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

Cohabitation and Real Estate (a primer for gay and straight non-married couples who own or want to buy Real Estate)

          In Florida, there are three recognized states of real property ownership. First is Tenants in Common in which each party owns a distinct interest of the real estate, generally 50-50 if equally shared but ownership can be in any percentage or multiple percentages if there are more than two owners.  If the deed is silent on the percentage of ownership, the shares are always deemed as equal. Upon the death of anyone owner, the interest of that deceased owner passes to that owner’s heirs at law. 

          The second estate is called Joint Tenancy, in which each owner owns the entire estate together and is distinct from Tenants in Common. If properly created, the interest of a deceased owner passes to the surviving joint tenant.  In Florida, because a simple joint tenancy is deemed to create a tenants in common relationship it is crucial that the deed state “joint tenants with full rights of survivorship and not tenants in common” to make sure the intent of the parties at the time of creating the estate is met.  Creditors of one of the joint tenants can lien and attach the joint tenant’s ownership interest, and upon foreclosure the purchaser of the property at the foreclosure sale becomes a tenant in common with the other owner, breaking the joint tenancy.

          The third estate is called Tenants by the Entireties and is reserved to married couples in the state of Florida.   In addition to having a survivorship benefit like a joint tenancy, the Tenants by the Entireties estate also prevents the creditors of one owner from reaching the interest held by the other owner.

          Under current Florida law, gay marriage is not recognized, and therefore gay couples who are legally married in other states cannot take advantage of this type of estate.  At the beginning of next year, the legal stay currently in effect regarding gay marriage will expire and it is possible that marriage certificates will be issued to gay couples while the case challenging the Florida constitutional prohibition on gay marriage is appealed. It would appear that if a gay couple obtains a marriage certificate then they will also be eligible to hold real property as Tenants by the Entireties.

          Under Florida real property law simply stating “husband-and-wife” or “his/her spouse” after the grantee’s name in any deed creates the Tenants by the Entireties estate.  No case has addressed whether stating “husband and husband” or “wife and wife” will be sufficient to create the desired estate. Therefore it is recommended the any deeds delivered to a gay married couple state with specificity the intent to create the Tenants by the Entireties estate. In addition, due to the uncertainty of the law, I would recommend also adding the following to any deed created while the gay marriage ban is appealed: “In the event it is determined that the Florida constitutional ban on gay marriage is constitutional, and the marital status of the grantees hereunder is voided, is the intent of the parties to create a joint tenancy with full rights of survivorship and not tenants in common.”  Otherwise, if the estate is not created properly, the estate would revert to Tenants in Common which would not effectuate the right of survivorship that most couples desire.

          Please also note that to create joint tenant estate or the tenant by the entireties estate certain elements must exist at the time of the conveyance as follows:

          1.       The owners must acquire the property at the same time;

          2.       The owners must have the same title to the property;

          3.       The owners must have an equal share in the property; and

          4.       The owners must have equal right to possession of the property.

          Therefore, even if a gay couple currently owns Florida property jointly with their significant other, or were married in another state, the fact that the ban on gay marriage may become unconstitutional does not automatically create the Tenants by the Entireties estate. This also applies to couples who acquired property together before marriage and then thereafter became married, or who, prior to marriage, only held title in one of the spouse’s names.

          In order to rectify the situation, it will be necessary for the owners to reconvey the property to themselves with the proper vesting language.  For example, if Mary and Jane Smith acquired property in 2005 as joint tenants with right of survivorship, and legally become married in Florida after January 2015 they would have to execute a new deed to themselves conveying the property and asserting the creation of the Tenants by the Entireties estate. If only Mary Smith owned the property prior to the legal marriage, she would have to convey the property to both herself and Jane Smith to create the estate, and, if the property was there homestead, Jane Smith would have to join in the deed as the spouse of Mary Smith to clear her Homestead interest.

          Many unmarried couples whether gay or not, who later become married, will find out the hard way that that deed which conveyed title to their property did not result in the survivor owning the property after their co-owners demise, but instead allowed the heirs of the deceased spouse to inherit. If you own property with another person which was acquired before marriage, you should take action to ensure that your interests are protected and that your intent to provide for survivorship is legally enacted.

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 owners in drafting deeds and trusts to insure proper transfer of assets.  They can be reached at 561.594.1452, or at mjposner@warddamon.com

E-Recording: a Curse and a Blessing

          For years, clerks of courts, lenders and Realtors^® have talked about e-execution and e-recording, heralding the move from paper to purely electronic forms, but for the most part the industry has resisted, with many concerns regarding security, validity and fraud.  Tests have been held, a few loans closed with electronic signatures, but for the most part closings are done the same way as always, a closing agent prepares and prints the seller and buyer documents and the bank prepares the much larger paper loan package.  In fact, the only nod to modernity is that instead of mailing or overnighting the 50 to 100 page loan package, printed at the lender’s expense; it is now sent electronically to the closing agent so they can print at their expense.

          Well another milestone has been reached as Palm Beach County has joined most other Florida clerks in moving toward e-recording.  Traditional recording required bringing the original document to the Clerk of Court who would stamp the document with a Clerk’s File Number and an Official Records Book and Page Number, then review the document, enter the pertinent information into the Clerk’s grantor grantee index, scan (or in the old days, photograph for microfilm or microfiche), place online for viewing (except documents deemed impermissible for online viewing such as custody and divorce documents), and then mail back the originals to the party listed on the document.

          Under the new system, a registered title company, attorney or closing agent will log in to their online account with a private approved vendor, fill out the grantor grantee index, scan the original document to be recorded, and upload the document to the vendor who will then transmit the document to the Clerk to be recorded.  The Clerk’s office will review the incoming documents, and then record same in the Public Records.  Unless the Clerk’s office is diligent in reviewing the uploads, I expect far more index errors arising, as untrained processors input party names with misspellings, backwards (first name last) or in the wrong location (buyers as sellers, etc.).  Without a proper index, the Clerk’s own database becomes useless as a tool for searching.

          The Palm Beach County Clerk’s office is touting this new system as both a money and time saver.  They claim documents will be recorded faster, that courier fees paid to deliver documents to the Clerk will be eliminated and that less fraud due to gap issues will be obtained.  The Clerk does not mention that they can also cut their budget by eliminating employees from their recording departments, but that is an issue for another day.

          While in theory these claims are true, in practice they may not always pan out.  First, while it is true that e-recording will eliminate courier fees, the cost is simply replaced with new private vendor recording fees of about $5.00 per document to record.  So to record a more complex closing with a deceased seller, the e-recording fee will likely exceed the average courier cost of about $19.00 to $25.00 for one file to simply deliver the same documents to the Clerk. In addition, for larger closing agents, sending ten closings in one day by courier will be far cheaper than e-filing fees. Of course, these new costs will simply be passed onto the buyer and seller.

          Gap issues have always been a risk that title companies assume.  It is the window between the last available title search and the recording of the instrument that is being insured, when a title problem, defect or fraud can occur without notice.  This window is usually five to ten days long depending on the county.  While the clerk may update their records to within a few days, title agents do not rely on the Clerk’s online database to search and examine title.  Instead, they use their title underwriter’s abstract plant to search and update title.  Therefore, the alleged recording speed (by a few hours, at most) will not reduce gap issues.

          Finally, we come to the million dollar question of original documents.  With e-recording, it will be possible for less than scrupulous closing agents to record copies of executed documents without possession of the original.  With time pressures to close, a closing agent waiting on the return of the originals may succumb and file a scanned copy to get the deal done.  If the originals are different or never arrive (or are never sent), how valid will these recorded documents be without proper verification.  This will likely lead too many cases being filed over disputed e-recorded “originals,” and more lost note/mortgage claims than ever before. 

          While I am all for technological advances, doing things just because we can is not always the best course, and touting systems without mentioning the risks and downside is always a dubious way to promote a new method of doing a traditional task.  I for one hope they are more right than wrong.

Michael 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 owners in buying and selling real property.  They can be reached at 561.594.1452 or by e-mail at mjposner@warddamon.com