Andrew Pardun, Author at Battaglia, Ross, Dicus & McQuaid, P.A.

Why You Should Put Real Estate in an LLC in St. Petersburg

Andrew Pardun — Tue, 20 Aug 2024 19:21:58 +0000

Investing in real estate can be a fantastic way to grow your wealth, but it comes with its own set of risks. If you own property in St. Petersburg, there’s a smart move you can make for peace of mind: putting your real estate into an LLC.

Imagine your rental properties are bringing in a great income, but there’s always that worry—what if someone sues you or a debt arises? Without the right protection, your personal assets like your home and savings could be at risk. That’s where a Limited Liability Company (LLC) comes in.

For property owners in sunny St. Petersburg, using an LLC isn’t just smart—it’s a way to protect what you’ve worked so hard to build. You can rest easy knowing your investments are safe from unexpected challenges.

Here’s why an LLC can be a game-changer for your real estate investments:

Liability Protection: This means your personal stuff is off-limits if your LLC faces a lawsuit or debts. Your home, savings, and other personal assets stay safe.

Separation of Assets: Keeping your personal and business properties distinct helps you manage them better and avoid a financial mess.

Tax Advantages: Enjoy the perks of pass-through taxation, which can help you dodge double taxation, keeping more money in your pocket.

To navigate this process smoothly, consult a St. Petersburg real estate attorney. They’ll ensure you meet all local regulations and tailor the LLC to your specific needs.

Ready to take your real estate investments to the next level while enjoying greater peace of mind? Read on to discover why putting your St. Petersburg real estate in an LLC might be the smartest move you make for your financial future.

Understanding LLCs and Their Benefits for Real Estate Investors

A Florida real estate LLC (Limited Liability Company) is a legal business entity used to own and manage property. It provides personal asset protection by separating personal and business assets, which means your home and savings are generally protected from business-related liabilities. Additionally, it offers potential tax benefits for property owners.

Liability Protection

An LLC offers real estate investors liability protection, shielding personal assets from property-related lawsuits and debts. If sued over an incident on your property, only the LLC’s assets are at risk, not your personal savings or other properties.

Separation of Assets

An LLC helps in organizing personal and business properties effectively by separating your assets, simplifying accounting, easing tax filing, and reducing ownership confusion.

Avoiding Double Taxation

LLCs offer pass-through taxation, avoiding double taxation faced by corporations. Income passes directly to owners’ personal tax returns, making LLCs a preferred choice for real estate investors.

LLCs protect assets and provide tax advantages for real estate investors.

Legal Considerations for Forming an LLC in Florida

Filing Articles of Organization

To form an LLC in Florida, start by filing the Articles of Organization with the Florida Division of Corporations. This document includes:

Name and address of the LLC
Names and addresses of the members or managers
Registered agent information

Submitting these details is essential for legally establishing your LLC.

Importance of an Operating Agreement

An Operating Agreement outlines the management structure. It specifies:

Roles and responsibilities of members
Voting rights and decision-making processes
Procedures for adding or removing members

Having this agreement helps maintain clear operational guidelines.

Consulting a St. Petersburg Real Estate Attorney

Consult a lawyer with specialized Florida real estate experience to navigate state regulations. Legal professionals provide:

Tailored advice on Florida law compliance
Assistance with necessary documents
Guidance on asset protection

A consultation ensures legal compliance, protecting your investment.

Forming an LLC in Florida involves many steps and legal considerations. Consulting a St. Petersburg real estate attorney streamlines this process, ensuring proper protection and management of your investments.

Transferring Real Property into Your Newly Formed LLC

Transferring real property into an LLC involves several important steps. One key step is filing a Quit Claim Deed with the County Clerk’s office. This document transfers ownership of the property from your name to the LLC. It is essential to ensure that all details are accurate to avoid any legal complications.

Filing a Quit Claim Deed

Prepare the Quit Claim Deed: Include details such as property description, names of the grantor (current owner) and grantee (LLC), and notarized signatures.

Submit to County Clerk’s Office: File the completed deed with the Pinellas County Clerk’s office where the property is located.

Record Keeping: Ensure you keep copies for your records and confirm that the transfer has been recorded properly.

Mortgages and Liens

If there are existing mortgages on the property, you must inform your lender before transferring it to an LLC. Some lenders may require full repayment upon transfer, or they might need to reassess terms.

Homestead Exemptions

When transferring properties into an LLC, you might lose certain benefits such as homestead exemptions. These exemptions provide significant tax advantages and protections under Florida law:

Property Tax Reduction: Homestead exemptions can lower your property taxes.

Protection from Forced Sale: This protects your primary residence from creditors in most cases.

Transferring your primary residence into an LLC could mean forfeiting these benefits. Assess whether these potential losses outweigh the advantages of using an LLC for asset protection and business purposes.

Consulting a St. Petersburg real estate attorney ensures this process goes smoothly and legally, protecting your interests throughout the transfer process.

Estate Planning, Asset Protection, and Tax Implications with an LLC

Using an LLC for estate planning has many long-term benefits. One major benefit is charging order protection. This protection helps keep your assets safe from lawsuits by limiting a creditor’s ability to take your property held in the LLC.

Tax Advantages

Pass-through Taxation: Unlike corporations that face double taxation, an LLC allows for pass-through taxation. This means profits are only taxed once on your personal income tax return.

Expense Deduction: Owners can also deduct various expenses related to managing their properties, reducing overall taxable income.

Estate Planning Benefits

Asset Distribution: An LLC makes it easier to transfer real estate to heirs, making estate administration smoother and potentially avoiding probate.

Control and Flexibility: You retain control over how assets are managed and distributed among beneficiaries, offering more flexibility than traditional wills or trusts.

These benefits make forming an LLC a smart choice for real estate owners in St. Pete looking to protect their investments and optimize their tax situation.

Insurance Considerations for Property Owners with an LLC

Insurance for LLC property owners is crucial. It protects your investments and shields you from potential liabilities. Here are some essential types of insurance you should consider:

General Liability Insurance

This type of insurance covers legal fees, medical expenses, and damages if someone is injured on your property. It also protects against lawsuits related to tenant injuries or accidents.

Property Insurance

Property insurance covers damage to the physical structure of your property. This includes protection against natural disasters, vandalism, fire, and theft.

Landlord Insurance

If you rent out your property, landlord insurance is a must. It covers lost rental income if your property becomes uninhabitable due to covered perils. It also includes liability coverage for tenant-related claims.

Umbrella Insurance

Umbrella insurance provides additional liability coverage beyond your standard policies. It’s beneficial for large real estate portfolios as it offers extra protection against significant claims or lawsuits.

Workers’ Compensation Insurance

If you employ workers for maintenance or management tasks, workers’ compensation insurance is necessary. It covers medical expenses and lost wages for employees injured on the job.

Business Interruption Insurance

This type of insurance compensates for lost income if your property operations are halted due to a covered event. It helps in managing expenses during the period when your property is being repaired or restored.

Investing in these insurances ensures comprehensive coverage for properties held under an LLC, protecting both assets and income streams from unforeseen events.

How a St. Petersburg Real Estate Attorney Can Help You With Your LLC

Forming an LLC can be complicated, especially when it comes to understanding the legal requirements. That’s where a St. Petersburg real estate attorney comes in. They can help you navigate through the process and ensure that your LLC complies with all state laws.

Here’s how an attorney can assist you:

1. Filing Requirements

An attorney can help you complete and submit all necessary documents, such as the Articles of Organization, which are required to officially establish your LLC.

2. State Regulations

Florida has specific rules that govern LLCs. A St. Petersburg real estate attorney who specializes in real estate can advise you on these regulations and how they may impact your business.

Protecting Your Assets

One of the main reasons people choose to form an LLC is to protect their personal assets from potential liabilities associated with their business activities. A knowledgeable lawyer can provide guidance on asset protection strategies tailored to your situation.

This may include:

Identifying any weaknesses or vulnerabilities in your current asset portfolio

Implementing measures to minimize exposure to lawsuits and debts

Drafting Operating Agreements

An operating agreement is a crucial document that outlines the ownership and management structure of your LLC. It also sets forth the rights and responsibilities of each member.

An experienced attorney customizes your operating agreement to reflect your business model, preventing conflicts with clear decision-making and operational guidelines.

Contact a St. Petersburg Real Estate Attorney For a Free Consultation

Consult the seasoned attorneys at Battaglia, Ross, Dicus & McQuaid, P.A. in St. Petersburg to understand the benefits of forming an LLC for your property investments. Our legal experts provide invaluable insights to help you make informed decisions tailored to your specific needs.

Take advantage of a free consultation to discuss your unique situation and explore customized solutions. This initial meeting can clear up many aspects, from tax implications to asset protection strategies.

With a proven history of success and a strong commitment to client care, you can trust us to safeguard your real estate interests. Our experienced attorneys will guide you through the legal complexities, ensuring your LLC is set up correctly and efficiently.

Don’t hesitate—reach out to the professionals at Battaglia, Ross, Dicus & McQuaid, P.A. for personalized advice on setting up and managing an LLC in St. Pete. Protect your assets and optimize your investments with our expert guidance.

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What Are the Rules on Short-Term Rentals in St. Petersburg?

Andrew Pardun — Tue, 21 May 2024 17:02:00 +0000

St. Petersburg has become a hotspot for vacationers due to its vibrant culture and stunning beaches. Properties listed on platforms such as Airbnb or VRBO are not just plentiful but also in high demand due to the city’s vibrant culture, stunning beaches, and year-round sunny weather. Short-term rentals have transformed the lodging market, offering travelers a personalized experience that often combines the comforts of home with the allure of local living. This has made the opportunity for rental income a huge opportunity for homeowners and property investors alike. However, the laws and regulations around the location and duration of short-term rentals have become an equally hot topic. There are critical rules governing short-term rentals in St. Petersburg – namely, a majority of areas do not allow rentals of less than 30 days. Failing to follow these rules can lead to hefty fines. By understanding and adhering to these legal requirements, hosts can operate their rentals legitimately and avoid potential legal pitfalls. Read on to find out more or reach out to a St. Petersburg real estate attorney to talk you through all you need to know.

What Are Short-Term Rentals?

Short-term rentals, often synonymous with vacation rentals, are furnished living spaces available for temporary occupancy, typically less than 30 days. In St. Petersburg, these accommodations have become a popular alternative to hotels for travelers seeking a more personal and home-like experience. Notable platforms facilitating such rentals include Airbnb and VRBO, each offering a unique selection of properties ranging from single rooms to entire homes. The market for short-term rentals in St. Petersburg is robust, driven by the city’s appealing climate, vibrant culture, and numerous attractions. These rentals cater to a diverse clientele: tourists exploring the city’s arts scene, families on beach vacations, and business professionals in town for conferences or short-term projects. Hosts of short-term rentals capitalize on this demand by offering various property types, amenities, and price points to meet the needs of visitors while adhering to local regulations. With its picturesque waterfronts and thriving urban centers, St. Petersburg presents a compelling market for those considering hosting a short-term rental property.

Key Rental Regulations in Saint Petersburg, Florida

In order to operate legally in St. Petersburg, hosts of short-term rentals are required to adhere to a variety of regulations. One essential requirement is the need for hosts to acquire a Business Tax Certificate Receipt and a DBPR license. This emphasis on compliance highlights the city’s dedication to maintaining a balance between the increasing demand for short-term rentals and the welfare of the community.

Zoning Requirements and Rental Frequency Guidelines

Short-term rental properties in St. Petersburg must adhere to specific zoning regulations and limits on rental frequency. These properties can only be rented out a maximum of three times within a year-long period. Keep in mind that there are a lot of different state, county, and city laws. The information here is specific to the city of St. Petersburg. There are two main exceptions to the 30-day or more rental rule.

Condo hotels
Unincorporated areas

Condo Hotels

Condo hotels in the St. Petersburg area are properties that operate as a hybrid between a traditional condominium and a hotel. These establishments typically offer individual units that can be purchased by investors and rented out as short-term accommodations. While guests enjoy the amenities and services of a hotel, they stay in privately-owned condo units.

Unincorporated Areas

Unincorporated communities within Pinellas County, St. Petersburg, Florida, are not officially recognized as independent municipal areas. Instead, they function as integral parts of the larger jurisdiction of Pinellas County. This means that property rentals in unincorporated parts of St. Petersburg fall under the jurisdiction of the county regulations and can be rented short term. These areas can be identified in property records by their address designation as “unincorporated.” For those looking to invest in more budget-friendly options, areas like Unincorporated Liauman, situated northwest of downtown St. Petersburg, offer lower-priced homes. For investors on a smaller budget, Bear Creek is a highly affordable unincorporated area located just a short distance from the beach, as indicated by green markings on the map. On the other hand, Unincorporated Pasadena is a more upscale community with numerous waterfront properties. Additionally, certain townhomes and condos in South Pasadena provide the option for daily or weekly rentals, conveniently located near St. Pete Beach. Many of these communities are gated and offer amenities such as pools and views of golf courses.

Short-Term Rental Rules by Zoning

Zoning districts are classified areas within a city where certain types of properties are permitted to exist. In St. Petersburg, the zoning district of your property significantly impacts whether you can operate a short-term rental. To offer clarity:

In Residential Traditional (RT) and Residential Suburban (RS) zones, short-term rentals are not permitted.
Conversely, in Downtown Center (DC) and Commercial General (CG) zones, short-term rentals are generally allowed.

These rules are not absolute; exceptions may apply based on specific circumstances. It is essential to refer to the City’s Zoning Map or consult with a St. Petersburg real estate attorney to accurately determine your property’s zoning status. The city’s zoning laws also extend to include regulations based on property location. For instance:

If your property is located within a historic district or has landmark status, additional requirements may apply.
Similarly, properties located within coastal high-hazard areas or flood zones may face restrictions or additional safety requirements.

Understanding these regulations is instrumental in maintaining a legal and profitable short-term rental business in St. Petersburg. With extra aid from a St. Petersburg real estate attorney, hosts can ensure they meet all local requirements and avoid potential legal pitfalls.

Property Registration and Code Enforcement

Hosts looking to operate short-term rentals in St. Petersburg must complete several legal steps, starting with property registration. Here’s what you need to know:

Property Registration

The city requires all short-term rental properties to be registered with the local authorities. This process serves two purposes:

Inventory Maintenance: By registering, the city can keep track of all short-term rental properties for regulatory purposes.
Oversight and Accountability: Registering involves providing detailed information about the rental property and the owner. This information helps authorities ensure that hosts are following the rules and regulations.

Code Enforcement

Code enforcement is responsible for enforcing standards that protect both residents and visitors. Here’s how it relates to short-term rentals:

Ensuring Safety: Code enforcement officers conduct inspections of short-term rental properties to make sure they meet safety requirements such as fire codes.
Maintaining Quality: These officers also check if the amenities provided by hosts meet certain quality standards.

Adhering to these rules and regulations is crucial for hosts who want to avoid penalties or even having their business shut down. Here are the key things hosts must do:

Fire Safety: Install smoke detectors, carbon monoxide detectors, and have clear escape routes.
Property Standards: Keep the premises clean, safe, and ready for guests.
Regulatory Measures: Follow any additional rules specific to your zoning district or property location in St. Petersburg.

By meeting these requirements, hosts can continue operating their short-term rentals legally in the city’s thriving market.

Tax Obligations and Financial Responsibilities

When you’re running short-term rentals in St. Petersburg, it’s important to know what taxes you need to pay. As a host, it’s your responsibility to collect the Tourist Development Tax from your guests and give it to the local government. The Tourist Development Tax is a 6% tax on the total amount your guests pay for their stay, excluding sales tax. You need to collect this tax from your guests when they make their payment and then send it to the government every month. Here are some tips to help you handle this:

Keep good records of all the transactions related to your short-term rental business.
Pay your taxes on time so you don’t get hit with any extra fees or interest charges that could eat into your profits.

Running short-term rentals also means you have to be smart about managing expenses like property maintenance, insurance, and marketing. You’ll also need to account for times when nobody’s staying at your place. And remember, if you rent out your property for more than 14 days in a year, you’ll have to report that income on your federal tax return. Make sure you plan ahead for these costs so you can keep your business going strong. Knowing about these financial responsibilities will set you up for success in St. Petersburg’s busy short-term rental market. Reach out to a St. Petersburg real estate attorney whenever you have questions.

Why Compliance Matters

Following these business-related obligations isn’t just about staying on the right side of the law; it can also affect how guests perceive you as a host. Many guests actively look for properties that are properly licensed and registered because it gives them peace of mind knowing that these properties meet certain standards set by local authorities. By understanding and fulfilling these business requirements, you’re taking important steps towards running a successful short-term rental in St. Petersburg.

How Can a St. Petersburg Real Estate Attorney Help Your Process?

Navigating short-term rental laws in St. Petersburg can be complex. A St. Petersburg real estate attorney can aid in various aspects of the rental process, helping streamline and safeguard your interests.

Drafting and reviewing rental agreements for short-term rentals to ensure legal compliance and protection of your rights as a landlord or tenant.
Providing guidance on zoning regulations and local ordinances related to short-term rentals in St. Petersburg to prevent potential violations. – Assisting in obtaining necessary permits or licenses required for short-term rental properties to operate legally.
Handling any disputes or legal issues that may arise between landlords, tenants, or neighbors in relation to short-term rentals.
Offering legal advice on liability concerns and insurance coverage for short-term rental properties to mitigate risks.
Representing clients in negotiations or litigation related to short-term rental agreements or property disputes.

Contact a St. Petersburg Real Estate Attorney For a Free Consultation

Navigating the complex rules and regulations surrounding short-term rentals in St. Petersburg can be overwhelming. We welcome you to take advantage of our knowledge and experience through a free consultation. Our experienced St. Petersburg real estate attorneys understand the local laws that impact your rental business. Get in touch with us today to protect your investment and have peace of mind in the competitive short-term rental market of St. Petersburg. ________________________________________________________________________________________

Award-Winning Attorneys at Battaglia, Ross, Dicus & McQuaid, P.A.

We are the law firm that you call when you want the best attorneys at a fair and reasonable price. When you walk into court with one of our attorneys by your side, you will be treated differently. Our lawyers have spent their careers developing connections and insights that will help your case. For more information please contact us at Battaglia, Ross, Dicus & McQuaid, P.A. to schedule a free consultation with an attorney today. We have three convenient locations in Pinellas County and Hillsborough County to better serve you. Battaglia, Ross, Dicus & McQuaid, P.A 5858 Central Ave St. Petersburg, FL 33707 +(197) 0232-0268 Battaglia, Ross, Dicus & McQuaid, P.A. – Downtown Office 136 4th St N #2233 St. Petersburg, FL 33701 +(197) 0232-0268 Battaglia, Ross, Dicus & McQuaid, P.A. – Riverview Office 12953 US-301, #102 Riverview, FL 33578 (813) 639-8111

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What are Florida Vacation Home LLCs?

Andrew Pardun — Tue, 06 Jun 2023 16:46:38 +0000

Florida vacation home LLCs are used by people from all over the U.S. when owning property in Florida, as it’s a wonderful place to spend time off regardless of the season.

Like all real estate, a vacation property should be included in an estate plan. This is where things get unique.

Vacation homes are not like residential properties. The children of the owner may not have the same desire to use it as their parents did, or their siblings. Somehow, the descendants will have to share its use and maintain it responsibly.

So how do you avoid conflicts, confusion and upset? (While keeping that vacation home as good as it once was?) The answer may be an LLC.

What is a Florida Vacation Home LLC?

A vacation home LLC is a type of business used by vacation homeowners so they can pass down their property and benefit from liabilities related to the property. Using the LLC, a family can detail how the property can be used and how it is managed.

The Benefits of a Florida Vacation Home LLC

Family owners are protected from liability, so they can avoid the risks not covered by a standard homeowner’s insurance policy.
Vacation Home LLCs include a written operating agreement with instructions on how the property should be shared and maintained after the owner’s death.
The owners can transfer their membership interest in the LLC to their living trust, avoiding probate.

Florida Vacation Home LLC Operating Agreements

Like a regular LLC, a vacation home LLC is dictated by its operating agreement.

An operating agreement is a contractual agreement that details the terms of the company, so its members know how to manage it. This includes the management of the vacation home for future generations.

When creating a vacation home LLC in Florida, the operating agreement can cover:

When each family member can use the vacation home.
Who pays for the expenses (maintenance, taxes, utilities)?
Who has the authority to sell or remodel the home?
What rules are there for guests and pets?
How should the property be cleaned or decorated?
Can the property be rented out to others?
What happens if one family member wants to use the vacation home, and the others want to sell it?
What should happen to the interest of a family member-owner if gets divorced?
How should any ownership disputes be resolved?
What happens if the home suffers damage?

Naturally, some decisions can’t be strictly followed by an operating agreement. Unforeseen issues may arise. In these scenarios, the members of the LLC can vote on vacation home decisions. Or, the LLC creator can appoint LLC members as LLC managers so they have higher authority. An operating agreement can also allow a non-family member to oversee family disputes.

You can use a Florida estate planning lawyer or Florida business contract lawyer to help you draft a thorough and legally water-tight operating agreement.

How to Form a Vacation Home LLC in Florida

Starting a vacation home LLC in Florida is achieved similarly to starting a regular LLC. You will need to:

Choose an LLC name
Get a registered agent
Draft an LLC operating agreement
File Articles of Organization
Get an EIN
File annual reports

It’s advised that you complete these steps with the assistance of our Florida business formation lawyers, to avoid making costly mistakes. We will ensure you meet all the necessary regulations and formal requirements, so your vacation property is safe for generations to come

Read Related: How to Start an LLC in Florida

Other Vacation Home Ownership Options in Florida

Vacation Home Partnership Options

Another ownership option for a family vacation home is through a ‘family limited partnership’.

Individual limited partners are protected from liability for uninsured claims.
General partners can protect themselves by filing an election with the State of Florida (to be treated as an LLC partnership).
State filing fees for limited partnerships are higher than for LLCs, so most families opt for an LLC vacation home.

Vacation Home Trusts

Alternatively, the owner of a vacation home in Florida can gift the property.

To do this, it can be placed in a vacation home trust (a type of irrevocable trust).
When the owner passes away, the beneficiaries of the trust would gain the benefits of the property.
Once they pass away, their descendants would also become beneficiaries.
Another benefit of a trust is that the agreement allows you to customize the guidelines and terms. So, the property is managed in the best interests of the beneficiaries and potentially sold at a predetermined date or milestone.
A trustee can oversee the management and a trust protector can be appointed to mediate family disputes.
A customized trust agreement would provide guidelines for the shared use and ongoing maintenance of the family vacation home. A trust protector can be appointed to mediate family disagreements.

The downside is that the trustee is at risk of liability. If someone makes an uninsured claim on the family vacation home, the trustee may be personally liable.

Finally, trust agreements usually prevent beneficiaries from having power over trust management, so if you’d like to give your children authority over the property, then a Florida vacation home LLC may be the best option.

Protecting Your Vacation Home

All these types of Florida vacation home options provide asset protection for the decedent’s interest in the property (if a creditor has a civil judgment against the individual heir).
In Florida, the law prevents a creditor’s judgment from taking the descendant’s interest in the family vacation home LLC.
Florida law prevents creditors from placing liens on distributions from the LLC, onto the family members.

Contact our Residential Real Estate Attorney in Riverview and St. Petersburg, Florida

If you want to own a Florida vacation home LLC, then our Florida residential real estate attorneys are here to help. Our law firm also has a business and LLC lawyer team that can assist as necessary to ensure your ownership is optimized.

Feel free to contact our Florida real estate attorneys today for a free consultation.

Free Consultations

If you’re purchasing a new home in St Petersburg, Florida then contact us today. Our attorneys, Ross and Purdun at Battaglia, Ross, Dicus & McQuaid, P.A. have extensive experience that can help you secure your first home without any hiccups.

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Five First-Time Homebuyer Mistakes You Must Avoid Making

Andrew Pardun — Tue, 12 Apr 2022 16:12:50 +0000

First-time homebuyer mistakes can prove extremely regretful, both financially and emotionally. While it’s very exciting to buy your own home for the first time, you need to stay focused on making no mistakes.

As Florida real estate attorneys, we’ve seen it all and know what the common pitfalls are. You should have no shame in asking attorneys and real estate agents questions. It’s always better to be safe than sorry.

Common First-Time Homebuyer Mistakes in Florida

1. Not Using First-Time Homebuyer Benefits

First-time homebuyers may be entitled to programs that can help finance first property purchases.

For example, Tampa’s ‘Dare to Own‘ program helps new homebuyers within the city limits pay for down payments.

There are three government-insured loan programs for first-time homebuyers, provided by the Federal Housing Administration (FHA loans), U.S. Department of Agriculture (USDA loans) and U.S. Department of Veterans Affairs (VA loans). It is always worth searching to see if you’re eligible for these programs.

FHA Loans: Just 3.5% down is required, with a minimum 580 credit score. These loans can help borrowers bridge the gap if they don’t have incredible credit or big savings. However, mandatory mortgage insurance is required annually and upfront.
VA Loans: Active-duty and veteran military service members (and their spouses) are eligible for VA loans. These loans are provided via private lenders, with a cap on lender fees to minimize borrowing costs. There is no required payment but you may need to pay a funding fee.
USDA Loans: Moderate to low-income borrowers in rural areas can gain support via USDA loans. Area and income limits apply to qualify.

2. Waiving a Home Inspection

One of the biggest first-time homebuyer mistakes is to think it’s wise to save money by waiving a home inspection. If you’ve been considering this, then think again.

Even if you visit a property and believe there are no issues to be worried about, do not risk it. The money saved is almost never worth it.

Picture this: You move into your new home after waiving a home inspection. The dream is a reality, right? But maybe you’re actually about to enter a nightmare.

If within days you start noticing big problems such as significant mold damage, structural problems or awful plumbing issues, then it’ll be too late for the seller to repair them.

Instead, you will be the one paying for it. And those repairs will likely be far more expensive than an inspection cost. Years of savings and hard work will be gone. Your dream home will now be a construction site until fixed.

Worse, you may also:

Struggle to get your property insured;
Struggle to resell the home;
Struggle to negotiate;
Be unable to walk away like you would if you had a home inspection that revealed the problems.

3. Buying a House for More Than You Can Afford

Many first-time homebuyers make the mistake of falling in love with a property that pushes their budgets. This is never a good idea.

Although pre-approval will provide a solid estimate of how much you can afford, it might not fit your budget. You must factor in your monthly expenses.

If you buy a home for more than you can afford, you increase the risk of foreclosure during hard times. Plus, do you really want to cut back on all your other expenses from bills to retirement accounts or personal savings?

Instead, you should focus on what monthly payment you can comfortably afford. You might be able to qualify for a $300,000 loan, but that doesn’t mean you need to go for the maximum figure.

Of course, every first-time homebuyer’s situation is different, so consider your entire financial profile.

4. Looking for a Home Before a Mortgage

Another common first-time homebuyer mistake is to look at a house before meeting a mortgage lender.

With the current residential real estate market so competitive, you will seriously struggle to get your offer accepted if you don’t have either a mortgage pre-approval or cash in hand.

Sellers don’t take risks on people who don’t have evidence that they can get a mortgage. Why would they? There is always a queue of other buyers with pre-approved mortgages lining up.

This is usually a waste of time and can see you miss out on a potential home.

Instead, you should ensure you’ve got a fully underwritten pre-approval. Doing so will clearly indicate you’re a serious buyer, fit and ready to purchase the home.

5. Not Getting Contracts Reviewed

First-time homebuyers should never complete a real estate purchase without a contract review provided by a Florida real estate attorney.

Contracts contain everything from contingencies and home review inspections to closing dates and closing cost agreements.

One mistake in your phrasing here can be interpreted in a costly way. Plus, if you completely overlook a crucial factor, you could be liable if the deal collapses.

A real estate lawyer will help you:

Reduce the chances of an expensive legal dispute in the future.
Ensure fairness and protection on your behalf.
Help you understand all of the conditions specified in your contract.
Ensure any contingencies are in place to prevent you from facing liability.
Ensure you are able to walk away from the deal with your deposit if a contingency is not met during the required time frame.

Contact a Residential Real Estate Attorney in Florida

If you want to avoid making a common first-time homebuyer mistake, then our Florida residential real estate attorneys are here to help.

Our team provides legal assistance for all areas of residential real estate, from drafting and negotiations to closure. Our expertise can ensure you avoid unwanted liability issues and enjoy a smooth transition into homeownership.

Feel free to contact our Florida residential real estate attorneys today for a free consultation.

Free Consultations

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What is Title Insurance and Why Do I Need It?

Andrew Pardun — Tue, 11 Jan 2022 18:47:03 +0000

While it may seem like just another mysterious fee hidden in the fine print, title insurance does serve a purpose. You may know that lenders require a policy and that you or the seller will pay for it. But do you actually know what title insurance is and why you need it? Title insurance covers potential damages from mistakes in the ownership records of your property. You’ll be required to purchase title insurance if you get a mortgage. Unlike other insurance, title insurance protects the lender or homeowner, even though the buyer pays for it. Even though the title insurance policy protects the homeowner or lender, both types will be your responsibility to cover as part of closing costs. There is also an optional title policy that protects the homebuyer as well. Here’s how title insurance works, how to decide whether you need your own policy, and how much you can expect to pay.

What is Title Insurance?

Title insurance pays the policyholder for any errors in a property title. Deed records are not always 100% accurate. So someone with an older title can press a claim on your newly purchased home. Title insurance will pay to protect your title rights. It also serves as compensation if you end up losing the property.

Types of Title Insurance

There are two types of title insurance: lender’s and owner’s. If you get a mortgage, lenders require you to pay for lender’s title insurance as part of closing costs.

Lender’s Title Insurance

Lender’s title insurance protects the mortgage lender. While it’s for the mortgage lender’s benefit, the buyer must pay for it. Lender’s title insurance policies ensure that the lender has the first lien on the house if it’s foreclosed or has unpaid property taxes. When these situations occur, the lender will want to be the first in line to receive the proceeds. The one instance you wouldn’t have to pay for a lender’s title insurance is if you pay for a home with cash. If you don’t borrow any money to buy the house, you don’t need to buy lender’s insurance. If you’re paying for a home with cash, lender’s title insurance is not mandatory, but it’s still in your best interest to get coverage.

Owner’s Title Insurance

Owner’s title insurance is optional and can be paid for by the buyer or the property seller. Title insurance coverage will take effect as soon as you buy the policy and last indefinitely. The good thing about title insurance is that it will cover known and unknown mistakes in the ownership history documents. Unlike lender’s title insurance, owner’s insurance solely protects the property owner. Let’s say, for example, there is suspected forgery with the title. In that case or any related legal matters, the fees would be covered by the owner’s title insurance. Or, let’s say the previous owner of the house left the property with unpaid fees. In that case, your owner’s insurance would cover the costs.

Why Do You Need Title Insurance?

If you purchase a house with a mortgage, you’ll be obligated to buy a lender’s title insurance. But it’s also a good idea to protect yourself with title coverage. Numerous legal situations can arise where title coverage will be helpful. It will come in handy and compensate you for damages when unexpected events come up. Here are a few instances when title insurance can protect you:

If you purchase a house that previously had unreported liens or easements on the property
If you are buying a property that has previously transferred ownership rights through forgery
Accidental errors in record-keeping and documentation
Any other title defect that came before you purchased the title insurance policy

Since there are so many documentation error possibilities, it’s best to protect yourself. You could end up saving yourself thousands of dollars in legal fees by paying one small fee upfront. If you purchase a foreclosed or otherwise problematic home, your odds of getting a defective title increase. The worst-case scenario would be if you had to forfeit the entire property. In that case, title insurance would compensate you.

How Much Does Title Insurance Cost?

The cost of Mandatory lenders title insurance will vary depending on what state you’re in. It usually costs between $500 to $1500 but can be more if you borrow more. Location will be the most significant determinant of cost. Every state has different standards regarding title insurance. Homeowner’s title insurance is optional and generally costs more. Depending on what type of coverage you buy, it can cost anywhere from $700 to $2000. It could even cost more for people who have:

Lower credit scores
Larger loan amounts
Smaller down payments

You might save some money by skipping on homeowners’ title insurance. But if anything comes up in the long run, homeowner’s title insurance will protect you because it doesn’t have an expiration date. So it could end up protecting you even after you’ve sold the house and moved on. In some instances, it might be possible to negotiate sharing title insurance costs with the seller and lender. This is a matter of practice that will vary by jurisdiction.

Can You Choose Title Insurance?

You can choose your own title insurance company, but few people actually do so. It makes more sense to do research and shopping if you buy a homeowner’s policy for yourself. Many times title insurers offer incentives to purchase both sets of policies together.

Risks of Not Having Title Insurance

As mentioned above, lender’s title insurance is mandatory unless you’re paying for the house in cash. Owner’s title insurance is optional, but experts still recommend it. Without owner’s title insurance, you’ll be required to pay for anything that pops up down the road. Unforeseen title issues can be very costly. For example, you might need to hire an attorney to dispute ownership claims on your behalf. Or, you might be stuck with unpaid property taxes from the previous owner. Without owner’s title insurance, you’ll likely have to foot the bill yourself.

Hire a Real Estate Contract Attorney in St Petersburg, FL

If you’re considering purchasing a house in St Petersburg, Florida, contact us today. Our attorneys, Ross and Purdun at Battaglia, Ross, Dicus & McQuaid, P.A. have extensive experience that can help you draft and review your contract and advise you on the following steps to secure your transaction. Contact us today to schedule a free consultation.

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Reasons To Hire A Real Estate Attorney

Andrew Pardun — Fri, 28 May 2021 21:23:57 +0000

According to the United States Department of Housing and Urban Development, over six million homes were sold in the United States in 2019. While home buying and selling are common, real estate transactions are anything but simple. A real estate agent may be able to guide you through some aspects of the process, but complex legal issues demand the attention and advice of an attorney. State and local authorities place strict regulations on the buying and selling of property. If you enter into an agreement without the input of an attorney, you may risk facing significant financial and legal issues down the road. The choice to hire a real estate attorney can help reduce that risk. If you are interested in buying or selling property in Florida, consider visiting with a knowledgeable attorney at St. Petersburg Real Estate Attorneys, Ross & Pardun, A Division of Battaglia, Ross, Dicus & McQuaid, P.A. at +(197) 0232-0268 to understand how we may be able to assist you. How Are Real Estate Attorneys Different From Real Estate Agents? Many real estate buyers and sellers assume that having a real estate agent on their side is good enough and that there is no need to hire a real estate attorney. That might be the case for some very simple real estate transactions. For many real estate deals, especially those with potential legal implications, a real estate agent alone is not enough. While real estate agents are highly knowledgeable, they are not qualified to help clients navigate complex legal issues. In fact, the National Association of Realtors’ code of ethics prohibits agents from engaging in the unauthorized practice of law. This means that agents may not draft legal documents or provide legal advice to clients. Real estate attorneys are well-positioned to protect the legal interests of their clients in real estate transactions. An attorney can assist with many crucial aspects of the buying and selling process, including:

Drafting and reviewing legal documents
Resolving errors or disputes
Negotiating the terms of the real estate contract
Anticipating potential legal issues and advising clients accordingly
Facilitating the closing process
Ensuring time-limited legal deadlines are met
Preparing the title insurance policy

Real estate attorneys bring a wealth of knowledge to the table, and their input can potentially save clients significant time and money long after a sale closes. Most importantly, a real estate attorney’s sole stake in any transaction is the legal protection of the client, which is a key reason to hire a real estate attorney. St. Petersburg Real Estate Attorneys, Ross & Pardun offer a variety of services related to Florida real estate and would be happy to discuss your situation with you. Reasons To Hire a Real Estate Attorney: Buyers Buyers who choose to hire a real estate attorney enjoy peace of mind knowing that their legal interests are protected. Attorneys often represent the interests of buyers as clients by:

Reviewing the sales contract to ensure it is legally compliant
Modifying the contract to add contingencies to protect the buyer
Performing a title search to ensure the seller has the legal right to sell the property
Filing all documents as required under state and local laws
Ensuring that the terms of the contract are met
Representing the buyer in litigation, arbitration, or mediation

Buyers might also want to hire a real estate attorney if there are special circumstances involved. Some examples include:

Purchasing a bank-owned or short-sale property
Purchasing a property from the estate of a deceased individual
A property located in an area with adverse weather or health issues, such as flood zones or toxic substances
Property purchases in another city or state
Tenant-occupied property
Purchasing property which includes an easement or other right-to-use situation

Reasons To Hire a Real Estate Attorney: Sellers Real estate attorneys perform many similar functions for sellers, such as reviewing and modifying documents, performing a title search, and ensuring contractual compliance. An attorney might also assist a seller by:

Reviewing the real estate agent’s listing agreement
Ensuring the seller has met contractual requirements, including disclosure of relevant facts regarding the property, to minimize the risk of future litigation
Negotiating rights which the seller wishes to reserve
Reviewing offers to identify potential issues
Verifying the breakdown of settlement funds at closing

Special circumstances might also prompt a seller to hire a real estate attorney, such as:

Selling a property as executor of an estate
Selling a jointly-owned property during or after a divorce
Known judgments or liens against the property
Home inspection issues resulting in a need to negotiate repairs before closing
Unique sales, such as a land contract for deed or lease to own

Other Reasons To Hire a Real Estate Attorney A real estate attorney can be a valuable resource beyond basic real estate transactions. There are many instances where the decision to hire a real estate attorney could prove beneficial, including:

Seeking to have property rezoned
Subdividing property
Developing property
Buying or selling commercial property
Mortgage refinancing
Commercial or residential real estate leasing
Eviction situations
Mortgage foreclosure law
Land trusts and other special ownership arrangements
Property renovation

Many changes and transitions happen during the cycle of real estate ownership, and they are often governed by strict local or state laws. That also means ample potential for legal missteps, which could result in serious legal or financial liability. One way to safeguard against legal issues is to hire a real estate attorney when legal questions arise. How a Real Estate Attorney Can Help You Buying and selling property can be exciting, but real estate transactions also carry legal consequences. When buyers and sellers fail to ensure that all legal aspects of a real estate transaction are in order, they risk time, money, and legal liability. Deciding to hire a real estate attorney provides peace of mind on legal matters that a real estate agent cannot offer. Attorneys are uniquely positioned to review real estate documents, ensure legal compliance, and help negotiate contractual issues if needed. If you are planning to buy or sell property, or have other legal questions regarding Florida real estate issues, consider speaking with St. Petersburg Real Estate Attorneys, Ross & Pardun, A Division of Battaglia, Ross, Dicus & McQuaid, P.A. at +(197) 0232-0268 to understand how we may be able to help you.

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How to Fill Out the Far-Bar “AS IS” Residential Contract For Sale And Purchase

Andrew Pardun — Mon, 29 Jun 2020 16:30:06 +0000

The Far-Bar “AS IS” Residential Contract For Sale And Purchase is one of the most important aspects to a real estate transaction. The Florida Bar (BAR) and Florida Association of Realtors (FAR) have collaborated to create a universal form for residential real estate deals known as the “FAR/BAR AS IS Residential Contract For Sale And Purchase” to serve as a standard contract in residential real estate transactions. This standard agreement is considered to be a reliable, comprehensive, and legally binding agreement. In my experience, I have found that many underestimate the complexity and the potential pitfalls of customizing this standard agreement. This article will discuss everything you need to know to complete an accurate and legally binding Far-Bar As-Is Contract that will serve its purpose in a residential real estate transaction. While reading this article, you will want to have a copy of the standard Far-Bar “AS IS” Residential Contract For Sale And Purchase in front of you as I will be referring to specific sections throughout this article.

Download Contract

*(Please note that since the posting of this blog there have been additional changes in the 2021 version of the Far-Bar “AS IS” Residential Contract for Sale And Purchase. For more information on the changes you can read this blog here. For a copy of the new draft: Download 2021 Draft.)

The Parties

In the first part of the contract you will need to identify the parties to the agreement. This MUST include the legal name of the Seller as it appears on the title of the property and the legal name of the buyer. The biggest pitfall with this area of the contract is that people tend to leave co-owners off of the agreement or mistakenly substitute a person with a trust or a legal entity. To correctly fill out this area, you should refer to the prior deed or “vesting deed” and use the name of the “Grantee” on such deeds. If the property is owned by multiple parties, all parties must be listed on the document (and must eventually sign at the bottom). If the property is owned by a trust, the legal name of the trust must be listed in this area.

Section 1. Property Description

In this section you will identify the property. You need to be careful to tediously identify exactly what you will be purchasing. This area should include the street address, the county, the parcel ID #, and the legal description. Pay careful attention to the legal description and make sure that what you are putting on the contract matches the legal description of the property being sold or acquired. Section 1(d) & (e) pertain to “Personal Property” meaning appliances, window treatments etc. You should review the list of items in the contract. You will need to add or delete items of Personal Property that will be included or excluded from the sale. Please do not assume that something “goes with the house.” If it is not specifically listed, please add it to the contract.

Section 2. Purchase Price

In this area you will list the purchase price, escrow deposit, and financed amount. For sellers, I recommend getting a significant amount of money down that will be “non-refundable” after the inspection period has passed. This will keep the buyer honest and help ensure that after the inspection period has passed that buyer will close.

Section 3 & 4: Time for Acceptance and Closing Date

This area of the contract is fairly straightforward. The only advice I would offer is to be realistic about these deadlines. If the parties are unable to fully execute the contract before the deadline laid out in 3(a), the contract will become “stale” and will need to be revised and re-executed. This can cause undue delays and be quite irritating. As for choosing a closing date, please be realistic about how much time the parties will need to close. If a buyer is seeking financing, I recommend a closing date approximately 45 days from the date the contract is signed.

Section 7. Assignability

This is a somewhat complex component of the contract. Assignability means that Buyer has the right to assign all of his/her/its rights under the contract to another party who will stand in the shoes of the original Buyer. This new party has all rights the Buyer originally had. The question is, is this allowed at all or will Buyer remain responsible for fulfilling the contractual duties after the assignment has been completed. Sellers should be wary of allowing buyers to check the first box of the contract which allows buyer to assign the contract and be released from liability. This could be used to “flip the contract” or it could be used nefariously to assign the contract to a judgment proof person who has no ability or intention to close. If you are going to allow assignment, Sellers should insist that Buyers remain liable so you would check the second (2^nd) box.

Section 8. Financing

In this section, the parties will indicate whether the Buyer will pay cash or whether there will be some type of financing. If the Buyer elects to pay cash there will be no “financing contingency.” If Buyer elects financing, Buyer’s obligation to purchase the Property will likely be contingent upon Buyer obtaining financing. Seller should insist that Buyer fill out Section 8 in its entirety meaning listing whether the loan will be conventional, FHA, VA, how long they have to be approved, how many years will the loan be, at what interest rate, how much will be financed. Sellers should also consider whether these numbers are realistic. The last thing that Seller wants is to waste time off of the market for financing that will never get approved because Buyer is seeking 98% financing; I recommend keeping this number around 80% at most.

Section 12. Inspection Clause

This section of the contract is one of the most well-known and focused upon areas. This clause will give Buyer the right to walk away from the deal and receive a return of Buyer’s deposit for any reason. Specifically, this section states that: “if Buyer determines, in Buyer’s sole discretion, that the Property is not acceptable to Buyer, Buyer may terminate this Contract . . .” This is a very powerful language. For this reason, Sellers will want to limit this time period as much as possible. Industry standards generally provide for a 10 – 15 day inspection period in a residential deal.

Signatures

The last section of this Contract that I will discuss is the signature area. Please make sure that all owners of the property and all buyers sign this contract. Also, for entities and trusts, you need to make sure that you have individuals with signing authority execute on behalf of the entity or trust. For a Corporation, this is the President, for an LLC the Manager, for a Trust the Trustee.

If you have any further questions regarding the FAR BAR “AS IS” contract, please contact Andrew R. Pardun.

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How to Buy Your First House

Andrew Pardun — Wed, 24 Jun 2020 23:25:20 +0000

For many, homeownership is an important part of the American Dream. It is a way of transitioning from paying someone else to live in their property (renting) to investing in your own home and building wealth by wisely allocating your resources toward an asset that will build equity. Purchasing your first home is something that you will never forget and it may well be one of the biggest and most important decisions that you make in your lifetime. This article is a step-by-step guide to purchasing your first home. This article is not a comprehensive guide. To ensure success, you should align yourself with a team of professionals that will provide you with counsel throughout the home buying process:

Step #1: Build Your Team

Before you begin, you should build your real estate acquisition team. Your initial team should include:

a realtor who has great knowledge of the market and local area (this person should live locally);
a real estate attorney who can review title, contracts, and closing documents,
a lender representative.

This will be your initial team. We will need to add players to your team in later steps but these are the individuals you need to align yourself with before you begin. You may be asking yourself: how much is this going to cost? You may be surprised to learn that building this team is actually quite affordable. Your realtor gets paid by the Seller via commissions. Your lender representative gets paid from the loan which is usually a competitive rate. But what should you expect to pay your real estate attorney? This amount will vary greatly depending on the attorney. I can tell you that personally, I charge a flat rate of $750.00 for buyer representation in residential real estate transactions. Included with that fee, I will review everything you are expected to sign including: title, contracts, loan documents, closing documents, and the closing statement. I will also advise on difficult questions that you may have along the way and connect you to important team players that will be necessary in various steps.

Step #2: Find the Property/Get Pre-Approved

This is where a good realtor will really show his or her value. If your realtor knows the market well and lives locally they should be able to direct you to the most attractive areas within your budget. You may have heard it before: location, location, location. Buying a property in the right location can help you build wealth via home value faster than you ever would have thought possible. I know some excellent realtors in St. Petersburg who really excel in this area and I would be happy to share my contacts with you if you are interested. While you are shopping for real estate you should also seek pre-approval from a lender that can offer you an excellent rate. Today is the time to capitalize on low interest rates. Within the past week I have closed loans with interest rates near 3% and even below 3%. You may not see rates this low again ever in your life so I would recommend taking advantage of this opportunity now.

Step #3: Make the Offer

Once you find a house, your realtor and your attorney will assist you in making your offer to Seller. Careful attention should be paid to the real estate contract. Your realtor can assist you in filling this out but it should be approved by your attorney before the offer is submitted. One very important area of the contract is the Inspection Clause. You will want to get at least a 15 day inspection period. In the standard FARBAR As Is Residential Real Estate contract, the inspection clause allows you to walk away from the sale and receive a return of your deposit for any reason so long as you are within the inspection period. For more information about completing the offer, please review my article on the FAR-BAR AS IS Contract.

Step #4: Inspections

CONGRATULATIONS, if you have made it to this point your offer has been accepted! Now it is time to get serious about inspections. This is the time to carefully examine your potential acquisition to determine what pitfalls may occur in the future. Without question, you will want to engage a general inspector to complete a comprehensive inspection of the entire property. Because this is Florida, I also highly recommend that you engage a mold inspector and a termite inspector. Please do not shy away from this because of the cost. These inspections may run you approximately $1,200.00 which may seem steep but please keep in mind that you are spending potentially hundreds of thousands of dollars to make an investment financed by a 30-year mortgage. I always tell my clients, in 10 years you will not regret spending $1,200.00 but you will regret purchasing a home that had a major termite problem, bad roof, old air conditioning unit, and black mold. Purchasing the wrong house with these types of issues is the kiss of death for financial well-being.

Step #5: Prepare for Closing

After the inspection period has passed you will be expected to move forward and purchase the house. Please get with your lender representative to make sure that your loan is on track to fund by the closing date. At this time, you will also want to get your attorney in touch with the lender and the title company handling the closing of the sale. The attorney will introduce him or herself to these parties and inform them that they are representing you in this sale. The attorney will then review the title and all of the closing documents to make sure everything is in order. Once you have your attorney’s seal of approval you are ready to go ahead and sign, pop the champagne and celebrate. Just like that you nailed purchasing your first home like a true professional!

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COVID-19’s Affect on Contractual Duties of Parties in Real Estate

Andrew Pardun — Mon, 08 Jun 2020 14:37:13 +0000

In recent months, the United States of America and the world have been shaken by the novel Coronavirus (COVID-19). As a result of COVID-19, the economy has experienced unprecedented stress with mounting unemployment numbers and an overall halt in demand and discretionary spending. With so many Americans without jobs, serious questions have arisen regarding the financial stability of the nation at large. Investments that once appeared attractive now may seem to be a sinking ship. In the early stages of COVID-19, the stock market was experiencing daily drops in the Dow Jones Industrial Average of 1,000 points, 2,000 points and even more. Our office has received a wave of inquiries over the past few weeks from investors, buyers and sellers of real estate who all want to know and understand where they stand under their contracts.

Force Majeure Clauses, Impossibility, and Impracticability of Performance of Contractual Duties

I will begin this discussion with an overview of some contractual clauses and the law around those clauses regarding: Force Majeure Clauses, Impossibility, and Impracticability of performance of contractual duties. For those that are unfamiliar, a Force Majeure clause is also generally known as an “Act of God” clause which states in the event of an Act of God, the parties will be temporarily relieved of their contractual duties. These clauses are generally intended to cover situations where closing is not possible due to a hurricane or an earthquake. Most people, myself included, never would have thought that this clause would come into play in the event of a pandemic. I will now discuss some of the specifics of a Force Majeure clause and how it relates to COVID-19. Generally the non-performing party in a contract seeking to use a Force Majeure clause as relief for non-performance bears the duty of proving that the event was indeed beyond the party’s control and that the party was without fault or negligence. Force Majeure events are typically required to be unforeseeable, although Florida law indicates that in some instances where “foreseen” circumstances will relieve performance. As a general rule, the doctrine of impossibility should be applied with great caution if the relevant business risk was foreseeable at the inception of an agreement. This could come into play for parties entering into a contract today to close in a month from today as we do not know how long we will be affected by COVID-19. If a contract does not have a Force Majeure clause the law will not imply one, however, Florida courts do recognize other excuses to a breach of contract. In the absence of a Force Majeure clause, Florida courts have recognized the common law doctrines of “impracticability,” “impossibility,” and “frustration of purpose.” Impracticability applies if there is a non-occurrence which was a basic assumption upon which a contract was formed. Impossibility refers to a situation where the purpose for which a contract was made is impossible to fulfill. The doctrine of frustration of purpose has three elements:

the event giving rise to the claim must be completely unexpected and unforeseeable
the risk of the event must not be provided for
the performance of the contract must be impossible or commercially impracticable

The above may come into play as a result of COVID-19. However, in my experience I have found that in many instances, buyers have been using this clause as an excuse not to perform, not because it is impossible but because they have had a change of heart as to acquiring property in light of the current economic landscape. I would contend that in this circumstance, the buyer would not be relieved of their obligation to close.

Practical Implications of Leasing in the Commercial and Residential Arenas

The next topic I would like to discuss is the practical implications of leasing in the commercial and residential arenas. Due to COVID-19 many tenants, both commercial and residential, have ceased paying their rent. This has a ripple effect of economic hardship as many landlords rely on their rental income to meet their debt and/or mortgage obligations. For those landlords who can endure a slowdown in their rent collection, many have elected to enter into a formal “Forbearance Agreement” stating that rent would be deferred until such time and the tenant is able to resume paying rent. A typical Forbearance Agreement would state that the tenant shall be charged reduced rent for a period of time which is generally equal to the landlord’s carrying cost of the property (mortgage, tax, insurance etc.). The reduced amount is then deferred until a later date and it is agreed that the tenant will repay the amount of the deferred rent installments to the landlord over a subsequent period of time. This is a positive solution for several reasons. For one, the landlord could seek to default the tenant but given the current economic landscape it is unclear how long it would take the landlord to find a replacement tenant. If the landlord has a tenant that has always been good paying but for the hardship realized by COVID-19, that landlord may wish to keep this tenant in place and make an effort to get the tenant back on track with rental payments after COVID-19 has passed. What is clear is that COVID-19 has created new and unforeseen challenges both in commercial and residential real estate. From experience, the best advice I can give at this juncture is to tell everyone to be patient and that this will eventually pass in time. Our office continues to close real estate transactions each week although we have been faced with new challenges throughout the process. There are many moving parts in a real estate transaction and with everyone working from home and buyers and sellers attempting to invoke Force Majeure clauses and lender’s experiencing an influx of loan applications due to historically low interest rates, government stimulus loans, and a workforce that is at home, patience has become the true mantra of our real estate legal team. If you have any questions about your real estate contract please feel free to contact our experienced real estate attorneys.

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Navigating the Paycheck Protection Program (PPP): Application, Eligibility, Forgiveness, Necessity, and More

Andrew Pardun — Mon, 01 Jun 2020 13:03:33 +0000

In response to the unprecedented Coronavirus (COVID-19) congress recently passed the Coronavirus Aid, Relief and Economic Security Act (CARES Act). A part of the CARES Act is the Paycheck Protection Program (PPP) which is designed to assist small businesses with less than 500 employees maintain their employees and payroll for an 8-week period following loan funding. The amount of the PPP loan is the lesser of: 1) $10,000,000.00 or 2) 2.5x the average monthly payroll of the borrower (with certain limitations). The wonderful thing about the PPP loan is that if the guidelines are followed and the funds are used for permissible purposes, the entire loan can be forgiven. Since the inception of this program, the PPP has proved to be confusing, frustrating, and unorganized. Initially, Congress and the SBA were focused on getting money into the hands of small businesses. When the program opened up the SBA and lenders were overwhelmed and unprepared for the influx of applications from borrowers who were afraid for the future of their businesses. There was such a rush to get the funds out that many questions remained unanswered. In the aftermath of the launch of the PPP program, the United States Treasury has produced what is somewhat of a working guidebook to the PPP. This guide is known as the Paycheck Protection Program Loans Frequently Asked Questions (FAQs) and it is being added to almost daily to answer some of the well-founded questions that small businesses have after applying for and in many cases being funded their loans. In this article, I will address some of the more pressing and confusing issues borrowers are currently facing. If you have more questions I would encourage you to refer to the FAQs which can be found on the United States Treasury website. As I mentioned, these FAQs are constantly being updated. As of the date of this article, the last update was April 29, 2020 (which is today).

The $100,000.00 Cap of Compensation to Any One Employee:

Question: The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that exclusion apply to all employee benefits of monetary value? Answer: No. The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including:

employer contributions to defined-benefit or defined-contribution retirement plans;
payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and
payment of state and local taxes assessed on compensation of employees.

Payments to Independent Contractors of the Applicant:

Question: Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower’s payroll costs? Answer: No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs. However, an independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements.

Guidelines Released After the Application Has Been Submitted:

Question: I filed or approved a loan application based on the version of the PPP Interim Final Rule published on April 2, 2020. Do I need to take any action based on the updated guidance in these FAQs? Answer: No. Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application. However, borrowers whose previously submitted loan applications have not yet been processed may revise their applications based on clarifications reflected in these FAQs.

Loan Forgiveness: Eligible Period of Expenses:

Question: The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over an eight-week period; when does that eight-week period begin? Answer: The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.

“Necessary” Under the PPP:

Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan? Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. **The above also applies to businesses owned by private companies under #37 of the PPP published on April 28, 2020**

Calculating Number of Employees (Application and Loan Forgiveness):

Question: To determine borrower eligibility under the 500-employee or other applicable threshold established by the CARES Act, must a borrower count all employees or only full-time equivalent employees? Answer: For purposes of loan eligibility, the CARES Act defines the term employee to include “individuals employed on a full-time, part-time, or other basis.” A borrower must therefore calculate the total number of employees, including part-time employees, when determining their employee headcount for purposes of the eligibility threshold. For example, if a borrower has 200 full-time employees and 50 part-time employees each working 10 hours per week, the borrower has a total of 250 employees. By contrast, for purposes of loan forgiveness, the CARES Act uses the standard of “fulltime equivalent employees” to determine the extent to which the loan forgiveness amount will be reduced in the event of workforce reductions. If you have any questions or need help with PPP Loans, contact the business attorneys of Battaglia, Ross, Dicus & McQuaid, P.A. today.

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