Legal Scoop on Southwest Florida Real Estate

Legal Scoop on Southwest Florida Real Estate

Important Reminders Regarding Disclosures

Posted in Due Diligence, HOA

Mortgage contractIn April of last year, my colleague, David Fowler shared a post about a seller’s obligation in a residential sale to disclose facts or conditions about the property that have a substantial impact on its value or desirability, and that are not easily observable to a buyer. As the post outlined, most of the disclosures are property specific, like the presence of mold or wood destroying organisms, or whether essential components of the home, such as the roof, plumbing or HVAC, are in disrepair. Sellers typically inform buyers of these conditions in a disclosure form usually provided by the seller’s real estate agent. There are, however, other disclosures required by Florida law that are equally as important to a buyer in making an informed decision whether to purchase a home.

Here are some of those disclosures that parties involved in the sale of a residential home should also be aware of:

Homeowners Association and Condominium Association

Florida Statute § 720.401, relative to homeowners associations, requires that a seller (or developer) present to the buyer, before the buyer signs the contract, a disclosure summary. The disclosure summary specifies, among other things,

  1. whether the purchaser will be obligated to be a member of the association;
  2. whether there are restrictions governing the use of the property;
  3. the amount of assessments the purchaser will be obligated to pay to the association; and,
  4. whether the association has the authority to place a lien on the property for the owner’s failure to pay assessments.

Importantly, the statute grants the buyer the right to void the contract up until closing if the disclosure is not provided.

Similarly, Florida Statute § 718.503, requires every contract for the resale of a condominium contain a provision that states the agreement is voidable by the buyer until closing if the buyer has not received, after buyer’s written request:

  1. the declaration of condominium;
  2. the association’s articles of incorporation, by-laws and rules; and,
  3. a copy of the most recent year-end financial information and frequently asked questions for the association.

Most residential contracts incorporate provisions providing for the buyer’s acknowledgement of or request for the disclosures. Because these disclosures are essential for a buyer to make an informed decision of whether to purchase a home; buyers should invariably request the disclosures at the time of contract, and should not acknowledge receipt unless the required documents have actually been received. The disclosures contain pertinent information related to: use restrictions on the property, such as lease and pet limitations; monthly assessment obligations, which are collected for, among other things, the operating costs of the association and the maintenance expenses for the common areas; and, the financial health of the association, which is reported in the year-end financial statements.

Radon Gas Warning

Florida Statute § 404.056(5) requires notification to buyers, at or prior to signing a contract for sale and purchase, of the health risks and dangers of radon gas. Radon is a tasteless, odorless and invisible gas which comes from the natural (radioactive) breakdown of uranium in soil, rock and water. It is responsible for thousands of cancer related deaths per year. Buyers should test a home while completing their due diligence, and sellers who are aware of elevated radon levels in the home should disclose it in writing to a prospective buyer.

Coastal Property Disclosure

For properties located near coastal areas, Florida Statute § 161.57 requires that a seller must provide a purchaser with a disclosure notifying the purchaser that the property is subject to coastal erosion, and that federal and state regulations provide strict coastal construction lines prohibiting or limiting construction.

Property Tax Disclosure

Florida Statute § 689.261 requires that a seller notify a buyer that the prior year’s real estate taxes are subject to readjustments and thus should not be relied upon. A seller who has owned a property for a number of years, will have benefited from a cap on annual increases in the property’s tax assessed value; thus, there could be a significant increase in the property taxes when the property is reassessed the following year. A transfer of property triggers a “reassessment” of the market value by the county property appraiser, which will serve as the basis for the initial tax assessed value for the new owner.

These are just some of the disclosures that are required in a residential real estate transaction. The assistance of a qualified real estate attorney to represent your interests in a transaction can ensure all the required disclosures have been provided or reviewed.

How to Pay Twice for Your Construction Project

Posted in Lien Law

I know what you’re thinking. No sensible person would ever pay twice for a construction project. But the following scenario is, unfortunately, an all-too common reality for many property owners:

One day, you’re enjoying the view from the bay windows of your recently completed home addition (or newly constructed home). A small taste of buyer’s remorse begins to fill your mouth, but with a sip of coffee, you quickly cast it aside, knowing that the minor fortune you just paid to your contractor is well worth it. A knock on the door brings your mind back to the present. As you glide across the shiny new hardwood floor and open the door, you are met with a sharply dressed man who, after confirming your identity, hands you a stack of papers and leaves. The words on the papers are filled with legal mumbo-jumbo, but you understand enough to know that a masonry company is suing you for payment, and threatening to foreclose its claim of lien if you do not pay. Certain that this must be a mistake, you call your contractor. Your heart sinks when you hear the dreaded message: “The number you have reached is no longer in service….”

In Florida, the same law that protects construction lienors (contractors, sub-contractors, suppliers and laborers) also protects owners by putting limits on their liability to those very same lienors. Property owners can limit their exposure by ensuring that all payments made to the contractor are “proper payments.” By only making “proper” payments, an owner’s liability will not exceed the contract price (i.e., an owner won’t have to pay twice). To ensure that a payment is a “proper” payment, an owner should follow these general guidelines:

Before making any payment to the contractor, make sure to: Continue Reading

Best Practices for Landlords

Posted in Leasing

Lease.jpgAre you a landlord? It’s a good position to be in, whether you’re a commercial landlord or a residential one. You can build equity in real estate and generate cash flow. Who doesn’t like that?

As a landlord, you’ve probably learned a few lessons, and maybe you’ve even learned some of those lessons the hard way.  Let me know if you’re familiar with these:

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What to Expect Following the Sunset of the Protecting Tenants at Foreclose Act

Posted in Foreclosures, Lenders

iStock_000015122897XSmall.jpgOn May 20, 2009, President Obama signed into law the Protecting Tenants at Foreclosure Act of 2009 (the “Act”). The Act was created during the height of the foreclosure crisis as a temporary measure to protect tenants who entered into a lease without realizing a property was in foreclosure. The Act provided that lenders and third-party purchasers who took title to a property at a foreclosure sale must provide a tenant with a minimum of 90 days’ notice, prior to seeking a writ of possession and evicting the tenant.

Sunset Provision of the Act

The Act was scheduled to expire on December 31, 2012, but the Dodd-Frank Wall Street Reform and Consumer Protection Act extended the sunset provision to December 31, 2014. There was much speculation within the legal community regarding whether the Act would be extended again. On November 21, 2013, the Senate introduced Bill 1761, titled “Permanently Protecting Tenants at Foreclosure Act of 2013,” which sought to indefinitely extend the protections afforded under the original Act, as well as provide tenants with a private right of action against lenders and third-party purchasers who failed to comply with the Act. However, Senate Bill 1761 never progressed forward, and the Act expired on December 31, 2014.

What Happens After the Sunset?

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Lee County Impact Fee Vote Fast Approaching

Posted in Impact Fees

construction-money.jpgAs discussed in my last blog on this topic, impact fee rates in Lee County continue to be a focus for many in the community. At its February 3rd meeting, the Board of County Commissioners (“BOCC”) adopted the proposed rate schedule which included a reduction in road impact fees coupled with a significant increase in school impact fees. After significant input from the community and discussion among the BOCC, Commissioner Kiker moved to adopt an increase in impact fees to 45% of the original rates to take effect March 16, 2015 upon the sunset of the current 80% reduction. The BOCC is now positioned to take a final vote on impact fee rates at its meeting on March 3, 2015 before the current reduction ordinance sunsets on March 13th.

Here are 3 ways you can get involved in this unquestionably important vote:

  • Catch up on all of the happenings related to impact fees and review any related studies, documents, ordinances or even review meeting videos at the county’s website here
  • Call or write the County Commissioners to express your opinion; you can locate your Commissioner by visiting the county map here and view contact information
  • Plan to attend the March 3rd meeting in BOCC Chambers to provide public input

As the Lee County real estate market continues to find its way, the issue of impact fees is unlikely to leave the forefront of economic debate anytime soon.

Homestead Deadline Approaching for Lee County Landowners

Posted in Real Estate

Mortgage contractThe homestead application filing deadline of March 1 is approaching quickly. Below is a snapshot of eligibility and documentation requirements for real property owned in Lee County, Florida.

What is the Homestead Exemption?

The homestead exemption is a constitutional benefit of up to a $50,000 exemption deducted from the assessed value of the property.

Who Is Eligible to File for an Exemption?

Individuals whose names appear on the deed, who reside on the property as of January 1, and who are bona fide Florida residents as of January 1 are eligible to file. To be eligible for the exemption this tax year, an owner must file an Application for Homestead and related documents with the County Property Appraiser no later than March 1, 2015. Only new applicants or those who had a change of residence are required to apply. For individuals who have previously filed for and been approved for the homestead exemption, notices of automatic renewals should be received from the Lee County Property Appraiser in January of each year.

Lee County’s Application Requirements

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Lee County Impact Fee Vote Looming

Posted in Impact Fees

construction-money.jpgThe Lee County Board of County Commissioners (“BOCC”) is kicking off 2015 with substantial consideration of impact fees, with viewpoints expressed by stakeholders on both sides of the issue. At its January 6th meeting, the first of 2015, the BOCC voted to extend the change-of-use impact fee waiver for an additional two-year period. This temporary waiver is now set to expire December 31, 2016 per Resolution 15-01-01. At the following meeting, held on January 20th, the BOCC adopted Ordinance 15-02 which allows a six-month grace period for building permits, mobile home move-on permits, or recreational vehicle park development order applications submitted by March 13, 2015 to receive the current 20% reduced impact fee rate so long as the permit is also picked up by close of business on September 11, 2015.

At its next meeting, to be held February 3rd, the BOCC will once again consider the issue of impact fees for the most significant of these votes as the 20% reduction nears sunset. If the BOCC makes no decision regarding this reduction, the 20% reduction established in Ordinance 13-06 will sunset per its terms on March 13, 2015. This would mean impact fees would begin imposition at the full rate on Monday, March 16. The BOCC could also choose to establish a new reduced rate of collection. County staff have recently recommended a collection rate of 85% for roads impact fees as well as a revised impact fee schedule. If a change to the impact fee collection rate is determined, staff is expected to bring that item back to the BOCC for a final vote with ordinance adoption at the March 3rd meeting.

Given the importance of impact fees to our community, the discussion at the February 3rd BOCC meeting is guaranteed to be rich and likely passionate. Additional information with supporting documentation can be found on the Recent Impact Fee Considerations page of the county’s website.

Permit Extension Notification Deadline Closing

Posted in Judicial Update, Land Use, Zoning

For any development permit holders interested in taking advantage of the two-year extension offered under HB 7023 (codified as Laws of Florida ch. 2014-218), there are some important rules to remember as the notification deadline of December 31, 2014 quickly approaches:

  • The permit you are seeking to extend must expire between January 1, 2014 and January 1, 2016;
  • The extension applies to approvals such as local development permits including development orders, building permits, DEP and environmental resource water management district permits;
  • The extension does not apply to approvals such as Army Corps of Engineers permits or consumptive use water management district permits;
  • If you have previously extended this permit under two (2) of the prior legislative extensions, for a total extension of four (4) years, you cannot utilize this extension provision; and
  • You must provide written notification to the agency who issued the permit by December 31, 2014 (some jurisdictions require a fee while others do not).

Many jurisdictions have information on this extension noted on their websites, or you may check with your consultant or attorney to determine if your permit is eligible for this extension.

“Let’s Make a Deal”: Dangers of Condominium and Homeowner Associations Accepting Partial Payments for Delinquent Assessments

Posted in Condominium, HOA

past-due-small.jpgSince the real estate meltdown which began in 2006, many condominium and homeowner associations have struggled with a significant increase in delinquent assessments. Any money received by an association from a delinquent owner helps, and many associations were willing to work out payment plans with such owners.

Many of the delinquencies were the result of the large number of foreclosures in many communities and the time lenders were taking to complete the foreclosure. Often, many years passed while a home was in foreclosure and usually the assessments were unpaid during the entire time. While the situation is improving with the recovering real estate economy, there are still thousands of pending foreclosures in Florida and many owners still delinquent in assessments.

Sometimes a condominium or homeowner association can look to the new owner for payment of all outstanding delinquent assessments. (When and if an association can bill the new owner is beyond the scope of this article.) Sometimes the new owner may not know they can be liable for all past due assessments.

In a recent court case, a purchaser at foreclosure was billed over $38,000 in past due assessments by the condominium association. The purchaser sent the association a check for $840.00, which was the pro-rated amount that had become due from the date the new owner purchased the condominium. With the check, the purchaser’s attorney submitted a letter to the association stating that:

Regardless of intent, negotiation of the enclosed check shall be deemed an acceptance of the offer of settlement made herein, and shall be full and final satisfaction of all claims against the owner and the property.”

Both the condominium law and homeowner association law seem to address this issue. Each law has very similar language which essentially says:

Any payment received by an association and accepted must be applied first to any interest accrued by the association, then to any administrative late fee, then to any costs and reasonable attorney’s fees incurred in collection, and then to the delinquent assessment. The foregoing is applicable notwithstanding any restrictive endorsement, designation, or instruction placed on or accompanying a payment.”

Notice the underlined language, that could be interpreted to allow an association to accept whatever they can get without waiving their rights to demand full payment. However, in the recent case, the court ruled otherwise. The court concluded that the language in the statute, when both sentences are read together, was intended to prevent an association from altering the formula for the application of payments rather than to preclude the delinquent owner from making a partial payment and conditioning acceptance of that payment on waiving the remaining delinquency.

Associations need to be cautious when an owner tries to make a partial payment as full satisfaction of what they owe. As the court said in this recent case: “Simply put, the Association cannot have their cake and eat it too.”

 

Should I Form an LLC for My Beach Rental?

Posted in Condominium, Tax

SanibelLiving and practicing on Sanibel, I have many clients who come to us when they purchase a condominium or home for investment income. One of the questions that often arises is whether they should hold their investment real estate in a separate legal entity for tax and liability purposes.

Our recommendation for most clients is that they should consider the formation of a Florida limited liability company (LLC). A Florida limited liability company offers the liability protections most often associated with a corporation, while have the tax attributes of holding the property in your individual name.

In an LLC, each owner holds a “membership” interest, often described as “units” or “percentages” that define their individual ownership, much in the way that a corporation is owned by shares of stock. The LLC should have an Operating Agreement setting forth the terms and conditions (think of them as “rules”) of ownership. There are many options in deciding what should go into an Operating Agreement. You should discuss these options with your attorney when creating the LLC.

Protections of an LLC

The limited liability protections of an LLC mean that in the event of a catastrophic claim, your financial exposure is limited to the value of the assets held in the LLC’s name. For example, assume that a tenant holds a beach party and a guest falls off a balcony, suffering a significant loss. The guest can sue the property owner for failing to properly maintain the property. If the property is owned individually, all of the owner’s assets are at risk for the entire judgment.

If the property is held in a limited liability company, however, the owner’s risk of loss is limited to the value of the property. Thus, if a potential judgment is more than the owner’s equity in the property, the judgment holder could only attach assets of the limited liability company (the property itself, plus any other assets, such as furnishings, or cash in the company’s checking account). If the property is mortgaged, that may mean little actual value.

This does not mean, however, that the property owner should not insure the property. Nothing can replace properly insuring your investment real estate. In addition, we recommend to all of our clients that they carry personal liability umbrella policies that provide additional insurance over and above their property insurance.

It is, however, possible that a claim can exceed the limits of a person’s insurance coverage, or even be outside of the limited of insurance coverage. For those reasons, the LLC acts as a financial fortress to protect the owner’s liability exposure.

Tax Implications

The tax consequences of an LLC are beneficial and simple. The Internal Revenue Service treats the entity as a “disregarded entity,” meaning that the IRS does not care about the legal structure of the entity, and will tax the owners as if they owned it in their individual names. That means if you form a sole member (one owner) LLC, the gains and losses relating the rental of the property will be reported on your personal 1040 individual income tax return. If there are two or more owners, then the LLC will file a Form 1065, Partnership Return, passing the gains or losses to the partnership in proportion to their membership interests.

Many real estate investors find that a limited liability company provides them with peace of mind of knowing that they have limited their investment risk. Ask your attorney if an LLC is the correct structure for you.

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