The Sun Sentinel reports on preconstruction profits turning into lawsuits in Florida. " Most everything was in boxes as Dottie and Gary Sahadeo prepared to move out of their Coconut Creek home to a more spacious, custom-built house. But with construction almost complete, the Sahadeos received an unwelcome call: Their developer was canceling their contract, requesting $150,000 more to finish the work."

"Instead, the Sahadeos are locked in a legal battle to force completion of the five-bedroom house, which was under contract for $590,000 in 2003 but could sell for around $1 million today."

"From the home buyers' viewpoint, developers have been breaking contracts to sell the home at a higher market value. Some developers, though, cite the rising cost of building materials as having forced them to back out. Speculative buyers in the condominium market likewise have been pulling out as interest rates and other costs rise, making their investments less profitable."

"Typically, the developers who break contracts entered the market during the building boom that began in 2001 and recently has tapered off, said Jack McCabe. At the end of last year, McCabe started noticing an upswing in developers returning down payments, and he expects to see more cancellations this year. Speculators who signed contracts to flip properties for a quick profit also are pulling out, he said."

"It's more common for homebuyers than developers to pull out of contracts, said Gopal Ahluwalia, an economist at the National Association of Homebuilders. The cancellation rate is historically 20 percent. With interest rates expected to rise, Ahluwalia said, cancellations will likely increase. 'When home prices are rising, people want to get on the bandwagon,' he said, 'and when they start hearing of a slowdown, they want to back out.'"

"Construction attorney Steven Lesser said the issue arises when contracts do not account for changes in material costs. Or, he said, when homebuyers sign a contract without understanding its implications. 'If the price of construction goes up, then who's going to bear the monetary risk?' Lesser said. 'No one's in the business of losing money.'"

"In the next couple of years, McCabe anticipates a 'tremendous amount of litigation,' speculators suing brokers and lenders, developers suing speculators to get them to close and homebuyers suing developers. 'It's been a rose garden the last four to five years,' he said. 'Everyone's been happy because everyone's making money.'"