Q: We signed a contract for an investment home in Florida two years ago.
A couple of months after we signed the contract, we received a letter from the builder stating that they had encountered a delay in getting approvals and permits to start construction and that they project would be delayed by 10 months or more.
They also indicated that they were changing the homeowner’s association’s fees and that they needed us to sign a “Disclosure Summary” that was omitted from the contract.
We were asked to sign and send back the “Disclosure Summary” within 10 days or we could cancel the contract. I misread their letter and thought they needed me to it send it back if I wanted to cancel the contract. I never signed or sent them the “Disclosure Summary.”
Earlier this year we received a letter from the builder stating that they finally got the permit and could start construction on the project and they requested the additional deposit per the contract. It also threatened us by saying that if we don’t send the deposit on time, we would lose all of our deposit.
With the slowing housing market, the implied threat of the letter is very discouraging. We are thinking of backing out the contract.
Do you think we can back out the contract because the disclosure was not in the contract or that we can get out of the contract because the home was not completed within 2 years of the date that the contract was signed?
A: In light of the slowing housing market, your question is quite timely and probably of great interest to many.
In the booming real estate market of the past decade, nobody wanted to back out of their real estate deals and sloppy paperwork rarely stopped a deal or even got noticed.
Now that the market is slower and people are looking at every which way to back out of a deal, you have raised a number of great issues and questions.
The first thing you have to know is that buying new construction real estate has its pitfalls and you should only proceed to purchase real estate with quality advice from a real estate attorney. While many people elect to go it alone when buying real estate, some of them find that they could have used legal help early on that could prevent large losses later in a transaction.
The second thing to know is that there are consumer protection statutes at the state level and the federal level. In some cases, state laws and federal laws may give real estate purchasers different protections.
Many states have specific disclosure laws, in particular with the sale of condominiums or large scale developments. These disclosure laws frequently allow a purchaser to cancel the deal if the purchaser is not given the disclosures required by law.
Federal law is somewhat more limited in its application to local real estate transactions, but in the case of the sale of large scale developments involving vacant lots, homes or condominiums, buyers are given a second set of disclosure documents. If these documents are not given to buyers, a buyer has the right to terminate the transaction up to 2 years following the signing of the contract.
It’s unclear what disclosure documents you received prior to signing your contract and what disclosure documents you received months later.
When it comes to state-mandated documents, you would need to consult with a real estate attorney located where the property is that you are buying to determine what your rights might be to terminate a contract.
In some states, if you get the disclosure documents late, you have a certain number of days to terminate the contract. If you fail to terminate the contract in that time period, the deal moves on.
Under federal law, you might have a right to terminate the contract if you never received the disclosures required under federal law. In simple terms, the Interstate Land Sales Full Disclosure Act was passed to give consumers an opportunity to understand the risks involved in buying properties that were to be developed. If the development was to take longer than 2 years, the consumer has to receive the required disclosures. Of course, the law is not that simple, but in essence, a consumer of a yet-to-be-built condominium development that was purchased by people from various states, needed to have received certain disclosures.
If the consumer did not get these disclosures, the consumer could terminate the contract.
You need to get all your documentation in order and sit down with a real estate attorney to assess your legal options and determine whether you can cancel the deal at this late date — or not.