Real Estate Law

Can Florida Condominium Buyers Escape a Bad Real Estate Deal? Escrow Dealings Give Rise to the Possibility

Recently, a Florida appellate court was asked to review the legal sufficiency of claims that a condominium developer and its escrow agent violated the requirements of section 718.202, Florida Statutes (2006), regarding pre-closing deposits by the buyers.

In CRC 603, LLC v. North Carillon, LLC, 2011 Fla. App. LEXIS 14137 (Fla. Dist. Ct. App. 3d Dist. Sept. 7, 2011) [enhanced version available to subscribers / unenhanced version available from lexisONE Free Case Law], the purchase price for each unit was in excess of $1,000,000, and the deposit for each unit exceeded $176,000. Plaintiffs alleged that the developer failed to comply with the pertinent requirements of section 718.202 and, thus, the purchase contract was voidable and the deposit refundable. Defendants argued that the buyers had refused to close pursuant to the purchase contract, thus forfeiting the deposits.

In May 2006, section 718.202(1),(2) required, in pertinent part:

If a developer contracts to sell a condominium parcel and the construction, furnishing, and landscaping of the property submitted or proposed to be submitted to condominium ownership has not been substantially completed in accordance with the plans and specifications and representations made by the developer in the disclosures required by this chapter, the developer  shall pay into an escrow account all payments up to 10 percent of the sale price received by the developer from the buyer towards the sale price.

All payments which are in excess of the 10 percent of the sale price described in subsection (1) and which have been received prior to completion of construction by the developer from the buyer on a contract for purchase of a condominium parcel shall be held in a special escrow account established as provided in subsection (1) and controlled by an escrow agent and may not be used by the developer prior to closing the transaction, except as provided in subsection (3) or except for refund to the buyer. (Emphasis added).

The question of law presented was whether a developer could use a single escrow account (versus two separate accounts) for "10 percent" buyer deposits under section 718.202(1) and "in excess of the ten percent" buyer deposits under section 718.202(2). In addressing this question, the CRC 603 court cited Double AA International Investment Group, Inc. v. Swire Pacific Holdings, Inc., 674 F. Supp. 2d 1344 (S.D. Fla. 2009) [enhanced version], aff'd in part, vacated in part, 637 F.3d 1169 (11th Cir. 2011) [enhanced version / unenhanced version], for the following:

Considering the plain language of the statute, giving meaning to each word as written, and avoiding an interpretation that would render portions of the statute surplusage, the only reasonable conclusion is that the statute requires a developer to establish two separate escrow accounts if a buyer deposits more than 10 percent of the purchase price. Given that requirement, and given the express language of section 718.202(5), [the developer's] failure to establish two separate escrow accounts for the [buyers'] deposit violated the statute, and rendered the Purchase and Sale Agreement voidable by the [buyers].

Based on Double AA, the court held that the buyers' allegations were legally sufficient to state a violation of the statutory requirement and, thus, void the purchase contracts. Noting the significance of the case, the court stated:

The stakes are significant for the parties and for others--one consequence of the current real estate recession in South Florida is that many prospective condominium buyers are attempting to void the purchase contracts they signed in what hindsight now discloses was an irrationally exuberant real estate market. (Emphasis added)

The court went on to reject the developer's argument that a 2010 amendment to the statute permitted the different types of deposits to be in one account as long as the accounting for the deposits was separate. According to the developer, the amendment only clarified § 718.202 and, therefore, could be applied retroactively. The court concluded that: (1) the Legislature expressed an intention that the 2010 amendment be applied retroactively; but (2) retroactive application had to be rejected as it impaired a vested contractual right. Under the latter circumstance, Fla. Const. art. I, § 10 prohibited retroactive application.

As for the escrow agent, the court adopted Double AA's holding that § 718.202 did not authorize the buyers' private cause of action.

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