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Buyers of Condo-Hotel Units on Florida Keys Claim Securites Fraud

Like recent, new-home buyers, investors are feeling the financial pinch of a dormant housing market.

Suit Says Some Rooms Were Dilapidated

Twenty condominium buyers in a Florida Keys hotel claim the builder, Cay Clubs Resorts & Marinas of Clearwater, Fla. deceived them into believing their properties would appreciate after comprehensive renovations to a “world-class resort.” What buyers in the Sombrero Cay Club Project received, according to the suit, were dilapidated rooms with a new coat of paint.

'The plaintiffs were assured,' the suit says, 'prices would increase dramatically as [buyers] were contracting at a bargain price.' But one pair of buyers said a vacation rental firm declared their unit ``unrentable.'

Appraisers Accused of Inflating Prices

More importantly, the suit accuses appraisal companies working with Cay Clubs of inflated estimates of the units' value. This was done, the suit stated, by basing those calculations on Cheeca Lodge, an upscale resort 33 miles away.

Cay Clubs may face bankruptcy if it can't refinance $74 million in loans due this fall. It owes $10 million in late lease payments to buyers and has missed $1 million in loan payments this year, according to regulators. By promoting the Sombrero condominiums as profit-generating investments, the suit says, Cay Clubs violated state security laws. Security laws bar developers from selling real estate as if it gave buyers a stake in a cash-producing business. That makes condominium hotels – prime vacation spots - a target for this type of lawsuit in a deflated real estate market, according to Andrew Robins, a lawyer specializing in condominium hotels.

Plaintiff’s attorney Howard Behar said his clients want a judge to negate their sales contracts and refund money they've lost. The suit for unspecified damages lists 20 buyers in the Sombrero project who paid between $549,000 and $808,000 for units. Cay Clubs did agree to rent back the units for one year at 8 percent of the purchase price but buyers said payments were late. The plaintiffs 'did not intend to ever reside in the condominiums and only intended to sell their units' once the renovation finished, according to the suit.

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