Sub-prime saga

In another of his regular commentaries on the property market,
John Howell Looks across the Atlantic

With the downturn in the US property market and many developers falling behind on the delivery of properties, we've had several of our clients turning to us for advice about what legal rights they have. The good news is that if they act quickly, many of them have the right to recover the entire amount they agreed to pay for the house. In the United States there is federal law and there is state law. The law in the various states may differ; however, over arching the state law, there remains a constant body of federal law.

Why am I writing about this now?
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 gone forever. 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 chance of it being delivered.

The buyer could, of course, bring an action against the developer for breach of contract. In most states, unless the contract specifically says the buyer will have a right also to claim his legal expenses, he or she may not be able to recover the cost of bringing the court case. 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.

YOUR LEGAL EXPENSES
Under this act, if the buyer bought a property in a complex containing 100 or more units and the complex was marketed outside the state in which it is built, then the developer is obliged to comply with federal legislation. This legislation requires them to register with the Department of Housing and Urban Development or file a certificate with them stating that they were exempt from the need to do so. If they failed to do one or other of these things, then every contract that was signed in relation to that development will be null and void.

This means 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 obliged to put into the contract of sale a clause stating that you had the right to cancel within seven days. They were also obliged to give you a document called a ‘Property Report'. If he failed to do either of these things, then, once again, you have the right to cancel. This is so even if the seven-day cooling off period has long since expired. A Property Report is a formal document about the property you are buying usually extending to 20 pages, clearly marked Property Report.

The right to cancel the contract remains in place for a minimum of two years from the date when you signed the contract of purchase. If the developer did not comply with the rules you can demand your money back. This is the case even if the property is now worth significantly 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, then the period for cancelling is extended to two years from the date when you became aware of the existence of this federal law or a maximum of three years.

YOUR MONEY BACK
Even if you are outside the three 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, then you have a maximum of four 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 of course you do so within the time limit specified.

What should a buyer do if they think that they have been affected by any of this?
The first thing they should do is to contact a 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. They will then be able to give you advice as to whether you can 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 bypassing the state courts and taken directly to the federal courts; this is usually simpler and faster. In these cases a typical claim might take six months to deal with and cost about £6,000 (that is of 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 any unscrupulous or inadequate developers. For most people the biggest danger is that by doing nothing, they allow this opportunity to slip by.

Contact Details:

John Howell is a senior partner at The International Law Partnership LLP
Tel: + 44 (0)20 7061 6700
Email: info@lawoverseas.com
Web: www.lawoverseas.com


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