Today marks a first in my Real Estate trek towards investment success and I wanted to capture it for all it's teachings. To give you a little background, let me explain that my friend Ovidio Olivencia and I have been attempting to purchase a condo in South Beach since Sept. 19, 2005. The chosen property is unit 302 (931sq ft 2/2) in the Elaine Condo (http://www.theelaine.com) on Jefferson Ave and 15th st. The building is being sold as a Condo Conversion which means a "developer" purchased the entire structure from the previous owner ($2.25 million) and rather than renting it, is selling the apartment units individually (for a net worth of $4.5 million+). In the process he plans to "fix up" the common areas by leveraging the deposit moneys (10%) of all the contracted buyers. This purchase contract has a lot of fine print and legal jargon...but as I'm finding out plays much to the "developers'" advantage. I'm not making excuses for not reading and understanding it all before signing it (broke the cardinal rule), but wanted to state the facts. The contract was presented on Sept. 19, 2005 along with the Condo Association documents and a 15 day window was provided for review as the Florida Real Estate statue says. On Oct. 4, 2005 the contract was signed and delivered along with 10% of the purchase price of the property ($30,732). A few excerpts of the contract to note are: 1) The seller will notify the buyer of the closing date (in writing) 5 days prior. 2) Every day by which the buyer is late to close will incur a $50 penalty. 3) Buyer will pay all title attorney costs including title search. 4) Buyer will cover the first year of insurance costs at closing. For those inexperienced home buyers, let me explain that these requirements are VERY out of the ordinary for standard real estate deals in South Florida. Thirty (30) days are always given to schedule a closing so that the buyer can arrange the proper financing paperwork. The buyer never covers the title search... why would I pay to search for someone else's Title? Never would the buyer of an individual unit be responsible for insurance (be it partial Windstorm, Flood, and General) on the overall condo building...that is what association fees are for. Well, to continue with the story, after a few days of delivering the contract, I call the "developers" realtor, Marc Benware, to arrange for a closing date since I would be leaving for Europe on Oct. 21, 2005. He tells me that the closing needed to take place in October, so I petitioned for him to wait until me return on Nov. 7, 2005. He agreed to wait but reiterated that I must close on that date (there was no mention of a fee). Upon my return, Hurricane Wilma did quite a job on South Florida and so all pending closings needed to get reappraised so the closing would be delayed. Then after a few days, around Nov. 10, 2005, it was discovered that the "developer" had not purchased a Windstorm Insurance Policy for the building (being the property owner) and according to FANNIE MAE statues, this is a must. Fast forward to today. The "developer" still has not purchased and documented the Windstorm policy and we've already purchased one interest rate extension from the bank for a quarter point (0.25% ~ $900). Aside from not agreeing to cover this rate extension, the "developer" has tacked on $1300 in late fees due to an alledged 26days of late closing from Oct. 14th to Nov. 8th. These dates seemed to have been pulled from thin air since there was no evidence of where they might have come from. No notice was ever served for a closing on the 14th or the 8th...it wasn't even in any conversation we had with anyone. Aside from that, we have had to call the Title agent and realtor representing the "developer" on a daily basis since Nov. 7, 2005 in an attempt to schedule a closing (deterred due to lack of Windstorm policy purchase). I have all the phone records to prove it too. So the skinny on the whole thing is that the "developers" MO (modus operandi for those who don't know) is to get a nice flashy website/remodeling plan for the structure, advertise the individual units for below market value, draft a convoluted out-of-the-norm contract to deceptively assign ALL closing costs to the buyer, and charge a builders fee of 1.75% to attempt to meet the flashy remodeling plan (I'm wondering what guarantees I have for this?). It seemed like such a SHADY arrangement, we found ourselves unwilling to do business with such an outfit...based on ethics alone. I did some research with the Florida Real Estate commission (FREC) and found that the realtor representing the "developer" had a past complaint filed against him (although cleared, it corroborated my thought). It dawned to me that I had no bargaining power. Gathering more information from the FREC website, I learned of the process of backing out of a purchase contract and the reimbursement of the 10% deposit. It was very involved and included litigation in court, but the property would be frozen for several months until resolution. Also, due to the SHADY nature of the event timeline, I was under the right to submit a non-compliance complaint against Marc (potentially revoking his real estate license).
This is the clearest point of this whole story is the outcome and the implications of it...we were prepared to back out of the whole deal...allow for the deposit to be assigned by the court...all for essentially $1300 in material wealth, but a ton of ethics and consistency that would let me sleep at night. When I called my realtor, Nick Upchurch, and told him our stance, he agreed to petition the case to the "developer". He came back to me stating that the "developer" was wiling to waive the fees if we closed in January, 2006 since it would give him a tax benefit, otherwise, the fees would stand. I told him we weren't willing to pay for another interest rate extension at our on cost, and so therefore wanted to drop the deal. Then the realtors Marc and Nick agreed to cover the fees amongst them. The "developer", MARGUELES PROPERTIES INC., has basically concealed himself from working directly with customers because of his unethical measures...instead he works directly though title agents and realtors to conceal his trickery...they are each getting a piece of the pie but had to forfeit some in this case (3% each comes to roughly $9000). Ethically it is still unsound, but these are the lessons of how business gets done sometimes.
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