Lawyers start new practice: Get buyers out of contracts

South Florida Business Journal - by Julia Neyman
Mark Freerks

‘At first, this was just a small idea … [then] things went crazy,’ attorney David Philips says of the demand for his practice.
View Larger

A year ago, Miami attorney David Philips was busy drafting condo documents for major South Florida developers. But when the market slumped, he found a new legal specialty: getting buyers out of contracts.

"I'm pulling my hair out," Philips laughed, referring to the huge volume of his new work.

In the last eight months, he says he has counseled more than 100 buyers who no longer want the condos they put down deposits for. He charges $1,000 a session.

"At first, this was just a small idea, like a little embryo," Philips said of the new practice, which he runs through Web site www.condominium911.com with his partner, Kent H. Robbins. "Then, all of a sudden, the walls caved in and people started flooding through the doors, and things went crazy."

More than 40,000 units planned during South Florida's real estate boom are just now coming online, and analysts project that up to half of the condo buyers, many of them speculators, will walk away from their purchases. Some are willing to leave fat deposits on the table, but many, like Philips' clients, are looking for loopholes to get out with cash intact.

Most attorneys use one of two strategies to get buyers out. The Interstate Land Sales Disclosure Act route holds that if developers don't file certain reports with the U.S. Department of Housing and Urban Development, they must "substantially complete" the project within two years of signing the purchase agreement. Midtown Miami has fallen victim to more than a dozen buyer suits relying on this statute.

The second method relies on "material and adverse changes" that were made to the project after buyers signed the purchase agreement.

Ocean Marine Yacht Club in Hallandale Beach was hit with "material and adverse" suits after it scrapped its marina, and Philips has filed nine suits against Miami's Opera Tower, claiming the size of its pool and quality of kitchen tiles were changed.
Developer: attorneys are vultures

Opera Tower developer Tibor Hollo expressed a view shared by many area developers: Attorneys like Philips are vultures preying on buyer hysteria to make a buck.

"What's developed is a cottage industry of certain attorneys who don't have anything else to do, so they go and solicit people to represent them and take part of the money," he said.

Philips responded that attorneys shouldn't exploit buyers by shooting them into baseless litigation, but defends his practice, saying it's time developers were held accountable for delivering on what they promised.

"It's a buyer's market now," he says. "Buyers want to understand what they got themselves into in the last couple of years and what their rights are under the contract, so they can make an informed decision of how to move forward."

But aren't some speculative buyers just trying to get out of bad investments?

"But isn't that OK?" Philips countered.

He said he sympathizes with developers, many of whom are being squeezed by overly aggressive banks that are threatening to resize loans if projects don't close. But that's the developer's business, he said. His business it to keep the domino from falling on the buyer.

Philips isn't the only attorney counseling buyers who get cold feet. Attorney Michael J. Schlesinger said he needs all 10 fingers and all 10 toes to count the number of developers he's filed buyer suits against.

Schlesinger started getting calls in late 2006, and for the last four months he's been getting four or five calls a day from buyers wanting out of contracts. He has had to add attorneys to his law office to handle the sudden influx of work.

"The economy has made a new type of law practice or specialty, or subspecialty," he said. "These loopholes [to get buyers out of contracts] were not used, except for in the last eight months."

That means attorneys like Schlesinger and Philips have to go back to their condo law textbooks and investigate arcane federal statutes to tackle legal issues that didn't exist when the market was hot.

The new practice also throws a learning curve at attorneys trying to fend off buyer suits: Greenberg Traurig attorney Ronald Rosengarten, who represents several South Florida developers, said there isn't much case law on the issue. Rosengarten predicts that as buyer back-out suits head toward verdicts, courts will have to opine on the topic, setting precedent for future rulings.

For the time being, early adapters like Philips are raking in the business and, in their eyes, playing good cop to erring developers.

"You're finally getting attorneys to stand up and say, 'Hey developer, you must deliver on what you promised,'" he said. "We're Big Brother and we're watching you."