This is not meant to be an indictment on all house flippers. Most are hard working and honest.  But like any profession, there are bad apples and this tale shows the worst.  But on closer look, it wasn’t just the purchasing house flippers who were bad guys.  They turned out to be real estate agents as well, giving a black eye to that profession.  And, the title company they selected carried on the unscrupulous acts.  This is the story of a pair of house flippers looking for deals who tried to take advantage of a senior citizen.  Exploitation of an elderly person is a felony in Florida.

The story began one Saturday afternoon in August. Mrs. Gonzales (not her real name), an 80 something widow living alone in a small condominium in a gated community in Palm Beach County, returned home to find 2 nice young women knocking on a door down the hall from her unit.  Mrs. G said good afternoon to the women as she unlocked her door.  The women approached her and explained that they had an appointment with the neighbor but she wasn’t home.  They were supposed to look at the unit and hoped to buy it.  Mrs. G. was surprised because the neighbor had never indicated that she had planned to sell her condo or move.

The women asked Mrs. G if she might like to sell her condo. Mrs. G said she had never thought about selling, but she was getting older and lived alone and she had been very ill lately.  The women told Mrs. G that they could pay top dollar and that she could use that money to find a nice retirement facility that could take care of her.  Mrs. G invited the women into her condo and the women put on the hard sell.

Within less than an hour, Mrs. G had signed a contract to sell her condo where she had lived for over 30 years for $40,000. She agreed to close in 60 days.  Mrs. G did not tell her only daughter about the contract for more than a week as she immediately began to have anxiety, anxiety that she didn’t know where she would move to.  When she told her daughter, who lived in Massachusetts, both the mother and the daughter had second and third thoughts about this contract.  How could Mrs. G find a new apartment and move in less than 60 days?  During that time, Hurricane Irma hit South Florida and, after 45 days, the women granted Mrs. G a 30 day closing extension.  Closing would be November 15, but Mrs. G and her daughter could not find an affordable apartment.  Mrs. G lived on a fixed income.  She had physical disabilities and was beginning to experience some cognitive issues. The sale proceeds of the condo would not allow her to purchase another unit nor would they last long enough to cover her needs.  Rental units were hard to find within Mrs. G’s budget.

Mrs. G sought another extension. The title company told Mrs. G to move into a hotel and confirmed the November 15 closing date.    That is when Mrs. G’s daughter called me and asked for help getting out of contract.  My reaction was “Wow”!  It didn’t take me long to figure out that these women did not intend to occupy the property so there was no need for an expedited closing.  They were not 55, so they couldn’t occupy the property.  Their actions made it clear that they intended to flip.  It was not clear how they were able to gain access to the community in the first place.  No one knew, but they had been knocking on many doors prospecting.  We found some deeds of record confirming that they were flippers.

We did more digging and discovered that one of the women was a licensed real estate agent in New York and the other was licensed in Louisiana. Though neither was licensed in Florida, neither disclosed their status as real estate licenses to Mrs. G.  They did, however, use their experience as real estate agents to pressure Mrs. G into the contract and gave her no time to discuss it with her daughter.  When she said she wanted to cancel, they threatened to sue.

I immediately terminated the contract but several weeks later was threatened by a newly retained attorney. When I responded, outlining the facts, the attorney disappeared.

There are laws in Florida that protect the elderly from exploitation. Florida Statutes Section 825.103 defines the exploitation of an elderly person or disabled adult as:

“(a) Knowingly, by deception or intimidation, obtaining or using, or endeavoring to obtain or use, an elderly person’s or disabled adult’s funds, assets, or property with the intent to temporarily or permanently deprive the elderly person or disabled adult of the use, benefit, or possession of the funds, assets, or property, or to benefit someone other than the elderly person or disabled adult by a person who:

  1. Stands in a position of trust and confidence with the elderly person or disabled adult; or

  2. Has a business relationship with the elderly person or disabled adult;”.

The high pressure, coercive tactics the women used on Mrs. G to convince her to sign the contract should fit well within the definition of the statute. The business relationship would be established by the fact that the contract was signed.  Typically, this statute is used when a person close to the victim transfers money out of a bank or security account.  I am not aware of a prosecution for a real estate case like this.  But, I wouldn’t hesitate to discuss this case with the State Attorney’s Office for their opinion if the women continue to pressure Mrs. G as the contract, at $40,000, would make their actions a second degree felony.

In addition, F.S. Section 415.1111 provides for a civil remedy for a vulnerable adult who has been abused, neglected or exploited. So, while our home flippers are clearly bad apples, Mrs. G and her daughter have done the right thing and sought help.  Hopefully, the women have been advised to not only drop the case, but to change their methods.  Unsolicited, high pressure sales tactics used on the elderly is a focus of attention in Florida.  If it is widespread in the real estate industry, we need to collectively band against the bad apples.

Florida likes to hold itself out as an inexpensive place to do business because it is one of only 7 states that does not have state income tax. This is certainly attractive to both businesses and individuals.  However, the state has to make up this revenue somewhere.  Sales tax, therefore, is the primary source of revenue for the state, currently at 6%, with some counties imposing an additional 1% local option.  For nearly 50 years, the state has imposed a sales tax on commercial rents.

Real estate agents and business leaders have long argued that this “business rent tax” offsets savings that companies would get by relocating to Florida by not having to pay income tax. As such, it is difficult to attract new business to Florida, despite the personal savings to business owners and employees.  Governor Rick Scott, a Republican, has long advocated for the elimination of the business rent tax and this year proposed a 25% reduction in the tax as part of his tax cut package.  Ultimately, the Republican controlled legislature approved a reduction of the business rent tax to 5.8% (less than 4%) (6.8% in Miami-Dade, Palm Beach and other local option counties).  The debate was lengthy with the legislature proposing a 1 to 2 point reduction, closer to the governor’s proposal.  One proposal called for a temporary 1.5 point reduction (25%) to 4.5% with an increase back to 5.5% after 2 years.

Legislative studies showed that the financial impact to the state with a 1 point reduction to the tax to 5% would have been significant. Tax revenue for FY 2017-2018 would have been reduced by $125.9 million and $302.2 million on a recurring basis thereafter.  General revenue would have been reduced by $276 million on a recurring basis.  Apparently, the legislature was not ready to make such a large cut in revenue or didn’t have enough corresponding spending cuts and had to settle on the smaller cut to the business rent tax.

HB 7109 becomes effective on January 1, 2018. The language of the statute reads that the tax rate will not apply to current leases.  The tax rate in effect at the time tenant occupies or uses the property is applicable, regardless of when a rent payment is due or paid.  The Department of Revenue will have to interpret this provision and it is likely that industry groups will argue that the rate is intended to be reduced across the board as prior rate changes required tenants to pay increased rates immediately.

The bottom line is that tenants will see a small drop in occupancy costs next year. But this drop will be a small one.

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