Monthly Archives: June 2014

A title company gave me gift cards for referring my closings to them. Can I get in trouble for this? Is this legal?

In Florida, a real estate licensee may not receive a referral fee/kickback (or anything of value) for referring buyers to a title company.  There are several national and state laws that prohibit such kickbacks and proscribe hefty civil and criminal penalties for violations.  One of the most prevalent laws is the Real Estate Settlement Procedures Act (RESPA) (codified at Title 12, Chapter 27 of the United States Code, 12 U.S.C. §§2601-2617).

RESPA was enacted in 1974 to provide consumers with disclosures about closing costs and to prohibit kickbacks and referral fees.  RESPA covers transactions involving federally related mortgage loans (e.g., home purchase loans, refinances, lender approved assumptions, property improvement loans, equity lines of credit, reverse mortgages).  Certain transactions are not covered under RESPA, including: cash sales; sales where the individual home seller takes back the mortgage; and rental property transactions.

Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback, or anything of value in exchange for referrals of settlement service business.  A violation of this section can result in a civil or criminal case being filed against the real estate agent.  In a civil lawsuit, a person who violates Section 8 may be liable to the person charged for the settlement service in an amount equal to three times the amount of the charge paid for the service.  In a criminal case, a person who violates Section 8 may be fined up to $10,000 and imprisoned for up to one year.

Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale.  Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.

In addition to the Federal penalties, Florida law may also penalize real estate agents under these circumstances.  Pursuant to section 475.05, Florida Statutes, the Florida Real Estate Commission has the power to create rules, enact bylaws, and decide questions of practice regarding real estate agents.  One of the regulations enacted by FREC, pertaining to kickbacks, is Fla. Admin. Code R. 61J2-10.028 (2012), which states:

Any real estate licensee who receives, or makes any arrangement or agreement to receive, directly or indirectly, any kickback or rebate, for the placement of, or favor in, any business transaction which forms a part of, or is incident to, any transaction(s) negotiated or handled by said licensee, is a violation of Section 475.25(1)(b) or (d), Florida Statutes…unless prior to the time of the placement of, or favor in, said business transaction, the licensee shall have fully advised the principal if any and all affected parties in the transaction(s), which the licensee is handling, of all facts pertaining to the arrangement of kickbacks or rebates.

A violation of this regulation may result in any one or all of the following punitive measures: license suspension or revocation; probation; a fine of up to $5,000.00 per offense; or reprimand.  §475.25, Fla. Stat. (2012).

Due to the increasing crackdown on questionable real estate practices (especially in the foreclosure arena), real estate licensees and title companies would be well-advised to follow these laws closely.  Otherwise, a $100.00 gift card could result in license revocation, or worse.

Leasing Restrictions on Condominiums

I bought this condo to lease however, the Association said I could not lease it.  Is that legal?

Funny you should ask.  In the past month, I have had occasion to review two separate legal issues on this very subject.  In the first instance, person owns a condo that is underwater.  The person decided to rent out the unit.  The Declaration of Condominium prohibited leasing unless the HOA approved the unit owner for a leasing permit.  A leasing permit was only allowed for 25% of the total number of units.  What does that mean? Once 25% of the units are rented out, you are placed on a waitlist until a leasing permit becomes available, if at all.

Another person came to me because the HOA recently amended their Declaration to include a 20% cap on leasing.  The Declaration at the time of purchase contained no previous leasing restrictions.

Are leasing restrictions on condominiums valid? The Florida Supreme Court addressed this issue in a case we will call Woodside. Woodside Vill. Condo. Ass’n, Inc. v. Jahren, 806 So. 2d 452, 456 (Fla. 2002).  In Woodside, the Court explained that Florida law   “expressly recognizes that a declaration of condominium may contain restrictions concerning the use, occupancy, and transfer of units.” In Woodside, the Declaration was amended to include leasing restrictions after two owners purchased their units.  The Declaration at the time of purchase contained a leasing provision that permitted an owner to lease their unit without prior HOA approval for a period of one year or less.  The amended leasing provision required all leases, subleases and assignments of leases to be approved in advance by the HOA, and restricted the lease term to a total of nine (9) months in any twelve (12) month period. The Court explained that since Florida law and the Declarations provided broad legal authority to amend the declarations, “courts have recognized the authority of condominium unit owners to amend the declaration on a wide variety of issues, including restrictions on leasing.”  For those reasons, the Court found that “the lease restriction amendment was properly enacted under the amendment provisions of the Declaration, and that the respondents took title to their units subject to the amendment provision set out in the Declaration and authorized by statute.”

Properly adopted leasing restrictions will be presumed valid unless the restriction is arbitrary, against public policy, or in violation of some fundamental constitutional right. The Court in Woodside recognized the concerns leasing restrictions impose on purchasers of condominiums for investment purposes, but explained that the Court is constrained to the view that this issue is better addressed by the Legislature.

In sum, Florida law permits leasing restrictions.  Declarations that previously contained no leasing restrictions at the time of purchase which are subsequently duly adopted to impose leasing restrictions, will subject both current and new owners to those restrictions.

written by Beejal P. Thakore, attorney at Davis Basta Law Firm, P.A.

Spousal Joinder on Sales Contracts for Homestead Property

Florida’s homestead law is one of the most generous in the United States.  Florida’s Constitution provides that homestead is (1) exemptfrom forced sale; (2) devise and alienation is restricted; and (3) homestead affords tax exemptions.  Of primary importance to real estate agents are the restrictions on alienation of homestead property.

Article X, section 4(c) of the Florida Constitution is clear that both spouses must join in a transfer of homestead property.  However, when real estate is owned by only one spouse, and homestead status is not obvious, the requirement that both spouses sign a sales contract may be overlooked.  This situation arose in Florida and was the subject of an appellate decision known as Taylor v. Maness, 941 So. 2d 559 (Fla. 3d DCA 2006).

In the case, a husband (Mr. Maness) entered into a contract to sell a home that he was living in by himself (while his wife temporarily resided elsewhere); title to the home was vested solely in the husband’s name.  The contract was not signed by the wife, and she refused to sign the deed at closing.  The buyers (Mr. and Mrs. Taylor) sued for specific performance on the contract, fraud in the inducement, and negligent misrepresentation.  In considering whether the wife could be forced to specifically perform the contract, the court said that the contract could not be enforced by specific performance because of the constitutional homestead exemption from forced sale.  The court determined that the property was homestead property as the permanent residence of the husband and wife; and the wife had a marital homestead interest in the property that protected the property from sale without her consent.

The buyers argued that the failure to file a homestead tax exemption on the property was an indication that the home was not the couple’s homestead.  However, the court stated: “failure to claim the homestead tax exemption is not evidence that the property is not in fact homestead.”

The most important aspect of this case for real estate agents is that it emphasizes the importance of ascertaining whether property is a homestead at the outset.  A real estate agent (based on the outcome of the case) should never rely on the fact that no homestead tax exemption is filed when determining whether a property may be subject to homestead protections.  Because Florida’s homestead law is liberally construed in favor of protecting a family’s home, a thorough inquiry must be made into homestead status any time one spouse attempts to convey real estate without the other spouse’s signature on the sales contract.

I heard that I may have lost coverage under my owner’s title insurance policy when I transferred my property to an LLC. Is this true?

Yes, it can be true. Sometimes it is difficult to get a loan in a Trust or in a limited liability company (LLC). Often, investment buyers are advised to purchase the property individually and then transfer the property to an LLC by using a quit claim deed. There are several reasons why this may not be a good idea, including the fact that you may lose your title insurance coverage.

This can cause significant problems for individuals who transfer their ownership interest into a trust or business entity, even when they do it simply for estate planning purposes. Oftentimes, the owner of the property is not actually selling or transferring the property to a different person, but rather to an entity that is controlled by them.

Under the 1992 ALTA Owner’s Policy, an insurer will likely deny coverage for a claim made after a voluntary conveyance via a quitclaim deed by the insured to an LLC or Trust. The rationale behind this is the insured did not retain an interest in the property. To address this problem, the 2006 ALTA Owner’s Policy expanded the definition of an “Insured” to provide coverage under the Policy to an insured that transfers title in the following instances: (1) to a trust in which the owner is a trustee; (2) to a LLC where the grantee is the sole member of the LLC; or (3) or to a Partnership, where the insured is a partner. This language provides superior coverage over the 1992 ALTA Owner’s Policy; however there are still common transfers that will be denied coverage.

Before transferring your property, for any reason, consult a real estate attorney. In this situation, a real estate attorney may recommend obtaining an “additional insured endorsement” prior to a transfer to avoid losing coverage. Only a real estate attorney can properly advise you on any pitfalls that may arise by virtue of a transfer of your real property.