How Realtors Get Paid (a true commission story)

     Buying or selling a home is, for most people, the single most expensive transaction of their lives.  At the center of most real estate deals is the real estate salesperson, hired by sellers to list their property for sale, market and advertise the home, and then assist in the contract and sale; and used (yes, used, see below) by buyers to find and show buyers possible homes based on the buyers’ personal criteria, and then to assist in the contract and purchase of the home.  For these functions, a real estate salesperson is paid a commission based upon the sales price of the home.

     Traditionally, there were two types of realtors involved in a real estate transaction.  The “listing agent” was the person who was hired by the seller, placed the property on the multiple listing service (the MLS), and acted as the agent of the seller.  The “selling agent” was the person hired by the buyer, who helped the buyer find a property and acted as agent for the buyer.   In Florida, most realtors today act as transactional agents instead of as listing or selling agents. A transactional agent does not have a fiduciary relationship with the buyer or seller, nor does the transactional agent act as the single agent representative of the buyer or seller. However, a transactional agent does have a duty to deal honestly and fairly with both the buyer and seller, to disclose all known facts, and to use skilled care and diligence in the transaction. Despite the change to transactional agent status, payments are still traditionally made by the seller, and shared by the realtors involved in the transaction.

     Both the listing agent and the selling agent are traditionally paid from the seller’s proceeds. Pursuant to the listing agreement, the seller of the property has contractually agreed to pay the listing agent a commission upon finding a buyer ready, willing and able to purchase the property. Included in that agreement is the right of the listing agent to share a portion of his or her commission with a selling agent. So even though the selling agent is being technically paid from the listing agent’s commission at most closings, it appears on the closing statement that the seller is paying both the selling agent and listing agent separately. In rare circumstances, a buyer would hire a “buyer’s agent,” who generally acts in the same manner as the selling agent, but is instead paid directly by the buyer at the closing, with the listing agent receiving the full real estate commission from the seller without making any payment to the buyer’s agent.

     Traditionally, the amount of the real estate commission has been 6%. With both a listing agent and selling agent involved, each agent would receive one half of the commission, or 3%. Each realtor would then share a portion of that 3% commission with the broker (realtors in Florida cannot earn a commission, only licensed brokers). Generally, the split between realtor and broker is determined by the realtor’s independent contract with the broker, and varies from a 60/40% split for newer realtors, to a 90/10% split in favor of very experienced, successful realtors.  If the listing agent is also acting as the selling agent, the realtor will keep all 6% of the commission.

     The amount of the commission is determined at the time the seller enters into the listing agreement with the realtor. Some realtors are willing to negotiate the commission, but many will not, especially those who are very successful. One common reduced commission scheme is known as the 5/2/1 commission. With that type of listing, should the property be sold by the listing agent with the involvement of a selling agent, the total commission paid would be 5%, with the listing agent receiving 2% and the selling agent receiving 3%.  If the listing agent sells the house without a selling agent, the listing agent receives 2%, and if the seller sells the home to a buyer without involving the realtor, than the listing agent receives only 1%.  Keep in mind that the commission is what motivates the realtor to sell your property, and the best agents generally earn their 3- to 6% commission.

     Many people believe they can buy or sell a home without a realtor. As someone who has been in this business for over thirty years, it is my experience that in most cases you will still get the highest price only if you work with the realtor, and will find more homes as a buyer only when you work with a realtor. Working with a realtor who is familiar with your area (known as a realtor who farms an area) can get you inside information about communities, homes that have not been listed but may be for sale, and affiliates who can provide title, surveys, inspections, loans and other tools necessary when buying and selling homes. That is why, even though I could easily buy and sell property myself, I still work with a realtor when I sell and purchase.  If you do your homework and find the right realtor, you should have success whether you are selling or purchasing a home.

Michael J Posner, Esq., is a partner in Ward, Damon, Posner, Pheterson & Bleau a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  They specialize in real estate law and business law, and can assist buyers and sellers in loans and purchases/sales.  They can be reached at 561.594.1452 or by e-mail at mjposner@warddamon.com

Unlicensed Practice of Law (Realtors and CAMS)

       Realtors and Community Association Managers provide valuable real estate services to sellers and buyers of real estate, as well as managing homeowners and condominium associations respectively.  However, in providing their respective services, they frequently have issues that have substantial legal ramifications in connection therewith and, in providing advice and opinions on same, run the risk of being accused of the unlicensed practice of law. Knowing what is permitted and what requires specific use of a licensed attorney is important for both Realtors and Community Association Managers.

          For Realtors there is a substantial dichotomy between drafting contracts and drafting leases. The Florida Supreme Court held in 1950 in the case of Keyes Co. v. Dade County Bar Association that the drafting of the real estate contract by a licensed realtor who was a party to the transaction did not constitute the unlicensed practice of law. In 1992 the Supreme Court was asked if the drafting of a lease constituted the unlicensed practice of law and while the Supreme Court declined to specifically state so, they did adopt a formal lease which appears to restrict drafting of leases by Realtors without legal counsel except by utilizing the Florida Supreme Court approved forms.

          Notwithstanding the right to draft contracts, Realtors can cross the line when they modify preapproved forms adopted by the Florida Realtors Association or the Florida Bar. In addition, the drafting of a substantive addendum to said form contracts can also lead to a claim of unlicensed practice of law. Realtors should err on the side of caution and avoid making any material, substantive changes to the form contract or an addendum unless aided by a licensed attorney.  Further, other than filling in the blanks on the Florida Supreme Court approved lease forms Realtors should not make any changes to the approved lease or utilize any other form lease unless done by a licensed attorney.

          In 1996, the Florida Supreme Court issued an opinion regarding the activities of Community Association Managers.  That opinion specifically set forth a number of areas in which the activities of a Community Association Manager would constitute the unlicensed practice of law. These activities included drafting of a Claim of Lien, preparing a Notice of Commencement, determining the timing, method and form for giving notices of meetings, determining the amount of votes necessary to approve any changes to the governing documents, and advising on the application of any statute or rule.

That opinion resulted in some confusion, and the Florida Bar Real Property, Probate and Trust Section (FRPTL) petitioned the Supreme Court to clarify that opinion regarding the areas or activities which, if completed solely by a Community Association Manager, would constitute the unlicensed practice of law. The Florida Supreme Court confirmed the 1996 opinion and further adopted the FRPTL proposed Advisory Opinion in its entirety.

This opinion expanded the 1996 ruling and clarified by listing fourteen activities, which, if conducted by a Community Association Manager, would constitute the unlicensed practice of law.  These include:

1.       The preparation of a certificate of assessment due once the matter is in collection with the Association’s attorney, after a foreclosure action has been filed or if a member of the Association has sent written notice disputing the assessed amount.

2.       Drafting amendments to the constituent documents of an association.

3.       Determining the number of days required for any statutory notice.

4.       Modifying the state approve limited proxy form.

5.       Preparing any documents in connection with the approval of new members to any Association.

6.       Determining the number of votes necessary to pass an amendment to the constituent documents or the number of people necessary to establish a quorum.

7.       Preparing pre-arbitration demand letters, construction lien documents, construction or management contracts.

8.       Reviewing contracts on behalf of the Association.

9.       Determining through an examination of title parties to receive notice from the Association.

10.     Any activity that requires statutory or case law analysis to reach a legal conclusion.

While these new rules do not greatly expand the limitations on the activities of Community Association Managers, they do clarify what limitations exist. However, in many cases, due to the original vagueness of the Florida Supreme Court opinion, it was not clear what activities would constitute the unlicensed practice of law. With the new opinion, community Association Managers have a clearer understanding of what they can and cannot do with regard to the enumerated items. Based on this new decision, it is clear that Community Association Managers will need to consult with an association’s attorney on a much more frequent basis in order to avoid a violation of this latest decision.

Even merely ministerial functions can be deemed to have crossed the line of what is illegal activity. Rather than make that determination for themselves Community Association Managers will be forced to seek legal counsel regarding such activities, potentially resulting in additional fees and costs for associations. 

          Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  They specialize in real estate and can assist Realtors and Community Association Managers in all legal matters.  They can be reached at 561.594.1452, or at mjposner@warddamon.com

Links:  Various Cases

Supreme Court Opinion on CAMS

Disclosure of Defects in Residential Sales

     Prior to 1985, Florida subscribed to the legal theory of caveat emptor in connection with the sale of real property, either residential or commercial. However, the law changed as a result of the case of Johnson v. Davis.  In that case, Davis entered into a purchase contract to purchase the Johnson’s home. The contract allowed them to make a full inspection of the home.  Prior to making the second deposit, Davis discovered some peeling plaster around the corner of one window. When asked, Johnson advised that they “had had a minor problem that had long since been corrected and that the stains were wallpaper glue and the result of ceiling beams being moved.” 

    

     Relying on that statement, Davis paid the additional deposit and Johnson moved out. Thereafter, Davis entered the home after heavy rain, and discovered water gushing from the window and the roof. Roofers were brought in by both the seller and buyer and a dispute arose as to whether the roof could be fixed or was fatally defective.  Davis sued, alleging breach of contract, fraud and misrepresentation. Johnson counterclaimed seeking the deposit. At trial, the court awarded the initial $5,000 deposit to Johnson, gave the second deposit back to Davis and awarded no attorney’s fees.

    

     Both sides appealed, and the appellate court affirmed the return of the second deposit to the Davis, but reversed as to the first deposit, ordering same to be returned to the Davis and that Davis be paid attorney’s fees. This decision was appealed to the Florida Supreme Court.  The court concluded that Johnson knew that the roof was defective and their failure to disclose a material fact of a latent defect that they had full knowledge of entitled Davis to rescind the contract.  The court went on to add, “The doctrine of caveat emptor does not exempt a seller from responsibility for the statements and representations which he makes to induce the buyer to act, when under the circumstances these amount to fraud in the legal sense.”

    

     Since that decision, sellers have been obligated to disclose all material facts which affect the value of the property.  In fact, the most common contract used in South Florida specifically states: “Seller knows of no facts materially affecting the value of the Real Property which are not readily observable and which have not been disclosed to Buyer.”

    

     Since the Johnson v. Davis decision, the issue of actual knowledge has become a bone of contention. For years it was not clear whether knowledge meant “should have known” or actual knowledge. Under the theory of should have known, sellers could not put their head in the sand and ignore latent defects. However, recent case law indicates that actual knowledge is necessary in order to impose liability under the Johnson v. Davis standard.

    

     In Jensen v. Bailey, a 2011 case, Bailey sued two years after closing claiming that substantial improvements were done without permits.  Prior to closing, Jensen had completed a disclosure statement which specifically stated, “NO” to the following question of whether they were aware, “of any improvements or additions to the property, whether by you or by others, that have been constructed in violation of building codes or without necessary permits?"

    

     After closing, Bailey discovered that the French Doors installed by Jensen was done without a permit, and further, that the work was not done properly. The trial court accepted the fact that Jensen was not aware of the lack of a permit, but still imposed liability under the Johnson v. Davis standard, and awarded damages, interest and attorney’s fees. In reversing the trial court the District Court found that to recover four elements must exist:  “(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.” In the Jensen case, it was clear that three of the elements applied, but that knowledge was required to be actual and not the “should have known” standard. Since the trial court had accepted that Jensen was not actually aware of the lack of permits she could not be held liable for failing to disclose the lack of permits.

    

     The most recent case on this issue is Eiman v. Sullivan.  In that 2015 case, Eiman sold a piece of vacant land to Sullivan based on an “As-Is” vacant land contract. After closing Sullivan discovered that the property “contained a substantial amount of wetlands, swamp lands and/or low lying areas that had been filled-in by Eiman, or by persons working on Eiman’s behalf, and that a layer of muck existed below the fill dirt which would either prohibit the construction of their home or significantly and materially increase the cost for same.”  The trial court agreed with Sullivan and awarded damages in the amount of $65,000.00.  On appeal, Sullivan sought to show that Eiman knew or could have had actual knowledge of the defect by their actions of removing certain trees and their familiarity with the property. However, the appellate court found that there was no evidence that Eiman had actual knowledge of the alleged defect and this lack of this actual knowledge, proven at trial, was fatal to the Sullivan’s case. The decision was reversed and no damages were awarded to Sullivan.

    

     There are two lessons to be learned from the preceding cases. First, perform good due diligence when buying property by hiring appropriate experts to determine the condition of the property as well as the status of all permits (or lack of permits) for any improvements. The second is to ask the right questions and to obtain proper written disclosures from your seller so that if there are latent defects of which they are aware you have a record of whether they disclose same.

    

     Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  They specialize in real estate law and business law, and can assist buyers and sellers in loans and purchases/sales.  They can be reached at 561.594.1452 or by e-mail at mjposner@warddamon.com

    

     

Homestead and Trusts

     Revocable Trusts are a common estate planning tool and can be effective in assisting in avoiding probate if properly created and funded.  However, not everyone needs a revocable trust and certain issues can arise if a homestead property is placed as a trust asset.  Homestead in Florida is a unique legal doctrine, and it is enshrined in the Florida Constitution under Article X, Section 4.

     As it relates to estates and probate, the Florida Constitution states that: "The homestead shall not be subject to devise if the owner is survived by spouse or minor child, except the homestead may be devised to the owner’s spouse if there be no minor child."  Florida statutes provide further restrictions on the descent of constitutionally protected homestead property.  Under Florida Statute Section 732.401(1) it provides:

If not devised as authorized by law and the constitution, the homestead shall descend in the same manner as other intestate property; but if the decedent is survived by a spouse and one or more descendants, the surviving spouse shall take a life estate in the homestead, with a vested remainder to the descendants in being at the time of the decedent’s death per stirpes.

     This means that regardless of what any will or trust states, the homestead property is restricted from sale or transfer upon death of any owner. This issue can affect the best laid estate plans, especially in second or third marriages where long held property owned by one spouse in a carefully setup trust can be removed from a trust based estate plan by the act of marriage and moving into the subject home with a new spouse.

     This issue was recently the subject of a bitter battle between a widow and her deceased husband's two children from a previous marriage.  The case of Aronson v. Aronson resulted in two separate appeals and provides a cautionary tale for proper estate planning amidst a second marriage, step-children, a revocable trust, a condo in Florida owned pre-marriage and a retirement to Florida.

     The facts of the Aronson case are simple.  Mr. Aronson, while living outside of Florida, transferred his solely owned Florida condo to his own revocable trust.  The trust provided that upon his death, all of his assets would transfer to his wife, for life, with the remainder to his two children from a previous marriage.  In 2000, the couple sold the out of state residence (owned solely by the wife), and she used over $100,000.00 from the sale to satisfy the existing mortgage on the Florida condominium. They then moved into the Florida condominium as their permanent residence.

     The first mistake, which eventually led to the first appeal, was when Mr. Aronson individually tried to convey the condominium to his wife in 1997, even though he had already transferred the property to his trust.  The Appeal Court ruled that even though it was his revocable trust, the deed by him individually was a nullity and did not convey any title.  This issue could have easily been corrected by either having him convey from the trust, or, convey to himself first from the trust, then convey directly to his spouse.

     Mr. Aronson died in 2001, and the sole asset of the trust at his death was his homestead property in Florida where he resided with his wife.  The trust provided, in addition to giving the wife a life estate in all assets, that she retained the yearly right to withdraw from the trust “the greater of Five Thousand ($5,000.00) Dollars or five (5%) per cent of the market value of the principal of this Trust”

     After her loss in the first appeal, Ms. Aronson began making demands on the successor trustees (her step-children) for the annual trust payment, for reimbursement of the funds she paid to satisfy the mortgage on the condominium and for taxes and assessments due on the condominium, claiming that these were all obligation of the property owner (the Trust).  Instead the successor trustees sought to sell the condominium to satisfy the Trust’s obligations to their step-mother, with the remaining funds distributed to themselves as beneficiaries.

     At trial, Ms. Aronson said that the property was her constitutionally protected homestead and therefore could not be devised by the successor trustees, even though the trust gave them that power.  In addition, the trial court awarded her all of the requested reimbursements, plus the power to demand a five percent interest in the title to the condominium unit each year beyond her life estate.

     The Third District Court of Appeals reversed the trial court and found that while the property was homestead, it passed by law outside of the trust, and title vested in Ms. Aronson for life and the remainder passed to his two children.  The Trust’s interest in the homestead property ended upon Mr. Aronson’s death.  Further, since the trust no longer had any interest in the property, the obligation for all expenses remained with the surviving wife, as life tenant.  As the trust had no other assets, the reimbursement for the annual payment was void, and the money Ms. Aronson paid to satisfy the mortgage was also not reimbursable, because even though she paid due to a mistaken belief the property was hers, Florida law did not provide for reimbursement from the two children as remaindermen.

         

     The moral of this story is to properly plan for distribution of property and to uses trusts with homestead property carefully. If special distribution plans are needed for homestead property, it may be better to avoid using a trust and to properly convey the property under the guidance of a knowledgeable estate planning expert.

Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  They specialize in real estate and estate planning, and can assist with trust and estate planning including homestead issues.  They can be reached at 561.594.1452 or by e-mail at mjposner@warddamon.com   

Social Media and Leasing

     The Internet and Social Media has become a very powerful tool for people in determining where to eat, vacation, shop, purchase and live.  Many small businesses can be permanently harmed by bad reviews posted on one of the many popular sites such as Yelp!, Trip Advisor or Facebook.  These reviews can been seen by millions of consumers which is a phenomenon that simply did not exist twenty years ago.

    To combat the effect of negative reviews, an apartment complex in Orlando included a Social Media Addendum in their lease package for execution by new tenants.  The Addendum’s preamble is reasonable, stating that “unjustified and defamatory reviews…can cripple a business by creating a false impression in the eyes of consumers.” 

    The Addendum then sets forth a prohibition against any negative reviews, stating, “Applicant will refrain from directly or indirectly publishing or airing negative commentary regarding the Unit…”  To clarify its position, the Addendum states further that “Applicant shall not post negative commentary or reviews on Yelp!, Apartment Ratings, Facebook, or any other website or Internet-based publication or blog.”  Instead of discouraging defamation through reviews, the Landlord, in the Addendum, was attempting to stifle all negative reviews by making it a breach of the lease if a negative review was posted, even if factually accurate.  Even the determination of what was a negative review was subjective, making the Landlord the sole arbiter of negativity, “Owner shall make the determination of whether such commentary is harmful in Owner's sole discretion.”

    In most lease contexts, a breach of a lease term provides the party with the right to terminate the lease and possibly actual damages incurred as a result of the breach.  Instead, the Social Media Addendum provides for a liquidated damages clause upon posting of any negative review of “$10,000.00 for the first such breach, and an additional $5,000.00 for each subsequent breach…owed to Owner within ten (10) business days of the breach.”  To add pressure, if a roommate writes the negative review, the liability extends to all tenants, as the Addendum provides that “the Applicants shall be jointly and severally liable to pay Owner liquidated damages…”

    Finally, the Landlord attempted to claim ownership of “any and all rights, including all rights of copyright as set forth in the United States Copyright Act, in any and all written or photographic works regarding the Owner, the Unit, the property, or the apartments.”  This is clearly an overreach and unlikely to be enforceable. The purpose of this claim is to be able to indicate to any website owner who is hosting written documents, pictures, or videos of the apartment complex that the landlord owns all copyright in the works and has the legal right to have such works removed from any website. Many websites, regardless of whether this provision is enforceable, would likely act and remove such items to avoid future claims.

    After the addendum became known to the public, the apartment complex stated that it would no longer use the addendum and that it would not attempt to enforce same against its current tenants. While the goals of the apartment complex were misplaced, there are things a landlord can do to at least protect themselves from certain actions taken by tenants with regard to social media.

     First, a landlord can agree with the tenant to make the terms and conditions of their lease confidential. The main reason for this is to prevent others from knowing the specifics of any lease transaction which may affect negotiations for other units with in an apartment complex.

     Second, landlords can enforce, against any tenant or third-party, defamatory or libelous statements which are not based on fact. While truth is usually a strong defense to any online social media posting, subjective opinion or outright falsehoods can be actionable, resulting in a claim against the tenant should a court determine that the facts are false contained in any such online posting or that the opinions go far beyond the underlying facts such that the intent is not to explain the facts but to harm or punish the landlord.

     Third, while probably not fully enforceable, landlords should always seek a mechanism to resolve issues and disputes prior to a tenant making online postings which could damage the ability of the landlord to lease in the future. For example, a clause could be added to a lease that states, “Tenant agrees, before posting any negative reviews, pictures or information on any website or social media site about the landlord or the premises, to give the landlord ten days’ written notice of the underlying issues and if the landlord timely corrects the issue, tenant agrees not to post or disclose the negative matter on any website or social media site.”  Such clause would not prevent a subsequent posting by a tenant, but may discourage such action, especially if landlords are proactive in addressing tenant concerns.

    Finally, rewarding positive reviews is always permissible and should be encouraged by landlords.  For example, landlords can give discount coupons to tenants who post positive reviews on applicable social media websites. The tenants should be encouraged to give honest and factual opinions as part of any such program. Encouraging positive reviews and addressing negative issues before they lead to negative reviews is always the best weapon a landlord can have in promoting social media growth of their leased premises project to the world.

Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  They specialize in real estate and business law, and can assist landlord and tenants in leasing, evictions and negative reviews.  They can be reached at 561.594.1452 or by e-mail at mjposner@warddamon.com

(In)Famous Houses

     In a previous column I mentioned the story of the Amityville, New York house, the scene of a gruesome family murder that was sold, led to claimed paranormal activity, movies, books and more sequels, all detailing the house’s sordid past and its alleged possession.  That house has been occupied and sold repeatedly despite its infamy, and without further incident. 

    Other famous or infamous houses face similar problems.  The house used in the Brady Bunch is a real home in Studio City, California.  The real house, built in 1959, was a one story, typical middle class home.  A false second story façade was added for exterior shots and the home was frequently shown during the show’s run and many subsequent movies.  Tourists continue to flock to the home, despite many years of change and the installation of a privacy fence.  Simply google “the brady bunch house” and you will get 23,100 hits, including a www.zillow.com listing at http://tinyurl.com/4yfmj33. Given the notoriety, any listing would have to disclose this to prospective buyers.

   Another infamous house was the home leased to the Heaven’s Gate cult that committed mass suicide in the 9,200 square foot mansion in March, 1997.  The notoriety and required disclosure drove the value of the home down from over $1.2 million to less than $700,000.00.  Eventually, due to so many onlookers and no buyers, the neighbors bought the house, changed the street name and tore down the house, to protect their community.  Apparently, a street name change with a slightly different address has solved the issue, as it appears that a multi-million dollar mansion is now located on the same property.

   One house affected by its notoriety is the Highland Park home of Cameron, Ferris’ best pal in the movie, Ferris Bueller’s Day Off, and the scene of the infamous Ferrari car kill.  Originally listed for $2.3 million in 2009 with hopes that the film’s tie-in added value, it languished on the market for years despite a unique and historic architectural design.  The home finally sold after five years on the market for less than $1.1 million.  One factor that drove down the price was the constant presence of curious tourists, including some who trespassed to get a closer look.  Zillow does not even mention the film in its listing at http://tinyurl.com/lmc9dg.

   The owners of the home in the movies Home Alone and Home Alone 2 put a large “Private Property – Stop” no trespassing sign right on their front lawn to stop the constant flow of trespassing tourists.  Despite the sign, tourist intrusion is a fact of life for this famous house.  Selling for $1.6 million in 2012, the home may not have suffered as much from the notoriety as some other famous houses, as Zillow still describes the home (http://tinyurl.com/ygwbdfq) as, “the quintessential family home, as depicted in ‘Home Alone,’ filmed here 20 yrs ago.”

   An allegedly haunted house was the subject of a legal challenge of rescission when a buyer, after signing a contract, discovered the history of the home as “haunted.” Prior to the sale, the former owner had a deep knowledge of the home’s alleged haunted past. The owner had even written an article that was published in the 1977 Reader’s Digest, “Our Haunted House on the Hudson.”  Prior to signing the contract, neither the seller who wrote the article, nor the listing agent, disclosed the haunted history to the buyer.

  The buyer, unaware of the history at the time of the sales contract, became concerned about the ghostly facts prior to closing and refused to close.  The $32,500.00 deposit was retained by the seller for the buyer’s failure to close, and the buyer’s lawsuit was initially dismissed. The buyer appealed the dismissal and won on his claim for rescission. The appellate decision that followed is full of interesting and ghostly puns and can be found here: http://tinyurl.com/yzdcr6n.

  The appellate court held that the Reader’s Digest article, in which the seller claimed the house was, in fact, haunted, rendered it haunted as a matter of law, whether or not it actually housed poltergeists. The court further held, as a result, that rescission was appropriate under those circumstances, despite New York’s then adherence to the legal rule of Caveat Emptor, or “buyer beware.” 

  Further, the court rejected the buyer’s additional claim of fraud, which sought damages against both the seller and broker, based on allegations that both parties had a duty to disclose the haunting. The court reiterated the general rule that neither party had a duty to disclose those facts. As a result, the court held that the buyer was entitled to rescission, return of the deposit and nothing more.  Under Florida law, the opposite would have been true as to the fraud claim.  Since 1985, the law in Florida is no longer Caveat Emptor, requiring sellers and brokers to reveal all material facts that affect the value of a home for sale.

   In hindsight, the buyer of the haunted house may have made a financial mistake.  The lovely home in Nyack, New York was sold for over $1.7 million in 2012, nearly triple what he would have paid in 1990.  Because of possible issue underlying any home, the best advice to buyers on any home purchase is to ask questions and research any home thoroughly before buying lest something unwanted be discovered.

Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  They specialize in real estate and business law, and can assist buyers and sellers in loans and purchases/sales.  They can be reached at 561.594.1452 or by e-mail at mjposner@warddamon.com

Real Estate in the Movies

       With the Maltz Theater bringing back Glengarry Glen Ross, I thought this would be a good time to look at how various real estate issues are portrayed in cinema.  From bad salesmen, bad spouses, and bad ghosts, real estate has been a good issue as a backdrop to explore the relationship between individuals, from greed, envy and fear.

Glengarry Glen Ross

A classic Mamet play turned into an acclaimed picture, Glengarry Glen Ross tells the story of several real estate salesmen trying to keep their jobs in the seamy side of out of state land sales, cold calls and commission based sales.  The name of the game is quality leads, those people who have expressed an interest in buying a timeshare, beach front land or a mountain or lake lot.

     To motivate his employees, the owners of the office send in a foul mouthed consultant played by Alec Baldwin, who motivates the salesman with the classic line, "As you all know first prize is a Cadillac El Dorado. Anyone wanna see second prize? Second prize is a set of steak knives. Third prize is you're fired."  An all-star cast includes Jack Lemmon, as a washed out salesman, Kevin Spacey as the office manager who holds the keys to the best leads, Ed Harris, Alan Arkin and Al Pacino, the top closer, round out the cast.

    The techniques used in the movie to sell the land are still used today.  ABC, "always be closing" is a key technique to sell what most rational people would deem worthless property by finding a buyer’s weakness and appealing to buyer's vanity, greed, sexuality and the like.  These sales pitches, with come-ons like a free week-end, glossy brochures, or dream vacation spot that is available today only are almost always an exaggeration, designed to convince people, on an emotional level, to part with their money.  Always research carefully and consult with an objective professional before any real estate investment is the key to not making a bad deal you will later regret.

The Money Pit

Buying a home as-is is very common in Florida real estate.  Essentially the buyer relies on two things, the duty of a seller to disclose material facts about a home that affect value (such as a leaky roof, electrical problems, broken pumps, etc.) and the home inspection which is supposed to detect most patent defects.  In The Money Pit, two urban yuppies have an opportunity to buy a “valuable home” on the cheap, with a seller claiming desperation and need for a quick sale. After a quick tour with the owner, who has hidden numerous defects, they rush and buy the home without any professional inspection, only to find it needs hundreds of thousands in repair.

The film starred Tom Hanks and Shelly Long as the couple who buy the disaster and then watch as the multi-month long repair process, with pricey contractors, sanctimonious inspectors and an ex-boyfriend drive them apart.  Since they were not married, their split could have had substantial legal consequences, but like most movies, they reconcile at the end, to provide us with the requisite happy ending.

As they say, if it is too good to be true, it probably is, and rushing to buy a home without proper seller disclosure and a professional inspection can leave you with your own money pit. 

The War of the Roses

     It is often said that marriage is grand but divorce is $100,000 grand.  In The War of the Roses, the battleground is over the ownership of a house between a divorcing couple played by Michael Douglas and Kathleen Turner.  During their marriage, they purchase an old mansion, which Turner spends years improving until it is near perfect.  At that point, with the house remodeling distraction over she realizes she despises Douglas, and demands a divorce, with a further demand she keep the house because she made it what it is, despite his funds paying for the improvements.

     Instead of agreeing, or selling the house, they commence a war, escalating when Douglas, after being thrown out, manages to move back in to the very house in dispute, escalating the war, as the two continue to battle, destroying the house in the process.  Eventually, there fight leaves them hanging from a chandelier, which due to the weight crashes down and kills them both. 

     Since neither would agree to allow the other to keep the house, the only legal recourse should have been a partition, where a court orders the sale of indivisible property (like a single family home).  Either one could bid, with the sale proceeds being split equally.  This simple process would have spared their lives, and allowed the one willing to pay the most to keep the house.  Or better yet, sign a pre-nuptial agreement deciding in advance who gets what if the end of the marriage occurs.

The Amityville Horror

     A classic horror tale based on alleged real world events.  In 1975, Ronald DeFeo, Jr. murdered his entire six member family in their home.  The house remained vacant for over a year, and was then purchased for a bargain price by the Lutz family.  Fulfilling her duty to disclose material facts that affect value, the Real Estate Broker disclosed the murders.  The Lutz' moved in anyway and claimed they had to leave a month later due to claimed paranormal activity.  They sold the rights to their experiences which led to a book, and twelve (yes, twelve) films, including the original 1979 version starring James Brolin and a 2005 remake with Ryan Reynolds.

    The duty to disclose deaths, suicides and murders in homes is always a tricky issue.  Generally isolated events of a non-heinous nature do not require disclosure if the disclosure would not affect the value as determined by a reasonable person.  A mass murder as described in the movie less than two years ago does qualify as a must disclose issue.  Florida law even protects sellers and realtors from having to make a disclosure, and buyers have no cause of action to sue “for the failure to disclose to the transferee that the property was or was suspected to have been the site of a homicide, suicide, or death or that an occupant of that property was infected with human immunodeficiency virus or diagnosed with acquired immune deficiency syndrome.” F.S. §689.25.

Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  They specialize in real estate law and business law, and can assist buyers and sellers in loans and purchases/sales.  They can be reached at 561.594.1452 or by e-mail at mjposner@warddamon.com

The State of Real Estate 2015

     Mortgage Debt Relief Act:  This law was passed to aide homeowners whose mortgage loans were satisfied by foreclosure or short sale, with the remaining balance owed forgiven by their lenders.  Prior to enactment, any debt forgiven by a lender was taxable as income to the former borrower unless they had been discharged in bankruptcy or were legally insolvent.  For example, a $250,000.00 loan satisfied by a $150,000.00 short sale would have resulted in $100,000.00 in forgiven indebtedness.  If treated as income, a tax of nearly $20,000.00 could be due. 

    This law expired December 31, 2013, but just last month the law was passed extending the exemption retroactively from January 1, 2014 to December 31, 2014. Therefore any applicable debt forgiven in 2014 will still be exempt from taxation.  However attempts to extend the law for two years failed, so currently any debt forgiveness after December 31, 2014 would again be taxable.

     Protecting Tenants at Foreclosure Act:  This law was passed to give bone fide tenants up to ninety days after foreclosure sale to retain possession of their rental home as long as the tenant paid fair market rent to the party who acquired the property at foreclosure sale.  Due to the foreclosure crisis many tenants became displaced after foreclosure with little notice or understanding.  However, this law expired December 31, 2014, and it is unlikely that the law will be reinstated.

   With the law now expired, tenants have no extra protection post sale.  In Florida, most foreclosure judgments provide for virtually immediate possession after sale and issuance of a certificate of title.  All that is necessary is for the Clerk of Court to issue a writ of possession, and the sheriff to post at the property, leaving tenants with only twenty-four hours' notice to vacate.

     Foreclosures:  Florida continues to lead the nation in foreclosures, with 1 in every 546 homes in the state in foreclosure according to RealtyTrac, with Palm Beach slightly better at 1 in 599 homes and Broward slightly worse at 1 in 520 homes.  The good news is that the number of homes in foreclosure has declined nearly twenty-five percent and the trend is further downward, but there are still a lot of clean-up foreclosures either pending or nearly ready to be refiled.

     Statute of Limitations:  Many foreclosures were filed in 2006-2009 and were ultimately dismissed for a variety of reasons.  After five years the cases were refiled by the lender, or an Association or subsequent owner has sued to quiet title.  The issue in these cases is whether Florida's five year statute of limitations applies.  If it does, the note and mortgage disappear, giving the property free and clear to the then property owner (usually a successor or Association).

          Two Florida Appellate Courts have rejected this argument, and held that the loans were still valid, only the payments more than five years old were lost.  This preserved the lien of the mortgage and allowed the lender to complete its foreclosure.  However, in two recent decisions the Third District Court of Appeal has reached a different conclusion, finding that in certain circumstances, after five years, the loan expires (even if the lien of the mortgage remains valid).  This has created a conflict in the law, and ultimately will have to be decided by the Florida Supreme Court.

      Home Values:  2014 was another good year for Florida home values, with zillow.com finding that there was a 10.6% rise in 2014.  They are also predicting a slower rise on 2015 of 2.3%.  However, Palm Beach and Broward Counties both fell about 1% from 2013.  Sales also fell in Broward County by about 6% with sales up by 9% in Palm Beach County.  What had been a low price seller's market has stabilized with higher prices and a better balance between supply and demand.

      Interest rates remain steady, with 30 year fixed rate loans hovering around 4%, with 15 year loans one point lower.  Adjustable Rate 5/1 Loans are even lower with rates of about 2.75% fixed for five years. 

      While obtaining loans remains an issue due to credit and income restrictions, recent changes by FNMA and Freddie Mac has resulted in an expansion of low down payment loans (3%) which benefits lower income and first time home buyers.  In addition, President Obama announced that the FHA will lower mortgage insurance premiums by one-half percent, saving homeowners nearly $900 annually.  These programs, coupled with historically low rates, should help sustain the real estate market this year and possibly encourage new buyers into the market.

Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  They specialize in real estate law and business law, and can assist buyers and sellers in loans and purchases/sales.  They can be reached at 561.594.1452 or by e-mail at mjposner@warddamon.com