Legal Scoop on Southwest Florida Real Estate

I recently joined a collaborative effort with CapeCoral.com to provide insights on the Cape Coral real estate market, and contribute monthly to the "Breaking Down the Real Estate Market" special feature.

The CapeCoral.com March article, "A Look back at the 2012 real estate market, predictions for 2013," shares insights and thoughts from three local real estate professionals for their opinions on past, current and future market trends, including:  

In the past few months, several clients have contacted me with questions regarding property that had been obtained through tax deeds. For example, one client contacted me to discuss property that had been purchased from an individual who obtained the property through a tax deed sale two years earlier. At the recent purchase, the client had obtained an owner's title policy; however, there was an exception to this policy for anyone claiming by, through or under the prior owner whose title to the property had been disgorged by the tax deed sale. My client intended to develop the property into a multi-unit residential complex and wanted to be certain that they could provide clear title to the eventual third-party purchasers.

Background

Prior to a property being sold at auction via a tax sale, several things must have occurred or, in some cases, not occurred. By way of example, let's say that “Adam” is an individual who owns a 10 acre tract of vacant land in Lee County, Florida. After the 2008 real estate crash, Adam fell on hard times and failed to pay the 2008 ad valorem taxes due and payable on March 1, 2009. On April 1, 2009, the taxes for Adam's property were deemed delinquent and the tax collector, as required by law, advertised Adam's property (along with other delinquent properties) once a week for three consecutive weeks for the sale of a tax certificate on the delinquent 2008 taxes. Once the delinquent properties had been properly advertised, the tax collector established an on-line auction for a tax certificate for the delinquent 2008 taxes.

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Most home purchase contracts allow the buyer to obtain a home inspection report, even if the Seller is selling as is, and Buyers are more likely to obtain a home inspection report than ever before, even when buying a home as is. So, what should you look for when you receive the inspection and what can you ask the Seller to repair?

1. “As Is” Contract Negotiations. With the typical “as is” contract, the Buyer can obtain an inspection and usually back out of the contract if it is unacceptable, but the Seller is not obligated to make any repairs. However, if you have an “as is” contract, a home inspection report can give you the opportunity to negotiate Seller repairs, a repair credit, or a lower purchase price. 
2. Monetary Cap on Repairs. With a typical contract that does require Seller repairs, there is usually a limit on how much money the Seller is required to spend (usually a percentage of the sales price or a fixed dollar amount), a limit on what constitutes a "defect", and a clause which allows the Buyer to back out of the contract if the cost of repairing the defects exceeds the Seller's limit and the Seller is unwilling to make repairs which exceed the limit.
3. Defects. If done properly by a qualified person or company, the home inspection report will usually note every defect in a home, whether or not it constitutes a "defect" under the contract. The inspector's job is to find everything that is or may be a potential problem, whether or not the Seller is obligated to fix the problem. 
4. List Repairs by Seller. When reviewing a home inspection report, look at the sales contract language which deals with Seller repairs and highlight those items noted in the report which the Seller is obligated to fix. At a minimum, if your contract requires the Seller to make repairs, you should report these to the Seller and ask them to be made.
5. Cosmetic Issues. Most contracts do not require a Seller to repair cosmetic items, such as peeling or chipped paint, paint stains, cracks in tiles or grout, or cracks in driveways. However, cosmetic items can be evidence of potentially worse problems, such as a paint stain being evidence of water damage which may be caused by a roof leak. Be sure to ask the inspector to advise whether a cosmetic item should be cause for concern. 
6. AC Units and Appliances. Look at the remaining useful life of major components of the home such as AC units, and appliances. Often inspection reports now give an estimated useful life of these items. Even though most contracts do not require the Seller to repair or replace something that is working, if an inspection says the AC unit, or major appliances are likely to need replacement in the near future, that information may help you decide whether the home is worth the price you are paying.
7. Roof. Be aware that some insurance companies are now requiring the roof to have at least five years of remaining life before they will insure the home. They may cancel your insurance after you have closed on the home if they do an inspection, their inspector determines that there is less than five years remaining, and you do not agree to replace the roof. Check with your insurance company before closing and ask what their requirements are. If they require information on remaining useful life of the roof, make sure your inspection report includes that and it satisfies your insurance company.

Bottom line: Home inspections can be a valuable tool in negotiating with your Seller or in deciding whether your dream home may become a nightmare.

In prior posts, I mentioned the basic timing of the property tax system in Florida. As a reminder, important dates to keep in mind are:

• January 1: all property in the State must be assessed based on its condition on that particular date (I like to call this the "snapshot photo" date);
• March 1: the general deadline to submit exemption applications;
• July 1: local property appraisers generally have their values determined;
• Mid-August: TRIM notices are mailed to inform property owners of their proposed assessment and tax bill for that year;
• September: 25 days from the date of mailing the TRIMs, the appeal period expires if you want to appeal through the Value Adjustment Board; and,
• November: taxes can be paid for the greatest discount. 

Which begs the question, what can I do now if I'm thinking about my property taxes but haven't paid attention to these dates? Here are 5 quick things you can be doing:

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The Board of Lee County Commissioners is set to consider proposed changes to county impact fees for schools, regional and community parks, EMS and fire services. The Board will hear the item at its regularly-scheduled public hearing on April 10th at 9:30 a.m. in Commission chambers.

You can access the impact fee studies on the county's Department of Community Development website at www.lee-county.com/dcd/. Highlights of the studies include:

• A decrease in school impact fees of 5%
• An increase in fire impact fees for retail and office uses
• A decrease in fire impact fees for all other uses
• An increase in regional park impact fees of 5%
• A decrease in EMS impact fees for all uses except warehouse and motel/hotel uses

For all those interested in this often controversial matter, tune in or show up to the April 10th meeting to voice your opinions or observe the Board's actions on these proposals.

Security must keep pace with technology. We experience it first-hand. Remove your shoes, jacket, liquids and electronics. Place them on the conveyor belt, and proceed to the body scanner. But wait, this seems odd - I'm heading into my real estate closing, not the airport, right? 

Fortunately, real estate transactions do not command the physically invasive security measures that accompany aviation, but the gap may be narrowing slightly based upon recent alerts. National and local title insurance underwriters and The Florida Bar have recently published alerts in reaction to the latest fraud scam affecting real estate transactions - the weapon of choice is the Smartphone.

How It Works

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To continue our series to recap the Real Estate Investment Society’s "Challenges and Strategies for Property Development Today” workshop, and to follow Cody Vaughan-Birch's post on Development Incentives and Local Pro-Growth Policies, the second panel of professionals provided an overview of the current trends, challenges and strategies in property development from a legal and practical perspective.

Southwest Florida Real Estate:  Problem or Opportunity?

Steve Hartsell, a zoning and land use attorney with the Pavese Law Firm, summarized two circumstances where legal and practical strategies are needed:

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"Short sales" deserve attention as we continue focusing on opportunities in a down real estate market. As you probably know, a short sale is where the current lender agrees to release property from the lien of the mortgage in exchange for less than the outstanding mortgage debt. Shorts sales gain popularity as owners owe more on their outstanding mortgage than their property is currently worth.

The devil is in the details with commercial and residential short sales. All parties to the transaction (seller/borrower, lender, buyer, guarantor(s)) should consider how to protect themselves with written agreements. This article will examine some of the critical terms that should be reduced to writing when navigating a short sale.

Essential Contract Terms

A short sale comes to life when a contract for sale is executed by the seller/borrower and buyer.  At a minimum, the contract should clearly state that the transaction is a short sale and provide 

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Would you be surprised to discover that the property you would like to purchase, which is subject to a foreclosure suit, has an invalid assignment of bid rights?

Improper Assignment of Bid Rights
As a transactional real estate attorney, I am surprised at the frequency I am discovering improper assignments of bid rights filed in foreclosure cases. An improper assignment of bid rights is signed by the plaintiff's attorney rather than being signed by the lender, without any documentation being provided to reflect the authority of the attorney to sign the assignment. This renders the assignment of bid rights invalid and creates possible title problems for the subsequent purchaser of the property.

Does this mean the foreclosure sale is invalid? Does this mean you, as the subsequent purchaser, do not have clear title to the property? The answers to these questions require review of many documents, including the pleadings filed in the foreclosure suit, your contract to purchase, all signed closing documents and the exceptions listed in your owner's title insurance policy (assuming you obtained an owner's title insurance policy).

Best Practice Tips
To avoid creating this title problem, the lender should sign an assignment of bid rights and the assignment should then be filed in the foreclosure case. If the lender's attorney signs the assignment of bid rights, a power of attorney signed by the lender authorizing the attorney to execute said document is required. The power of attorney must comply with Florida Statutes to be valid, should be recorded in the official records in the county where the property is located and should be attached to the assignment of bid rights filed in the foreclosure case.

To avoid another unpleasant surprise, it is important to confirm the plaintiff/lender complied with all judicial administrative orders concerning the assignment of bid rights. For instance, Polk County, Florida requires all assignments of bid rights made after the sale be approved by the Court and filed in the court file.

The best way to avoid unpleasant surprises if you are purchasing a property currently subject to a pending foreclosure suit or property already foreclosed upon is to be thorough in your due diligence, including review the of the foreclosure case and review of documents of record impacting title to the property.

In light of the significant reduction in property values and construction costs across Lee County, a recent study conducted by Duncan Associates (a consulting firm based out of Texas) concluded that the Board of County Commissioners should consider similarly significant reductions in its road impact fees.

Road impact fees are generally assessed on new construction projects to mitigate the growth impacts associated with that development. Most notably, if your project is going to result in an increase in the usage of existing roads, or require that new roads be built, the idea is that the new project should pay for that impact. This "pay as you grow" fee is common across Florida, but the actual amount imposed for the fee varies greatly by jurisdiction. Typically, this impact fee is based upon such things as the construction costs in widening or creating roadways, or the purchase price for acquiring right-of-way if needed to improve the road. Since the costs of both have dropped, it naturally follows that this fee should drop as well.

On average, Duncan Associates is proposing a 27% reduction in the county's road impact fees. In addition to this reduction, the study also proposes to roll medical office into general office use. Traditionally, medical office uses have borne a higher road impact fee, so this would even further reduce development costs for potential medical uses, if adopted.

Specific proposed fee changes include:

• Single family detached: Drop 25% from $8,976 to $6,701
• Hotel/Motel: Drop 25% from $5,172 to $3,861
• Shopping Center/General Retail: Drop 28% from $10,983 to $7,933
• Banks: Drop 32% from $25,134 to $17,187
• Office: Drop 27% from $7,305 to $5,355

These proposals will be reviewed by various Advisory Committees before going before the Board of County Commissioners in June. You can obtain a complete copy of the 2011 Road Impact Fee Update here and find a listing of the Advisory Committee meetings here.

I was trading e-mails the other day with a general contractor friend of mine, Mark Stevens of Stevens Construction, Inc., and he took the words right out of my mouth: 

I wish these prospective buyers would do some more due diligence before buying these 'bargain' existing buildings."

We had been discussing new projects, and I was explaining to him that my zoning and land use law caseload has transitioned from focusing on new development and obtaining development entitlements to assisting owners (sometimes involuntary bank-owners) with code violations or development permit-related problems with their property. As a contractor who does a large amount of medical office construction, Mark was lamenting that he is seeing more buyers jumping on fantastic real estate bargains and purchasing existing distressed commercial and office buildings without diligently investigating whether the building may be used for the desired purpose. 

Buyers often think that because an existing building was previously used for medical offices or some other use, they may buy and remodel it for that same use. Unfortunately, they sometimes find out much too late that the previous use was a "grandfathered" or nonconforming use, and the new and improved use the buyer desires to put in is no longer allowed or is severely restricted due to a lack of parking or on-site open space. Sometimes the local codes have changed and require more square footage for a certain use or prohibit the use entirely. Often a solution might be to seek a variance and reduce the required number of parking spaces or seek a development approval to add more spaces, but it can be tough to convince the local government to approve this remedy when the buyer essentially created the very hardship he is seeking relief from. 

In the height of the real estate boom, I often assisted clients by providing a due diligence analysis regarding the existing entitlements or development potential, and they were happy to have me do it because it added value to projects, or provided a red flag to abandon the deal. As the market peaked and then careened over a cliff, due diligence investigation has sometimes been overlooked or relegated to those who may not be aware of the latest changes to a local government's land development code or comprehensive plan. Even worse, sometimes there is no actual change in the wording of a code, and it is the interpretation of the code that changes. Skipping a proper due diligence investigation is a huge risk for a buyer, and while it may add a few thousand dollars to a project's bottom line, denial of the desired use or a lengthy variance or special exception approval process can kill a project altogether.

Each year, the legislature makes changes to the laws regulating condominium, cooperative, and homeowner associations.  This year, many of the legislative changes were intended to address the unique problems which arose as a result of the severely depressed housing market and the effect it has had on these associations. This article summarizes some of legislative changes that took effect on July 1.

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The long recession from which we are emerging has caused numerous borrowers to default on the loans for their commercial projects including loans for residential developments, shopping centers, office buildings and industrial/warehouse/flex space. Many residential developers have seen their sales of completed units or lots stop or slow to a trickle over the past few years, while the interest on their loans continue to accrue. This may result in the debt on the projects being significantly greater than the value of the projects. Many developers of commercial projects have either been unable to lease space or have had to lease it at rates that are significantly lower than anticipated rental rates. Compounding the problems of commercial developers, many tenants have defaulted on their leases as their revenues have declined, leaving such space unoccupied or re-let at greatly reduced rental rates. Meanwhile interest has continued accruing on the developers' loans. 

Although these projects have been disappointments for the original developers and lenders financing the projects, financially troubled projects can present excellent investment opportunities for new investors/developers provided they have the capital to acquire the projects based on current market valuations and the project lender is willing to discount the existing loan balance to make the purchase and completion of the project feasible.

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