While real estate “doom and gloom” news stories routinely feature cities like Miami, Las Vegas, or Fort Myers, bad and worsening market conditions are global and also afflicting places like Malaga and Dubai. And here’s an article about a plagued pre-construction condo-hotel in Baja California, Mexico, originally marketed as the “Trump Ocean Baja Resort.” As the San Diego Union-Tribune reports, the project has failed to break ground; Donald Trump has pulled his name out of the agreement to license his name for the hotel; and a whopping $32 million in buyers’ deposits have, shockingly, already been spent.
The story should serve as a cautionary tale for any contract holder in a development sold under a licensed “marquee” name: if the licensor can pull out at will, then the buyers are clearly in a vulnerable position. But the practical issue for Trump Ocean Baja Resort buyers now left holding the bag (and perhaps of interest to buyers in similarly troubled overseas properties) is whether there are strong avenues of legal relief available, including against Trump himself.
One obvious possibility is the federal Interstate Land Sales Full Disclosure Act (ILSA), with its expansive definition of “developer.” But can buyers in a Mexican condo-hotel seek the protection of American law in an American court, or will they be forced to litigate in Mexico under Mexican law? The good news for these buyers is that ILSA, with its strong consumer-oriented remedies, explicitly applies to real estate offerings “in a foreign country.” See 15 U.S.C. s. 1701(3). Congress clearly intended the law to apply to sales of foreign real estate, such as a condo-hotel on Mexican soil. And, as I have discussed elsewhere on this blog, ILSA was explicitly patterned after federal securities laws, which have been held to apply extraterritorially. See AVC Nederland B.V. v. Atrium Inv. Partnership, 740 F.2d 148 (2d Cir. 1984).
The bad news is that the buyers may be subject to a forum selection clause or arbitration clause in the purchase contract, or at the very least an argument that the most logical forum to resolve any dispute is in Mexico. Whether those roadblocks to American justice can be overcome will depend on various factors including the precise contractual language, the circumstances of the transaction at issue, and the entities/individuals suing and being sued. One thing is virtually certain: aggrieved purchasers will (and should) try as hard as they can to have their claims heard in a U.S. court.
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. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation, as well as pursuing the rights and remedies of consumers and investors. A significant portion of Mr. Beck’s practice is devoted to issues arising under purchase contracts for real estate, including condominiums, condo-hotels, single-family homes, and commercial property. Mr. Beck is a member of the Florida and California Bars, and litigates in other U.S. jurisdictions in conjunction with qualified local counsel. He can be reached at 305-789-0072 or email@example.com