Affordable Housing Institute : US

“I was dumb, so give me my money back.”

 

Okay, there’s more to these condo-buyers’ claims than simply that … but not much more. 

 

 

Insolvency being the mother of creative litigating, as shown in this New York Times article, numerous buyers’ attorneys (who, one presumes, are not being paid contingently) have been concocting interesting theories to justify not merely escaping from a purchase contract, but in fact having a collectible claim to recover the down payment:

 

Could the days of the iron-clad contract be numbered?

 

No, but that won’t stop the Times from speculating!

 

It used to be that once a buyer went to contract on an apartment, the terms of the deal were all but set in stone. Sales prices never budged, and if the buyer balked, the down payment went bye-bye.

 

Legally, it does – unless you can find a loophole.

 

If in financial panic, press here

 

But double-digit price declines and the lending drought have started to threaten this once near-inviolable pillar of New York real estate.

 

Block that metaphor – how does a drought violate a pillar?

 

Violating a pillar?

 

Buyers are demanding concessions from developers on apartments that they say have lost up to 30% in value.

 

Like Joshua, I can demand that the sun stop in the heavens. 

 

Now that you’ve stopped the sun, Lord, can I get my condo deposit back?

 

Unlike Joshua, I’m not likely to succeed.

 

Others are hoping to back out of their contracts entirely, while keeping their down payments in the process.

 

The sudden demand has sent lawyers scurrying to uncover avant-garde legal tactics for ducking out of a deal.

 

[From the NYT]: With apartment values going south and loans in limbo, buyers’ regret is on the rise. Some are trying to wiggle out of signed contracts with tales of financial woe. Others are pinning their hopes on an obscure law.

 

Downtown conversions like 75 Wall Street and new developments like One Hunters Point in Long Island City are facing suits from buyers seeking to break contracts on the basis of a once-obscure consumer protection law.

 

Straw.  Grasp.

 

If it’s straws or jail bars, I’ll grasp at straws, wouldn’t you?

 

It remains unclear whether these efforts will be convincing, whether at the negotiating table or in a court of law.

 

It’s not unclear at all – either you have a developer breach, or you lose.  How hard is that?

 

On the developer’s side is the legal strength of a signed contract and the financial leverage of a buyer’s deposit.

 

I’ve got two aces.  What have you got? 

 

You got two better cards than these?

 

And while developers would pocket the down payment, they might be stuck with a unit that eventually sells for much less — or even worse, just sits. This new math may put some developers in a negotiating mood.

 

Aside from the hopeful-conditional (a journalistic shortcut for I-need-the-”on-the-other-hand”-so-I’ll-just-invent-it), the logical argument has just shifted from one of legal claim (the buyer is entitled to the deposit back) to economic practicality (the seller might wish to reduce the price so as to induce this particular buyer to complete the sale).

 

“Behind this, the big elephant in the room is the price,” said Adam Leitman Bailey [Web site motto – We get results. – Ed.], a real estate lawyer who says he is representing unhappy buyers from nearly 50 buildings.

 

I presume Mr. Bailey wouldn’t be representing happy buyers …

 

I wanna sue somebody

 

The traditional method for a buyer to break a contract is to prove that some element of the completed unit differs from the developer’s offering plan.

 

‘Traditional’ is here journalistic code for there’s-no-evidence-against-it-but-I-need-the-”on-the-other-hand,” the technique whereby one hypothesizes a controversy by piling one supposition on another.  Indeed, let’s jump to the end of the Times story and put in the opposing-views-of-responsible-spokesmen right now, so they are not lost:

 

Of course, not everyone in the industry has sympathy for the buyer who wants concessions or money back.

 

“I think it is the height of audacity,” said Stuart Saft, a partner in the real estate division of Dewey & Leboeuf, which represents several large developers in contract disputes.

 

Saft is unsympathetic

 

“The buyer calls and says, ‘The apartment is not worth as much as when we signed for it.’ My response for that is, if the market went up 20%, would you have given us 20% more because the market improved?”

 

Mr. Saft is right, of course.  There’s no defense unless the buyer can find some flaw in the disclosure or legal contract:

 

This is why lawyers have been known to use lasers to measure square footage to within a millimeter and to debate descriptions of views and amenities.

 

One is allowed to change one’s mind.  One is also allowed to read the contract, as W. C. Fields said when rapt in contemplation of the Bible, “looking for loopholes.”

 

Go Lord, give me chastity, but not yet

 

It’s not the spirit of the transaction, but since the alternative is admitting one is dumb and has no leg to stand on, why not try?

 

I’ve got a legal leg to stand on

 

Now, if you’ve changed your mind, you are allowed to be razor-sharp in construing

 

But if the issue is more financial than material, buyers may be forced to “in essence, throw themselves at the mercy of the developer,” said Peter Graubard, a real estate lawyer.

 

Again, this is a variation of the economic argument.

 

“They are saying, ‘Hey, listen, I’m in a financial hardship and the loss of this 10 or 15% deposit is going to be devastating to me right now,’ ” said Mr. Graubard, explaining that every one of his clients who went to contract before October 2008 — about 30 in all — is trying to renegotiate or abandon a deal.

 

But these arguments may not fly.

 

They generally don’t.

 

Okay, let’s try another membrane

 

Unless a contract includes a mortgage contingency, nothing in the law allows for a change in financial circumstances or the lending market to constitute a “right of rescission.”

 

Some lawyers are looking beyond the traditional methods of arguing breach of contract.

 

Some lawyers are hungry.

 

A Web site called No-Condo.com opened in December and immediately received nearly 100 queries from New York residents who want their deposits back. It is the brainchild of Lawrence Weiner, a lawyer at Wilentz, Goldman & Spitzer in Woodbridge, N.J., whose arsenal includes the Interstate Land Sales Full Disclosure Act, a 41-year-old consumer protection law rarely applied in the city.

 

From 1968: Rarely applied in the city, dad

 

It doesn’t matter if the law is obscure; if it’s on the books, and it gives buyers rescission rights, they should try to use it.

 

Created to protect against speculators selling uninhabitable plots, the act requires developers of condominiums or conversions with more than 100 units to provide buyers with a particular type of property report containing information like proof of ownership and the availability of public utilities.

 

“I wouldn’t categorize it as a technicality,” Mr. Weiner said.

 

He wouldn’t, but we will. 

 

“A lot of developers, in a rush to bring things to market, chose not to comply, or maybe they didn’t even realize they needed to comply.”

 

I think these high-rise condos in Midtown Manhattan had public utilities, and I think they had proof of ownership.  Plus, the statute is entitled the Land Sales disclosure act, meaning it was contemplated to cover developments of vacant land.

 

Again, none of these points invalidate the law.  They merely suggest it’s a big reach.

 

Nothing’s beyond the reach of a lawyer

 

The law has its limits as a negotiation device: a developer is exempt from the act if he or she has pledged to complete the unit within two years.

 

Okay, so Mr. Weiner is suing under an act for which developers are exempt if they simply pledged to complete the homes within two years.  Sounds less and less like a condo-protection statute and more and more like a subdivision statute.

 

Less try one more argument:

 

At the Brompton, with its “Stylishly Proper” slogan, luxe location on East 85th Street and prices to match, several buyers said they were in financial straits. A group of nearly 30 buyers recently organized over the Internet and held a meeting to discuss their options.

 

Marc Rossell, 54, went to contract with his wife in August 2007 for a 3,600-square-foot spread, combining three ninth-floor apartments.

 

He said he was told by the developer that his southern view would clear an adjacent building, but on a walk-through inspection, he found “a water tank right there outside of our windows, and an ugly rooftop.” Mr. Rossell did not think the view matched the description in the offering plan, and believed the discrepancy could help him get free of his contract.

 

This is demonstrable or not – if the facts are right, and if the developer’s statements are in writing, I think Mr. Rossell has a case.

 

“It didn’t seem to be of the same quality that they basically represented in the showroom,” he said. “We definitely have the money. It’s not that at all.”

 

Of all the buyers cited in the story, Mr. Rossell sounds believable and credible.

 

That’s a whale of a tale

 

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