Florida Statutes Section 713.13 provides that an owner shall record a Notice of Commencement prior to commencing to improve real property, or recommencing completion of any improvements after default or abandonment of the construction. Without going into all of the details and nuances of Florida’s Construction Lien Statute, Chapter 713 is designed, overall, to protect owners from double paying contractors and subcontractors and to give those who work on or supply materials to a job site, protection that they will be paid. As long as owners and contractors follow the provisions of the statute, each side has protections. Owners know who is working on their property and are assured that the workers are getting paid and liens will be released. Contractors and suppliers have lien protection, evidenced by and relating back to the Notice of Commencement (NOC), no matter when they begin working on the project, so that the owner can’t foreclose out subcontractors and suppliers by taking out a junior mortgage.

But that is not what I want to talk about today. So much is written about Florida construction lien law and the perils associated with not following proper procedure. Instead, I want to focus on the end of construction and the termination of the NOC. When selling or refinancing a property, it is common to find outstanding Notices of Commencement in the title search. These affect the status of title because all contractors, subs and materialmen who worked on the job and who provided notices to owner have lien rights that relate back to the date of the NOC which will have priority over any newly recorded deed or mortgage. Therefore, in order to insure a new owner or mortgage, the NOC must be terminated. But, months later, this could be complicated.

The first thing to do is to check the date of the NOC. Has it expired? Notices of Commencement expire and automatically terminate 1 year after the date of recording (unless an earlier date is set forth in the NOC). If the NOC has expired, let the title company know and it will be deleted from the commitment as it is no longer an issue.

Second, if the NOC has not expired, before closing, you’ll need to obtain and record a Notice of Termination from the owner as well as a final contractor’s affidavit from the general contractor.   The contractor’s affidavit is prescribed by statute, yet many small contractors pretend not to know what they are required to do. The contractor must attest that all work has been completed and all subs and suppliers have been paid and the contractor must satisfy and release its lien. The affidavit should be recorded with the notice of termination. The contractor should also provide waivers of liens from all subs who have provided notices to owner.

Why wouldn’t an owner terminate a NOC when the work is done? Many times, for ordinary home repairs, such as the installation of a new AC unit or a new roof, the home owner doesn’t know to record a termination and the contractor doesn’t tell the owner to do so. That is why this is a common problem. In my own case, I installed a new roof on my house last year. I know that I needed a Notice of Termination and just never got around to it or asked for the contractor’s affidavit. And then, we decided to sell our house. I have had to get the contractor’s affidavit quickly. It wasn’t hard for me because I knew exactly what to do and what to ask for. But a typical homeowner might have had more difficulty.

Third, if construction is on-going and the contractor can’t say the work is complete, closings can still occur, but there are strict rules to follow. When a client is purchasing a condominium, for example, the association might be renovating common areas. In this case there might be multiple NOCs which affect title to all units. While each unit is specially assessed for the renovations, the association is responsible for payment of the work. Therefore, title to an individual unit or a unit mortgage can be insured if you obtain an affidavit from the association stating that the association has sufficient funds available and set aside to complete the work.

Sometimes developers will begin construction work on a site before obtaining construction financing. Therefore, a NOC is already recorded before a mortgage would be recorded. This would make the liens of the contractor and all subs and suppliers superior to the mortgage. Obviously, no lender would close on this bases. To remedy, the NOC has to be terminated, the mortgage recorded and the NOC re-recorded.

But it isn’t that simple. The owner has to pay the contractor for all work completed to that point, including retainage and the contactor must assure that all subs and materialmen are paid to date. That way, the contractor can provide a “final” contractor’s affidavit and release of lien and all subs and suppliers can provide lien waivers. They are final because all subs and suppliers will have been paid for all work rendered. In addition, work on the site must stop for at least 24 hours. Taken together, going forward, the new work is treated as a new contract and a new NOC for the work that will be done after the mortgage is recorded. However, owners don’t like to shut down a job site. To comply with the statute and guard against lost time, we try to close on Fridays so that the shutdown period can occur over the weekend when work isn’t generally scheduled, or only light work would have been scheduled.

With the exception of this final case where a termination and new NOC are required, I would say that most of the time, owners don’t record notices of termination and rely on the 1 year expiration period as they don’t intend on selling or refinancing for more than a year. In commercial practice, this is probably ok because construction loans are usually disbursed on a draw basis following title updates and upon receipt of proper documentation from the contractor and all subs, including upon the final draw. They will have the proper documentation on hand if necessary. However, if you are a homeowner doing a major renovation, it is not a good idea to wait to get the notice of termination, contractors affidavit and lien waivers (my own stupidity notwithstanding). You never know if there is a subcontractor out there who has a dispute with the contractor who will come back and cause you problems. Don’t make that last payment until the contractor can provide the affidavit and lien waivers and you can sign and record a Notice of Termination properly.

Last week, the House of Representatives passed HR 1153, the Mortgage Choice Act. The Act, sponsored by Representatives Bill Huizenga (R-MI), Steve Stivers (R-OH), Mike Doyle (D-PA) and David Joyce (R-OH), passed with a small amount of bi-partisan support and was strongly supported by the NAR.  The Act amends Dodd-Frank and is intended to encourage competition between smaller mortgage lenders and large financial institutions.  If ultimately passed as is by the Senate and signed by the President, the Mortgage Choice Act will in deed open up new choices for home buyers looking for financing.  However, Congress will have not only stripped away another level of consumer protection, it will have missed an opportunity to strengthen existing consumer protection.

The Act would change definitions applicable to the Qualified Mortgage Rule under Dodd-Frank allowing mortgage brokers and title companies affiliated with real estate brokers to compete with large institutions. Under the Qualified Mortgage Rule, fees and points associated with a loan can not exceed 3% of the loan amount.  Under current law, “Affiliated Businesses” must count more fees toward the cap, including fees paid to affiliated title companies (like title premium) and insurance companies, as well as monies held in escrow.  The Act changes this differing treatment allowing more competition.

The Democratic Whip report prior to the vote last week noted that the exclusion of these fees, if enacted, “could result in mortgages that turn out to be beyond the means of the borrower to repay.” However, the report failed to mention the distinction between Affiliated Businesses which the Act addressed, and larger financial institutions, which are not required to include these fees in calculating the 3% threshold.  Herein lies the missed opportunity.  While the Democrats make a good point, most home buyers are still saddled with these fees and costs, which are generally paid to unaffiliated businesses and therefore, not calculated in determining whether the borrower can afford the loan.

If either side had offered an amendment or alternate legislation to require all 3rd party costs be included in making the 3% determination, small lenders and Affiliated Businesses would be on equal footing with large institutions, which was the basis of NAR’s argument in support of the Act AND consumer protection would increase at no additional cost to the government. But this did not happen.  As a result, the Mortgage Choice Act is a failed opportunity.

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.

There are many pre-closing costs incurred in residential real estate closings. These costs are generally fronted by the title company or the buyer’s attorney.  If all goes well and closing occurs, the costs are reimbursed.  However, too often, something goes wrong and the closing doesn’t happen.  We, and I include myself and my firm in this category, closing agents are often stuck with these unreimbursed costs.  Hopefully, our buyer will find another house and we’ll have an opportunity for reimbursement later.  That is not always the case.  Fortunately, many of these pre-closing expenses are small.  One potentially large expense is the estoppel letter from the condominium association or HOA.

Condo and HOA estoppel letters are important parts of residential closings. These tell us whether the seller is current in payment of assessments of if there is a collection action pending that has not yet shown in the title search.  The estoppel confirms the amount of the assessments and how much has been paid to date so that proper pro-rations can be made on the closing statement.  And, hopefully, the estoppel will provide other information, like whether the association has a right of refusal or other approval or purchase rights.

For the work of preparing and providing an estoppel letter, the association or management company usually charges a fee. This fee is unregulated in Florida and we see fees today ranging from as low as $100 to over $450 or even higher if a rush is required.  These fees almost always have to be paid up front.  “Rush” cam mean as much as 2 weeks from the date of request.

HB 483 and its companion in the Senate, SB 398, propose to cap estoppel fees, promulgate a from estoppel which would contain mandatory, standard information and set deadlines for providing completed estoppels to the requestor. In addition, the fees would be payable at closing and out of closing proceeds, relieving the burden from the closing agent.

The “Home Tax Bill” would amend F.S. Sections 718.116, 719.108 and 720.3088, the Condominium, Cooperative and Homeowner Association Acts, respectively. The Act would shorten the time period that Associations have to provide estoppels from 15 days to 10 business days, a minor adjustment.  More importantly, the Act creates a mandatory estoppel form which contains the information an association must provide in its estoppel.  This would include whether there are any existing rules violations pertaining to the unit, the association’s approval requirements for sale or lease of the unit, what utilities are included in the payment of assessments, the parking space and storage unit assigned to the unit, the regular periodic assessment and date paid through and the date the next installment due, if delinquent, the name and contact of the attorney, itemized list of all other assessments and capital contributions due and whether there are any rights of refusals.  The cost of estoppels would be capes at $200 for non-delinquent units, plus $100 for “rush” requests and plus $200 for delinquent units.

Community association groups and attorneys representing community associations oppose the Act arguing that is places too great a burden on associations and that the cost of unpaid estoppels would be passed on to unit owners. These arguments are weak.  For associations which are managed by professional, paid managers or management companies, estoppel information is or should be readily available, regardless of how the manager is staffed.  In fact, most management companies have employees who are dedicated exclusively to providing estoppels.  Further, a large percentage of the information that would be required on the new form is in fact, form language.  The financial information is the same information that is provided today.  There is no real extra burden.  Large property management companies quietly state that estoppel departments are a profit center to their business.  Their associations won’t suffer.  Self-managed associations are generally small and don’t get a large number of requests, certainly, not at one time.  For the few that they do every year, the timing requirements won’t put these associations out any more than they already are.

The risk of unpaid fees is not a real risk either. The Act provides that the owner of the unit is ultimately responsible for the fee.  If it remains unpaid for any reason, the association may collect it as an unpaid assessment.  That means the association may lien and ultimately foreclose the unit if necessary.

The Act brings fairness in a business transaction that was one sided in favor of property managers. Community associations have not really benefitted from estoppel fees and should not oppose the Act.  This is not the first time this legislation has been proposed.  Community associations should join the Florida Association of Realtors in supporting it as unit closings will ultimately go faster and smoother.

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