What Impact Will a PACE Loan Have on Your Real Estate Closing

Many property owners today are exploring options to help strengthen their property to prevent damage during next year’s hurricane season now that the 2017 hurricane season is behind us as well as to improve the energy efficiency of their home.  However, such improvements are often cost prohibitive.  But back in 2010 our legislators authorized Property Assessed Clean Energy (PACE) programs to help homeowners finance the cost of those home improvements.

PACE programs assist both residential and commercial property owners to finance certain energy efficient and wind resistant improvements to their property.  These loans are secured by financial agreements and paid by a non-ad valorem assessment through the property owner’s real property tax bill.  In other words, the loan is added to your tax bill and becomes part of your property tax obligation and the loan terms are spread out over time.

Even though PACE programs were authorized by the Florida legislature back in 2010, there were numerous legal challenges both in state and federal court which slowed down its implementation.  However, the appellate courts finally resolved the legal challenges to the PACE program in late 2015.  Shortly thereafter the program began to grow in popularity.  Indeed, there are billboards advertising these programs all over South Florida today.

The advantage of these loans is that the money is fairly easy to secure and accessible pretty quickly too with very reasonable re-payment terms.  The PACE program often works with pre-qualified contractors and payment is not made until the job is complete and all permits have been closed.  The disadvantage is that the loan will be added to your tax bill thereby increasing your property tax obligation.  You will also have to pay some interest on that loan too over the length of the loan.

But the question that is popping up more and more at the closing table is – what do we do with that PACE loan?  While there is no uniform answer to that question here are some options:

  • Some lenders will agree to take an exception to the PACE financed home improvement program.
  • However, other lenders may require that the lien be satisfied at the time of the closing.
  • Buyers may also agree to assume the lien if it is not paid off at the time of closing.

The issue of what to do with the PACE loan at the time of the closing will increase in frequency with the anticipated increase in popularity of these PACE loans.  It is probably in the best interest of both the buyer and seller to address this issue at the time the contract is signed and not at the closing table.

Steps a Home Buyer Should Take After They Have Purchased Their Home

Completing a home purchase is an exciting moment for everyone that worked on that real estate transaction.  The seller has sold a property and perhaps made a nice profit from the sale.  The real estate agents that worked hard on the transaction for several months are finally going to get paid for their services.  The closing agent gets to share the joy of the buyer’s purchase of their new home at the time of closing.  And the buyer is undoubtedly excited about moving into a new home.  So we will address some steps that a new home owner should take after they have purchased their home.

We recently discussed when the buyer gets the keys to the property after the closing is completed.  But there are still other action items buyers should take after their real estate purchase is complete.

Here are some of those action items buyers should consider doing after they have completed their home purchase:

  • It is typically a good idea to have the home professionally cleaned before the move in date.
  • Make arrangements to have the utilities either turned on or transferred from the prior owner.
  • Make arrangements with the post office to change the mailing address.
  • Timely apply for the homestead exemption.

Speaking of the homestead exemption, one added benefit of being a homeowner is that you may be able to qualify for the homestead exemption.  If you qualify, the homestead exemption could significantly lower your property taxes.  Florida’s homestead exemption is explained in greater detail here.

If you purchased a property that is located within a community governed by a homeowner’s association then it is also a good idea to get as much information regarding the community as possible.  You should start by contacting the management office to get information regarding association meetings and other regularly conducted business associated with the running of your community.  You should get involved in your community affairs and attend all regularly scheduled board meetings.

Lastly, buyers should not forget to celebrate their home purchase.  Buyers should invite everyone over that played a role in their real estate transaction .  Everyone that helped the buyer with that purchase will want to share in the joy of completing that transaction.

Rare Display of Congressional Bipartisanship Results in the Unanimous Passing of the Housing Opportunity Through Modernization Act Making it Easier to Buy and Sell Condominiums in South Florida

New Rules
New Rules

Congress’s approval ratings are currently at all-time lows.  The bickering between the political parties on Capital Hill is at an all-time high.  A majority of Americans are greatly unsatisfied with the choices their respective political parties have given them for President.

Yet in this toxic political climate it gives us all hope to see our elected officials work together to bring about some much needed help in our real estate market.  Indeed, the rare display of congressional bipartisanship resulted in the Unanimous Passage of the Housing Opportunity Through Modernization Act making it easier to buy and sell condominiums in South Florida.

The legislation was backed by several realtor groups.  They supported the legislation because the Housing Opportunity Through Modernization Act seeks to streamline and improve three specific areas of federal housing policy.

Those three areas include the following:

First, the U.S. Department of Housing & Urban Development’s (HUD) rental assistance and public housing programs.

Second, the Federal Housing Administration’s (FHA) requirements for condominium mortgage insurance.

Third, the Department of Agriculture’s single-family housing guaranteed loan program.

The Obama Administration has not publicly commented on whether the President would sign or veto the legislation.  But given the overwhelming bipartisan support in unanimously passing this legislation it would be surprising if President Obama vetoed this act.

Of significance to the local South Florida real estate market are changes in the act that will help with the sale of condominiums.  South Florida has a high inventory of condominiums.  Condominiums often represent an affordable housing option that makes sense for many first-time and low-to-moderate income homebuyers in South Florida.

But the sale of those condominiums are often bogged down due to some unnecessary and burdensome rules and regulations imposed on condominiums.   This legislation addresses those restrictions head on, putting the dream of homeownership back in reach for more first time home buyers and low to moderate income homebuyers in South Florida.

Among other things, the Housing Opportunity Through Modernization Act seeks to make the sale of condominiums less burdensome.

For instance, the legislation includes revisions to make FHA’s recertification process substantially less burdensome.  It does so by lowering FHA’s current owner-occupancy requirement from 50% to 35%. The legislation also mandates that the FHA replace existing policy on transfer fees with the less-restrictive model already in place at the Federal Housing Finance Agency.

What to do with that lis pendens?

lis pendensWhat to do with that lis pendens is a question we are often asked.  In Latin, the term “lis pendens” means “pending lawsuit.” Today, a notice of a pending lawsuit filed and properly recorded in the county real estate records is referred to as a “lis pendens.” The purpose of a lis pendens is to provide notice of a claim or controversy involving specific real estate to potential buyers and lenders as well as the general public.

A lis pendens can certainly create problems with any real estate transaction. We recently worked on a case that illustrates some of the issues often confronted in the face of a lis pendens.

In Garcia v. Nobe Bay Holdings, LLC, we represented the Defendant developer. The Defendant developer had purchased the uncompleted Miami Beach condo project after the entry of a foreclosure judgment against the original developer. The new developer had assumed many of the existing sales contracts. Mr. Garcia was one of those original contract purchasers at the Miami Beach condo project.

Mr. Garcia, however, had never recorded his sales contract. Mr. Garcia had also failed to tender the second deposit required of him pursuant to the sales contract. The subsequent developer finished the building and called all of its purchasers to closing. Over 95 contract purchasers were waiting to close.

But the closings for those 95 parties had to wait. They had to wait because a title examination revealed that Mr. Garcia had not only filed a lawsuit, but he also filed a lis pendens against the whole building. The lis pendens on the whole building effectively served to stop cold all potential closings in the building for all of the other 90 contract purchasers.

Fortunately we were able to convince Mr. Garcia immediately amend his lis pendens to limit its reach solely to the unit he contracted to purchase as opposed to the whole building. In so doing, we were able to get all of the other contract purchasers to close on their units.

Nonetheless, Mr. Garcia asserted a claim for specific performance, breach of contract and an equitable lien. Mr. Garcia later agreed to limit his claims to breach of contract and agreed to drop his claim for specific performance.

The trial court denied our request to dissolve the lis pendens. As a result, an appeal was not only taken, but a bond was posted to permit the closings to take place on Mr. Garcia’s unit to another purchaser. On appeal, the appellate court agreed with the position we took at the trial level and reversed the trial court’s ruling. The appellate court directed the trial court to discharge the lis pendens and discharge the bond. The appellate court also ordered the trial court to award attorney fees in favor of the new developer and against Mr. Garcia.

In so ruling, the appellate court reasoned that Mr. Garcia’s lis pendens was improper. It was improper because Mr. Garcia had failed to establish a fair nexus between the apparent legal or equitable ownership of the property and the dispute embodied in the lawsuit. The appellate court noted that the only existing document between the parties was the cancelled purchase agreement and that agreement did not establish the necessary fair nexus to sustain the lis pendens.

Furthermore, the appellate court noted that when Mr. Garcia dropped his claim for specific performance his lis pendens was further eroded. Indeed, when Mr. Garcia dropped his specific performance claim he destroyed any possible nexus between ownership of the property and the complaint.

Lastly, the appellate court not only noted that the contract affirms that Mr. Garcia had no direct claim against the subject property, but further noted that the new developer should not have had to post a bond. The appellate court’s ruling proved to be a true success for the developer.

In the final analysis, and as part of any real estate closing, it is critical to perform a thorough title examination prior to the purchase of a property, and even prior to placing an offer on a property. The lis pendens, and the underlying lawsuit that resulted in the filing of the lis pendens, could dramatically impact your rights to the property.