Condo Relief Act Shields Bulk Buyers from Liability

MIAMI- On Tuesday, the governor of Florida, Charlie Crist, signed into law the Distressed Condominium Relief Act, which is designed to give assurance to bulk condominium buyers that they won’t be liable for the flaws in a building they did not develop. Theoretically, as bulk buyers are spared this liability, they will buy up more of the excess units built during the boom years. The law will goes into effect on July 1, 2010.

Because the new law takes the element of liability off the table, says Warren Weiser, chairman of Continental Real Estate Companies in Coral Gables, bulk buyers will no longer have to budget for possible litigation.

The new condominium law was written two years ago at the beginning of the real estate crisis, at a time when there were few bulk condominium purchases. But in the last couple of years, the number of these purchases has grown tremendously. According to Condo Vultures, LLC, a real estate brokerage and consulting firm in Miami, in the period from July 1, 2008 to April 30, 2010, there were $976 Million worth of bulk condo sales in South Florida, most of which occurred in 2009, when there were $863 Million worth of these sales.

While there have been a lot of bulk condominium sales in the last year, still, proponents of the new law argue that prices for these units would be higher, if bulk buyers were not worried about being made to pay for the sins of earlier developers.

As the law stands now, says Mark Grant, attorney with Ruden McClosky in Ft. Lauderdale, who helped write the legislation, the way the Division of Florida Condominiums interprets the law, anybody who sells--or leases for five years--more than seven units in a condominium development during a 12-month period, is considered a developer.

The current Florida condominium law hasn’t made a distinction between a “creating developer” and a “successor developer,” even though the Division of Florida Condominium’s regulations do make that distinction, says Grant. “But the courts are not bound to follow the regulations, which are the interpretations of the law by the condominium division,” he says.

Although the law says that developers must give warranties on a building they build, the creating developer doesn’t exist anymore and the bulk buyer is the successor to the developer. Therein lies the rub, and the reason for the new law.

Now that the law has been signed, condominium prices should rise, says Grant, because bulk buyers will no longer insist on a discount for taking on another developer’s risks. Higher prices serve several purposes, he says. First and foremost, they help protect the investments of those who bought into a condominium early, because they are the ones who paid the highest prices, says Grant.

Currently, says Grant, most of the bulk condominium buyers are foreigners who don’t need financing. This new law will, theoretically, have the effect of encouraging more sales and, as more units are sold, that makes the remaining units financeable by Fannie Mae, because the agency won’t approve loans in buildings where more than 15% of the units are in default and not paying assessments. In order words, this new law could end up encouraging more Americans, who might be eligible for loans backed by Fannie Mae, to buy condominiums.

There are a lot of benefits in this law for the residents/owners of the condominium, not just the bulk buyer. If there is an absentee owner collecting rent and not paying assessments, this new law allows the association to collect the rent directly from the tenant or tell the tenant to pay the rent to the association, rather than the landlord, says Weiser.

Before this bill passed, says Grant, lenders who foreclosed on units only had to pay the last six months of assessments before they took title. “If it takes two years to foreclosure, those lenders had to pay only for six months, but the new law will expand that period to 12 months,” says Grant.

The way things stand now, says Grant, many people who are living in the condominium are paying their assessments. But developers who have gone bust aren’t paying assessments for the units they still own. Additionally, the banks which have started to foreclose, but have not taken title to condominiums yet, are not paying, so the building suffers. The new law will help make it easier for condominium associations to collect what they are owed. In short, this law may help to heal once-fractured condominiums.

Source: http://www.globest.com/news/1675_1675/florida/300125-1.html

By Hortense Leon