What Do I Do If My Condo Developer Goes Bankrupt?

Buying a condo before it is built means paying a deposit years before you get a key. If the developer files for bankruptcy or stops construction, your first questions are whether your deposit is protected and whether the project will be finished. Florida law gives preconstruction buyers specific protections, but they depend on what your contract says and where your money went. Joseph S. Hughes of Hughes Real Estate Law handles every matter himself. He earned his J.D. at the University of Miami School of Law and has more than 10 years of practice in Florida real estate law.

Step 1: Find Out Where Your Deposit Is

Under section 718.202, Florida Statutes, a developer selling a condo that is not substantially complete must put deposits of up to 10 percent of the price into an escrow account with an escrow agent. If your contract allows it, the developer may withdraw deposit money above 10 percent once construction begins and use it for construction costs. That means:

• The first 10 percent of the price should still be in escrow
• Money above 10 percent may already have been spent on construction
• Your contract and the escrow agent’s receipt show who holds the money

Step 2: Read Your Purchase Contract

Preconstruction contracts set the developer’s deadline to finish, what happens after a delay, and when you can cancel and get your deposit back. Look for the outside completion date, the default and remedy sections, and any clause about the developer’s financing or a lender taking over the project. Keep every notice the developer has sent you.

Step 3: Understand What Bankruptcy Changes

Once a developer files for bankruptcy, an automatic stay generally stops lawsuits and collection actions against the developer. You usually cannot sue the developer directly while the case is pending. Instead, buyers often file a claim in the bankruptcy case and watch for a sale of the project. In many cases a lender or a new developer buys the project, and the new owner decides whether to honor existing contracts. That is not guaranteed, so do not assume the project will resume on its original terms.

Escrowed deposits are handled differently from the developer’s general funds, but the bankruptcy court may still need to approve a release. An attorney can tell you whether to demand the escrow, file a claim, or do both.

Step 4: Act Before Deadlines Pass

• Send written notice to the developer and the escrow agent if the developer has missed a contract deadline
• Get copies of the escrow agent’s records for your deposit
• Watch for notices from the bankruptcy court about claim deadlines and any proposed sale
• Keep proof of every payment you made

Questions to Ask the Escrow Agent

• How much of my deposit is in escrow today, and in what account?
• Has any of my deposit been released to the developer, and when?
• What does the escrow agreement require before money is returned to a buyer?
• Has the escrow agent received notice of the bankruptcy or any claim against the escrow?

Ask in writing and keep the replies. The escrow agent’s records are often the clearest evidence of what you can recover.

Mistakes to Avoid

• Stopping required payments without first checking whether that puts you in default
• Signing a new contract with a successor developer before reviewing how it treats your existing deposit
• Missing a claim deadline set by the bankruptcy court

How to Protect Yourself Before You Sign

Before signing a preconstruction contract, have an attorney review the deposit schedule, the escrow terms, the completion deadline and your right to cancel. Limiting deposits above 10 percent, or making sure they stay in escrow, reduces how much you could lose if the project fails.

Frequently Asked Questions

Talk With a Florida Real Estate Attorney

If your developer has stopped work or filed for bankruptcy, an early review of your contract and escrow keeps your options open. Learn about Joseph Hughes, call (954) 256-5125 or request a consultation.