What Happens When a Buyer Defaults on a Florida Real Estate Contract?

Posted By on July 26, 2016

In Florida, buyers breach real estate contracts all of the time and in all sorts of ways. When a buyer fails to meet his or her obligations under a sales contract, often times it leaves the seller wondering what steps to take now that the buyer has failed to close the transaction.

Should the seller sue the buyer for money?

Should they rescind the deal and try again with another purchaser?

Should they force the buyer to complete the transaction?

What about any damages they’ve sustained by the buyer breaching the contract — how does the seller get compensated for that harm?  What about the deposit?

Florida law – real estate law as well as contract law — provides sellers with a variety of legal remedies.  However, in most Florida real estate contracts, the agreement will spell out the remedies available to the seller in the event of a default by the buyer (that’s one of the many reasons why it’s important to READ the contract).

 

South Palm Beach condominiums from lake

South Palm Beach Condominiums: Lake View


 

Alternative Remedies

When a buyer breaches a real estate contract, most sellers get upset and bark out that they are going to sue the buyer for their damages while at the same time forcing the buyer to purchase the property. However, that’s not the way things work; under Florida law, the seller must choose between alternative remedies.

When a buyer breaches a real estate contract, a seller must decide whether to close the transaction, seek specific performance of the agreement or seek monetary damages for the breach. See, Clements v. Leonard, 70 So. 2d 840 (Fla. 1954).

The choice to sue for breach of the sales contract is called a remedy “at law.” The choice to compel the buyer to go through with the purchase of the property is called a remedy “in equity.” The seller must choose one route or the other, and may be well advised to seek the assistance of experienced real estate counsel in making that call.

Abandonment of the Contract

Sometimes, it’s hard to tell if a deal has gone south or not. However in most cases, its pretty clear that the deal is not going to close because the buyer is unwilling (i.e. the buyer is unhappy with the results of an inspection) or is unable to close (i.e. the buyer fails to get approved for financing) and communicates that information with the seller.

However, there are times when the seller isn’t sure of what’s happening. The buyer may be saying one thing, but doing another or the buyer may not be saying or doing anything at all. Under Florida law, when a buyer does not fulfill any obligation under a contract, or does not take any steps towards completing a deal, the seller may be able to claim that the buyer has abandoned the contract.

The Florida Supreme Court has long recognized that a buyer can abandon a contract by simply dragging his or her feet for so long that the lapse of time itself communicates that the buyer is no longer interested in completing the transaction. See, Rosenthal v. Largo Land Co., 146 Fla. 81, 200 So. 233 (1941); Kuharske v. Lake County Citrus Sales, 44 So.2d 641 (Fla. 1949).

What Should You Do If a Buyer Defaults on a Residential Sales Contract?

If you are having a problem with a pending real estate transaction in Florida, then as a seller there are both legal and equitable remedies available to you to deal with the issues preventing the deal from closing. Should you seek to enforce the sales contract and require the buyer to close? Should you rescind the contract and let the buyer out of the deal? Or, should you retain the buyer’s deposit and move on? Each remedy has its own unique legal ramifications.

An experienced Florida real estate lawyer can explain the nuances of your particular situation and help you decide which alternative is in your best interests.

A good piece of advice if you are involved in a real estate transaction where the buyer is in default, is to at least speak with an experienced Florida real estate lawyer to learn about your rights. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.

Related:

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Do you have questions or comments? Then please feel free to send Larry an email or call him now at (954) 458-8655.

 
 
 
 
 
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Protecting a Bona Fide Purchaser of Florida Residential Real Estate

Posted By on July 19, 2016

Under Florida law, a “bona fide purchaser” of real estate is afforded certain protections including ownership and title. The rule essentially provides a buyer with superior rights to property over those who may have valid interests in the property, albeit unrecorded ones.

The recording of documents in the public records are done so for important reasons. As discussed in our prior post, it is critical to have any interest (ownership, lien, creditor interest, inheritance right, etc.) documented and recorded in the Florida public records of the county where the property is located. As a general rule, legal notice which is timely recorded in the proper county clerk’s office is what gives anyone with an interest in Florida real estate the ability to claim a superior interest in property against those who subsequently claim an interest in the same real estate.

 

South Palm Beach condominium lakeside

South Palm Beach Condominiums – Lakeside View


 

Who is a Bona Fide Purchaser?

Under Florida law, a “bona fide purchaser” is a buyer of Florida real estate that can show:

  1. He acquired the legal title to the property in question;
  2. He paid for this property with something of value; and
  3. He had no knowledge of the interest against this property at the time when he paid for it and acquired title to it.

See, DGG Development Corp. v. Estate of Capponi, 983 So. 2d 1232 (Fla. Dist. Ct. App. 2008).

It sounds easy enough, but sometimes it’s not that easy to prove that you are, indeed, a bona fide purchaser of real estate here in Florida. You cannot be considered a “bona fide purchaser” for instance if you take possession, ownership, and control of the property with notice of someone else claiming to have an outstanding interest in it. It does not matter whether or not you think their claim is valid or above-board. The fact that you buy a piece of property with an awareness that someone is asserting a claim against that land is enough to disqualify you from “bona fide purchaser” status. . Kroitzsch v. Steele, 768 So.2d 514, 517 (Fla. 2d DCA 2000).

Why have this rule?

To protect those who are bona fide purchasers. The rule works to protect buyers of residential real estate who pay their money and take title without knowing that someone (or something, like a company or an estate) has a legal claim to assert against that property. It’s a legal construct that has worked to protect innocent, good faith purchasers of real estate in Florida for almost 100 years. See, Myers v. Van Buskirk, 96 Fla. 704, 119 So. 123 (1928).

What Is Adequate Notice to a Buyer?

Buyers may be considered to know about adverse interests and claims against the real estate they are buying in a variety of ways. It can get tricky for the purchasers.

One of the most obvious is possession of the real estate. If a buyer is contracting to buy a home in South Florida, for instance, he will be considered to have notice of anyone living in the home or condo and in possession of it at the time that the sales agreement is signed.

Another form of notice to the purchaser is actual or constructive notice, where a document has been filed in the real estate property records for the county in which the land is located. Here, a title search should reveal to the buyer that there is a lien on the property for an unpaid contractor’s invoice, or perhaps a property tax lien.

What About An Unrecorded Deed?

Under Florida law, an unrecorded deed is void insofar as creditors or purchasers who have no notice of the transaction recorded in that deed. However, the deed will be valid as between the parties (the grantor and grantee) in that unrecorded document. See, Townsend v. Morton, 36 So. 3d 865 (Fla. 5th DCA 2010).

What About Successors in Interest to the Buyer That Don’t Know About Any Adverse Claims?

Someone who buys a piece of real estate from the buyer is called a “successor in title.” Consider someone who buys a condo, fixes it up and then flips it. That new buyer is considered the flipper’s “successor in title.” These new buyers will take title to that condo subject to any interests in that property for which they have notice. If they have no notice, then they are considered a bona fide purchaser for value.

However, these buyers need to be careful. If their seller (the first buyer, the flipper in our scenario) had no legal title, then he had nothing to transfer to them legally. These new buyers legally buy NOTHING. The “bona fide purchaser” rule only applies to those buyers that do buy and hold some kind of legal title — one that has other interests or claims being asserted against it.

If the buyer has no legal title or legal ownership, then the “bona fide purchaser” rule will not apply to the successor in interest. You have to have a title interest to be protected by the bona fide purchaser rule. See, Am. Jur. 2d, Vendor and Purchaser § 370.

Who Has the Duty to Prove Application of the Bona Fide Purchaser Rule?

In Florida, it’s assumed that all real estate transactions are bona fide with the buyer being protected by the bona fide purchaser rule. However, if a challenge or claim is made, then the party that seeks the legal protection of that “bona fide purchaser” shield has the legal duty to find evidence to prove that he or she meets the definition and qualifications for its application.

After that, the party that is challenging the title or asserting the claim or interest has the responsibility of providing evidence that the buyer is still not protected because of things like (1) notice did exist for the buyer; (2) the purchaser is acting in bad faith; etc. See, Feinberg v. Stearns, 56 Fla. 279, 47 So. 797 (1908).

What About a Quitclaim Deed?

Quitclaim deeds in Florida allow someone to transfer to another only as much interest in the real estate as they may have. Under Florida Statute 695.01(2), a purchaser of real estate in Florida that holds a quitclaim deed can be considered a bona fide purchaser as long as they have had no notice of an adverse interest as that is defined in the Florida recording laws.

Specifically, the law states:

Grantees by quitclaim, heretofore or hereafter made, shall be deemed and held to be bona fide purchasers without notice within the meaning of the recording acts.

What If The Buyer Committed Fraud?

Sadly, there are times when Florida real estate transactions involve bad people doing bad things. There can be times when a buyer will buy Florida real estate under fraudulent circumstances. If a deed is obtained by fraud, then there’s often a successor in interest involved because the wrongdoer will be interested in moving that fraudulent holding fast.

Here, that successor in interest may well have paid good money and have had no idea that his seller — the initial buyer — was a bad actor. Under Florida law, even if this person was without any notice of any fraud and spent good money to buy the real estate, the bona fide purchaser rule will not protect him from the interests asserted by the initial seller who was defrauded. This is true even if his deed is recorded and the seller has legal notice of it. See, Houston v. Forman, 92 Fla. 1, 109 So. 297 (1926).

That successor in interest may hold only an equitable interest against the land for the monies he has spent.

For instance, in the case of Houston v. Mentelos, 318 So.2d 427 (Fla.3d DCA 1975), Henry Gordon was held to have an equitable interest in the Florida real estate he thought he had bought, but not legal title. This money was the sum total of what Mr. Gordon had paid to clear liens and encumbrances on the real estate. Mr. Gordon had an interest against the land to assert, but he would not be protected by the bona fide purchaser rule.

Why? Mr. Gordon, as successor in interest, did not hold legal title to the land. This was because a man named Thomas Mentelos had obtained the seller’s signature on a Warranty Deed through fraud. Mr. Mentelos had told the seller that the document he was signing was to get an existing oral lease agreement down on paper. However, the document wasn’t a lease; it was a deed transferring title.

The seller proved he had not committed negligence in signing the paperwork, and the court held the deed to be void because it had been obtained by fraud. When Mentelos conveyed the tract to Mr. Gordon, he could not pass legal title to him because he had no valid title to convey.

The Power of the Bona Fide Purchaser Rule

In Florida, buyers of real estate are presumed to be “bona fide purchasers” with all the legal protections that provides. Any buyer that holds legal title to the property or is entitled to call for legal title to the real estate is covered by the Florida “bona fide purchaser rule.”

However, buyers need to be careful in their real estate transactions here in Florida. If they are victims of fraud, then they may not be buying the property at all (like Mr. Gordon in the above case discovered). Also, if the deal has not been finalized, then the buyer holds only an executory contract for the purchase of land — and cannot be considered a “bona fide purchaser” if the deal goes sour.

Florida Real Estate Lawyer Can Help Buyers Make Sure They Are Protected as Bona Fide Purchasers

Having an experienced Florida residential real estate lawyer overseeing a real estate transaction from the initial agreement to purchase through closing can be invaluable to a buyer (as well as a seller). Red flags that may not be apparent to the parties, or their real estate agents, may be obvious to someone who has been dealing with residential real estate crisis and conflicts for years.

A good piece of advice if you are involved in an issue related to the bona fide purchaser rule, is to at least speak with an experienced Florida real estate lawyer to learn about your rights. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.

_______________

Picture of Larry Tolchinsky

Do you have questions or comments? Then please feel free to send Larry an email or call him now at (954) 458-8655.

 
 
 
 
 
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4 Title Issues That Can Derail A Florida Closing

Posted By on July 12, 2016

In Florida, often times right before a residential real estate transaction is set to close the deal is derailed because of conflicting legal interests between the parties to the transaction (the seller and the buyer) and a third party with an interest in the property.

Who are these third parties? Two common examples: contractors who have worked on the property and have filed a lien in the public records to make sure they get paid and someone who claims to be a “bona fide purchaser” of the property (more on that later).

Key here: the closing can not occur (because the seller can’t convey marketable title) until these title issues are resolved and that may mean someone is going to have to pay some money to get these title issues resolved.  Below are a few examples of common and some not so common tile issues that can arise during a title search and prior to closing.

 

Government Center and Courthouse

Miami’s Government Center: Dade County Courthouse in the background; Historical Museum of Southern Florida on the right.


 

1. Legal Notice: What’s in the Records?

Florida has a recording law which acts to protect people from secret conveyances, silent deals and other schemes that can affect ownership to real estate. It is found in Florida Statute Chapter 695. One of the big reasons for having official real estate records in the county where the property is located — so anyone interested in a specific piece of real estate can learn if there are any “clouds” on that title as well as creating a cloud themselves, if need be.

What happens here? Let’s say there is a pending sale. This fact may or may not be known to the third party that is claiming an interest in the property. For instance, the contractor that is in the process of replacing the garage doors.

If the deal closes, then who pays that garage door contractor — the seller who hired him or the buyer who is enjoying his product?

Under Florida’s recording law, the title to the home is not marketable if the garage door contractor followed the law and filed a notice in the public records that it has performed services to improve the property. If the contractor’s notice isn’t addressed (meaning, for example, a release of lien is obtained and recorded), then the notice acts as actual or constructive notice to these third parties — like a buyer — that there is a potential cloud on the title.  That potential cloud on title will likely prevent the transaction from closing until it is removed because the contractor has a superior interest in the property to the interest of any buyer (and the bank lending money to the buyer) .

2. Common Source of Title: We Both Have a Deed!

In Florida, we also have something called the “common source of title” legal doctrine. Here, there’s a conflict when two parties both claim title to the real estate from a single source. Under this law, the party that can provide evidence of better title from that single source will be given legal title to the property.

For instance, in the case of Nissim Hadjes, Inc. v. Di Costanzo, 197 So. 2d 602 (Fla. 3d DCA 1967), both Nissim Hadjes, Inc and Nicholas Di Costanzo claimed they held legal title to a piece of Florida real estate, each claiming they got title from a common source — the Richards Land Development Corporation.

Each side had a deed. Mr. DiCostanzo claim was based upon a warranty deed he had from the Richards Land Development Corporation “to Nicholas Di Costanzo, as trustee,” which was recorded in the real property records in May 1958, as well as a quit claim deed from Nicholas Di Costanzo, as trustee, to Nicholas D. Costanzo (plaintiff), which was also recorded in the land records (several years later).

Nissim Hadjes, Inc had a deed, too. It argued it had legal title because of a warranty deed from Richards Land Development Corporation to Nissim Hadjes, Inc which was recorded in September 1958.

The court held that since both parties were claiming title from a common source, they had the burden of proving they had a better title from that source to prevail. To do so, they needed to trace their actual legal title to the common source — and show more than they each had a claim under a common source.

Based upon the testimony and documents provided, the court found that the trust deed from Richards Land Development Corporation to Mr. DiCostanzo, as a Trustee, was, in fact, a mortgage and not a conveyance of clear title. Accordingly, Nissim Hadjes, Inc held better title evidence and was held to hold title to the land.

3. What the Buyer Knew and When He Knew It

When someone decides to buy real estate in Florida, and takes title to that real estate knowing that there are prior claims on that property, then that buyer is bound by those claims. See, Barnhill v. Lowe, 940 So. 2d 462 (Fla. 1st DCA 2006) (actual or constructive knowledge).

For instance, there may be a covenant within the deed itself that stipulates that the grantee (buyer) assumes a specific debt against the land as part of the sale and purchase price. That covenant will legally make the buyer liable for that debt. The buyer does not have to sign any document that he or she agrees to pay the debt; by paying the purchase price and taking the deed, the buyer has accepted responsibility for the indebtedness.

Why? The buyer is considered to have notice of the debt and to have agreed to pay it off because of the language in the deed document. See, Shirey v. Dowling, 155 Fla. 433, 20 So. 2d 500 (1945).

4. Innocent Purchaser for Value

In Florida, a buyer of a home or condo takes that real estate title free of any outstanding equitable interests of third parties if he is considered an “innocent purchaser for value.” What is an innocent purchaser for value? It’s a buyer who has no idea that these outstanding equitable interests exist. He has no notice of them. Herring v. Fitts, 43 Fla. 54, 30 So. 804 (1901).

When a buyer has notice of someone else’s interest in the real property, then the buyer legally takes ownership and title to that land subject to those interests. If the buyer has notice, then he has a duty to deal with those interests.

However, a buyer who is considered a “bona fide purchaser” takes the property free from them. Smith v. Massachusetts Mut. Life Ins. Co., 116 Fla. 390, 156 So. 498, 95 A.L.R. 508 (1934); Broche v. Cohn, 987 So. 2d 124 (Fla. 4th DCA 2008), cause dismissed, 994 So. 2d 304 (Fla. 2008).

In Broche v. Cohn, Diosdado Broche and John Cohn entered into a verbal contract to form a company called Island Motors, Inc which would sell used cars. Island Motors was in the real estate records as title owner; Broche was the one who paid the money for the land. All the corporate documents had John Cohn listed (as CEO, president, etc.) because Mr. Broche didn’t want to have his name listed anywhere.

Things went badly for the business partners. Within a month of the company being formed, Mr. Broche issued 51 shares to himself and 49 shares to his wife in Island Motors stock; that next February, he transferred the land from Island Motors to himself and his wife in a quitclaim deed. He recorded this deed.

Mr. Cohn quickly went down to the courthouse and recorded his own deed — this one transferred the land from Island Motors to John Cohn. He issued all the shares in the company to himself, too, and then filed a Notice of Lis Pendens in the land records — and sued Broche.

The lawsuit was ongoing when Mr. Cohn, signing on behalf of Island Motors, signed a sales agreement to sell the real estate to a buyer named Warren Mosler.

When Mosler’s title search was run, it showed that Island Motors held legal title to the land, and that John Cohn was the president and sole officer of Island Motors. The title search also showed Mr. Broche’s recorded quitclaim deed along with Cohn’s Notice of Lis Pendens.

Cohn explained away Broche as a “disgruntled employee” whose claim for the land was phoney (fraudulent). The title company requested that Cohn dismiss his lis pendens and that Cohn agree to indemnify the title company for any claim brought by Broche. The sale to Mosler closed; he recorded a warranty deed and Cohn was paid his purchase price.

Did Mosler have notice of Broche’s claim?

The court held that Mosler purchased the land with knowledge that Broche had a claim, and therefore he had legal notice of Mr. Broche. Under Florida law, this meant that Mosler took the land subject to an outstanding equitable interest – if that is what Mr. Broche held. The court found that because the land was held in the name of Island Motors, it was the sole owner of the land. Broche had no equitable interest in the property.

Mosler was held to be legally entitled to the property as an innocent purchaser for value. Broche, Cohn, and the company Island Motors could work out their claims as against each other in other ways (including Cohn putting the purchase money he got from Mosler into the company’s accounts). Mosler was a “Bona Fide Purchaser” under Florida law and as such, took legal title to the land free from these claims.  (More on Bona Fide Purchasers in our next post.)

Closing Questions? Concerned About a Possible Title Issue?

If you are finding your closing is becoming complicated because of a possible conflict involving a third party’s interest in the real estate — or if you are a third party who is concerned that a sale may harm your ability to be paid on an outstanding debt, then it’s important that you be proactive and learn your rights under Florida law.

Calling an experienced Florida real estate lawyer for advice can be vital to protecting your interests. It’s possible that your lawyer may be able to find a way of addressing the title issue without the need for filing a title insurance claim or a complicated lawsuit, which will likely kill the transaction or, at the very least, cost a lot of time and money to pursue.

A good piece of advice if you are involved in an issue related to a cloud on title to real estate, is to at least speak with an experienced Florida real estate lawyer to learn about your rights. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.

Related:

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Do you have questions or comments? Then please feel free to send Larry an email or call him now at (954) 458-8655.

 
 
 
 
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Do Florida real estate contracts require sellers to repair termite damage?

Posted By on July 5, 2016

According to the case law as of the date of this article, a provision in a real estate contract that requires a seller to deliver at closing a report from a licensed pest control company showing the property free of termites does not require a seller to repair termite damage.  In order for the seller to be obligated to make any such repairs, the parties would have to agree, in writing, for the seller to do so.

See: Langel v. Hastings, 537 So. 2d 1113 (Fla. 4th DCA 1989)

Related:

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Do you have questions or comments? Then please feel free to send Larry an email or call him now at (954) 458-8655.

 

 

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Can a Buyer Assign or Transfer Rights in Florida Real Property to Third Person Before Closing?

Posted By on June 28, 2016

In Florida, the closing process normally begins with a written sales contract where a seller commits to sell his or her home and a buyer commits to buying the property. That document creates an equitable interest in the property for the buyer.

What some buyers and sellers may not realize is that after the parties sign the contract, the parties can change (most standard residential contracts for the sale and purchase of Florida real estate contain a provision related to the buyer’s right to assign the contract). Under Florida law, the buyer can legally transfer his or her rights in the pending sale to an independent third party.

Which means, the deal may go through with a buyer who is different from the one who signed the contract (the assignment provision in most standard contracts also contemplate whether or not the original buyer will be released from any liability under the contract).

 

Gfp-florida-miami-buildings-in-miami-beach

Florida Condos Are Still a Popular Real Estate Purchase


 

Purchasers, Executors, Heirs and Assigns

For many years, it has been generally accepted in Florida law that a land sale contract can be assigned. Sometimes, this is easily determined because either the section for assignment is checked or the language of the contract identifies the buyer as the “purchaser and/or assigns” when describing the person who is buying the property. Either one of these options places a seller on notice that he or she may be seeing a different face at the closing table.

Other language that may be used in the sales contract: “heirs, executors, or assigns.” This language is also notice to the seller that the buyer may opt to assign the deal before it closes. (See – Shirley v. Lake Butler Corp., 123 So. 2d 267  – These words, heirs, executors, or assigns, do not require the seller to approve the assignment in order to make the assignment effective.)

When Can’t a Sales Contract Be Assigned by the Buyer?

The key here is that the sales contract is not personal to the buyer under its terms or by its nature; if it is, then there can be no assignment by the purchaser.

As explained by the Florida Supreme Court, real estate buyers will be allowed to assign (sell) their contracts to someone else whenever they choose to do so — unless (1) there is language in the contract that prohibits it in that particular deal; (2) if the assignment would violate public policy in some way; or (3) if it would violate some state or federal law or statute.

One other possible limitation on assigning a real estate sales contract (assuming the contract is silent on the issue of it being assignable): it may not be assigned if the seller has agreed to sell to this particular buyer because of an explicit reliance upon that buyer’s personal credit to cover the transaction. Walton Land & Timber Co. v. Long, 135 Fla. 843, 185 So. 839 (1939).

What Are the Assignee’s Duties?

If the buyer enters into an assignment with a third party, the deal to sell the property as described in the original sales contract does not change. The buyer is subject to a legally enforceable agreement when he or she signs the sales contract to buy that home or condo.

If the buyer wants to transfer the contract to an assignee, that first contract is not changed insofar as the rights and duties of the original parties (unless the seller agrees, in writing, to allow the buyer to be released from liability).  The assignee needs to make sure that all the duties required by the buyer under the sales contract are performed in order to close the deal.

The assignee takes on the legal responsibility of tendering to the seller the purchase price at the time stated in the sales contract. He or she will need to perform as the buyer would have been required to perform under the agreement.

If the assignee doesn’t fulfill his or her duties, then the seller can argue that the sales contract has been breached (thereby allowing the seller to retain the buyers deposits and seek any other remedies set forth in the contract).

As long as the seller is ready, willing and able to provide the deed to the original buyer, the seller should win this argument.

What Are the Assignee’s Rights?

Once there is a legally binding assignment in place, the assignee has rights under the sales contract. However, the terms of the deal do not change just because there is an assignee involved now.

The assignee does not have any more rights than the buyer had at the get-go. The buyer cannot transfer something to the assignee that he or she didn’t have!

Furthermore, the assignee will be subject to the rights of the seller in the original sales contract. If the seller expects something to be done by the buyer in the contract, then the seller can legally expect that the assignee will perform that task.

If the seller has defenses against the buyer under the sales agreement, then those defenses will be able to be asserted against the assignee, too.

Bottom line, if a buyer and a third party decide to enter into their own agreement where the buyer assigns his interest in a pending sales contract to buy a home or condo in Florida to the third party, great. But that assignee will not stand in a more favorable legal position than the buyer just because he’s a third party who’s come into the deal under an assignment.

Note: that third party will also get the right to end the deal, if the buyer had a legal right to do so. As the assignee, if the buyer has a right to seek recession of that sales contract, then the third party assignee will as well. For instance, if the seller cannot provide clear legal title, then the assignee has a right to rescind the deal just as the original buyer could have done.

What Are the Seller’s Duties After the Buyer’s Assignment?

When a buyer assigns his rights to a third party, what does the seller have to do? Well, the seller is not usually a party to the assignment (unless the contract requires the seller to approve the assignment). The assignment is an agreement usually between the buyer (the ”assignor”) and a third party (the ”assignee”).

Accordingly, the seller has no responsibility to determine who the assignee is in order to close the deal. All the seller has to do is meet the terms of the sales agreement. It’s up to the buyer and his or her assignee to work out the details of getting to the closing table at the time and date set forth in the sales contract. See, Pierce & Stevenson v. Jones, 109 Fla. 517, 147 So. 842, 88 A.L.R. 192 (1933).

Buyer Needs to Make Sure There’s an Effective Assignment

For some buyers who enter into an assignment the seller may allow the buyer to be free of the obligations set forth in the sales contract. If not, the buyer will remain responsible under the real estate contract to fulfill the obligations that he or she agreed upon at the time the contract was first signed.

Any release of the buyer’s obligations by the seller has to be specifically stated and in writing.

For example, if a buyer signs a real estate purchase agreement and inserts language that he or she will be taking title to the property in the name of his or her wholly owned corporation, that’s not creating any kind of assignment from the buyer to the corporation. That’s creating a condition in the sales contract, but it’s not an assignment by the buyer to a third party (it doesn’t relieve the buyer from liability under the contract).

The buyer needs to have something in writing stating that the seller is relieving the buyer of his or her obligations under the sales contract and the buyer’s wholly-owned corporation will be liable in order for there to be an effective release of liability of the buyer. See, Greater New York Corp. v. Cenvill Miami Beach Corp., 620 So. 2d 1068 (Fla. 3d DCA 1993).

Having a Florida Real Estate Lawyer Can Help Your Residential Closing

Whether you are a seller, a buyer, or an assignee in a deal to sell a Florida home or condo, things can get complicated very fast and parties can end up confused and upset. Closings can be delayed. Some may never happen.

Having the advice of an experienced Florida real estate lawyer can be of great help here. Moreover, having an attorney review the situation before the deal is finalized at closing isn’t as expensive as some assume it to be.

See: 19 Reasons to Hire a Real Estate Lawyer When Buying or Selling Florida Real Estate

A good piece of advice if you are faced with an assignment issue, is to at least speak with an experienced Florida real estate lawyer to learn about your rights. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.
 

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Picture of Larry TolchinskyDo you have questions or comments? Then please feel free to send Larry an email or call him now at (954) 458-8655.
 
 
 
 
 
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In Florida, can you have a valid contract if the buyer believes he or she is buying a particular piece of property while the seller thinks he is selling another piece of property?

Posted By on June 22, 2016

According to the case law as of the date of this article, there is no contract because there was never a meeting of the minds of the parties as to the particular property being bought and sold.  In this scenario, Florida law will allow a party to rescind or cancel a contract based upon a substantial misunderstanding of the parties as to the subject matter of the contract, even if the mistake was entirely innocent on both sides and there was no fraud or misrepresentation.

See: Jones v. Walter C. Hardesty, Inc., 100 Fla. 155, 129 So. 497 (1930)

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If a real estate contract makes time of the essence, is it necessary for the seller to give the buyer an opportunity to close after the closing date has passed?

Posted By on June 14, 2016

According to Florida case law as of the date of this article, when a real estate contract contains a time is of the essence provision, it is not necessary for a seller to give notice to a buyer or give a buyer an opportunity to close after a buyer’s failure to perform on the closing date.

Rybovich Boat Works, Inc. v. Atkins, 587 So. 2d 519 (Fla. 4th DCA 1991)

Related:

Time is of the Essence Provisions in Florida Real Estate Contracts: What Does This Contract Language Mean to You?

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What Happens if the Home or Condo is Damaged Before the Real Estate Closing?

Posted By on May 31, 2016

People from all over the world come to Miami-Dade, Broward, and Palm Beach Counties looking for their piece of paradise. Snowbirds and people that are looking to relocate permanently love neighborhoods like Coconut Grove, Cityplace, Delray Beach, Weston, and Jupiter.
 

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Skyline of Coconut Grove, Florida


 

Many of these people actually pull the trigger and purchase a home.  And, most of these deals go through without a hitch. However, there are always those problem files.

For instance, what happens when the property is damaged before the closing. Who bears the risk of loss before the transaction is completed? What does the contract say about this issue?

What Happens When There is Damage to Property Before a Residential Real Estate Closing in Florida

Some buyers automatically think if anything happens to the property before closing it is the seller’s problem. After all, the seller still has legal title according to the public records, right?

Surely, the owner is responsible if there is a fire, or a hurricane, or something as simple as a burst hot water heater that damages the carpet and flooring.

Maybe, maybe not. There is a lot of law in Florida related to the “liability of a vendor” both before and after closing in all sorts of situations, like where there is damage to:

  • The home or condo on the property before closing involving any type of unintentional harm;
  • The home or condo on the property after closing which involves the seller’s failure to disclose the thing that caused the damage;
  • The buyer or guest on the property who gets hurt because of a defective condition on the property;
  • Anyone (including a trespasser) who gets hurt because of a danger on the property, like a well or pool without protective housing around it.

Is The Buyer is Considered an Owner of the Real Estate?

We’ve discussed before how important the sales agreement is in a Florida residential real estate transaction: the agreement controls the deal. Not only does it define things like the warranties, but it also makes the buyer more than just a party to the transaction. Once the contract is signed by the parties, Florida law views the buyer as having a form of ownership in the real estate.

That’s right: when you sign a real estate contract to buy that condo in Hallandale Beach, you become an owner of sorts.

Specifically, Florida law provides that any buyer who signs a contract for the purchase of residential real estate is an “equitable owner” of that property. See, Huxford v. U.S., 299 F. Supp. 218 (N.D. Fla. 1969); Felt v. Morse, 80 Fla. 154, 85 So. 656 (1920); Insurance Co. of North America v. Erickson, 50 Fla. 419, 39 So. 495 (1905).

Equitable Ownership and Risk of Loss

As an equitable owner, the BUYER is liable for any loss to the home being purchased that happens between the time the sales contract is signed and the time when the deed and the keys are delivered to the buyer. Why? How is this fair?

Well, Florida law provides that a purchaser is the party who gets the benefit that may accrue to that property after the agreement is signed. For example, if the value of the condo skyrockets because the quarterback of the Miami Dolphins decides to buy a condo down the hall a week after the contract is singed, then the buyer gets that benefit, not the seller.

So, Florida law balances out the benefits that go to the buyer from the time of signing the real estate contract to closing by also placing the risk of any loss upon the buyer.

In Florida, Who Bears The Risk In A Residential Real Estate Transaction?

Many buyers and sellers are surprised to learn how Florida law allocates the risk of loss during the closing process involving residential real estate. Many people do not know that if the condo or home is damaged or even totally destroyed before the final closing, it’s not the seller’s problem under the law (unless the contract says otherwise).

In Florida, it’s the buyer’s headache — because he or she is the equitable title owner.

For instance, if there was a fire after the sales contract was signed and the condo is gutted, then the buyer may still be legally responsible for paying the seller the full purchase price as stated in their contract. The buyer has to pay the seller and the buyer has to deal with the fire damage.

This is longstanding law here in the State of Florida, a position that has withstood the test of time for over a century. See, Insurance Co. of North America v. Erickson, 50 Fla. 419, 39 So. 495 (1905).

Moreover, a residential buyer in Florida also takes on the risk that the value of the property may deteriorate, or fall, during the time period between signing the sales agreement and finalizing the deal at the closing table (Note: Most real estate contracts have an appraisal provision that allows a buyer to cancel the transaction if the property appraisal is insufficient – normally, this provision is only applicable to when a buyer is obtaining mortgage financing).

This allocation of the risk of loss to the buyer is the general rule of Florida real estate law. However, it’s not carved in stone (the parties can agree in writing to shift the risk of loss).

Protections for the Buyer From Risk of Loss

There are several ways that a purchaser in a Florida real estate transaction can protect themselves from financial loss before they take physical possession and legal title to the property. These include negotiation of the contract provisions as well as taking out insurance policies to cover the risk of loss.

1. Contracting Around Risk of Loss Before Final Closing on Residential Real Estate

So, what protections does the Florida residential real estate buyer usually take to avoid loss on the property before closing? Well, for one thing — there’s nothing in Florida law that prevents the purchaser from changing who bears the risk of loss during the closing process in the sales agreement itself (In Florida, most standard residential real estate contracts have a “Risk of Loss” provision that discusses who bears responsibility in the event of fire or other casualty) .

Contracts in Florida are subject to negotiation. Before a sales agreement is signed, either party can alter that document by inserting new provisions or omitting others. As long as the other party agrees and signs the paperwork, and it’s not flying in the face of Florida criminal or zoning laws, etc., then the contract’s unique language will be respected by the courts.

This is called the “freedom to contract” and a smart buyer will act accordingly regarding risk of loss. Inserting a contract provision into the sales contract that limits the buyer’s risk of loss in various ways is an important way for the purchaser to protect him or herself from being stuck with damaged property even before they get the keys.

2. Insurance Policies

Another tactic for the buyer: getting insurance. In Florida, both the buyer and the seller are viewed as having legal interests in the property that are insurable. Insurance companies will provide the buyer with coverage against the risk of loss between the time period covering (1) the execution of the sales agreement and (2) the final closing and transfer of formal title.

These insurance policies usually have language that limits their coverage in various ways, like voiding the coverage if the person in possession of the property is changed without the insurance company’s notice and consent.

3. Not Going Through With the Sale

If there is a loss to the property, then the purchaser may opt to refuse to go through with closing. Here, the buyer risks being liable for breach of contract damages in a civil lawsuit (again, this depends on the contract – some contracts only allow a seller to keep the deposit in the event of a default by the buyer) unless he or she can prove a legal basis for backing out of the deal.

This can include proving the loss was caused by the intentional misconduct of the seller. If the seller willfully caused the loss to happen, then he or she cannot benefit from his or her bad act and the buyer will be allowed to walk away from the deal. See, Open Permit Services of Florida, Inc. v. Curtiss, 15 So. 3d 822 (Fla. 3d DCA 2009).

4. Re-Negotiating the Deal

If there is a loss to the real estate after contract but before closing, and the buyer has the right to walk away, the parties can always agree to negotiate a new deal.

For instance, the buyer may waive his or her right to receive the property in a certain condition if the seller agrees to lower the price.

Risk of Loss and a Florida Real Estate Lawyer

Before anyone signs a real estate contract in Florida, it is wise to read through all of the provisions in the agreement. Don’t just rely on the realtor or lawyer. All that boilerplate is inserted there for a reason.

A good piece of advice if you are faced with fire damage or other casualty before closing or you would like someone to make sure that all of your basis are covered before you sign a contract, is to at least speak with an experienced Florida real estate lawyer to learn about your rights. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.

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Can a judge deny a partition?

Posted By on May 26, 2016

According to Florida case law as of the date of this article, in extreme cases, a judge can deny a partition if the judge determines that equity will not result if the remedy of partition is granted.

See: Condrey v. Condrey, 92 So. 2d 423 (Fla. 1957)

 

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How do Express and Implied Warranties in a Florida Real Estate Closing Help Buyers and Sellers?

Posted By on May 24, 2016

Buying or selling real estate here in Florida? If so, it is very important that you understand what all of those paragraphs in your sales contract mean to your purchase.

Why? In a Florida residential real estate transaction, the written sales contract will control the transaction. Anything that was said by or among the parties before the contract is signed will generally not be binding upon the Buyer or Seller (language to this effect is incorporated into most “standard” real estate contracts ). It doesn’t matter if the property is a single family home in a suburb or a condominium in a condo tower, or a town home or duplex. When dealing with the sale of real estate in Florida, the written signed agreement defines the rights and duties of the parties through closing (and afterward, in some situations).

For more on the power of that sales contract over the Florida home closing, read our earlier post.

Sellers and Buyers Need to Know Details of Their Real Estate Sales Contract

Which means, that buyers and sellers need to be aware of and understand the terms and conditions spelled out in the  paragraphs of the contract — provisions like the property inspection contingency, the financing contingency, the title evidence standards and the warranties that are defined throughout the agreement. Warranties impact both sides in a Florida real estate transaction.

Warranties are there to help protect the buyer as well as helping the seller by defining what the seller is (and is NOT) warranting in the deal.

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Residential Warranties Apply to New Construction, Too

 

What is a Warranty?

A warranty is a provision in the document that identifies both the type and the quality of the property — or component of that property — that is being transferred or sold. There can be warranties in the sale of goods, like cars, for example. There can also be warranties in a real estate sale. It’s a kind of promise or guarantee of sorts that things are really as they are presented and expected to be.

From the Legal Dictionary, a warranty is defined as“.. an assurance, promise, or guaranty by one party that a particular statement of fact is true and may be relied upon by the other party.”

Warranties can be spelled out in the document itself, for each party to read and agree upon as a contractual provision. There are also certain situations where Florida law will impose a warranty into a sales transaction. These exist even if they aren’t mentioned in the deal.

For instance there is a legal “warranty of merchantability” when you buy a product off a store shelf in Florida (here, the seller warrants by law that the product is fit for the purpose for which it is sold). There is also an “implied warranty of fitness and merchantability” in some Florida real estate transactions (more on that later).

Warranty Deeds

Most everyone recognizes a “warranty” in connection with the type of deed that will be transferred to the buyer in the sale. There are General Warranty Deeds and Special Warranty Deeds in Florida as well as deeds attempting to transfer title with no warrants at all (”as is” transactions with a “quit claim deed”).

General Warranty Deeds and Special Warranty Deeds in Florida transfer title of the property from the seller to the buyer. As part of that transfer, the seller (”grantor”) gives a guarantee (”warrants”) to the buyer (”grantee”) that he or she really does own and have legal title in the home or condo that is being sold and transferred.

The warranties associated with a deed, can form the basis of a later lawsuit brought by the buyer against the seller if there is a problem with the title to the property. Meaning, the buyer can sue under the warranty deed for damages resulting from a defect in title.

General Warranty Deeds have no limitation. Special Warranty Deeds limit that warranty period to a specific time frame, which is the time that the seller owned the property.

In a Special Warranty Deed, the seller guarantees clear title for the period of time that the seller was owner, period. In Florida, most lenders (who are acting as a seller) will provide a Special Warranty Deed in any residential real estate sale that involves an REO property in order to limit that lender’s exposure for past title problems (that happened before they got title in the foreclosure lawsuit). Usually, REO sellers won’t sell their property unless the buyer agrees to accept a Special Warranty Deed.

Two Kinds of Warranties: Express and Implied

Legally, there can be two kinds of warranties in Florida real estate transactions: “express warranties” and “implied warranties”. Express warranties are described and identified in the residential sales contract. Implied warranties are imposed by Florida statute or case law.

Which means that if there is a problem after closing, then you will need to check not only the document language but Florida law to see what warranty, if any, applies in your situation.

For instance, in the purchase of a new home the Florida residential buyer should know that Florida law has created an “implied warranty of fitness or habitability” by the builder of that new home (and the seller if there’s a developer or seller separate from the builder involved). The new home comes by law with a warranty that it’s fit for living and habitable. Even if the sales contract does not contain this promise to the buyer by the seller, the buyer is protected by law via this legally-imposed warranty.

Disclaimers of Warranties in Residential Real Estate Sales Contracts

However, savvy builders and developers are aware that Florida law allows them to disclaim legally imposed warranties in the sales documents. If the buyer agrees to the disclaimer, then the seller will be free from responsibility. This is not easily done, thankfully.

In order for a builder or seller to get around the Florida implied warranty of habitability of a residential property, several legal hurdles have to be jumped. These include:

(1) having a disclaimer written into the contract;
(2) which is written in clear wording that the buyer can easily understand;
(3) and which is not ambiguous language that might later be read in more than one way;
(4) each item that is not warranted must be identified;
(5) the understanding on the part of the seller must be clear that this item(s) is not being warranted; and
(6) the understanding on the part of the buyer must also be clear in the document that there is no warranty for this item(s).

This written disclaimer of a warranty in a residential real estate transaction must also be clear that any other kind of warranty over the item(s), or any alternative protection or warranty over that item(s) is being renounced by the parties. See, Gable v. Silver, 264 So. 2d 418 (Fla. 1972) and McGuire v. Ryland Group, Inc., 497 F. Supp. 2d 1347 (M.D. Fla. 2007), on reconsideration in part on other grounds, 497 F. Supp. 2d 1356 (M.D. Fla. 2007) (applying Florida law).

Remedy For Breach of Warranty

Under Florida law, if a seller breaches a warranty, like the implied warranty of habitability, then the buyer can file a lawsuit against the seller to recover his or her damages.

For example, if a buyer purchases a condo on Miami Beach, only to discover after he or she moves in that the condo’s  central air conditioning does not adequately cool down the property, then he or she has a warranty claim against the seller because a latent defect (a hidden defect) caused a failure of the ac unit to meet ordinary, normal standards reasonably to be expected of a condo of comparable kind and quality.

And, the buyer still has a warranty claim against the seller of that real estate even if the seller tried to limit his or her  exposure with an express warranty in the sales contract that tried to limit his guaranty to one year. See, Forte Towers South, Inc. v. Hill York Sales Corp., 312 So. 2d 512, 17 U.C.C. Rep. Serv. 78 (Fla. 3d DCA 1975).

Florida Lawyers Can Help with Warranties in Residential Real Estate Deals

In Florida, warranties protect buyers and they create duties for sellers. For buyers, warranties provides peace of mind and protection when making a big purchase such as buying real estate. For sellers, these warranties are needed assurances for getting their home or condo sold; however, the language of these warranties need to be clearly written so that the seller’s exposure is clear and each of the party understands their rights and obligations.

Some warranties are legally required. Some warranties can be negotiated. An experienced Florida real estate lawyer can help both sellers and buyers here to make sure the warranties in their residential real estate contract are clearly indicated and understood by the parties.  Also, an experienced lawyer will know and share with the parties those warranties that are not written in the agreement, but that are implied in the law.

A good piece of advice if you are faced with a warranty issue, is to at least speak with an experienced Florida real estate lawyer to learn about your rights. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.

_______________

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Do you have questions or comments? Then please feel free to send Larry an email or call him now at (954) 458-8655.

 

 

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