Listen to this post

When we began posting about the possible use of eminent domain to acquire underwater mortgages in August 2012, we pointed out that “The Chicago City Council’s resolution calling for a hearing on the use of eminent domain to condemn underwater mortgages noted that officials in three states, including Florida, are ‘being persuaded to try the idea.'” Since then, we have seen no new reports about the potential use of eminent domain to acquire underwater mortgages here in Florida.

The threat may also be receding in California, the birthplace of the idea. As reported in the May 19, 2013 online edition of The Sacramento Bee, “with home prices rising again and facing fierce opposition from the financial industry, Mortgage Resolution Partners [the company behind the concept of using eminent domain to acquire underwater mortgages] has seen some of its first and best prospects back off. Sacramento, San Bernardino County and Chicago are among the localities that took a look and passed — at least for now.” According to the article, Mortgage Resolution Partners “is focusing instead on a handful of smaller cities with which it has signed advisory agreements.”

One of those smaller cities is Richmond, California, where the City Council voted in March 2013 to work with Mortgage Resolution Partners to address underwater mortgages. An article from the Contra Costa Times posted on the San Jose Mercury News website says Mortgage Resolution Partners will lay out the details in the coming months.

The chairman of Mortgage Resolution Partners provided an example to The Sacramento Bee of how eminent domain would be used to acquire a hypothetical underwater mortgage. In the example, local government uses eminent domain to acquire the mortgage on an “underwater” home purchased for $300,000 and worth $200,000 today. (Remember — “underwater” means the home’s value is less than the mortgage balance.) In the example, the mortgage holder would only receive $160,000. The rest of the loan balance of at least $200,000 is wiped out. So, the mortgage holder would receive at least $40,000 less than the amount owed on the mortgage. If the mortgage balance were $230,000, but the mortgage holder only receives $160,000 as a result of local government use of eminent domain, the mortgage holder loses $70,000. A lender sustaining a series of losses like this on a widespread basis would have to consolidate its own losses by reducing its workforce and taking other cost-saving measures. As a result, one of the goals of the use of eminent domain to acquire underwater mortgages — economic development — can’t be met since serious financial loss is just being moved from one party (the borrower) to another (the lender). In the case of the borrower, the loss may not be permanent, since real estate values are rising again.

According to The Sacramento Bee, Elk Grove, California mayor Gary Davis decided the use of eminent domain to acquire underwater mortgages was not the way to go.

It just seemed that the risks outweighed the benefits. You’re taking a tool . . .  designed for public works projects and using heavy-handed measures to weigh in on the free market.”

Well said, Mr. Mayor. Stay tuned to our blog for further updates!

Listen to this post

It took a while, but the Florida Supreme Court recently upheld a 2011 5th District Court of Appeals’ decision invalidating a city ordinance that gave priority to code enforcement liens over prior-recorded mortgages. City of Palm Bay v. Wells Fargo Bank, N.A., Case No. SC11-830 (May 16, 2013). Palm Bay’s ordinance had attempted to establish that the City’s code enforcement liens were co-equal with state and local tax liens and were “superior in dignity to all other liens, titles and claims.”

This Blog first reported on this case in March and April of 2011, when the 5th DCA initially struck down the ordinance and then certified the question as one of great public importance to the Supreme Court. In a 5-2 decision, the Supreme Court found that the ordinance “establishes a priority that is inconsistent” with State statutory law. The Court held that the prioritization scheme established in Chapter 695, Florida Statutes, was controlling and that, if the ordinance was upheld, it would allow the municipality “to displace the policy judgment reflected in the Legislature’s enactment” of Chapter 695. Under Section 695.11, the sequence of recordation determines the priority of an instrument, with a document bearing a lower recordation number having priority over a document having a higher recordation number.

The legal significance of this priority is reflected in Section 695.01(1), which provides that a conveyance or transfer of any interest in real property is not “good and effectual … against creditors or subsequent purchasers” unless it is “recorded according to law.”

Accordingly, the Palm Bay ordinance was held invalid as being in conflict with state law. A dissenting opinion would have upheld the ordinance as being within the broad home rule powers of Florida municipalities.

The Importance of the Palm Bay Decision

With the rise in both foreclosures and code enforcement activity in many jurisdictions in recent years, this decision provides certainty to mortgage holders that their liens will not be subject to displacement by a subsequent code enforcement lien that arose through a code enforcement proceeding. The decision also reinforces the limits on local ordinances that deal with matters that are comprehensively legislated at the state level.

Please note that, as of this writing, the time for moving for a rehearing on this decision has not expired.

 

Flickr Photo Courtesy of Curb Crusher

 

Listen to this post

A good portion of my practice involves representing buyers in commercial and residential transactions. Part of this representation involves advising my clients on due diligence matters pertaining to the property. Most of us know investigation of various real property matters is critical before purchasing commercial real estate. Do you also know your due diligence of the property should begin before you sign a contract to purchase? Due diligence is critical in your negotiations prior to signing a contract.

Because a lot of my clients come to me after they have signed a contract, I have decided to write about the importance of due diligence before and after a contract is signed to purchase commercial property. This month’s article discusses a buyer’s due diligence before signing a contract to purchase. Next month I will discuss a buyer’s due diligence after the contract has been signed but prior to closing and taking title to the property.

The reason a buyer must perform due diligence is to ensure he or she is aware of all material facts concerning the investment property and should begin before a contract to purchase is signed. The extent and scope of any due diligence differs with each property and the goal of the buyer. Is the buyer going to be the end user or is she going to expect a return on her investment via an income stream from rentals? Will the property be held long term or short term by the buyer? Is a business being purchased in conjunction with the real property?

Prior to signing a contract to purchase the commercial property, the buyer should obtain answers to some initial questions, including but not limited to the following:

  1. What is the real property being purchased? You need to know the legal description, street address and parcel identification or strap number. You should also obtain the size of the building and ascertain any fixtures that will be removed from the building prior to closing.
  2. Are there any development rights or obligations pertaining to the property?
  3. What is the physical condition of the property? You can ascertain this initially by either personally performing a visual inspection of the property (if you are qualified and knowledgeable with such matters) or requesting an inspector to perform a site visit with you to point out any obvious concerns with the property. This is useful information when you are negotiating with the seller prior to signing a contract to purchase.
  4. Is the current land use and zoning consistent with your plans for the property? It is important to remember that you cannot rely on the previous use of the property as being permitted in the future. Many times clients will say to me that they are certain they can use the property as they intend because their use is the same as the prior use. This is not always the case because zoning and land use regulations change with time. Therefore, it is possible the prior occupant’s use was grandfathered as a permitted use. Do not assume the previous use will be permitted in the future.
  5. Are improvements, changes or major renovations required to the property to be suitable for your intended use and what are the costs of these items?
  6. Does the property comply with Americans with Disabilities Act or is it exempt?
  7. Do you have sufficient parking?
  8. Are there any apparent encroachments or access issues with property based upon your visual inspection of the property?
  9. Are there any open permits?
  10. Are there any title concerns based upon an initial review of the official records website in the County where the property is located? I often perform an initial search of the public records for my client so I can advise them of such things as mortgages against the property, whether the mortgage amounts exceed the purchase price, if there are other recorded liens against the property and if there is pending litigation (for example, a foreclosure lawsuit). 
Bottom Line

Obtaining answers to these types of questions will assist you in negotiating a contract with the seller, as you will be able to identify some areas of concern that need to be further investigated or resolved.

The parties may elect to enter into a letter of intent to allow the buyer to perform his or her initial due diligence as discussed above with seller’s agreement to not enter into a binding contract with another buyer during said initial due diligence period. Keep in mind, however, that letters of intent can be drafted as either binding or non-binding. However, even if the letter of intent is drafted to be non-binding, it may include an obligation by both parties to negotiate the contract in good faith and with fair dealing.
Image Courtesy of Leo Reynolds on Flickr

The Florida Department of Transportation’s preliminary construction plans for the Colonial/Lee Boulevard to Shawnee Road segment of the State Road 82 widening project show the property locations FDOT needs at the State Road 82 and Daniels Parkway/Gunnery Road intersection. (In my March 13, 2013 post, I explained that the 23 mile-long widening project is made up of seven segments, with the first segment running from Colonial/Lee Boulevard to Shawnee Road in Lee County. The first segment includes the intersection at State Road 82 and Daniels Parkway/Gunnery Road.) FDOT’s preliminary plans show that it will need portions of several properties in order to re-configure this intersection into what is known as a “continuous flow intersection.”

According to the project description notes in the preliminary plans, this continuous flow intersection is “the first of its kind in the State of Florida.” A continuous flow intersection diverts traffic making a left-hand turn into separate lanes, which contain a traffic signal and allow drivers to make left-hand turns before the main intersection. The website says the benefits of continuous flow intersections include increasing traffic capacity and reducing traffic delay.

This video shows how a continuous flow intersection works:

As you can see, a continuous flow intersection will significantly change the existing intersection at State Road 82 and Daniels Parkway/Gunnery Road!

If you own property in that area, now is the time to educate yourself about the State Road 82 widening project.

According to the FDOT’s website, the next phase of the project along this segment is right-of-way acquisition, which is scheduled to begin in early 2014. (Right-of-way acquisition has not been funded yet, so dates are subject to change.) Stay tuned to our blog for future developments on the Colonial/Lee Boulevard to Shawnee Road segment of the State Road 82 widening project.

Listen to this post

Most real estate savvy folks are familiar with the phrase “caveat emptor” or “buyer beware,” as applied to real estate transactions. Buyers are routinely advised to scrutinize their purchases through property inspections, review of zoning, permitting and code compliance of the property in addition to obtaining title insurance. However, when leasing property, tenants typically focus on the terms of the lease agreement often without adequate consideration of risks associated with the landlord’s title to the property. This risk has increased in the past several years given the increased frequency of title transfers of distressed properties through foreclosures, deeds in lieu of foreclosure and other types of distressed property workouts. Tenants are well advised to protect their interests in the event the landlord is not holding clear title to the property. This is particularly important for longer term leases, leases where the tenant is investing in substantial tenant improvements to the property and leases with the option to purchase the property.

What Happens to My Lease in the Event of Mortgage Foreclosure?

Tenants often presume that: (i) the landlord is the lawful owner of the property, (ii) the landlord’s agent executing a lease agreement has lawful authority to do so, (iii) there are no covenants or restrictions affecting their intended use of the property, and/or (iv) there is good legal access to the property. Also, tenants often do not consider what may happen to their lease in the event of foreclosure of a mortgage the landlord may have on the property. Failure to confirm and address such issues may result in significant losses that are not recoverable due to the invalidity of the lease or the condition of the landlord’s title. In the worst case scenario where a tenant is forced to move as a result of legal issues associated with the lease, here are some potential consequences:

  • the tenant may lose the value of leasehold improvements made to the leased property;
  • the tenant may lose the value of any design and permitting expenses related to the existing location;
  • the tenant may incur significant relocation expenses;
  • the tenant may lose locational goodwill which can be of crucial importance to a tenant’s business; and
  • the tenant may lose the value of favorable lease terms if current market rates have increased.

Bottom line:  Perform Due Diligence

A title search of the leasehold property and subsequent leasehold title insurance provides knowledge of matters affecting the title that are pertinent to the leasehold investment and insures against a wide range of damages that could be suffered due to invalidity of the lease and/or due to the condition of the landlord’s title to the underlying property. Let the tenant beware!

Listen to this post

With the real estate market crash, condominium, cooperative, and homeowner associations have been facing increasing delinquencies. In some cases, owners who quit paying their mortgage usually stop paying their association dues. Some owners even rent out their homes or condominiums and collect rent, but still fail to pay their dues.

In 2010, the Florida legislature gave condominium, cooperative, and homeowner associations a new tool to use to collect delinquent dues directly from tenants. Effective July 1, 2010, the association can demand payment directly from the tenant, up to the full amount owed to an association for delinquent assessments, interest, costs, and attorneys’ fees. The association can also evict the tenant if they continue to pay the landlord instead of the association, once the tenant receives the demand from the association. Click here to download sample demand letter.

The law protects the tenant by preventing the landlord from evicting a tenant who complies with a demand by the association to make rent payments to them. So there is nothing for the tenant to lose by paying rent to the association, and the threat of being evicted by the association if they don’t. If you serve on the Board of an association and have not been using this tool, ask your property manager or attorney who handles your collections for more information. It may help in decreasing the delinquencies owed.

Listen to this post

The Florida Department of Transportation (“FDOT”) continues to move forward with its plans to widen State Road 82 along the 23-mile long stretch that runs through portions of three counties in Southwest Florida, including Lee County. Widening State Road 82 raises a number of issues that may affect area residents and motorists. Most importantly, widening should improve traffic safety. That’s critical, given recent traffic accidents. Widening may also bring delays during construction. If you own property needed for right-of-way, widening will bring you to the attention of FDOT. In that case, it’s a good idea to be prepared.

As you will know if you read my March 13, 2013 post, the widening project is made up of seven segments. My March 13 post explored the first segment, which runs from Colonial/Lee Boulevard to Shawnee Road in Lee County. In today’s post, we’ll explore the second segment, which runs from Shawnee Road to Alabama Road in Lee County.

You can see a map of the Shawnee Road to Alabama Road segment of the State Road 82 widening project here. This segment is roughly 3.2 miles long and, if you have ever driven on this part of State Road 82, you will know that, like the first segment, there are few structures immediately adjacent to State Road 82. The exception is the service station/convenience store located at the northwest corner of the intersection of State Road 82 and Sunshine Boulevard.

Like the Colonial/Lee Boulevard to Shawnee Road segment, the Shawnee Road to Alabama Road segment will be expanded from two lanes to six lanes. FDOT plans to install a median, and each of the six lanes will be 12 feet wide. In addition, FDOT plans to install inside and outside paved shoulders, along with a sidewalk on the north side of State Road 82, and a “shared-use” path running along the south side of State Road 82.

According to FDOT’s project website, there are five phases for this widening project:  planning, the Project Development & Environment Study, design, right-of-way acquisition, and construction. The Shawnee Road to Alabama Road segment of the project has progressed to the design phase. The next phase will be right-of-way acquisition, and the final phase will be construction, although FDOT has stated that neither of those phases have been funded, yet. As a result, FDOT has not scheduled a tentative date for right-of-way acquisition or construction to begin. The FDOT’s website contains more information about the project’s progress.

Stay turned to our blog for future developments on the Shawnee Road to Alabama Road segment of the State Road 82 widening project. In my next post, I will highlight the segment of the project that runs from Alabama Road to Homestead Road in Lee County.

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:  

  • Realtor Erik Leitzes with Amerivest Realty, who represents buyers and sellers in Cape Coral, Fort Myers, Bonita Springs and Naples;
  • Realtor Andrew Mease with Keller Williams, who represents buyers and sellers with luxury properties in the Estero, Bonita Springs and Naples area; and,
  • Ed Ramos, Vice President of Ramos Builders, Inc., which has been serving Cape Coral and Lee County since 1991.
To read the full article, click here.

 

Listen to this post

On March 12, the Lee County Commission approved a 2-year, 80% reduction in road, park and school impact fees charged on new construction in an effort to encourage new development permitting and increase the County’s competitiveness for new business and industry. Fire and EMS impact fees were not affected. The reduction in impact fees will be in effect until March 13, 2015, and will reduce the fee charged for a single family house by approximately $10,000. The reduction applies to other types of residential and nonresidential development as well. The ordinance adopted by the County also provides for a 2-year extension on existing impact fee credits and provides credits for prepaid transportation mitigation paid by approved Developments of Regional Impact.

 

Listen to this post

Ready or not, here comes the Florida Department of Transportation! In case you haven’t noticed, the Florida Department of Transportation (“FDOT”) plans to widen State Road 82 from two lanes to four lanes (and six lanes in some areas) on a 23-mile long portion of State Road 82 running through parts of Lee, Hendry, and Collier counties. Beginning early in 2014, FDOT will contact property owners along the first segment of the project, which runs from Colonial/Lee Boulevard to Shawnee Road in Lee County, and ask them to sell property to the State of Florida for project right-of-way. If owners will not sell the property voluntarily, FDOT can be expected to file an “eminent domain” lawsuit (also known as “condemnation”) in order to acquire the property by court order. Construction is tentatively scheduled to begin early in 2016 and end in late 2018.

How did we get here?

In 2008, FDOT completed a study of the 23-mile long stretch of State Road 82. According to FDOT’s project website, the study “evaluates engineering, environmental, social, historic, and cultural effects” the project might have and “estimates costs for future phases of production.” The Federal Highway Administration has approved the FDOT study, so here we are!

Seven segments make up the 23-mile long road widening project. In order to help property owners and business owners along State Road 82 become familiar with the project, I’ll post a separate blog entry about each of the seven segments. In today’s post, we’ll explore the first segment, which is roughly 4.6 miles long. If you have ever driven on this part of State Road 82, you will know there are few structures immediately adjacent to State Road 82, except in the vicinity of the Colonial/Lee Boulevard and State Road 82 intersection. This segment will be widened and will feature paved shoulders and sidewalks. The dimensions of the planned improvements are shown here.

As of now, the Colonial/Lee Boulevard to Shawnee Road segment of the project is in the design phase.  During the design phase, a formal set of construction drawings is created so that bids can be submitted to build the project.  The final plans will include detailed roadway construction plans, showing a stormwater drainage system, traffic signals, lighting, median openings, and other infrastructure details.  The next phase of the project is right-of-way acquisition and, as indicated at the top of this blog, FDOT plans to begin acquiring right-of-way in early 2014. The FDOT’s website contains more information about the project’s progress.

Since neither right-of-way acquisition nor construction have been funded yet, these dates are subject to change. Stay tuned to our blog for future developments on the Lee Boulevard to Shawnee Road segment of the State Road 82 widening project. In my next post, I will highlight the segment of the project that runs from Shawnee Road to Alabama Road on State Road 82.