Looking to get out of their contracts and recoup their deposits, a group of eight buyers filed a lawsuit two weeks ago against the developers of Koreatown's Solair project. Among other things, the suit alleges that the developer Koar Institutional Advisors misled them by stating more units had sold than was actually the case. If this is a familiar situation (those buyers who sued over downtown's Roosevelt building also alleged sales plumping), there's a slight difference here: The suit alleges that the bulk of Solair condos that were said to be sold were actually "sold to a corporate entity and an individual who were related to the Defendants." The suit, filed in US District Court, Central District of California on September 25th, also alleges fraud and seeks punitive damages. Who knows if these buyers are just trying to wiggle out of their contracts because they changed their minds about wanting to pay $1 million plus to live at the corner of Western and Wilshire, but let's take a closer look at what they're griping about.
More from the 18-page suit. Download the first few pages here.
---Buy now or forever miss out: The suit alleges an environment in which buyers were encouraged to buy and to buy now or else they'd never get that unit:
Excerpt: "Within the past two years and on or before each of the Plaintiffs executed their Purchase contracts, Defendants made the representations that 30 percent to 50 percent of the units were already sold to other buyers who would personally reside in the sold units, the Plaintiffs desired units were selling very quickly so that Plaintiffs would have to act quickly to purchase the units before they were sold to other buyers, and that certain units were already sold and Defendants would try to pull out the desired units for sales.”
More on the sales plumping:
More: "In truth, 30%-50% of the units at Solair were not pre-sold, a bulk of sales that were purported to be pre-sold were sold to a corporate entity and an individual who were related to the Defendants and such units were sold without any intention of the buyer to personally reside in the respective units, the units at Solair were not selling quickly and Defendants were creating an illusion to Plaintiffs as if the units were being sold, and there were an abundant amount of units available for sale without any risk of losing units to other buyers." The suit also alleges that the due to "their own investigation," buyers learned that only 3-4 units had sold and closed escrow. (It's not clear on the date on that last part; perhaps more units have closed since then given that Solair has been chopping prices as of late).
---The suit also references the Federal Interstate Land Sales Full Disclosure Act (ILSA), a 1968 law that requires developers to provide, among other things, property reports to buyers. A Nashville Post story published earlier this year pointed out that this law is increasingly being used in by buyers in lawsuits against condo projects in Florida and Nevada. Both the Roosevelt buyers and those Vue buyers in San Pedro also referenced the Federal Interstate Sales Act in their suit.
--There's also the issue of these buyers being penalized for not closing escrow. The suit argues that if "the escrow account does not close because of a default by a buyer, the buyer will pay the Seller $400 per day to compensate for costs incurred.”
--The buyers also alleges that Solair did not have the project approval to use Freddie Mac and Fannie Mae.
Thomas Ryu, attorney for the eight buyers, declined comment on the suit. Messages left for Koar executives weren't returned.
Meanwhile, given the Corus-Starwood news, it's worth pointing out that Corus provided a $127 million construction loan on the project.