Earnest Money Deposits – Is the Deposit in Dispute? – Is the Deposit Missing?

Posted By on July 22, 2014

 

What is an Earnest Money Deposit?

When a buyer decides to make an offer to buy a house or condo here in Florida, he/she presents to the Seller a signed Purchase and Sale Agreement, which is normally accompanied by a check demonstrating the buyer’s serious intent to purchase the property – that check is called the buyer’s “earnest money” deposit and that money isn’t given to the seller until the transaction is completed and the buyer receives the keys.

What is an Escrow Account?

In a Florida real estate transaction, an escrow account is a separate bank account used to hold earnest money deposits.  Real estate brokers and their real estate agents often act as an “escrow agent” by holding the earnest money in good faith in their escrow account.  At the closing of the transaction, the earnest money is delivered by the escrow agent to the closing agent and the amount of the deposit is applied towards the purchase price of the real estate.

In fact, anything that a Real Estate Broker receives from a party during a real estate negotiation, even if the brokerage does not have a formal escrow account, must be immediately protected by that broker by placing it into an insured escrow or trust account. This is required by law under Florida Statutes 475.25(1)(k) and Florida Administrative Code Chapter 61J2-14.010.

This means that if a foreign buyer entrusts the broker (or one of its real estate agents, or even the brokerage office’s receptionist) with gold coins, Chinese Yuan, or even a diamond ring, that real estate broker must take that asset and safeguard it in a trust account or escrow account within 3 business days of the brokerage’s taking possession of the item.

What if Things Go Wrong? What Happens With The Earnest Money Deposit?

When a Florida real estate sale goes smoothly, the earnest money moves through the escrow account to the closing table effortlessly and is a real convenience for everyone. However, things don’t always go smoothly, do they?

Sometimes, the buyer and the seller do not agree on what should be done with the earnest money. Buyers may want that money returned to them because the seller breached the contract by not closing on time or failing to clear title issues, for instance.

Also, there are times when the seller wants to keep the deposit because of something the buyer has failed to do – for example, the buyer is unwilling or unable to close because his/her financing has fallen through or the property appraises for less than the purchase price.

In those situations where there is a dispute over the deposit, the real estate broker holding the earnest money deposit will either, depending on the terms of the contract, seek mediation of the dispute or they file a formal notice with the Florida Real Estate Commission of the escrow dispute pursuant to Florida Administrative Code Section 61J2-10.032(1)(a).

What if Earnest Money Goes Missing From the Real Estate Broker’s Escrow Account?

Unfortunately, escrow agents have been known to wrongfully use the earnest money deposits they have been entrusted with, resulting in legal claims for things like breach of duty, civil theft and, in some instances, criminal theft.

The temptation to unlawfully use earnest money by escrow agents cannot be underestimated; it is something that has happened so often, that the State of Florida has regulators on the payroll to periodically check and audit escrow accounts of real estate brokerages to make sure everything is being handled properly.

The Florida Department of Business and Professional Regulation has been empowered by the Florida Legislature under Florida Statute 475.5017 to go before a Florida Circuit Court Judge and request an immediate Injunction to freeze the escrow account if the Florida Regulator suspects anything bad is happening.

After that, a court proceeding can be held where the broker’s financial records can be reviewed by a receiver and if the court finds wrongdoing has taken place, the judge can issue the appropriate orders to thwart any harm to you or the public as a whole.

Claims for Escrow Account Misappropriation or Lost Earnest Money Damages

If you believe that you have a legal claim to an earnest money deposit for breach of contract or you have a claim for wrongdoing involving an escrow account in a Florida residential real estate transaction, then you may need legal advice on how best to right that wrong.

An experienced Florida real estate lawyer can evaluate the situation and work with you on how best to resolve the problem. There may be times when the solution is as simple as involving the Florida Real Estate Commission to obtain an “escrow disbursement order.”

There may be occasions when more stringent methods — like filing a formal claim or even a lawsuit for breach of duty — is warranted.

Picture of Larry Tolchinsky

Do you have questions or comments? Then please feel free to Chat with Larry in the comments below, at info@hallandalelaw.com, or (954) 458-8655. If you have a specific or personal situation, please call or email Larry because he can’t answer specific fact questions in general comments.

What Do You Do When You Discover the Value of Your Property Isn’t What the Real Estate Agent Told You?

Posted By on July 15, 2014

Misrepresentation Of a Home’s Value

For most of us, the most essential term in any Florida real estate transaction is the contract price: the amount the seller and the buyer agree on for purchasing the home, condo, or townhouse.

Each side assumes that he (or she) has accurate information on what the property is worth when they enter into the Contract; both parties believe they have an understanding of the property’s market value.

 

To that end, most Buyers and sellers of residential real estate seek a real estate agent’s opinion as to a home’s value (some may even consult with an appraiser).

Prices move up or down depending upon a variety factors, like the overall housing market, the condition of the home, the amount of land involved, if there are any easements or obstructions connected with the land, environmental concerns, property taxes, comparables, and more – all of these issues can act to influence property values. Calculating the value of any piece of real estate involves examining concrete data; data that can be relied upon.

Learning About the Misrepresentation of Property Value

In the past few years, parties involved in Florida real estate transactions have learned that their reliance upon an opinion of value was misplaced and, as a result, someone was financially harmed.

There are all sorts of ways that the value of the real estate can be misrepresented, including:

  • A seller discovers that the market listing of the home was too low and frets that the real estate agent intentionally low-balled the listing to make a quick sale.
  • A buyer finds that the appraiser overvalued the condo and the buyer has paid over the true market value of the home.
  • A buyer believes that the real estate agent fiddled with listing comparables in order to induce the buyer to offer a higher amount than is justified.
  • After moving in, a buyer learns the home has less square footage than what was represented to them by the Seller and/or real estate agent.

Remedies for Misrepresentation of Property Value

When someone is harmed because the value of property is misrepresented to them, the only real remedies are to file a lawsuit to either rescind the transaction or to seek recovery of damages. That damage claim (or the “cause of action”) is usually brought against more than one person (the ”defendants”) all of whom may be responsible for paying damages to the wronged party (the “plaintiff”).

In other words, the plaintiff files a lawsuit where he/she doesn’t just sue the seller, but also sues the real estate broker, the real estate agent, and possibly the appraiser for misrepresentation of the property value. Consider these 3 possibilities:

1. You Can Sue The Seller of Your Home If You are A Buyer Who Discovers Misrepresentation of Property Value

Buyers that pay too much at closing for a home, condo, or other piece of Florida real estate may have grounds to sue the seller for damages because the seller in a residential real estate transaction has certain duties (including disclosure) to the buyer under the Contract. Additionally, if a Seller acts intentionally to mislead a buyer, then the seller may be liable for fraud (either by failing to disclose material information or by providing false information to the buyer).

2. You Can Sue the Appraiser If There Has Been Appraisal Fraud

Appraisers must follow stringent standards here in Florida when they appraise residential property. If the buyer discovers that the appraisal is inaccurate or fraudulent, then the buyer can sue the appraiser for damages under Florida law. For more information here, see our posts on Appraisal Fraud.

3. You Can Sue the Real Estate Agent and the Real Estate Broker

If a buyer or seller relies upon facts presented to them by a real estate agent (or they relied upon the material omission of information, where the agent should have disclosed something but didn’t) then an injured party can sue the real estate agent as well as the brokerage employing them for damages. The kinds of damages that an injured party can recover will depend upon the kind of contractual agreement the injured party had with the real estate agent, if any. For details, see our series of posts on Realtors.

Criminal Misrepresentations Lead to Florida’s Mortgage Fraud Problems

During the boom, there was a lot of temptation to fudge the value of property in order to get homes and condos sold. Sellers were tempted, real estate agents and mortgage brokers were tempted, too. As the market exploded, these temptations grew stronger.  Everybody wanted to profit from the housing boom.

In fact, the temptation to misrepresent property values was the basis for the mortgage fraud that Florida experienced during this period of time.

As an example, a FBI Mortgage Fraud investigation here in Florida made the national news as federal prosecutors tried a mortgage fraud case where 70 Florida luxury waterfront properties were misrepresented to have higher real estate values and correspondingly fake sales prices so “straw buyers” could get home loans on the properties at the maximum amount possible (once the wrongdoers had the loan proceeds, they skipped on the notes and split up the money).

Has There Been a Misrepresentation of Your Property Value?

If you believe that you have been the victim of a misrepresentation related to the value of property, you should gather as much information as you can and then seek  legal advice. An experienced real estate lawyer should be able to advise you of the extent of your damages, identify all of the potential defendants in your case, and advise whether or not punitive (exemplary) damages are available to you.

Picture of Larry Tolchinsky

Do you have questions or comments? Then please feel free to Chat with Larry in the comments below, at info@hallandalelaw.com, or (954) 458-8655. If you have a specific or personal situation, please call or email Larry because he can’t answer specific fact questions in general comments.

Are There Dangers with a Florida Real Estate Agent Representing Both Buyer and Seller?

Posted By on July 8, 2014

When someone in Florida wants to sell their home or condo, they (usually) hire a real estate agent to help them do so. When someone wants to buy residential real estate here in Florida, they do the same thing: they hire themselves a real estate agent.

Which means, that in most situations there are two real estate agents: one for the seller and one for the buyer. But not always.

In Florida, there are times when a real estate agent will represent both the buyer and the seller in a real estate deal. In that situation, the relationship of the realtor to the buyer and seller is not a “dual agency relationship” – that type of relationship is prohibited under Florida law.

What is legal in Florida, where the seller and buyer are both allowed to work with a single real estate agent, is the “Transactional Brokerage” relationship.

 

One Real Estate Agent For Both Buyer and Seller

Whenever a real estate agent is representing both a seller and a buyer in a real estate transaction, all sorts of conflicts of loyalty and duty arise. After all, the buyer wants to get the property for as low a price as he can while the seller wants to sell for the highest sales price offered. Dual agency is jumping right into the middle of that battlefield.

Florida has outlawed a real estate agent from acting as the agent for both the seller and the buyer. (This is allowed in other states, where a dual agency is legal if it meets certain legal criteria including clearly defining the dual agency in the contracts for representation.)

This doesn’t mean that a single real estate agent cannot work with both the buyer and the seller in a real estate deal. That happens all of the time.

Transactional Brokerage in Florida

Pursuant to Florida Statute 475.278, Florida real estate agents can work for both the seller and the buyer in a “transactional brokerage” that is specifically defined in the statute:

(2) TRANSACTION BROKER RELATIONSHIP.—A transaction broker provides a limited form of representation to a buyer, a seller, or both in a real estate transaction but does not represent either in a fiduciary capacity or as a single agent. The duties of the real estate licensee in this limited form of representation include the following:
(a) Dealing honestly and fairly;
(b) Accounting for all funds;
(c) Using skill, care, and diligence in the transaction;
(d) Disclosing all known facts that materially affect the value of residential real property and are not readily observable to the buyer;
(e) Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing;
(f) Limited confidentiality, unless waived in writing by a party. This limited confidentiality will prevent disclosure that the seller will accept a price less than the asking or listed price, that the buyer will pay a price greater than the price submitted in a written offer, of the motivation of any party for selling or buying property, that a seller or buyer will agree to financing terms other than those offered, or of any other information requested by a party to remain confidential; and
(g) Any additional duties that are mutually agreed to with a party.

Real Estate Agents as Transaction Brokers: No Fiduciary Duty Claims

Most Florida real estate brokers like their agents to work as transaction brokers because of liability concerns.

Why? Transactional Brokerage Relationships Limit Duty of Agent

Under Florida law, a real estate agent acts as a fiduciary to their client. However, if they enter into a transactional brokerage representation instead of a standard agency agreement, then the agent does NOT act as a fiduciary. This means it may be difficult to be successful in a breach of fiduciary claim against the agent if things go sour.

In fact, sellers and buyers need to know that in the State of Florida, real estate agents are presumed to be acting as Transaction Brokers with less liability and less confidentiality than if a standard agency agreement was in place. In fact, a buyer or seller has to specify that they want an agency agreement with a real estate agent if they want to make sure the agent is going to be acting as their fiduciary. Under Florida Statute 475.278(1)(b), it is “presumed that all licensees are operating as transaction brokers unless a single agent or no brokerage relationship is established, in writing, with a customer.”

Fiduciary Duty Is Important to Florida Buyers and Sellers

Given all the bad acts that have happened in the Florida real estate market in recent years, having an agent with the legal duty to act as a fiduciary can make all the difference in whether or not someone who has been wronged gets compensated for their damage. It is a huge limitation on the liability of a real estate agent and their broker to be able to act as a “transaction broker” instead of an agent – fiduciary.

How important that fiduciary duty may be to you will not become clear unless and until you are harmed. Many buyers and sellers won’t understand the possibility of having a real estate professional act as a fiduciary on their behalf until a catastrophe happens and they are meeting with a Florida real estate lawyer to try and find justice.

Transaction Broker relationships are popular in Florida, but unfortunately they offer a lot less legal protection for the real estate buyer or seller when they end up harmed and needing to assert claims against that “transaction broker.”

For details on suing an agent for Breach of Fiduciary Duty, read our earlier post, “Breach of Fiduciary Duty by a Florida Real Estate Agent: Can You Sue For Damages?

Picture of Larry Tolchinsky

Do you have questions or comments? Then please feel free to Chat with Larry in the comments below, at info@hallandalelaw.com, or (954) 458-8655. If you have a specific or personal situation, please call or email Larry because he can’t answer specific fact questions in general comments.

I Received an IRS Form 1099: Can The Bank Still Try and Collect on the Florida Deficiency Judgment?

Posted By on July 1, 2014

Here in Florida, more and more deficiency judgment collection efforts are being pursued by lenders and debt collectors, even though the associated foreclosure or short sale happened several years back.

And, to make matters worse, and confusing, Florida borrowers have been receiving 1099s (a/k/a IRS Form 1099) from their lender related to their deficiency. What does this mean? Is the deficiency still collectible?

 

1. What is an IRS Form 1099?

An IRS Form 1099 is sent by a bank to each borrower when the lender has canceled the debt owed to it by the borrower. Technically, it is an Internal Revenue Service form 1099-C and the lender is required by law to send this document to the borrower anytime it “cancels” $600+ in debt.

The bank sends a copy of the form to the IRS. It also sends a copy to the borrower. Lots of 1099s have been sent to Florida borrowers who lost their home in foreclosure and a deficiency was left on the debt. Lots of Florida short sales also resulted in 1099s being sent to Florida borrowers, where the sale was approved by the bank and the deal closed but there was a balance left after the bank received the closing proceeds.

We have been warning about how 1099s were going to be arriving in mailboxes this year because there was no extension of the Mortgage Debt Relief Act; for details read:

2. The 1099 May or May Not Bar Collection Efforts

In states where deficiencies are not collectible by lenders after a foreclosure (“non-recourse” states), there is no complicated legal issue. The deficiency results in a 1099 and no collection efforts. There is no collectible deficiency in a non-recourse state.

Florida is a Recourse State

However, Florida is different. Florida is a recourse state. Here, the amount left due on the mortgage after a foreclosure or short sale remains viable under the law – meaning the lender can try to collect from the borrower. In Florida, there is a collectible deficiency.  The lender (or a company that buys the debt from the bank) can institute collection efforts on a deficiency even after you have received a 1099 form.

Remember, that 1099 form is a federal tax requirement. It is not a release of liability under Florida contract law.

That 1099 is not a legal settlement; it doesn’t mean that the lender may not try and collect on the deficiency.  Unfortunately, this is a complicated issue – see this article by Forbes discussing the issue — and therefore it’s important to have a real estate lawyer review your situation to see if there are defenses and arguments to prevent the bank’s collection efforts (Was the borrower served with the lawsuit in the underlying foreclosure case? – If not, then the bank shouldn’t be able to pursue a deficiency).  After all, under Florida law, the collection of a deficiency is not guaranteed – the courts have discretion in deciding whether or not to grant a deficiency to a bank.

Bottom line here, is that a Florida real estate lawyer with experience in deficiency counseling can be helpful.

Picture of Larry Tolchinsky

Do you have questions or comments? Then please feel free to Chat with Larry in the comments below, at info@hallandalelaw.com, or (954) 458-8655. If you have a specific or personal situation, please call or email Larry because he can’t answer specific fact questions in general comments.

Vantium Capital – Strategic Recovery Group – Update on Florida Deficiency Judgment Collection Efforts

Posted By on June 27, 2014

Quick Update on Florida Deficiency Collection Efforts

Recently, we have been receiving calls about Vantium Capital – Strategic Recovery Group – which is a Texas based company who is trying to collect on old Florida foreclosure judgments.  In the files I have reviewed, Vantium enters into a collection agreement with Fannie Mae, who was the guarantor of a Bank of America Promissory Note.

The most often asked questions about these case are:

  • Why am I receiving this letter now – several years have passed since my foreclosure or short sale?
  • What do I do now – Do I have to file something with the Court?
  • Can they sue for a deficiency if I was never served with the foreclosure lawsuit?
  • I received an IRS  Form 1099 – How can they still try and collect money from me?

For answers to some of these questions, please read:

Did You Get A Letter From A Debt Collector For A Florida Mortgage Deficiency Related to a Foreclosure Or Short Sale?

Dyck-O’Neal Increases Florida Deficiency Judgment Collection Efforts?: 19 Articles About Florida Deficiency Judgments

Picture of Larry Tolchinsky

Do you still have questions or comments? Then please feel free to Chat with Larry in the comments below, at info@hallandalelaw.com, or (954) 458-8655. If you have a specific or personal situation, please call or email Larry because he can’t answer specific fact questions in general comments.

css.php