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Developer Scores Big Victory in Federal Court in Miami Concerning Condo Deposit Recovery Cases

June 1, 2009

Florida -- Escrow Recovery

Across the country, and especially in South Florida, prices continue to plunge in the residential real estate market. The boom years resulted in a glut of condominiums being built, often high-end, luxury buildings. Buyers raced to plunk down escrow funds on these preconstruction buildings during the halcyon days of the real estate bubble. These deposits often totaled 20 percent of the purchase price, which was often in the high six figures or low seven figures for luxury buildings in South Florida. When the real estate market started to head south, buyers were faced with the unpleasant situation of having to close on a unit that was worth substantially less than the purchase price agreed to several years earlier. As a result, there has been an explosion of litigation from prospective condominium purchasers against developers seeking recovery of their deposit monies.

In Weaver v. Opera Tower, LLC, 2008 U.S. Dist. LEXIS 91294 (S.D. Fla. 2008), Judge Seitz from the Southern District of Florida dismissed 29 federal lawsuits in which buyers claimed that the developer, Opera Tower, had violated the Interstate Land Sales Act by providing misleading marketing material for the condominium of the same name. According to the purchasers, the fully-constructed Opera Tower differed from the sales brochure as to the pool, tile used, views of Biscayne Bay, and location from the Bay's shoreline. On the basis of such allegations, the plaintiffs filed complaints seeking, amongst other claims, damages and rescission under the Interstate Land and Sales Full Disclosure Act ("ILSA"), codified at 15 U.S.C. sec. 1703 (a) (2) (B).

The protective scope of ILSA applies to false or misleading promotional materials. However, to establish a viable cause of action under the statute, plaintiffs must demonstrate reasonable reliance on the alleged misrepresentations. The court ruled that the buyers could not reasonably rely on written or oral misrepresentations that were contradicted by a subsequent purchase agreement. Here, while the brochure undoubtedly contains various promotional statements, such representations are expressly contradicted by language in the executed purchase agreement.

Paragraph 40 of the purchase agreement (''Agreement") provides that the Agreement contains the entire understanding of the parties and that "the displays, architectural models, artist renderings, and other promotional materials contained in the sales office and model suite are for promotional purposes only and may not be relied upon." The same paragraph goes on to state that the buyers have "not relied upon any verbal representations, advertising, portrayals or promises other than as expressly contained herein and in the Condominium Documents."

The court held that since the Agreement expressly supersedes all prior advertisements, the plaintiffs could not have reasonably relied, as a matter of law, on the alleged misrepresentations included in the brochure. Accordingly, the ILSA claims were dismissed. The case is on appeal.

*Jonathan is an associate in our Ft. Lauderdale, Florida, office and can be reached at (954) 847-4943 or jekanov@mdwcg.com.

Defense Digest, Vol. 15, No. 2, June 2009

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