Real Estate

I CAN SEE CLEARLY NOW, IT’S NOT CLOUDY

When purchasing real property in Florida, people will often tell you to make sure that you get “clear title” or “good title” to the property. That sounds like good advice, but what does it really mean? First of all, title is the legal right to control and dispose of property. A deed is evidence of having title to real property, and the different types of deeds were discussed in one of our recent articles. Clear title and good title are different ways of referring to having marketable title to real property. A common definition of marketable title in Florida is title “which a reasonable, prudent person would accept in the ordinary course of business after being fully apprised of the facts and the applicable law.” Additionally, title is marketable if it is free of “clouds” or “defects” such as adverse rights, interests or liens. 

The Florida Uniform Title Standards are a reference for determining whether title is marketable. The preface to the Title Standards describes a title standard as “a voluntary agreement made in advance by members of [The Florida] Bar on the manner of treating a particular title problem when and if it arises.” The Title Standards have not been formally approved by any court or legislative body; however, they are well established principles used by real estate attorneys in Florida when examining title to real property. 

Obtaining title insurance when purchasing real property is the typical way of determining that title is marketable. A real estate attorney will examine recorded documents affecting title to the property, and then apply the Title Standards to any title problems that arise in the examination. Typically a buyer will have a contractual right to object if a seller’s title to real property is unmarketable. Assuming the seller’s title is marketable, the parties can proceed to closing and the buyer will receive an owner’s policy of title insurance. Title insurance is an indemnity against loss resulting from a title defect. If a defect is discovered after closing which renders title unmarketable, and the title insurance policy did not except or exclude the defect from coverage, then the title insurer will typically have to pay up to the policy limits to have the defect removed. 

One of our experienced attorneys can help you with your title questions, as well as closing your real estate transactions. 

Real Estate

Understanding Deeds

For first time homebuyers, or even experienced homebuyers, there are many different aspects of a real estate transaction that seem confusing. One of the most confusing areas can be understanding the different types of deeds. 

A deed is a legal document that transfers the title of real property from the seller to the buyer. In Florida, there are three main types of deeds: general warranty deeds, special warranty deeds and quitclaim deeds. The central differences between these deeds are the covenants (also known as agreements) and warranties that are conveyed by the grantor (the transferring party) to the grantee (the party receiving the deed). 

A general warranty deed gives the buyer the highest level of protection as it provides significant assurances conveyed by the grantor to the grantee. This deed promises that the seller owns the property, has the legal right to sell the property, and that the property is free of liens or encumbrances. In addition, the general warranty deed includes a promise that the new buyer’s ownership will not be impacted by a third-party claim against the property, the seller promises to defend the buyer’s title and will continue to do whatever may be reasonably necessary in the future to perfect title for the buyer. Because of the protections that come with a general warranty deed, this type of deed is the most commonly used deed in sales of residential properties. 

The second type of deed, the special warranty deed, doesn’t provide as much protection for the grantee as the general warranty deed mentioned above. In a special warranty deed, the grantor promises only that the grantor did not create title defects. The grantor is not responsible for and represents nothing about any claims or title defects that arose prior to grantor’s ownership of the property. This type of deed is more commonly used in sales of commercial property. 

Lastly, a quitclaim deed provides the least amount of protection for the grantee. This deed simply transfers any interest that the grantor may have in the property to the grantee and does not warrant the grantor has any interest in the property at all to convey. While the quitclaim deed may seem risky for the grantee, it is useful in some scenarios. It’s commonly used between family members to retitle property, such as adding or removing a family member from the title, in times of divorce or to clear up questions of title on a property with persons of unknown interest. 

The different types of deeds may seem complicated, but an experienced real estate attorney can make sure all of your closing documents are prepared properly and represent your best interests. 

Miranda K. Martinez is a 2019 graduate of Stetson University’s College of Law and recently joined Clark, Campbell, Lancaster & Munson, P.A., in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.

Real Estate

Implied Warranties When Selling Residential Real Property

When purchasing residential real property, purchasers and sellers should consider warranties that the seller will provide to the purchaser. Typically, warranties are expressly stated in the contract the purchaser and seller negotiate. However, new home builders who sell residential real property provide certain minimum warranties to the purchaser, regardless of whether or not those warranties are included in the contract. It is important to recognize these warranties exist and that new home builders may disclaim certain aspects of the warranties using the correct contract language. 

Warranties that are included in the sale of property or goods that are not included in the contract are known as implied warranties. There are several implied warranties that Florida courts applied to the sale of residential real property. These include: (1) the implied warranty to construct according to plans; (2) the implied warranty to construct in a workmanlike manner; and (3) the implied warranty of habitability. 

The implied warranty to construct according to plans concerns a warranty from the builder of a new home to the purchaser that the purchaser’s new home has been built according to the specifications outlined in the building plans. This is breached when the builder failed to construct the building according to those construction plans and the purchaser suffered damages as a result of that failure. 

The implied warranty construct in a workmanlike manner means that the home is constructed in a manner that is in accordance with the accepted norm of the industry. This warranty may be breached when the builder sold construction materials and workmanship, had a reason to know the particular purpose for the construction, the purchaser then relied upon the builder’s skill or judgment for the construction, and then the final product was defective and the purchaser suffered damages as a result. 

Finally, the implied warranty of habitability warrants that the newly constructed residence does not contain any latent defects that would make the residence unfit for living within. A breach of this warranty may occur when a purchaser takes possession of a new residence and a latent defect in the residence makes the premises uninhabitable. 

So, what if the seller of a home wants to preclude certain aspects of an implied warranty? Under Florida law, the seller and purchaser may exclude certain and specific items from an implied warranty through a disclaimer with clear and unambiguous language that clearly reflects both parties’ expectations as to what items are not warranted. This means that general or broad disclaimers of implied warranties are not effective to disclaim specific items covered in an implied warranty. 

Most of the law regarding implied warranties is not contained in the Florida Statutes, but rather is case law created by judges in different judicial circuits throughout the state of Florida, making the rulings on implied warranties inconsistent throughout the state. As always, when preparing contracts involving real property, it is important to consult with an attorney about important issues such as implied warranties. 

What to Consider When Appointing a Fiduciary?

A well-crafted estate plan will require a person to appoint individuals or financial institutions to represent them in the event they: need assistance with their affairs during their lifetime, lose capacity, or after death. Being a fiduciary is a very time intensive and intellectually challenging task to put upon an individual. The common fiduciary positions that your estate planning lawyer may ask you to name are as follows:

  • Personal Representative: appointed by a Court to administer your estate when you die;
  • Agent-In-Fact (under a durable power of attorney): manages your financial affairs during your lifetime;
  • Health Care Surrogate: makes health care decisions for you during your lifetime;
  • Trustee of a trust document: administers the terms of a trust that you have created;
  • Guardian: makes health care and financial decisions for you in the event that less restrictive alternatives are ever deemed insufficient by a Court during your lifetime; and
  • Guardian for your minor children: makes decisions for your children in the event you pass away or lose legal capacity before the children become legal adults.

The individuals or financial institutions that you choose to serve in these various fiduciary roles will have substantial responsibilities that will require them to make decisions  or act actions on your behalf such as follows:  apply for government benefits; make health care decisions; manage and invest your assets and income for your benefit (or others as you have chosen); decide where you will live; work with attorneys,  financial advisors, and accountants; and distribute your assets upon your passing.

Often times a person will name their spouse or their oldest child as their fiduciary because they assume that its typical for estate planning, but some more thought should go into these decisions and you should consider the following questions:

  • Does this person have the education, experience, and skillset to manage my financial affairs?
  • Is this person too busy to take the time to serve as a fiduciary for me?
  • Can this person make a difficult decision regarding my health care?
  • Would this person make the same health care decisions that I would make for myself?
  • How close does this person live to me?
  • How old is the person I am appointing and will they be around to serve as my fiduciary in the future?
  • Will appointing this person create a divide amongst other family members?
  • Does the size of my assets and income require a professional such as my accountant or a financial institution to manage?

The above are just a few items to consider about when choosing fiduciaries to name in your estate planning documents.  However, only you know who the right person(a) or financial institutions are for you in these fiduciary roles. I recommend spending a little time considering which person(s) or financial institutions are right for you prior to meeting with your estate planning attorney.

Real Estate

Borrowing Money Secured by Real Estate

When borrowing money to acquire or refinance real property in Florida, the lender will prepare an entire loan package for you to sign at closing. The two main documents in the loan package are the promissory note and the mortgage. The promissory note creates the primary contractual obligation for you to repay the loan to the lender. Generally, the note will include things like the amount that you are borrowing, the term of the note, the interest rate being charged and the amount of your payments. You will want to look carefully at other provisions of the note that could impact repayment, such as late charges, default interest rate and prepayment provisions.

The mortgage secures repayment of the promissory note. It will be recorded in the public records of the county where your real property is located. The mortgage will typically have representations and warranties that you make to the lender regarding you and your ownership of the property. Additionally, the mortgage will have covenants with which you will be required to comply as long as your loan is outstanding. Typical mortgage covenants include things like maintaining the property, keeping the property insured and paying the real estate taxes. According to Florida law, a mortgage only grants a consensual lien on the real property in favor of your lender and is not deemed to be a conveyance of the legal title or the right of possession; however, the mortgage will also contain default provisions and what the lender’s remedies are in the event of a default. A typical remedy is judicial foreclosure of the lien, which could result in the lender ultimately owning your property if you do not repay the loan.

Promissory notes and mortgages are subject to documentary stamp taxes in Florida. These documents are taxed at a rate of 35 cents per $100, or any fraction thereof, of the amount of the indebtedness indicated in the document. Mortgages are typically also subject to a nonrecurring intangible tax imposed at the rate of 2 mills (.002) on each dollar secured by the mortgage. Note that some mortgages, such as those in favor of a credit union, are exempt from the intangible tax.

One of our experienced attorneys can help you with your loan questions, as well as closing your real estate transactions.

Choosing the Right Business Structure

Starting a new business is a stressful time. From hiring employees to determining an operating budget, there are many decisions to make in the beginning stages of the creation of your business. One of the most important decisions is choosing a business structure that’s right for you.

Choosing a business structure is important for many reasons. Your structure will determine how much you pay in taxes, filing requirements and personal liability. The four main business structures in Florida are: Sole Proprietorships, Partnerships, Limited Liability Companies and Corporations.

  • Sole Proprietorship – A sole proprietorship is the easiest business structure to form, and therefore one of the most common. This type of business entity is an unincorporated business that is owned and operated by a single individual. Some business owners choose to form a sole proprietorship while they test out a business idea. However, a sole proprietorship does not protect your personal assets from any debts or liabilities from the business. If your business includes a high-risk or inherently dangerous activity, it would be best to choose a different type of business structure, as you will be personally liable.
  • Partnership – There are many different types of partnerships: general, limited, limited liability (LLP) and limited liability limited (LLLP). General partnerships usually exists when two or more people own a business together. A disadvantage to the general partnership is the personal liability that comes with it. Similar to a sole proprietorship, co-owners in a general partnership are personally liable for the debts or liabilities of the partnership. Due to the liability that comes with a general partnership, most new business owners choose a different business structure. The various forms of limited partnerships are more advantageous. In a limited partnership, a general partner has the same rights and liabilities as in a general partnership, however, a limited partner has limited rights and liability. If forming a limited partnership, you may want to consider forming a corporation to act as a general partner to further limit the total exposure of the principals involved. A limited partnership may elect to become a LLLP. This frees general partners of the limited partnership from personal liability and leaves the partnership with the sole obligation. However, LLPs go a step farther and absolve partners in a general partnership from personal liability altogether (with exception to personal misconduct) so long as the partnership is formed as a LLP. A good way to understand this is a LLP is a general partnership with limited liability protection, compared to a LLLP, which is a limited partnership with limited liability protection.
  • Limited Liability Company – A limited liability company “LLC” is a very popular business entity and it allows business owners the benefits of both partnership and corporation structures. LLCs protect your personal assets by offering limited personal liability. LLCs also do not require the same formalities as corporations (mandatory stockholder meetings, management meetings, etc). Additionally, subject to the number of members, the LLC may elect to be taxed as a sole proprietorship, partnership or corporation. You can read more about LLCs at LakelandLaw.com.
  • Corporation – A corporation is an independent legal entity that is separate from the people managing the corporation. Offering the strongest personal liability protection, corporations are a much better choice if the business engages in a higher risk activity. While the cost to form a corporation is higher than other entities, corporations have a significant advantage in raising capital through stock sales. Additionally, corporations require more formalities such as, annual stockholder meetings, extensive record keeping and reporting.

Selecting the right business structure can be your first step toward success in creating a new business. The decision can be challenging, but consulting with a local attorney is always the best option to make sure your personal and business needs are met.

Miranda K. Martinez is a 2019 graduate of Stetson University’s College of Law and recently joined Clark, Campbell, Lancaster & Munson, P.A., in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.

LLC’s Electing to be taxed as S Corporation

Limited liability companies (“LLC”) have become a popular entity for owning and operating a business. A multi-member LLC can elect to be taxed as a partnership, C corporation or an S corporation. It is common to see LLC’s elect to be treated as S corporations for federal tax purposes. An S corporation has certain limitations on the number of owners, the type of owners, and the classes of stock. This article will focus on the classes of stock limitation of an LLC electing to be taxed as an S corporation. An LLC typically does not issue stock, but rather issues membership interests to its members. The membership interests operate as stock for S corporation purposes.

Under the Internal Revenue Code, an S corporation can only have one class of stock receiving the same distribution and liquidation rights. The S corporation, however, may issue both voting and non-voting stock, and this will not cause the corporation to lose S election so long as the other rights remain the same, such as liquidation and distribution rights.

Should a multi-member LLC elect to be taxed as an S corporation, then the LLC must follow all of the S corporation requirements under the Internal Revenue Code. That is, the LLC, taxed as an S corporation, must only have members, who qualify as S corporation shareholders, no more than 100 members, and one class of membership interest.

The governing document for the management and operation of an LLC is usually governed by an Operating Agreement. Because a person may easily form an LLC online and obtain a draft Operating Agreement from the web, they do not look at the terms and provisions of the Operating Agreements to see if it does not inadvertently create a second class of stock. Most Operating Agreements found on the web or prepared by third parties are drafted in the context of partnership tax law or may include terms and restrictions on certain members resulting in a second class of stock.

For instance, the Operating Agreement may include common partnership tax language that upon liquidation, distributions will be paid to members with positive capital accounts in accordance with their respective positive capital account balance before other distributions to members. Or the Operating Agreement may have specific profit or loss allocation language. Such language may result in the LLC’s S election being inadvertently terminated because the members of the LLC do not have identical rights to distribution and liquidation proceeds as required under the Internal Revenue Code and Regulations. Therefore, the IRS will conclude that upon entering into the Operating Agreement, the LLC ceased being an S corporation for tax purposes and had become a C corporation. The loss of S corporation election will result in increased taxes, filing requirements and other limitations or potential liability, such as built-in gain tax.

To fix this inadvertent S termination and treat the LLC as an S corporation from the date of S termination, the LLC will need to formerly seek and obtain approval from the IRS to treat the LLC as an S corporation and to correct the error in accordance with the Internal Revenue Code.

We recommend that when forming or starting a business, the parties seek competent tax and legal counsel in choosing the best type of entity (partnership, LLC, S corporation, C corporation, etc.) for not only operating and managing the business, but also for the overall tax and costs benefits. Each entity has its own advantages and disadvantages. Even after you choose the type of entity, the governing documents, the Operating Agreement, need to be carefully drafted to conform to the type of business selected.

John J. Lancaster, LL.M is a shareholder with the law firm of Clark, Campbell, Lancaster & Munson, P.A., in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.

Estate Category

Electronic Wills in Florida are Coming, But are They a Good Idea?

Effective, January 1, 2020, adult Florida residents will legally be allowed to execute an electronic last will and testament (a “Will”) to dispose of their property when they die.   A previous attempt to pass such laws failed in 2017 due to a veto by then governor, Rick Scott. However, a revised and improved version of the bill passed this summer as was signed into law by now governor, Rick DeSantis. The new law will allow the signing of Wills (and some other specific types of estate planning documents) to be completed 100% electronically online. To do so shall require the utilization of remote notarization and witnesses to appear via certain approved secure video chat services. Notaries will also be required to undergo new specific training in order to be able to conduct executions of electronic Wills.  Additionally, certain qualified and state-approved custodians will oversee safeguarding the completed electronic Wills for safekeeping until the creator of the Will dies, at which time the electronic Wills may be electronically filed with the appropriate probate court.

Florida is only the 4th state to implement laws related to the execution and storage requirements for electronic Wills.  One concern is whether other states will honor a properly executed Florida electronic Will or not.  If other states will not honor a Florida electronic Will, then a deceased person’s asset subject to probate administration in other states may not go to the intended beneficiaries. Traditional written Will executions usually occur in a lawyer’s office with proper procedures and safeguards put in place by a qualified lawyer in this area of law.  However, many of those procedures and safeguards will not be in place during electronic executions of Wills which should make electronic Wills a ripe target for attacks to their validity under theories such as lack of capacity and/or undue influence.  Additional safeguards were added to the 2019 version of the law to protect vulnerable adults in Florida; however, until the laws are created and have held up to challenges in probate contests, there is not going to be much clarity to attorneys who practice in this area of the law.  A final concern is that the ability to execute documents electronically may also open the door for “bad actors” to take advantage more easily of seniors by attempting to coerce them into signing electronic Wills.

The goal of the new law is to promote easier access to people that otherwise may not partake in legal services such as estate planning.  As an estate planning attorney, I agree that electronic estate planning is the future and want to provide easier access for all Florida residents to legal services.  However, I also believe that new laws on electronic Wills are going to initially bring with them more questions than answers in 2020 (and the following years). Therefore, I will not be implementing electronic Wills into my legal practice immediately but instead, will take a “wait and see” approach over the next few years.  Basically, I do not want my clients to be the guinea pigs for these new laws in case there are unexpected consequences that might negatively impact my clients’ estate planning goals.

Kevin Albaum is a shareholder in the Elder Law Practice at Clark, Campbell, Lancaster & Munson, P.A. Questions can be submitted online to thelaw@cclmlaw.com.

An Overview of Limited Liability Companies

By: Zachary Brown

A limited liability company, commonly referred to as an “LLC”, is a type of business entity that has become popular in the United States because of some of the benefits it provides to business owners.  This article shall serve as an overview of the LLC, what it is, its advantages, and some disadvantages.  Hopefully this article will show why so business owners have elected to start a business using this type of entity.

An LLC is a business entity that is owned by its members and governed by an operating agreement.  A typical operating agreement will, at a minimum, determine how the LLC is organized, how it is to be managed, the financial distributions of the LLC, and how the LLC may be dissolved. 

An LLC shares advantageous traits of other business entities.  For example, LLCs share an advantageous trait with corporations – limited liability.  Limited liability means that a member’s liability is almost always limited to that member’s investment in the LLC.  The result of this, except in rare circumstances, is that a member’s personal assets are not at risk if the LLC is sued or goes bankrupt.

LLCs also share an advantageous trait with other types of entities in the way it elects to be taxed.  The LLC will elect how it wishes to be taxed for federal tax purposes.  Subject to the number of members, the LLC may elect to be taxed as a sole proprietorship, partnership, S corporation, or C corporation.  If the members elect to be taxed as a sole proprietorship, partnership, or S corporation, they are usually considered a “pass-through” entity.  That means the income will be taxed at the individual level on the member’s personal tax return.  This allows an LLC to avoid the double taxation incurred by a C-corporation (a common form of corporation) which are taxed first at the corporate level, then again at the individual level. 

In addition to certain tax benefits and limited liability, there several other advantages associated with forming an LLC.  The LLC is controlled by an operating agreement rather than bylaws, so typically there are no corporate minutes or resolutions, making it administratively more efficient and easier to manage.  When forming LLCs, there are usually no restrictions on the number or type of members allowed (i.e. an S corporation may be a member of an LLC).  Lastly, members have great flexibility in structuring the initial operating agreement governing the LLC.

There are a few notable drawbacks when selecting the LLC as a business entity.  Typically, it is more difficult to transfer a member’s ownership interest in comparison to a corporation.  If the LLC works with international companies, the LLC may be treated as a corporation in the countries where the LLC is doing business.  The annual filing fees for LLCs are more expensive than most other business entities.  Lastly, there are a number of legal complexities with LLCs, so legal issues involving tax, management, dispute resolution, and buyouts tend to arise if the operating agreement that governs the LLC is poorly drafted. 

An LLC is something that a prospective business owner will want to consider when forming a business.  As always, consulting with a local attorney is the best option to make sure this is the right business entity.

Real Estate

The Impact of Easements on Real Property

By: Kyle H. Jensen

A person interested in purchasing real property should always determine whether any easements burden or benefit the real property and the impact such easements have on the real property. An easement is a right held by a person to use another person’s real property, or portion thereof. Generally, easements provide non-owners with the right to have access over, run utilities through, or drain onto a portion of an owner’s real property. Easements can be granted to specific individuals or for the benefit of the owners of other real property not burdened by the easement. An easement burdens real property when the real property is subject to and restricted by the rights granted by the easement. An easement benefits real property when the real property and its owner are benefitted by and entitled to use the rights granted by the easement.

It is important for purchasers to determine if there are any easements that burden the real property they are interested in because such easements may restrict or even prohibit a purchaser’s intended use or development of the real property. If, for example, an access easement runs over a portion of the real property where the purchaser wants to construct a building, the purchaser would be prohibited from constructing such building because it would block the access easement rights granted to another party. There may be ways to work around the easement, such as relocating the easement area or constructing improvements that do not block the easement; however, a purchaser should always resolve these issues before closing to avoid purchasing real property that cannot be operated or developed for its intended use.

It is also important for prospective purchasers to determine if there are easements that benefit the real property they are interested in, or if they need to obtain a beneficial easement, especially when purchasing vacant property. If a purchaser is interested in real property that does not have access to a public road, then such purchaser must either confirm the real property is benefited by an access easement that provides the real property with sufficient access to a public road or require the seller to obtain an access easement. A purchaser should remember that even if the real property has access to a private road, there is no guaranty that the owner of the real property has the right to use such private road unless there is an easement that grants such rights. Furthermore, when purchasing vacant property, a purchaser should determine whether the real property has access to utilities, and, if not, require the seller to obtain utility easements from the adjacent real property to provide necessary access. Accordingly, purchasers should always carefully inspect all easements that burden or benefit the real property they intend to purchase. Failure to do so may result in purchasing real property that cannot be used or developed in the manner the purchaser intended.

Kyle Jensen is an attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. in Lakeland. Questions can be submitted to thelaw@cclmlaw.com.