USURY: THE PITFALLS OF CHARGING TOO MUCH INTEREST

Luxury Homes and Estates of Florida, April 2007

In the recent heated real estate environment, buyers went to great lengths to purchase property with the intent to flip same and make incredible profits. Often, the speculators were over extended and needed additional funds from friends and family members. Loans were secured with promises of quick and exorbitant returns.

Many times promissory notes were prepared by the individual without the aid of an attorney due to time constraints or merely to save money. A recent spat of these homespun promissory notes is now hitting the court system and with disastrous results to the lender.

Private lenders must be aware of Florida Statutes governing usury. Pursuant to Florida Statute 687.03, it is unlawful for a person to collect or attempt to collect interest on any obligation at a higher rate of interest than the equivalent of 18% per annum simple interest.

Pursuant to Florida Statute 687.04, any person who charged and collected usurious interest shall forfeit double the amount of interest paid.

In other words, not only are you not to collect usurious interest pursuant to the statute, as a penalty you will be required to pay double the amount of interest that you have received.

In the event that the lender seeks to enforce a promissory note that is usurious a defense or counterclaim may be received based on usury. The only amount of money that may be recovered is the actual principal sum loaned. *Further, the court may require that the principal be reduced by all interest paid pursuant to the statute.

*If the interest that you have charged exceeds 25% of the loan value you may be subject to enhanced penalties under Florida law.

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Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.

THE NAKED PROMISE TO BUY A HOME IS ENFORCEABLE

Luxury Homes and Estates of Florida,

There appears to be a misconception that a deposit must be made by a buyer of real estate to seal the deal. The Standard Contract for Sale and Purchase often requires a deposit be paid, however, the failure of the buyer to deliver the deposit does not render the contract unenforceable.

On the contrary, in the case of Peterson Homes, Inc. v. Johnson, 691 So.2d 563 (Fla. 5th DCA 1997) the court ruled that the promise to purchase property creates a binding contract even though the purchaser has paid no earnest money deposit.

In Peterson Homes, the buyer signed a contract to purchase a home for $1.1 million. The buyer was required to pay a $600,000 deposit into escrow. Peterson Homes accepted the contract, however, the buyer neither paid the deposit nor attended the closing.

Peterson Homes filed suit and claimed breach of contract.

The trial court denied the claim on the grounds that the contract lacked consideration because the buyer failed to deliver the deposit.

Evidently the trial court reasoned that a buyer can sign a contract and elect not to deliver the deposit which effectively voids same.

The 5th DCA made short shrift of this argument. No part of the contract required that the earnest money deposited be paid at the time the agreement was signed. Therefore, the contract was not contingent upon the delivery of the deposit.

A signature on a contract is all that is required to have a legal and binding promise to purchase.

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Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.

MARKETABLE RECORD TITLE ACT: THE CLOCK MAY BE TICKING AGAINST HOMEOWNERS ASSOCIATIONS

Luxury Homes and Estates of Florida,

Real property in Florida is subject to the Marketable Record Title Act*. This Act is designed to remove encumbrances against property in order to promote free and clear alienability of property. The Act generally applies to remove clouds from title which have not been re-recorded for thirty years.

In other words, if a document was recorded effecting the property over thirty years ago the Act may remove the claim from your title completely.

A core concern of the Marketable Record Title Act is that there be no hidden interest in property that could later be asserted against the property owner. See Blanton v. City of Pinellas Park, 887 So.2d 1224, 1232 (Fla. 2004).

The Marketable Record Title Act can extinguish homeowners’ covenants and restrictions if same have been abandoned and not re-recorded in the thirty year timeframe. The failure to preserve by re-recording can be fatal to homeowners associations covenants and restrictions. See Berger v. Riverwind Parking, LLP, 842 So.2d 918, 922 (Fla. 5th DCA 2000).

Homeowners associations are permitted to preserve their covenants and restrictions by recording a statement of the homeowners association’s claim pursuant to 712.06 of the Florida Statutes. H&F Land, Inc. Panama City-Bay County Airport and Industrial District 736 So.2d 1167 (Fla. 1999). The legislature adopted the statutory notice mechanism to preserve covenants and restrictions in 1997. Before that date homeowners associations routinely filed amendments, restatements and consolidations of the covenants and restrictions all designed to give notice in the chain of title in order to safeguard the restrictions from extinction.

Accordingly, each homeowners association must record it or lose it.

*Chapter 712 of the Florida Statutes.

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Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.

LIS PENDENS ARE NOT NECESSARILY FREE

Luxury Homes and Estates in Florida, November 2006

A lis pendens is a recorded document describing real property that provides notice to all the world of a dispute. In a purchase and sale contract a buyer will often retain the right to sue for specific performance. In the event a contract turns sour the buyer may file a lawsuit to force the sale of the property. A lis pendens is recorded in order to prevent the seller from transferring the property to a third party and thereby avoiding the jilted buyer’s claim.

Fairness requires that a bond be posted to protect the interests of a seller. The lis pendens places a red-flag in the chain of title and limits the marketability of the property. The practical effects of the lis pendens is that the owner oftentimes cannot sell or mortgage the property. If the proponent of a lis pendens turns out to not have had a valid claim the adverse economic consequences to the seller are obvious.

The Supreme Court of Florida has ruled that in circumstances where a lis pendens is recorded against property that is not related to a recorded interest (i.e., a deed or lien), the trial court has discretion to require a bond to serve as protection against damages arising from an unjustified lis pendens*. Although the court retains discretion a bond is likely wherein the facts are thin. The court will schedule an evidentiary hearing to learn all the potential damages. The type of damages that the bond should protect against include, but are not limited to, the seller’s attorney’s fees, mortgage carry expense, property taxes, insurance, and erosion in sale price.

A buyer seeking to tie up the property with a lis pendens may be asked to put his money where his mouth is.

Simple fairness requires that if you deprive a seller of the right to sell the property you should compensate the seller in the event the buyer ultimately loses the case.

Before the Supreme Court’s announcement some districts in Florida thought it mandatory to post a bond. In other jurisdictions the courts deemed the trial court to have discretion but also required that the seller prove irreparable harm.

The Supreme Court removes any doubt: (1) the court retains discretion to require a bond; and (2) the seller need not show irreparable harm but merely demonstrate damages will likely flow from the cloud on title.

*The Supreme Court case is Medical Facilities Development, Inc. v. Little Arch Creek Properties, Inc., 675 So.2d 915 (Fla. 1996).

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Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.

WHAT HAPPENS IF THE COST TO BUILD A HOME EXCEEDS THE CONTRACT PRICE?

Luxury Homes and Estates in Florida, October 2006

There has been an explosion of home building in Central Florida. Builders often execute contracts for homes that will not be built and closed until over a year passes. The contract price is frozen, however, a cost spiral fueled by oil price increases and competition for raw materials with foreign countries and natural disasters have impacted builders.

In some cases the cost to actually construct the home exceeds the sale price.

Many builders saddled with the additional costs demand a price increase or threaten to walk off the job. The buyer should not panic.

Even under extreme situations where materials are not only more expensive but actually unavailable, Florida courts have held such not to be grounds for a price increase or to excuse non-performance.

There is little Florida caselaw dealing with the principal of commercial impracticability. However, those cases which address the issue hold that unexpected difficulties or expenses will not excuse a party to a contract from performance. North American Van Lines v. Collyer, 616 So.2d 177 (Fla. 5th DCA 1993); and City of Tampa v. City of Port Tampa, 127 So.2d 119 (Fla. 2nd DCA 1961). In City of Tampa, the court strict measure:

Inconvenience or the cost of compliance, though they might make compliance a hardship, cannot excuse a party from the performance of an absolute and unqualified undertaking to do a thing that is possible and lawful. Parties sui juris bind themselves by their lawful contracts, and the courts cannot alter them because they work a hardship. The rights of the parties must be measured by the contract which they themselves made. A contract is not invalid, nor is the obligor therein in any manner discharged from its binding effect, because it turns out to be difficult or burdensome to perform. It has been said that difficulties, even if unforeseen and however great, are no excuse, and that the fact that a contract has become more burdensome in its operation than was anticipated is not ground for its recision.

Florida’s legal position as to commercial impracticability, as stated in the above-cited language, reflects a traditional notion that performance is excused only when actually impossible. See also Valencia Center, Inc. v. Public Supermarkets, Inc., 464 So.2d 1267, 1268 (Fla. 3rd DCA 1985). (Although impossibility of performance can include extreme impracticability of performance, the courts are reluctant to excuse performance that is not impossible, but merely inconvenient, profitless, and expensive.)

In the final analysis, a builder will have little success arguing for a price increase merely because there is no profit left in the house or because he must come out of pocket to complete construction.

Visit our website for more information on this subject.

Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.

Get Your Share of Surplus Funds Remaining After a Foreclosure Sale

Luxury Homes and Estates in Florida, August 2006

Foreclosure actions are routinely filed by banks against homes if the borrower defaults in payment. Homeowners can also be subject to foreclosure actions for failure to pay homeowner’s association dues, assessments or mechanics liens.

As a result of the foreclosure process a sale is scheduled wherein the property is auctioned by the Clerk of the Court. If the bidding is zealous the property may sell for an amount far exceeding the judgment. The extra monies are retained by the court and designated as “surplus funds”.

A new Florida statute has been enacted dealing with surplus funds. The new law establishes a 60 day deadline to make a claim after the foreclosure sale is completed.

In the event that you are holding a subordinate interest in property and the bidding exceeds the value of the superior lien, mortgage or interest, you must make a claim within 60 days of the sale otherwise your rights in the surplus funds can be extinguished.

Accordingly, if you are named as a party in a foreclosure action you should carefully monitor the sale and if surplus funds are generated you must act quickly to make a claim.

Visit our website for more information on this subject.

Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.

Lease Option/Renewal Deadlines Are Not Written In Stone

Luxury Homes and Estates in Florida

If you miss a lease renewal deadline consult an attorney.

Leases often grant the tenant the right to renew the lease for an additional term. However, tenants routinely forget to give the appropriate notice. Once the error has been discovered the tenant provides a delinquent notice.

The landlord may terminate the lease in order to sell the property or re-let the premises and collect higher rent. The tenant can suffer extreme hardship due to loss of business location and loss of investment from build out of the premises. The courts can and do intervene on behalf of tenants to reinstate and mandate the renewal of a lease for an additional term. The courts recognize that it may be inequitable for a landlord to seize upon a technical breach to deny a tenant valuable property rights. The court may reinstate and renew the lease if the following factors are presented:

1. the delay in giving notice of renewal is slight;
2. the delay did not prejudice the landlord; and
3. the failure to renew the lease would cause the tenant extreme hardship.

A myriad of other factors are considered by the court and are deemed persuasive including whether or not the landlord allowed the tenant to make improvements and additional investment in the premises. The tenant will argue that he acted in reliance upon the renewed lease in making substantial improvements. The courts deem it unfair for a landlord to allow the tenant to make improvements only to snatch away the property.

The courts are also anxious to hear whether or not the landlord continued to have an open dialogue with the tenant and never objected to the tardy notice.

The tenant bears the burden to demonstrate that his failure to renew the lease was a product of a mistake, accident or other special circumstances.

In short, if you missed a deadline to renew your lease all may not be lost. A court of equity can intervene to renew the lease.

*See Dungan v. Haige, 54 So.2d 201 (Fla. 1951); Ledford v. Skinner, 328 So.2d 219 (Fla. 1st DCA 1976); Friendship Park Property Corporation v. Shaw, 505 So.2d 456 (Fla. 1st DCA 1987); and Thrifty Dutchman, Inc. v. Florida Supermarkets, Inc., 541 So.2d 634 (Fla. 3rd DCA 1989).

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Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.