Follow-Up to the Flamingo South Beach North Tower Cancellation Story
March 13, 2008 by Lucas Lechuga
I received a very interesting phone call from a Realtor ® this afternoon. He told me that a client of his placed a contract on a condo in the North Tower of Flamingo South Beach a while back. Now that the North Tower will not be converted, his client is requesting his deposit back. However, the developer is telling the agent that his client's deposit will not be refunded unless the agent's broker gives back the front-end commission it was paid in the past. I called another agent who sold a condo in the North Tower of Flamingo South Beach and he is going through the same ordeal.
This is a bunch of B.S. if you ask me. These contract holders are not the ones looking to cancel their contract. It is the developer who is canceling their plans to convert the tower. The agents did their job in bringing the developer a willing and able buyer. I'm not an attorney but I would think that the developer doesn't have a strong argument. Besides, real estate brokerages are struggling these days. How many brokers will want to fork over the commission that was spent long ago? What happens to contract holders who bought a condo in the North Tower through a brokerage that is now out of business? Do these contract holders simply lose their deposit money?
It's a dog-eat-dog world I tell you!
Didn’t we hear something about the Related Group trying similar BS recently? I think it involved buyers that chose to walk away from their deposit, but that’s still a bunch of BS, if you ask me.
I guess the first question would be, regarding the Flamingo: is it in the contract that they can keep the deposit until the agent returns his or her commission?
If so, then I guess there can be no complaints. If not, then I think the developers are just taking the “sue me” approach. They have no contractual ground to stand on, but they’d rather wait until they are forced to give the money back after expensive litigation on the part of the buyer or agent.
For all we know, the developer could go bankrupt before any deposit money is returned. I’ve heard quite a few stories of that happening on the west coast of Florida. Even some cases of towers ceasing construction and standing unfinished, with the developer skipping town or filing bankruptcy.
The Related Group’s lawsuit was similar but not the same. They were suing to get back commissions paid to brokers who had buyers that chose not to close. This situation is different because the contract holders are not walking away. It is the developer who is choosing not to follow through with the contract. I haven’t looked at the Flamingo contract but I highly doubt that it has something in there that says that they can keep the buyer’s deposit if the agent doesn’t return the commission. If it did say something like that then most brokerages would probably have held the commission in escrow until the condo closed.
Something’s missing here…there’s no way the developer can make a deposit refund provision contingent upon the broker’s performance which is beyond the buyer’s control (at least without the broker being a party to the contract). I’d like to see the relevant portion of the Flamingo contract to determine what rights the developer has or doesn’t have.
Drew,
In my opinion, the developer is probably just trying to prolong the inevitable. They likely don’t have any legal right to make such a provision.
i’m surprised by this. any decent lawyer representing a unit holder would trash this conduct by the developer and seek fees to boot.
Disgusting. South florida is increasing it’s reputation as a dangerous place. No one will want to make an offer on a residence for fear of getting tangled up in something more than they are bargaining for. Everyone stands to lose in this market.
I smell a big fat lawsuit. Easy one to take on a contingency basis.
“I have just two philosophies: You never go broke from making a profit, and pigs always end up getting slaughtered.” –Jorge Perez, in interview with South Florida CEO Magazine Sept. 2005
When the times get tough, we’ll see how well Perez and fellow developers follow that philosphy.
This story will get picked up by the local papers by next week. Just wait and see. I was shocked when I heard this. My reaction was “Now I’ve heard it all”.
I have another big story that I’m working on that should be posted by next week. I need to do a little more digging though. I have about 80% of the details but still need to confirm the last 20%. It’s pretty big though. I’m going to announce the first Miami developer to go bust. Hopefully the papers don’t beat me to it though.
Well, it could be worse, the developer could have skipped the country!
Well, next time around, brokers will need to add an addendum to the developer contracts that all commissions paid at any stage are earned in full, non refundable in the event of cancellation of the project or non performance by the purchaser. If the purchaser walks away from the contract, the developer still has to pay all commissions due to the broker. We saw developer contracts get more one sided as the boom escalated and I really hated the attitudes most sales centers had. Developers have to tread a little careful now not to alienate brokers if they want to have a hope in hell to sell more units.
Wow! It’s nice to see some condo news from my hometown.
If the developer leaves town it really doesn’t matter… Everything is already in Escrow….. I have a buyer who will sign an offer to buy a resale from the south tower..subject to his getting his deposit back… this should play rather nicely….The good news he had no agent when he made the contract for the North Tower and it looks like it should be okay.
Madeleine- Im 100% with you, These developer’s deserve to go bankrupt for taking advantage of buyers, now they are feeling the pain and they are beginning to cry!!
Lucas. This doesnt make sense they are stupied but not… that stupied its a big box developer…. Ill ask around
BFG. Sup?
I’m trying to think of what the motivation for MCZ/Centrum must be to do something like this. On the one hand, I can see them thinking they have nothing to lose and may end up keeping some deposits, or at least delay having to give them back. To those who say they would risk alienating the broker community, if and when the market rebounds to the point where it makes sense to convert the North Tower, I seriously doubt that brokers will shun the opportunity to make some commission. They may require clarification of the payment/refund provisions, but they won’t stop selling the Flamingo.
On the other hand, why damage your brand and relationships with the market for just a few bucks? I think this is a sign that MCZ/Centrum are in real financial trouble if they are having to resort to such tactics.
USA Today has just reported that Florida now has the distinction of having more mortgage fraud than any other state in the country.
Couple that with corrupt local governments and bad tax policy and now even greedier developers, and you have good reasons for buyers to steer clear.
Lucas gets int’l exposure in today’s Financial Times (www.ft.com) in an article re condo fraud in Florida. Good press for Lucas, bad press for the Florida condo market.
You should start selling ad space on this site……..you can be the next Kristopher Hinson (but with ethics/morals).
I actually had a unit in the North Tower on contract and have already sent in my termination agreement. Hopefully the check is in the mail…..
Drew,
Thanks for the heads up. I don’t even remember doing that interview.
Bill p,
That’s nothing new. Florida was first in mortgage fraud last year as well. It’s probably been that way for a while.
I agree…the end buyer can’t have his/her deposit held ransom because commissions were paid out in advance to the broker. The end buyer is just a victim and had nothing to do with this cancellation.
Regardless, the broker isn’t entitled to the commission since the sale didn’t happen. It doesn’t matter whether the money may have been spent or not the money must be returned to the developer.
Why as an escrow agent would you accept these instructions from the developer. Can the escrow agent go to court in Florida to get a ruling on this? Saves litigation by individuals.
In this instance, the developer is being outrageous, I cannot believe it says this is the contract, nor the requirement for a 3rd party performance being enforceable as part of a contract ( a 3rd party over which neither buyer nor seller has any influence over).
As for the more general issue of requiring agents to repay the commissions. Sorry to be tough, but I don’t see the issue. It’s harsh, but it is plainly stated in most contracts. Just as your deposit, is generally plainly stated, to be forfeit if you fail to close.
Yes, I understand the money was long spent. Should manage your cashflow better as an agent, surely. Yes, I get that it’s unfair (isn’t it unfair on the developer also who told the agent – I am advancing you the money, but they have to close otherwise I can get it back). Yes, developers are silly to advance money, but…etc etc
This morning the Miami Herald reported that Florida has the highest rate of real estate fraud in the U.S. whats wrong with people in this city??? “absolute power corrupts absolutly” thats what happened to all these brokers, bankers, etc. They all deserve to be fined up the ass, that would send a message. this whole Flamingo south beach ordeal is ridiculous, its crazy. But I guess what more could I expect from a city that was built on corruption. welcome to Miami.
Contracts, I believe, contain language that basically say the closing has to happen for the commish to be paid. Regardless of the buyer walking or the developer folding you have to take into account that the practice of paying commish up front is technically nothing more than an incentive byproduct of the go-go days of pre-construction sales on steroids in places like Miami. Most realtors then & now still get their check upon closing. If a scheduled closing for today collapses at the last minute does the realtor get or expect a check? I know the ramifications can be tough for realtors but this is a revenue business .
Seanjohn,
That’s one way to look at it but it doesn’t mean that the contract holder should suffer.
Bottom line is that everything goes back to the contract. if there is verbiage or clauses that states the broker must give it back —then they have to—if there is no language to that effect, then the developer is on the hook.
There is , or also should be language that states which party must pay legal fees if a law suit ensues.
all other speculation is simply that;speculation
it has no bearing on the outcome reagardless of who you may think is right and who is wrong.
more mad news from wall street ….
Bear Sterns down 40% midday; JP Morgan Chase to bail out !!!!
Lucas
Mix Masta is right. Think of all the buyers who have walked away from deposits knowing that a significant % of that cash went to the realtor. The only difference is that typically they lack the leverage the developer has in this case to redress a refund. Realtors, in these cases, & they are not rare, are the only winners. Commissions represent sales, not just bringing in qualified buyers.
IMPT. QUESTION:
Since we’re speaking of deposit returns…. Has anyone on this blog heard of or seen any new constructions that are short from the contracted square footage. If so, how easy would it be to recover a deposit if a unit that was supposed to be 1000 total square feet ended up coming in under 875 square feet “as built”? Furthermore, how much of a discrepancy is considered “substantial” or “materially adverse to the buyer” (contract language)? Please post any experiences that you have had as a realtor or buyer of pre-con condos.
Some key items were mentioned in Financial Times story about Florida–
slick real estate professionals
unusually high default rates
prices are falling
fraud for property
fraud for profit
a typical scheme
straw buyer
end up paying more taxes
Only thing they forgot to write about is developers holding deposits. I assume thats next weeks article about.
Seanjohn,
That’s not true. The following is included in the Florida Association of Realtors listing agreement:
“Seller will compensate Broker as specified below for procuring a buyer who is ready, willing and able to purchase the property or any interest in the property on the terms of this agreement or on any other terms acceptable to seller.”
“Broker’s fee is due in the following circumstances…(2) If seller refuses or fails to sign an offer at the price and terms stated in the agreement…”.
GT3:
This is a hot litigation issue right now, as it hasn’t previously been examined much by the FL courts. Currently, there is no bright line rule or specific set of criteria as to what constitutes “material and adverse.” There are 2 cases which turn on the “material and adverse” question pending appeal in the 2nd and 4th districts, each case has a completely different take on the issue…my feeling is that there will be a slew of litigation centered on this particular issue and that ultimately the FL Supreme Court is going to have to answer your question.
There’s certainly a strong argument in favor of a buyer who loses more than 10% of his or her square footage though…plus courts generally lean towards demanding specific performance on contracts for the purchase of real property (there is a lot more to it than that, but this is simply the general rule).
GT3: That’s the million $ question right now. There are plenty of cases pending in court right now that should soon decide what is a “material and adverse” or “substantial” change. I think a difference of 125sf would be considered “substantial” on a 1,000sf unit, but it also depends on the developer’s disclaimers in the condo docs and marketing materials regarding their methods of unit measurement.
Well, the financing of real estate purchases just took another hit today. Another Fed rate cut will come soon…
This is not looking good since the Fed seems to be behind the curve here, not ahead of it. I am now, for the first time, concerned that the country may go into a very nasty recession (and so will the rest of the world). On the upside, commodity prices will be coming down.
lucas
“able to purchase”? That means : close . Rerarding your qoutation concerning broker fees ,whats the whole sentence? Cherry picking or trying to infer from contracts clauses is a non starter. We both know this has become an issue for brokers as buyers & developers have incurred losses that include commissions. The legal arguments defy available blog space right now. What I was addressing was your “thats BS” point. It does suck I agree but those contract holders who are out the money may see the developer & the realtor in the same vein right now.
But Lucas isn’t the point about Flamingo etc is that these aren’t MLS listings we are generally talking about, and the contract typically has addendums with these new builds which specify how and when a broker will get paid.
Either way, sounds like those FAR/NAR terms probably constitute unfair contract terms too, even if both parties agreed to the terms willingly.
Whatever the rights or wrongs, the practical matter is there’s no way in this market that anyone is going to voluntarily give back refunds, commissions etc, especially since both sides can have lawyers on no-win no fee basis.
Anyone at Flamingo – though – if MCZ will give you back your deposit if you pay them 1/3 of the realtor comm back – sometimes you have to make a commercial decision. Litigate for years against developer and escrow agent or suck it up and put it down to learning for next time.
Mark: ” On the other hand, why damage your brand and relationships with the market for just a few bucks? I think this is a sign that MCZ/Centrum are in real financial trouble if they have to resort to such tactics.”
This so true, they are very big developer with many other projects besides this, I’m sure it will not bankrupt them.. Also seeing that that this is a conversion their capital outlay is very small compared to one who built the building from the ground up.
Lucas: I hate so say it but it looks like you have been mis-informed. I just talked to Sales Person, MCZ Contract Manager and Escrow Agent and not a hint of resistance.
The bad news is that they are most likely not going to redo the court yard, I wonder if we can still sue them for that. As far as the north tower balconies they have to do it by the contract they have with AIMCO.
Did/does MCZ have a good reputation in general? I put up a post a while back where 2 of their FL conversions were showing up on the Most foreclosed lists. Were they considered top notch or a wink wink, do whatever it takes to get contracts signed and people financed.
BTW regarding “material and adverse.”, people (ie. lawyers) need to start reign in condo marketing materials after this washout. Like the 900 Biscayne ad that magically erases the overpass highway in-between it and the Performing Arts center… instead putting a nice pedestrian palm tree lined walkway. You mean the city of Miami and the Federal Government actually won’t knock down a highway for 900 Biscayne?
http://i25.photobucket.com/albums/c90/900Biscayneguy/900a.gif
http://www.nbc6.net/2006/1004/10000409_480X360.jpg
They might as well have taken a picture of 900 Biscayne and put it in the South of France… what would the difference have been?
And don’t even get me started on the original Flamingo “artist renderings” of the purported future courtyard with water channels in the middle… Everybody knew that was just a bunch of rigamarole. Their artist should have kept on rendering and put in a volcano with dragons flying around. “Free Dragon rides included with corner units”
As the Vice President of Sales for the Flamingo South Beach developer, MCZ/Centrum, I would like clarify the misinformation that has been posted. Every buyer requesting a return deposit on the North Tower is getting their money back since we cannot give them a specific delivery date at this time. We are not withholding anyone’s deposit for any reason. We respect and value all our clients and apologize for any inconvenience. I encourage anyone who has questions to contact the Developers Sales Center at 305-531-2922 and we can help correct any further misconceptions.
Well thats the end of that thread…lol
Quoting JL: “BTW regarding “material and adverse.”, people (ie. lawyers) need to start reign in condo marketing materials after this washout. Like the 900 Biscayne ad that magically erases the overpass highway in-between it and the Performing Arts center… instead putting a nice pedestrian palm tree lined walkway. You mean the city of Miami and the Federal Government actually won’t knock down a highway for 900 Biscayne?”
That would be funny If 110+ people, including myself, got suckered into paying a $40 per sq. ft. premium to those “machismo prix (sp.)” (my OPINION) for the Brickell side of 500 Brickell, based on their beautiful literature showing a view of the MIami River and Biscayne Bay.
Then , a week after the second deposits,
“poof”… away went the 500-B crew and up went the signs for the sun-blocking phallic symbols called the ICON.
Strange that Jesse Ottley didn’t mention the “ICON”……well. then again he could have raised the $4,000,000 to $5,000,000 in “Brickell-side premiums”. I guess “lying by omission” (my OPINION) doesn’t matter to some of these people.
Closings in 60-90 days! BOMBS AWAY!!!
Anyone know what they are referring to in that ad that JL posted (the 900a.gif) when it says: “Maybe you missed your opportunity to own in The Baltics before property values soared.”
What are they talking about? Do they literally mean the Baltic states? I assume they mean something else. I doubt anyone is really thinking “damn – if only I had bought that condo in Latvia!”.
Seriously – what are they talking about?
To Alex…
I guess you will be returning all deposits with interest included to all buyer-clients? Clients with deposits should be told in writing exacting when they are receiving there deposits back. Anything else is not being candid, and can be interpeted as deceitful conduct. Are you utilizing the interest on all of these deposits held, or is full interest being returned on TOD bank rate CD? This is an easy class action lawsuit to fund and take on retainer……….an easy slam dunk.
Alex……Lucas is the man, he has the dirt on everyone…..I just cannot wait until next week.
This story will get picked up by the local papers by next week. Just wait and see. I was shocked when I heard this. My reaction was “Now I’ve heard it all”.
I have another big story that I’m working on that should be posted by next week. I need to do a little more digging though. I have about 80% of the details but still need to confirm the last 20%. It’s pretty big though. I’m going to announce the first Miami developer to go bust. Hopefully the papers don’t beat me to it though.
As lucas writes, Lucas knows!, “This story will get picked up by the local papers by next week. Just wait and see. I was shocked when I heard this. My reaction was “Now I’ve heard it all”.
I have another big story that I’m working on that should be posted by next week. I need to do a little more digging though. I have about 80% of the details but still need to confirm the last 20%. It’s pretty big though. I’m going to announce the first Miami developer to go bust. Hopefully the papers don’t beat me to it though.” as lucas writes….
I think they do literally mean the Baltic states…which is completely absurd, and makes clear that they had a complete jackass in charge of their stupid marketing campaign.
I’m surprised their brochures didn’t cite missed real estate investment opporunities in Tokyo’s financial district, circa 1984.
Also from 900 Biscayne’s marketing flyer:
“Its the missing residential link that sophisticated owners have been looking for.”
What the hell does that mean? What “owners” are looking for a “residential link”? And a link to what? Idiotic…..
900 Biscane ad is not so great but in Latvia condo prices went through the roof. In 1995 one could buy a condo for a very low price. Since then prices encreased 10 times in euros.
BFG – the ad posted for 900 Biscayne was a version used in European markets, not through media aimed at US buyers. And for Europeans investing abroad, the Baltics were a huge growth market in the late 90’s and early 2000’s.
So the comparison was one that would reasonate with those buyers. The US versions of 900 Biscayne marketing materials made no reference to the Baltics.
After posting the question, I thought about it some more and concluded that, yes – they probably do mean the Baltic states. I know property values have soared there – but you could say the same thing about almost anywhere during the boom. Just thought it was an odd choice of example. And the capitalization of “The” in “The Baltics” seemed weird, as well.
But then I remembered that the new “mark” for condo salesmen is a foreign buyer. The Baltic area was probably like the “Bakersfield, California” to western Europe’s “Los Angeles”. Saw this pattern repeated all over the place during the boom: the popular, desirable areas would get too expensive, so the flippers would move to the outside areas to “invest”. Same story in Europe, apparently.
Isabel – that explains it… thanks.
Doubt many Americans are thinking much about their missed Latvian investment opportunities. That would have been a weird choice for the US market.
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