A New law that goes into effect July 1, 2010 in Florida may not only help their distressed condo real estate market but also may lead to similar laws in other states.

"Florida has found itself in a situation where lenders are hesitant to foreclose on these projects and investors are very hesitant to purchase," says Melissa Turra the executive partner in the legal firm, Holland & Knight LLP in Jacksonville, Florida.

The Distressed Condominium Relief Act is aimed at helping make potential investors of distressed condos feel more secure and willing to take ownership of these types of condominium buildings by limiting successor liability associated with the newly acquired project. Many investors felt concerned that once they purchased the development they would be held liable for mistakes that were made prior to their acquisition. Turra says that was scaring off new investors.

Turra says it is extremely difficult to understand what the risk and what the cost will be when purchasing these projects under the old law. She says, however, that "If you knew with absolute certainty that the project had X dollars of construction defect problems and X dollars of maintenance issues, and you could quantify that from the beginning, you would be able to evaluate it from a much better stand point as to whether you were willing to foreclose or willing to purchase," explains Turra.

But the issue in Florida, up until this new law passed, made it nearly impossible to do that because new purchasers of bulk units were deemed developers and held liable for construction defects on properties they didn’t even build. "I think the situation is not unique to Florida in the sense that many distressed projects have these same types of questions," says Turra.

So the state took action to spark interest in ownership of distressed condos by passing the Distressed Condo Act which clarifies and limits successor liability. "They passed a piece of legislation that changes what the existing law was which had created a situation where individuals or entities that came in and bought large numbers of units in the project were deemed to be developers. And developers are deemed to have construction defect liability and therefore someone could come in foreclose on a project or buy a significant number of units in a project and be liable for the warranties of a construction project that they did not build," says Turra.

"So basically what this new law has done, and I think a number of states are looking at this type of solution, is to make it very clear who has construction defect liability and who doesn’t," says Turra.

Under the new law, individuals and entities can take title to seven or more units and not be deemed successor developers for warranty liability purposes.

While the new law may help investors, Turra says, "The potential downside is, if you’re an individual who owns a condominium and there is a construction defect, then your recourse is going to be limited to the original developer(s) who may be judgment proof, may be defunct, may be bankrupt, may be gone all together and you’re not going to have recourse against these new purchasers who are defined under the statute now as bulk assignees or bulk buyers," explains Turra.

However, she says the positive side is that now lenders are willing to move forward with foreclosures when necessary and investors are more willing to purchase the distressed units. "It also benefits consumers in a way that may not be so obvious. If individuals already own units and no bulk purchaser is willing to go in, these projects just continue to fail and go further down the tubes whereas if you have someone who has the wherewithal to come in, buy a large number of units, jump start the assessments, get things back on track, then ultimately the project is going to be more successful even if successor developer liability is limited. "I think Florida has put itself in a more competitive environment relative to other states," says Turra.

Published: June 11, 2010

Use of this article without permission is a violation of federal copyright laws.

Phoebe Chongchua is an award-winning journalist, an author, customer service trainer/speaker, and founder of Setting the Service Standard, a customer service training and consulting program offered by Live Fit Enterprises (LFE) based in San Diego, California. She is the publisher of Live Fit Magazine, an online publication that features information on real estate/finance, physical fitness, travel, and philanthropy. Her company, LFE, specializes in media services including marketing, PR, writing, commercials, corporate videos, customer service training, and keynotes & seminars. Visit her magazine website: www.LiveFitMagazine.com. Phoebe's articles, feature stories, and columns appear in various publications including The Coast News, Del Mar Village Voice, Rancho Santa Fe Review, and Today's Local News in San Diego, as well as numerous Internet sites. She holds a California real estate license. Phoebe worked for KGTV/10News in San Diego as a Newscaster, Reporter and Community Affairs Specialist for more than a decade. Phoebe's writing is also featured in Donald Trump's book: The Best Real Estate Advice I Ever Received and The Complete Idiot’s Guide to Buying Foreclosures. She is the author of If the Trash Stinks, TAKE IT OUT! 14 Worriless Principles for Your Success. Contact Phoebe at (858) 259-3646 or . Visit PhoebeChongchua.com for more information.