass the public.

Julian brought up the proposal at an unrecorded lunch planning session last Wednesday, and it passed 3-2. But it didn't hold up to the light of day. On Friday, the commission unanimously rescinded the raise.

"Ethically, it was on the border," Julian said. "I didn't give the public a chance to give their input, and that's not right. I know it's not our money, it's the people's money. ... The way I did it gives the perception of deception."

He also did it at the worst possible time, with the Legislature poised to chop property taxes and local governments carping about the havoc it will wreak on essential services.

For all the heated reaction to the raises, the bigger issues behind spiraling city budgets often get lost.

One, involving future worker pension benefits, has been quietly playing out the past 19 months. Hallandale Beach has some 250 unionized city workers who haven't had a pay raise since October 2005, when their contract lapsed.

They are caught in the crossfire of a bigger battle with national implications. It's one that cities have to win for a semblance of budget sanity.

The city wants to change workers' pensions from a traditional "defined benefit" fixed pension to a riskier "defined contribution" 401K-type plan that most private sector firms now offer.

Representatives of AFSCME, the American Federation of State, County and Municipal Employees, are resisting.

"This is the future," said Assistant City Manager Mark Antonio.

But in the future, Julian's chutzpah is what people all over South Florida will remember, even if the scuttled raises amount to a drop in the fiscal bucket. I asked if he thought voters would forget by the time of his next election, in 2011.

"I think people should forget by the end of the month," Julian said. "What do they want to do, flog me on the City Hall steps? This is the first mistake I've made in six years. It's a big one. But at least I'm big enough to admit I did wrong."

Julian, a former thoroughbred trainer, was re-elected to a four-year term in March. He received 942 votes in a city of 18,442 registered voters. The city has about 35,000 residents.

"The apathy is unbelievable," Julian said. He said the commission switched from day to night meetings to accommodate the public, and "we still only get like three people in the audience."

No wonder these people feel they have a license to steal.

Michael Mayo's column runs Tuesday, Thursday and Sunday. Read him every weekday online at Sun-Sentinel.com/mayoblog. Reach him at mmayo@sun-sentinel.com or 954-356-4508.

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While Legislature fiddles around...

While State Legislature fiddles around, Floridians burn

People are starting to realize that easy promises won't necessarily be as easily fulfilled.

While State Legislature fiddles around, Floridians burn

Published May 6, 2007

TALLAHASSEE · Lower property taxes are on the way.

How do I know this? Because somebody hung a big sign in front of the lectern where our state's illustrious leaders spoke after the Legislature wrapped its regular session Friday afternoon.

The sign said: "Lower Property Taxes Are On The Way."

The sign also had a big arrow on it, pointing down, just to show how serious they were.

Beautiful. So now we know what became of the people who made the "Mission Accomplished" banner.

After the leaders congratulated themselves for a "phenomenal" session in which they did nothing about property taxes, they pledged to do something about property taxes very soon, at the special session June 12-22.

Then off they went to Happy Hour, backslapping and smiling all the way.

This didn't impress some people back home.

"All they do is talk," said Dolores Parachini, of Boca Raton. "There's no action."

"Last year they said they were funding a study," said Jim Demarest, a real estate agent from Fort Lauderdale. "I figured, OK, take your time, then come back and make something work. But now they've come back and said we need more time? Fool me once, shame on you. Fool me twice, shame on me."

The Legislature's performance gets them the silver medal in the Dunderhead Politicians of the Week event. Gold medal goes to the Hallandale Beach City Commission, for sneakily voting themselves a more-than-triple pay raise, to $75,000, before rescinding the move on Friday.

In the overall scheme of things, an extra six weeks to fix a broken and unfair property tax system isn't unreasonable.

The problem is there's no guarantee legislators will come up with a solution.

The other problem is that Florida's property tax system is just one of many wobbly legs on a teetering economic table.

The property insurance system that the Legislature allegedly fixed at a special session in January remains a mess, with homeowners still getting socked with big increases and cancellations.

Throw in higher rates for our dwindling water supply, higher gas prices and now possibly higher tuition rates at state colleges, and you've got a middle class on the brink of financial ruin.

"I came to Florida my whole life on vacation, and I couldn't wait to move here," said Parachini, who moved from Nutley, N.J., to South Florida four years ago. "Now it's become a place for millionaires."

Parachini moved to a condo in Boca Raton two years ago. She's been trying to sell her place the last four months. She has had no offers.

"My insurance has doubled the last two years," she said. "In New Jersey, the taxes on my house were high [$7,000] but I only paid $700 a year in insurance. Now it's costing me more to live here, and I only have a small villa."

As real estate values soared in the last five years, the property tax system has walloped recent home buyers and those with commercial, rental and vacation properties. It has also chilled families and seniors from moving into bigger or smaller homes because of the tax consequences.

The Legislature has been exploring ways to revamp the system, including creating new exemptions, expanding caps on assessment increases to all property owners, rolling back the amount local governments can collect, allowing full-time residents to carry tax breaks with them when they move and increasing sales taxes to replace lost property taxes.

Demarest is frustrated that the politicians couldn't reach a compromise sooner.

"It's not like this is a topic that came up at the last minute," said Demarest.

Before the session, Gov. Charlie Crist promised that property taxes would "drop like a rock."

On Friday, Senate President Ken Pruitt held up a rock. "It says patience on it," Pruitt said.

If this doesn't get settled soon, the only thing dropping like a rock will be their poll numbers. And Floridians will keep voting with their feet, straight out of the state.

Michael Mayo's column runs Tuesday, Thursday and Sunday. Read him online every weekday at Sun-Sentinel.com/mayoblog. Reach him at mmayo@sun-sentinel.com or 954-356-4508.

Henry B. Nathan is a realtor in South Florida.

Please visit my website: http://www.condo-southflorida.com/resales_2.php?id=0
where you can use easy and efficient tools to search for Florida Real Estate, especially condos
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