Time Magazine recently published a general overview of the current economic malaise enveloping Florida. Of course, a big chunk of the report is devoted to the Miami condo glut and the resultant explosion in foreclosures, as well as lawsuits brought by buyers seeking to recover preconstruction deposit monies paid under purchase contracts to developers.
That should not be news to those who regularly read this blog, but Jorge Perez, Miami condo titan and head of The Related Group, had a quote in the article which caught my eye for reasons I explain below. Reacting to the rash of contract rescission lawsuits filed against his company, Mr. Perez told Time, “The ambulance chasers are everywhere.” (Note: this is not the first time that Mr. Perez has referred to condo contract litigation in such terms in the print media. For example, in March of 2008, the South Florida Business Journal quoted Perez as bemoaning, “Litigation is becoming a huge problem . . . . There are a lot of ambulance chasers. We’re getting all these people who are suing for the most ridiculous reasons, . . . .”)
What surprises me about Mr. Perez’s words? Certainly not that he would have a measure of contempt for attorneys who file lawsuits against his company staking claims to deposits. That is to be expected. What is surprising is the analogy that Mr. Perez used — that is, characterizng the legal representation of buyers as “ambulance chasing.” This is not an apt comparison. Ambulance chasing connotes an attempt to profit from an unfotunate accident, such as a car crash. But the collapse of the housing/condo market — which was undisputedly the trigger for the surge in buyer lawsuits against developers — cannot fairly be described as “accidental.” In truth, history tells us that every real estate boom is followed by a bust of some type: the question is not whether the bust will occur, but when. And experienced developers, such as Mr. Perez, are exceedingly familiar with the inevitable — not accidental — cycle of boom and bust. For example, here is an interview with Perez from February 2006 in which he voices concerns about “too much speculation” on the demand side as foreshadowing a housing market crash.
Query whether it is not just a wee bit disingenuous for Mr. Perez to criticize real estate speculators given the extent to which he has profited from selling real estate to speculators and non-speculators alike over the years. Moreover — and contrary to media reports such as the Time article which describe “a new cottage industry of get-your-deposit-back lawyers” — fervent litigation to recoup condo deposits in the wake of a real estate market crash is no new phenomenon, and in fact part and parcel of the real estate cycle itself.
To illustrate that last point, here is a New York Times article from 1982 — at this stage in history, Mr. Perez’s Related Group had been in existence for just three years — reporting on Miami’s luxury condo market which was then “wobbling in the aftermath of a speculative buying spree.” (sound familiar?). The article describes buyers as choosing to walk away from their deposits or “bringing lawsuits to free themselves of contractual obligation.” One developer told the Times that “there are more attorneys trying to get people out of closings than into closings.”
That was 26 years ago. History tells us that lawsuits brought by investors are a natural and expected part of any sudden market decline, and with respect to the tumultuous real estate market, are really folded into the cost of doing business for developers. The reason is simple: investors will sue to enforce their rights when the cost of doing so is less than the value of their investment. Morality is not part of this equation, and Mr. Perez has demonstrated that he understands the economic calculus quite well, with Related itself having filed a slew of lawsuits against brokers to recoup commissions for condo units which did not close.
Folks like Mr. Perez would be best advised not to purport to take the moral high ground, or to shake a disapproving finger at those whose hard-earned money lined their pockets when times were good.
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 firstname.lastname@example.org