The Court held that the plain meaning of § 718.202 required the developer to have established two separate escrow accounts to hold the purchaser’s deposit, since the deposit was in excess of 10% of the purchase price of the unit.  In so holding, the Court commented:

Subsection (1) states that all payments up to 10 percent of the purchase price are to paid “into an escrow account” by the developer.  Subsection (2) states that all payments in excess of 10 percent of the purchase price are to be “held in a special escrow account established as provided in subsection (1) . . . .” The use of the modifier “special” in subsection (2) differentiates the account referenced in subsection (2) from the escrow account described in subsection (1), notwithstanding that the “special” account is to be established as provided in subsection (1). That language referring back to subsection (1) does not mean it is the same escrow account, merely that the second, “special” escrow account is to be established in the same manner as the escrow account described in subsection (1). Had the two accounts been referring to the same account, rather than discrete accounts, the legislature could have simply stated that payments in excess of the 10 percent are to be held “in the escrow account already established in subsection (1).”

Section § 718.202(5) of the Florida Statutes provides that

The failure to comply with the provisions of this section renders the contract voidable by the buyer, and, if voided, all sums deposited or advanced under the contract shall be refunded with interest at the highest rate then being paid on savings accounts, excluding certificates of deposit, by savings and loan associations in the area in which the condominium property is located.

As a result, the Court held that “… given the express language of section 718.202(5), Swire’s failure to establish two separate escrow accounts for Plaintiffs’ deposit violated the statute, and rendered the Purchase and Sale Agreement voidable by the Plaintiffs.”

The Court’s decision has widespread implications for Florida condominium developers that did not establish two separate escrow accounts to hold purchaser deposits that exceeded 10% of the unit’s purchase price.  Under the decision, purchasers would be entitled to void their contracts and seek a full refund of their deposits, plus interest as provided by the statute.  For many developers that have already used a portion of purchaser deposit funds for construction purposes, this means digging into their own pockets to pay back purchasers, something that in this market may be extremely difficult.

One way to try and determine whether a condominium deposit was segregated into two separate accounts as required is to simply look at the back of the canceled checks, to see if they were endorsed with the same deposit account number.  If that doesn’t answer the question, or the canceled checks are no longer available, escrow agents should be able to provide this information.

*Any italic emphases in original quotes were lost in formatting this post.

Florida new construction buyers fighting with their developer over who gets to keep the deposit may get some well-needed relief in Court these days, thanks to a recent decision from the Third District Court of Appeals. On October 21, 2009, the Third DCA (with appellate jurisdiction that includes Miami-Dade County) held in Terra-Adi International Bayshore, LLC. v. Kostandinos Georgarious, et. al. that the purchasers were entitled to the immediate release of the amount deposited over 15% of the purchase price of their units, pursuant to the terms of the purchase agreement, even before the cases go to trial.

The purchase agreements at issue in Terra-Adi contained language which entitled the purchasers to a refund of any amount deposited over 15% of the unit’s purchase price upon a purchaser-default. After the trial Court ordered that the developer return this amount immediately to purchasers, the developer appealed. Even though purchasers were claiming rescission and breach of the purchase agreements (among other claims), they took the position that the language of the purchase agreements provided that, regardless of the outcome of the litigation, they were entitled to the immediate return of any amount they deposited over 15% of the purchase price. In part, the default provision of the purchase agreements state as follows:

If Buyer defaults after fifteen percent (15%) of the Purchase Price, exclusive of interest, has been paid, Seller will refund to the Buyer any amount which remains from the payments Buyer made after subtracting fifteen percent (15%) of the Purchase Price, exclusive of interest.

This language is one of the acceptable “default provisions” provided by the Federal Interstate Land Sales Full Disclosure Act, commonly known as ILSA. By including this language, the developer essentially obligated itself to return at least that amount to the purchasers, even if they defaulted and the developer prevailed in the litigation. Failure to immediately release those funds, the purchasers successfully argued, amounted to an improper restraint on the use of their own assets.

This is a clear win for new construction buyers involved in litigation with their developers, at least in the Third District. Litigants previously inclined to settle for only a release of this ILSA refund amount (the amount deposited over 15% of the unit’s purchase price) may now find themselves willing to go the distance with developers, since the Court’s ruling in Terra-Adi should mean that they no longer have to wait for the case to end (which could take years) in order to get that amount returned to them. Although the war continues, this battle win goes to the purchasers.

Welcome to our Florida Deposit Disputes section! This topic thread is intended to cover many issues pertaining to deposit dispute law and litigation in Florida, including the following:

• Purchaser-considerations in attempting to get a deposit back from a seller/developer
• Contract voidability claims under Chapter 718 of the Florida Statutes (the Condominium Act)
• Claims under Florida state law regarding the contract terms itself (enforceability of certain contracts)
• Claims for breach of the purchase and sale agreement
• Claims under the Interstate Land Sales Full Disclosure Act (ILSA)

These claims are specific to disputes between purchasers and developers of new Florida construction only (both condominiums and other types of property). This topic thread does NOT cover rental deposits, deposits paid to contractors to perform work on an existing property, or any other issues.