As I’ve posted here and here, it seems that new case law under the Interstate Land Sales Full Disclosure Act (ILSA) is being made in Florida courts on what might be a weekly basis, owing to the great surge of lawsuits brought by Florida condo purchasers looking to recover their preconstruction deposit money.  Those involved in this type of litigation — or who are wondering what to do about a condo purchase agreement which they signed years ago and for which they paid a hefty deposit — know that it is easy to think of many of these lawsuits as a sheer “numbers game” involving numbers such as these: the closing/default rates at various large projects; the tally of condominiums appearing on various lender “blacklists” published by the likes of BankUnited, Washington Mutual, Popular Mortgage, and others; and the numerical citations to the various sections of ILSA and the Florida condominium statute under which many of the legal rights of purchasers arise.

Taking a step back from the “numbers,” even just momentarily, however, can afford a broader and potentially insightful picture of the situation on the ground concerning Miami condos.  Realtor-guru Lucas Lechuga has a couple of posts up on his popular blog which are helpful in this respect.  One of Lechuga’s posts links to several video clips which ran recently on MSNBC and CNBC and really do a fanstastic job of conveying visually just how transformative of Miami’s skyline the late condo boom has been.  Watching the video really serves as a reminder that all that preconstruction deposit money has gone to truly expanding the shape of a city — even if many of those who put up the money will never close on the buildings which they helped to finance.   In another of his posts, Lechuga observes sharply that “The Miami condo market is not a local market . . . it is global,” and notes that those who are best positioned to take advantage of current Miami condo market conditions tend to be foreign buyers with large amounts of cash on hand who can take ready advantage of the weak dollar.   I agree wholeheartedly with this sentiment, but with the proviso that the Miami condo market has been a “global market” for quite some time.  In fact, many foreign buyers are also among the poorly positioned, as I can vouch from my experience that numerous foreign buyers can be counted among the hordes of individuals who paid deposits for South Florida condominiums before the market went into free-fall.  And in many of these cases, foreign buyers have effectively purchased for themselves a portion of American litigation insofar as they have joined in the numerous lawsuits seeking to obtain preconstruction deposit refunds from developers.

By Jared H. Beck, Esq.

This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.

Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation. A significant portion of Mr. Beck’s practice is devoted to issues arising under condominium and other real estate purchase agreements. He can be reached at 305-789-0072 or jared@beckandlee.com

A hat tip goes out to Tim O’Neill, who brought a brand new and crucial opinion interpreting the federal Interstate Land Sales Full Disclosure Act (ILSA) to my attention.  The case is Trotta v. Lighthouse Point Land Company, LLC, 2008 U.S. Dist. LEXIS 10559 (S.D. Fla. Feb. 2008), which was handed down less than two weeks ago by Judge Daniel Hurley in the Southern District of Florida.  The growing crowd of “ILSA buffs” — which these days includes many condo and home buyers looking for bases to rescind their purchase agreements, developers who are getting hit with lawsuits from such buyers, and the lawyers representing buyers and developers — should be aware of Trotta and read it closely.

In Trotta, the plaintiff was a condo buyer who sued to recover his deposit monies, after closing on the condo, for failure of the transaction to comply with ILSA.  Judge Hurley ultimately agreed with the buyer.  The reason: the condominium development contained between 25 and 100 units, but the purchase agreement failed to comply with the requirements of 15 section 1703(d).  For more information on why this is a basis to rescind a contract under ILSA, one needs to look at two earlier decisions — Pugliese v. Pukka Development, Inc., and Meridian Ventures, LLC v. One North Ocean, LLC — about which I have written previously, here and here.

There are some more intriguing aspects to the opinion than its result, however.  For one, the plaintiff tried to argue that the development actually contained more than 99 lots; had the plaintiff been successful, then the court could also have found an ILSA violation on the basis of the failure to register the condo with the U.S. Department of Housing and Urban Development and failure to provide a Property Report, in addition to the lack of complaince with section 1703.  But the Court disagreed with the buyer on this point.  While the buyer argued that the condominium contained 126 lots because it had 67 condo units plus 59 storage units, the Court found that “storage spaces are not lots within the meaning of . . . ILSA.”  As far as I am aware, Trotta is the first court to rule on this issue.

Second, the buyer tried to argue that the development contained more than 99 lots because units in two other developments should be combined as all three developments were “designed and marketed pursuant to a common promotional plan.”  Again, the Court sided with the developer, noting that the three developments in question “are on separate sites, maintained separate sales offices, conducted separate advertising campaigns, and filed separate Prospectuses with Florida regulatory authorities.”  Once again, the case law on what constitutes a “common promotional plan” for purposes of ILSA is sparse, so this language from Trotta will become important for courts faced with deciding the same issue in the future.

The third key aspect of Trotta is a clear victory for buyers.  In addition to his ILSA claim, the plaintiff brought a claim under a Florida state statute called the Florida Deceptive and Unfair Trade Practices Act, which is commonly known as “FDUTPA.”  With respect to the FDUTPA claim, Judge Hurley held that:

“A violation of any ‘law, statute, rule, or ordinance whch proscribes unfair methods of competition, or unfair, deceptive, or unconscionsable acts or practices’ is a per se violation of the FDUTPA.  Fla. Stat. § 501.203(3)(c).  Because ILSA generally proscribes certain unfair and deceptive trade practices . . . a violation of ILSA is a violation of the FDUTPA as well.” (emphasis added). 

The holding that a violation of ILSA is also a violation of FDUTPA has a very important implication.  As I have noted previously, the statute of limitations for certain claims under ILSA seeking rescission of a purchase agreement is 3 years running from the date the buyer signed the contract.  FDUTPA, however, has a longer statute of violations than ILSA – 4 years running from the date of the violation.  See, e.g., S. Motor Co. of Dade County v. Doktorczyk, 957 So. 2d 1215 (Fla. 3d DCA 2007).  Accordingly, the strongest impact of Trotta could be an effective one-year extension of the statute of limitations for ILSA claims brought under Florida purchase agreements, because such claims may also be pled as claims under FDUTPA.

As always, please stay tuned for more ILSA and Florida condo case law updates in the near future, and please continue to send me your comments, questions, ideas, and suggestions!  In addition, as loyal readers can probably tell, this blog has undergone a re-design.  As such, please scroll to the bottom of this page for the blog archives, top and past articles, blogroll and other outside links, and additional features.

By Jared H. Beck, Esq.

This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.

Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation. A significant portion of Mr. Beck’s practice is devoted to issues arising under condominium and other real estate purchase agreements. He can be reached at 305-789-0072 or jared@beckandlee.com

As predicted, the current condo litigation wave in Florida is continually adding to the stock of judicial opinions interpreting the Interstate Land Sales Full Disclosure Act, the primary federal law regulating sales of condominiums.  Here is a summary of the most important decisions:

Meridian Ventures, LLC v. One North Ocean, LLC, 2007 WL 4414816 (S.D. Fla. Dec. 14, 2007).  The significance of this opinion is that Judge Daniel Hurley of the Southern District of Florida fully endorsed the reasoning and result of an earlier Southern District of Florida opinion, Pugliese v. Pukka Development, Inc., 524 F. Supp. 2d 1370 (S.D. Fla. 2007), about which I wrote here.  The upshot of Pugliese, and now Meridian Ventures, is that condominiums travelling under the statutory exemption for developments with fewer than 100 units were not required to provide a property report to buyers or register the condominium with the U.S. Department of Housing and Urban Development (HUD), but were required to include very specific provisions regarding the buyer’s default and liquidated damages in the purchase agreements themselves.  As Judge Hurley wrote in Meridian Ventures, “The court is satisfied that the interpretation of [ILSA] . . . endorsed by the court in Pugliese[] is both the most natural way to read the statute and the interpretation which will best serve the statute’s intended purpose.”  With Judge Hurley’s wholehearted support on the record, it seems to me much less likely that the 11th Circuit will reverse Pugliese when the appeal from that order is considered.

Harvey v. Lake Buena Vista Resort, LLC, 2008 WL 254131 (M.D. Fla. Jan. 29, 2008 ).  This opinion from the Middle District of Florida illustrates what I like to call the “having your cake and eating it too” principle.  In this case, two buyers claimed that a condo purchase agreement violated ILSA because the condominium was not exempt under the statute, yet the developer failed to provide a property report or register the property with HUD.  At issue was the statute’s so-called “improved lot” exemption, under which a developer can avoid these requirements by contractually obligating itself to build the condominium within two years from the date that the buyer signs the purchase agreement.  See 15 U.S.C. s. 1702(a)(2) (I have written more in depth on this particular ILSA exemption, which is poorly understood, here).  While the plaintiffs in Harvey argued that this exemption did not apply because the commitment to build in two years was not sufficiently “unconditional,” the court disagreed, holding that the developer did not have to comply with ILSA.  However — and this is a key point — the court also found that the plaintiffs could still prevail on a claim for breach of contract against the developer, due to the fact that the certificate of occupancy for the unit was delivered five days past the two-year deadline.  Harvey thus illustrates the power of ILSA in action: a developer can exempt itself from the disclosure and registration requirements of the statute by assuming a two-year construction obligation, but once it does so, that obligation becomes absolute and exposes the developer to a breach of contract claim based on any delays which cause the developer to run afoul of the two-year commitment.  In other words, the developer is not permitted to have its cake (by invoking the improved-lot ILSA exemption through a two-year construction obligation) and eating it too (by then failing to deliver the condominium in two years, without excuse).

Stein v. Paradigm Mirsol, LLC, 2008 WL 344492 (M.D. Fla. Feb. 7, 2008 ) (hat tip to Robert Cooper for bringing this recent opinion to my attention).  My prediction is that this will become one of the most widely cited opinions on ILSA in Florida courts.  Stein, like Meridian and Harvey, also deals with claims by condo buyers seeking to rescind their purchase agreement and recover their preconstruction deposit money.  In Stein, the buyers argued (as in Harvey) that the developer was not entitled to the improved lot exemption, because the promise to construct the condominium in two years was not sufficiently absolute.  This time, the court agreed, on the basis of language in the contract extending the two-year promise “for any delay caused by acts of God, weather conditions, restrictions imposed by any governmental agency, labor strikes, material shortages or other delays beyond the control of the Seller ….,” which is essentially what is commonly known as a “force majeure clause.”  While the court found that the qualification based upon “acts of God” did not cause the developer to lose the ILSA exemption, the other qualifying language did, and entitled the buyers to recover their deposits.  As an independent ground, the court also found that the developer lost the exemption owing to language in the contract precluding the buyer’s right to sue for “special damages.”  Finally and interestingly, the court awarded the buyers not just their preconstruction deposits, but money which had been paid for option upgrades.

Please stay tuned for more ILSA and Florida condo case law updates in the near future, and please continue to send me your comments, questions, ideas, and suggestions! 

By Jared H. Beck, Esq.

This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.

Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation. A significant portion of Mr. Beck’s practice is devoted to issues arising under condominium purchase agreements. He can be reached at 305-789-0072 or jared@beckandlee.com

Add a new breed of condo buyer lawsuit to the growing pile of cases which have been and are being filed under Florida condominium law and the federal Interstate Land Sales Full Disclosure Act in Florida courts.

As reported on CNN, troubled Florida homebuilder WCI Communities has been hit by a class action brought under federal securities law by purchasers of condo-hotel units at an exclusive development, The Resort at Singer Island near West Palm Beach, for failure to register the offering of the units with the Securities and Exchange Commission.

The application of securities laws has historically been yet another example of the murky legal regime which governs condos.  One of the best quick summaries on this topic was written by a Nevada attorney and is entitled Condominiums: Violating Federal Securities Laws?.  Another helpful summary from a website specifically devoted to condo-hotels can be found here.

There are some important twists and turns to understand, but the basics are as follows: condominiums can risk qualifying as securities where the emphasis is on economic benefits to the purchaser originating from the promoter or a third party’s managerial efforts or rental of the units; where participation in a “rental pool” is offered; or where the purchaser’s own use of the condominium unit is restricted.  Not surprisingly, these factors would likely not come into play in the standard residential condo development, but may very well surface as part of a condo-hotel project.  If a condo is found to meet the definition of a security, but it has not been registered as such under federal law (the requirements of which are quite onerous and typically something that a developer would seek to avoid), then the buyer would have the right to rescind the purchase agreement, among other possible remedies.

I have reviewed the Complaint which was brought against WCI and is pending in the Southern District of Florida.  The key allegations revolve around the notion that The Singer Island Resort is a common enterprise which sought to provide a return on the purchasers’ investment via expert management of the hotel, and that occupancy of the hotel units would be rotated to equalize use of the hotel.  Such allegations are certainly a starting basis for stating federal securities law claims in the context of a condo hotel.  Whether the lawsuit is successful will depend upon the development of additional facts concerning the marketing and operation of the hotel.

Of course, it is not a bold prediction to expect that more lawsuits like this are on the horizon, given current market conditions.  For example, here is a recent article from the Las Vegas Sun describing a similar lawsuit concerning an MGM Mirage and Turnberry-backed condo-hotel on the Las Vegas Strip.  And I would not be surprised if there is merit to at least some of these suits, given that the securities laws are highly burdensome and expensive to comply with, and many developers were probably not paying much attention to them — even in situations where the condo units could qualify as a regulated security — when market conditions were favorable.

By Jared H. Beck, Esq.

This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.

Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation. A significant portion of Mr. Beck’s practice is devoted to issues arising under condominium purchase agreements. He can be reached at 305-789-0072 or jared@beckandlee.com

My old Harvard Law School classmate Greg Weston, whose firm is based in San Diego, California, has started a new blog that I know will be of interest to some of my readers. Greg has been taking a close look at some of the legal issues relevant to the housing market crash from a California perspective, including the California state laws which govern condo contracts. This post, for example, examines the powerful protections afforded California condo buyers by the California Civil Code which could be a basis for demanding a sizeable refund of preconstruction deposit monies.  As from time to time I get inquiries regarding properties located in California, I am confident that this addition to the blogosphere will help address questions that have gone unanswered so far.

By Jared H. Beck, Esq.

This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.

Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation. A significant portion of Mr. Beck’s practice is devoted to issues arising under condominium purchase agreements. He can be reached at 305-789-0072 or jared@beckandlee.com

The Miami Herald reports on the newest flavor of lawsuit directly attributable to the South Florida condo market crisis: a developer suing real estate brokers to claw back commissions for condo units on which the buyers failed to close.  According to the Herald, Miami condo titan Related Group filed at least 15 lawsuits in the past couple months against brokerages, seeking recovery of over $460,000 in commissions with respect to defaulted units at the Hallandale Beach Club Tower III.

This is certainly an aggressive move on Related’s part, although perhaps not a surprising move given that every last dollar counts under current condo market conditions.  I would expect a wave of similar suits to follow with respect to other projects with high default rates, and as other developers take their cue from Related, feeding into the condo litigation tsunami which to date has largely consisted of buyers seeking recovery of their preconstruction deposits from developers.

From a legal standpoint, and solely going by the Herald article, it would seem that the key issues in the new actions filed by Related revolve around interpreting the terms of its agreements with the brokerages (which apparently state that commissions are not earned until the units close) and reconciling those agreements with industry custom (by which commissions were paid to the brokers after the initial deposits were paid).  Like the salient issues in condo purchase agreement litigation which have been covered extensively in this blog, these are contentious issues and will likely spawn conflicting rulings in the coming months if a large volume of similar cases are indeed filed.

On another note, I want to extend my thanks to everyone who has been following the blog, and to the many readers who have taken the time to e-mail me with comments or questions recently, or have posted their comments directly to the blog itself.  I greatly enjoy hearing from individuals all over the world — both laypersons and fellow attorneys — who have an interest in the various legal issues arising from the Florida condo market.  I encourage readers to continue sending me questions and comments, as they help immensely with this blog’s mission of bringing some clarity or at least focus with respect to some of the current legal uncertainties buzzing in Florida courts.  Also, please stay tuned in the coming weeks as I am presently working on a series of articles which will explore in greater depth some of the more pressing legal issues arising out of the federal Interstate Land Sales Full Dislcosure Act (ILSA) and the Florida condominium statute which have already been examined in this blog.

By Jared H. Beck, Esq.

This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.

Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation. A significant portion of Mr. Beck’s practice is devoted to issues arising under condominium purchase agreements. He can be reached at 305-789-0072 or jared@beckandlee.com