Condo Hotel Buyers File Suits Claiming Securities Law Violations

Buyers of condo hotels are going to court in an effort to get their money back, arguing that the sellers violated securities laws.

The units have turned out to be bad investments for many buyers, the Wall Street Journal (sub. req.) reports. The condos have lost much of their value at the same time that travelers are renting the units less frequently, and for less money.

Securities and Exchange Commission guidelines issued in 1973 say condo hotel purchases could be subject to securities laws if sellers make claims about rental income, market a rental program or limit occupation of the units.

Rob Webb, a partner at Baker & Hostetler in Orlando, Fla., told the Wall Street Journal that marketing materials are often cited as evidence that the units are securities. "Quite frankly, the main exhibit to the complaint and the single piece of evidence that's most damaging is the developer's own sales brochures," he said. In other cases, buyers claim oral promises about rental income brought the units under securities laws.

So far the cases aren’t succeeding, the story says. Lower courts have not only turned down buyers’ claims, but also blasted them for failing to read their purchase contracts.