Consumer law won’t rescue condo owners

A federal appeals panel has overturned a decision by a lower federal court in Florida and has ruled that condominium owners cannot use a 1968 law designed to protect consumers from swampland scams to salvage their deposits from the ashes of the condo market. It’s a victory for developers, who feared the earlier ruling would open an avenue for further litigation.

The U.S. Court of Appeals for the Eleventh Circuit overturned the U.S. District Court for the Middle District of Florida in a Sept. 30 decision, ruling unanimously that developers do have some exemptions under the Interstate Land Sales Full Disclosure Act (ILSA).

The law was passed 41 years ago by Congress to prevent fraud or abuse by requiring developers to provide information about their projects 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.

Hundreds of Florida condo buyers used ILSA in lawsuits filed within the past two years as they sought the return of their deposits for projects that never got built. Miami attorney Jared Beck called the strategy “the creative use and testing of an old consumer law.” Much of that litigation focused on the requirement that developers deliver what they promised in a two-year time period to earn exemptions from ILSA.

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Judge Ed Carnes, who wrote the 18-page decision, said that between 2000 and 2005, Florida saw home prices rise a whopping 82 percent — far outpacing the national level of 51 percent.

The specific case testing the law was a suit brought by Alan and Karen Stein of Lee County. The couple contracted with developer Paradigm Mirasol to buy a luxury resort condo in Fort Myers for $895,900 on March 9, 2005, near the top of the market. According to court documents, the Steins made a down payment of $205,370, which included a deposit of $179,180. The contract specified the condo would be completed within two years and only allowed delays under specific circumstances.

In his opinion, Carnes wrote: “After the housing bubble burst, the Steins had second thoughts about their decision to purchase the condominium unit. Wanting out of the contract, they seized on the Interstate Land Sales Full Disclosure Act, a federal statute that has become an increasingly popular means of channeling buyer’s remorse into a legal defense to a breach of contract claim.”

On Jan. 16, 2007, about three weeks before the condo was completed, the Steins alerted Paradigm they were terminating the contract because the developer had not provided the property report required by ILSA. They demanded the return of $205, 370. On Feb. 8, 2007, Paradigm gave the Steins a notice issuing their Certificate of Occupancy. That same day the Stein filed a lawsuit seeking to revoke the contract under ILSA, arguing Paradigm violated its disclosure act.

Carnes wrote: “All bubbles eventually burst, as this one did. The bigger the bubble, the bigger the pop. The bigger the pop, the bigger the losses. And the bigger the losses, the more likely litigation will ensue. Hence, this case.”

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