Typical Troublesome Scenariohome inspection magnified.jpg

You have just found the perfect home and you are ready to sign the purchase offer. Either you failed to fully read the contract or your home state’s laws allow you the right to terminate the contract if you are dissatisfied with the home inspection, so you assume you have the same rights in Florida and happily sign the contract. The home inspection report later reveals problematic issues that prompt you to want to immediately terminate the contract, but you soon learn that the form contract you signed does not afford you with such right. Instead, you are now forced to proceed under a contract to purchase a home you no longer desire.

Florida Law

Continue Reading Buyer Beware: How To Avoid Purchasing An Unwanted Home After the Home Inspection

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.

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.

It is commonly known that a buyer should perform due diligence before purchasing property. If the buyer fails to perform due diligence (obtaining a building inspection, phase I environmental report, mold inspection, Chinese Drywall inspection, survey, etc.) the buyer may incur significant unanticipated post-closing costs and liabilities.

When purchasing property at a foreclosure sale or a property that has recently been foreclosed, a buyer must be even more diligent in his or her inspection of the property and title to the property since the buyer, in most cases, is purchasing the property “as is.”

In any type of purchase, a buyer must be concerned with the title to the property. This is especially important in today’s market since so many properties are in foreclosure. What if the foreclosure suit named the wrong lender as the plaintiff? What if a junior lien holder was not named in the foreclosure suit? These situations and many other situations can leave a buyer with title to a property that is not insurable and can cost the buyer thousands and sometimes tens of thousands of dollars to correct.

Most title companies do not understand the complexity of legal matters involved in a foreclosure suit. Further, a title company does not represent either the buyer or the seller in a real estate transaction and cannot provide legal advice to either party.  

Continue Reading Avoiding Costly Mistakes When Purchasing Property in Today's Market

“Title insurance” is a term that is frequently uttered when discussing real estate transactions. Title insurance costs money, which should grab your attention, but do you really know what it is? It is not just another closing cost reflected on a settlement statement. In fact, title insurance is a unique animal in the insurance world, and understanding its nuances can protect your investment – for much longer than you may think.

This post is a title insurance guide for potential buyers of real estate, and is intended to provide valuable information to real estate enthusiasts engaged in any aspect of a transaction. Although this post focuses on title insurance as it relates to the purchase and sale of real estate, it is important to note that title insurance also applies to lending transactions involving real estate.

What is Title Insurance and Why is it Unique?

Continue Reading Title Insurance Demystified