In recent years in Florida the condo market was going up faster than mushrooms. It quickly became the fastest growing investor market with the share of investors in a project getting to all-time dangerous 75% and up. At these numbers any change in the market could render these huge beautiful developments simply ghost places. Of, course, everyone was saying that this could not happen, as we know now, is sort of a prayer, not the reality.
So, when the market sent sour, the "buyers", who figured that not only they now would not be able to sell it for $100K+ more, but that they could not get even $10K, did not want to become the owners. In many of these developments, the investors put down a deposit, and then had 24 or more months before the completion of the construction. The change in the market came to them when the projects were still under construction.
When it came to closing, buyers/investors either could not close, as all their cash was spent on downpayments on multiple condo units, expecting an easy flip, or they simply did not see any sense in doing it due to change in the market conditions.
Some lost their deposits and walked away, some started fighting for their deposits trying to force the developers to refund the deposits. Courts got involved. The position of the developers was that buyers filed lawsuits to renege on contracts because the flippers' market has died. Buyers claimed that developers changed terms, did not disclose something, did not complete the construction on time, etc.
In South Florida last July the 4th District Court of Appeal ruled that a buyer cannot easily get out of a pre-construction contract on a Riviera Beach condo unit. With the 4th DCA ruling, "we're closing, one by one, the doors on all those flippers trying to speculate in the real estate market," said John H. Pelzer, a Fort Lauderdale attorney who represented the condo developer in this case. The attorney further noted that developers through the State will be using this ruling against buyers holding them liable for breaching pre-construction contracts they signed. "This decision is binding on all the trial courts in the state of Florida," Pelzer said.
In a unanimous decision the appellate court decided that a pre-construction buyer of Riviera Beach's Marina Grande condo could not cancel a contract because the developer was hiking the maintenance fee due to increase in utilities and insurance, and also the upgrade of the multimedia system. There is a buyer protection in Florida law that allows condo buyers to cancel the contracts and get back their deposits if the changes by developers are "material and adverse". Well, not all changes are, according to the appellate court.
This is a huge setback for those trying to avoid closings. I spoke to some buyers who were trying to get out of the contracts on Marina Grande on the Halifax here in Daytona area. They are also suing the developer. This lawsuit is not over yet, as I was told (the attorneys for plaintiffs did not respond to the e-mail). I understand that they are not happy losing about $100K. But if you go to a casino, lose $5K and then say you want your money back because your plan was to win, not lose, do you get back your money?
Don't you think that if they could flip it at time of closing, all these changes wold mean nothing? In the country where bailouts are rapidly becoming the norm, and are considered acceptable by the public, is this the only "No Bailout" ruling?
Jon Zolsky, your daytona beach, Florida connection