Florida’s Third District Court of Appeal recently handed developers a loss that some are describing as cataclysmic in the ongoing battle regarding deposit recovery disputes.
Since the real estate market went bust back in 2007, developers and pre-construction contract purchasers of condominiums (many of which were never built) have flooded South Florida’s court system with lawsuits. Many of the lawsuits focus on the purchaser’s effort to have their deposit returned. In most cases, those deposits were either 10 or 20 percent of the purchase price.
Many of those cases often settle out of court. But the Third District Court of Appeal’s recent decision handed a significant victory to purchasers, and a significant blow to developers.
The case centers on the interpretation of a Florida Statute. Specifically, Florida Statute Section 718.202. That statute states that the deposit shall be kept in separate escrow accounts. In other words, one account needs to be established for the 10 percent deposit to be spent on construction, and a second account needs to be set up for the 10 percent deposit to be held in escrow.
Before the Third District Court of Appeal made its ruling, a federal judge in Miami concluded that a purchaser had the right to rescind it sales contract if the developer failed to hold separate escrows.
After that federal court decision was decided, Florida’s legislature quickly cobbled together a revised version of Fla. Stat. 718.202 in an effort “clarify” existing law. That clarification was done in an effort to negate the potential impact of that federal ruling on existing disputes between developers and buyers.
However, the Third District Court of Appeal’s recent ruling cites to that federal ruling in support of its ruling that purchaser can rescind the sales contract. In so ruling, the Third District Court of Appeal stated that “[n]otwithstanding the Florida Legislature’s apparent intention that the 2010 amendment and new section be applied retroactively, we conclude that this would impermissibly impair each buyer’s pre-amendment contract rights.”
This ruling is a very significant ruling, and a ruling that alters the current landscape of pending deposit recovery cases. Of course, if the developer did in fact place the funds in two separate accounts, as required by Florida Statute, and this recent case, then the developer should be in a position to shield off attacks from purchasers.
However, one of the more interesting discussion points in this case is that the Third District Court of Appeal did not give any credence to an advisory opinion issued by the State of Florida providing guidance for developers with respect to this issue.
That advisory opinion suggests that separate accounting records was sufficient to comply with the statute at issue.
So it is likely that most, if not all, developers relied on that advisory opinion. And if they did, then this recent case from the Third District Court of Appeal concludes that such reliance was misguided. Indeed, this ruling from the Third District Court of Appeal could greatly alter the landscape of these ongoing disputes in favor of purchasers, and against developers.
Consequently, if the developer failed to comply with F.S. Sec. 718.202, by failing to establish separate escrow accounts, then purchasers have a strong argument to potentially secure the recovery of their deposit.