Virginia Lawyers Weekly

U.S. District Judge Gerald Bruce Lee could well understand why purchasers of condos in the Merrifield Town Center in Northern Virginia might want to get out of contracts they had signed in June 2005.

“In the intervening months, our economy is in a tailspin, the real estate market softened, there is a surplus of available condominiums,” he observed in a case in which the buyers sued to break their deal and get back their deposits.

Lee added that the condos at issue had declined in value by 20 percent since the purchase agreements contracts were signed.
Sympathy notwithstanding, Lee found no basis for invalidating the contracts in Bartley v. Merrifield Town Center Limited Partnership, (VLW 008-3-434).

The plaintiffs contended that Merrifield had violated the Interstate Land Sales Full Disclosure Act (ILSFDA) because the developer did not file a statement of record with the Department of Housing and Urban Development required by 15 U.S.C. § 1704.

Merrifield argued, and Lee agreed, that the disclosure is required only if the development involves 100 units or more. The project at issue had only 97 units.

The plaintiffs also sought rescission of their purchase agreements under § 55-79.88(2) of the Virginia Condominium Act, which requires a developer to provide purchasers a current and recorded offering statement. Lee found, however, that the statement must be provided at “disposition” of a unit, which occurs only when a deed to it is delivered.

Because disposition has not yet occurred, Merrifield is not required to provide the offering statement, Lee said. Moreover, Lee said, plaintiffs had not alleged a material change in the statement that adversely affected their bargains.

Finally, Lee rejected the plaintiffs’ contention that they had a common law right to rescind the contracts because they lacked mutuality. Plaintiffs alleged that the contracts waived their right to seek specific performance, while the developer had the right to retain deposits as liquidated damages and pursue any other legal or equitable remedies.

Language that limited the buyer’s remedy to recovery of deposits with interest applied only to monetary damages and did not foreclose the equitable remedy of specific performance, Lee concluded.

“The slight discrepancy in available remedies between the two parties does not amount to a lack of mutuality,” Lee said. “Both the buyers and Merrifield remain bound by the terms of the purchase agreements.”

Fairfax attorney Alexander Laufer, the attorney for the purchasers, said he is filing a motion asking Lee to amend his opinion. Laufer said HUD allows developers to take advantage of two exemptions to the ILSFDA disclosure requirements – the 99-unit exemption in this case and another one that waives them if occupancy occurs within two years of the contract. But the 99-unit exemption applies only if the developer meets the requirements for the two-year exemption as well, Laufer said.

That issue is being contested in other cases, and Lee should wait until it is resolved before deciding the case involving the 99-unit exemption, Laufer contends.

The Merrifield project has 279 units, and the developer is relying on the two-year exemption on all but the 97 units. Laufer said the units were offered in 2005 in anticipation of continued inflation in housing prices.

Since then, housing prices have dropped, the units have taken longer to complete than anticipated, and financing from lenders has become difficult, he said. As a result, he estimated that no more than 20 of the units have gone to settlement.

He said the condos generally ranged in price from $500,000 to $900,000. At issue are deposits of 7 percent for purchasers who committed to live in the condos and 12 percent for those who bought them as an investment.

Efforts to reach Edward W. Cameron, the attorney who represents Merrifield, were unsuccessful.

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