I tend to be more sympathetic to real estate buyers than to developers.
However, this ruling bothers me. A buyer of a property in the pre-construction phase tries to get off the deal once the market has not met his profit expectations. Much alike a speculator in the stock market could try to invalidate a transaction a month after he has given an order to buy and the market didn't go his way.
Despite many developers' abuses and non-compliance of promises made when enticing a buyer to put his money in a real estate project, I cannot side with the buyer/investor in this case. Respectfully dissenting, I believe that the non-compliance of a detail that did not negatively affect a party, should not be a reason to favor the other party. But I am not a lawyer and this is just my opinion.
Read on: (from Daily Business Review - April 15, 2010 )
Ruling could open door for buyers to recoup deposits
Miami attorney Alexander Lian may have come up with an innovative strategy to help people recover pre-construction deposits they gave condo developers during the housing boom.
Lawsuits have blossomed since the real estate market collapsed in 2007 as would-be condo buyers go after developers to recover their deposits — often as much as 20 percent of the purchase price. The results of those suits have been mixed, with some rulings favoring developers and others favoring buyers. Lian argued that developer Swire Pacific Holdings and title company Lawyers Title Insurance failed to create two separate escrow accounts when his client deposited $232,000, or 20 percent of the $1.16 million purchase price, in 2004 to reserve a unit at the then-proposed Asia on Brickell Key.
Lian, with Lian & Associates in Miami, cited Florida Statute 718.202, which says a developer must set up a pair of escrow accounts if the deposit exceeds 10 percent of the purchase price. If that doesn’t happen, the buyer has the right to rescind the contract and recover the deposit. U.S. District Judge Cecilia Altonaga agreed with Lian in a 45-page opinion issued March 30.
‘TECHNICAL’ VIOLATION
When developers receive a 20 percent deposit, they are to put half of the money into a protected account and the other half into an account the developer can access to pay for construction, she said in her ruling. Swire failed to split Double AA International Investment Group’s deposit between two accounts, Lian said. In early 2009, Double AA demanded that the contract be canceled. Swire and the title company ignored the request, Lian said. Altonaga rejected the Swire and Lawyers Title defense that the “violation was a technical one that should excuse them from liability,” according to the judge’s ruling.
The Ruling - Summary judgment
Swire and the title company argued that it is common practice for escrow agents to create one account and “then use bookkeeping entries to say what money belongs where,” Lian said. Gary Saul, a Greenberg Traurig lawyer in Miami who represented Swire, said his client declined to comment. Lawyers Title declined to comment, said Fort Lauderdale lawyer Philip Kantor, who represented the company. Kantor is with Quintairos PrietoWood & Boyer.
‘POWERFUL’ STRATEGY
This strategy “is very powerful,” Lian said. “It allows the buyer to rescind the entire contract and get all the money back plus interest.“ No money was missing from the escrow account, according to the lawsuit. Swire and Lawyers Title have until the end of the month to turn over $232,000 to Double AA or to appeal the ruling to the 11th U.S. Circuit. Since the ruling, lawyers specializing in deposit recovery have rushed to amend their pending lawsuits to add this claim, said Fort Lauderdale attorney Joseph Altschul. He has already amended more than 10 cases. Altonaga’s ruling applies only to cases where the buyers sued to cancel the purchase contract before backing out of the deal and being declared in default by the developer, Altschul said.
POSSIBLE APPEAL
If Altonaga’s ruling is appealed and upheld, numerous developers will have to return millions of dollars in deposits, even after they had already spent some of the money for construction of their buildings. Two sources who declined to be identified said Swire plans to appeal the ruling. Some experts predict the company will be successful. “I feel very strongly that it was a misinterpretation of the statute by the court and it will be overturned on appeal,” said Tony DiTocco, a former developer and now a real estate consultant for builders marketing new condos. DiTocco, president of DiTocco Consulting in Fort Lauderdale, interprets the law the same way Swire and Lawyers Title did: One account is sufficient if separate records are maintained. DiTocco is not involved with the case. “There is no purpose to be served” by keeping two accounts, he added. Hollywood attorney Gary Phillips, who represents condo developers including Miami’s Tibor Hollo, said Altonaga was correct in her ruling, but the law doesn’t make sense. “The judge is technically right, and most developers I know do have two escrow accounts,” Phillips said. “But I think it is a shame.”
LIMITED IMPACT?
If Swire and the title company lose the appeal, Altonaga’s ruling will gain the force of law and be a significant boost for buyers seeking to get out of condo deals. For now, however, her 45-page opinion isn’t binding on other judges who may see similar cases, Altschul said. “Right now, it is certainly what we would call persuasive authority but it is not binding authority,” he said. “It is not very often that you find a written opinion that goes through such detailed analysis,” Altschul said of the lengthy ruling. “It will be very difficult for a federal appeals court to overturn her conclusion on the merits.” Altschul, who represents several people seeking to recover condo deposits, is reviewing their developers’ escrow agreements to see if Lian’s strategy can be used. He said many of the agreements he has looked at don’t require two escrow accounts. “But that doesn’t mean that maybe they didn’t do it right,” Altschul said. If Altonaga’s ruling is appealed and upheld, numerous developers will have to return millions of dollars in deposits, even when they had already spent the portion that was allowed to go toward construction of their buildings.
Phillips expects to see a flood of deposit recovery cases tackling this issue. “I am sure will be see a flurry of discovery now requesting documentation on where the escrow monies were held and in what accounts,” he said. “Luckily my clients … all use separate escrow accounts.”
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