Condo buyers should retain an attorney to obtain refunds on their condo deposits

California condo buyers who choose not to close their units are generally entitled to a partial refund of their condo deposit. A savvy investor who wants to cancel his condo contract should hire an attorney to protect his rights, guide him through the process, and secure a favorable settlement There was a flurry of litigation between condo buyers and sellers in 2007, and there will be many more in 2008 My fellow condo contract attorney, Jared Beck, covered many of these Florida lawsuits on his blog.

Most of the litigation comes down to three types of disputes: the developer does not open the building on time, the developer does not build the same building that he promised to the buyers, and the developer illegally keeps an excessive amount of the deposits in the collection of potential buyers. .

The focus of this post is on the latter type. Increasingly, people who have deposited large deposits in condo units prior to construction are deciding that they do not want to close. In most cases, these delinquent buyers are entitled to get part of their deposit back, but often the developer refuses to follow the law.

Developers have obvious reasons for not following the terms of their own contracts, as well as state and federal laws, which generally require a partial refund of the buyer’s deposit if the buyer decides not to close. First, most buyers are unaware of their rights and will not even try to get the refund they are entitled to.

Second, the developers themselves may not even realize that state and federal laws generally require them to provide partial deposit refunds to buyers.

Third, even if developers know that they are supposed to grant partial refunds of the deposit, they often simply make the business decision to refuse to follow the law until the buyer forces them to file a lawsuit. If only 20% of buyers sue, then the developer has to give 20% of the refunds to the canceling condo buyers, but keeps the full deposits on the other 80%.

Even when buyers know their rights and demand a partial refund, sometimes the developer simply ignores their letters and phone calls demanding a partial refund. Every major developer has its own army of attorneys, and until the buyer hires their own attorney, the developer can usually get away with ignoring letters from buyers threatening to sue. Developers know from experience that when a buyer threatens to sue but has not hired an attorney, it is generally an empty, dormant threat that will never be followed up.

California Condo Contract Cancellation Law People who buy condos in California generally put between 10% and 20% of the purchase price as a deposit. However, if they decide not to close, in most circumstances they are entitled to recover all but 3% of the purchase price under California laws that protect buyers of new condo units. So someone who deposits a $ 90,000 (15%) deposit on a $ 600,000 condo and then decides not to close is probably entitled to recover $ 72,000 of their $ 90,000 deposit, while only losing $ 18,000 (3%) to the developer. .

However, the buyer must be careful to properly notify that he does not intend to close. Generally, the buyer should inform the seller and the escrow company as soon as possible of their intention not to close and make a properly formatted request for the return of the majority of their deposit.

At this point, the clock starts ticking for the developer. If the developer follows the proper procedure and shows that the buyer’s default is more than 3%, they may be able to keep more than the standard 3%, but the developer must first send the buyer who defaults certain financial documents showing why he has right to more than 3%. The deadline for the developer to do this is pretty tight.

A smart buyer with a good attorney will review these documents if the developer intends to keep more of the deposit, challenge the documents if necessary, and then file a response challenging the developer’s calculations if there are flaws or questionable assumptions. The buyer’s attorney will also require through the litigation discovery process the developer’s internal financial data to dispute / verify the developer’s information, as well as submit subpoenas to require that the developer’s employees submit to depositions.

The best case for a buyer is if the developer doesn’t file any documents on time, and then right after the deadlines expire, file a lawsuit against the developer for a refund of the deposit. You’d be surprised how often a developer doesn’t adequately respond to a buyer’s demand for a partial refund due to sheer negligence. But again, if you are going to be able to take advantage of developer mistakes, you will need an attorney who is able to recognize and overcome them. Being represented by an attorney also allows you to negotiate a deal with the developer from a position of strength, sometimes even before filing a lawsuit, allowing you to get most of the deposit refund you are sometimes entitled to in a matter of weeks.