Homes Overseas - May 2008
Property Disputes in the US – the Calvary has arrived
With the downturn in the US property market and many developers falling way behind on the dates promised for delivery of their properties more and more of our clients are turning to us for advice about what legal rights they may have.
The good news is that many of them have the right to recover the entire amount that they agreed to pay for the house – even if it has since fallen in value by 50%. BUT ONLY IF THEY ACT QUICKLY.
You will be aware that in the United States there is central (federal) law and there is state law. The law in the various states may differ but, over arching the state law, there remains a constant body of federal law.
How does this help?
Well, imagine somebody who agreed to buy a property in the United States – it doesn’t matter in which state – in January 2007, with the property due for delivery in April 2008. The property is now late and the buyer feels there is little if any chance of it being delivered at all.
The buyer could, of course, bring an action against the developer for breach of contract. In most states unless the contract specifically says that the buyer will have a right also to claim his legal expenses then he may not be able to recover the cost of bringing that court case and there could be a million arguments about the merits of the action for breach of contract which could, therefore, take a long time to resolve.
As an alternative to this breach of contract case the buyer may have a much simpler way forward using some interesting US federal laws. The first is the ‘Interstate Land Sales Full Disclosure Act’.
Under that Act, if the buyer bought a property in a complex that contained 100 or more units and the complex was marketed outside the state in which it was built then the developer was obliged to comply with federal legislation. That legislation required him to register with the Department of Housing and Urban Development or file a certificate with them stating that he was exempt from the need to do so. If he failed to do one or other of these things (and many simply forgot or decided they wouldn’t bother) then each and every one of the contracts that were signed in relation to that development will be completely null and void. This means that the developer must pay back the full amount of the money you have paid plus, in most cases, your legal expenses.
If the developer was required to register and did so it does not end there. The developer was also obliged to put into the contract of sale a clause stating that you had the right to cancel within 7 days. He was also obliged to give you a document called a ‘Property Report’. If he failed to do either of these things – or a number of other things required by the federal law – then, once again, you have the right to cancel. This is so even if the 7 day cooling off period has long since expired. What is a Property Report? It is a formal document about the property you are buying. You should know if you had one. It is quite ‘chunky’ – usually extending to 20 pages or so – and it would be clearly marked Property Report.
The right to cancel the contract remains in place for a minimum of 2 years from the date when you signed the contract of purchase. If the developer did not comply with the rules you can simply demand your money back. Even if the property is now worth a lot less than when you agreed to buy it.
In certain cases you have longer. If you did not know about the existence of this federal law (if you did not use a lawyer this will almost always be the case and even if you did use a lawyer it is arguably the case) then the period for cancelling is extended to 2 years from the date when you became aware of the existence of this federal law or, in any case, a maximum of 3 years.
Even if you are outside the 3 year period the game is not over. Another part of federal law is the ‘Deceptive and Unfair Trade Practices Act’. Under this law if the developer broke any piece of consumer protection legislation (and there appears a good argument to say that the other law is a piece of consumer protection legislation) then you have a maximum of 4 years in which to make a claim.
You can even make a claim AFTER you have taken delivery of the house. If the developer did not comply with the rules then the contracts are of no legal effect and you are entitled to apply for your money back – providing you choose to do so within the time limit specified.
Why am I writing about this now?
Well, many of the people who bought properties at the height of the US property boom are now reaching the end of the maximum period during which they can make a claim. If they do not take action very quickly they will lose these rights.
Once they are lost they are lost forever.
What should a buyer do if they think that they have been affected by any of this? Well the first thing they should do is to contact us! Or contact another law firm with specialist experience in this field. The lawyer will need to see copies of your contract and all of the other documentation relating to your purchase and will then be able to give you advice as to whether you are likely to be able to make a claim.
How much does this cost and how long does it take? Well, this all depends. If your claim is for more than \$75,000.00 it can be filed directly in the federal courts (bypassing the state courts) and this is usually simpler and faster. In these cases a typical claim might take 6 months to deal with and cost about £6,000.00 if it does not have to go to a court hearing (and most do not). Remember though, your legal expenses could be recoverable, at least in part, from the developer.
This is an immensely powerful set of legislation designed to protect the buyer from unscrupulous or inadequate developers. Most developers will recognise the power of legislation and settle claims brought quickly – because if they fight and lose then they will face claims from every single person who bought on their development and all of them will be demanding a complete refund.
It also gives an amazing opportunity for the person who bought a property in a development where the developer broke the rules. Even after he has taken delivery of the property he can still demand a refund (within the time allowed) – even if the property has since lost a third or half of its value.
Of course, it is not always as simple as it may sound. Such claims might drive the developer to bankruptcy but, if that is likely to happen, he is not likely to be able to deliver your house anyway and at least this route allows you to get to the bottom of the position fairly quickly and fairly cheaply.
For most people the biggest danger is that, by doing nothing, they allow this opportunity to slip by.
John Howell
Senior Partner
The International Law Partnership LLP
Solicitors & International Lawyers
The Vaults
193-197 High Holborn
London
WC1V 7BD
© The International Law Partnership
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