This is a bit of a long post and really only relevant to members investing in Florida, so bear with me here.
So I have a property in Florida I’m trying to sell on payments. I’ve been doing legal research on this and I see that in Florida a contract for deed, or land contract is considered the same as a mortgage and you are required to foreclose on the property if you want to take it back and there are certain tax implications.
Real Estate Attorney Ronald S Webster
Land contracts are not generally utilized in Florida for four reasons.
1.The State of Florida views a land contract as a transfer of interest and therefore collects from the seller a documentary transfer tax on the property as if the property is sold, despite the fact the seller does not convey a deed.
2.The State of Florida views a land contract as borrowed money and therefore collects an intangible tax and documentary stamps from the buyer as if there was a note and mortgage involved.
3.The State of Florida views a buyer’s interest in a land contract as an equitable interest. In order to protect the buyer, the land sales contract must be recorded. Regardless of whether or not actual title is conveyed
in the event of a default a seller must go through a complete and total foreclosure process to obtain a clear title
Realty Pact – legal forms website:
FLORIDA LAND CONTRACT CONSIDERATIONS
Land contracts are legal and binding in Florida. However, certain tax and transfer payment obligations can add significant an up-front expense to the transaction which are not seen in other states. Given these additional up-front costs, some people view Land Contract agreements in an unfavorable light in Florida vs. other geographic areas.
3. The State of Florida considers a Buyer’s interest in a Land Contract as an “equitable interest.” Florida law requires the Land Contract to be recorded to protect the Buyer’s interest in the property. For a Seller to regain possession of the property upon the default of the Seller in payment or compliance with the other terms of the Land Contract,
the Seller must initiate a foreclosure lawsuit to re-secure clear title to the real property
. No expedited legal process is available to the Seller.
Alexander Patrick Johnson – Florida Attorney
Possession of real property under a contract for deed is tantamount to a mortgage and subject to the same rules of foreclosure and the same regulations and restraints as mortgages generally. Ziegler v. Hawkins, 315 So2d 200 (Fla 1st DCA 1975); H & L Land Co. v. Warner, 258 So2d 293 (Fla 2nd DCA 1972; and Cook v. Merryfield, 335 So2d 297 (Fla 1st DCA 1976). Therefore “Landlord’s” complaint to evict “Tenant” is dismissed.
BUYER’S ADVANTAGE FINANCE CO., INC., v. MORSE,. County Court, in and for Santa Rosa County, December 3, 1996. 4 Fla. L. Weekly Supp. 475c
As a way of getting around the foreclosure process, someone on bigger pockets recommended having the buyer sign a quit claim deed that would only be recorded in the event of a default. It was mentioned that it could possibly held in escrow by the title company. Here was a response:
In Florida ANY type of contract or instrument which sells real property with periodic payments is deemed a Mortgage by statue. This means that a default remedy is a foreclosure action. There are zero alternatives. You may not simply evict.
As mentioned the tactics described by the Note Guy are considered “Circumventing Foreclosure” and are forbidden by law. Any title company participating in such an act will face license violations, possible penalties which may include revoked license.
One other interesting note, the manner in which CFD/LC are viewed as Mortgages also means that the property owner/Seller does not have equitable title and has no right to possession. The Seller/Lender’s interest in the real property is reduced to that of legal title, that of a mortgagee and NOT of a landlord. A mortgagee can not simply enter your property unless it is for the sole purpose of securing a vacated or deteriorating property. Do not treat a CFD/LC like a landlord tenant relation – it is not that.
Moral of the story, in the state of Florida there is no sound reason or place to use a Contract For Deed. It is more of a confusing instrument than it is an “easy” instrument. As such, with the intent of selling lots/land, etc for small increments of money you will still want to use a Mortgage securing the Promissory Note. With the purchase price being so small you do have a risk of non-recovery of advances made to enforce the instrument. The only way around that is create a requirement internally that the down payment be at least an amount sufficient to enforce the instrument covering the advances necessary for notices and filings to foreclose…
To be clear, there are no creative alternatives available in Florida. Stick to the commonly used instruments and procedures.
From Various real estate attorneys:
In Florida, land installment contracts are otherwise known as “mortgages” which requires a foreclosure in case of default…
Carol Anne Johnson
Real Estate Attorney
Whether the contract is recorded or not, the contract vendor must bring an action for foreclosure to terminate the contract vendee’s rights to the property….
Marshall C Deason Jr.
Real Estate Attorney
Okay! So now that I’ve gotten that out of the way 🙂
It seems like one would have a few options:
1.You don’t record the land contract and “fly under the radar”. Usually when people stop paying, they don’t usually put up a fight so the seller notifies the buyer of the default and then takes possession of property (as stated in the original land contract). There is usually no issue here because it’s not a home people are living in and if they stop paying they probably don’t care.
I believe this is what most sellers do although it does not follow Florida law and if you were dealing with a higher dollar amount property, the buyer could fight it and make you foreclose. Also, I’m not sure you could sell your land contract to a note buyer without it being recorded (just a guess though).
2. Deal only in cash deals, wholesale and flip the properties fast.
3. Get a down payment sufficient to cover the possible costs and time to handle a foreclosure ($$$$)
4. Ignore everything I just wrote hear and fly by the seat of your pants!
I hate to be accused of over thinking things, but if I were to create a large portfolio of notes I would want to make sure they were set up correctly.
In the case of a huge market downturn, recession, etc – you are likely going to have a a chunk of defaults. On these $3k-8k properties, it would not seem cost effective to foreclose on them when it might cost $1k-$2k to run through the foreclosure procedure.
So, to all the people who are selling in Florida, what are your thoughts?
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