Buyers, Developers Pull Out of Contracts in Jacksonville Housing Market

The real estate sky is not falling in around the Jacksonville houisng market - but experts say some Chicken Little investors who are running away from Florida condominium contracts and losing thousands of deposit dollars think it is.

In the last six months, real estate attorney Michael Freed has seen a quadruple jump in the number of clients who are either buyers trying to get out of their Florida mortgage loan contracts or developers trying to force buyers to close or pay punitive damages.

It’s the result of the fever-pitched market in 2004 and 2005 that included the announcement of dozens of new condominium construction projects around the city, said Freed, of Brennan, Manna & Diamond PL.

Results of forfeited deals

In many cases, Bishop Lending Group President Ben Bishop said, speculators signed contracts and sealed the deal with a 10 percent to 25 percent retainer fee before the first shovel of dirt was turned, anticipating that property values would continue their skyward ascent and they would profit from the sale of the unit or units at the closing table or shortly thereafter.

As news broke that the market was falling, the closing dates began to loom overhead and investors fled, realizing that they were not going to be able to make a quick profit and fearing that it would only get worse.

Some are seeking legal counsel to find a way to get their deposit back, others are leaving behind $60,000 or more, Freed said.

“They’re thinking that it’s better to lose a little now rather than a lot later.”

But that shortsightedness is causing long-term effects, he said. “It’s the people walking away from contracts who are perpetuating the [Florida housing market] conditions.”

Still, some say the number of investors backing out of contracts in Jacksonville is far fewer than those in Central and South Florida because it is not considered a resort destination city. Debbie Riley, the sales manager for Devlin Development Group, said her company has been spared investor back-outs in all of its high-end multifamily projects because it limits the number of purchases to one unit per buyer.

Mary Anne Hashem, director of builder sales and marketing at Prudential Network Realty, estimated that it has happened in less than 1 percent of the closings in the high-end condominium projects she represents and about 7 percent to 8 percent in the entry-level projects.

Hashem described those who walked away from the closing table - leaving behind on average $15,000 to $20,000 - as less sophisticated and experienced than the high-end buyers.

But in all those cases, she said she put the units back on the market and resold them within weeks or months of the original closing dates.

Reselling units

In some cases, the developer eventually gets more out of a resold unit, she said, if he keeps the retainer and resells the unit at the same price. But in other cases, Freed said, the developer is forced to resell at a lower price and then sues the investor for the difference.

Some investors have walked away from binders on single-family homes, but Freed said it is more prevalent in the condo market because that is where investors tend to buy. He expects the number of investors and jilted developers, particularly the smaller companies, to continue to grow in the coming months as more condo projects near completion.

Although it is unclear where and exactly how many condominium units have been affected in Jacksonville by buyers pulling out, Sid Rosenberg, a real estate professor at the University of North Florida Coggin College of Business, said many of the Florida mortgage contract issues are happening at the Beaches, where most of the speculative purchases took place.

But he considers the back-outs to be rational decisions.

“It doesn’t surprise me one bit,” Rosenberg said of the Chicken Little reaction. “I would have probably done the same thing.”