Source: http://www.rubinlawflorida.com/category/caselaw/
Timestamp: 2019-04-22 03:58:24+00:00

Document:
Not infrequently in the context of a purchase and sale transaction, the title search may reveal a defect in title. Most real estate contracts define a defect in title as a matter which renders title “unmarketable”. Subject to specific exceptions and qualifications in a real estate contract, generally, a marketable title is one that must be such “as to make it reasonably certain that [title] will not be called into question in the future so as to subject the purchaser to the hazard of litigation.” See e.g., Henley v. MacDonald, 971 So. 2d 998 (Fla. 4DCA 2008). Examples of defects in title are the failure of a predecessor in title to sign a deed or the failure to obtain condominium association approval, when approval is required.
If the buyer’s examination of title discloses a defect in title, the buyer is usually obligated to notify the seller of the title defect within a certain time period to give the seller an opportunity to cure the defect (cure provisions are strictly contract requirements and vary from contract to contract). In a typical real estate contract, after the buyer gives timely written notice of the title defect to seller, there are certain obligations imposed upon the seller to cure the defect and to do so within a stated time period.
In this Case, the Court had the opportunity to rule upon two issues which commonly arise when there is a defect in title. The first is if the buyer fails to timely notify seller in the manner required by the Contract that buyer has elected to extend the Cure Period, is the Cure Period extended?; and second, if the Cure Period is extended, how does the seller satisfy its “reasonable diligent effort” contract obligation to cure or remove the defects in title?
With respect to the first issue, the Buyer had timely notified the Seller in writing that there was a title defect. However, the Seller was not able to cure the title defect within the initial 30 day Cure Period. Thereafter, the Buyer did not timely notify the Seller that it had elected to extend the Cure Period in the manner required by the contract, leading the Seller to argue that it was under no obligation to cure title after the Cure Period expired, and that in fact it was entitled to terminate the Contract. The Court found that the Buyer did not timely notify the Seller, in writing, to extend the Cure Period, however, it concluded that the Seller was estopped to declare the Contract was terminated because of the Seller’s inconsistent post-Cure Period conduct upon which the Buyer relied. The testimony at trial was that after the Cure Period had expired, the Seller, instead of declaring the Contract had terminated, continued to make some effort to cure or remedy the title defect. The Seller also received numerous post-Cure Period email communications from the Buyer’s attorney requesting the Seller to render title marketable and inquiring about the status of the results of Seller’s efforts. Despite the Buyer’s failure to extend the Cure period in the manner required by the Contract, at no time after the initial Cure Period expired did the Seller notify the Buyer that the Contract had been terminated. The trial court found the Seller’s failure to communicate termination of the Contract to Buyer misled the Buyer into believing that the Seller was in fact attempting to render title marketable.
Having determined that the Seller was under the obligation to use reasonable diligent efforts to render title marketable after the initial Cure Period had expired, the Court next had to decide whether the Seller met its diligent efforts obligation. The Court stated that whether a seller exercises reasonable diligent efforts in rending title marketable is nearly always a mixed question of law and fact. The trial court concluded the Seller did not exercise reasonable diligent efforts to clear title because the Seller did nothing more during the “Extended” Cure Period except to file a motion to dismiss the pending bankruptcy case (the pending bankruptcy case was the reason title was unmarketable). In addition to filing the motion to dismiss, the Court stated that the Seller should have asked the bankruptcy court for relief from the automatic stay, which the bankruptcy court invited the Seller to seek, and have sought an expedited hearing on its motion to dismiss. The Third District Court of Appeal affirmed the trial court’s findings of fact and law that Seller’s efforts to cure title were unreasonable, and it was not entitled to cancel the Contract, and moreover, that Seller had breached the Contract because of its failure to exercise reasonable diligent efforts. The Buyer had the right to obtain, and the Appellate Court affirmed the trial court’s order granting, specific performance of the Contract.
Notably, there was no discussion in the opinion about whether the Contract contained an integration, anti-waiver, or no oral modification clause, and if it did, whether Seller argued to the trial court that the doctrine of estoppel is an insufficient claim or defense as a matter of law. As posted in the Case Law Update Article below entitled: “Lessons Re-learned; Get It In writing!”, in 2013, the Florida Supreme Court held that the doctrine of promissory estoppel is not a valid exception to the statute of frauds and held that the seller’s oral promise to extend the contract due diligence period is not enforceable when the contract contains a clause which prohibits an oral modification. The D & E Real Estate decision was not appealed to the Florida Supreme Court ending review of the decision for now.
From a practice pointer standpoint, when a real estate contract requires notice be given to the other party, notice should be sent within the time period and in the precise manner stated in the contract. And even if the contract contains anti-waiver, integration, or no oral modification clauses, a party to the contract should promptly assert its rights, respond to emails, and communicate clearly, and obtain a written modification of the contract if necessary, to avoid a later argument that the party’s conduct misled the other party about the status of and rights under the contract. What we’ve got here in this case is a failure to communicate.
If you see something, say something, and if you say something do something. In the world of real estate, if you gratuitously say you will do something, you may be required to do it in a careful and prudent manner. In Muchnick v. Goihman, 43 Fla.L.Weekly D986 (Fla. 3 DCA May 2, 2018), the real estate agent (Agent”) for the landlord repeatedly told the renters (“Renters”) that he (the Agent) would take care of correcting the mold, water damage, and cosmetic problems in the leased apartment. The Agent was not paid by the Renters for his services to correct the problems and no binding contract existed between the Agent and the Renters for the performance of any services or work. When the Agent failed to take care of the problems, the Renters sued the Agent for damages, in part, alleging the negligent conduct of the Agent.
So, even though the Agent was not paid a penny for his time by the Renters for attempting to correct the problems and there was no contract for any services, the Agent may be liable to the Renters as an “undertaker” for his negligence. No doubt the Agent earned a real estate commission for procuring the Renters, and this fact probably explains why the Agent was so willing to “gratuitously” offer to correct the problems – no tenants, no rent, no commission.
It is not uncommon for the owner of real property to grant to one person the right to purchase the property if the owner accepts a bona fide offer to purchase the property from another person (right of first refusal). For example, a tenant might want to have the opportunity to own the leased premises if the landlord decides to sell it during the term of the lease. To protect the tenant’s opportunity to purchase the leased premises during the lease term, a clause would be included in the lease which obligates the landlord to notify the tenant that the landlord has accepted an offer to purchase the leased premises from a third party purchaser, giving the tenant the right to purchase the leased premises from the landlord on the same terms and conditions that are contained in the purchase contract between the landlord and the third-party purchaser.
What happens if after the landlord and third-party purchaser enter into the contract, the third-party purchaser learns about the tenant’s right of first refusal, and in an attempt to defeat the right, the third-party purchaser cancels the contract, and then enters into a second contract with the landlord at a much higher purchase price? When the first contract is terminated, does the tenant lose its right of first refusal? No. When the landlord entered into the first contract with the third-party purchaser, the tenant’s right of first refusal was converted into an irrevocable option to purchase the property. See The Allegro at Boynton Beach, LLC v. Pearson, 42 Fla.L.Weekly D2277 (Fla. 4th DCA 10/25/17). The tenant can enforce its right by filing an action against the landlord for specific performance to compel the landlord to sell the property to the tenant upon the same terms and conditions that are contained in the first contract. Nice try by the third-party purchaser, but the Court recognized the landlord’s and third party purchaser’s gamesmanship and ruled in tenant’s favor based upon the applicable law.
A written contract for the conveyance of real property must contain all of the essential mutually agreed upon terms. One essential element is the agreed upon description of the real property to be conveyed. If the description of the land described in the contract cannot be determined by a surveyor reading the contract, with or without the use of extrinsic evidence (e.g., looking at a plat is extrinsic evidence), then the description is patently ambiguous (i.e., the surveyor cannot identify the property in the contract to the exclusion of all other property). Oral testimony of the parties at trial (parol evidence) is not permitted to resolve a patent ambiguity of the description of the land in the contract. The consequence of a patently ambiguous description of the land in the contract is the likelihood that the buyer will not be able to compel the seller, by court action, to convey the property to the buyer (i.e., by an action for “specific performance”), even if the seller has unjustifiably breached the contract by refusing to close.
Which of the following descriptions of land in a contract have been determined by the courts to be patently ambiguous?
4. Only (1) and (3) above.
See Boardwalk at Daytona Beach Development, LLC v. Paspalakis, 41 Fla.L.Weekly D2605 (Fla. 5th DCA, November 18, 2016). The correct answer is (5).
The Florida Constitution exempts every Florida resident’s homestead from “forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon”, except for “the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field, or other labor performed on the realty.” See Art. X, Section 4, Florida Constitution. In general, a “homestead” is the Florida resident’s permanent home, and land surrounding the home, provided the total area is not more than a half acre if the home is located within a municipality, and not more than 160 acres if the home is located in an unincorporated area. There is no monetary limit for the value of the homestead exemption. For example, pursuant to this Constitutional homestead protection, if a homeowner negligently injures another person and that person obtains a $5,000 judgment against the homeowner, the injured person cannot collect the $5,000 personal injury judgment against the homeowner by forcing the sale of the homeowner’s homestead real property, even if the homestead has a value in excess of $5,000,000.
3. The proceeds must be kept separate and apart and held for the sole purpose of acquiring another home [homestead].” See Orange Brevard Plumbing & Heating Co. v. La Croix, 137 So. 2d 201 (Fla. 1962).
As a practical matter, how does the homeowner keep the sale proceeds “separate and apart” and for the “sole purpose” of acquiring another homestead? Typically, when the sale of a home occurs, the seller is paid at the closing either by attorney’s trust account check or wire transfer. How does the homeowner have to “keep” the proceeds – put the check in a folder labeled “for new homestead only”; wire or deposit the funds into a separate non-interest bearing bank account; or cash the check and put the money in a jar under the bed until it is used to purchase the new homestead (an example used by the Florida Supreme Court)? Prior case law established that placing the proceeds into a separate interest bearing bank account was sufficient. That sounds reasonable, even though the proceeds are technically “invested” in the bank, as opposed to a new homestead, and the homeowner receives a return on his bank investment (the interest). It has also been held that the homeowner/seller can take back a note and mortgage instead of cash when the homestead is sold, and the note and mortgage will qualify for the homestead exemption, provided they are eventually used to reinvest in the new homestead.
What if the sale proceeds are placed into a separate brokerage account labeled “homestead account”, and the funds are used in the interim to purchase mutual funds and unit investment trusts? Are those “investments” for the “sole purpose” of buying a new homestead? Yes they are, says the Florida Supreme Court. In JBK Associates, Inc. v. Sill Bros., Inc. (41 Fla.L.Weekly S189 (Fla.04/28/16), the Court held that such investments were “safe”and an alternative to today’s bank accounts which do not “garner any significant amount of interest earnings”, and they do not “demonstrate an intent so different from reinvestment in a new homestead within a reasonable time.” In JBK Associates, the debtor did in fact reinvest the proceeds into a new homestead within a reasonable time after the sale which prevented the judgment creditor from collecting its judgment.
Unanswered questions remain for future resolution, and they will be decided on a case by case basis. For example, how long is a “reasonable time” from the date of sale of the homestead to reinvesting the sale proceeds into a new homestead? One court has stated ten years is too long, and although the opinion in JBK Associates does not state the precise amount of time that had elapsed, it was at least four months. Are the profits generated by the homeowner from the interim stock and mutual fund investments also protected from forced sale? What constitutes a “safe” investment, and does a “safe” investment vary depending upon the interest that can be generated by depositing the sale proceeds into a federally insured bank account? One question was definitely answered unequivocally: Florida Courts will continue to construe the homestead exemption very liberally in favor of homeowners, which makes Florida a very friendly and welcoming destination for the Nation’s debtors.
In a typical real estate transaction, an attorney may owe duties to the client, the lender, the title insurer, and the other party to the purchase and sale. For example, in Palm Beach County, an attorney could simultaneously be the escrow agent who holds the deposit, the title agent who examines evidence of title and issues the title policies to the buyer and lender, the closing agent who prepares the settlement statement and disburses the funds, and the attorney for the seller. The law imposes a variety of duties on the person who acts in these various capacities, and each representative capacity forms the basis for a potential conflict of interest. If an actual conflict of interest arises, withdrawal from the representative capacity is required.
The various duties owed to the parties in a real estate transaction are created by both law and contract. An attorney has a fiduciary duty to her client and must provide legal representation in a non-negligent manner, with honesty and in good faith (see e.g. Mallard v. Dowell, 528 So.2d 512 (Fla. 3DCA 1988), rev, denied 539 So.2d 475 (Fla. 1988). A title agent has the duty to comply with the title insurance Statute and Regulations, and the contractual duties imposed by the title underwriter. The lender in a transaction will require the title or settlement agent to indemnify and hold the lender harmless if the agent breaches the lender’s closing instructions or commits a fraud. The escrow agent holding the funds has a fiduciary and contractual duty to the buyer and seller to disburse the funds as directed by the parties’ contract (see e.g., United American Bank of Central Florida v. Seligman, 599 So.2d 1014 (Fla. 5DCA 1992). The closing agent has a fiduciary duty (with some exceptions) to the buyer and the seller to conduct and supervise the closing in a non-negligent manner, and with honesty and in good faith (see e.g., Askew v. Allstate Title & Abstract Co., Inc., 603 So.2d 29 (Fla. 2DCA 1992) and Gerson v. Broward County Title Co., 116 So.2d 455 (Fla. 2DCA 1959).
In the recent case of Moreno v. First International Title, Inc., 40 Fla.L.Weekly D1834 (Fla. 3DCA August 5, 2015), the purchaser, after the closing, sued the closing agent (who was not an attorney) alleging that it had breached its fiduciary duty because it did not clearly communicate to the purchaser that the County had imposed code enforcement liens against the property in the amount of $64,000 (presumably because the seller or the seller’s predecessor had constructed additions to the home without obtaining the necessary permits). The purchaser did not speak or read English. Before the closing, the closing agent required the purchaser to sign an acknowledgement of the existence of the code enforcement liens and a hold harmless agreement which attached a copy of each lien. The purchaser did not have an attorney, and even though she could not speak or read English, she signed the documents. Did the closing agent breach its fiduciary duty to the purchaser by closing the transaction, notwithstanding the existence of the code enforcement liens and the purchaser’s inability to read or speak English?
The Court upheld the trial court’s summary judgment order in favor of the closing agent. The Court concluded that there was “no fraudulent inducement to sign, purposeful or negligent misinformation, or any other action on the closing agent’s part to prevent the buyer from reading the documents and inquiring about the contents.” Fair enough – the closing agent advised the purchaser of the liens and code enforcement proceedings, and the purchaser was then able to decide, based on full knowledge of the facts, whether to close (query whether the title agent included the liens as exceptions in the title policy and whether the real estate contract disclosed the liens and required the purchaser to accept title subject to the liens). In Moreno, the closing agent conducted the closing electronically, and presumably the agent was not present at closing and did not know the purchaser could not speak or read English. Had the closing agent known those facts, would the result have been different? It is further noted that litigation continues against the real estate agent and the realty company.
To further complicate an attorney’s consideration of what duties she may owe to the parties in a real estate transaction, if the attorney is representing one party to the transaction, then she must decide what she needs to explain about the transaction to the unrepresented opposing party to avoid an ethics complaint against her. As stated by the Florida Supreme Court, when there is an elderly, unsophisticated opposing party and the terms of the transaction are very favorable to the attorney’s client, “[f]irst, the attorney must explain to the unrepresented opposing party the fact that the attorney is representing an adverse interest. Second, the attorney must explain the material terms of the documents that the attorney has drafted for the client so that the opposing party fully understands their actual effect. When the transaction is as one-sided as that in the present case, counsel preparing the documents is under an ethical duty to make sure that an unrepresented party understands the possible detrimental effect of the transaction and the fact that the attorney’s loyalty lies with the client alone. R. Regulating Fla.Bar 4-1.7.” Florida Bar v. Bellville, 591 So.2d 170 (Fla.1991).
These cases are good examples of why a party to a contract for the sale and purchase of real estate should retain a Florida Bar Board Certified Real Estate Attorney to represent that party’s interests in the transaction. A Board Certified attorney is an expert in the area of law for which he has been certified, and has special skills, knowledge, and competence to handle the matter with the highest degree of professionalism and ethics.
HOMESTEAD REMINDER – WILL YOUR SPOUSE AND FORMER SPOUSE LIVE TOGETHER IN YOUR FORMER MARITAL HOME AFTER YOUR DEATH?
We are all familiar with the Florida constitutional homestead protection against the forced sale of real property. Pursuant to Article X, Section 4, of the Florida Constitution, a natural person can claim a homestead exemption from forced sale on 160 acres of land if located outside a municipality, and one-half acre of land if located within a municipality, provided the land constitutes the residence of the owner. In addition, the homestead protection extends to the residence of the owner’s “family”. Upon the owner’s death, the owner’s surviving spouse or heirs of the owner can retain the exemption to prevent the deceased owner’s creditors from forcing the sale of the owner’s homestead property, and the owner’s surviving spouse and lineal descendants may have protected distribution rights in the homestead property. Generally, if a decedent is survived by a spouse or a minor child, the homestead real property cannot be devised, and the surviving spouse takes a life estate,with a vested remainder to lineal descendants.
In Friscia v. Friscia, 39 FLaLWeekly D1810a (Fla. 2dDCA August 27,2014), we were reminded about the need to determine who is residing in the real property, even if the owner is not, to determine whether it may still be homestead property. In Friscia, Mr. Friscia owned a home with his wife. They divorced, and Mr. Friscia moved out of the marital home and subsequently remarried. However, Mr. Friscia’s minor sons continued to reside with his former wife in the former marital home, and Mr. Friscia provided financial support for his sons. Mr. Friscia died, and his son and second wife claimed that the former marital home was Mr. Friscia’s homestead, and therefore not subject to the extensive creditor claims filed against the estate. The trial court concluded that even though the former wife was awarded the exclusive use and possession of the former marital home, because Mr. Friscia provided financial support to his two sons and the two sons resided in the former marital home, the former marital home was entitled to Mr. Friscia’s homestead exemption as his “family’s” residence (but only to the extent of Mr. Friscia’s one-half interest in the property – one-half because he and his former wife each then owned an undivided one-half interest as tenants in common, as divorced owners of a prior tenancy by the entireties). Mr. Friscia’s interest in the former marital home was thus not subject to the creditor claims against his Estate.
As a consequence of this ruling, the second wife, who by law acquired a life estate in one half of the former marital home (due to the restriction on the devise of homestead property), then argued that as a life tenant she was entitled to reside in and enter the former marital home on an unrestricted basis (which was then occupied by the former wife and Mr. Friscia’s children), even though the marital settlement agreement signed by Mr. Friscia granted the former wife exclusive use and possession of the former marital home. The second wife also argued that the former wife could not sell the marital home when the oldest child reached the age of majority, even though the marital settlement agreement contained a provision requiring the sale of the marital home if the former spouse had not exercised her option to buy out Mr. Friscia’s one half interest in the property. The trial court lamented about the “untenable consequences associated with the implementation of this Court’s order.” I suppose the trial court was imagining the former spouse and second wife sitting down at the dinner table each night for a “friendly” discussion of the day’s events, and sleeping in the same house together for the indefinite future!
Not to worry. The Appellate Court affirmed the trial court’s order, but also concluded that although the marital settlement agreement was not a waiver of the homestead exemption, its terms were binding on Mr. Friscia’s heirs. Thus, the second wife would not have any use of the former marital home while the former wife was residing there (because the marital settlement agreement granted the former wife the exclusive use and possession of the home), and the former spouse could still require the sale of the former marital home after the oldest child reached the age of majority.
The Federal Fair Housing Act (42 U.S.C Section 3604) (“FHA”) prohibits discrimination against persons with handicaps. The Florida Civil Rights Act contains similar provisions (F.S. Section 760.23). One provision of the FHA prohibits discrimination in connection with the design and construction of dwellings (42 U.S.C. Section 3604(f)(3)(C)). Applicable dwellings must be readily accessible to and usable by handicapped persons. Examples include wheelchair accessibility – wider doors, maneuverability in the kitchen area, and accessible light switches and electrical outlets. A violation of the FHA could lead to the award of actual and statutory damages, punitive damages, and attorney’s fees and costs, as well as injunctive relief in favor of an aggrieved private plaintiff.
If a building is designed and/or constructed in violation of the handicap accessibility guidelines, but the building is then sold, is the new owner of the building liable for the violations, or obligated to remedy the violations, which were created by the prior owner who designed and constructed the building? The 11th U.S. Circuit Court of Appeal recently held that the legislative history of the FHA and the FHA’s clear meaning impose liability exclusively on a defendant who was involved in the design and construction of the building. If the subsequent owner had no such involvement, then it cannot be held liable. The Court commented that if the FHA were interpreted to impose liability on subsequent owners, the “potential owners would need to thoroughly investigate compliance with the guidelines prior to purchasing a covered dwelling or risk liability.” The Court had sympathy with the plaintiff, but not enough sympathy to expand the scope of the FHA beyond Congress’ intent. See Harding v. Orlando Apartments, LLC, 24 Fla. L. Weekly Fed. C1245 (11th Cir. April 14, 2014).

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.