What you need to know … What you should ask your REALTOR®

Changes effective as of November 1, 2021

Until 2009 I practiced real estate law in the State of Rhode Island and Commonwealth of Massachusetts. Amongst my clients was the Rhode Island Association of REALTORS® (“RIAR”). As Legal Counsel I drafted, prepared the contracts, listing agreements, all the forms used by REALTOR® members of RIAR. There was some engagement and advice sought from other lawyers, mortgage lenders, consumers, and other stakeholders, but it was minimal. It was REALTOR® centric, they were my client.

Florida is unique, unique in a good way. In Florida residential real estate contracts have been created by joint committee of the Florida Association of REALTORS® (“FAR”) and the Florida Bar Association (“BAR”). I am not aware of any other state that operates that way. I find it a good thing because it fosters consensus by REALTORS® and Attorneys on the forms used, and its bias is one of fairness to all parties.

I have set this up by way of background because effective November 1, 2021, there have been material and significant revisions to the two (2) principal contracts used in Florida, i.e., the Residential Contract for Sale and Purchase (“Standard Contract”), and the “AS-IS” Residential Contract for Sale and Purchase (”’AS-IS’ Contract”). I will cover the principal changes in this commentary.

If you are buying or selling your home or other residential property in the State of Florida, your REALTOR® should be able to explain these changes, as well as all pre-existing terms and conditions in the contract which remain unchanged. What follows are the most important changes. I encourage you to use this for guidance when discussing the purchase or sale of your home with your REALTOR®.

1. Personal Property – Paragraph 1(d). Due to the increase in smart home devises and wall mounted televisions, unless specifically excluded in the Contract, thermostats, doorbells, television wall mounts and hardware are now included in the sale.

• Collected Funds at Closing – Paragraph 4. A sale is considered “closed” when all funds required for closing are received and “collected” by the Closing Agent. As a practical matter what this means is if the buyer or seller are required to bring funds to the closing, the funds need to be wired in advance to the Closing Agent. No checks. This is because wired funds generally hit the depository account within hours, whereas checks can take days to clear, often up to 7 to 10 days. Accordingly, if a buyer or seller brings a check to the closing, it is uncollected funds. It delays the sale from being formally closed until the check clears. Under the terms of the contract, “time is of the essence” for all times for performance, i.e., all timelines are “drop dead” dates, there is no standard of “reasonableness”. Consequently, if the funds have not been collected as of the Closing Date, it could trigger a default.

• Extension of Closing Date – Paragraph 5(a). Amongst other entities, the Consumer Financial Protection Bureau (“CFPB”) has supervisory authority over banks, thrifts, and credit unions with assets over $10 billion, and nonbank mortgage originators and servicers. If a buyer is financing the purchase, the CFPB requires the lender to deliver the Closing Disclosure (a five-page statement of the final mortgage loan terms and closing costs) to borrowers at least three (3) business days prior to closing a mortgage loan. If the mortgage loan funds are not available on the Closing Date due to the CFPB’s 3-day delivery requirements, the Closing Date can be extended for a maximum of 7 days, provided: i.) the financing contingency, Paragraph 8(b), was selected; ii.) loan approval has been obtained; and, iii.) underwriting is complete.

• Occupancy and Possession – Paragraph 6. If a buyer is going to occupy a property prior to closing (which I generally advise against), the parties are directed to use Rider T, entitled “Pre-Occupancy By Buyer”. This permits the parties to enter into an agreement simpler than a formal lease, for use and occupation of the property prior to closing. Upon buyer taking possession, buyer assumes all risks of loss to the property, and the seller is relieved of any maintenance and repair obligations, except for any items which the seller had agreed to repair pursuant to “Property Inspection & Repair”, Paragraph 12. Please Note:  Although REALTORS® in Florida can provide a form lease to a buyer or seller, and fill in the blanks, they cannot modify or prepare a lease agreement.

The seller is also required to disclose any short-term vacation rentals or occupancy agreements, which are commonplace “in-season”, that will occur after closing. Further, there is no longer an obligation to obtain a tenant estoppel letter (confirming rent payments made, security deposits, any other property issues). Nevertheless, on behalf of a buyer I still find it a good practice to contractually require the seller to provide confirmation of rental payments and other property issues, if any.

• Financing – Paragraph 8(b)(i). There have been material changes to the Financing Paragraph. If the loan is contingent upon loan approval, the prior contract required obtaining loan approval within a designated period (usually 30 days), for a term certain (usually 30 years), and at an interest rate not to exceed a stated amount (often prevailing rates). A major change is that the new contract requires receipt of an appraisal or other valuation satisfactory to buyer’s lender within the Loan Approval Period. Prior hereto, if the appraisal was done after the Loan Approval Period and was insufficient to comply with the loan approval letter, the buyer could terminate the contract. No more. The buyer now has the additional burden to make certain a satisfactory appraisal or denial is completed, and notice delivered to the seller on or before the expiration of the Loan Approval Period. If the buyer receives an unsatisfactory appraisal after the Loan Approval Period, the buyer cannot terminate the contract. Accordingly, it is imperative that the Loan Approval Period be realistic and that the buyer be cautioned to immediately respond to all the lender’s requirements, to ensure timely delivery of the loan approval or denial. Considering current market conditions and the rapid pace from contract to closing, I strongly advise buyers to obtain financing from a lender who will order the appraisal early and satisfy the buyer that it is able to render its’ decision within the Loan Approval Period.

Another significant change is loan approval, requiring the buyer to sell another property, is not loan approval, unless Rider V, entitled “Sale of Buyer’s Property” is attached as an Addendum to the Contract. Therefore, if a buyer wants to ensure that the offer is subject to the sale and/or closing of other property he owns, Rider V must be used.

Paragraph 8(b)(ii). The buyer’s obligation to keep the seller informed about the status of all matters related to the loan requires a written request from the seller. As will be further expounded upon below, the new contract specifically provides that an email and fax are the only acceptable methods of electronic delivery, i.e., text messaging is not considered notice.

Paragraph 8(b)(v). If the buyer fails to give written notice to the seller of loan approval or inability to obtain the loan within the Loan Approval Period, the sale is no longer contingent upon financing, the transaction goes hard, unless the seller terminates the contract within 3 days after the expiration of the Loan Approval Period. Consequently, the buyer must be diligent and provide notice of loan approval or denial within the Loan Approval Period or he risks that the contract will convert into a de facto “cash transaction”, no longer contingent upon financing. Further, the seller must be diligent over timelines, particularly in a back-up offer environment, which is common today. It bears repeating, if the Loan Approval Period has expired, and the buyer has not provided written notice, then the Seller may cancel the contract only if he delivers notice of termination to the buyer within 3 days after expiration of the Loan Approval Period.

• Times for Performance – Paragraph 18 F. The prior contract required that any times for performance, other than acceptance and Effective Date (last signature date on the contract), which ended on a Saturday, Sunday, or national legal holiday, would extend to 5 PM of the next day that was not a Saturday, Sunday, or national legal holiday. The new contract clarifies national legal holiday as national legal “public” holiday, and no longer ends at 5 PM, but goes to the end of the next calendar day that is not on a Saturday, Sunday or national legal public holiday.  

• Force Majeure – Paragraph 18 G. Force majeure is a French term, used in the law to describe an unforeseeable circumstance, a greater force, often associated with an act of God, such as a hurricane which prevents a party from performance or non-performance of an obligation. The new contract has expanded force majeure to provide additional time for a party to perform “contractual rights” in addition to contractual obligations. An example of a contractual right is the buyer’s right to perform a walk-through inspection prior to closing. But it is a right, not an obligation. Accordingly, if there is a force majeure event, such that the buyer is estopped from doing a walk through, that right could be extended up to 7 days after the force majeure event no longer prevents performance. If the Force Majeure event continues for more than 30 days beyond the Closing Date, either party may cancel the contract.

What is particularly noteworthy is that the contract has expanded force majeure to include “civil unrest”, “governmental actions and mandates”, “government shutdowns”, “epidemics”, and “pandemics”. It will be interesting to see how this may play out. Imagine a government shutdown of the airlines. The buyer is unable to catch a flight to do the walk-through, claims force majeure and seeks a continuance. Is that a force majeure event? I would argue that if there is another means to perform a right or obligation, such as designating a representative to do the walk through on the buyer’s behalf, then the government shutdown of the airlines is not a force majeure event. But the issue may not be so easily argued. These newly described force majeure events have not been tested. Depending upon the circumstances, this clause could invite case and controversy.

• Notice – Paragraph 18 O.  I referenced earlier that other than fax or email, notice by electronic means, including but not limited to texts and other social media postings is not considered notice. This is a good thing. I have never been a fan of texting on important contractual or business matters. It is a form of social interaction, casual conversation. It can have its place in a real estate transaction, but not when it comes to “notice”. Further, there is no permanency to texts, they can disappear over time.