Know this before buying a home or condo in Florida
Video Description
Florida law imposes certain disclosure obligations on people selling houses or condos. This video explains what you need to know and what you should do before buying a house or a condo in Florida.
Board Certified expert business lawyer David Steinfeld has over 25 years of experience. He has litigated and won many cases about problems in residential real estate transactions. In this video Mr. Steinfeld explains how the legal disclosure obligations placed on sellers work and how contract terms like the as-is provisions in standard FarBar real estate contracts impact those requirements.
Board Certified expert business lawyer David Steinfeld has over 25 years of experience. He has litigated and won many cases about problems in residential real estate transactions. In this video Mr. Steinfeld explains how the legal disclosure obligations placed on sellers work and how contract terms like the as-is provisions in standard FarBar real estate contracts impact those requirements.
Video Transcript
Hi, I'm Dave Steinfeld. I own the Law Office of David Steinfeld and I specialize in Florida business litigation law. This video is going to tell you some important points to know when investing in residential real estate. Now there's no legal advice in this video but for that you can contact me through DavidSteinfeld.com. And while you're there please take a look at some of the informative videos and articles on Florida business law and other topics. Thanks for watching.
Litigation of residential real property transactions
I’m going to move on to residential transactions now. We're going to talk about what some of the commonly litigated issues are in residential transactions which are different from those that we see in commercial transactions. One of the threshold issues that comes up is when you're investing in real estate even be it commercial or residential should you do it your own name, should you do it through a legal entity such as limited liability company. That's something that's beyond the scope of this presentation that's very very unique to your individual circumstances and it's something that you should contact counsel about because you need to examine what your goals are and your individual situation. But that is something to consider if you're getting involved in the transaction, should you do it your own name or the name of an entity.
Buyer beware does not apply to Florida residential real estate sales
Now the biggest difference between investing in commercial real estate investing in residential real estate is that buyer beware, caveat emptor does not apply to residential real estate. And I mentioned in the prior video that I was going to discuss this this landmark case in 1985 that came down from the Florida Supreme Court called Johnson versus Davis that changed the landscape, changed everything with regard to these transactions.
Mr. Johnson was selling his house down around Miami and this was 1982. He was selling for over $300,000 which was a pretty substantial amount of money at that time. The Davises were looking at the house and when they went to see the house as you normally would in your own inspection and view, Mrs. Davis noticed that around some of the windows there was some looked like some fills or some leaks and up around the ceiling there was some discoloration and marks and asked Mr. Johnson about that. And he said oh we had the windows fixed don't worry about that. It used to leak but it's taken care of now and the marks that you're seeing on the ceiling that's because we moved some of the ceiling beams and things like that. So Mr. and Mrs. Davis say thank you very much, no problem they give him 10% deposit which again it was over $30,000 was a large amount 1982.
And after they buy the property and move in a few days later there's a big rainstorm. And according to Mrs. Davis's testimony in the trial, water was literally gushing in through the windows, it was coming in through where the stove is hooked up into the wall, they had ceiling leaks it was a disastrous situation. So of course they say hey you know you told us that everything was fine and it was fixed and that's why we bought the property. So now we want to undo the transaction and we want our money back. Goes through the trial level, it goes through the appellate level, it goes all the way up to the Florida Supreme Court and in 1985 the Florida Supreme Court says you should be able to rely in residential transactions you should be able to rely on what the seller tells you. Otherwise you wind up with people getting away with lots of trickery and fraud and things like that.
So the Florida Supreme Court defined it specifically that a seller of a piece of residential real estate now in Florida has the obligation to disclose material defects of which they know but that are unobservable to the buyer. That's a mouthful. What it really means is that if the seller knows, actually knows, and it can't be seen, for example, buyer could see a hole in the wall, but if the whole is covered up by something then the buyer is not gonna be able to see it and if the seller knows about it and it's material the seller has to disclose that. What's material, what's not material those are some of the issues that are commonly litigated. But what happened as a result of that was the Florida Board of Realtors and the Florida Bar that are together creating the what we call the FarBar contracts that all of you are familiar with, they incorporated certain disclosures for sellers to make in those residential FarBar contracts and that's the reason why, it's Johnson versus Davis.
Mr. Johnson was selling his house down around Miami and this was 1982. He was selling for over $300,000 which was a pretty substantial amount of money at that time. The Davises were looking at the house and when they went to see the house as you normally would in your own inspection and view, Mrs. Davis noticed that around some of the windows there was some looked like some fills or some leaks and up around the ceiling there was some discoloration and marks and asked Mr. Johnson about that. And he said oh we had the windows fixed don't worry about that. It used to leak but it's taken care of now and the marks that you're seeing on the ceiling that's because we moved some of the ceiling beams and things like that. So Mr. and Mrs. Davis say thank you very much, no problem they give him 10% deposit which again it was over $30,000 was a large amount 1982.
And after they buy the property and move in a few days later there's a big rainstorm. And according to Mrs. Davis's testimony in the trial, water was literally gushing in through the windows, it was coming in through where the stove is hooked up into the wall, they had ceiling leaks it was a disastrous situation. So of course they say hey you know you told us that everything was fine and it was fixed and that's why we bought the property. So now we want to undo the transaction and we want our money back. Goes through the trial level, it goes through the appellate level, it goes all the way up to the Florida Supreme Court and in 1985 the Florida Supreme Court says you should be able to rely in residential transactions you should be able to rely on what the seller tells you. Otherwise you wind up with people getting away with lots of trickery and fraud and things like that.
So the Florida Supreme Court defined it specifically that a seller of a piece of residential real estate now in Florida has the obligation to disclose material defects of which they know but that are unobservable to the buyer. That's a mouthful. What it really means is that if the seller knows, actually knows, and it can't be seen, for example, buyer could see a hole in the wall, but if the whole is covered up by something then the buyer is not gonna be able to see it and if the seller knows about it and it's material the seller has to disclose that. What's material, what's not material those are some of the issues that are commonly litigated. But what happened as a result of that was the Florida Board of Realtors and the Florida Bar that are together creating the what we call the FarBar contracts that all of you are familiar with, they incorporated certain disclosures for sellers to make in those residential FarBar contracts and that's the reason why, it's Johnson versus Davis.
"As-is" does not relieve a seller of disclosure obligations
Now what about as is. What about sometimes you see it more often with vehicle transactions somebody sells a car, a boat or something and they say it's as-is. Someone later finds a problem with the car and the seller says you bought it as is. You can't do that with residential real estate. You cannot sell a house and as the seller say, well I sold it to you as-is so now you're stuck with it. You can't get rid of those obligations that the Florida Supreme Court has placed on the seller to make disclosures that are material defects that the buyers can't see. So are you limited then in the FarBar contract to whatever the seller tells you, absolutely not.
You have to look at and the people that you represent as real estate brokers and that you deal with have to look at the particular transaction and say what's important to me and you've got to look at that FarBar contract and see what the disclosures are and say are those sufficient. Because there's nothing that precludes you from directly or through your broker going back to the seller and saying I'd like some more information. I need to know. You're saying the roof doesn't leak. Did it ever leak, was it replaced, has it been re-tared. If the roof is important to you if you've gone out looked at the property and you know that the other homes in that neighborhood are a little bit older some of them have newer roofs on it you might want to ask those questions as a prudent investor buying the real estate so that you can know exactly what the status is.
You have to look at and the people that you represent as real estate brokers and that you deal with have to look at the particular transaction and say what's important to me and you've got to look at that FarBar contract and see what the disclosures are and say are those sufficient. Because there's nothing that precludes you from directly or through your broker going back to the seller and saying I'd like some more information. I need to know. You're saying the roof doesn't leak. Did it ever leak, was it replaced, has it been re-tared. If the roof is important to you if you've gone out looked at the property and you know that the other homes in that neighborhood are a little bit older some of them have newer roofs on it you might want to ask those questions as a prudent investor buying the real estate so that you can know exactly what the status is.
Must repairs be disclosed?
There's also an area that brings us to kind of a murkier part of Florida law that's important for you all to know about and that is scenarios where the seller makes repairs or believes that repairs are made. Does the seller then have to disclose those repairs or the prior defect to the buyer under the Johnson versus Davis standard that we operate under. There's no answer to that.
There's no right answer. It's very specific and I can tell by your response it is confusing and if I ask for a show of hands I bet half the people in the room would say yes and the other half would say no. There's no right answer there because it depends on the specific factual circumstance of the particular transaction. Did the seller hire a professional like a professional licensed roofer to fix the roof and that person told the seller who has no knowledge of roofs or not a roofer they don't know what's going on with the roof. The roofer says I fixed it, you're ok. Does the seller have to say we had it fixed. What if it's really not fixed.
That gets us into a murkier area what if the seller doesn't actually fix something but sort of puts a patch on it. What if there's a problem with plumbing or with a pool for example and the people come out the professionals to fix those things and say well it's going to cost you $8000 to fix it and to fix it well, but for $800 we could patch it a little bit wrap some tape around it, do some other stuff to it and will probably hold for a while. And the seller says well do that because I'm not going to spend the other amount. Is it really fixed. And that's where your questioning and the questioning of the people that you're dealing with if you're a broker, if you're dealing with buyers, if you're buying yourself, that's where you want to ask questions and not necessarily limit yourself to the disclosures on the FarBar contract because there's no real perfect answer in that scenario and it comes back to just like in the commercial sense documentation.
There's no right answer. It's very specific and I can tell by your response it is confusing and if I ask for a show of hands I bet half the people in the room would say yes and the other half would say no. There's no right answer there because it depends on the specific factual circumstance of the particular transaction. Did the seller hire a professional like a professional licensed roofer to fix the roof and that person told the seller who has no knowledge of roofs or not a roofer they don't know what's going on with the roof. The roofer says I fixed it, you're ok. Does the seller have to say we had it fixed. What if it's really not fixed.
That gets us into a murkier area what if the seller doesn't actually fix something but sort of puts a patch on it. What if there's a problem with plumbing or with a pool for example and the people come out the professionals to fix those things and say well it's going to cost you $8000 to fix it and to fix it well, but for $800 we could patch it a little bit wrap some tape around it, do some other stuff to it and will probably hold for a while. And the seller says well do that because I'm not going to spend the other amount. Is it really fixed. And that's where your questioning and the questioning of the people that you're dealing with if you're a broker, if you're dealing with buyers, if you're buying yourself, that's where you want to ask questions and not necessarily limit yourself to the disclosures on the FarBar contract because there's no real perfect answer in that scenario and it comes back to just like in the commercial sense documentation.
It is smart to document a walk-thru
If you have meetings, if you're doing walkthrough in the house, there's no reason why you can't videotape it on your phone. There's no reason why you can't send emails back and forth with the seller or the sellers broker and ask specific questions or have an addendum to that FarBar form filled out so you can get further information from them. The more that you can document the better you'll be later or the better your buyer if you are a broker will be later when the seller says affirmatively we fixed it. Now you're in front of a judge and you say well fixed doesn't mean wrapping tape around the pipe, fixed means fixed. So it puts your buyer, puts you as the investor, in a much better situation.
Title defects in residential transactions
What about non-physical defects in residential property. Usually you'd hire people like a home inspector to look through the property, termite inspector and things like that. And they do a very good job a lot of them will take photos even with a ruler and things so that it's documented whatever physical problems are. But what about non-physical problems. I'm talking about title defects.
When you buy residential real estate generally if you're financing it, if you're getting a purchase money mortgage from a bank or other lender, they're going to require that you get a title policy, get title insurance, they're going to require a title search. They're doing that intentionally to protect themselves to make sure that they place themselves into the first position to have a first position and priority lien on that property. Sometimes when you get a title policy in those scenarios the banks will even require that all prior liens be satisfied so that they can put themselves in the first position.
When you buy residential real estate generally if you're financing it, if you're getting a purchase money mortgage from a bank or other lender, they're going to require that you get a title policy, get title insurance, they're going to require a title search. They're doing that intentionally to protect themselves to make sure that they place themselves into the first position to have a first position and priority lien on that property. Sometimes when you get a title policy in those scenarios the banks will even require that all prior liens be satisfied so that they can put themselves in the first position.
Short sales and cash purchases
But what if you're buying for cash. What if you buy a short sale property or you buy a property that is coming out of foreclosure and you're the real estate investor and you're purchasing for cash. There's no reason why you can't do the same thing and why you shouldn't do the same thing because you want to know was that foreclosure done correctly, were all prior liens actually extinguished, or are you buying this property subject to some liens that maybe the bank missed. You also want to know does the seller, if it's a private seller, does the seller actually own the property. Are there other people on that title that might be the sellers ex-spouse or maybe children or cousins or something that they put on the property through estate planning let's say.
And now you're conducting this transaction with the seller and you're paying a deposit and then somebody else comes out of the woodwork and says well I'm also a part owner of the property and I don't agree to that amount. Now you've got a dispute because you've got one foot in the transaction and one foot out of the transaction.
So it's not a great expense and it's prudent if you're investing in residential real estate to order up a title search and find out whether or not there are any defects with the title. And it’s best to do that before you pay, before the closing so you can fix those problems. Post-closing you're going to have to chase the sellers or fix it on your own so it's a greater expense.
And now you're conducting this transaction with the seller and you're paying a deposit and then somebody else comes out of the woodwork and says well I'm also a part owner of the property and I don't agree to that amount. Now you've got a dispute because you've got one foot in the transaction and one foot out of the transaction.
So it's not a great expense and it's prudent if you're investing in residential real estate to order up a title search and find out whether or not there are any defects with the title. And it’s best to do that before you pay, before the closing so you can fix those problems. Post-closing you're going to have to chase the sellers or fix it on your own so it's a greater expense.
