Avoiding Realtor Liability in Property Inspections
The inspection period under a purchase contract is one of the most important parts of a property purchase, and as such, is often one of the most stressful periods in any real estate transaction. Mismanaging the inspection process can be disastrous to a transaction, which can result in disputes and, ultimately, litigation between the parties and the realtors. Sometimes, zealousness to close a deal causes parties and their realtors to unwittingly expose themselves to tremendous liability. For instance, that minor roof leak from two years ago was completely fixed, has never leaked since, and there is no need to jeopardize the sale and alarm the buyers with such a seemingly minor detail. However, if the new owners find mold in the walls three years later, the sellers and their realtor can find themselves in the middle of a nasty and expensive lawsuit.
Failing to disclose a material defect is one of the most common and expensive mistakes sellers make in real estate transactions. Realtors can expose themselves to liability if they are aware of a defect and hand the buyer a seller’s disclosure which fails to disclose that defect. When in doubt, disclose! It is much easier to locate a new buyer than spend years defending a lawsuit.
Another common pitfall we encounter: deadlines. It is critical to properly calendar and meet all inspection deadlines, and triple check the dates to make sure you calculated them properly. If the buyer elects to pay for a formal inspection, make sure that the inspector is fully licensed and bonded. Recommending a particular inspector can cause problems in the future if a dispute arises over an inspection report or the buyer questions the qualifications of the inspector. Therefore, if you make recommendations, it is a good idea to provide several names and let the buyer choose.
Also, it is advised not to opine on an inspection report. Any questions regarding specific details of an inspection report should be directed back to the inspector or to an alternate inspector for an additional opinion. If your opinion ends up being incorrect, it could cause serious problems for you in the future. The moral of the story is to never neglect or underestimate the importance of disclosures and inspection periods. Mistakes in this particular area of a transaction can come back to haunt you many years later. As always, our real estate attorneys are happy to assist you with any questions you may have regarding your responsibilities in the inspection process.
Sincerely,
Berlin-Patten, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.
SARASOTA
1819 Main Street, Suite 1000, Sarasota, FL 34236 P (941) 954-9991 F (941) 954-9992
VENICE
100 W. Venice Avenue, Suite A, Venice, FL 34285 P (941) 955-9991 F (941) 953-9992
LAKEWOOD RANCH
8130 Main Street, Suite 206, Lakewood Ranch, FL 34202 P (941) 907-9022 F (941) 907-9024
Addressing Exchange Rates for Foreign Buyers/Sellers
ADDRESSING EXCHANGE RATES FOR FOREIGN BUYERS/SELLERS
When the opportunity arises to represent an international clientele, a factor that is not always considered in the transaction is the cost of exchanging their native currency to USD, or vice versa. When money is sent from one country to another, the funds have to be converted to the native currency somewhere along the way. In most instances, the banks involved in the money transfer will convert the currency at a retail exchange rate, creating a very unfavorable variable (i.e. significant additional cost) in the overall transaction.
When dealing with a foreign buyer or seller, you should always ask your closing agent if they have the ability to leverage their commercial banking relationship to negotiate wholesale (rather than retail) pricing with their foreign exchange trading desk. Our own experiences suggest that this service can be of tremendous value to our international clients and the agents representing them.
A recent example would be a transaction handled by our office involving an international buyer. As is the custom of any closing agent who is experienced in handling transactions involving foreign parties, we advised our client to ask for the exchange rate from his bank so that he could make an informed decision on how he wanted his settlement funds transferred over. The rate he received from his bank was 1.6814 to convert our USD to GPB. When we approached our lender to assist our client in comparing rates, they were able to deliver a rate of 1.5565 (please note these rates change daily). Although the numbers do not seem very far off, the savings to our client based on that transaction was approximately $40,000 USD.
If you have a foreign buyer or seller, please recommend that they engage a qualified real estate attorney who has experience in representing international clients. This example is just one of many reasons why it is important for closing agents to be intimately familiar with the nuances of representing international clients.
Sincerely,
Berlin-Patten, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.
SARASOTA
1819 Main Street, Suite 1000, Sarasota, FL 34236 P (941) 954-9991 F (941) 954-9992
VENICE
100 W. Venice Avenue, Suite A, Venice, FL 34285 P (941) 955-9991 F (941) 953-9992
LAKEWOOD RANCH
8130 Main Street, Suite 206, Lakewood Ranch, FL 34202 P (941) 907-9022 F (941) 907-9024
House Bill 87 And The Impact Of Florida Mortgage Foreclosures
As you may have read, House Bill 87 (H.B. 87) was recently passed by the Florida legislature and proposes to make significant changes with respect to the Florida Statutes regarding mortgage foreclosure actions. As of now, H.B. 87 will become new law unless Governor Rick Scott decides to exercise his veto power, which seems unlikely at this point.
Significantly, the new legislation will shift the burden of proof in mortgage foreclosure cases from the plaintiff (bank), to the defendant (homeowner). Thus, if H.B. 87 is ratified, the homeowner will now have to prove that the bank lacks the legal right to foreclose at the very onset of the proceedings. This shift will significantly restrict the homeowner’s ability to defend the case as banks will now be able to seek what is being termed an “expedited foreclosure.”
Going forward, and in the likely event H.B. 87 becomes new law, it will be even more imperative for homeowners to hire a competent foreclosure defense attorney as soon as the complaint is filed. This will enable the homeowner to seek valuable discovery from the bank, which is often vital to the defense of any foreclosure action. Additionally, it is even more imperative that any homeowner start strategizing as soon as a default on the loan is inevitable in order to allow them the necessary time to complete a short sale and/or other means of addressing the deficiency balance. The new bill will drastically accelerate the timeframe to complete many foreclosures.
As always, should you have any questions regarding H.B. 87 we recommend you contact a real estate attorney. For your convenience Berlin Patten has prepared a bullet point outline of H.B. 87 and the various amendments to Chapters 95 and 702, of the Florida Statutes, which will be available upon individual request.
Sincerely,
Berlin-Patten, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.
SARASOTA
1819 Main Street, Suite 1000, Sarasota, FL 34236 P (941) 954-9991 F (941) 954-9992
VENICE
100 W. Venice Avenue, Suite A, Venice, FL 34285 P (941) 955-9991 F (941) 953-9992
LAKEWOOD RANCH
8130 Main Street, Suite 206, Lakewood Ranch, FL 34202 P (941) 907-9022 F (941) 907-9024
Real Estate Market Update
Typically, we use our blog to provide legal analysis or comments. However, we have received a deluge of questions pertaining to our opinion of the real estate market and whether we are headed toward another “bubble.” It is our opinion that the recent growth in the real estate market does not carry with it the problems that fueled the rapid growth experienced several years ago. If one recalls, that growth was fueled by speculators who were putting very little, if any cash into properties. Those purchases were typically financed by loans that required little or no money down, required little or no documentation, and contained loan terms that allowed borrowers with little or no means to acquire property and make extremely low monthly payments, at least temporarily (such as negative amortization loans, teaser rates, and the like). In other words, the prior bubble was fueled by speculators who were enticed to make purchases that they may not have otherwise made due to loan programs that were probably not in their best interests.
The current market is drastically different, and the driving forces behind this market involve much stronger buyers. Based upon our experience, most of the buyers who are fueling the recent market are either (a) cash buyers, or (b) buyers that are putting significant money down. These buyers are not nearly as sensitive to short term forces, and have the wherewithal (and the equity) to weather any type of short term “correction.” The bubble burst occurred several years ago because purchasers had no equity to begin with, and therefore were entirely dependent on short term price appreciation. As that appreciation slowed down or even stalled, there was a domino effect as owners had no choice but to default on their short term loans (as they could not sell their property for an amount sufficient to pay them off). That is no longer really the case. As we have seen, the current market is being driven by purchases that involve substantial equity, whether it is a cash buyer or a borrower who is financing transactions upon much more reasonable and customary terms.
The moral of the story, beware of those who will try to sensationalize the recent market uptick by trying to compare this market to the market of old simply because prices are on the rise. In a healthy market, that is what occurs. This is a drastically different market, with strong buyers, most of whom did not get caught up in the frenzy several years ago, and each of whom appear to have the resources to acquire, and (more importantly) hold property. Long gone are the days of onerous financing terms that forced owners into short term decisions or, worse yet, forced owners into foreclosure.
Sincerely,
Berlin-Patten, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.
SARASOTA
1819 Main Street, Suite 1000, Sarasota, FL 34236 P (941) 954-9991 F (941) 954-9992
VENICE
100 W. Venice Avenue, Suite A, Venice, FL 34285 P (941) 955-9991 F (941) 953-9992
LAKEWOOD RANCH
8130 Main Street, Suite 206, Lakewood Ranch, FL 34202 P (941) 907-9022 F (941) 907-9024
Marketable Vs. Insurable Title
In response to our blog last week, most of the feedback we received involved questions pertaining to the quality of title that one might get if they acquire REO Property. The answer to this question is not simple. In a non-REO setting, the requirement is generally for the seller to deliver marketable title (i.e. title that is readily marketable and thus easier to convey). Marketable title contains “standard” or “customary” liens and/or encumbrances that most individuals would willingly accept. Marketable title is the form of title that best insures that there will be no issues when one goes to sell the property.
However, in a normal REO transaction, the lenders will not commit to conveying marketable title, but instead endeavor to provide what they refer to as insurable title. Insurable title can be the same as marketable title or it can be drastically different, depending on the circumstances. Insurable title essentially means that a title company (usually at the urging of their lender/seller client) is willing to insure some form of title to the property, but that title can be subject to virtually any qualification that they might choose. In other words, in a worst case scenario insurable title could contain so many exceptions/caveats/qualifications that title is not marketable, and therefore not easily capable of being sold to a third party. Moreover, the title insurance coverage is limited to what you paid the lender and not what the property is worth after you sink money into it for improvements and property appreciation.
With all of that said, this last week, we have been made aware of a third option being offered by some lenders, no title at all. A client advised our office that the lender/seller on their transaction was unwilling to even convey insurable title, let alone marketable title. Instead, that lender (through their closing agent) offered the buyer the unique “opportunity” to accept a quit claim deed for the property with no title insurance at all. Fortunately, this particular buyer had the good sense not to take the closing agent up on this proposal, who clearly did not have the buyer’s best interest in mind when making this surprising suggestion.
The moral of the REO story, it is well worth the investment to hire an experienced real estate attorney, particularly when dealing with REO transactions where the type of title that is being offered by the lender can be suspect. In many cases, it is not at all clear, and the closing agent who represents the lender is clearly not the person to properly advise a buyer as to what is in that buyer’s best interests. Bad title is not something that generally goes away, and will rear its ugly head when the property is eventually marketed for sale down the road. Don’t be fooled into thinking that a seemingly smooth closing resulted in the conveyance of marketable title.
Sincerely,
Berlin-Patten, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.
SARASOTA
1819 Main Street, Suite 1000, Sarasota, FL 34236 P (941) 954-9991 F (941) 954-9992
VENICE
100 W. Venice Avenue, Suite A, Venice, FL 34285 P (941) 955-9991 F (941) 953-9992
LAKEWOOD RANCH
8130 Main Street, Suite 206, Lakewood Ranch, FL 34202 P (941) 907-9022 F (941) 907-9024
15 Issues to Consider When Buying Bank Owned (REO) Property
Although acquiring REO properties can in some instances offer excellent opportunities, anyone considering purchasing REO property needs to understand that it is not at all like purchasing other forms of property. Some issues/differences that you should consider are the following:
1. The standard contract that you submit will generally be modified by a lengthy addendum (sometimes up to 15 pages long) that changes almost all of the key contract terms, in most cases to drastically benefit the lender. An REO contract affords the Buyer very little, if any legal or contractual protections.
2. Generally, the Lenders (i.e., the Seller) response times with respect to offers, questions, modifications, or any issue that arises can be lengthy. Be prepared to be patient, and do not assume proposed changes to the deal will come about easily, if at all.
3. The contract generally permits the Lender to cancel the contract at any time prior to closing. People can get tripped up by this. In fact, the Lender will generally reserve the right to continue marketing the property while under contract. Few Lender contracts are safe until you close.
4. The property will be purchased as-is. No repairs will be performed by the Lender nor will credits be given to the Buyer. In other words, if you discover a problem, you generally have to accept the problem.
5. The Lender will provide few, if any disclosures, and of course there will be no customary disclosures.
6. You will have a more limited inspection window (generally 7-10 days). Be prepared to act quickly once the contract has been accepted and the effective date has been established.
7. Unlike in regular transactions, in most REO transactions, special assessments, municipal assessments, and liens can be the responsibility of the Buyer.
8. On some occasions, the Lender may not even agree to pay customary tax pro-rations, even if the contract provides for it.
9. The Lender will generally agree to pay for title and closing expenses, but will likely choose its own out of town (or even out of state) title/closing agent. For anyone who has been involved in REO transactions, these lender selected title agents can be very poor at communication, can be very poor at satisfying the contract’s timeframes, can struggle to draft certain documents properly, rarely take the proper steps to insure that the person signing the documents on behalf of the lender has proper authority, and in some worst case scenarios, have little regard for verifying that good title is being conveyed to the buyer. Remember, they represent the Lender. In fact, the title agency handling the closing on behalf of the Lender may have an affiliation with the Lender. And beware, they will almost always try to slap the buyer for closing or other fees that are completely inconsistent with the contract, and can sometimes be very significant.
10. The Lender will generally reserve the right to unilaterally extend the closing date for any or no reason.
11. Although the Lender can in essence close when it likes, if you do not close on time, there are typically severe financial penalties.
12. The Lender can generally choose the physical location of the closing, which can often times be several counties away.
13. In REO transactions, the Buyer will be required to waive all of its remedies against the Lender if the Lender breaches the contract, other than the recovery of the buyer’s deposit, this is hardly an adequate remedy.
14. In an REO transaction, there is the possibility that the foreclosure was not handled properly, therefore creating unknown defects in title that may not be discovered for years.
15. The Lender will agree to provide insurable title, but not marketable title. There is a huge difference. Most title is insurable, but marketable title is title that can readily be sold down the road. Insurable title simply means that someone was willing to issue a title policy, but that policy could be filled with so many exceptions that it is essentially meaningless.
Given the complexity and heightened risk associated with an REO transaction, we strongly suggest engaging a real estate attorney early on in the process (i.e., before submitting an offer) to protect any buyer’s interests. In fact, a good real estate attorney will likely save your client more money than what they charge.
Sincerely,
Berlin-Patten, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.
SARASOTA
1819 Main Street, Suite 1000, Sarasota, FL 34236 P (941) 954-9991 F (941) 954-9992
VENICE
100 W. Venice Avenue, Suite A, Venice, FL 34285 P (941) 955-9991 F (941) 953-9992
LAKEWOOD RANCH
8130 Main Street, Suite 206, Lakewood Ranch, FL 34202 P (941) 907-9022 F (941) 907-9024
Should I use An Attorney Rather Than A Title Company For Closing?
In Florida, both, attorneys and title companies, may issue title insurance. In contrast, in some states, like Delaware, only attorneys may issue title insurance. The title insurance rates are promulgated by the Department of Insurance so title insurance obtained through an attorney is priced the same as from a title company. In addition, closing costs charged by an attorney acting as a closing agent are comparable to those charged by a title company. With that said, what is the difference using an attorney rather than a title company for closing?
1. When using an attorney as the closing agent, the client has legal representation throughout the transaction, from contract negotiations through closing. In contrast, a title company’s role is solely limited to preparing basic form documents necessary to issue a title insurance policy in connection with the closing. A title company cannot provide legal advice, input, or guidance.
2. Although real estate contract forms and other closing documents are in many cases preprinted forms, the need for contract addenda, non standard documents, or changes to standard documents frequently arises to address specific issues with respect to the property, the parties, title requirements, or the transaction in general. An attorney can prepare such documents, whereas the title company in many instances cannot (or should not).
3. Realtors working with attorneys, rather than title companies, benefit too since the attorney can assist the realtor with the contract preparation (generally at no additional charge), answering the client’s legal questions during the contract negotiations and preparing contract addendums and other relevant documents as needed (again generally at no additional charge). A title company cannot do so.
4. In preparing for closing, if the title search or survey reveals a potential issue, the attorney can provide legal advice as to the best and fastest way to cure the issue and prepare the necessary corrective documents so the parties can close quickly (generally at no additional charge). In contrast, title companies cannot generally prepare many curative documents, and can never provide legal advice or guidance when or as an issue arises. Indeed, when a title company is the closing agent, the parties many times must scramble to then go hire an attorney (at significant additional expense) to address issues that could cause closing delays or otherwise provide legal advice and guidance to address them.
5.When purchasing real estate, one of the most important decisions the Buyer has to make is how to take title to the property. An attorney can discuss the options available to the Buyer and the legal aspects and tax advantages concerning same. A title company cannot provide this important legal advice.
In summary, both, title companies and attorneys, strive to assure all parties involved in the transaction a smooth closing process from contract to a successful closing. However, as noted above, there is a major benefit in having an attorney as your closing agent and on your closing team.
Sincerely,
Berlin-Patten, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.
SARASOTA
1819 Main Street, Suite 1000, Sarasota, FL 34236 P (941) 954-9991 F (941) 954-9992
VENICE
100 W. Venice Avenue, Suite A, Venice, FL 34285 P (941) 955-9991 F (941) 953-9992
LAKEWOOD RANCH
8130 Main Street, Suite 206, Lakewood Ranch, FL 34202 P (941) 907-9022 F (941) 907-9024
Tips on Inspection Periods for Short Sale Transactions
As most of you have likely seen, the demand in today’s market for short sale properties is very high, with decreasing inventory and a large pool of buyers. In fact, property prices are increasing in many areas because of this high demand, and short sale sellers are often receiving many offers – some possibly even above asking price – within the first day of listing. In this kind of market, short sale sellers can be more selective than ever in choosing how to list the property and which offer to accept.
In regards to the inspection period, most short sale contracts in recent years provided that the buyer’s inspection period commences upon bank approval of the contract. As we all know, it usually takes months to obtain bank approval due to the time it takes a lender to complete the approval process. Since the inspection period allows the buyer an “out” of the contract for virtually any reason with no consequences, many buyers will sign contracts on several properties, wait for the first one to be approved, and then cancel the remaining contracts at the inspection period. Obviously, this loophole has burned many short sale sellers who wait months for bank approval only to have the buyer cancel the contract. When this happens, the seller must obtain a new contract with a new buyer and then begin the months-long negotiation process all over again. And if the property is in foreclosure, there may not be enough time to obtain approval of a new contract before the property is sold at auction. Even worse, this can happen multiple times with a single property, with a seller, the realtors and the short sale negotiator expending hundreds of hours to obtain bank approval for several contracts, none of which close.
Because of these risks, we suggest the inspection period for most short sale contracts to begin upon execution of the contract. The natural response from most agents to this suggestion is, “My buyers do not want to spend the fees for an inspection before they know whether the bank will even approve the deal.” This is a very valid point, and there are several options to work around this issue:
First, the buyer should be informed that it is in his/her best interest to complete the inspection before the lender approves the price. Why? Because, if the inspection reveals a major problem with the foundation, roof, or other significant defect that clearly affects the value of the property, the buyer will obviously want to reduce the purchase price. It is clearly better to adjust the purchase price before submitting a contract to the lender, rather than waiting for the bank to approve a higher price only to request a reduction due to the inspection report.
Also, the parties can negotiate regarding the inspection fees. For instance, the seller can offer to reimburse the cost of inspection if the lender does not approve the contract. Or, the parties can split the fees. Some sellers even choose to purchase an inspection at listing and provide the report to any potential buyers. We find that standing firm on the inspection requirement is a good way for sellers to weed out the less serious buyers, and we all know that short sales are typically much more successful where the buyer is seriously dedicated to purchasing that particular property.
As always, should you have any questions regarding any of the foregoing, please do not hesitate to contact a member of the Berlin Patten team.
Sincerely,
Berlin-Patten, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.
SARASOTA
1819 Main Street, Suite 1000, Sarasota, FL 34236 P (941) 954-9991 F (941) 954-9992
VENICE
100 W. Venice Avenue, Suite A, Venice, FL 34285 P (941) 955-9991 F (941) 953-9992
LAKEWOOD RANCH
8130 Main Street, Suite 206, Lakewood Ranch, FL 34202 P (941) 907-9022 F (941) 907-9024
The AS-IS Contract And Disclosure
When a transaction is an AS-IS sale, the seller often insists that the property is in “AS-IS” condition in an attempt to reduce repair limits/credits and possibly shift the responsibility for determining the true condition of the property to the buyer. It is well known that the buyer is typically given a specified period of time to inspect the property and, if not satisfied, cancel the transaction and walk.
However, a seller is not protected from failing to disclose any known material defects in an AS-IS sale. Thus, an AS-IS sale does not mean that the seller can withhold known damage from the buyer. A seller is required by Florida law to disclose all known defects that could materially affect the value of the property. A seller who withholds such information could be held liable for his actions regardless of whether the transaction is conducted AS-IS.
As a proactive measure, we recommend Realtors use the FAR Seller’s Property Disclosure Statement to educate sellers on their legal obligations to disclose to the buyer all known facts that materially affect the value of the property that are not readily observable. The use of the FAR Seller’s Property Disclosure Statement facilitates the development and implementation of efficient and effective listing and disclosure processes.
The greatest benefit of the FAR Seller’s Property Disclosure Statement to the seller is that it provides documentation of his or her disclosure of material defects, thereby limiting potential future litigation. Additionally, the FAR Seller’s Property Disclosure Statement generally results in the buyer being more satisfied with their purchase and less likely to encounter surprises about the property’s condition.
As always, should you have any questions regarding any of the foregoing, please do not hesitate to contact a member of the Berlin Patten team.
Sincerely,
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.
SARASOTA
1819 Main Street, Suite 1000, Sarasota, FL 34236 P (941) 954-9991 F (941) 954-9992
VENICE
100 W. Venice Avenue, Suite A, Venice, FL 34285 P (941) 955-9991 F (941) 953-9992
LAKEWOOD RANCH
8130 Main Street, Suite 206, Lakewood Ranch, FL 34202 P (941) 907-9022 F (941) 907-9024
