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Wow! A lot has happened on this topic since our July 29, 2013 post! The developments over the last six weeks are significant because one city (Richmond, California) may be close to making a decision whether to use eminent domain to acquire underwater mortgages, while another (North Las Vegas, Nevada) has decided it will not use eminent domain to acquire underwater mortgages. Here are the highlights of the developments of the last six weeks:

  • At the end of July, as reported by The New York Times, the City of Richmond, California sent letters offering to buy 626 underwater loans. The NBC News website carried a Reuters story that the offers were for “80% of the fair value of the homes” and said the City “expect[ed] responses to its letters no later than Aug[ust] 13.” The Reuters story also reported that Richmond Mayor Gayle McLaughlin said the City Council would be in a position by September to begin its condemnation of underwater mortgages program.
  • The San Francisco Chronicle reported on the Richmond offer letters, also, identifying the number of underwater loans as 624, of which 444 were current, with the balance being delinquent.
  • On August 7, Wells Fargo Bank, Deutsche Bank National Trust Company, and Deutsche Bank Trust Company Americas, “as trustees for hundreds of residential mortgage-backed securitization . . . trusts” filed a federal lawsuit in the Northern District of California against the City of Richmond and Mortgage Resolution Partners. The lawsuit seeks “declaratory and injunctive relief declaring that the Richmond Seizure Program violates the United States Constitution, the California Constitution, and other state laws, and enjoining [the City and Mortgage Resolution Partners] from implementing the [Richmond Seizure] Program.” The preliminary legal wrangling has been outlined by Hawaii eminent domain lawyer Robert Thomas on his website.
  • Also in early August, as reported by NuWire Investor, “the Federal Housing Financial Agency, regulator of Fannie Mae and Freddie Mac, two of the biggest investors in private-label mortgage-backed securities, issued a strong statement against [Richmond’s plan to use eminent domain to acquire underwater mortgages], saying it would legally challenge any local or state action that sanctions use of eminent domain.” The NuWire article went on to say that the FHFA would “also consider using its authority to ‘direct the regulated entities to limit, restrict or cease business activities within the jurisdiction of any state or local authority employing eminent domain to restructure mortgage loan contracts; or take such other actions as may be appropriate to respond to market uncertainty or increased costs created by any movement to put in place such programs.'”
  • On August 13, the Los Angeles Times reported that a U.S. Department of Housing and Urban Development letter stated “‘HUD recognizes the serious concerns raised by these legal actions against Richmond, California and the private entities working with the city. Pending legal developments and possible further execution of the plans in question, HUD does not know whether any new mortgage which might be created will qualify for insurance by the Federal Housing Administration.'”
  • On August 15, as reported on www.nbcbayarea.com, Richmond Mayor Gayle McLaughlin appeared at Wells Fargo headquarters in San Francisco to demand that Wells Fargo drop its federal lawsuit against Richmond.
  • Also on August 15, the Los Angeles Times reported that one Wells Fargo response to a Richmond offer letter stated “‘in its role as either servicer of the loans or as trustee, [Wells Fargo] does not have the contractual authority to sell the loans.”’ According to the article, Wells Fargo’s letter also said “the bank ‘is not aware of any other party having the contractual authority to sell the loans or consider your offer.'”
  • As reported August 29, in the San Francisco Chronicle, Wall Street financiers refused to refinance Richmond’s municipal bonds, which “cost the city nearly $4 million in lost savings . . . .  Meanwhile, bonds issued by other cities with lower credit ratings found buyers.”
  • On September 4, the City of North Las Vegas voted 5-0 to reject the Mortgage Resolution Partners plan to use eminent domain to acquire underwater mortgages if mortgage holders would not sell the mortgages to the City voluntarily, as reported by Reuters and the Las Vegas Review-Journal.

A number of commentators have raised several interesting points about Richmond’s plan to acquire underwater mortgages using condemnation. Bloomberg pointed out that reduction of a borrower’s principal could create tax liability in the homeowner. Other commentators have suggested that, because many of the loans identified by Richmond are performing, the relevant value inquiry is not the value of the security (i.e., the home), but the value of the income stream. See articles by Edward G. Burg, Esq. and Anthony Della Pelle, Esq.

LATE-BREAKING NEWS:  Early in the morning on Wednesday, September 11, the Richmond City Council voted 4-3 “to continue exploring the use of eminent domain for underwater mortgages, after a lengthy and contentious meeting….” and plans to create “a Joint Powers Authority with other interested cites as a next step forward….” according to the San Francisco Chronicle.

The next big event could be September 13, 2013 when the Motion for Preliminary Injunction in the Wells Fargo/Deutsche B
ank federal lawsuit is heard.

For more on this topic, see posts of July 29, June 5, February 19, January 29, August 23 2012, as well as the December 10, 2012 post via the American Bar Association. As always, stay tuned to our blog for further updates.

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Here are four things to know about the Lee County Department of Transportation’s proposed Alico Road widening project that runs from west of Ben Hill Griffin Parkway to east of Airport Haul Road. We learned these when we reviewed the Alico Road Alignment Study Report. 

Number 1: Right now, the average daily traffic on Alico Road in the area where the widening is proposed is roughly 2,600 vehicles per day (see map below, page 2 of the Alico Road Alignment Study Report). According to the Study, by the year 2035, the average daily traffic is projected to increase to “67,000 vehicles per day just east of Ben Hill Griffin Parkway and up to 33,000 vehicles per day east of Airport Haul Road.”

Number 2: Lee County DOT requires approximately 42 feet to 75 feet of right-of-way on the north side of Alico Road and 75 feet of right-of-way on the south side of Alico Road for the widening project.

Number 3: According to the Study, “The proposed project, as presently conceived, will not displace any residences, businesses or business signs within the community.”

Number 4: In the Study, Lee County DOT states, “The proposed right of way is anticipated to be acquired through land development impact fee agreements to be conducted in the design phase.”

In summary, at this point, it appears that:

  • traffic volume will grow significantly on Alico Road over the next 20 years; and
  • right-of-way acquisition may not involve the use of the County’s powers of eminent domain.

According to Lee County DOT, the preliminary design is complete and construction will take place in fiscal year 2015-2016. Stay tuned to our blog for further developments!

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Number 1:  In case you missed it, there are a number of road improvement projects underway in Lee County.

Number 2:  To help you keep up with all of the Lee County Department of Transportation’s road projects, I will post updates under the title “Lee County Road Roundup.”

Number 3:  The Lee County Department of Transportation maintains a list of its current construction projects entitled “CIP Project Summary” on its website. “CIP” stands for Capital Improvement Plan.

Number 4:  For information about the specific work to be performed, and resulting closures, on certain projects, the Lee County Department of Transportation publishes the “RoadWatch Update” on its website. As the name “RoadWatch Update” suggests, the Lee County DOT post updates regularly.

Number 5:  Some of the Lee County DOT’s road projects require the acquisition of right-of-way from property owners. According to the CIP Project Summary, as of August 19, 2013, Lee County DOT needs to acquire right-of-way for the following projects:

  • Alico Road Multi-Laning
  • Bonita Beach Road – Phase III
  • Crystal Drive/Plantation Road Roundabout
  • Homestead Road Four Laning/Sunrise – Alabama
  • Ortiz Avenue/State Road 80 – Luckett Road
  • Ortiz Avenue Four Laning/Dr. Martin Luther King, Jr. Blvd. to Luckett Road
  • Three Oaks Parkway Extension, North

Take time to educate yourself about road projects that may affect you, especially if a portion of your property may be acquired for right-of-way. Stay tuned to our blog and look for updates to the “Lee County Road Roundup.”

Photo Courtesy of dno1967b on Flickr

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As seems to be the trend with amendments to Chapter 720, Florida Statutes, which governs residential homeowners’ associations, the 2013 legislation increases regulation by the Division of Florida Condominiums, Timeshares and Mobile Homes (the “Division”) of residential homeowners’ associations. Specifically, the association manager, management firm, or the association is now required to submit a report to the Division by November 22, 2013. (Note that this new law does not apply to condominium associations which are governed by Chapter 718, Florida Statutes). The report is a continuing obligation of every Association until the report is made to the Division, although there are no remedies provided if the report is not made.

Contents of the Report

The required report is to include the Association’s:

  • Legal name
  • Federal employer identification number
  • Mailing and physical address
  • Total number of parcels
  • Total amount of revenues and expenses from the Association’s annual budget.

For Associations still under the control of the developer, the report is also required to include the developer’s:

  • Legal name
  • Mailing address
  • Total number of parcels owned on the date of reporting.

The Department of Business and Professional Regulations (the “Department”) is required to create a registration system via a website to provide for the reporting requirements and is also required to prepare an annual report of the data to present to the Governor, President of the Senate and Speaker of the House of Representatives by December 1 of each year. The Division’s website indicates that the website portal is currently being worked on and is required to be in place by October 1, 2013.  Check for updates at: http://www.myfloridalicense.com/dbpr/lsc/index.html.  

This new section is set to expire July 1, 2016 unless reenacted by the Legislature.

Purpose of the Report

The staff analysis of the bill enacting these provisions indicates that the report is a one time requirement in order to assess the number and variety of homeowners associations in the state. Interestingly, the staff analysis also recognizes that, unlike condominiums and cooperatives, no state agency has direct oversight of homeowners’ associations, although the Division does administer the mandatory binding arbitration program for certain election disputes. Section 720.302(2), Florida Statutes, expresses the Legislature’s recognition that it is not in the best interest of homeowners’ associations or the individual association members to create or impose a bureau or other agency of state government to regulate the affairs of homeowners’ associations. Nevertheless, it appears that a shift in this policy may be coming as the report requirement may indicate further increases in the Division’s regulatory authority over homeowners’ associations is on the horizon. 

We will provide a summary of additional legislative amendments affecting homeowners’ associations in future articles. However, in the meantime, community association managers should also be aware that violating any provisions of Florida Statutes Chapter 720 (Homeowners’ Associations), Chapter 718 (Condominium Act) or Chapter 719 (Cooperative Act) during the course of performing community association management now expressly constitutes grounds for disciplinary actions by the Department.

Property owners along State Road 82 between Shawnee Road and Alabama Road, whose property is needed for the State Road 82 widening project, can expect to receive offers from the Florida Department of Transportation perhaps about seven months from now.  As of August 9, 2013, according to the FDOT, the negotiations for right-of-way are scheduled to begin March 17, 2014, while appraisals are scheduled for November 25, 2013 to February 17, 2014.

All of this means it’s definitely time for property owners along State Road 82 between Shawnee Road and Alabama Road to start planning!

As of August 9, 2013, FDOT’s project summary shows $181,866 allocated to right-of-way acquisition in fiscal year 2014, $161,089 allocated to right-of-way acquisition in fiscal year 2015, and $71,105 allocated to right-of-way acquisition in fiscal year 2016.  It’s important to note that, as of August 9, 2013, the FDOT’s website for the Shawnee Road to Alabama Road segment continues to state:  “The right-of-way acquisition phase is not currently funded.”

For more information on the Shawnee Road to Alabama Road segment of the State Road 82 widening project, see our March 27, 2013 post.

Stay tuned to our blog for further developments!

The Florida Department of Transportation recently updated its Five-Year Work Program webpage for the Colonial/Lee Boulevard to Shawnee Road segment of the State Road 82 widening project. According to the FDOT’s update, appraisals for properties needed for the Colonial/Lee Boulevard to Shawnee Road segment of the widening project are scheduled for January 31, 2014 through June 20, 2014. Negotiations for this segment of the State Road 82 widening project are scheduled to begin May 23, 2014. If FDOT’s updated schedule holds, offers from the FDOT to property owners can be expected at about that time.

The FDOT update shows $2,893,219 for right-of-way acquisition in fiscal year 2014 and $3,539,131 for right-of-way acquisition in fiscal year 2015. It’s important to note that the FDOT website for the Colonial/Lee Boulevard to Alabama Road segment continues to state:  “The right-of-way acquisition phase is expected to begin early in 2014, although this phase is not currently funded.”

Stay tuned to our blog for further developments!

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Since our last update on this topic, several events have taken place, so it’s time for another update! Last month, the Federal Reserve Bank of New York posted on its website a paper written by Robert Hockett, a professor of financial and monetary law at Cornell Law School, and a recent visiting scholar at the New York Fed. Professor Hockett’s article, “Paying Paul and Robbing No One: An Eminent Domain Solution for Underwater Mortgage Debt.” Professor Hockett, who has advised Mortgage Resolution Partners, the company offering to work with local governments to use their powers of eminent domain to acquire underwater mortgages, introduced this concept with an earlier article. You may remember I discussed MRP’s eminent domain plan last month.

The thesis in Professor Hockett’s most recent paper is that state and municipal governments should “use their eminent domain powers to buy up and restructure underwater mortgages, thereby sidestepping the need to coordinate action across large numbers of security holders.”

In his most recent paper, Professor Hockett describes the structure of his eminent domain plan, including “the legal proceedings necessary to exercise eminent domain authority.” Professor Hockett’s plan, however, makes some assumptions that may not prove to be accurate. He notes that, after an underwater mortgage is acquired, “Subsequent litigation, if any, concerns only whether more should be paid, not whether the taking can proceed.” So far, so good. But he then says:

In most cases, governments have accurately assessed the value of the loan, often with assistance from private valuation experts, and paid adequately.”

Under Professor Hockett’s scenario, there is a single number that represents the market value of a loan involuntarily acquired by local government. In an eminent domain proceeding (at least in Florida), there may typically be a range of value reflecting the divergence between the opinions of the owner’s appraiser and the condemnor’s appraiser as to what number represents the market value of a particular property interest on a designated date of value. It seems likely that, in an eminent domain litigation involving underwater mortgages, the appraiser for the owner of the mortgage and the appraiser for the local government seizing the mortgage through condemnation may have different opinions on the market value of the mortgage on a designated date of value. Thus, “accurately assessed” and “paid adequately” are, like beauty, in the eyes of the beholder.

Also last month, the North Las Vegas (Nevada) City Council voted 4 – 1 to enter into an agreement with Mortgage Resolution Partners, as did the City Council of Richmond (California) in a 6 – 1 vote. According to the Las Vegas Review-Journal, the nature of the North Las Vegas/MRP agreement does not authorize eminent domain proceedings to acquire underwater mortgages, but simply authorizes the City Council “to keep studying the idea and reconsider it” at the August 2013 council meeting.

Since the North Las Vegas City Council vote, a North Las Vegas resident has filed a federal lawsuit against the City, challenging the constitutionality of its actions. According to another article from the Las Vegas Review-Journal, the lawsuit alleges the eminent domain plan violates due process and equal protection guarantees in the United States Constitution and violates restrictions on the use of eminent domain in the Nevada Constitution.

As mentioned in the July 14, 2013 Las Vegas Review-Journal article, draft legislation in opposition to the condemnation of underwater mortgages has been proposed in Congress by Representative Jeb Hensarling (R-Texas). In addition, HousingWire reports that Representative John Campbell (R-California) has re-introduced “The Defending American Taxpayers From Abusive Government Takings Act.” I mentioned Representative Campbell’s first legislative proposal on this issue in a December 10, 2012 guest post on the ABA’s Condemnation, Zoning & Land Use website.

This could be interesting ….  As events develop, we will keep you posted!

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As those of us with school-aged children start frantically counting our last days until the new semester begins, we can be reminded that it is also that time of year when the county property appraisers begin to mail out the annual TRIM notices to notify taxpayers within their jurisdictions of the proposed property taxes for the current tax year.

Most property appraisers mail out the TRIM notices in mid-August, which starts the appeal period. There is a fairly narrow window to file an appeal to your TRIM, with the appeal period ending early-to-mid September. The exact date can vary by jurisdiction so be sure to look closely at your TRIM notice to determine when your appeal period ends. Thankfully, many jurisdictions have streamlined the appeal process, with many counties allowing now for online filing of appeals. Again, you will need to check your TRIM notice to determine whether your county offers this.

With the Southwest Florida real estate market rebounding, you are likely to see some slight increases in your property values. Be sure to check the information listed for your property to ensure that all information is correct and current to avoid any mistakes in your assessment.

For those of you in or near Cape Coral, consider attending the Cape Coral Construction Industry Association August 8th dinner meeting where TRIM notices will be briefly discussed. For more details, see registration flyer: CCCIA 2013 August Dinner Meeting Flyer.pdf.

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Last month I wrote about the importance of due diligence before a contract is signed when purchasing commercial property. This month’s article discusses a buyer’s due diligence after the contract has been signed but prior to closing and taking title to the property.

As stated in last month’s article, a buyer must perform due diligence to ensure she is aware of all material facts concerning the investment property. The extent and scope of the due diligence differs with each property depending on the goal of the buyer. To this end, a buyer must first determine if she will be the end user or if she expects a return on her investment via an income stream from rentals? Will the property be held long term or short term? Is a business being purchased in conjunction with the real property?

Once you have signed a contract to purchase commercial property, you (the buyer) will need to revisit the questions set forth in my article last month and conduct a more thorough investigation of those matters. In addition, you must perform additional due diligence on the property prior to the expiration of the inspection period so the following questions can be answered:

  1. Are there any title concerns? A thorough review of the title commitment and all of the documents referenced therein is critical. Some title concerns may include: mortgages, liens, judgments or assessments against the property, probate issues, pending lawsuits or foreclosure suit. Although the contract will provide a buyer with a period of time for title review, the contract should be drafted so the title review period coincides with the due diligence or inspection period to provide the buyer with more flexibility.
  2. Are there any survey concerns? The survey should be ordered as soon as possible after the contract is signed and should be reviewed in conjunction with the title commitment. This allows you to determine if there are easements, encroachments or other matters that need to be addressed.
  3. Is there insurable access to the property? Many people believe that if there is a road to the property, access is not a concern. Actual access to the property is much different than insurable access to the property. If there is not insurable access, you may encounter problems in the future when you attempt to develop, finance or sell the property.
  4. Do current zoning and land use classifications allow you to use the property as you intend and what are the permitted uses for adjacent properties? You should request a zoning verification letter from the applicable municipality to obtain valuable information as to the pertinent zoning and code related matters.
  5. Are there any environmental concerns? To answer this question, a “Phase I environmental assessment” should be obtained. Depending on the results of the Phase I report, a Phase II environmental assessment may be required. Do not assume that because the property has never been used as a gas station, dry cleaning business or other type of business that has a higher likelihood of contamination that there are no environmental concerns with the property.
  6. Are there code enforcement liens, expired permits, unsatisfied development or easement obligations, unpaid municipal liens for such things as water, electricity, sewer or gas that may create potential legal liability for you, as the successor owner? Some code enforcement liens may attach to all property owned by that property owner and is not limited to the property that is in violation of the code. This is referred to as “cross attaching.” If the seller owns property with a cross attaching super priority code enforcement lien against one parcel and you purchase another parcel from the seller, the property may be subject to the lien.
  7. Are there any major issues with the building, roof, electrical, plumbing, fire sprinklers, elevator, HVAC, etc? You should obtain inspections so you can evaluate any repairs that may be required.
  8. Are there tenants? If so, carefully review each lease agreement to determine the landlord and tenant obligations, if the tenant has a right to purchase or relocate, if tenant has exclusivity, if tenant paid a deposit or advance rents. You should also obtain a tenant estoppel letter and rent roll.
  9. Are you purchasing a business along with the real property? If so, the business will have its own laundry list of due diligence matters you must investigate, which are beyond the scope of this article. Some real property related concerns you should consider are: what type of business or related licenses will be required, is a liquor license required, is outdoor dining permitted, is music permitted, is a drive-through permitted?
  10. How will you take title to the property? This should be determined before you close on the property to avoid incurring additional costs post closing, such as additional documentary stamp tax and related costs.

Bottom Line 

The above list is not exhaustive but illustrates the depth of due diligence that is required by a buyer concerning commercial real property. Yes, you may spend tens of thousands of dollars on due diligence investigations and ultimately elect to terminate the contract. That is the purpose of due diligence — so you can fully evaluate the property and the risks and costs involved should you purchase the property.

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On Friday, June 7, 2013, Governor Scott signed HB 77 into law. Below is a brief description of the major changes to Part II of Chapter 83 of the Florida Statutes, otherwise known as Florida’s Landlord and Tenant Law, which become effective July 1, 2013:

  1. 83.48 – The right of the prevailing party to recover attorney fees (set out in Section 83.48) may not be waived in a lease agreement. Also, attorney fees may not be awarded under Section 83.48 in a claim for personal injury damages based on a breach of duty by landlord to maintain the premises.
  2. 83.49(2) – This Section deals with required notices by the landlord to tenants regarding the disposition of advanced rent payments and/or security deposits. The provision is not applicable to any landlord who rents fewer than five (5) individual dwelling units. The changes include specific boiler-plate language that must be included in the applicable leases and further clarifies the written notice(s) that the landlord must provide to its tenants. Another significant change is that the law creates a rebuttable presumption that any new owner/landlord has received the security deposit(s) from the previous owner/landlord; however, this presumption is limited to one month’s rent. Note: The legislature included a caveat for landlords with pre-printed lease forms – changes to the to the boiler-plate language regarding required disclosures must be incorporated in all leases entered into on or after January 1, 2014; this allows landlords to continue using their pre-printed forms for the remainder of 2013.
  3. 83.51(1)(b) – At the commencement of each tenancy, the landlord must ensure that all screens are in reasonable condition. In addition, the landlord is now required to repair damage to any screens at least once annually.
  4. 83.56(2)(b) – Where the landlord has previously provided a notice to a tenant for noncompliance under the terms of a lease agreement, should such noncompliance recur within twelve (12) months after such notice, the landlord is now permitted to commence an eviction action without delivering a subsequent notice.
  5. 83.56(5)(a) – The changes to this provision clarify that a landlord may accept partial rent from a tenant without waiving the right to terminate the rental agreement or to bring a civil action based on the nonpayment of rent, provided that the landlord follows the new procedures outlined therein.
  6. 83.575(1) – This convoluted change limits the applicability of a lease provision requiring the tenant to provide the landlord a written notice that he/she intends to vacate the premises at the end of the rental agreement.
  7. 83.62(1) – Where a landlord has successfully obtained a judgment of eviction, the clerk is required to issue a writ to the sheriff in order to put the landlord in possession within 24 hours of notice being conspicuously posted on the premises. With the new modifications, Saturdays, Sundays and legal holidays do not stay (delay) this 24 hour notice period.
  8. 83.64(1) – Landlords are prohibited from retaliatory conduct (revenge) against a tenant for specified actions; this provision has been expanded to include the prohibition for retaliatory conduct of a landlord against a tenant for (i) the tenant paying all rents, that were originally due to the landlord, to a condominium association, cooperative or homeowner’s association after demand from the association of such rents (this is common where the landlord has failed to make payments such as assessments to the respective associations, such associations are now permitted to demand any rent payments from tenants of non-performing owners), and (ii) if the tenant has exercised any of his or her rights under local, state or federal fair housing laws.

Practice Pointer

As mentioned earlier, the changes described above, and other minor changes that were not discussed, become effective on July 1, 2013. To view the entire Chapter, click here. Landlords who have stocks of pre-printed lease forms may continue to use those forms through December 31, 2013 so long as such forms comply with Florida’s Landlord and Tenant Law prior to these most recent changes. Landlords would be wise to have their legal counsel review their lease forms and provide them with more detailed explanations of these newest changes to Florida law.