The Miami Herald
November 11, 2006
Angry Condo Buyers Take Developers To Court
Angry condo buyers are taking developers to court over promises made during a strong real estate market
By Troy McMullen, The Wall Street Journal
With once-hot condominium markets across the country in sharp decline, angry buyers are taking developers to court, alleging everything from breach of contract to 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 Florida, 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.
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 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 Miami 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 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.
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 case may be tough to prove. Indeed, two of the three original claims in the lawsuit have been dismissed or withdrawn. And, 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."