In Florida, sellers and buyers reach a bargain on a home or condo, and then sign a formal, written sales contract for the residential real estate. That’s the beginning of the sale.
After the sales contract is signed, there’s the time that has to pass before the transaction is complete, called the “closing process.” It’s very rare for a buyer to sign a sales agreement to buy a property, pay the seller, and get the keys that same day. Why? For one thing, there are protections that buyer needs to complete first, like inspections of the property for termites, hidden defects, and more.
Florida oceanfront condos are very popular residential sales in South Florida (shown: beach at Boca Raton, Palm Beach County, Florida).
Closing Process: Time Where Funny Things Can Happen
Lots of crazy things can happen during that closing process. Hidden defects might be discovered, for instance. And, sometimes, the seller is faced with the opportunity to transfer her interest in the real estate after she has signed that real estate sales contract, but before the closing has finalized.
Some Florida buyers, particularly those buying vacation homes or condos here in South Florida, are shocked to discover that Florida real estate law allows the seller to enter into this separate transaction.
“The seller can do this even though the seller just signed a contract to sell the place?” Yes.
How a Florida Seller Can Transfer Rights to Home or Condo After Signing a Real Estate Sales Contract to Sell it to the Buyer
Under Florida law, a residential real estate seller is free to sell their home or condo whenever they choose to do so. The seller finds a buyer, and together the seller and buyer enter into an agreement where the buyer is to pay a certain price for the property on or before a certain date. This creates a legally binding contract, assuming that things are above-board (the seller really does own the property, the buyer really does have the money, etc.).
However, the seller under this real estate sales contract is not handcuffed by that legal agreement.
It is possible for the seller to transfer her interest in the real estate to a third person after the sales agreement has been signed. This has been the law in the State of Florida for many, many years. See, e.g., Marion Mortgage Co. v. Grennan, 143 So. 761, 106 Fla. 913 (1932).
Florida sellers who have a valid sales agreement in hand may still convey ownership of that property to another person, a third party, who is independent to the sales contract. This is because under Florida law, the seller keeps legal title in the land and its improvements even if the sales contract has been signed by him and the buyer.
Why? Florida law protects sellers by holding that the seller keeps legal title (even if the seller has signed a contract to sell the real estate) in order to protect the seller until the closing is done.
Holding that legal title, for example, means that the seller has protection that the buyer is going to pay her the agreed-upon purchase price because the buyer will not have full and clear title until the seller is paid and feels safe to transfer legal title to the buyer.
Until closing, the buyer holds what is called “equitable title” to the real property being purchased in the sales contract. Legal title remains with the seller.
When a deal is made with a buyer to sell real estate in Florida, the seller isn’t blocked from transferring that legal title to someone who isn’t involved in the sales deal at all, even if the seller signs a sales contract. (The law does make this transfer subject to any mortgage on the property that has been made since the sales agreement was signed.) Marion Mortg. Co. v. Grennan, 106 Fla. 913, 143 So. 761, 87 A.L.R. 1492 (1932).
The Third Party Gets Power in the Purchase and Closing with the Buyer
Even if there’s a sales agreement, the seller can do two things:
(1) convey the legal title to the real estate that is the subject of that real estate contract itself; and
(2) assign the sales contract to the third party, too.
This allows the third party to step into the shoes of the seller and essentially replace her in the deal with the buyer. At closing, it will be this new party who has the power to transfer that legal title and to collect the purchase price at the closing table.
This new party may have the power to rescind the agreement, too, if there was a contract provision regarding the seller have a right to rescind in the sales contract language.
If there is a provision where the buyer gives a negotiable note to the seller in order to buy the home or condo, then the seller keeps legal title as security for all those mortgage payments until the note is paid in full. If the seller assigns that note to a third party, then the new person (called the “assignee”) gets an equitable interest in the note payments and has the legal power to charge the property with payment. The buyer must pay those note payments to the assignee.
What If the Third Party Doesn’t Know About the Sales Contract?
What happens if the third party doesn’t know that the seller has signed a sales contract with this stranger? This third party is called the “grantee,” and if the seller’s grantee has bought legal title to the home without any notice that there is a buyer who has an interest in that property, then Florida law protects that grantee.
The seller’s grantee who paid the seller and was ignorant of that sales contract will take legal title to the home regardless of the “equitable title” held by the buyer named in the sales contract. The buyer doesn’t get to take the property even if he signed a sales agreement to buy it.
However, if that grantee has some knowledge that there is a sale contract on the property, things are very different under Florida law.
Then, that third party takes legal title to the home but he does so subject to the equitable title held by the buyer named in the sales agreement. Now, the grantee has a duty to go ahead with the sales contract as it is written, just as the seller had been legally required to do before she transferred legal title to the grantee. Harris v. Requa, 105 Fla. 312, 140 So. 911 (1932); Free v. Free, 936 So. 2d 699 (Fla. Dist. Ct. App. 2006).
A Lien Is Created When the Seller Assigns the Sales Contract to the Third Party
When the seller of Florida real estate first signs a sales agreement with a buyer and then finds a third party and decides to assign that sales contract to him, it’s acceptable under Florida contract law. The seller can do this.
An “assignment” is executed between these two parties, the seller and the third party. This legal document is also a contract.
It vests in the third party (called the “assignee”) a lien on the seller’s interest in the property. The amount of the lien? It can be any amount up to the total purchase price named in the sales agreement. Marion Mortg. Co. v. Grennan, 106 Fla. 913, 143 So. 761, 87 A.L.R. 1492 (1932).
Why? As a general rule, when the seller’s interest in the home or condo is conveyed to a third party, and he assigns the sales contract signed by the seller to the third party, then the seller no longer has any rights to the home or to the purchase money described in the sales agreement.
The Assignment is the legal document that explains that the third party is now the person with the right to receive that purchase money as described in the sales contract signed by the seller and the buyer.
What if the Buyer Doesn’t Know About the Third Party Deal?
There’s no law that requires the seller to notify the buyer about what she’s up to with the third party. However, the knowledge of the buyer can be important on what the buyer is required to do under the law.
What if there is a mortgage involved and the sales contract doesn’t finalize closing until the buyer has made all those mortgage payments to the seller? If the seller executed a mortgage with the buyer, and then transferred her interest in the property before closing, then whether or not the buyer knows about the third party transaction is important.
IF the buyer does NOT have notice, actual or constructive, of this deal, then the buyer can keep on making payments to the seller or to the grantee (third party), depending upon the situation. However, the buyer has to make sure to make all those payments if he wants to get a clear title and deed to the property after all the payments have been made. Marion Mortg. Co. v. Grennan, 106 Fla. 913, 143 So. 761, 87 A.L.R. 1492 (1932).
Breach of Contract Action by the Buyer
Finally, under Florida law it is also true that when a seller of residential real estate signs a contract to sell that property to a buyer, then sells it to someone else (a third party), then the seller may be liable to the buyer for breach of contract. Harper v. Bronson, 139 So. 203, 104 Fla. 75 (1932).
It is possible for the buyer to not go through with the deal and opt to sue the seller for breach of the sales contract. Here, the buyer does not take possession of the home or condo. Instead, the buyer foregoes going through with that deal and instead takes the step of threatening (and filing) a lawsuit in the local civil court for damages.
Seller Sales and Assignments and Florida Real Estate Lawyer
While having a signed residential real estate sales contract in Florida to buy a home or condo is very important to protect the buyer from damage during the sale and closing process, it is not a shield that will keep the buyer from all harm.
Florida law does allow the seller in that real estate sales agreement to transfer legal title to another person who is not the buyer, and to assign the rights under the sales contract to another, as well.
This can be done without the buyer’s knowledge or approval. Of course, it is possible to insert protections within the provisions of that sales agreement which help the buyer here.
Negotiating the terms of that sales contract can be done before the buyer signs off on the contract, even if the draft has been presented for his signature and it looks like a final document. It’s not a final and legal document until both parties have agreed upon all its terms and signed it!
Having an experienced Florida residential real estate lawyer helping from the get-go in a residential real estate transaction can be invaluable to a buyer or seller. Additionally, the expense of these legal services is usually much less the public assumes, and many real estate lawyers will provide an initial consultation at no charge.
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