While the global economy remains in the doldrums, recent reports have the South Florida condo market showing signs of recovery, even robustness.  Still, the fallout from the Great Real Estate Crash of several years ago remains undecided in critical ways.  This is especially true of the legal realm, which typically marches to a slow but steady drumbeat.

Yesterday, the Third District Court of Appeal — the Florida State intermediate appellate court with jurisdiction over Miami-Dade County — dropped a bombshell of sorts.  In a case called CRC 603, LLC v. North Carillon, LLC, the court endorsed the holding of a prior federal trial court decision called Double AA International Investment Group, Inc. v. Swire Pacific Holdings, Inc.   As I wrote in 2010, the Double AA court concluded (to the surprise of many in the field) that Florida developers must establish two separate escrow accounts to hold most preconstruction condominium deposits in order comply with Section 718.202 of the Florida Statutes.

The law in question provides buyers with a right to cancel the contract when the developer does not comply.  Because many developers established only one escrow account to hold deposits, many buyers have a right to cancel under the holding of Double AA.  Now that the Third District Court of Appeal has said it agrees with Double AA, this holding will have the force of binding precedent in Florida (unless, of course, it is overturned by the Florida Supreme Court).

What is especially intriguing about this opinion (or perhaps troubling, depending on where you are sitting) is where the 3rd DCA, at least implicitly, paves the road to liability for the condo market crash debacle.  In condominium projects, it is typically the escrow agent, not the developer, who bears responsibility for complying with the rules and regulations governing escrow accounts.  If developers did not set up two separate accounts like they were supposed to, it is because, in my experience, the escrow agents they hired chose not to do it that way because they didn’t think it was necessary under their (incorrect) reading of the statute.

As a result, we may see a yet another wave of litigation stemming from the condo crash: developers suing escrow agents for failing to comply with the escrow statute on the theory that this failure exposed developers to losses from buyer cancellation claims.  Because many of the escrow agents were attorneys or law firms, there may be claims for legal malpractice as well.  So while many buyer lawsuits are now working their way through the legal system and finally reaching resolution, there may well be a next chapter in the litigation story.

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.

Jared H. Beck has a law degree from Harvard Law School. His law firm, Beck & Lee Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation, as well as pursuing the rights and remedies of small businesses, consumers and investors through class actions. Mr. Beck’s expertise also includes issues arising under purchase contracts for real estate, including condominiums, condo-hotels, single-family homes, and commercial property. He is a member of the Florida and California Bars, and litigates in other U.S. jurisdictions in conjunction with qualified local counsel. Mr. Beck can be reached at 305-789-0072 or jared@beckandlee.com