As housing market sours, courts punish delayed projects, release buyers from contracts

In the September 9, 2008 issue of The Wall Street Journal, as knowledge of the global financial crisis widened and deepened, I predicted that of the myriad lawsuits filed by real estate buyers hoping to recover their deposits pre-construction tests, among those most likely to succeed were scenarios in which the developer was unable to deliver the project on time.

While there is no sure way to test this forecast, my feeling is that, for the most part, it is proving true. Take, for example, a recent opinion from the Eleventh Circuit, the highest federal appeals court with jurisdiction over Florida, and one that has been instrumental in setting the tone for the latest wave of real estate litigation. In Harvey v. Buena Vista Lake Resort, LLC, 2009 WL 19340 (11th Cir. Jan. 5, 2009), Eleventh Circuit upheld lower court order to refund deposits paid for purchase of condominium in Orlando, finding developer in breach of contract purchase by not delivering the join in a timely manner. In particular, the Eleventh Circuit left the developer zero room to deviate from the promised two-year construction schedule. Although 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, even though the defendant proved that the additional five days were attributable to a matter outside its jurisdiction. . control: the unusually slow processing of a necessary road permit.

Tellingly, in reaching its conclusion, the Eleventh Circuit sidestepped another issue on which the buyers had prevailed in lower court, namely whether the developer had violated the disclosure provisions of the federal Sales Full Disclosure Act. Interstate Land Service (ILSA) by failing to both register the condo with the US Department of Housing and Urban Development (HUD) and provide a Federal Property Report to buyers. As I have previously written, federal courts have been notoriously reluctant to rule in favor of buyers in claims brought under ILSA, violations of which are often deemed hypertechnical and immaterial in cases where a project is delivered in accordance with stated promises. by a developer.

Conversely, it is easy to see why courts may be more sympathetic to buyers in cases where construction has been unreasonably delayed. The calculation is simple: the longer a building sits unfinished, the longer the buyer’s deposits have been tied up in an uninhabitable and unsaleable project. And every day that the housing market remains mired in a historic decline only serves to exacerbate the downside for the buyer. The recent but surprising wave 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 that have not yet been completed across the country will not meet the completion deadlines set out in the contract, if they are completed at all, that is.

As a practical matter, buyers with potential construction delay claims who have decided they do not have Job’s patience are advised to pursue their legal claims as quickly and decisively as possible. While delayed construction can be a pathway to successful termination of a purchase contract, generally speaking, the longer you wait to pursue legal action, the more likely it is that the developer can argue that the buyer, of his own delay — you have waived any legal claim.