As the real estate market turns sour, courts punish overdue projects, freeing buyers from contracts

In the September 9, 2008 issue of The Wall Street Journal, as awareness of the global financial crisis was widening and deepening, I predicted that of the countless lawsuits filed by real estate buyers hoping to recoup their initial deposits of preconstruction, among those with the highest probability of success were scenarios in which the developer was unable to deliver the project on time.

While there is no sure way to test this forecast, I have a feeling that for the most part, it is proving to be true. Take, for example, a recent opinion from the Eleventh Circuit, the highest federal appeals court with jurisdiction over Florida, which has been instrumental in setting the tone for the latest wave of real estate litigation. On Harvey v. Lake Buena Vista Resort, LLC, 2009 WL 19340 (11th Cir. Jan. 5, 2009), the Eleventh Circuit upheld the lower court’s order to refund deposits paid for the purchase of a condo in Orlando, and found that the developer had breached the contract for purchase by not delivering the unit in a timely manner. In particular, the Eleventh Circuit left the developer zero room to deviate from the promised two-year construction schedule. While the developer obtained a certificate of occupancy only five days after the two-year deadline, the court held that this was too late as a matter of law, despite the defendant testifying that the additional five days were attributable to an outside matter. of your competition. control: the unusually slow processing of a necessary road permit.

Tellingly, in reaching its conclusion, the Eleventh Circuit sidestepped another issue where the buyers had prevailed in the lower court, namely whether the developer had violated the disclosure provisions of the Total Land Sales Disclosure Act. Federal Interstates (ILSA) by not complying with both register the condominium with the United States Department of Housing and Urban Development (HUD) and deliver a federal Property Report to the buyers. As I wrote previously, federal courts have been notably reluctant to rule in favor of buyers on claims filed under ILSA, the violations of which are often considered hyper-technical and immaterial in cases where a project is delivered according to promises. declared by a developer.

In contrast, it is easy to see why the courts may have more sympathy for buyers in cases where construction has been unreasonably delayed. The calculation is simple: the longer a building goes unfinished, the longer a buyer’s deposits will have been on an uninhabitable and unlikely project. And every day that the housing market remains mired in a historic recession only serves to exacerbate the disadvantage for the buyer. The recent but surprising series of foreclosure actions by lenders against developers tells a general story of builders without funds to pay loans, contractors or subcontractors. This means that the many projects yet to be completed across the country will not meet the completion deadlines set out in the contract, if they are completed, of course.

In practice, buyers with potential construction delay claims who have decided they do not have Job’s patience should assert their legal claims as quickly and decisively as possible. While delay in construction may be a path to successful termination of a purchase contract, generally speaking, the longer one waits for legal action, the greater the chance that the developer can argue that the buyer, for your own delay, you have waived any legal claim.

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