Legal Scoop on Southwest Florida Real Estate

Legal Scoop on Southwest Florida Real Estate

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.

Update: Condemnation of Underwater Mortgages

Posted in Eminent Domain

underwater-mortgage-small.jpgRecent weeks have seen several developments with the condemnation of underwater mortgages. As reported by the New Jersey Spotlight, two new New Jersey mayors are moving in different directions on the underwater mortgage issue. In Newark, Mayor Ras Baraka plans “to employ eminent domain to take mortgages from the banks if necessary,” according to the New Jersey Spotlight. Meanwhile, Irvington Mayor Tony Vauss opposes the use of eminent domain to acquire underwater mortgages. Mayor Vauss’ stance contradicts Irvington’s previous position. In March 2014, the Irvington Township Council had approved a resolution calling for the Township’s Planning Board to prepare a plan to acquire underwater mortgages.

Meanwhile, on the west coast, on October 1, the Budget Committee of the San Francisco Board of Supervisors approved a proposal introduced by Supervisor John Avalos to authorize the City of San Francisco to begin negotiations to form a joint powers agreement with the City of Richmond in order to undertake the condemnation of underwater mortgages, as reported by the San Francisco Examiner.

Also of interest, Albany Law School Professor Raymond H. Brescia has published an article entitled “The Price of Crisis: Eminent Domain, Local Governments, and the Value of Underwater Mortgages.”  Professor Brescia’s article takes an in-depth look at the proposal to condemn underwater mortgages. Significantly, he suggests that local governments condemning underwater mortgages “should likely have to pay” 60 percent of the outstanding principal balance of any particular mortgage in order to acquire the mortgage, citing U.S. Department of Housing and Urban Development statistics showing that the U.S. government is receiving 60 cents on the dollar for the sale of distressed mortgages. It is not clear from Professor Brescia’s article whether his valuation concept takes into account that at least one plan — proposed by the City of Richmond in conjunction with Mortgage Resolution Partners — involves the condemnation of performing loans. As indicated in our September 12, 2013 blog post on this topic, some commentators have suggested “the relevant value inquiry is . . .  the value of the income stream.”

As events develop, we will keep you informed. Stay tuned to our blog for further updates!

Should I Buy or Lease Commercial Property?

Posted in Leasing

iStock_000015122897XSmall.jpgWith property values consistently trending upward, many Florida business owners are deciding whether to purchase or lease commercial real property. Below are a few considerations to keep in mind before making your decision.

Cost of Borrowed Funds

While there has been a stream of positive news about the general health of the economy, the Federal Reserve has kept interest rates considerably low. Therefore, it is an attractive interest rate environment for commercial borrowers who are financing real property. Depending on the term of the loan and type of property, current rates range from 3.50% to 6.50%, while prime rate (a barometer for different types of interest rates and the rate which financial institutions lend to their most prominent and creditworthy customers) remains at 3.25%. To put this into perspective, prime rate was 8.25% in 2007. Lower interest rates obviously lower the monthly payment obligation, and can accommodate a move to a higher tier property.

Judged against lease terms, the comparison changes depending on whether the owner is leasing for use as retail or office space. The former is generally based on a percentage of gross sales generated at the site, the latter normally contains an “escalation clause” that annually increases the rent obligation by 2-3%. Additionally, a commercial tenant (particularly a retail tenant) is likely liable for the real property taxes, utilities, and other expenses, which negates some of the perceived advantage that leasing may have over ownership.

Thus, a lease payment may initially have a lower payment burden but over time could exceed the payment obligation of a loan.

Beyond the Financing

Real property acquisition is usually not an organization’s principal business; rather, it serves as the space to conduct its primary operations. The decision to purchase or lease should be considered with a view toward the company’s long term growth plans. A younger company, for instance, could quickly outgrow a building in the first five or ten years of its acquisition. Or, a company may need more flexibility, and thus responding to market shifts could be more challenging when owning real property rather than leasing. A company that is considering purchasing must also consider whether a commercial mortgage on its balance sheet will preclude future borrowing, such as a working capital line of credit, which many companies need for monthly expenses like payroll.

A company that leases has reduced autonomy with the leased space and is subject to the landlord’s future plans for the property; this can be problematic, for example, in retail businesses, where location and co-tenancy concerns are crucial. A tenant may establish a profitable retail business in favorable location and find a landlord unwilling to extend a lease at the end of the term. A tenant may also want to retrofit a space for its specific business; this involves negotiating the type of improvements in the premises, the amount the owner is willing to expend on the improvements (if any), and which party controls the construction.

Overall, an enterprise should consider the need for autonomy and mobility, the effect on cash flow, early termination penalties in leases, maintenance obligations, and the forecast for property values.

Tax Considerations

Without getting into the intricacies of the tax code, generally, lease payments and operating expenses (utilities, property taxes, and maintenance costs) are tax deductible for tenants. For owners, interest payments on the mortgage loan, building depreciation, and operating expenses are deductible. However, the tax code, generally, gives a commercial building a lifespan of thirty-nine years. For owners this means that building depreciation and capital improvements to the building are spread annually over the thirty-nine year lifespan. When deciding to purchase or lease, a cost analysis should be done on an after-tax basis, with future appreciation in the land being a major component in the analysis.

From a broad perspective, those are some of the primary factors companies should consider. However, every company, and its circumstances, is different; business owners should elicit guidance from a real estate attorney and other professionals to assist with the decision-making process.

Community Association Managers Should Proceed Cautiously

Posted in Condominium, HOA

caution tapeIn reference to some new roles of community association managers authorized by House Bill 7037, which became effective on July 1, 2014, the website, flcamtest.com directs some wise words to Florida community association managers: “As a practical tip, just because you are a CAM and CAN do those task [sic], does not mean you SHOULD do those tasks.”

Required Notices

Community associations, including condominium, residential homeowners’, and cooperative associations, are required to provide written notice to owners who are delinquent in the payment of association assessments prior to filing a lien against the delinquent owner’s property, and prior to foreclosing on the lien. While the statutes previously required certain information to be included in such notices, they now include actual forms that must be used for the notices, as well as a form for the release of the liens.

New Authorized Tasks for CAMS

The new law authorizes community association managers (CAMs) to determine the number of days required for statutory notices, determine amounts due to the association, collect amounts due to the association before the filing of a civil action, complete forms related to the management of a community association that have been created by statute or by a state agency, and draft pre-arbitration demands, among other more standard tasks. Since the statutes now have created forms for pre-lien and pre-foreclosure notices, CAMs are authorized to complete and send these notices.

It’s Not Just a Form

While perhaps filling out a form provided by the statute may seem pretty simple, there can actually be many variables that go into the calculation of the total amounts which can be claimed by an association. It should be verified that any claimed interest and late fees were properly calculated and provided for in the governing documents, and the effect of any foreclosures on the property on the amounts that are claimed due. Prior to filing a lien, an association should have its legal counsel verify that the calculations were properly made. The law in this area is constantly changing and association managers are not expected or equipped to keep up with current case law.

There are also requirements in the statutes that the pre-lien notices are sent by certified mail, return receipt requested, to the owner at their last address on record with the association and at the subject unit or parcel, if that is not the last address of the owner. If the notice is not sent properly, it can be deemed invalid and, thus, could possibly invalidate the entire lien, costing the association time and further delaying the recoupment of funds.

Potential Risks to CAMs and Associations

The new law also allows the CAM to contract with the association to indemnify the CAM for damages to the association resulting from the CAM’s ordinary negligence.  While this language may put the association at risk by protecting the CAM should they make a mistake in carrying out their new roles, it also may not fully protect the association manager should they make a mistake that damages the association.  Having the association counsel continue to prepare pre-lien and pre-foreclosure notices will further remove the CAM from that potential risk.  The attorney handling the foreclosure suit may also prefer that the pre-suit notices are prepared by the attorney in order to prevent having the suit thrown out due to insufficient notice.

Debt Collection Protections

Finally, the association managers may not be required to comply with the Fair Debt Collection Practices Act (FDCPA) when sending collection demands. The purpose of the FDCPA is to protect the individual debtors from improper and harassing collections practices by third party debt-collectors by requiring certain disclosures and opportunities to dispute the claimed debt. The preparation of the pre-suit collections notices by association managers removes this protection.

Pre-Arbitration Demands

With regard to the preparation of pre-suit arbitration demands involving association disputes, an association manager puts itself and its association client at risk of jeopardizing or delaying an association’s case if the claims are not properly stated in the initial pre-arbitration notice. Very likely an association attorney will take over the arbitration case after the demand is sent, and the attorney may need the demand to be resent if the claim is not made in the proper and legally sufficient manner.

Think Before Acting

Prior to this new legislation, association attorneys were increasingly concerned that some CAM’s who were performing some of these tasks were venturing into the “unauthorized practice of law.” Now that these tasks are “authorized” by the legislature, a CAM should carefully consider whether he or she feels capable of properly performing them, both for the protection of the CAM and the association.

Imagine Courtesy of Eugene Zemlyanskiy on Flickr

Lee County Road Round-Up – Spotlight: Bonita Beach Road Update

Posted in Lee County Road Roundup

8293998585_d02b699ef7_q.jpgPhase III of the Bonita Beach Road widening project may be dead in the water, at least for now. The Bonita Springs City Council has voted to withhold contributing any funds toward the widening of Bonita Beach Road from four lanes to six lanes between Old 41 Road and U.S. 41, according to the News-Press

Lee County and the City of Bonita Springs share the cost of funding for certain projects. Without the support of the City of Bonita Springs, the widening project’s status is in question.

Stay tuned to our blog for further developments!

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