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After Real Estate Bust, A Legal Remedy For Buyer’S Remorse U. S.

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In May 2008, a few months before the financial industry’s meltdown, the shipping executive Vasilis Bacolitsas signed up to buy a $3.4 million apartment at the Brompton, a luxury condominium tower being built on the Upper East Side.

The building went up as the real estate market went down, and Mr. Bacolitsas and his wife sought a $600,000 reduction in the purchase price. When they did not get it, they decided they did not want the apartment anymore. Their contract, like all real estate contracts, required that they surrender the $510,000 deposit.

But last month, a judge ruled that the couple could walk away with their money. It is one of a series of recent rulings in New York and other states that has enraged developers and given an escape hatch to buyers who signed contracts at the worst possible time, before one of the biggest real estate meltdowns in decades.

The buyers — some wealthy, some not — are successfully using a 1968 federal law intended to protect buyers of out-of-state land from unscrupulous developers or brokers. But in many of these cases, the properties have been built as advertised.

Instead, attorneys for the buyers are finding fault in wording that technically violates the law in contracts or other paperwork — language that few developers or lawyers paid much attention to during the long real estate boom. Lawyers have won back deposits for errors as simple as failing to give buyers a legal description of the property or to register the building with the Department of Housing and Urban Development, a basic requirement that many companies nonetheless overlooked.

“The statute was never designed for purchasers of luxury condominiums in urban areas to get out of contracts because of changes in the economy,” said Bruce H. Lederman, an attorney defending developers in two such cases out of Long Island City, Queens. “It was designed to protect unsophisticated out-of-state purchasers like Jackie Gleason in ‘The Honeymooners’ from Florida swampland schemes.”

But lawyers who represent buyers argue that this use of the law legitimately helps people who, because of changing conditions, conclude that buying such an apartment is no longer advisable.

“The crash of the market resulted in people losing their jobs, No. 1, and No. 2, the tightening of the credit market meant they couldn’t get the loans they needed to buy the property,” said Adam Leitman Bailey, who has represented a number of buyers in cases involving the law, known as the Interstate Land Sales Full Disclosure Act — ILSA for short. “We had to find some law to help these people, and that’s what ILSA did. Desperation inspired creativity.”

In July, a federal appeals court reinstated a lawsuit filed by eight buyers who had deposited $25,000 to $80,000 on new homes in Falls Church, Va., ruling that the wording of the developer’s contracts did not comply with the law. Two decisions over the summer in Florida — including one allowing a New Jersey couple to win back a $50,000 deposit on a townhouse in Port St. Lucie — favored buyers.

In August, a federal judge in Manhattan ruled in favor of three buyers who had placed about $300,000, combined, in down payments for apartments at 111 Fulton Street, a building known as the District. Late last month, Judge Paul A. Crotty of Federal District Court in Manhattan ruled that two buyers of a condominium conversion at 30 Pine Street may get their deposits back if they can prove that they would have pulled out earlier had the developer informed them about their rights under ILSA, according to the buyers’ lawyer, Lawrence Weiner.

In Mr. Bacolitsas’s case, the court ruled that his contract violated the law because it stated that the contract could not be filed with the city register, where property transactions are recorded. The law requires contracts to be recordable in city or county registries.

Mark Walfish, an attorney representing the developer in that case, the Related Companies, said it would appeal. The apartment in question sold in April for $2.8 million — $600,000 less than the original price.

Lawyers on both sides said that if the ruling stands, it could open the floodgates to more buyer lawsuits because many contracts contain similar language. In New York, typically, only actual sales — in the form of deeds or co-op stock transfers — are recorded, not contracts.

Looks like the banks may have another problem looming, if the developers are going to get sued for selling over priced houses, how will the developers pay the banks back the money they borrowed?

Still I'm sure it's all contained.

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