ASK A LAWYER - Executors Are Due Reasonable Commission

Orlando Sentinel, December29, 2008

Question: I am single and have no children. I currently have a trusted friend as executor of my estate, but she is close to my age, as are my siblings.

How do I find a good candidate to appoint as my estate executor? I want to ensure that whoever is appointed is compensated but cannot drain my estate.
J.J.
Orlando

FRANK POHL
Pohl & Short, P.A.

Answer:
In Florida, executors are known as personal representatives. In addition to family members and financial institutions such as banks, good candidates for personal representatives are often found among financial professionals such as accountants and financial planners.

Under Florida law, personal representatives are entitled to a reasonable commission. The commission is presumed reasonable by a court if it is not more than 3 percent of the first million dollars of the estate, with that percentage gradually decreasing as the estate value increases.

In addition, a personal representative is entitled to compensation that a court determines reasonable for so called “extraordinary services,” such as selling property or conduction litigation. Personal representatives, however can agree to limit their compensation to amounts below what a court would otherwise award them, and you can seek such an agreement.

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Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

WHO GETS THE DEPOSIT?

Winter Park Home, Volume 6 / Issue 4, 2008

In today’s real estate marketplace, many purchasers are reconsidering their offers, deciding to terminate their contracts, and seeking a return of their escrow deposit. These situations not only require a determination concerning the rights of the parties to enforce the contract provisions, but also often result in disputes over who is entitled to receive the earnest money deposit. Consider the following examples.

In August, 2007 David J. executed a contract to purchase a home for $500,000, and gave the Escrow Agent (the Seller’s attorney) a $25,000 earnest money deposit. The closing is scheduled for January of 2009. A recent appraisal reflects that the home is currently worth $375,000, not $500,000, and Mr. J. is looking for a reason to back out of the contract. The contract does not provide that that the house must appraise for the purchase price, there are no financing contingencies, and the property is being purchased “As-Is.” Mr. J. is not represented by an attorney.

In a second example, Mary Smith executes a contract to purchase a condominium unit, and gives the realtor a $10,000 deposit. There is no financing contingency, and Mary is unable to put together sufficient financing or cash to complete the purchase of the property. Mary requests a two-month extension of the closing date and the Seller, anxious to sell the condominium unit, agrees to the extension. Five days before the second closing date, Mary requests an additional contract extension. The Seller decides that this is a no-win situation. He refuses to sign an additional extension; advises Mary that he is ready, willing, and able to complete the closing; and, attends the closing at the scheduled time. Mary does not come to the closing. The Seller now requests a forfeiture of the entire $10,000 deposit.

Each of these examples requires an analysis and application of the deposit/escrow provisions of the contract. Clearly, both the Seller and the Buyer should consult with an attorney to determine their rights to the escrow deposit and their obligations under the contract. The Escrow Agent--the person or entity holding the escrow deposit--is generally authorized to disburse the escrow funds in accordance with the terms and conditions of the contract. In each of these examples, the disbursement of the escrow funds appears straightforward. The Escrow Agent typically will request that the Seller and the Buyer execute a release of deposit and termination of the Contract, and, once it is signed, will disburse the funds. If the parties cooperate, disbursement is made quickly. Often, one of the parties refuses to cooperate. This places the escrow agent in a position of being sued if the escrowed funds are incorrectly disbursed.

Standard Q of the FAR/BAR Contract for Sale and Purchase describes the proper disbursement of the escrow deposit. If there is no closing, the Escrow Agent must determine who is entitled to the deposit. To avoid being sued for improper payment, the Escrow Agent generally will have the parties sign a release and waiver establishing how the money is to be disbursed. If the parties don’t cooperate, the Escrow Agent can hold the deposit longer, while the Seller and the Buyer negotiate the proper payment. The Agent can also choose to file a lawsuit, known as an interpleader, in which the deposit is placed under the control of the court. The Seller and Buyer would then litigate ownership of the deposit. The court will take any filing fees and the Escrow Agent’s legal fees directly from the deposit, reducing the amount immediately available to the winning party. Although the court may ultimately award these fees to the winning party, there is no guaranty that the prevailing party will be able to collect the fee money from the other side.

Additional rules govern a real estate broker acting as an Escrow Agent, since brokers are governed by Chapter 475 of the Florida Statutes. A broker, in addition to filing an interpleader action, can also make a request to the Florida Real Estate Commission for a formal escrow disbursement order. Of course, each of these steps will delay final disbursement of the escrow deposit.

This analysis describes only part of the picture. In each of the examples, the Seller “appears” to be entitled to receive the escrow deposit. If the money is to be disbursed to the Seller, the Escrow Agent must also determine if the Seller signed a listing agreement, which typically provides that the real estate broker is entitled to a portion (typically 50%) of the surrendered deposit.

Once again, the Escrow Agent must disburse in accordance with the terms of all contracts. If there is any question as to the appropriate amount to disburse to the Seller and the Realtor, the Escrow Agent is well advised to obtain written authorization from each of the parties.

Initially, each of the Sellers in the examples I’ve described appears to be entitled to recover all or part of the escrow deposits. However, parties can be creative and many arguments can be made and questions raised that can present the Escrow Agent with genuine issues which can make determining who is to receive the deposit difficult. Before disbursing any escrow funds, the Agent should demand receipt of the properly executed releases in order to avoid potential wrongful disbursement suits.

Whenever there is any question about the proper disbursement of an escrow deposit, the Seller and the Buyer should each consult with his/her own real estate attorney. All contracts revolve around specific facts and the contractual obligations of the parties. An experienced real estate attorney can often examine a contract and determine that his client, who is otherwise ready to sign a release in favor of the other party, actually has a valid legal position justifying either a return or forfeiture of the deposit.

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Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

ASK A LAWYER - Trouble Pours Out The Downspout

Orlando Sentinel, November 17, 2008

Question:
My next-door neighbors installed gutters on their house, with two downspouts that discharge water heavily on our property every time it rains.

There has been soil erosion on their deeply sloped property that continues to get worse. We have talked to the owners about the problem to no avail. They now have moved out, and their property is rented.

I am concerned that the erosion and flooding will eventually cause damage to my property and to the foundation of my house. What legal recourse do I have?
C.H.
Orlando


FRANK POHL
Pohl & Short, P.A.

Answer:
Both you and your neighbor enjoy certain rights of land ownership. Rain runoff from your neighbor’s higher ground is entitled to its natural flow onto and from his land. Florida law does not permit your neighbor, however, to direct the water flow onto your property if it results in damage to your house and land.

Florida law also recognizes your “reasonable” right to protect your property from this excess water from these downspouts. Subject to any zoning or subdivision limitations, you could construct a fence or wall to slow down or divert the water flow, as long as the fence or wall doesn’t cause the water to pool and flood your neighbor’s property.

The Florida courts apply a reasonableness standard in interpreting these cases.

At this point, you might get some help, or at least advice, from your local government department that handles drainage issues. (In Orange County, for example, it’s the Roads and Drainage Department.) If that doesn’t work, you may need a lawyer to file a legal action to have the excess water discharge directed away from your property, and to determine if you can sue for specific damages.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

ASK A LAWYER - Report Dogs’ Aggressive Behavior Now

Orlando Sentinel, October 13, 2008

Question:We live on a lake with lots of ducks and three sandhill cranes.

My dad, who is 78, feeds them. My neighbor, who lives a quarter-mile down the road, turns his two dogs loose two or three times a day, and they often come into my yard and several times have tried to bite me.

Do I have the right to kill them on my property if they are endangering my dad or me?
R.K
Oveido


FRANK POHL
Pohl & Short, P.A.

Answer:Based upon the fact these dogs have repeatedly come onto your property and tried to bite you, you should immediately contact the nearest animal-control authority and report these dogs as dangerous.

Under Florida law, the animal-control authority has an obligation to investigate any report that a dog is dangerous. Florida law also provides that any animal that is the subject of a dangerous-dog investigation – if not immediately impounded with the animal-control authority – must be safely confined by the owner in a securely fenced or enclosed area pending the outcome of the investigation.

If there is no animal-control authority in your area, the county sheriff shall act in its place.

In the interim, if these dogs were to attack you unprovoked on your own property, you could protect yourself in any reasonable manner.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

ASK A LAWYER - Is Tenant Liable For Sewer Lines

Orlando Sentinel, August 4, 2008

Question: In the seven years since moving into our manufactured home, my wife and I have had problems with our sewer line. According to the park’s plans, the line was supposed to follow the lot’s borders, but ours goes 52 feet into our neighbors’ lot.

Tree roots have repeatedly caused the line to clog, and the roots are in my neighbor’s yard. We rent the land on which our home sits, and our lot agreement says nothing about ownership of the sewer line. Nevertheless, the park’s owners say I’m responsible for the repairs. Are they right?

R.M.
Port Orange


FRANK POHL
Pohl & Short, P.A.

Answer:Generally speaking, the tenant of a manufactured home is responsible for the costs to maintain and repair its sewer lines. You can check to make sure by contacting the Division of Land Sales, Condominiums and Mobile Homes, in Florida’s Department of Professional Regulation, which oversees mobile-home parks in Florida. There should also be information about who’s responsible for the sewer lines in your park’s rules and regulations, which should be posted.

Bottom line: You cannot dig up your neighbors’ property without their consent. If you cannot obtain their cooperation, and the park owners refuse to cooperate, you may wish to bring this matter to the attention of the Division of Land Sales, and also to your local Health Department.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

CONTRACTS 101 - WARRANTY vs. QUITCLAIM DEEDS

Winter Park Home, Volume 6 / Issue 3, 2008

Clients often ask me to prepare a deed outside of a purchase and sale transaction, which typically consists of a transfer from one or two individuals to another individual or legal entity. The context varies from that of a gift, to that of a transfer by a shareholder to his privately owned corporation. The client often requests that the deed be in the format of a quitclaim deed, even though, as explained below, a warranty deed may be more appropriate. This article points out some of the differences and benefits of these two types of deeds, while detailing the parameters of the Special Warranty Deed that is also used in conveying real estate in Florida.
The three primary forms of deeds used in Florida are the Warranty Deed, the Special Warranty Deed, and the Quitclaim Deed. The Warranty Deed and Special Warranty Deed provide substantive covenants of ownership, while the Quitclaim Deed provides no covenants of ownership, and only conveys the interests that the Grantor (the person conveying the property) has in the property. The Grantee (the person to whom the property is being deeded) of a Quitclaim Deed will generally have no recourse against the Grantor, when confronted with any challenges as to the ownership of the property.

A Warranty Deed includes six covenants, or warranties, by which the Grantor is bound. The first three covenants are known as “present covenants,” and the second three are referred to as “future covenants.”

Present Covenants consist of “seisin” (warranty that the Grantor is the legal owner of the property and has the right to possess the property), covenant of the owner’s right to convey, and the covenant against encumbrances (i.e. that there are no liens or encumbrances that attach to the property). The present covenants can only be enforced by the immediate Grantee. For example, if Andrew conveys land to Bruce by Warranty Deed, and Bruce subsequently conveys the same land to Charlie by Warranty Deed, then Charlie can sue Bruce under these present warranties, but Charlie cannot directly sue Andrew.

Future Covenants consist of quiet enjoyment (a promise that the Grantee’s possession will not be disturbed due to a prior existing title defect), warranty (promise by the Grantor to protect the Grantee from any loss caused by the pre-existing title defect), and further assurances (agreement by Grantor to execute additional documents if needed). In many respects, the three future covenants are more important, since they represent a continuing obligation of the Grantor to take curative action if subsequent grantees or purchasers are confronted by defects in the chain if title that existed at the time the Grantor conveyed the property to the Grantee. In the example noted in the preceding paragraph, Charlie can sue Andrew for any violation of the future covenants.

A Special Warranty Deed differs from the general Warranty Deed because it only covenants against defects in title that are specifically caused by the Grantor. It does not warrant against any problems that predate the time the Grantor acquired title to the property. This deed is frequently used by those acting in a fiduciary capacity (e.g. Personal Representatives, Guardians, and Bankruptcy Trustees), and by Lenders who are in title after a mortgage foreclosure action.

A Quitclaim Deed does not include any assurances of ownership–it only provides that that if the Grantor owns the property, then the Grantor is transferring his ownership interest in the property to the Grantee. Since the Grantee has no recourse against the granting party, these deeds are potential red flags that the Grantor may not own the property. Since Quitclaim Deeds do not provide a warranty of ownership, they are useful in title clearing actions, where an owner years back in the chain of title is hesitant to provide any warranty coverage; in divorces, where the court specifically directs that a Quitclaim Deed be provided by one spouse to the other; and, in situations where the Grantor is unclear as to his/her ownership of the property. In this light, a title insurance policy obtained by a purchaser provides a comfort level that any prior quitclaim deeds in the chain of title will not adversely impact the ownership of the purchaser.

Why, therefore, do I recommend the use of a Warranty Deed instead of a Quitclaim Deed, in situations where there is no consideration being paid? Think of the identity of the Grantee. If the Grantor’s goal is to protect the interests of the Grantee, then a Warranty Deed should be used. Here is an example. Fred Thomas, a single man, is the sole owner of property and has an owners’ policy of title insurance. Fred decides that he wants to convey an interest in the property to his daughter Mary, so he directs that Mary’s name be added to the title, to create a joint tenancy with right of survivorship.

A couple of years later, Fred dies. Mary becomes the sole owner of the property. She is subsequently notified that a missing heir back in the chain of title failed to convey his proportional interest in the property.

If Fred conveyed the property to Mary by Quitclaim Deed, Mary would have no recourse either against Fred’s title insurance policy or against Fred’s estate and his predecessors in interest (i.e. Mary has no one to sue for coverage). If Fred used a Warranty Deed, Mary will be able to take steps to cure the title, either under Fred’s title insurance policy or through Fred’s warranties of title.

For the reasons stated above, I generally recommend the use of a Warranty Deed in these transfers. An individual should always consult an attorney before executing any deed that transfers an interest in real property to another individual or entity–not only to determine the appropriate format of the deed, but to also determine if there are any other consequences that will result from the execution and recording of that deed.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

ASK A LAWYER - A Land's Ownership Determines Your Action

Orlando Sentinel, June 9, 2008

Question: For 35 years I have placed trash bags, lawn clippings, etc., at the edge of my driveway apron on the public right-of-way behind my home for collection. It's a small area between two driveways. Regular household garbage in a rolling bin also is placed on the right-of-way. My neighbor does not want me to use this area and has planted shrubs all the way to the curb. He says it's his property, and he maintains it. He's only in Florida for a few months. When he leaves to return to his home up north, my husband and I maintain it. He is making our lives miserable. He has called code enforcement and the police, and they have explained to him that he must share the right-of-way. City code states bags, etc., must be placed at the curb for pickup but doesn't state a specific location. What is our legal recourse?

S.M.
Orlando

FRANK POHL
Pohl & Short, P.A.

Answer: You must determine if the shrubs are located wholly within the boundaries of your neighbor's property. If they are, and your neighbor has never given you permission to cross his/her land, then you would have no legal basis to object to the shrub placement. Because land ownership includes the land and the air space above the land, you would have the right to trim any portion of the shrubs extending onto and over your land, but not the portion situated within your neighbor's boundaries. To the extent the shrubs extend into the public right of way, the city or county could remove those shrubs. Note that Florida law requires any transfer of an interest in real property, including grants of easements, be evidenced by a written document recorded in the public records -- verbal permission alone could be withdrawn at any time. A title search of your property and your neighbor's property would reflect whether there are any recorded easements or restrictions which would prohibit the construction of a fence or the placing of shrubs at the front or back of either property, and also whether there is a homeowners association that could enforce any violations of recorded restrictions. Municipal and county codes regulate collection of waste and recyclables. The Orlando Municipal Code, for example, provides that trash is to be placed on the curbside at designated times. Although this city code does not recite this, logically the "curbside" is the curb that abuts the owner's property, and not the neighboring property. Recommendations: If the ownership of the land in question is at issue, obtain a survey of the property to determine your borders. Obtain a title search for your property and your neighbor's property if you wish to pursue other avenues of enforcement.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

OBJ - What Types of Business Cases Does Your Firm See Most Often

ORLANDO BUSINESS JOURNAL'S BOOK OF LAW - 2008
Frank Pohl,
Pohl & Short, P.A.

What types of Business Cases Does Your Firm See Most Often?

“In these economic times, we have seen a significant increase in breach of contract disputes of all types and in litigation concerning real property.

“Construction claims, intellectual property disputes, homeowner association matters, shareholder/partnership breakups and probate litigation have all multiplied. Why? The easy answer is to say that entities and individuals are fighting over money.

“However, we hear over and over again: ‘We were doing business and something went wrong. We were buying or selling property and circumstances changed and something went wrong. Something went wrong with my grandmother’s will, or something went wrong and I got sued.’

‘These are times of ‘something went wrong,’ and our law firm is there to help.”

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

CONTRACTS 101 - WHO PAYS FOR THE REPAIRS?

Winter Park Home, Volume 6 / Issue 2, 2008

Real estate transactions don’t have a required format. Although, residential real estate contracts typically include provisions that address the physical condition of the property. Not only does Florida law require that the Seller disclose any inherent problems with the property, but the contract should also provide the Buyer with ample opportunity to inspect the property for termite damage and the overall condition of the home.

Consider this scenario: David Smith recently paid cash for a house and was given the keys at closing. Upon entering the house, David discovered that the front door light switch was broken and that a number of the light fixtures didn’t work. Later he learned that the a/c unit was defective and had to be replaced. The Seller, an old acquaintance, had mover somewhere up north. David remembers him saying that there were some minor cosmetic problems, but that everything else was in good working order.

This type of situation, fortunately, rarely occurs today. Banks and mortgage companies typically require both home and termite inspections. The FAR/BAR contract and other attorney prepared contracts also typically include provisions for home and termite inspections. In the example above, the cash only contract was prepared by the Seller, never reviewed by an attorney, and the Buyer relied solely upon the good faith of the Seller.

Unless the house is being razed for new construction, purchasers should always be concerned with the physical condition of the house. Most residential real estate contracts include a time period during which the Buyer may inspect the property to determine whether any repairs are necessary, and whether there is any termite damage, while also defining the maximum amount of money that the Seller will be obligated to pay for any repairs. If the Buyer gives timely notice, the Seller will be obligated to pay for those repairs but only up to the maximum amount stated on the contract.

A Buyer should always obtain professional home and termite (a/k/a wood destroying organisms) inspections, and never rely solely upon the representations of a Seller. Contracts generally provide that the Seller is not obligated to make any repairs that exceed the Maximum Repair Costs that have been agreed to. If the Seller chooses to make, and does in fact complete, the repairs in excess of the agreed amount (other than for termite damage), then the Buyer must proceed with the contract. If the Seller refuses to pay those excess costs, the Buyer will have two options to proceed with the closing (and be responsible for those additional costs), or to terminate the contract and receive a return of the deposit.

Sam Seller, for example, agrees to pay for repairs up to $15,000. Bob Buyer determines through inspections that the roof ($12,500) and a/c system ($6,500) must be replaced. Sam refuses to pay for any repairs in excess of $15,000. Bob must, therefore, elect to either terminate the contract, or to proceed with the closing and be responsible for the additional $4,000 to complete the repairs. However, termite damage is generally treated differently. Under the standard FAR/BAR contract, the Buyer has the absolute right (but not the obligation) to terminate the contract if the termite repair and treatment costs exceed the maximum amount stated in the contract, even if the Seller agrees to pay for those excess costs.

For example, if Sam knows in advance that there is $20,000 worth of termite damage but insists that he will not pay for more than the agreed to $5,000 amount, Sam essentially provides Bob with an automatic right to cancel the contract. Bob, of course, must give timely notice of his election, or he will waive his right to terminate the contract based on these excess expenses.

In place of establishing a formula for repairs, parties often utilize the “As Is” Contract for Sale and Purchase, which provides that the Sales Price is absolute, and that the Seller will not be obligated to pay for any repairs to the property. “As Is” terms generally include a specific time period during which the Buyer may inspect the property (the “Due Diligence Period”). During this due diligence period, the Buyer must elect to either proceed with the purchase or opt to terminate the contract and obtain an automatic return of the Escrow deposit. The Seller has no obligation to make any repairs or to reduce the purchase price, while the Buyer has the right to terminate the contract for any reason during the Due Diligence Period. As always, timely notice must be given to the other party.

Although “As Is” contracts provide that the Seller is not obligated to lower the purchase price of the property for repairs, it is not a device by which the Seller can hide problems. Under the Florida Supreme Court decision of Johnson v. Davis, the Seller must always disclose to the Buyer any known defects with residential property. If a house is being sold during a dry season, for example, and the Seller knows that during heavy rains water comes onto the back porch and seeps into the back bedroom, the Seller has an affirmative obligation to disclose this fact to the Buyer. The Seller can later be sued for damages and/or rescission of contract if he fails to disclose this information.

The caveat of “Let the Buyer Beware” does not apply to the sale of residential real property in Florida. Variations of these undisclosed fact scenarios are the subject of many lawsuits. Consider the following scenarios. The neighbor’s bright backyard lights consistently shine into the back room of the house. The Seller knows that tennis courts in an adjacent field are scheduled to have lights installed three months after the closing. The Seller is moving due to frequent vandalism in the neighborhood. In each case, the Seller should consult with legal counsel to determine if it is appropriate to disclose a potentially relevant issue.

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Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

CONTRACTS 101 - THE SEQUEL

Winter Park Home, Volume 6 / Issue 1, 2008

Real estate transactions don’t have a required format, even though that perception is often implied due to the extensive use of the standard Florida Association of Realtors and Florida Bar Association (FAR/BAR) approved Contract for Sale and Purchase of real estate. This standardized Contract allows all parties accustomed to residential sales to rely on a set uniform Standards, which define different terms within the Contract. These terms are generally accepted and understood by real estate attorneys and Realtors. More complex transactions may require additional terminology, which is usually added by formal Amendments to the Contract.

However, there are many other contract formats that are used in the marketplace. So, both the Buyer and Seller are well advised to seek competent legal advice to assure that each party understands his/her respective rights and obligations, prior to signing any contractual obligation.

FAR/BAR Contracts include provisions that stipulate whether the Seller or Buyer is to provide and pay for a title insurance commitment and an owner’s title insurance policy, The commitment, together with a copy of all the exceptions to title, must be submitted to the Buyer for review. In Central Florida, the Seller typically pays these charges and provides the title work. However, contract terms are always negotiable. In some parts of Florida, custom and practice calls for the Buyer to pay these costs.

The Contract also stipulates the number of days prior to closing that the commitment must be provided. More importantly, it also establishes a precisely defined time period for examining the title and notifying the Seller in writing of any deficiencies or objections to title. This review period typically begins on the day the Buyer receives the title commitment. The number of days specified in the Contract is legally binding, and the Buyer is bound by these time limits.

To give you a sense of how serious the time limits on this review can be, consider this tragic tale of David Johnson. Mr. Johnson places a $50,000 deposit on a $500,000 home purchase. Imagine David’s response when he learns that the Seller demands forfeiture of the $50,000 deposit, solely because neither he nor his attorney raised a legitimate objection to title in a timely manner. He missed the deadline, so David cannot subsequently raise the title objection as a basis for terminating the Contract and obtaining a refund of his deposit. Mr. Johnson may not be real, but the financial consequences of missing a Contract deadline can result in very real monetary losses.

If the Buyer does make a timely objection to title, the Seller must cure the defects within the time period stated (typically 30 days). Should the Seller fail to resolve the issues within the time specified, the Buyer may terminate the Contract and reclaim his/her deposit.

Most Buyers don’t have sufficient cash reserves to purchase property outright. They usually need financial assistance in the form of a mortgage loan. Real estate contracts typically include a financing provision. This provision stipulates acceptable financing terms and a time period within which the Buyer will apply for a loan commitment from an institutional lender or private party. As with other contract provisions, timing is critical. The Buyer has placed an earnest money deposit at risk. He or she must apply for the loan approval within the time period defined under this provision, and notify the Seller if that loan approval cannot be obtained within the specified time period (typically 30 days).

The Buyer must use reasonable diligence to obtain the loan approval. For example, if our Mr. Johnson is buying property for $500,000, places a $50,000 deposit with the escrow agent, and is to obtain financing for the remaining $450,000, he must make a good faith effort to obtain that financing. Let’s assume David subsequently decides he no longer wants to purchase the property and wants to use the financing contingency as a mechanism to retrieve his $50,000 deposit. If he improperly prepares the application forms and otherwise delays the paperwork so that he cannot obtain the loan approval within the permitted time period, he risks losing the entire deposit to the Seller for failure to use reasonable diligence in obtaining the loan approval. Alternatively, if David legitimately does not qualify for the loan under the parameters set forth in the Contract, he may be entitled to terminate the Contract and obtain a refund of his deposit.

Contracts also establish the date of closing at which the parties are to complete the transaction. By establishing a closing date, and other specific dates within the Contract, the parties, including any lender, are provided with deadlines for satisfying all preconditions of the Contract. These dates provide time certain periods that enable the Buyer and Seller to hold the other party accountable for failure to comply with the obligations set forth in the Contract. Let’s assume, for example, that Mr. Johnson has decided it would by more convenient to close the sale two weeks later than the date specified in the Contract but the Seller refuses to extend the closing date. If Mr. Johnson then fails to appear at the closing, his $50,000 deposit may be forfeited to the Seller. If the language in the Contract permits, the Seller may also alternatively bring an action in equity to enforce Seller’s rights under the Contract (i.e. make the Buyer purchase the property under all of its terms and conditions).

A Real Estate Purchase and Sale Agreement, or Contract, is the primary tool used to acquire real property, and defines all relevant terms by which the Seller agrees to transfer the property, and by which the Buyer agrees to be governed.

I’ve run out of space before running out of important things you should know about real estate contracts, so I’ll continue this discussion of basic contract strategy in the next issue.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.