Developers Cashing in Unfairly, Home Buyers Say.


Zoilo C. Nieto plunked down a $209,000 deposit in May for a $1.04 million condo unit at Trump Pal- ace with visions of a sleek new residence to go with his plans to expand his language school busi- ness into South Florida.

But weeks later, after assurances the unit was his, the 42-year-old from New Jersey claims he was told the Sunny Isles Beach condo was sold to someone else for more money.

Last week, he sued the developer, Dezer Development, charging fraud and unfair trade practices, among several allegations. He is seeking either to get the condo or to get back his money with inter- est – and whatever profit the developer reaped by selling to another buyer.

Amid South Florida’s red-hot real estate boom, fueled by speculative investors, a growing chorus of complaints is arising from home buyers who are accusing developers of playing fast and loose with contracts for preconstruction condominiums and single-family homes.

The broad allegation: Developers are taking advantage of strong demand and soaring prices by stringing along buyers who sign contracts and make deposits, only to renege on the contracts later to sell units to others for still more money.

This week, a buyer sued Fort Lauderdale developer Isaac Kodsi in Broward Circuit Court for breach of contract and unfair trade practices. The suit, filed by Miami attorney Richard Wolfe, claims Kodsi defaulted on contracts for two units in the Estancia at Palm Springs development “to enable them to sell the same units to another purchaser for a greater price.’’


Meanwhile, buyers at Miami Beach’s Deauville Hotel, which is being converted into condos and

a condo-hotel, filed a class-action suit last month in Miami-Dade Circuit Court against developer Homero Meruelo. That suit claims Meruelo’s Deauville Associates breached its contract by unilaterally rescinding pacts with buyers. It seeks to force the developer to close on the sales.

Michael Schlesinger, an attorney for the would-be buyers, called Meruelo’s move “an economic deci- sion that is motivated by the appreciation of the units.’’

In April, Dezer Development was sued by a buyer, Alexander Volynsky, in a separate case in Miami- Dade Circuit Court for allegedly reneging on a contract for a unit in its Sunny Isles Beach Trump Grande condo tower.

The suit, which was settled out of court, alleged that Dezer never intended to turn over the unit to

Volynsky, “but instead resell it to another purchaser for a higher price.’’

“This market is up and up,’’ said Miami attorney Glen H. Waldman, of Bilzin Sumberg law firm, who filed for plaintiffs in both cases against Dezer. “An opportunity like this does not happen very often for developers. In the case of the Dezers, they are overly trying to take advantage of a phenomenal market.’’

Developers denied the allegations in interviews or court filings. Gil Dezer, president of the Sunny Isles Beach-based company, dismissed the lawsuits as “frivolous,’’ declaring: “We are here to sell units, not screw around with people.’’

Meruelo’s attorney, Dorta Law, said he is seeking to remove the case from court to an arbitration

proceeding. “We first need to determine what forum must hear the dispute,’’ he said.

Kodsi didn’t return calls for comment.

It’s not just condo buyers who are seeing their stakes in the current gold rush uprooted. In May, home buyers filed a class-action suit against Hollywood-based builder Technical Olympic USA in U.S. Dis- trict Court in West Palm Beach. They claim TOUSA wrongly canceled more than 100 contracts for new single-family homes in a Naples project called Reflection Lakes. The plaintiffs assert the prop- erties each increased “by over $75,000 in value’’ while they waited to close on contracts that were ultimately canceled.

Boca Raton attorney Eric Lee, who is representing the buyers, said TOUSA defended the action on the grounds it was not able to get timely platting approval from Collier County officials, but subse- quently received approval after rescinding the contracts. TOUSA spokesman Hunter Blankenbaker said the company does not comment on pending litigation.

To be sure, with so much building under way in South Florida and home prices skyrocketing, some litigation from unhappy buyers is inevitable.

“Over the last few decades, this is an issue that arises every time there is a rapid increase in end- product prices,’’ said Coral Gables real estate analyst David Dabby.

But a convergence of factors may be driving this spate of lawsuits. For one thing, home prices are spiraling upward at rates rarely seen. For example, the median price of a single-family home in Bro- ward County soared 28 percent to $385,600 in July, up from $301,900 a year earlier. And it can take two years or more from the time a developer signs a contract to sell a home to when it is built and delivered to the buyer.

“Developers are saying, `You know what, look at all the money we left on the table,’” said Jack Mc- Cabe, a Deerfield Beach real estate analyst who predicts a market downturn and has formed vulture funds to invest in depressed properties. “The speculators are making more money than we are.’’

Moreover, construction costs have jumped sharply. The cost increases are drastically reducing or even erasing developers’ profit margins and fueling incentives to cancel contracts to resell for higher prices.

“Someone who sold their project preconstruction over a year ago now has to begin construction at 20 or 25 percent higher,’’ Dabby said. “They just saw a lot of profit disappear.’’ While it may be small con-solation for a buyer who counted on the unit and is forced to look for a home at even higher prices, deposits are generally returned.


The outcome of such legal fights will turn, of course, on provisions in individual sales contracts. Those

contracts vary, attorneys say, and developers have found ways to better protect themselves.

For instance, the Deauville contracts let the developer cancel contracts if it didn’t meet minimum presales of $25 million and 350 units by Jan. 30, 2005. The litigation hinges largely on whether that target was met.

Other loopholes for developers include termination clauses if construction isn’t started by a specificed date or if the developer can’t get financing, Schlesinger said.

Amid the current home-buying frenzy, developers largely hold the cards in dictating terms of a con- tract. Schlesinger said buyers can protect themselves by doing due diligence on a developer and scrutinizing a contract to understand what a developer’s leeway is.

“Or you can take these people to court until they stop doing it,’’ Waldman added. “That is how you stop these guys. You make an example of them and make them understand they will get hit if they do something that is unethical.’’

Buyer Beware

Here’s what people buying preconstruction homes can do to protect themselves:

* Know your developer: Find out the developer’s track record and whether there was trouble in any previous projects.

* Know your contract: Read the entire document and understand exactly how a developer can termi- nate your contract. For instance, the developer may be able to cancel if a specific sales target is not met.

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