The Real Deal Miami

Swampland law could unstick condo buyers

By Sally Apgar | April 01, 2009 04:15PM

After looking at brochures for the Oasis, Yosvani Alfonso thought he was buying into a luxurious “urban-tropical” lifestyle when he slapped down a $106,180 preconstruction deposit for a condo overlooking the Caloosahatchee River in downtown Fort Myers. Now he’s using laws against swampland land schemes to get his money back.

The developer of the Oasis, the Related Group, once the biggest luxury condo builder in the state where it has built 60,000 units, planned five 32-story condo towers in a “private tropical paradise” on 17 acres of land. Alfonso expected lavish amenities, including five infinity-edge pools, a tennis center and a marina.

But the condo market crashed, and only two towers have been built.
Now Alfonso is among hundreds of condo buyers in the Sunshine state claiming developers didn’t deliver on promises and suing to get his deposit back. As buyers and their lawyers sift through the ruins of the condo market, they are using old laws in creative new ways that are being tested in courts. To recover Alfonso’s deposit, his attorney, Jared Beck of Miami, is testing the temper of a 1968 law, the Interstate Land Sales Full Disclosure Act, which Congress originally passed to protect consumers from Florida swampland scams.

Congress passed ILSA to prevent fraud or abuse by requiring developers to make disclosures about the project in a “property report” that buyers see before they sign a sales contract. If the developer doesn’t deliver on his promises, the buyer has some rights to back out of the contract.

“We’re really in a period of uncertainty — not just in terms of the real estate market itself but also the legal consequences of the downturn,” said Beck.

Beck said in good times, when such consumer disclosure laws are not needed, their reach is not tested. Now in a crunch, Beck expects a new body of case law to evolve.

“Courts are looking at some issues for the very first time. There are different courts and different findings, but it will all sort out,” he said.

Hollywood Attorney Ed Pfister, who represented the developer of Miami’s Opera Tower in a landmark ILSA decision last August, said “These people bought at the height of the market and now that the market is down, they are flyspecking the contracts for any language they can use to get out of the contracts and get their deposits back.”

Pfister said “People are looking for ‘gotcha language’ to try to get out of their contracts. A lot of the people doing this are flippers who put down deposits, sometimes on several units at the height of the market. The market is down and they aren’t going to make anything if they flip so they are trying to get out of what they promised to do. There is no merit to their claims.”

Pfister successfully defended Tibor Hollo, developer of the 635-unit Opera Tower, against 29 condo buyers who claimed false advertising under ILSA when they were promised an “Olympic-style” pool and other condo-community amenities that were not delivered.

U.S. District Judge Patricia Seitz ruled in the developer’s favor, saying that individual contracts that spell out the project trump any advertising materials, which makes it the responsibility of the buyer to beware. In other words, if the advertising envisions an Olympic-sized pool but the contract gives the specific dimensions of something smaller, then the buyer must take note. Many would-be buyers have since taken settlements for amounts less than their deposits.

To date, Beck says the courts have given “mixed signals” about whether ILSA will favor developers or buyers.

There have also been findings that have been interpreted to help the consumer. For example, under ILSA, if a condo project is built within two years, the developer is not held to ILSA disclosures. In Harvey v. Lake Buena Vista Resort, an 11th Circuit Florida judge ruled that the buyers could recover their deposits because the developer took five days longer than ILSA’s two-year deadline to complete the condos.

As Beck continues to test laws in his fight on behalf of condo buyers who believe they have been duped, Beck believes that laws regulating real estate should be overhauled.

“People have come to see real estate investing as a sound and secure way to guarantee their futures. That idea is way out of control.”