Miami condo investors have finally woken up to the new reality of the housing bubble and are finding ways to walk away from deals that they made in hopes of flipping for a profit. Now the legal fights begin. Laywers representing buyers, builders, and commission starved real estate agents will get in the ring to battle it out for the scraps that will remain after the market settles into a "normalized" price level. Watch the supply of condos in Florida market over the next 3 years. There should be some very attractive deals for those smart enought to sit on the sidelines and watch the carnage unfold.
In January, the developers of condo project 2 Midtown announced they would build 455 units instead of 459.
That's all it took for buyers Barry and Rachel Craemer to declare their contract void a week later and demand their $117,000 deposit back. The buyers for 47 units have sent such letters, and the builder is determined not to let any of them out.
In a cool housing market already overflowing with condos, what were once hot properties are now hot potatoes that many don't want in their hands. Buyers seeking to get out of contracts are pouncing on changes in developers' plans, including those related to higher insurance costs. Some are even combing through documents for blown deadlines, which developers blame on hurricane delays.
The tension is rising as closing day approaches for the roughly 25,000 new condos expected this year and next. And the spats between buyers and developers will help decide one of the biggest questions in the troubled housing market -- how many condo sales will actually close. If the spats continue, they would signal a rocky time to come, with unsold units and falling prices.
'This may be the beginning of the `interesting period,' '' said real-estate analyst Michael Cannon. ``We will see it evolve through 2008.''
So far, there have not been widespread defaults or much litigation, and by most accounts, buyers are going to the closing table, however reluctantly. Still, there is evidence of growing unease.
Attorney Gary Saul, who represents developers for 2 Midtown and other projects, said that six months ago he didn't receive any letters from buyers wanting out. Now they're coming from 10 percent of the buyers in buildings, sometimes as much as 20 percent.
Michael Schlesinger, a lawyer who has sued developers, said buyers started to call him in December, wanting out. He has signed 12 clients.
''Now I am getting three calls a week,'' he said.
And developer Gregg Covin, who plans to start closing next month for his 200-unit Ten Museum Park on Biscayne Boulevard, said 10 buyers in the past two months have approached him to get out. He has found vulture investors -- whom he allows to swoop in and buy at 2003 presale prices -- to purchase their contracts.
''The scary thing is, people who have flaked on me tell me they have like five other contracts in other buildings under construction,'' Covin said.
Florida's law allows condo contracts to be voided before closing if developers make ''material'' changes that are ''adverse'' to buyers. Buyers complain about changes they never signed up for, but developers accuse them of making excuses to flee because they no longer can flip the units for a fat profit. The estimates of how many buyers are speculators -- who bought so they could resell -- range from 30 percent to more than 70 percent.
`THESE ARE FLIPPERS'
''These are not people who have been wronged,'' Saul said. ``These are flippers who wouldn't be saying anything if the market was going well.''
To which Rachel Craemer replied: ``Who are they to decide? The person who makes the determination should be the buyer, not the seller.''
Both parties have plenty to lose. Condo buyers risk losing typical deposits of 20 percent, instead of 10 percent for new single-family homes, said real-estate analyst Lew Goodkin.
''That is prompting some folks to look at every possible technicality rather than walking away,'' he said.
Goodkin predicts that disputes will increase as closings approach for buildings sold in 2005 and 2006, because prices were higher and buyers have more at stake.
Developers in turn are worried that if they give one buyer a break, they will lose the building. With their support, legislation is pending in Tallahassee that would make it tougher for buyers to get out of condo contracts.
'If I am a developer and you come to me with your lawyer and I let you out, the first thing that lawyer does is tell everyone else in the building, `I can get you out, too,' '' said Miami attorney John Sumberg, who represents builders.
Insurance is a particularly sensitive area of dispute. Developers gave buyers projections for monthly maintenance costs when they signed contracts. But skyrocketing insurance premiums have pushed maintenance fees far beyond projections, prompting buyers to say their contracts are no longer valid and they shouldn't have to close.
