Friday, April 06, 2007

Santa Maria Condos Raise Question of Fiduciary Responsibility

This week it was reported that the Santa Maria condominium developer and real estate agents are being sued for fraud.

The plaintiffs in the case are admitted "flippers" - purchased pre-development units while planning to sell them before closing. The plaintiffs had to put up close to a quarter-million dollars for a unit and now are about to lose their deposits since they are unwilling to close on the property.

The plaintiffs blame development delays and incomplete work for not being able to sell before closing. They feel they were defrauded by the real estate company and the Santa Maria developers who they allege promised them a huge return on their investment.

Most local reaction has been against the flippers - saying, as in today's Citizen's Voice, "I have no sympathy for those who bought the Santa Maria condos. Come on...a fool and their money are soon parted."

I'll admit, my initial reaction was the same.

But maybe we should look at what realtors in general have been saying, and questioning if they have been irresponsible in their "buy at no limits" pitch. I've pointed out more than once Regina Corcoran's (a realtor) foolish advice to load up a credit card to purchase a house.

There was a time in the US that purchasing stocks was considered a gamble, and if an investor lost his or her money then tough luck. But that attitude changed in the late 1980s - when courts, states, and regulators began to look at stock brokers as fiduciaries with a responsibility to the financial welfare of their clients. Maybe it is time for realtors to be treated as fiduciaries and not be allowed to bury a client in an investment. And what about the idea that the realtors and developer may have actually committed fraud by promising gains to these plaintiffs, knowing that these purchasers couldn't afford to close on the property?

So, how bad were the Santa Maria purchases? Apparently horrible.

It is no wonder why the plaintiffs cannot sell the units. They are priced at $1401 per square foot! With the crash in the condo market, these units are priced at more than twice what nearly any other condo costs.

Seriously, $1.3 million dollars for a 907 square foot condo? (and for another $200,000 you can own a "larger unit" with an extra 38 square feet. That works out to $5263 per square foot for the extra 38 square foot area).
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Anonymous said...

All I can say is "caveat emptor". If they were purchasing for investment purposes, then these people need to change their short term investment philosophy to a long term strategy. Real estate has tax benefits. Take advantage of those and adjust your portfolio. These people are tossing good money at a bad decision. They'd do better to toss a match at it!

Rock said...


In other parts of Florida, lawsuits against developers, builders, mortgage lenders, Title companies and lenders are epedemic.

The Trump Towers of Tampa is nothing more than a hole in the ground. Early depositers (who were not flippers but people dreaming to live there) are now suing the builder who has lost his financing from Coast Bank.

Coast Banks is so shaky that some West Coast business writers are suggesting a bankruptcy or takeover of its business.

What I would like to point out is this: if you make a good faith deposit and you have in writing that the project would be completed by such and such a date, you absolutely have grounds for a suit to get your deposit back IF the project was late in getting off the ground.

That is what is happening in Tampa with the Trump Towers.

The high end condo was supposed to be ready by December 2007. The depositers's money (all in the hundreds of thousands each) is gone, the developer spent it on cars, luxury items for himself, and paying architects, excavators, etc.

And now the main financier, Coast Bank, pulled out.

Thus, the project has no way of being completed by this December as it is just a hole in the ground.

As far as the Santa Maria goes, I suggest the story about these lawsuits be waited out. There is probably more to this then what little has been reported.

I do remember a period where the Santa Maria was "dark", i.e., the construction guys disappeared for what seemed to be a couple of weeks or longer.

A couple of people made the same comment in the Citizen's Voice.

Perhaps the "speculators" money being tied up in a temporarily closed down or slowly built project will come back to haunt the builder and Realtors. We shall see.

Stay tuned and keep following the trends in Key West Real Estate.

Sally O'Boyle said...

I have a buyer in the SM condo project. I talked her out of SO MANY properties that summer, and could not talk her out of this one. After a few visits to the SM office, though, even I was starting to think maybe she could get in and get out with a quick $50K.

REALTOR®s do have fiduciary duties. You can see Customer/Agent relationships outlined here:

Mine is to my buyer as a BUYER AGENT. Unless the agents working in the SM office were Transaction Brokers (I don't remember), they owe fiduciary duties TO THE SELLER. To the buyer, they owe honesty and fair dealing.

My buyer(s) don't ask me for financial advice. Good thing, because I'm not trained to give it. They ask me for real estate advice. When I've crossed the line without being asked, I am met with resistance. I can't tell you how many times over the years, I've had buyers leave my office and go next door to buy.

Only people with an understanding of markets, finance, inflation, how the monetary system works, who's in charge, the global market, the dollar and it's whims and fantasies, could have foreseen the correction happening now.

For those of us convinced this correction will be longer and harder than anyone else believes, well, let's just say it's lonely at the top. We are wildly outnumbered.

Put yourself in my shoes trying to convince a buyer in the summer of '05 the party was coming to an end. I was the ONLY REALTOR® I knew - still am - talking this talk. Why would anyone believe me???? My best friends didn't believe me. I didn't believe me half the time... there was no hard evidence, just a lot of indicators mounting up... The cheerleaders are so loud, so enthusiastic, it's hard not to sway to their beat. Their party is WAY more exciting, their promises so much more alluring.

My buyer doesn't want to join the lawsuit because she feels like she walked in the door with both eyes open and signed the contract. I don't know what I would do, but I suspect she's a better man than I am, Gunga Din. If this development folds, she is out $260,000. A bitter pill. But who will buy now with a lawsuit going on?

zezrie said...

Sigh...I used to work at the Santa Maria when it was owned by the Casa Marina 2000-2002, as a night auditor. It was one of my best memories of my time on the island. It is a damn sham it turned into...this.

Anonymous said...