What Florida Supreme Court's Condo Ruling Means To Escrow Funds

, Daily Business Review

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Sunset falls over the Florida Supreme Court building
Sunset falls over the Florida Supreme Court building

Developers can keep all kinds of escrow money from condo buyers in a single account as long as that account keeps the buyer's funds from commingling with the developer's own cash, the Florida Supreme Court ruled Thursday.

That somewhat technical decision was the conclusion of a nearly 4-year-old dispute between the buyers of two units at the Canyon Ranch Living condo-hotel in Miami Beach and developer WSG Development Co.

But it likely has bearing on hundreds of other lawsuits filed since the housing bust when buyers sought creative ways to get their deposits back.

In the case at hand, the buyers sued a company linked to developer WSG, North Carillon LLC, for their deposits.

At the heart of the lawsuit was the issue of whether state law requires a developer to hold pre-construction funds handed over by condo buyers in more than one escrow account.

Florida protects condo buyers' cash of up to 10 percent of the purchase price and forbids developers from using that money during construction. Dipping into that reserve is a third-degree felony. The developer may use funds that exceed the 10 percent purchase price but must still hold them in an escrow account that is not commingled with the builder's funds.

10 Percent Hold

In the newly decided case, the developer banked all of the buyer's reservation money in a single account—albeit using accounting that didn't touch the first 10 percent. The Canyon Ranch buyer, CRC 603 LLC, claimed the developer should have used a different escrow account for the portion of funds not meant for construction. They also claimed failure to do this was essentially an act of criminal defalcation by the developers.

"The underlying question presented by this case is whether a developer may maintain the two different types of deposits in a single escrow account, as North Carillon contends, or must place them in separate escrow accounts, as the buyers argue," Supreme Court Justice Charles Canady wrote in the 6-1 decision. Justice Peggy Quince dissented.

Canady concluded, "The buyers' claims against North Carillon for the maintenance of deposits in a single escrow account ... were properly dismissed by the trial court."

The ruling reversed a 2011 decision by the Third District Court of Appeal and remanded the case to that forum.

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