Oct. 16 (Bloomberg) -- Robert Cooper says he has found a way to make money in South Florida’s real estate bust.

Cooper, an attorney in Aventura, Florida, sues for refunds on deposits in the nation’s largest condominium market. In the last two years, he filed lawsuits for about 1,500 buyers against companies and individuals including the Related Group of Florida, Dezer Development LLC, Corus Bankshares Inc., Donald Trump.

More suits seeking refunds under a federal law regulating condo sales have been filed in South Florida than in the rest of the country combined, according to a search of federal court records. Fueling the litigation is a price crash that makes buyers unwilling to pour more money into bad investments -- even if they can get financing. Condos on which they made deposits of up to $1,000 a square foot in 2006 are now selling for $125 to $350 a foot, said Jack McCabe, a real estate consultant in Deerfield Beach, Florida.

“If you’re thinking you can come here and buy and sell condos for a profit in less than five years, you’re sadly mistaken,” said McCabe, whose clients have included Credit Suisse Group AG and Pulte Homes Inc., the largest U.S. homebuilder. “You need a seven- to 10-year range.”

Prices could fall to $100 a foot, less than half the cost of construction, and a value not seen in 20 years, he said.

Vacant Condos

In Dade, Broward and Palm Beach counties, there are more than 43,000 condos and townhouses on the market, almost 1-1/2 times the number of single-family homes, according to Condo Vultures LLC, a Bal Harbour real estate brokerage. In downtown Miami, more than 8,000 condos stand vacant and unsold, relics of a building binge that added 23,000 condos from 2003 to 2008, said Peter Zalewski, principal of Condo Vultures.

Over the past 12 months, condo prices fell 15 percent in the West Palm Beach-Boca Raton area to a median of $112,200, 36 percent in Fort Lauderdale to $85,100 and 31 percent in Miami to $144,700, according to Florida Association of Realtors data.

Those prices are likely to fall more when the $1 billion portfolio of South Florida condos financed by Corus Bankshares, the Chicago lender seized by federal regulators, goes on the market, Zalewski said.

Investors led by Starwood Capital Group LLC won a bid for Corus’s loans. Two-thirds of the 2,537 condo units Corus financed in downtown Miami are unsold and unoccupied, Zalewski said.

Corus Deal

Rather than drive prices down more, the Corus sale could help stabilize the condo market because Starwood, in its partnership with the FDIC, can hold onto the properties, said Craig Werley, principal of Focus Real Estate Advisors in Coral Gables.

“Why on earth would they create more cutthroat competition when they’re in such a good position with the federal government?” said Werley, who co-wrote a study on the condo glut for the Miami Downtown Development Authority.

For Cooper, fighting over the spoils is a full-time job. Cooper said he has reached out-of-court settlements in disputes over 500 deposits, recovering about half of his clients’ money. He won’t say how much the refunds total or how much he has earned in contingency fees, which are usually about one-third of the recovery amount.

“There’s no recession in the real estate litigation community,” said Cooper, 46.

Attractive Market

South Florida had the biggest real estate boom in the country. Housing prices in Palm Beach, Broward and Dade counties rose faster and fell more than in any of the 20 metro areas tracked by the S&P/Case-Shiller Index.

“Condos were extremely attractive because you could put down a modest down payment and leverage it extremely high,” Brad Hunter, chief economist for Metrostudy, a Houston-based real estate research company, said from his office in West Palm Beach. “If you were investing between ‘03 and ‘05, you were able to see 100 or 200 percent appreciation. Ninety percent or more of it was speculation.”

The global recession, the credit crisis and tighter bank lending put an end to Miami’s condo growth.

In February 2005, Randy Gerlick of Parkland, Florida, put a 20 percent deposit on a $700,000 condo at the Las Olas Beach Club in Fort Lauderdale. Two years later, he sold the unit for $1.1 million, receiving a check for $315,000 after paying fees. He never set foot in the condo.

Trump Litigation

Then he heard about the Trump International Hotel & Tower Fort Lauderdale, a luxury 298-unit development on the beach. Gerlick put down a 20 percent deposit, or $122,000, for a unit. As a token of the deal, he got a silver Tiffany & Co. key chain engraved with the Trump International logo and his unit number, 1009.

“Trump seemed like a natural next step,” Gerlick said in a telephone interview. “It was like, how can you lose with his name on it?”

On May 13, the Trump International’s developer, SB Hotel Associates, sent Gerlick a letter giving him until May 29 to obtain financing or lose his deposit. The letter said the hotel portion of the property wouldn’t open if less than 50 percent of condo buyers completed their purchases. It also noted that the Trump affiliation was in jeopardy under an agreement that allowed the New York developer to withdraw his name from the project.

Disclosure Issues

Gerlick’s lawyer, Jared Beck, filed a breach-of-contract lawsuit seeking deposit refunds from seven defendants, including SB Hotel, Corus, Trump and the Trump Organization.

In the complaint, Beck says the prospective owners are owed refunds in part because of deceptive advertising and promotional materials that led investors to believe Trump was integral to the project. The Trump brand added $200 a square foot to the project’s value, the suit said.

“This is one of a lot of cases where the disclosure wasn’t full or fair to the buyer,” Beck said in an interview.

SB Hotel and Trump moved to dismiss the suit, arguing they are protected by the purchase contract. Trump was involved in name only, said Alan Garten, assistant general counsel for the Trump Organization in New York.

“The main point is that we are not the developer of this project. We are just the brand which licensed the use of the Trump name,” Garten said. “Trump didn’t enter into contracts with any of the buyers or receive deposits from any of the buyers.”

Market Disconnect

The purchase contract says Trump maintains the right to sever his association with the project, Garten said.

“If you’re not going to read the contract, don’t sign it,” Garten said.

Beck, a Harvard Law School graduate who has filed suit for buyers of about 500 South Florida condos seeking deposit refunds, said the cases are part of the market correction.

“We’re going to have lots of litigation as long as there’s a disconnect between what people are under contract to pay and what the market actually is,” Beck said.

“During the boom, developers and lenders were falling all over themselves to get projects up and sold as soon as possible, applicable statutes and disclosures be damned,” he said. “The law took a back seat. The only time laws are going to be enforced is when the market’s bad. That’s what we’ve got here.”

One of the most common laws cited in deposit recovery suits is the Interstate Land Sales Full Disclosure Act, a 1968 federal law regulating housing projects with 100 or more units that requires developers to provide detailed reports describing the size, scope and delivery date of marketed projects.

Refunds Due

Since Jan. 1, 2008, 62 percent of the 215 lawsuits filed in federal courts under the Interstate Land Sales Act were filed in the Southern District of Florida, according to court records. The suits argue developers committed fraud because projects were not delivered as promised.

Betsy McCoy, assistant general counsel for the Related Group of Florida, which has developed and managed more than 55,000 condominiums, said the deposit lawsuits strain legal reasoning and offer false hope to investors facing losses. The Related Group faces 361 deposit refund lawsuits among 874 contract disputes with condo buyers, McCoy said in an e-mail.

“We have settled some lawsuits, but not many and settlement is typically payment of limited remedies the contract provides,” McCoy said. “We have not found suits to be compelling, either factually or legally, to justify settlements in any manner that exceeds the contract terms.”

Ruling Appealed

People with pre-construction deposits have a legal right to refunds of no more than 5 percent of the purchase price of the condo, McCoy said.

On Sept. 30, the U.S. 11th Circuit Court of Appeals ruled in favor of a developer, reversing a lower court ruling that awarded a deposit refund under the Interstate Land Sales Act.

“All bubbles eventually burst, as this one did,” the three-judge panel said in its opinion. “The bigger the bubble, the bigger the pop. The bigger the pop, the bigger the losses. And the bigger the losses, the more likely litigation will ensue.”

The federal appeals court opinion will encourage lawyers to file more suits in state courts, where judges have been more sympathetic, Beck and Cooper said.

Lawsuits are one of the costs of doing business when times are bad, said Gil Dezer, president of Dezer Development, developer of the Trump Royale, part of the Trump Grande Resort & Residences in Sunny Isles, north of Miami.

Seeing What ‘Sticks’

“Those lawyers are trying to throw as much out as they can to see what sticks,” Dezer said in a phone interview.

All 380 units in the Trump Royale, which licensed the Trump name, were pre-sold at an average price of $1 million each, Dezer said. About 180 of the units have now closed and others are selling at a pace of three or four a week, Dezer said. The current average price is $950,000, he said.

Owners of 17 condos are named plaintiffs in a suit in Miami-Dade County Circuit Court against the Trump Royale, which Cooper filed. Among the allegations: The developer breached the purchase agreement because the Trump Royale’s unit numbers led buyers to believe they were buying units near the top of the 55- story tower.

Trump Royale

“The plaintiffs never knew that units 3301 and higher are actually 10 floors lower than what the developer represented,” the lawsuit argues. “For example, unit 3706, plaintiff Sanchez’s unit, is actually located on the 27th floor.”

Dezer said he numbered the units to reflect the building height rather than the number of floors. A judge dismissed two counts of the complaint on Sept. 15. Cooper filed a motion for reconsideration.

During the boom years, Cooper said he represented clients who sued to buy condos, which they claimed had been sold out from under them -- after they signed a contract -- to people who offered a higher price.

“This was not a normal real estate market,” Cooper said. “People were going crazy.”

And now?

“As many cases as we settle, we get more new active cases,” he said.

To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net.

Last Updated: October 16, 2009 10:39 EDT