Thursday, November 3, 2011

Vue buyers win deposit back in ruling that could affect future condo projects

A federal judge has ruled that a couple who tried to get out of their contract to buy a condo at the Vue should get their $145,485 deposit back.

The ruling against the uptown luxury high-rise could also dampen future condo development - particularly for large projects, some say.

Lawrence and Ke Ding Berkovich sued the developer of the Vue residential high-rise in uptown in December saying they should be let out of their agreement to buy a $1.28 million condo.

The Charlotte couple had entered into a purchase agreement on Dec. 10, 2008 to buy unit 5102 of the 51-story high-rise at Fifth and Pine streets, the filings say.

The couple canceled the contract less than two years later on Oct. 18, 2010, according to court documents. The couple claims there were various paperwork problems, including the developer's failure to include a recordable legal description of the property. They also sued for unfair trade practice and misrepresentation.

Last month, U.S. Chief District Judge Robert Conrad, Jr. ruled that a proper description of the property had not been provided with the sales contract as required by the Interstate Land Sales Full Disclosure Act. The buyers, therefore, were entitled to cancel the agreement within two years and get their earnest money back, the ruling says. The judge did not rule on the unfair trade practice or misrepresentation claims.

"This could affect other buyers," said the plaintiff's attorney, Celie Richardson of the Richardson Law Group. She declined further comment.

Vue developer Dan McLean said in a statement: "The Vue disagrees with the ruling and we plan to appeal the Court’s decision.”

Between the time the luxury condo tower was announced in 2005 and when it was finished in fall 2010, the economy has blossomed and then burst, uptown condo projects have sprouted and then fell out of favor, and buyers have gone scarce - either unable or unwilling to commit money toward a new home purchase. Some buyers say appraisals are coming in below contracted sales prices, making it difficult to get financing.

The Vue has said roughly 60 percent of the 409-unit building was pre-sold. Since the tower opened, fewer than two dozen buyers have closed. Others want to get out of their deals but are afraid of being sued by the developer. The Vue's condos started selling for just under $200,000 to more than $2 million. Buyers paid 10 percent of the contracted sales price as a deposit.

The Vue countersued the Berkoviches, asking the court to compel the buyer to complete the purchase. Conrad also ruled last month that because the contract was legally terminated, the Vue's counterclaim was moot.

The ruling may have broader implications, attorneys say.

In North Carolina, a condominium doesn't legally exist until the developer files a declaration under the N.C. Condominium Act. The act, however, doesn't permit the declaration to be recorded until construction of the building containing the condo has been completed.

Many developers pre-sell units before construction starts, as was the case with the Vue.

The Vue had argued that it did not deserve to be "penalized" for its failure to include a recordable legal description in the parties' contract of sale. The judge agreed it didn't deserve to be penalized, "especially when it appears that North Carolina law makes such a thing impossible," according to the filings.

Developers can sell condos without a recordable legal description, the judge wrote in his ruling.

But the Interstate Land Sales Full Disclosure Act "provided purchasers with a right to revoke the contract for two years to guard against possible fraud," he wrote. "...Plaintiffs are entitled to the prophylactic measure Congress granted purchasers deprived of a recordable legal description."

Attorney Bob Turner with Horack Talley said the ruling, if upheld, could change future condo development. Turner was not involved with the Berkovich case.

Turner said "the clear implication" of the ruling is that "the developer (and the developer's lender) must be confident that the entire project can easily be completed within two years from the date the first contract is signed."

Because lenders often require a significant number of pre-sales before construction can start, he said, this could essentially shorten the time a developer has to finish a new project.

"As it stands now," Turner said, "large condominium projects may become a thing of the past in North Carolina."

13 comments:

Anonymous said...

Prophylactic measures are always a good idea when dealing with real estate.

Anonymous said...

Wow, a 51 story condo with only 24 residents. Now that's interesting :)

Anonymous said...

dumb ruling by the judge. You would have to go apartments then convert to condos a few years down the line. To even have a chance at financing.

Tandemfusion said...

How is it a "dumb ruling" when the judge simply follows the law as it is written?

There is little question that the Interstate Land Sales Disclosure Act allows the cancellation. Short of finding a Constitutional impediment, the judge had little choice. It is not his proper role to say that an otherwise properly enacted law should be void in one state because of what its impact may be on private businesses. If developers want redress, it is to be found in Raleigh, in revising a cumbersome law.

Anonymous said...

If large condominiums become a thing of the past, its probably more because of the whole "12 people have closed on 51 story building" thing.

Vito Andolini said...

oh, those poor rich people dumb enough to put money down on something that doesn't exist. Yet another short sited attempt to get rich, and then the bubble goes burst! Tear that monstrosity down, or let the homeless live there, guaranteed it'll take at least 10 years for it to turn any kind of profit anyways. morons

Fred Flintstone said...

For people who bought into this project that actually intended to live there, I sympathize. But in far too many of these cases, speculators bought units at pre-construction prices intending only to sit on them until they could flip them for a profit thereby contributing to the unsustainable real estate appreciation bubble and, ultimately, it's collapse.

In my experience, it's usually those people that have wads of excess cash sitting around to speculate with - the Investor Class that comprises most of the top 1% - that are the most angry about having to pay their fair share of taxes.

THOSE people I have absolutely no sympathy for; they got what what was coming to them.

J said...

Gulp that blue Kool-Aid, Fred! That's right, that "top 1%" is responsible for every evil that has ever befallen mankind. Good to know you can digest and regurgitate the Democrat Party talking points so quickly and efficiently.

The problem with The Vue, and the dozen other now-scrapped high-rise condo buildings, is the same as most of Charlotte's ills - a matter of image. If we build 20 high-rise condo buildings with units that only the Bobcat & Panther players and Fortune 500 CEOs can afford, people will think highly of us! Oh, goodie!! Somebody might call us a world-class city!!! But what about the other 90% of the units after the pro players and CEOs have their places? No problem. We have plenty of neurotic financial services employees who are just as obsessed with what other people think of them as our government officials are, and they'll buy them, never mind that they can't afford them.

It was simply mind-boggling that people and companies that were allegedly smart kept feeding this fantasy that there was actually a market for 10,000 condos at $450 a square foot.

Anonymous said...

I wish I had gotten some prophylactic protection from Congress before my last real estate transaction too.

Anonymous said...

Fred Flintstone gets an A. Well said.

Anonymous said...

To "Vito Andolini" who posted at 1:36 PM - you obviously don't know the first thing about preconstruction financing for condos. It isn't just "people that are looking to get rich" - it is a proven method of securing the funds necessary to build the unit and typically you get a better price by purchasing preconstruction. I did that with a condo in Florida in 1998 and we have been very happy with it and still own the unit. As for the 2 year issue, that is a problem with large projects and something should be done to address it - many of these large projects can't reasonably be completed in 2 years. Purchasers should have to live up to their obligations (or at least forfeit the deposit) since, otherwise they have it both ways - if the value goes up they keep the unit and if it goes down they walk away. That just isn't right!

Anonymous said...

Future condos in downtown? LOL.

Anonymous said...

Maybe if the smart real estate guys learned how to finish a building in less than two years they wouldn't have so many problems. But asking the construction industry to grow up and be more productive is just plain laughable. It takes more time and more workers to construct a building today than it did 20 years ago.

These luxury buildings aren't good quality and they're way over-priced.