In 1984, my wife and I moved to Connecticut from New York City. We bought a house in a nice neighborhood 12 miles outside of Hartford at a bargain price. Two years later, after some modest cosmetic improvements, we sold the house for a tidy profit and bought a 200-year-old house 15 minutes away.
I asked my wife if maybe she thought we should have sued the people who sold us that old house.
Then came the two kids, and after five years, the house, which fronted on a heavily trafficked road, became inappropriate for our family. In the teeth of a housing recession and massive layoffs in manufacturing in the Hartford area, we wound up selling the house at almost a $100,000 loss (improvements included).
Today, looking up from reading an article in the Wall Street Journal, I asked my wife if maybe she thought we should have sued the people who sold us that old house. "They should have warned us we might lose money," I said. She rolled her eyes. But, you see, I was reading in the Journal about Michael Trombley, former major league baseball pitcher who, three years ago, along with friends and family, invested $2.2 million in a condo-hotel project in Clearwater, FL. The condo-hotel concept is based on the owners of the units receiving income when the units are rented to vacationers. You can guess the rest; Trombley et al have lost on paper about 60% of their investment. His carrying costs are $14,000 a month. It is a story that sounds too familiar.
"They were always trying to preach to people that the market is hot," said Mr. Trombley of the developers. "This is a no-brainer. You'd better get in quick." Mr. Trombley, 40 years old, lives in Fort Myers just down the Gulf coast from Clearwater.
Trombley's attorney is suing the developers for securities law violations. The contention is that the developers should have registered the units as securities and, therefore, have supplied a prospectus. Presumably, the prospectus would have indicated that Mr. Trombley could possibly lose money on his investment. (My recollection from 2005 was that many news articles were already talking about an overheated market.) We are supposed to believe that Mr. Trombley and all the other investors who took a flyer on Florida and Vegas condos would have had an aha moment while reading the fine print and then backed away.
If you believe that, I have some oceanfront property in Nevada for you.
