The Real Estate and Business Blog

Q:  I purchased a Florida property at a foreclosure auction where the condominium association (not the lender) had foreclosed on its lien for monthly maintenance.  I am aware that that I purchased the property subject to the first mortgage, but am I responsible for paying the mortgage?  What about the condominium maintenance and property taxes?  Finally, am I able to rent the unit out to a tenant?

A: According to the scenario you describe, the mortgage lien is superior to your ownership interest and therefore you are responsible for paying off that lien if you want to keep the property.  Your responsibility, however, is limited to that ownership interest.  In other words, your failure to satisfy the mortgage by not making payments or paying it off entirely will not affect your credit (obviously – you did not sign the note) and the mortgage lender will not be able to pursue any deficiencies against you – but you will eventually lose your ownership interest in the property.

Property taxes, or ad valorem taxes, are very similar to mortgage liens in that your interest is inferior to any tax lien as well.  Your failure to pay property taxes will not render you liable for the tax bill in the future either except to the extent that you may lose your ownership interest.  Tax Certificates are sold and the purchaser can foreclosure on the property through a tax deed sale (similar to a mortgage foreclosure, but a lot easier and faster).

As the new property owner, you are liable for the condominium maintenance.  By failing to pay your maintenance, the condo association has the right to collect maintenance from you.  Although they rarely pursue personal money judgments, they can foreclosure on the property (isn’t this the way you ended up with the property in the first place?).  Also be aware that recent Florida legislation (effective as of July 1, 2010), condominium associations have the right to collect rent from tenants occupying units that are behind on monthly maintenance payments.  This is done through a simple and inexpensive process provided by this new law.  Arguably, they can even find a tenant and rent out your unit if it is empty.

Your right to collect (and keep) rental income, however, will greatly depend on the rights of the lender per the terms of the loan agreement.  Some mortgage agreements assign rental income to the lenders or allow them to place the property in receivership.  In order for the lender to exercise these rights, though, they must do so through the courts.  And they often do not.  Also bear in mind that, just as described above, the condominium association can always step in to collect the rent if the maintenance is not being paid.

As always, every situation is different.  It is highly recommended that anyone in a similar situation consult with an experienced real estate attorney to learn more about your legal rights and duties.

It's not yet time to relax.

Real Estate Agents must always remain in control of their real estate closings, beginning with the listing agreement and right on through to the closing.  Unfortunately, some Agents still believe that upon the signing of the Purchase and Sale Agreement, the only thing they need to do is sit back and wait for the commission check to arrive.  They couldn’t be more wrong.

Real Estate Agents who have been in the business for a while know that their work begins when the purchase and sale contract is signed.  If the following ten steps are taken, an Agent will find that the work that leads up to closing is much smoother and the chances of having issues preventing a successful sale are diminished considerably.

1.  Establishing the Effective Date.
If there is a fully executed contract and everyone has initialed every page and every handwritten change, an “effective date” of the contract can be determined.  When things are required to be done by the Buyer or Seller under the contract is first determined by the effective date.  Make sure both sides agree on the effective date and get out your date planner. It would be good practice to write a note to your clients outlining the dates.  It will help you remember all the important dates.  Be aware that every contract contains the phrase “Time is of the essence”, which means that ‘Almost’ only counts in horseshoes, hand grenades and nuclear war.  If you miss the date you’ve breached the contract.  Stick to the dates!

2.  The Mortgage Application.
The first deadline is usually the mortgage application.  Make sure the Buyer does it within the timeframe specified, usually five (5) days.  Ensure that the Buyer has documentation verifying the date of the application.

3.  Additional Deposits.
Sometimes, contracts call for additional deposits to be made.  I hate to play lawyer (that’s not true) but failure to meet this date, or any other date, is a breach of contract!  Make sure you send or receive confirmation in writing.  Escrow letters should be made part of your file – ask for them.

4.  Title Documentation.
Get the title information (prior title policy) to the closing agent (me, I hope) or confirm that the Seller has none to give.  This should have been done upon listing the property.

5.  Existing Mortgage Payoff Information.
Get the mortgage payoff information (company, loan number and telephone number) to the closing agent so that the payoff can be requested early on.  It also doesn’t hurt to get a written authorization from the Seller (lenders sometimes require one before providing this information).

6. Condominium or Homeowner Associations.
If it is a condominium or homeowner association, obtain the necessary payoff information.  The association documents hopefully have been delivered to the Buyer, triggering the rescission period time clock.  If it is a condo, start the approval process immediately.

7.  Home Inspections, Municipal Code Violations and Buyer’s Right to Cancel.
Make sure inspections are done and the written reports delivered to the Buyer.  If the Buyer disapproves of the report, make sure a report is delivered to the Seller if the contract calls for it, and send notice of intent to cancel within the contract deadline.  Recommend to the Buyer that a municipal lien search (also referred to as “lien letters”) be obtained through the closing agent early on.  Some contracts require that municipal issues, such as code enforcement violations or citations and open permits, be raised and objected to during the inspection period, otherwise they are waived.

8.  Homeowner’s Insurance.
Make sure the Buyer has selected an insurance agent to obtain Hazard Insurance.  Insurance agents must take pictures of the property, which takes some time.  Even if it is a condo (where a homeowner’s policy is not necessary), suggest that the buyer obtain contents/liability insurance anyway.

9.  Boundary Survey.
Although the title agent orders the survey, don’t assume that it will automatically happen.  When the  Buyer is purchasing the property without financing (i.e., an all-cash deal), title agents often assume that the buyer does not want to obtain a survey or simply neglect to obtain one.  This is can turn out to be a terrible mistake for the Buyer.  There’s a reason why lenders demand that a survey be obtained: an encroachment can affect the use of the property, the value of the property and can affect the owner’s ability to later obtain financing.  It can also lead to litigation.  Worse yet, it can lead to a very upset client.  Make certain that the Buyer is aware of the importance of obtaining a survey.  If a survey will be performed, make the Sellers aware that a surveyor will come by to inspect the property boundary lines so that there are no confusion or delays.  Sometimes it may take some arranging to get the surveyor on the property, so make sure that the title agent doesn’t delay in ordering one.

10.  Following Up With Lender.
Follow up with the Lender to ensure that the Buyer has done everything required.  You want to make sure that the file gets submitted to underwriting!  If has not been submitted, something is incomplete and the Buyer may need some help.

Real Estate Agents should get to know an experienced Real Estate Attorney that is hands-on and should begin by asking other agents of known law firms that handle real estate closings.  By doing so, they may find that the deals close a bit easier and with less involvement on their part.  Getting an attorney title agent involved in the deal from the beginning, as opposed to just a title agent, will also allow title defects and other legal matters to be resolved quickly without resorting to a last minute search for an attorney to rescue the deal on an emergency basis!  After all, real estate attorneys do not charge any more for their closing services than title agents do.  And yet you get all the added benefits should the need arise.

Once the deal is closed, then you can start relaxing on your hammock.