Does A Real Agent Get Paid For Just Finding A Ready, Willing, and Able Buyer?

Posted By on February 2, 2016

As we all know, real estate agents are in the business of bringing buyers and sellers together for the purpose of getting a home sold. Real estate agents are an important cog in the the real estate machine and are vital to keeping our economy growing.

Requirements To Sell Florida Real Estate

In Florida, the real estate market brings in millions of dollars of revenue into the state’s economy annually. This year alone (2016), real estate experts are predicting a rise in existing home sales of 5 – 10% due to people moving to the Sunshine State as well as a steady increase in the number of jobs that are being created here in a wide rage of industries.

Since real estate is such a vital sector of our state economy, and for consumer protection reasons, Florida real estate agents are required to be licensed by the State of Florida.  Licensing insures that these professionals meet minimum educational and experience requirements before they can be trusted with the duties involved in this line of work (agents and brokers must take a lengthy class and then pass a test before they become a licensed professional). In addition to initial licensing requirements, real estate agents and brokers also have to maintain their licensing eligibility. Each Florida real estate agent and broker must take steps to remain in good standing with the Florida Department of Business and Professional Regulation (”DBPR”) on an annual basis (through continuing education, dues and fees, etc.).

Written Real Estate Agent Agreements

Florida agents are required to adhere to certain behavior in the course of their work. For example, agents must have a written agreement in place with a seller before the agent can list the property for sale on the MLS. Requiring a written agreement helps to avoid issues between the parties, including how long is the listing, when can you terminate the agreement, and how much is the real estate agent going to be paid for his or her services.

This agreement (a/k/a the “Listing Agreement”) between the real estate professional and the seller also contains other important terms which are required under our rules and regulations. For details on the different types of real estate agent contracts, read our earlier post, “Listing Agreements: Are All Florida Real Estate Broker Contracts The Same?.”

The Main Goal For The Seller’s Real Estate Agent

The reason most seller’s engage a real estate agent is to get their home sold timely and at a market price. The agent is able to accomplish these goals because they know the market. That’s their job.  They know prevailing prices and they know how long it takes to sell a home.  Once an real estate agent does his or her job, then they earn a commission, which is normally a percentage of the sales price (the commission is an essential term of any listing agreement).
 
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Is The Buyer Ready, Willing, And Able?

Simply stated, real estate agents need to find buyers to get paid for their services. But not just any buyer will do.

The seller’s agent is on the lookout for a “ready, willing, and able” buyer.  Yes, this is a term used in the real estate industry and it has legal significance. See, McAllister Hotel, Inc. v. Porte, 98 So.2d 781 (Fla. 1957).  Consider these scenarios;

  • A young couple touring an expensive oceanfront condo that does not have the financial resources to close a transaction does not meet the criteria as a ready, willing, and able buyer; or
  • A doctor with a thriving practice who is interested in a golf course community but he’s too young to meet the criteria to live in the community because it’s a 55-years and older condominium is not a ready, willing and able buyer.

Of course, there are times when finding just-the-right buyer can be difficult, especially when the economy is slowing or stalled. Which means, some agents will be tempted to fudge things to try and get a buyer in the door so they can get paid, including working without a written listing agreement.

The Case of the Real Estate Broker v. The Executor And An Unpaid Commission

In the case of Cammack v. Leonhardt, 302 So. 2d 170 (Fla. Dist. Ct. App. 1974), the real estate broker filed suit.

The seller, Arthur Leonhardt, Jr., was sued by a Florida real estate broker, Margaret Cammack, where the real estate broker demanded that the seller pay a commission to her under the terms of their agreement. After the trial court ruled against the broker, the broker appealed the case to the reviewing court.

There, the appellate court held that the case needed to be sent back to the lower court for the trier of fact to decide if there was an agreement between the seller and the broker, and to decide if the broker found a ready, willing, and able buyer.  If so, then the broker needed to be paid for her services.

Here’s what happened. Arthur Leonhardt, Jr., was the executor of the Estate of Ethyl Crawford, which owned a piece of real estate.  Margaret testified that she and Arthur discussed the terms of a listing agreement and the terms under which the property was to be sold.

However, nothing was put in writing. They did have a discussion but there was no formal, written listing agreement between them for the sale of the property.

Some time went by, and then Arthur told Margaret to stop trying to sell the property: “proceed no further.” (This happens all of the time; real estate professionals understand that things change, sometimes the seller changes their mind.) Problem was, Margaret had found some ready, willing, and able prospects who were prepared to buy the property on the terms and conditions set by the seller.

If Arthur didn’t want to sell the property, that was okay. However, Margaret still wanted the commission for finding a buyer.

The seller refused. He denied there was a deal between them — no listing agreement, oral or written. Talking about a deal isn’t the same as having one, he argued. And even if there was one, he argued that the buyer that was presented by Margaret to Arthur didn’t meet the “ready, willing, and able” buyer test.

It was a case of he said, she said since there was nothing in writing. The reviewing court returned the case to the courtroom to determine if they reached a deal because if they had a deal and if “… the broker produces, in good faith, a purchaser who is ready, willing, and able to purchase upon the terms and conditions specified,” then a commission would be due.

What Should You Do If There Is A Conflict Between The Seller and The Real Estate Agent?

If you have a disagreement or there is some confusion between you, as a seller, and your real estate agent or broker, then you should know your rights and know the different issues that can be at play. When is an agent entitled to a commission? Can an agreement be terminated without penalty?  Does the real estate professional receive a commission for just finding a ready, willing and able buyer?  The answers to these questions depend on if the parties had an agreement (written or oral) in the first place and if the terms of the agreement are known and can be proven.

Filing a complaint with the agency that oversees the real estate industry is one thing; it’s usually one of the first things that comes to mind.  However, complaints to the Florida DBPR will not get some the justice they desire.  Those people will need court intervention to find justice.

A good piece of advice 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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Beware When Buying A Florida Foreclosure Or Distressed Property? Did Your Real Estate Agent Give You Advice?

Posted By on January 26, 2016

In Florida, foreclosures are still happening even though the official “foreclosure fraud crisis” has passed. (Read more about that in our free Foreclosure Fraud e-book, “The Non-Lawyer’s Guide to Foreclosure Fraud 2011.”)

Today, there are still homes owned by people who are teetering at the edge of the foreclosure cliff. And, there are a large number of foreclosed homes that are still owned by banks and other mortgage lenders.

 

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Meaning, the real estate market is not completely healed here in Florida. According to RealtyTrac:

Florida foreclosure activity in the first half of 2015 decreased 22 percent from a year ago, but the state still posted the nation’s highest foreclosure rate: 1.06 percent of housing units (one in every 95) with a foreclosure filing during the six-month period.

What’s Bad For A Seller May Be Good For A Buyer

There’s still bad news for many home owners; but this may be good news for buyers. For many buyers, the idea of buying a foreclosed residential property seems like a smart thing to do.

After all, most of these homes should be at bargain prices, right? Maybe.

Be Careful When Buying a Foreclosure

From a real estate lawyer’s perspective, here are some things to know and consider when buying a piece of foreclosed residential real estate here in Florida. Of particular concern here, of course, are all of the legal issues (title issues, municipal lien issues, code violations, etc.) with these properties. Buying one of these properties is worrisome to lawyers; buyers need to be careful with any Florida real estate agent who is anxious to help you buy one of these “great deals.”

1. What Does REO Mean?

Florida foreclosure property is usually referred to as “REO”  property by people in the business, including real estate brokers and real estate agents. REO stands for “Real Estate Owned” and these are properties that have been foreclosed upon by the bank.  The bank acts as owner (Seller) of the home or condo. The property is considered an asset on the bank’s balance sheet.  When a bank sells a piece of property you can expect some not so friendly terms in the sales contract (see below).

2. Are Short Sales Foreclosed Property?

In a short sale, the bank does not own the property, the seller does. However, the seller is having problems with making their mortgage payments, and this makes the lender an interested party in a short sale. Here, the lender needs to agree to accept a payoff that is less than the balance due on the home loan in order to make the sale to the prospective buyer.

In these deals, a Foreclosure may loom on the horizon, but the property isn’t involved in the foreclosure process (yet). Short sales can be time-consuming and tricky to close especially when a second mortgage or line of credit is involved.  For example, the second mortgage may require that it receive some money for it to agree to the short sale (the funds the second mortgage receives means the first mortgage receives less).

3. Foreclosures are Legal Proceedings in Florida.

In the State of Florida, in order for a bank or mortgage lender to foreclose on a home or condo, they have to file a lawsuit. This is a civil proceeding filed at the courthouse, just like a breach of contract lawsuit or a divorce case.

In order for the buyer to receive insurable title (meaning, her or she can receive title insurance), the case will have to be dismissed.  Most title companies will ask that the case be dismissed with prejudice (meaning, the case can’t be refiled).

4. Foreclosure Properties Are Listed For Sale Before The Foreclosure Is Final.

Sometimes, foreclosure properties are marketed for purchase to prospective buyers long before the foreclosure is final. This means, banks are trying to sell property before title has been officially transferred to them despite the fact that the seller is still the owner of the property. This type of behavior is unlawful and it can open the bank or foreclosing party up to lender liability issues. A buyer should ask questions like has the court issued a judgment in favor of the bank, has their been a foreclosure auction, was the bank the winning bidder, has a certificate of title been issued and has the redemption period passed.

Where Do People Find These Properties?

 

A. Online Listings

If you surf Zillow or Realtor.com, you can refine your search to look for foreclosed properties (REO) or homes that are involved in a foreclosure lawsuit (”pending foreclosures”). There are also web sites dedicated solely to marketing this type of property, usually published by local real estate brokers.

B. Auctions

You may also be able to buy a property at a public “foreclosure auction.” This is a public foreclosure sale handled online by the county clerk’s office (via public auction on the Internet in accordance with Florida Statutes) where the property is offered to the highest bidder. Any property purchased at an auction is sold “as is.” No real estate agent or broker is involved here.  For example, you can go here to review the February 2016 Foreclosure Auction Schedule as published by the Miami Dade County Clerk of Courts.  Buyers should be very careful with buying these properties because of various issues including, but not limited to, prior mortgages, HOA and Condo liens, municipal code violations, repair and structural issues, etc.

Additionally, there are private auctions.  At these auctions, properties are being sold by major financial institutions and institutional investors to individual consumers and real estate professionals. For example: auction.com lists Fort Lauderdale homes that are being sold in an online auction. The site provides photos along with details of the foreclosure action.  These auctions also have issues that buyers should be aware of before buying.

C. Distressed Property Sales

These are also “distressed properties” sales which have special circumstances as to why they are being sold.  These can include property being sold from probate estates, tax deed sales, forfeiture properties, including IRS sales and sheriff sales.

Concerns for these properties can include the condition of the home and how much repair costs will be needed to make it habitable and/or other liens pending against the property, among other issues.

Real Estate Brokers and Real Estate Agents and Foreclosure Sales

Real estate brokers and real estate agents in Florida must adhere to specific laws and regulations when dealing with the sale or purchase of a foreclosure property or one close to foreclosure. For details on what real estate agents are mandated to reveal, read our earlier post, “Disclosures to Home Buyers: Florida Statute 475.278 and the Real Estate Agent Relationship.

Remember, foreclosures are lawsuits. Real estate agents are not lawyers. Neither are real estate brokers. It’s a crime in the State of Florida for either a real estate broker or a real estate agent to practice law, or to hold themselves out as a member of the legal profession. See, Florida Statutes 454.23.

Foreclosure properties, especially those in Florida, are almost always burdened with legal issues.

  • Does the bank really have legal title to the property?
  • Are their liens?
  • Are their hidden defects?
  • Were there defects in the foreclosure lawsuit that makes the case vulnerable to challenge by the defaulting seller / owner of the home?

Even if you think it’s all smooth sailing, there are still legal hurdles to jump in a foreclosure sale of a home or condo here. Consider the contract forms you’ll face from the bank.

REO Contract Addendum Example

When you are buying a home that has been the subject of a Florida foreclosure lawsuit from a bank , it’s not a standard real estate transaction. Generally the bank will add a “REO Contract Addendum” to any contract it receives from the buyer.  The terms in this Addendum aren’t usually negotiable (at least the bank doesn’t want to negotiate them!). And, of course, these additional terms are written to protect the bank from future liability.

If a buyer’s real estate agent is involved in the transaction, then they will be provided with the Addendum to be forwarded to their client. However, real estate professionals do not have the legal expertise to review and analyze these agreements.  These Addendum are filled with land mines (like how title issues and municipal lien issues are resolved and/or how they may limit the buyer’s ability to cancel a deal after an inspection).

Have You Suffered Damage From Buying a Florida Foreclosure Or Other Distressed Property?

We’ve seen lots of problems rise up and bite even the savviest of residential real estate buyers when they purchase a Florida foreclosure or distressed property. Sadly, all too often there may have been a real estate agent who has contributed to the buyer’s damages.

If you or a loved one has been harmed by a real estate agent or broker, by relying on their misguided advice, then you may have legal recourse against them as well as other parties to the sales transaction. Seeking out the help of an experienced Florida real estate attorney to negotiate on your behalf, and to file a lawsuit if necessary, may be what is needed in order for you to get justice.

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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Are Florida Real Estate Brokers Liable For The Harm Caused by Their Agents?

Posted By on January 19, 2016

Florida residential real estate brokers operate businesses that are heavily regulated. It makes no difference if they are affiliated with a large national chain like Coldwell Banker, Century 21, or RE/MAX, or they run a local operation.   Every single real estate broker operating in the State of Florida has to comply with our real estate laws.

Florida Real Estate Brokers And Agents Operate Under Legal Oversight

Some of the legal requirements for brokers and agents may be found in Chapter 475 of the Florida Statutes.  There, the law mandates that all brokers and agents obtain a license to operate as a real estate professional here and to take the necessary steps each year to keep their license active and current.  This includes taking classes to make sure they are current with the real estate industry, as well as paying dues.

Florida real estate professionals also have to adhere to all of the regulations established by the Florida Department of Business and Professional Regulation (”DBPR”). If they fail to do so, they can lose their business, their license to sell real estate and, in some instances, face criminal charges.

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Why are there specific laws for Florida real estate professionals?

These laws and regulations are needed to protect Florida home sellers and buyers. That’s because of past bad acts by real estate professionals. Florida case law is filled with court cases involving buyers and sellers who were hurt by unscrupulous real estate agents and brokers.  For more on bad acts by Florida real estate professionals check out some of our past posts, including:

It’s understandable.  Particularly in tough economic times, where the real estate agent is working on commissions to make a living.

Real estate commissions can be in the thousands of dollars, or even tens of thousands of dollars. With those big sums of cash comes a great temptation for real estate brokers and their agents to do unethical or illegal things in order to grab those dollars.

Do Brokers Have Insurance To Cover Harm Done To Buyers And Sellers?

Surprisingly, there is no state law here in Florida that protects sellers and/or buyers by requiring that a real estate broker or agent have sufficient funds to cover a damage claim in the event of a loss.

Florida law has no legal requirement that real estate brokerages have insurance in place to cover the risk that the broker or one of his or her real estate agents financially injures someone. However, it’s considered a smart business practice for a real estate professional to have this type of insurance coverage. Most do.

What is covered under this insurance? These insurance policies cover both the acts of the broker as well as their agents on staff. The insurance is called “error and omission” coverage and claims are made against these insurance policies when someone has been financially or physically harmed by the actions of the broker or agent. E&O insurance coverage covers mistakes – not intentional acts. And, the amount of coverage purchased is a business decision left to the individual broker and/or agent.

Who Pays for the Harm Caused By A Real Estate Agent?

The Florida real estate industry is notorious for bad acts against buyers and sellers. The Foreclosure Fraud crisis exacerbated this problem. Many home buyers and sellers have been financially targeted by desperate or greedy real estate professionals, despite the laws and regulations in place to try and prevent this from happening.

However, to be fair, it’s usually a rogue real estate agent who is more likely to fall prey to temptation and do the wrong thing, not their broker (and not all agents). So, what happens if the Florida real estate broker wasn’t in on the scheme? If a real estate agent does the wrong thing, can their broker escape responsibility by claiming ignorance?

Under Florida law, brokers are liable for the actions (or inaction) of the agents who work for them. That’s seen as part of their duty in overseeing agents who are out there hustling on the streets to bring in deals for their company.

The Case of the Florida Real Estate Agent, the Oral Listing, and the Hidden Tax Cloud

In the case of Fraioli v. Bobby Byrd Real Estate, Inc., 630 So. 2d 1131 (Fla. Dist. Ct. App. 1993), the brokerage involved was Bobby Byrd Real Estate, Inc. (Byrd), and a man named Harjit Singh working for Byrd as a real estate agent.

Agent Singh went into business with a man named Dominic Fraioli to run a restaurant together. Mr. Singh and Mr. Fraioli went out and found a property they liked which they considered to be a great spot for a seaside bar and grill — and they signed a 10 year lease on the place, with a right of first refusal to buy the property when the lease expired.

The listing for this property was with Byrd Real Estate. So, while he was employed by the broker representing the seller, Mr. Singh used his real estate skills to negotiate the deal with the seller for he and his buddy to buy the place. The contract was signed. Singh got $60,000 in commission.

The two new restaurateurs went to work to get their new seafood place ready for business. However, things were not to be — it wasn’t too long after their Grand Opening that the State of Florida Taxing Authorities came on the scene, demanding payment for delinquent back taxes. When no one wrote them a check, the state authorities levied upon the new restaurant and seized the property. Which means the real estate was taken to pay the back taxes (and all of the improvements made to the new oceanfront restaurant).

Understandably, Dominic Fraioli was upset. So upset that he sued both Byrd and Singh for damages.

Mr. Fraioli argued that he was a victim of fraud. First, Byrd had fraudulently induced him to sign that lease/option to buy agreement. Byrd, he argued, had done this by puffing up its fair market value as well as misrepresenting what the title search revealed.

It seems that the Title Search showed all those pending taxes and tax liens on the land, and no one bothered to share that with Mr. Fraioli.

Of course, Mr. Singh had seen the title search. Byrd tried to avoid responsibility for its real estate agent by arguing that he was acting as part of a private venture between the two men. Byrd wasn’t involved in the restaurant business.

Officially, Byrd filed a defense that Singh “had no authority, express, implied, apparent, or otherwise, in his capacity as an agent of Bobby Byrd Real Estate” to hide the information from his business partner.

So what did the Florida court decide?

The broker had to take responsibility for its agent’s actions. It did not matter that Byrd wasn’t involved in the seafood business, Byrd WAS involved in the real estate brokerage business. And Byrd got a hefty commission — all because Singh closed the deal.

In its decision, the Florida court pointed out this “principle of long standing” in Florida:

[w]hen an agent acts for his principal, and the principal accepts the fruits of the agent’s efforts, the principal must be deemed to have adopted the methods employed, and he may not, even though innocent, receive the benefits and at the same time disclaim responsibility for the means by which they were acquired. Fredrick v. Squillante, 144 So.2d 848, 849 (Fla. 2d DCA 1962) (quoting Chase v. Sullivan, 99 Fla. 202, 126 So. 359 (1930)).

What Should You Do?

If you or a loved one have been victimized by a Florida Real Estate Agent or their Real Estate Broker in the purchase of a home or in the sale of your house or condo, then you may have legal remedies available to you to recover your damages.

Of course, you can file a complaint with the Florida Department of Professional Regulation  for what has happened to you.  That complaint can result in discipline (even loss of license) of the broker or agent.  You  can learn more about this at www.MyFloridaLicense.com or call the DBPR at 1-850-487-1395.

However, what if you have been financially harmed?  A good piece of advice is to at least speak with an experienced Florida real estate attorney who can review your case before you file a complaint or file a claim. 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, including how insurance companies usually respond to these claims.

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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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3 Types Of Unconventional Mortgage Agreements

Posted By on January 6, 2016

Most people in Florida give a mortgage as security to finance the purchase of their new single family home or condominium. It’s a relatively simple process: the buyer finds a conventional mortgage lender; applies for the loan; furnishes the necessary documentation to the bank (tax returns, proof of employment, credit report, etc.); the home is appraised; the buyer/borrower provides proof of insurance; escrows are calculated and collected; and the transaction closes.

 

 

3 Types Of Unconventional Residential Mortgages

Sometimes, buyers can’t or don’t want to obtain a conventional home loan to finance their purchase.  They may have bad credit, no credit, or they may just want to purchase a home with the intent of moving out and selling long before a 15 year or 30 year conventional mortgage is paid in full. They may see their home as an investment, just like other kinds of assets that are bought and sold, like stocks, bonds, or gold coins.

No matter the reasoning, there are plenty of closings where the seller comes to the closing table with an unconventional mortgage to help finance the transaction.

1. Balloon Mortgages

A balloon mortgage is a mortgage in which the final payment or the principal balance due and payable upon maturity is greater than twice the amount of the regular monthly or periodic payment of the mortgage. An important element of balloon mortgages is regular monthly or regular periodic payments. Every balloon mortgage is required to have printed or stamped legend on it stating the principal balance due upon maturity.  That statement is to appear at the top of the first page or face sheet of the mortgage and it also must appear immediately above the place for the borrower’s signature.  See Florida Statute 697.05 (which includes a sample of what the legend should look like).

2. Purchase Money Mortgages

A purchase money mortgage is a mortgage used to secure a transaction where the seller of the property provides financing to the buyer. The mortgage is executed by the buyer at the same time as the the acquisition of the legal title to the property so that they form one transaction.  A purchase money mortgage is used a lot of times where the buyer has bad credit or no credit at all or where the buyer has been a tenant of the seller.

3. Assumption Of The Seller’s Mortgage

Sometimes, a home loan can be assumed or transferred from borrower to borrower. Here, the seller transfers the responsibility of paying off their mortgage to the buyer.

Why do this? This may give the buyer a better financial deal than he or she could get otherwise. However, the lender (or the party holding or servicing the loan) must agree to this assumption or transfer and it must be allowed in the original mortgage documentation that the seller signed long ago.

Unfortunately, these transfers aren’t usually free. A lender may impose a transfer fee, and some banks may treat this as a new loan application and charge an amount akin to refinancing the home loan.

Additionally, the seller’s bank may decline to approve the transfer of the mortgage unless the buyer agrees to new terms, like a higher interest rate or to pay a significant amount of money to pay down the balance due on the mortgage.

It’s not often that existing mortgages are transferred (even though a lot of older FHA loans allow for assumptions), particularly with today’s low interest rates, but it does happen — and years back, when interests rates were more volatile, it was much more commonplace here in South Florida.

Mortgages And Florida Real Estate Lawyers

Deciding issues like whether to go ahead with owner financing or whether to try and transfer or assume an existing mortgage are all things where an experienced Florida real estate lawyer can help. Often, questions can be answered quickly and issues resolved inexpensively.

A good piece of advice when purchasing a home is to at least talk with a Florida real estate lawyer. Getting someone to help, including reviewing all of the paperwork, isn’t as costly as most of us think it is. 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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10 Things A Florida Home Buyer Should Understand About Their Mortgage Before Closing

Posted By on December 23, 2015

Here in South Florida, most home buyers purchase their new single family home or condo with the help of a mortgage and home loan. Real estate buyers have all sorts of places to look for that mortgage — online from places like Quicken Loans as well as at more traditional mortgage lenders, like the neighborhood bank or credit union.

At the closing, because of all of the State and Federal laws to protect borrowers, there are a large amount of documents for the buyer/borrower to review and sign (for details, read our post on buyer’s documents you’ll see at closing). Among them will be disclosure documents required by their lender about things like the right to receive a copy of their appraisal and whether or not it is likely their home loan will be sold to a third party.

And, of course, there will be the Promissory Note (read about that here) and the Mortgage.

10 Things To Know About Your Mortgage Before Closing On Your New Home

In light of what happened during the foreclosure crisis, it’s important that a buyer understands and knows his or her obligations under a mortgage before closing. After all, it’s going to impact his or her life for many years into the future (until the debt is paid off). Here are ten things a Florida home buyer should know about their mortgage before coming to the closing table:

 

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1. FHA Mortgages: FHA (Federal Housing Administration) Doesn’t Lend Money To Buyers

The FHA has been around since 1934, and almost every home buyer is at least aware of a FHA Loan. However, what most buyers don’t know is that the federal government isn’t loaning money under a FHA Loan or FHA Mortgage. What the FHA does is to help buyers insure their mortgage and loan. The FHA provides an insurance policy to the bank or other mortgage lending institution.

How? The bank gets an insurance policy from the FHA for 96.5% of the appraised value of the property (as a general rule). This means that the lender can feel safe in loaning money to the buyer, because if the buyer should fail to pay then the FHA will cover almost all of the mortgage debt (96.5%).

2. You Can Have More Than One Mortgage On A Home

Many buyers think of a first mortgage when they consider applying for a mortgage. However, home owners are also able to get a second mortgage when they buy residential real estate (a second mortgage is different from a “home equity line of credit” or an “equity loan” where the home owner has the ability to get money to pay for things like college tuition or making home renovations).  However, there are limits as to the amount a buyer may borrow when using a second mortgage.

Also, just like with a first mortgage, the second mortgage can be a fixed monthly payment for the life of the mortgage and, in the event of default, the holder of the second mortgage can foreclose on the home.

3. Who Are The Parties To A Mortgage?

In Florida, a mortgage to buy residential real estate is called a “purchase money mortgage.” The “mortgagor” is the borrower/buyer of the home. The “mortgagee” is bank or party lending the money to the buyer to pay the seller for the home. The mortgage is given as security for the Promissory Note. The Promissory Note is evidence of the unpaid balance of the purchase price of the property, along with interest due and owing.

4. The Mortgage Secures The Promissory Note

The reason that a mortgage is given to the lender is that it acts as security (or collateral) for the repayment of the debt (repayment of the promissory note). The bank or lender that is advancing the money in a lump sum wants a document to memorialize and protect its interest in the real estate in the event of a default by the borrower.

5. What Terms Are Included In A Mortgage?

The Mortgage will have terms to protect it for all funds advanced by the Mortgagee to the Mortgagor. It will also have provisions that cover any changes to the Promissory Note (amendments in the future, or modifications, or extensions, etc.), escrow payments (insurance and tax payments), protection of and changes to the condition of the property and what happens if the property is transferred before the debt is repaid in full to the lender.

Additionally, the Mortgage will provide for the lender’s reasonable attorneys’ fees and court costs to be covered by the Mortgagor in the event of a default and the right of the lender to collect any unpaid balance and, if necessary, institute foreclosure proceedings on the property.

6. How Does the Mortgage Protect The Lender?

The mortgage document protects the lender (Mortgagee) by creating a “lien” under Florida law that secures the payments to the Mortgagee of the indebtedness (the principal, interest, etc.). The lien is created by the language found in the mortgage document, where the Mortgagor grants to the Mortgagee a mortgage lien in things that include:

  • The land itself;
  • All buildings on the land, now and in the future;
  • Any improvements on the land, now and in the future;
  • All easements, rights, and privileges pertaining to the land or the improvements;
  • All furniture, fixtures, and equipment owned by the Mortgagor and located on, or used or intended to be used in connection with the Land or the Improvements (like the central air conditioning system, etc.).

7. Other Protections: Covenants By The Mortgagor

As well as creating a legal lien as security for the Mortgagee (lender), the mortgage document will also have the home buyer making promises (covenants) to the lender about things like:

  • The buyer (Mortgagor) will make the monthly mortgage payments as set out in the promissory note;
  • The buyer will occupy the property as its principal residence;
  • The buyer (Mortgagor) will pay all the property taxes, condo assessments, etc., that come due; and
  • The buyer (Mortgagor) will make sure to keep insurance on the property current.

8. What Is An Event Of Default?

The mortgage documents will define when there is a “default” under the mortgage, also known as an “event of default.” These events are generally things like not making the payments on the Promissory Note, not paying the property taxes, not keeping the property insured or not fulfilling any of the other obligations under the mortgage and/or promissory note.

9. What Can Happen After A Default Under The Mortgage?

The mortgage document will also define in writing what can happen if there is a default on the mortgage. These are called the “remedies” of the Mortgagee. General remedies provided in most Florida residential mortgages include:

(1) accelerating things and legally declaring the unpaid balance of the principal and accrued interest of the sums due under the Promissory Note as immediately due and owing;
(2) getting a receiver appointed for the property, even if the Mortgagor is not insolvent;
(3) starting foreclosure proceedings to take title to the property; and
(4) recovering all costs incurred in collection and enforcement of the Note, including reasonable attorneys’ fees from the Mortgagor.

10. Grace Periods

The Mortgage will have some leeway for the home buyer (Mortgagor) built into the language of the document. These protections include having defined “grace periods” where the Mortgagor has some time before the remedies can be used. Grace periods generally include ten calendar days to make the mortgage payment and 15 calendar days to fix a default other than not making the principal and interest payment after getting a written notice of non-payment default.

Having a Florida Real Estate Lawyer for Your Residential Closing

A good piece of advice when you and your family are purchasing a home in one of the biggest transactions of your life is to at least talk with a Florida real estate lawyer. Getting someone to review all of the paperwork including the all important mortgage, isn’t as costly as most of us think it is. 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 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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