Most home buyers and sellers rarely, if ever, have to concern themselves with the myriad legal details that occur in the background of a residential transaction. The buying and selling of Florida real estate is fairly straightforward, even when accounting for the complexities of some higher-end, ultra-luxury transactions.
The simplicity erodes when, whether by choice or due to circumstance, wading into the complex world of real estate litigation, including defaults, short sales, and foreclosures. Regardless of which side of the table you find yourself on in a default dispute or during a short sale or foreclosure, it's critical that you understand your options to ensure the best possible outcome for your interests.
The best legal advice: hire an attorney
Unique among most states in the Southeastern U.S., Florida does not require the presence of an attorney on behalf of the buyer or seller to facilitate a residential real estate transaction. Just because it's not required doesn't mean it's not a good idea.
It's not at all uncommon for realtors, buyers, and sellers to seek out the services of a trusted real estate attorney to write or review residential purchase and sale agreements, consult on specific property transactions, assist in title work or with underwriting or facilitate transactions by representing a buyer or seller at closing.
Hiring a well-respected real estate attorney offers additional peace of mind when finalizing a real estate transaction.
Should you encounter litigation stemming from a property transaction or are involved with a short sale or foreclosure, contact a real estate attorney early in the process.
Litigation in residential real estate
When disputes arise between a buyer or seller, or any parties privy to real estate transactions, they can create huge headaches for all involved. Not just in the sense of a deal falling through or parties forfeiting nominal fees or deposits, but also long drawn-out battles that inevitably cost both sides inordinate amounts of time and money.
Examples of common real estate issues that can result in litigation include:
- Negligence or breach of duty
- Property line disputes
- Breach of construction or development contracts
- Title defects or disputes
- Conflicts with condominium or neighborhood associations
Thankfully, most disputes are resolved before they grow, even if the resolution is not always amicable.
Regarding the sale of residential property, the two most common offenses are a breach of contract by either a buyer or seller and the failure by a seller to disclose any known defects on the property. Those two issues account for most real estate litigation cases.
Your primary goal for navigating litigation concerns is to avoid it altogether. This is best achieved when all parties are on the same page and maintain clear, open communication. If there's a problem with any aspect of a deal, bring it up for discussion and work towards a resolution.
In addition, both parties should ensure contracts are clear, accurate, and specific to the deal. When in doubt, engage a real estate attorney to review the documents and identify potential pitfalls before they become an issue. Both parties can protect themselves in certain circumstances by including contingencies (which the other party has the right to accept or decline).
If a dispute appears heading for litigation, get ahead of it and retain legal representation (if you haven't already). Understand what your rights are and maintain a detailed record of anything that might be relevant to your case. If feasible, you should also explore the options of mediation or negotiating a resolution, which in many instances, is far cheaper and less time-consuming than heading to court.
Defaults in residential real estate
Nobody likes a quitter, especially when you've spent time and effort searching for and acquiring a home or prepping and marketing it for sale. But defaults do happen, most frequently with purchase agreements for the sale of a house. The default can originate from the buyer or seller for several reasons.
What matters, however, are the remedies available to both parties should a default occur.
If a buyer defaults
The seller is eligible to retain any earnest money paid by the buyer as liquidated damages for the breach. As a universal clause, this represents the sole, immediate remedy sellers may seek when the buyer defaults on a purchase agreement. Should a seller want to pursue further damages or remedies, they would need to consult with an attorney.
If a seller defaults
The buyer has two options if a seller defaults on a purchase agreement. The first remedy is to retain earnest money paid and move on from the current transactions.
The second and far more involved option is for the buyer to sue the seller for the performance of the agreement. Essentially, the litigation here is the buyer attempting to push the seller into honoring their end of the purchase agreement. The catch is that should the buyer lose the resulting litigation, they must cover the cost of the seller's attorney fees and any related expenses.
One final note is that regardless of which party defaults, if the breach occurs at the point a home can close without further delay, the seller's and buyer's respective agents or brokers would still be owed commissions and can pursue damages if they choose.
Short sale
A short sale, sometimes also called a pre-foreclosure sale, is the sale of a property for less than the current amount owed on the mortgage.
Short sales are possible only with the approval of the lender and occur due to financial hardship on the borrower's part, rendering them unable to meet the terms of their mortgage. Lenders often approve short sales as they are cheaper to administer and offer a more favorable outcome as proceeds from the sale are returned to the lender.
For the borrower (seller), a short sale is less of a financial hardship than going into foreclosure on their home.
Possible litigation concerns
While the prospect of a short sale and the opportunity to acquire a property at a steep discount, the purchase process is not as ideal as a standard acquisition.
Short sales can be complicated, as the buyer must first negotiate with the seller, then wait for their lender to approve the agreed-upon price and terms, which can take months. In addition, the property in a short sale is sold as-is.
However, unlike a foreclosure, where there's no opportunity to inspect a property beforehand, and the sale is cash only, a short sale allows for a financed purchase and standard due diligence, including a home inspection. Take advantage of the opportunity to inspect and verify the property's condition.
Buyers should also know that a short sale happens due to the current owner's financial situation. For that reason alone, besides the services and due diligence provided by a realtor, you should also seek out an attorney to vet the purchase and identify and resolve any concerns before fully committing to the process.
Foreclosure
Circling back to our section on defaults, a foreclosure is, in many respects, the nadir of real estate defaults, where a homeowner is no longer willing or is financially unable to make their mortgage payments. The foreclosure process starts after a final Notice of Default after 90 days of missed mortgage payments.
As a last effort to prevent foreclosure, a lender may consider a deed in lieu of foreclosure, which essentially transfers the title from the owners back to the lender. Eligibility can be steep, with many lenders preferring to follow the foreclosure route.
The property is placed for public auction. If the property sells to a qualified cash bidder, the buyer takes immediate possession of the property.
If the property does not sell, it becomes bank-owned, and the lender will work to facilitate the home sale. In most cases, the foreclosed-upon homeowner is allowed to stay in the property until it's sold at auction or reverts to bank ownership. In both instances, the occupants can be immediately evicted.
Possible litigation concerns
As much of a hardship a foreclosure can create for the current property owner, purchasing a foreclosed property is as straightforward as showing up at an auction (typically at the county courthouse or local auction site) with cash in hand. Foreclosure purchases cannot be purchased with a traditional loan, and the property is sold as-is, sight unseen, and without warranty.
In the ultimate high-risk, high-reward proposition, you assume any liens tied to the property and accept its physical condition, regardless of severity or livability, without any grounds for recourse.
The biggest pitfall in purchasing a foreclosure is when the prior owner remains in the home. In Florida, a foreclosed-upon owner can stay in the property as an occupant/tenant until a new owner moves to evict them. You typically cannot start that process until you receive the certificate of title, which can take one to two weeks. After that, the eviction process can take approximately one to three days.
Reach out to the Justin Myers Team for more information
Contact the Justin Myers Team today if you're ready to buy or sell a luxury home in Destin, Miramar Beach, Seaside, or any of the other spectacular Emerald Coast communities. Allow Justin and his team's experience and expertise to guide you through the celebrated 30A luxury real estate market.
