This story originally appeared in the Daily Business Journal.MIAMI-Miami attorneyAlexander Lian may have come up with an innovative strategy to helppeople recover pre-construction deposits they gave condo developersduring the housing boom.

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Lawsuits have blossomed since the real estate market collapsedin 2007 as would-be condo buyers go after developers to recovertheir deposits — often as much as 20% of the purchase price. Theresults of those suits have been mixed, with some rulings favoringdevelopers and others favoring buyers.

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Lian argued that developer Swire Pacific Holdings and titlecompany Lawyers Title Insurance failed to create two separateescrow accounts when his client deposited $232,000, or 20% of the$1.16 million purchase price, in 2004 to reserve a unit at thethen-proposed Asia on Brickell Key.

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Lian, with Lian & Associates in Miami, cited Florida Statute718.202, which says a developer must set up a pair of escrowaccounts if the deposit exceeds 10 percent of the purchase price.If that doesn't happen, the buyer has the right to rescind thecontract and recover the deposit.

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U.S. District Judge Cecilia Altonaga agreed with Lian in a45-page opinion issued March 30.

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Technical Violation
When developers receive a 20% deposit, they are to put half of themoney into a protected account and the other half into an accountthe developer can access to pay for construction, she said in herruling.

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Swire failed to split Double AA International Investment Group'sdeposit between two accounts, Lian said. In early 2009, Double AAdemanded that the contract be canceled. Swire and the title companyignored the request, Lian said.

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Altonaga rejected the Swire and Lawyers Title defense that the"violation was a technical one that should excuse them fromliability," according to the judge's ruling.

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Summary Judgment
Swire and the title company argued that it is common practice forescrow agents to create one account and "then use bookkeepingentries to say what money belongs where," Lian said.

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Gary Saul, a Greenberg Traurig lawyer in Miami who representedSwire, said his client declined to comment.

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Lawyers Title declined to comment, said Fort Lauderdale lawyerPhilip Kantor, who represented the company. Kantor is withQuintairos Prieto Wood & Boyer.

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POWERFUL' STRATEGY
This strategy "is very powerful," Lian said. "It allows the buyerto rescind the entire contract and get all the money back plusinterest."

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No money was missing from the escrow account, according to thelawsuit. Swire and Lawyers Title have until the end of the month toturn over $232,000 to Double AA or to appeal the ruling to the 11thU.S. Circuit.

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Since the ruling, lawyers specializing in deposit recovery haverushed to amend their pending lawsuits to add this claim, said FortLauderdale attorney Joseph Altschul. He has already amended morethan 10 cases.

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Altonaga's ruling applies only to cases where the buyers sued tocancel the purchase contract before backing out of the deal andbeing declared in default by the developer, Altschul said.

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Possible Appeal
If Altonaga's ruling is appealed and upheld, numerous developerswill have to return millions of dollars in deposits, even afterthey had already spent some of the money for construction of theirbuildings.

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Two sources who declined to be identified said Swire plans toappeal the ruling. Some experts predict the company will besuccessful.

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"I feel very strongly that it was a misinterpretation of thestatute by the court and it will be overturned on appeal," saidTony DiTocco, a former developer and now a real estate consultantfor builders marketing new condos.

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DiTocco, president of DiTocco Consulting in Fort Lauderdale,interprets the law the same way Swire and Lawyers Title did: Oneaccount is sufficient if separate records are maintained. DiToccois not involved with the case.

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"There is no purpose to be served" by keeping two accounts, headded.

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Hollywood attorney Gary Phillips, who represents condodevelopers including Miami's Tibor Hollo, said Altonaga was correctin her ruling, but the law doesn't make sense.

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"The judge is technically right, and most developers I know dohave two escrow accounts," Phillips said. "But I think it is ashame."

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Limited Impact?
If Swire and the title company lose the appeal, Altonaga's rulingwill gain the force of law and be a significant boost for buyersseeking to get out of condo deals.

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For now, however, her 45-page opinion isn't binding on otherjudges who may see similar cases, Altschul said.

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"Right now, it is certainly what we would call persuasiveauthority but it is not binding authority," he said.

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"It is not very often that you find a written opinion that goesthrough such detailed analysis," Altschul said of the lengthyruling. "It will be very difficult for a federal appeals court tooverturn her conclusion on the merits."

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Altschul, who represents several people seeking to recover condodeposits, is reviewing their developers' escrow agreements to seeif Lian's strategy can be used.

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He said many of the agreements he has looked at don't requiretwo escrow accounts.

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"But that doesn't mean that maybe they didn't do it right,"Altschul said.

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If Altonaga's ruling is appealed and upheld, numerous developerswill have to return millions of dollars in deposits, even when theyhad already spent the portion that was allowed to go towardconstruction of their buildings.

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Phillips expects to see a flood of deposit recovery casestackling this issue.

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"I am sure will be see a flurry of discovery now requestingdocumentation on where the escrow monies were held and in whataccounts," he said. "Luckily my clients … all use separate escrowaccounts."

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