Concealment, Nondisclosure And Silence By Florida Real Estate Sellers

Posted By on August 16, 2016

In Florida, in order to have a binding contract to purchase real estate, both the buyer and seller must sign a written agreement that includes the material terms of the deal (price, closing date, description of the property, financing, etc.).  That contract controls the transaction and it spells out the parties’ obligation to one another and to getting the deal closed. If the seller fails to perform his/her duties under the agreement or fails to disclosure material information about the property, then he/she may end up being sued for breaching the contract or for fraud for failing to disclose information about the property (to address the issue of non-disclosure, a buyer should require the seller to provide a seller disclosure statement at or near the time of signing the contract).

Breach of Contract Lawsuits Between Buyers and Sellers

In Florida, standard real estate contracts provide a remedy when there is a breach (or default) of the contract by either the seller or buyer. The language usually states that a dispute will be settled by mediating the claim or controversy.  If the issue cannot be resolved at mediation, then the parties are free to file a lawsuit in the county in which the property resides.

Read: What Happens When A Seller Defaults on a Real Estate Contract

A common example of a breach of contract claim is if the seller refuses to return or release the deposit to the buyer after the buyer properly cancels the deal. Another example: if the parties get to the closing table and the seller has failed to fix the air conditioning unit or repair the swimming pool as required under the contract.

 

Mold Remediation

Seller Keeping Secret About Mold Growing Behind the Condo Wall May Mean a Fraud Lawsuit Down the Road


 

Fraud Lawsuits

Unfortunately, there are times when the dispute is more serious than a simple breach of contract claim. Sometimes, the seller commits an intentional act or a FRAUD on the buyer.

Fraud is a “tort” under Florida law and tort claims allow different kinds of damages to be awarded to the injured party than in a breach of contract case. In fraud cases, for instance, a defendant may end up be held liable for “exemplary” or “punishment” damages — something that is not available in a contract action.

Fraud by the Seller in a Residential Real Estate Transaction

Many sellers may not realize that keeping their mouths shut can end up costing them a lot of money in damages and attorney’s fees.  That’s because in a residential real estate transaction, Florida law requires the seller to disclose material information the seller knows about the property with the buyer.

If the seller intentionally conceals important information about the property from the buyer, then he/she may be committing fraud. If the buyer is harmed as a result of the seller’s silence, then that buyer may be able to sue the seller for damages or to have the transaction cancelled.

How can a buyer successfully prevail in a claim for fraud against a seller that failed to tell the buyer material information about the property? The answer is when the buyer can, using admissible evidence, prove each and every element of a fraud claim. (Please note, not every case of a seller’s silence about an issue concerning the home or condo will be successful – these are not easy cases to win.)

4 Elements Needed to Prove Seller’s Fraud by Omission

In order for a buyer of Florida residential property to prove that he or she has been the victim of fraud based upon a seller’s concealment of material information, the buyer must be able to prove specific facts that establish the fraud.

These four facts are:

(1) the seller of a home must have knowledge of a defect in the property;
(2) the defect must materially affect the value of the property;
(3) the defect must be not readily observable and must be unknown to the buyer; and
(4) the buyer must establish that the seller failed to disclose the defect to the buyer.

See, Jensen v. Bailey, 76 So. 3d 980 (Fla. Dist. Ct. App. 2011); Johnson v. Davis, 480 So.2d 625 (Fla.1985).

Does the Seller have a Legal Duty To Share Material Information with the Buyer?

In Florida, when someone is selling a home, condo, or other piece of residential property, certain legal duties are placed upon them in order to insure fair dealing with the buyer. These are legal duties that are defined outside of the sales contract. In Florida, if the seller knows of information that will materially impact the market value of the property, and it’s not known to the buyer, then the seller is required to disclose that information to the buyer.

If the seller fails to share the material information with the buyer, and this usually happens because the seller is afraid that the buyer will walk the deal or want to renegotiate down the purchase price, then the seller puts him or herself in the position of being sued for the legal claim of fraudulent concealment. This can leave the seller exposed to a lot more financial liability than a breach of contract action.  See, In re Osborne, 455 B.R. 247 (Bankr. M.D. Fla. 2010) (applying Florida law).

Is a Seller Liable For Everything They Hide From a Buyer?

Under Florida law, a Seller will not be held liable for everything he/she fails to disclose to a buyer. Only “material” misrepresentations will support a fraud claim.

Additionally, the damage to the value of the property must be proven; it can’t be speculative or subjective.

Example of Fraudulent Concealment

As stated above, the omissions have to be “material” and significantly impact the value of the property. For instance, if the seller fails to disclose to the buyer that the condo had suffered a lot of water damage from a leak and that the condominium has mold, then the buyer likely has a fraud claim. This is a material misrepresentation with a distinct impact on the condo’s market value that can be established and quantified. See, Postregna v. Tanner, 903 So. 2d 219 (Fla. 2d DCA 2005).

Patching Up Cracks to Hide Foundation Problems

Another example: if the seller patches up cracks in the property so the buyer can’t see, for example, a crack in the foundation or in the swimming pool, then the buyer likely has a fraud claim against the seller. Here, the buyer may sue for fraudulent concealment when he or she discovers the home has foundation problems and the pool is cracking — even if it’s long after he or she has left the closing table. See, U.S. Home Corp., Rutenberg Homes Div. v. Metropolitan Property and Liability Ins. Co., 516 So. 2d 3 (Fla. 2d DCA 1987).

Can a Seller’s Broker May Be Liable for Fraudulent Concealment?

In today’s marketplace, most sellers let their real estate professionals speak for them — they show the home or condo to prospective buyers, they answer the buyer’s questions, they have the opportunity to disclose material information to the buyer much more often than the actual property owner.

So, if the real estate broker is the party who is responsible for intentionally hiding that material information from the buyer, then is the seller free from being responsible here? Can the seller avoid being sued for fraudulent concealment just because the seller can point his/her finger to the real estate broker (and an agent) who had the direct communications with the buyer?

No. The seller is the party who signed the Sales Contract. While the real estate broker (and their agent) may be liable for fraud damages (and may be included in the buyer’s fraud damage claims), the seller cannot escape legal responsibility for intentionally failing to share material information about their home or condo just because he/she has hired a professional to help get it sold. If the seller intentionally kept material information secret from the buyer (like mold in the condo walls), then the seller is liable for that bad act even if he or she had a real estate broker representing them in the deal.

Are You a Victim of Fraud By a Seller or Realtor?

If you are concerned about a recent Florida residential real estate transaction and suspect that the seller hid some vital information about the property from you, then you may have a fraud claim against the seller. An experienced Florida real estate lawyer can help you assess the situation to determine if the facts in your circumstances will meet the legal elements for a fraudulent concealment case under Florida law.

A good piece of advice if you are involved in a real estate transaction where the seller or realtor has concealed material information or has made materially untrue statements, 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 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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What Happens When a Seller Defaults on a Florida Residential Real Estate Contract? – Part II

Posted By on August 2, 2016

What happens in a Florida residential real estate transaction when the seller doesn’t do his or her part and close the deal? Or, the seller makes a material misrepresentation about the property and the buyer purchases the property relying on that bad information?  In Florida, both contract law (see the residential sales contract) and real estate law provide remedies for the buyer.
 

Miami Beach beach, June 2004

Having a Home in Miami Beach is the Dream for Many Buyers


 

Buyers’ Remedies When the Seller Defaults on a Residential Real Estate Contract

Even though the Seller may have defaulted on the Contract (intentionally or not), often times the buyer decides he or she really wants the property or he or she wants to be compensated for their time and expense in trying to purchase the property.  One option a buyer may have is to force the Seller to close the deal by suing the Seller for specific performance. Alternatively, the buyer can simply opt to sue the seller for his or her damages (we are assuming these options are available under the contract – some lawyers may limit the buyer’s remedies in the event of a default by the Seller).

Specific Performance Ordered by the Court

In a lawsuit seeking specific performance, the Buyer seeks a judgment from the court that orders the seller to complete the transaction and transfer title to the buyer. Here, the buyer will likely need to show the judge evidence that he or she has tendered the seller the purchase price; or alternatively, that he or she stands ready, willing, and able to do so once the judge orders the closing to happen.

Suing the Seller for Money Damages

Sometimes, the buyer may decide that the best course of action for him or her to take is to walk away from the property and sue the seller for breach of the contract instead. Here, the buyer seeks money damages from the seller that will include (1) refunding any money that the buyer paid to the seller as part of the deal (earnest money deposits) as well as (2) any financial harm or expense incurred by the buyer as a result of the seller’s breach and failure to close (inspection costs, survey expenses, title search expenses, appraisals, fees paid to an association etc.). See, In re Ecoventure Wiggins Pass, Ltd., 419 B.R. 875 (Bankr. M.D. Fla. 2009) (applying Florida law).

What if There Was a Mistake?

Sometimes, mistakes are made. For instance, a buyer may enter into a contract with the seller only to find that there’s a problem. One such mistake is where the buyer saw a different lot of land than the one that is being sold by the seller (the legal description in the contract doesn’t match the one in the deed).

This is called a “mutual mistake,” and it happens more often than many people think. See, Peace River Phosphate Mining Co. v. Thomas A. Green, Inc., 102 Fla. 370, 135 So. 828 (1931).

Sometimes, real estate deals are done without physical inspection of the property or its improvements. If the real estate is sold to the buyer based entirely on a legal description, then the seller may not be held to account to the buyer who made a mistake about which lot he or she was buying in a new subdivision.

However, if the seller takes the step of pointing out to the buyer the location of the home or lot being sold (for example, telling the buyer, ”it’s right across from the pool”), then the seller may be held liable to the buyer for any mistake that is made. See, Langley v. Irons Land & Development Co., 94 Fla. 1010, 114 So. 769 (1927).

As the Florida Supreme Court explained long ago in the Langley decision: “… misrepresentation of material facts, although innocently made, if acted on by the other party to his detriment, will constitute a sufficient ground for rescission and cancellation in equity.” Langley, 114 So. at 771.

What About Fraud by the Seller?

There are times when sellers don’t act fairly. If the buyer believes that he or she is a victim of fraud by the seller, then the buyer has a few remedies it can choose among: seek to “rescind” the deal and get his or her money back, or sue the seller for fraud and ask for damages.

If the buyer decides to sue for damages, the buyer keeps the property and sues the seller only for the financial damages that the buyer has sustained due to the fraud and intentional misrepresentations made by the seller.

If the buyer instead decides to “rescind” the transaction, the buyer asks the court to have the seller return of all of the money that he or she has paid to the seller and all of the expenses incurred in purchasing the property (this, of course, assumes the seller can be found and he or she still has the money). See, Boca Palm Investments, Inc. v. Jerdon Inc., 568 So. 2d 505 (Fla. 4th DCA 1990).

Caveat: the buyer will likely need to be able to prove that he or she did not know of the claimed misrepresentations and fraud on the part of the seller until after closing took place. If the buyer knew or should have known of the misrepresentations or fraud before the closing and choose to close the deal anyway, then the doctrine of “merger” will likely prevent the suit from surviving a motion for summary judgment.  Fraser v. Schoenfeld, 364 So. 2d 533 (Fla. 3d DCA 1978).

What is a Fraudulent Misrepresentation?

In the world of real estate sales, every day lots of representations are made to buyers. When do these representations go over the line? A fraudulent misrepresentation must be a factual claim, not a statement of opinion, belief, or estimate by the seller. Greenberg v. Berger, 46 So. 2d 609 (Fla. 1950).

Sellers who say things like “I think it’s the best ocean view in South Florida!” aren’t committing fraud. That is an opinion. The buyer still has the legal duty of checking out that ocean view and deciding for himself if the condo is worth the price.

However, a seller who tells a prospective condo buyer that he or she received $36,000/year in condo rental fees during the past year is providing a specific statement of fact, and if the buyer goes through with the closing, relying on that statement as an accurate fact of past rental income, and the information is materially untrue, then the buyer has a basis for a fraud claim against the seller.

See: When Your New Home Isn’t What You Expected: Misrepresentation by a Real Estate Agent

What Should You Do?

If you have problems with your seller in a pending sales agreement to sell residential real estate here in Florida, or if you have discovered things aren’t as you understood them to be (as told by the seller or by his or her agent) before closing, then you have some decisions to make.

Do you want to walk away from the property and just get your money back? Do you want to force the sale of the home or condo? Each situation is different, and you have to make your decision based upon what is best for you economically and under Florida law.

A good piece of advice if you are involved in a real estate transaction where the seller is in default or where a seller has made untrue statements about the property you purchased, 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:

What Happens When a Seller Defaults on a Residential Sales Contract in Florida?

Misrepresentation by a Real Estate Professional: Claims for Negligent or Unintentional Misrepresentation

When Florida Home Buyer Discovers His New Property Floods: A Case of Fraudulent Misrepresentation

Did You Overpay Due To A Real Estate Agent’s Misrepresentation?: The Case of the Fake Engineering Report

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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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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:

_______________

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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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 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)

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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).

 

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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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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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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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