Get Your $#!T Out of My House! – Understanding Bailments

In real estate, buyers commonly ask if they can place their stuff in the home before they even bought the home.  Conversely, sellers commonly ask if they can keep their personal property in the home for a limited time after the sale is completed.  This article addresses: (1) What is the relationship created when someone agrees to hold someone else’s personal property?  (2) What precautions could be taken prior to storing someone else’s property?

Scenario #1, Seller tells Buyer, “I cannot close on time unless you allow me extra time to move my personal property out.” Buyer still agrees to buy the house, but graciously gives Seller seven (7) extra days to move Seller’s stuff out.  Once Buyer owns the house, who is responsible for Seller’s stuff and what if Seller never removes it?

Scenario #2, in today’s aggressive market, buyers are offering sellers “post-occupancy agreements” meaning, the buyer agrees to buy seller’s home, but simultaneously allows the seller to remain in the property after closing for a defined period of time (e.g. 1-2 months) for free.  Same question, who is responsible for Seller’s stuff and what if Seller never removes it?

Bailment.  The above scenarios describe a bailment relationship.  In essence, a bailment is created when the recipient (a bailee) temporarily holds an owner’s (the bailor’s) personal property with the expectation of redelivering the property back to the owner (bailor).[1]  Valeting a car is a common example of a mutually beneficial bailment, where the driver is the bailor (owner) who gets a benefit of being able to park his car, and the valet attendant (recipient) is the bailee who gets paid to store and return the car.   “Unlike a sale or gift, … a bailment involves a change in possession, not title.”[2]

There are different types of bailments such as: those for: (1) the exclusive benefit of the bailor (owner); (2) exclusive benefit of the bailee (recipient); or (3) for both of their mutual benefits.  Classifying the parties’ relationship is important because it defines the “duty of care” the bailee (recipient) must exercise when holding onto the bailor (owner’s) property.   Absent a contract clause redefining the relative rights of the bailor and bailee, the rules of bailment will generally control.

In this article we are talking about a “gratuitous bailment.”  One where the bailor (owner) asks to have their property stored by the bailee (recipient). In that scenario, there really is no benefit to the bailee (recipient).  So under what situation would the bailee (recipient) be responsible should something happen to the bailor (owner’s property) while being stored by the bailee (recipient)?

“If the bailment were gratuitous, it would be necessary to establish gross negligence on the part of the [bailee] in order for the [bailor] to recover against the bailee.”[3]  While gross negligence is very hard to prove; who wants any type of claim to be made at all?

Disclaimer Overkill.  Based on the above scenarios, Bryce Gilbert, Esq., owner, operator, and company attorney for Florida’s Title Insurance Company has proposed potential language, which is admittedly overkill, but the point is to addresses many concepts that the parties may not have thought about, which can be modified to suit your own individual purposes:

PROPERTY STORAGE DISCLAIMER

  1. Buyer may store Buyer’s personal property within Seller’s Property only in a location where Seller directs.
  2. Buyer may not store dangerous, hazardous, toxic, flammable, or anything that would cause undue risk to Seller.
  3. Seller may reject and refuse to store any of Buyer’s personal property.
  4. Seller is not obligated to inspect Seller’s property prior to taking possession of Seller’s property.
  5. Buyer shall only use licensed and insured movers, and shall name seller as an additional insured.
  6. Buyer shall apply for, obtain, and continue to comply with all Condominium or HOA rules, regulations, and requirements relating to moving.
  7. Buyer’s property is being stored at Buyer’s own and sole risk, and Buyer assumes full responsibility.
  8. Buyer shall purchase insurance coverage relating to Buyer’s personal property.
  9. Buyer fully releases and holds Seller (which includes its agents) harmless of and from any and all liability and damages arising out of, related to, or concerning Buyer’s personal property.
  10. Buyer waives any and all claims against Seller including but not limited to: negligence; gross negligence; intentional tort; recklessness; bailment; bad faith; theft; vandalism; casualty; conversion; trespass to chattel; fraud; civil theft; force majeur; accounting; claims in equity or in law; deterioration; or destruction; arising out of, related to, or concerning Buyer’s personal property whatsoever.
  11. Seller has no: duty of care; obligation to secure, safeguard, protect, prevent unauthorized use; nor keep separate, Buyer’s personal property.
  12. Seller is authorized to relocate Buyer’s property, without Buyer’s prior permission.
  13. Buyer agrees to indemnify and hold Seller harmless for any and all damages, attorney fees, costs, and liability arising out of or related to Buyer’s personal property.
  14. In the event Buyer fails to close on or before the closing date, Seller may demand (by providing notice to either Buyer or Buyer’s realtor which shall be deemed effective upon Buyer) that Buyer promptly and immediately remove Buyer’s personal property using licensed and insured movers within seven (7) calendar days (“Seller’s Notice”); and if Buyer fails to completely remove Buyer’s property then Buyer’s property will be deemed abandoned.
  15. After Buyer’s property is deemed abandoned, Seller may: (1) Charge Buyer $____ day for on-site storage / nuisance as a liquidated damage starting from the date of “Seller’s Notice” until such time as Buyer’s property is fully removed; (2) Take possession of the property; (3) Remove Buyer’s personal property without any liability whatsoever and in whatever manner and means Seller chooses in Seller’s sole and exclusive discretion; and (3) hold Buyer additionally liable for any and attorney fees and costs arising out of or relating to removal, storage, sale, retention, and disposition of the personal property whatsoever.
  16. The parties waive the requirements and application of Florida Chapter 715 relating to Disposition of Personal Property Landlord and Tenant Act..

DISCLAIMER:  Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney or accountant.  The author Randy Gilbert, J.D. is neither an attorney nor an accountant.  FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ®


[1] S & W Air Vac Sys., Inc. v. Dept. of Rev., 697 So. 2d 1313, 1315 (Fla. 5th DCA 1997)

[2] Black’s Law Dictionary (11th ed. 2019) bailment.

[3] Armored Car Service, Inc. v. First Nat. Bank of Miami, 114 So. 2d 431, 434 (Fla. 33rd DCA 1959). (if the bailment relationship is mutually beneficial to both the bailee (recipient) and bailor (owner) then to recover damages against the bailee (recipient) the bailor would only need to prove the much lower standard of ordinary negligence.

Undoing Deeds – Disclaiming Property Rights

So why would someone want to refuse property given to them? 

Scenario #1 – Disinterested.  The first thought cloud that popped into to my head was: two (2) people in a car get pulled over, the passenger throws his bag of drugs to the driver and says, “here it’s yours!”  The driver looks back stupefied – now what?  “I disclaim this belongs to me!” says the driver. The scenario is extreme, but it gets the point across.

Because what prompted me to write this article was, what if a grantor conveyed real estate that the grantee either: never wanted; was mistakenly given; or due to grantee’s predicaments would not be within grantee’s best interest to take?

Scenario #2 – Mistake.  Errors in deeds are more common than you think but not all of them are easily fixed.[1] What if a grantor mistakenly conveys title to the wrong grantee?  Too bad, so sad for that grantor.  A corrective deed may not be used,[2] but as this article addresses there may be a work around.

Scenario #2 – Burdensome.  What if the property was undesirable; plagued by liens, code violations, environmental contamination, waste, an unsafe structure, and it would cost more to rehabilitate than it was worth?

Scenario #3 – Evading Judgment Creditors.Or a more common scenario, what if wealthy Grantor Grandpa wants to leave his three (3) grandchildren valuable property, but prior to or at the time of Grantor Grandpa’s death, one of the three (3) grandchildren, Debtor Dave racked up some serious judgments against him?  If Debtor Dave receives that 1/3rd interest it could be levied against and taken by Debtor Dave’s creditors.  Can a Grantee/Donee/Recipient of property give back property which is already deeded, conveyed, transferred, and recorded in the public records and which shows Debtor Dave as an Owner?

Undoing a Deed Transfer as if it Never Happened.   As a title company we deal with conveying and transferring property, but can a transfer be undone, rescinded, nullified, or cancelled?  I am not talking about transferring the property back – like A transfers to B, the property is vested in B, and then B transfers back to A (i.e. two separate transfers).  What I am talking about is cancelling the vested transfer as if the transfer from A to B never happened?  As if title never left A, and the property never vested in B in the first place?  Is there a way to hit Ctrl + Z, backspace, and just undo a deed?  The answer seems to be Yes.

The Florida Uniform Disclaimer of Property Interests Act (“FUDOPIA”) applies to disclaimers of any interest in or power over property, whenever created, and with limited exception (see below when barred) is the exclusive means under Florida law that a disclaimer may be made.[3]  “Disclaimer” and “Renunciation” both mean, the refusal to accept an interest in or power over property (like when appointed as a trustee, power of attorney, or agent over property).[4]  A person who disclaims an interest or power in property is called the Disclaimant.[5]

When Can a Disclaimer be Made?  Unless barred, a disclaimer can be made at any time.[6]

When are Disclaimers Barred or Disallowed?  You can lose your right to disclaim or renunciate your interest in property. Most poignantly, when taking affirmative action that would be completely inconsistent with disclaiming.  In other words, you cannot have your cake and eat it to.  You cannot utilize or accept an interest in property and then simultaneously disavow that you have any interest in that same property.  So a disclaimer of an interest in property will not be allowed in four (4) instances: (1) a written waiver of the right to disclaim; (2) The disclaimant accepts the property interest before the disclaimer becomes effective; (3) The disclaimant voluntarily assigns, conveys, encumbers, pledges, or transfers the property interest or contracts to do the foregoing before the disclaimer becomes effective; (4) The disclaimant is insolvent when the disclaimer becomes irrevocable. [7]  “Insolvent” means, that the sum of a person’s debts is greater than all of the person’s assets at fair valuation and that the person is generally not paying his or her debts as they become due. [8]

Can the Disclaimer be Partial, or Must it be Entirely?   A person can disclaim all or part, conditionally or unconditionally, any interest in or power over property. [9]  A partial disclaimer may be expressed as a fraction, percentage, monetary amount, term of years, limitation of a power, or any other interest or estate in the property. [10]

Can the Grantor prevent the Grantee from Disclaiming?  No.  Florida apparently does not follow one of the more creative playground rules known as “No take backs!”  In Florida, a person may disclaim their interest even if its creator imposed a restriction or limitation on the right to disclaim.  So a grantor cannot deed property to a grantee and eliminate the grantee’s right to renunciate or disclaim the property by including words to the effect of “No take backs.”  If a disclaimant makes a disclaimer then it is considered unconditional unless the disclaimant explicitly provides otherwise in the disclaimer.[11]

What are the Requirements for an Effective Disclaimer?  To be effective, a disclaimer must be: (1) in writing, (2) declare the writing as a disclaimer, (3) describe the interest or power disclaimed, (4) be signed by the person making the disclaimer, and (5) witnessed[12] and (6) acknowledged[13] in the manner provided for deeds of real estate to be recorded[14] in this state.[15]  Generally, a deed needs to be in writing, signed in the presence of two subscribing witnesses, properly signed and notarized, and meet certain requirements before it may be recorded.[16]

Delivering the Disclaimer.  In addition, for a disclaimer to be effective, the original disclaimer must be either delivered or filed.[17]  Delivery of a disclaimer may be effected by personal delivery, first-class mail, or any other method that results in its receipt.[18] Notwithstanding, delivery of a disclaimer of an interest in or relating to real estate is presumed upon recording the disclaimer in the county where the real estate is located.  A disclaimer sent by first-class mail is deemed delivered on the date it is postmarked, delivery by other methods are effective upon receipt.

When a Disclaimer is Invoked, When Does the Disclaimer Take Effect?  Once the disclaimer is validly invoked, it takes effect as of the time the instrument creating the interest becomes irrevocable.[19]  If however the interest arises under the laws of intestate succession (i.e. someone dying without a will or some other legal declaration), then the disclaimer will take effect at the time of the intestate’s death.[20]

So if the Property Interest is Disclaimed by the Intended Grantee, Who Does the Property Interest Now Belong To?   When a disclaimer occurs, it is not considered a transfer, assignment nor a release.[21]  Rather, well… this is weird, if you disclaim an interest in property, then much like your mother-in-law (just a joke), the law treats you as if you were dead.  Assuming that the instrument creating the interest does not say what happens if a disclaimer is made (e.g. if John disclaims then the interest goes to Jane) then the question turns to is the grantee an individual or not?

If the disclaimant is not an individual (e.g. a corporation, LLC, most trusts[22]  ) then the disclaimed interest passes as if the disclaimant did not exist. [23]  A deed from the owner to a nonexistent entity is a nullity.[24]  So, if a grantor conveyed to a non-existent entity it would be as if the conveyance was a nullity.

However, if the disclaimant is an individual then the disclaimed interest passes as if the disclaimant had died immediately before the interest was created, unless under the governing instrument or other applicable law the disclaimed interest is contingent on surviving to the time of distribution, in which case the disclaimed interest passes as if the disclaimant had died immediately before the time for distribution.[25] So by example, if Grantor Grant conveys to Disclaiming Dan then it would be as if Grantor Grant conveyed to a dead guy, in which case presumably the property interest would revert back to Grantor Grant.  Strict legal title may not pass by a deed to a dead grantee.[26]  Title cannot vest in a fictitious person.[27]

Different rules apply to what happens to the property interest if the property interest being disclaimed is: a joint tenant with rights of survivorship,[28] a trust’s property,[29] or property held as tenants by the entirety.[30]

AND NOW FOR OUR OWN DISCLAIMER 🙂:  Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney or accountant.  The author is neither an attorney nor an accountant.  FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ®

[1] house Of Representatives Staff Analysis Bill # CS/HB 567 Correction of Errors in Deeds FN. 2.

[2] See, Florida Uniform Title Standard 3.2 “A grantor who has conveyed land by an effective and unambiguous deed cannot avoid the effect of such conveyance by executing a new deed making a change in the conveyance, even though the latter deed purports to correct or modify the former.”  Compare Fla. Stat. 689.041 689.041 – Curative procedure for scrivener’s errors in deeds; see also, Five Tips Every Real Estate Practitioner Should Know About Defective Deeds Fla. Bar Journal, Vol. 82, No. 5  (May 2008)  Pg 37 by Stacy O. Kalmanson and Jerry Morris.

[3] Fla. Stat. §739.103 – Scope.  But seeFla. Stat. §739.402 – When disclaimer is barred or limited.

[4] Fla. Stat. §739.102(5) – Definitions.

[5] Fla. Stat. §739.102(3) – Definitions.

[6] Fla. Stat. §739.401 – When disclaimer is permitted; but compare, Fla. Stat. §739.402 – When disclaimer is barred or limited.

[7] Fla. Stat. §739.402 – When disclaimer is barred or limited.

[8] Fla. Stat. §739.102(8) – Definitions.  See also, Fla. Stat. §726.102 – Definitions.  “The term ‘Asset’ means property of a debtor, but the term does not include: (a)?Property to the extent it is encumbered by a valid lien; (b) Property to the extent it is generally exempt under nonbankruptcy law; or (c) An interest in property held in tenancy by the entireties to the extent it is not subject to process by a creditor holding a claim against only one tenant.”

[9] Fla. Stat. §739.104(1) – Power to disclaim; general requirements; when irrevocable.

[10] Fla. Stat. §739.104(4) – Power to disclaim; general requirements; when irrevocable.

[11] Fla. Stat. §739.104 – Power to disclaim; general requirements; when irrevocable.

[12] See, Fla. Stat. §689.01 – How real estate conveyed; Fla. Stat. §692.01 – Conveyances executed by corporations; and Fla. Stat. §692.02 – Validation of conveyances; Fla. Stat. §605.04074(3) – Agency rights of members and managers.

[13] See, Fla. Stat. §695.03 – Acknowledgment and proof; validation of certain acknowledgments; legalization or authentication before foreign officials.; Fla. Stat. §117.04 – Acknowledgments; and Fla. Stat. §117.05 – Use of notary commission.

[14] See Fla. Stat. §695.26 – Requirements for recording instruments affecting real property.

[15] Fla. Stat. §739.104(3) – Power to disclaim; general requirements; when irrevocable.

[16] See, Fla. Stat. §689.01 – How real estate conveyed; Fla. Stat. §692.01 – Conveyances executed by corporations; and Fla. Stat. §692.02 – Validation of conveyances; Fla. Stat. §605.04074(3) – Agency rights of members and managers.

[17] Fla. Stat. §739.104(3) – Power to disclaim; general requirements; when irrevocable.

[18] Fla. Stat. §739.301 – Delivery or filing.  Different methods for filing and delivering apply for disclaimers of interests created under: Law of intestate succession or wil§739.301(2); testamentary trust§739.301(3); intervivos trust §739.301(4)Beneficiary designation made before the time the designation becomes irrevocable §739.301(5)Beneficiary designation made after the time the designation becomes irrevocable §739.301(6); by a surviving holder of jointly held property, or by the surviving tenant in property held as a tenancy by the entirety,§739.301(7); by an object, or taker in default of exercise §739.301(8); appointee of a nonfiduciary power of appointment §739.301(9); by a fiduciary of a power over a trust or estate §739.301(10); a power exercisable by an agent §739.301(11)§739.301(12)

[19] Fla. Stat. §739.201 – Disclaimer of interest in property.

[20] Fla. Stat. §739.201 – Disclaimer of interest in property.

[21] Fla. Stat. §739.104(6) – Power to disclaim; general requirements; when irrevocable.

[22] Fla. Stat. §739.201(3)(a) – Disclaimer of interest in property.  Referring to Fla. Stat. § 733.707 Carving out a different procedures for trusts where the grantor has at the decedent’s death the right of revocation.

[23] Fla. Stat. §739.201(3)(b) – Disclaimer of interest in property.

[24] See, Florida’s Uniform Title Standard 3.1citing Fund Title Note 11.01.05, citing, Belcher Center LLC v. Belcher Center, Inc., 883 So.2d 338 (Fla. 2d DCA 2004).

[25] Fla. Stat. §739.201(3)(a) – Disclaimer of interest in property.  (“However, if, by law or under the governing instrument, the descendants of the disclaimant would share in the disclaimed interest by any method of representation had the disclaimant died before the time of distribution, the disclaimed interest passes only to the descendants of the disclaimant who survive the time of distribution. For purposes of this subsection, a disclaimed interest is created at the death of the benefactor or such earlier time, if any, that the benefactor’s transfer of the interest is a completed gift for federal gift tax purposes.”)

[26] Fund Title Note 10.04.01 Death of One Joint Grantee Before Execution of Deed citing, Hutto v. Hutto, 66 Fla. 504 (1913) (However, where dead grantee paid for the property prior to the dead grantee dying, the dead grantee’s estate could maintain an equitable action to quiet title and reformation of the deed).

[27] Fund Title Note 10.04.02 Fictitious Names

[28] Fla. Stat. §739.202 – Disclaimer of rights of survivorship in jointly held property.

[29] Fla. Stat. § 739.204 – Disclaimer of interest by trustee.

[30] Fla. Stat. §739.203 – Disclaimer of property held as tenancy by the entirety; see also Fla. Stat. §732.4015 Devise of homestead.—regarding devise of homestead by surviving spouse.

Giving the Bird. Lady-Bird Deeds

History behind the Lady Bird Deed – Myth Busted. “When you have a choice of printing the truth or the legend—print the legend.”[1]

Many still believe the origin of the “Lady Bird Deed” came from an ingeniously drafted deed first used by President Lyndon B. Johnson’s lawyers which allowed the President to retain full ownership and control of his real estate while alive, but triggered a transfer on death (n/k/a T.O.D.) clause to automatically pass real estate upon Lyndon B. Johnson’s death instantaneously to: (1) his wife “Lady Bird” Johnson, and then (2) upon her death to their children, without the delays or expense of a will, trust, court proceeding, or probate.

Wives of presidents are referred to as “The First Lady,” so is that where the term “Lady Bird Deed” came from?  Nope.  Claudia Alta “Lady Bird” Johnson was nicknamed at six (6) years old by her nanny, because she was said to be, “as pretty as a lady bird.”[2]  So the famous “Lady Bird Deed” got its name from a six-year old’s nanny?  Nope again.

A hunt for the original Lady Bird Deed revealed that neither the supervisory archivist, nor deputy director of The Lyndon B. Johnson Library, ever heard of a Lady Bird Deed.  Moreover, the librarians’ follow-up with both the surviving members of the Johnson family, and more importantly the financial administrators of Mrs. Lady Bird Johnson’s estate, also dead-ended, as no one ever heard of a Lady Bird Deed.[3]

Comically, “the first Lady Bird deed was drafted by Florida attorney Jerome Ira Solkoff around 1982, nearly ten years after the death of President Johnson. In his elder law book and lecture materials, Solkoff used a fictitious cast of characters with the names Lyndon (husband), Lady Bird (wife), Lucie (daughter), and Lynda (daughter) in examples explaining the usefulness of this new type of deed. So as the-story-goes the nickname Lady Bird became associated with the deed.”[4]  Jerome Ira Solkoff, Esq. reconfirmed the story.[5]

Today Lady Bird Deeds, which are more formally called enhanced life estates, are commonly used in Florida and throughout the United States.  Nineteen (19) other states codified its use by adopting the Uniform Real Property Transfer on Death (TOD) Act and today there are talks in the Florida Bar’s RPPTL  section (Real Property Probate and Trust Section) about possibly doing the same.

Chart showing Differences between Enhanced Life Estate (i.e. Lady Bird Deed) Regular Life Estate
Chart showing Differences between Enhanced Life Estate (i.e. Lady Bird Deed) Regular Life Estate

I. What is a Lady Bird Deed (a/k/a Enhanced Life Estate)?  When property is owned, it is usually owned as fee simple absolute, meaning the grantee (i.e. recipient) receives 100% ownership and control of the property.  But if an owner wanted to maintain ownership of their property for their entire life and leave it to their spouse and descendants without the need of a will, trust, or probate then the use of Life Estates is a great alternative.

II. Advantages of Enhanced Life Estate.  Using a Lady Bird Deed, you can grant yourself an enhanced life estate interest in your own property and simultaneously grant your beneficiaries, called remaindermen, the real property upon your death.  A life estate obtained through a Lady Bird Deed is called an enhanced life estate.  The life estate is said to be enhanced because during the enhanced life estate holder’s lifetime they have all the characteristics of full ownership without the burdens that come with a regular life estate.

Under an enhanced life estate, during the owner’s lifetime, the beneficiaries have no interest in the land, because the owner retains full power to remove the beneficiary, until the owner dies.  Because no property interest vests in the beneficiary until the transferor’s death, the transferor retains complete control to amend, modify, or revoke the beneficiary’s designation during the transferor’s lifetime.  Stated another way, the Lady Bird Deed does not transfer a current interest in the property to the beneficiary.  Generally, all that is required to remove a remaindermen is the filing of a revocation of the lady bird deed prior to the grantor owner’s death. Because no property interest passes to the beneficiary until the death of the transferor, such revocation does not require the named beneficiary, or beneficiaries, to join. If a transferor wishes to modify the beneficiaries to a particular piece of real property, the transferor can simply execute and record a subsequent deed, which will supersede the previous transfer and become the effective deed.[11]  Moreover, unlike a regular life estate, an enhanced life estate holder can still mortgage, encumber, sell, transfer, or modify, the real property without the remaindermen’s consent.

III. Example of Enhanced Life Estate.  The example that made the Lady Bird Deed famous is:

Lyndon and Lady Bird, his wife, grantors, to Lyndon and Lady Bird, his wife, grantees, a life estate, without any liability for waste, with full power and authority in them to sell, convey, mortgage, lease and otherwise dispose of the property described below in fee simple, with or without consideration and without joinder by the remaindermen, and to keep absolutely any and all proceeds derived therefrom. Further, the grantors reserve the right to change remaindermen at any time without consent of remaindermen. Upon death of the life tenants, title shall be in Lucy and Lyndajoint tenants with rights of survivorship.[12]

IV. Regular Life Estates distinguished. The key advantages of the enhanced life estate is its  combination of retained control for the transferor, simplicity, and revocability.Regular life estates however are irrevocable.  When a regular life estate holder identifies the remaindermen in the deed, the remaindermen receive an immediate vested right in the real estate, regardless of when the regular life estate holder dies.  Therefore, there is no removing the remaindermen without the remaindermen’s consent.  Moreover, if a regular life estate holder wanted to mortgage, encumber, sell, or affect the real property to the detriment of the remainderman, they could not unless the regular life estate holder obtained the remainderman’s prior permission.  An ordinary life tenant had no right to cut the timber for commercial purposes without the remaindermen’s consent.[13]  Furthermore, because remaindermen receive an immediate vested interest, the remainderman’s interest in the real estate is subject to collection from creditors.  A regular life estate holder cannot neglect the property allowing it to fall into disrepair or commit waste or fail to pay taxes and if it does then the remainder can have a receiver appointed over the property.[14]    The remainder (future) interest holder must approve any improvements to the property, and has the right to inspect the property for waste or damage.[15]

In Florida, a tenant for life or a person vested with an ordinary life estate [i.e. not an enhanced life estate] is entitled to the use and enjoyment of his estate during its existence. The only restriction on the life tenant’s use and enjoyment is that he not permanently diminish or change the value of the future estate of the remainderman. This limitation places on the `ordinary life tenant’ the responsibility for all waste of whatever character. It is well settled that life tenants are bound in law to pay property taxes during their continuance of their estate. Failure to pay taxes constitutes waste. Therefore, it follows that the wife [ordinary life estate holder] would have the responsibility to pay all ordinary and necessary expenses that inure to a homeowner, including taxes, insurance, homeowner’s association fees, and general repairs for the upkeep and maintenance of the property, and not to dissipate or cause waste to the [remaindermen’s future] property.[16]

V. How long does a life estate last?  Sounds silly I know, Typically, the owner of the life estate (called a life tenant) owns the property during their own lifetime and upon the death of the life tenant the remaindermen then become the new owner.  However, a life estate may be measured by the life of another, which is called a life estate per autre vie – French “for the life of another.”

VI. Medicaid planning.  Medical assistance (Medicaid) is a program funded jointly by the states and the federal government.  It provides health coverage to pay for hospital stays, doctor bills, prescription drugs, and other health costs.  In Florida, the Agency for Health Care Administration is responsible for Medicaid.  To apply for Medicaid in Florida, an individual must provide a detailed list of all their assets to Florida’s Department of Children and Family Services or the Social Security Administration.

The Lady Bird Deed transfer has no effect on Medicaid eligibility.[17]

Furthermore, if you become a Medicaid recipient, then a Lady Bird Deed can be useful in avoiding Medicaid bills, by reducing or even eliminating the amount your estate would need to pay back to Medicaid.  After a Medicaid recipient dies, Medicaid can seek repayment “Upon filing of a statement of claim in the probate proceeding” against the decedent’s estate.[18]

First, Medicaid only seeks reimbursement from assets within the probate estate.  Real estate held as an enhanced life estate, will not be included in a probate estate, because it automatically transfers to the beneficiary (i.e. the remaindermen) upon death.  So that property would not be included in the probate estate.  Therefore, using a Lady Bird deed can allow heirs to inherit a property that might otherwise have been sold to pay a Medicaid reimbursement claim.

Secondly, a Florida Medicaid recipient’s homestead is exempt from Medicaid reimbursement.[19]  Homesteaded property is disregarded.[20]  So what we are really talking about trying to protect is non-homestead real estate in Florida (such as rental, vacation homes, or investment property) which may be subject to Medicaid repayment.

By keeping non-homesteaded  real estate in a Lady Bird Deed, the property never becomes part of the deceased’s probate estate.  The State will not be able to make a claim against any property with a valid Lady Bird Deed, because the property does not become part of the decedent’s estate. Instead, the property automatically transfers into the ownership of the beneficiary/remaindermen listed on the Lady Bird Deed.

DISCLAIMER:  Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney or accountant.  The author is neither an attorney nor an accountant.  FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ®


[1] 1962 John Ford film, “The Man Who Shot Liberty Valance” starring John Wayne and James Stewart.

[2]  Obituary: Lady Bird Johnson BBC Online. July 12, 2007

[3] Kary C. Fran, The Search for the Lady Bird Deed 34 Mich. Prob. & Test. Plan. J. (Summer 2015).

[4] Gerry W. Beyer & Kerri M. Griffin, Lady Bird Deeds: A Primer for the Texas Practitioner, Estate Planning Developments For Texas Professionals, (Jan. 2011)

[5] Id.  citing, 14 Fla. Prac., Elder Law § 9:53 “Lady Bird” life estate deeds—Life estate deed to convey future title to heirs (2014-15 ed.)

[6] Fla. Stat. §196.041(2) – Extent of homestead exemptions.— “A person who otherwise qualifies by the required residence for the homestead tax exemption provided in s. 196.031 shall be entitled to such exemption where the person’s possessory right in such real property is based upon an instrument granting to him or her a beneficial interest for life, such interest being hereby declared to be “equitable title to real estate….”

[7] “The homestead “ownership” requirement under the Florida Constitution does not restrict the type of property ownership; therefore, a life tenant can qualify for the homestead creditor exemption with his or her life estate. The Florida Supreme Court in Aetna Ins. Co. v. Lagasse, 223 So. 2d 727 (Fla. 1969), held that remainder interests, including vested remainders, were not able to qualify for the homestead creditor exemption, even if he or she lived on the property, because there was no ‘present right to possession.’ Thus, a life tenant can qualify for the homestead creditor exemption with a life estate, but the Florida Supreme Court has determined that a remainderman cannot qualify with a remainder interest.” See, Joseph M. Percopo, Esq., The Impact Of Co-Ownership On Florida Homestead, Vol. 86, No. 5 Pg. 32 (Florida Bar Journal May 2012).

[8] It is possible for a life estate holder to disclaim or renunciate a gift of the interest given.  See, Weinstein v. Mackey, 408 So.2d 849 (Fla. 3d DCA 1982) (regarding renunciation of a life estate by a beneficiary); Richey v. Hurst, 798 So.2d 841 (Fla. 5th DCA 2001) (surviving spouse is given a life estate created under a trust and later disclaims that life estate even after the life estate has commenced); Kearley v. Crawford, 112 Fla. 43, 151 So. 2d 293 (Fla. 1933) (creditor unable to collect on judgment to force the sale of land left to son, when before judgment was rendered against him, debtor/son renounced his devise under a will, as well as his rights as an heir at law.  “[E]lection to take under or against a will is a personal right of the legatee or devisee, and that it is one that cannot be controlled by his creditors”); Robert C. Meyer, Esq. Disclaimer Statute May Permit Judgment Debtors To Deliver Money To Friends Or Family With Nothing To Creditors, But Not Always In Florida Vol. 79, No. 4 Pg. 42 (Florida Bar Journal April 2005); Florida Statute §689.21  Disclaimer of interests in property passing under certain nontestamentary instruments or under certain powers of appointment.

[9] “When the life tenant qualifies for the homestead creditor exemption, the property is still protected from the life tenant’s creditors, but it is not safe from the remainderman’s creditors. For example, if Donna takes a life estate in blackacre while qualifying for the homestead creditor exemption and grants Ed and Frank equal remainder interests, Ed and Frank’s creditors can potentially take their remainder interests in blackacre. However, even if Ed or Frank’s creditors took their interest, there is little they could do with it until Donna died. Co-owners who share interests in time (life tenants and remainderman), unlike co-owners who share present interests, may not partition life estates. Therefore, a life tenant, such as Donna, could continue to reside on the property without worrying about the remaindermans’ creditors being able to force sale of the property. However, it is important to note that recently, two Florida bankruptcy cases held that a person with a vested remainder who lived on and made the property his or her residence could qualify for the homestead creditor exemption.”See, Joseph M. Percopo, Esq., The Impact Of Co-Ownership On Florida Homestead, Vol. 86, No. 5 Pg. 32 (Florida Bar Journal May 2012).

[10] Florida Statute §738.801 Apportionment of expenses; improvements.

(1) For purposes of this section, the term:

(a) “Remainderman” means the holder of the remainder interests after the expiration of a tenant’s estate in property.

(b) “Tenant” means the holder of an estate for life or term of years in real property or personal property, or both.

(2) If a trust has not been created, expenses shall be apportioned between the tenant and remainderman as follows:

(a) The following expenses are allocated to and shall be paid by the tenant:

  1. All ordinary expenses incurred in connection with the administration, management, or preservation of the property, including interest, ordinary repairs, regularly recurring taxes assessed against the property, and expenses of a proceeding or other matter that concerns primarily the tenant’s estate or use of the property.
  2. . Recurring premiums on insurance covering the loss of the property or the loss of income from or use of the property.
  3. Any of the expenses described in subparagraph (b)3. which are attributable to the use of the property by the tenant.

(b) The following expenses are allocated to and shall be paid by the remainderman:

  1. Payments on the principal of a debt secured by the property, except to the extent the debt is for expenses allocated to the tenant.
  2. Expenses of a proceeding or other matter that concerns primarily the title to the property, other than title to the tenant’s estate.
  3. Except as provided in subparagraph (a)3., expenses related to environmental matters, including reclamation, assessing environmental conditions, remedying and removing environmental contamination, monitoring remedial activities and the release of substances, preventing future releases of substances, collecting amounts from persons liable or potentially liable for the costs of such activities, penalties imposed under environmental laws or regulations and other payments made to comply with those laws or regulations, statutory or common law claims by third parties, and defending claims based on environmental matters.
  4. Extraordinary repairs.

(c) If the tenant or remainderman incurred an expense for the benefit of his or her own estate without consent or agreement of the other, he or she must pay such expense in full.

(d) Except as provided in paragraph (c), the cost of, or special taxes or assessments for, an improvement representing an addition of value to property forming part of the principal shall be paid by the tenant if the improvement is not reasonably expected to outlast the estate of the tenant. In all other cases, only a part shall be paid by the tenant while the remainder shall be paid by the remainderman. The part payable by the tenant is ascertainable by taking that percentage of the total that is found by dividing the present value of the tenant’s estate by the present value of an estate of the same form as that of the tenant, except that it is limited for a period corresponding to the reasonably expected duration of the improvement. The computation of present values of the estates shall be made by using the rate defined in 26 U.S.C. s. 7520, then in effect and, in the case of an estate for life, the official mortality tables then in effect under 26 U.S.C. s. 7520. Other evidence of duration or expectancy may not be considered.

(3) This section does not apply to the extent it is inconsistent with the instrument creating the estates, the agreement of the parties, or the specific direction of the taxing or other statutes.

(4) The common law applicable to tenants and remaindermen supplements this section, except as modified by this section or other laws.

[11] Stephanie Emrick, Transfer on Death Deeds: It Is Time to Establish the Rules of the Game, 70 Fla. L. Rev. 469 (2018).

[12] 14 Fla. Prac., Elder Law § 9:53 “Lady Bird” life estate deeds—Life estate deed to convey future title to heirs (2020-2021 ed.)

[13] See, Sauls v. Crosby, 258 So. 2d 326, 327 (Fla. 1st D.C.A. 1972)

[14] Chapman v. Chapman, 526 So. 2d 131, 135 (Fla. 3d D.C.A. 1988) “Upon the failure of the life tenant to pay the taxes, the remainderman is entitled to have a receiver appointed to collect the rents and apply them to discharge the tax indebtedness.”

[15] Joseph M. Percopo, Esq., The Impact Of Co-Ownership On Florida Homestead, Vol. 86, No. 5 Pg. 32 (Florida Bar Journal May 2012).

[16]  Schneberger v. Schneberger, 979 So. 2d 981 (Fla. 4th D.C.A. 2008)

[17] 1640.0613.01 Property Transferred and Life Estate Retained (MSSI)  “If an individual retains life estate using a lady bird deed or life estate with powers, no transfer has occurred. The individual retains full ownership powers in the property and it is only upon their death that the property transfers ownership to the remainderman.”

[18] Florida Statute §409.9101 Recovery for payments made on behalf of Medicaid-eligible persons.

[19] 1640.0305.03 Life Estate Ownership (MSSI, SFP) ““The owner of an enhanced life estate (also known as a lady bird deed or life estate with powers) has the same rights as complete ownership, including the right to sell without the consent of the remainderman. Lady bird deeds and life estates with powers are counted the same as other real property an individual may own and it may be excluded if it qualifies as the individual’s homestead, including under intent to return when absent from the home.”

[20] “Florida Statute §409.9101(7)  “No debt under this section shall be enforced against any property that is determined to be exempt from the claims of creditors under the constitution or laws of this state.”

Buying Property With Bitcoin – Unlikely

Using cryptocurrency to purchase properties could present numerous issues.

But there is a way. When buying real estate, there is nothing more reassuring to a seller than when a buyer pays using a good-old-fashioned irrevocable wire transfers. But with the advent of digital currencies, consumers want to instantly transfer money using apps like Venmo, Zelle, PayPal, or ACH or Bitcoin.[1]

Problem #1 – No Title Insurance. You will not find an underwriter who will issue title insurance for a property bought with Bitcoin. The insured amount of an Owner’s Title Policies is the purchase price. Purchase prices are typically the fair market value. If Bitcoin drops in value from contract to closing, the title policy may be overinsuring the transaction because the fair market value was not paid for the property. So the best practice would be to sell the Bitcoin and then purchase with U.S. Dollars (USD).

Problem #2 – Getting a Loan using Bitcoin. Fannie Mae does not recognize Bitcoin or any other digital currency unless it was previously converted into USD and deposited into an eligible asset account and previously seasoned for at least (2) two months. Fannie also requires a paper trail showing that funds from the cryptocurrency account were previously owned by the borrower.

Problem #3 – Not “Good Funds” Florida Administrative Code 69O-186.008 entitled “Escrow Requirements says in part that, “a title insurance agent… may not disburse funds unless the funds are collected funds … mean[ing] funds deposited, finally settled and credited to the title insurance agent’s or title insurer’s trust account.” There are a limited number of exceptions (e.g. certified check; cashier’s check; money order; checks from certain banks and credit unions; checks from licensed mortgage brokers; trust checks from lawyers, real estate brokers, title agents, and personal checks of $500 or less) but none of the exceptions seem to refer to digital curencies.

Therefore, the buyer should first convert its digital funds into USD prior to transfer. If the buyer has Bitcoin, but the seller wants cash, then the transaction is no different than a normal transaction. The title company is typically not concerned with what legal assets – stock, bonds, other land, or Bitcoin – may have been sold to generate the buyer’s funds which are ultimately wired into the title company’s trust account. Our concern is receipt of “Good Funds.”

Problem #4 – Claw Back, the American Land Title Association put out a memo declaring digital currencies problematic; because they do not have the same level of security, stability, payment assurance, and consumer protection due to the risk of funds being clawed back or charges reversed.

Problem #5 – Marketing. Right now the real estate market is hot for sellers. Offering to sell a property in either USD or Bitcoin may create a marketing buzz, but when sellers are currently receiving multiple offers, why would a seller choose Bitcoin instead of US Dollars?

Problem #6 – Market Fluctuations. Sellers may not want to risk their nest egg by converting their largest asset into bitcoin which is highly volatile. During March 2021 Bitcoin fluctuated over $10,000.

Problem #7 – Paying Off Property Expenses. While the Bitcoin amount may satisfy the agreed-upon sales price of the property, what about other settlement expenses which need to be paid off in USD like: loans, property taxes, releases, payoffs, recording fees and of course our fees?

Problem #8 – Disclosures . What value to enter on the federally mandated Closing Disclosure?

Problem #9 – Government Reporting. Reporting to FinCEN, the IRS, and state tax authorities the amount of the transfer.

Solution. Convert the Bitcoin to U.S. Dollars and then use the USD to buy the property.

DISCLAIMER: Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney or accountant. The author is neither an attorney nor an accountant. FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ®

[1] Transfers using Cybercurrencies like Bitcoin involve the Bitcoin Recipient: (1) Opening the Recipient’s “Wallet” found at Wallet.Bitcoin.com; (2) Select “Receive”; (3) The Recipient’s Wallet will generate a QR Code (if you’re on your phone) or a link if on your desktop; (4) Provide the Recipient’s link or QR code to the Bitcoin Sender who will now: (5) Open the Sender’s Bitcoin Wallet; (6) Click” Send”; (7) Copy and paste the Recipient’s QR Code or link into the Sender’s Wallet App; (8) Enter how much the Sender wants to send; and (9) Slide to Send.

FAIRNESS OF “FAIR MARKET VALUE”

The unfairness of “Fair Market Value” (FMV) is, well… who is to say what dollar amount is considered fair?  That was a question Virginia’s Supreme Court in Wilburn v. Mangano, 851 S.E. 2d 474 (Dec. 10, 2020) had to decide when determining whether a real estate contract was even valid when a buyer and seller agreed to sell property on a specified date using the ambiguous price term “at Fair Market Value,” without any more specificity as to how that FMV was to be determined.  That case is persuasive authority as to what may happen here in Florida.

FAIR MARKET VALUE

In Florida Real Estate Contracts should be “definite and certain as to essential terms.” According to Muñiz v. Crystal Lake Project LLC, 947 So.2d 464 (Fla. 3 DCA 2006) “essential” terms include:

  • Description of the land;
  • Interest in the land being conveyed;
  • The Purchase price;
  • Time of Payment; and
  • Terms of Payment (e.g. financing terms)

Florida’s Supreme Court defines FMV using ”the classic formula that it is the amount a purchaser willing but not obliged to buy, would pay to one willing but not obliged to sell.” Walter v. Schuler, 176 So. 2d 81, 86 (Fla. 1965) (“ ’fair market value’ and ‘just valuation’ should be declared ‘legally synonymous’”).

Florida’s Department of Revenue defines FMV as, “the price at which a property, if offered for sale in the open market, with a reasonable time for the seller to find a purchaser, would transfer for cash or its equivalent, under prevailing market conditions between parties who have knowledge of the uses to which the property may be put, both seeking to maximize their gains and neither being in a position to take advantage of the exigencies of the other.”) F.A.C. 12D-1.002(2).

The IRS defines FMV as “the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. If parties with adverse interests place a value on property in an arm’s-length transaction, that is strong evidence of fair market value. If there is a stated price for services, this price is treated as the fair market value unless there is evidence to the contrary.”  IRS  Pub. 544 Pg. 3 Sales and Other Dispositions of Assets

The Appraisal of Real Estate (14th  Edition, 2013)’s defines “Market Value”, as “The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self interest, and assuming that neither is under undue duress.”

The FDIC requires real estate appraisals for residential (if more than $400,000) and commercial (if more than $500,000) to be based on “Market Value.”  12 CFR §§ 323.3(a)(1),(13)12 CFR §323.4(e) “Market Value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(1) Buyer and seller are typically motivated;

(2) Both parties are well informed or well advised, and acting in what they consider their own best interests;

(3) A reasonable time is allowed for exposure in the open market;

(4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

(5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”

Black’s Law Dictionary defines FMV, as “[t]he price that a seller is willing to accept and a buyer is willing to pay on the open market and in an arm’s-length transaction.” Black’s Law Dictionary 1865 (11th ed. 2019);

IS A PRICE STATING AT “FAIR MARKET VALUE” ENOUGH?

In Wilburn, a mother’s will and codicil (i.e. an amendment to a will) allowed her son to exercise an option to purchase the mother’s property by paying his two (2) sisters “an amount equal to the fair market value at the time of my death.”  The son served notice exercising his option, the sisters obtained two (2) appraisals of the FMV, with one valuing the property at $311,000 and the other at $270,000.  The sisters offered to settle in the middle at $290,500, but the brother refused.  The brother argued there was no enforceable contract because the price term was not sufficiently specific to establish mutual assent to the Property’s purchase price.  The trial court agreed and dismissed the case against the brother “because the method to compute fair market value was not provided.”  The Court observed that “An incomplete contract … is one from which one or more material terms have been entirely omitted” and that “A contract is uncertain if one of its material terms is expressed in so inexact, indefinite, or obscure language that the intent of the parties cannot be sufficiently ascertained to enable the court to carry it into effect.”  “Price is a material term, and it must be either “fixed by the agreement itself” or the agreement must provide a mode “for ascertaining it with certainty,” in order for a court to enforce….”

The Court noted that “There is no single, fixed approach to determine fair market value, as applied by appraisers or Virginia courts.”  “To determine a property’s fair market value, Virginia courts recognize many valuation approaches, such as the cost approach, income approach, sales approach, development cost analysis, and comparable sales approach.”

Valuation methods.    Appraisers can approach valuation using a: cost approach (how much will it cost to reproduce or create a comparable); income approach (how much income is anticipated); or sales comparisons approach  (how much are similar properties in relevant marketplace)[1]

The Court went on to state, “Each of these approaches utilizes different characteristics of a property to estimate fair market value, and each analyzes different elements of the property [as] likely [to] affect the price a potential buyer would be willing to pay for the property on the open market.”  Absent a more precise specification … regarding the particular approach to be applied to determine the Property’s fair market value as of Jeanne’s death, the codicil does not provide the price of the Property, or a means of ascertaining the price with certainty, without subsequent agreement between the parties. By its very nature, what is meant by the term fair market value—what a buyer is willing to accept and what a seller is willing to pay for something on a given day—cannot be known with certainty absent a more specific means for determining it being provided in the codicil. In this instance, the language in the codicil lacks the precision required to produce a ‘certainty’ as to price, which would allow a court to equitably compel a party to specifically perform a contract for the purchase of real property.”

Lesson to be learned.  If a buyer and seller are going to agree to price property at “FMV” then they may be well advised to come up with a method of making the price much more certain and definite.  In an effort to do so, I have seen parties agree to be bound by a certain appraiser, or by someone neutral who will determine an amount which everyone will be bound.   Either way seek advice.

DISCLAIMER:  Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney or accountant.  The author is neither an attorney nor an accountant.  FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ®

[1] See, Appraisal Institute, Understanding Appraisals, The appraiser estimates the degree of similarity or difference between the subject property and the comparable sales by considering various elements of comparison:

  • Real property rights conveyed
  • Financing terms
  • Conditions of sale
  • Expenditures made immediately after purchase
  • Market conditions
  • Location
  • Physical characteristics
  • Economic characteristics
  • Use/zoning
  • Non-realty components of value

ANONYMOUS CORPORATE OWNERS OF REAL ESTATE? – NEW DISCLOSURE LAW

On January 1, 2021, Congress passed the Corporate Transparency Act (“CTA”) establishing new mandatory self-reporting requirements for corporations, LLCs, and similar entities.  As of this article, reporting forms are not available, however the Department of Treasury charged FinCEN (Financial Crimes Enforcement Network ) with creating regulations and implementing the CTA.  The CTA itself, is found deep within The National Defense Authorization Act (“NDAA”) on page 1217.  The CTA was passed by Congress, vetoed by President Trump, and then resurrected to become law when Congress overrode the President’s veto (civics lesson: overriding a veto requires at least a 2/3 vote in both the House and Senate).

Purpose of CTA.  The CTA is the first significant U.S. anti-money laundering law in 20 years. When businesses are formed, most states do not require ownership information.  The CTA is designed to ban anonymous shell companies.

Why Shell Companies are Attractive to Criminals?  To remain anonymous, criminals form shell companies, usually in the form of LLCs, to purchase real estate and high valued assets. The assets are purchased in the shell company’s name, thereby concealing the true individual owners’ identities.  Anonymous shell companies are used to rapidly launder large amounts of money for: financing terrorism, tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, acts of foreign corruption, and otherwise hide illicit wealth.

Corporate Layering Like Russian ‘‘Matryoshka’’ Dolls.  To evade detection, business layer their ownership, like Russian ‘‘Matryoshka’’ dolls, across various secretive jurisdictions so each time an investigator obtains ownership records, the newly identified owner is yet another corporate entity.

Corporate Layering can be like Russian “Matryoshka” Dolls

States Allowing Anonymous Company Ownership Directly and Indirectly.  Reportedly, some states do not disclose ownership information for LLCs on the internet such as: ColoradoGeorgiaIndianaNew Mexico, Alabama, Delaware Virginia, and Wyoming.  Other states do not require disclosure of information to the State at all such as: ColoradoGeorgiaIndiana, and New Mexico. Yet further, states such as Nevada, Delaware, and Wyoming, do not require ownership information to be updated, thus allowing temporary owners, directors, managers, or general partners called nominees to form the LLC. The nominee’s name and contact information will show up on the public record, and immediately thereafter, the nominee will resign allowing the true owner to assume control as the undisclosed manager of the LLC.

Florida’s Anonymous Shell Company Loophole.  In Florida, LLCs are formed in minutes using Florida’s Secretary of State online portal Sunbiz.org and paying a $125.00 fee.  When forming an LLC in Florida either a “member” or a “manager” must be listed.  So what’s the loophole?  Instead of identifying the individual “Members” (i.e. those with ownership interests in the LLC), Florida alternatively allows incorporators (those forming the LLC) to list “Managers” who are authorized to act on behalf of the LLC.   The Manager, can be an individual person or another business entity such as another LLC.  In other words, a Florida, LLC managed by another LLC.  This layering of LLCs is the loophole in Florida allowing for anonymity in company ownership.  So if one were to form  “Florida, LLC” and identify its manager as “New Mexico, LLC”, then based on the foregoing, a creditor who is following the paper trail from Florida to its manager in New Mexico (where no ownership information is required to be disclosed) may find itself at a  dead-end.

Reporting – Do “Beneficial Owners” of New or Existing Businesses Have to Report to FinCen?   Reporting requirements apply to “Beneficial Owners” of corporations, LLCs, and other similar entities which: Already exist; Will be newly formed; and Those formed in a foreign country and registered to do business in the US through its filing with the Secretary of State.

Exemptions from Reporting to FinCen.  Larger companies, heavily regulated companies, and companies that already provide information to a relevant government agency. The CTA explicitly exempts: (1) Companies employing more than 20 people, report more than $5 million in revenues on tax returns, and have a physical presence in the United States; (2) Most financial services institutions, including investment and accounting firms, securities trading firms, banks, and credit unions that report to and are regulated by government agencies such as the Securities and Exchange Commission, the Office of the Comptroller of the Currency, or the FDIC; and (3) Churches, charities, and other nonprofit organizations.

Who are “Beneficial Owners?”  The CTA will require “beneficial owners” of non-exempt businesses to file “beneficial ownership” information with FinCen.  Under the CTA, a “beneficial owner” is an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise:

  • Exercises substantial control over an entity; or
  • Owns or controls 25% or more ownership interests in an entity.

Five (5) Exceptions to Who is Considered a Beneficial Owner.   There are five (5) general exceptions from the term “beneficial owner”:

  • Minor children, if the information of the parent or guardian is reported;
  • Individuals acting solely as an employee and whose control over or economic benefits from such entity is derived solely from being an employee;
  • Individuals whose only interest in the entity is through inheritance;
  • Creditors, unless the creditor meets the requirements of a beneficial owner; and
  • Individuals acting as a nominee, intermediary, custodian, or agent on behalf of another individual;

What Owner information must be reported to FinCen?  Each Beneficial owner’s:

  • Full legal name;
  • Date of birth;
  • Current residential or business street address (as of the date the report is delivered,); and
  • ID number from a:
  • Nonexpired US Passport;
  • Nonexpired ID issued by a State, local government, or Indian Tribe to the individual acting for the purpose of identification of that individual;
  • Nonexpired driver’s license issued by a State; or
  • Nonexpired passport issued by a foreign government.

Can’t evade the CTA’s Beneficial Ownership by using “Bearer instruments.”  You can’t just issue the shares or interests in the business to “bearer.”  “Bearer” means anyone holding something, like a check, promissory note, or in this case a stock certificate, or LLC’s membership interest, which states that it is “payable to bearer,” means whoever holds this paper can receive the funds due on it without their name specifically appearing on it.  Under the CTA, “A corporation, limited liability company, or other similar entity … may not issue a certificate in bearer form evidencing either a whole or fractional interest in the entity.”

Time for Reporting for Existing Businesses, and Newly Formed Businesses.  The CTA obligates the Secretary of Treasury to draft regulations.  Business entities existing before those regulations go into effect will have two (2) years to submit their report to FinCEN.  Business entities formed on or after those regulations go into effect will just submit their report to FinCen at the time the new business entity is formed or registered.

What if the Business Owners Change?  Report the change to FinCen within one (1) year.

Will my Ownership Reporting Information be Public?  No.  “beneficial ownership information … is sensitive information and will be directly available only to authorized government authorities, subject to effective safeguards and controls….”  The information will be stored “in a secure, nonpublic database, using information security methods and techniques that are appropriate to protect nonclassified information systems at the highest security level.”

Who May Obtain my Ownership Information?  (1) Federal agencies engaged in national security, intelligence, or law enforcement activity; (2) State, local, or Tribal law enforcement agency, if a court of competent jurisdiction including any officer of such a court, has authorized the law enforcement agency to seek the information in a criminal or civil investigation; (3) Financial Institutions; (4) Department of treasury for Tax purposes.

What if I fail to Report my Ownership Information. “lt shall be unlawful for any person to willfully provide, or attempt to provide, false or fraudulent beneficial ownership information, … false or fraudulent identifying photograph or document, … or  fail to report complete or updated beneficial ownership information to FinCEN.” Penalties include: “(i) US civil penalty of not more than $500 for each day that the violation continues or has not been remedied; and “(ii) may be fined not more than $10,000, imprisoned for not more than 2 years, or both.”   I can only assume these stiff penalties are aimed at severely curtailing criminals from even trying to use anonymous shell companies.

Penalties for Unauthorized Disclosure of Ownership Information. A person who misuses the information (presumably a government employee or financial institution who maliciously releases the information) can be liable for a “civil penalty of not more than $500 for each day that the violation continues or has not been remedied; and “(ii)(I) shall be fined not more than $250,000, or imprisoned for not more than 5 years, or both….”

DISCLAIMER:  Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney or accountant.  The author is neither an attorney nor an accountant.  FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ®

The 411 on §1031 Exchanges

§1031 in a Nutshell.  Assume an investor wants to sell a property for a $200,000 profit. The profit is subject to taxation.  To put it in numbers, federal income tax brackets range from 10% for the lowest earners to 37% for the highest earners.  So, a total tax bracket of approximately 35%, could result in a capital gains tax bill of $200,000 X 35% = $70,000.  But, with some proper guidance, what if instead of just selling the $200,000 property, the seller did an exchange?   The seller who exchanges their investment property by selling their “relinquished property” and who rolls their $200,000 profit into buying a “replacement property” could potentially pay no capital gains tax whatsoever (i.e. $0.00), leaving the entire $200,000 to reinvest, if the transaction was set up right.   In the real estate industry, this sale and timely reporting and re-purchasing is called a “Like-Kind-Exchange” or “1031 Exchange.”

This article addresses:

I.Basic Accounting Terms
II.Residential Property Gains
III.§1031 Exchange – The Deferrable Tax Exception
IV. Is the Property “Like-Kind” Property?
V. Does the property “Qualify?”
VI. Contractual Clauses To Notify New Buyer & New Seller Of Intent To Perform A §1031 Exchange
VII. Strict Timeline For Completing §1031 Exchanges
VIII. How Will You Exchange the Two Properties?
IX.How Much Tax is Deferrable?  Am I Doing This Right? Do the “Napkin Test” to determine if there is “Boot” (* You Don’t want a Partial 1031 exchange *)
X.Reporting

§1031’s are no brainer for investors and realtors too.  Not only is this advantageous for the Seller resulting in huge tax savings, but it is also a no brainer for realtors, who stand to earn a double commission; first through the sale of the Relinquished Property, and second through the purchase of the Replacement Property, – i.e. resulting in an exchange of properties. 

First get your accounting terminology correct.  This article is slightly more advanced but will be a good reference point to refer back.  Internal Revenue Code §1031 is part of the tax code, so sound intelligent by using accounting lingo.  Your kid may say, “I have a boo-boo;” you say “bruise;” but the doctor says, “contusion or hematoma.”  Who would you rather sound like?  Tax terms used by professionals are bolded and hyperlinked below, so commit to learning them.

I. BASIC ACCOUNTING TERMS

Start with Basics.  Gain or Loss From Sales and Exchanges. When property is sold it usually results in either a Gain or Loss being Realized. A sale is a transfer of property for money or a mortgage, note, or other promise to pay money.   A Gain (i.e. the profit) is the amount you Realize (i.e. receive) from a sale or exchange of property that is more than its Adjusted Basis (i.e. cost).  Inversely, a Loss occurs when your property’s adjusted basis (i.e. cost) is more than the amount you realize (i.e. received) on the sale or exchange.  The Basis can be complicated to figure out but it usually starts with the cost you paid for the property (see IRS Pub 551 if you got the property by gift/inheritance).  That Basis (i.e. your cost) is then adjusted by increasing it (i.e. increasing the cost) to include costs of any improvements having a useful life of more than one (1) year. Decreases to Basis (i.e. reductions to your cost) include depreciation and casualty losses. 

Amount realized is more than the adjusted basis.
e.g. Adjusted basis =$50,000, Sells for $75,000, Gain is $25,000
GAIN
Adjusted basis is more than the amount realized.
e.g. Adjusted basis =$50,000, Sells for $35,000, Loss is $15,000
LOSS

II. RESIDENTIAL PROPERTY GAINS

Taxation of Personal Residence vs. Investment Property.  Taxation on income generated from the sale of personal residence is very different from the taxation of income on investment property.  If the taxpayer resided in the personal residence for two (2) of the last five (5) years, and their sale results in a Gain then: (1) $250,000 of a single (unmarried) seller’s Gain; or (2) $500,000 for married couples, will be disregarded/excluded/ignored.  Widowers are treated differently.  This residential exemption from paying taxes on gains may be used once every two (2) years. See, 26 U.S. Code §121 – Exclusion of gain from sale of principal residence.  

III. §1031 EXCHANGE – THE DEFERRABLE TAX EXCEPTION

Taxation of Investment Property.  If seller sells investment property that appreciates in value, then the seller would have to pay Capital Gains Taxes; unless, with a little bit of planning, that seller’s investment property qualifies for preferential tax treatment under Internal Revenue Code Section §1031 as a like-kind exchange.  Section 1031(a)(1) states:

Nonrecognition of gain or loss from exchanges solely in kind: In general. No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.

Elements of a §1031 Property.  Stated another way, to be a §1031 like-kind exchange, the property relinquished and the property received as its replacement must be both of the following: (1) “Like-kind property”; and (2) “Qualifying” (i.e. not subject to some exception).

IV. IS THE PROPERTY “LIKE-KIND” PROPERTY?

Like-Kind does not mean Exactly.  Under §1031 there must be an exchange of “like-kind property.”  Investors often mistakenly believe they must purchase a replacement property exactly like their relinquished property.  But most are surprised to learn a wide variety of properties can be considered “like-kind.”  “Like-kind” does not refer to the type of property.  Instead, it addresses the intended use of the property i.e. that both properties be “real property held for productive use in a trade or business or for investment.”  Like-kind properties are properties of the same nature or character, even if they differ in grade or quality.   

For example, any of the following can be considered “like-kind” property exchanges: a duplex for a fourplex, bare land for improved property, a rental house for a retail center or an apartment building for an office building. Investors do not have to exchange for exactly the same type of property as relinquished.

Personal Property exchanged for Real Estate – NO.  “An exchange of personal property for real property does not qualify as a like-kind exchange.”

City Property exchanged for Farm – YES.  “An exchange of city property for farm property … is a like-kind exchange.” 

Improved exchanged for Farm – YES.  “… improved property for unimproved property, is a like-kind exchange.” 

Real Estate for 30 Year exchanged for Real Estate Lease.  – YES.  “The exchange of real estate you own for a real estate lease that runs 30 years or longer is a like-kind exchange. However, not all exchanges of interests in real property qualify.”

Foreign Real Property – NO.  Foreign real property is real property not located in a state or the District of Columbia.   “Real property located in the United States and real property located outside the United States are not property of a like kind.”  If you exchange foreign real property for property located in the United States, your gain or loss on the exchange is recognized.

V. DOES THE PROPERTY “QUALIFY?”

Assuming the properties to be exchanged meet the definition of “Like-Kind-Properties” do they also “Qualify” for §1031 tax deferral treatment?  Section 1031’s nonrecognition rules for like-kind exchanges apply only to exchanges of “real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind….” Qualifying property examples include: buildings, land, and rental.

Which Properties Do NOT Qualify? Like-kind exchanges do not apply to the certain exchanges of property.

Real property held primarily for sale – Does NOT Qualify.  “This subsection shall not apply to any exchange of real property held primarily for sale.”

Business Assets for Business Assets – Does NOT Qualify.  “An exchange of the assets of a business for the assets of a similar business cannot be treated as an exchange of one property for another property.”

Personal or intangible property – Does NOT Qualify? An exchange of personal property for real property does not qualify as a like-kind exchange.  However, “incidental property” is disregarded, see infra.

Disregard incidental property – Does Qualify. Do not treat property incidental to a larger item of property as separate from the larger item when you identify replacement property. Property is incidental if it meets both the following tests. (1) It is typically transferred with the larger item; and (2) The total fair market value of all the incidental property is not more than 15% of the total fair market value of the larger item of property. 

For example, furniture, laundry machines, and other miscellaneous items of personal property will not be treated as separate property from an apartment building with a fair market value of $1,000,000, if the total fair market value of the furniture, laundry machines, and other personal property does not exceed $150,000.

Unrented vacation homes – Does NOT Qualify.  In Moore v. Commissioner of Internal Revenue,  the taxpayers exchanged one lakeside vacation home for another. Neither home was ever rented. Both were used by the taxpayers only for personal purposes. The taxpayers claimed that the exchange of the homes was a like-kind exchange under § 1031 because the properties were expected to appreciate in value and thus were held for investment. The Tax Court held, however, that the properties were held for personal use and that the “mere hope or expectation that property may be sold at a gain cannot establish an investment intent if the taxpayer uses the property as a residence.”

Exclusively Personal Residences – Does NOT Qualify.  In Starker v. United States, the Ninth Circuit held that a personal residence of a taxpayer was not eligible for exchange under § 1031, explaining that “[it] has long been the rule that use of property solely as a personal residence is antithetical to its being held for investment.”

Rental Residences + Occasionally Used Personally – MAY QUALIFY.  Many taxpayers hold Dwelling Units to produce rental income, but they also use those properties occasionally for their own personal purposes. A Dwelling Unit is defined as real property improved with a house, apartment, condominium, or similar improvement that provides basic living accommodations including sleeping space, bathroom and cooking facilities.  In the interest of sound tax administration, owners have a safe harbor under which their Dwelling Unit will qualify under §1031 even though they occasionally use the Dwelling Unit for their own personal purposes.  The IRS will not challenge whether a Dwelling Unit qualifies under §1031 if certain requirements are met. See, Revenue Procedure 2008-16 §4, 2008-10 I.R.B. 547 The following questions will help determine whether the property qualifies.[1]   

WITH REGARDS TO THE RELINQUISHED PROPERTY:
Own for 2 yrs.  Will you have owned the property you intend to relinquish for 24 months before the exchange?YES.  
Year 1 – Rent 14+ days.  During the 1st 12 month period, did you rent the property you intend to relinquish for 14+ days at fair rental value?YES.  
Year 2 – Rent 14+ days.  During the 2nd 12 month period, did you rent the property you intend to relinquish for 14+ days at fair rental value?YES.  
Year 1 – Your personal use.  How many days was the property you intend to relinquish rented in the 1st  12 month period?Less than the greater of 14 days or 10 percent of the number of days during the 12-month period that it was rented.
Year 2 – Your personal use.  How many days was the property you intend to relinquish rented in the 2nd   12 month period?Less than the greater of 14 days or 10 percent of the number of days during the 12-month period that it was rented.

VI. CONTRACTUAL CLAUSES TO NOTIFY NEW BUYER & NEW SELLER OF INTENT TO PERFORM A §1031 EXCHANGE

Clauses Seller should add to Purchase and Sale Agreements.  When the Buyer purchases a Seller’s property the seller is supposed to receive the proceeds of the sale.  However, in a §1031 tax-deferred exchange, the proceeds will not go to the Seller, but instead will go to the Seller’s Qualified Intermediary (known as a “QI”), which will then use those proceeds to purchase the Replacement Property.   You don’t want to catch the buyer off guard that there will be a QI involved.  Therefore, in the beginning, include language in the Purchase and Sales Agreement, stating Seller’s intent to perform a §1031 tax-deferred exchange.  Some suggested language by some two different QIs (Starker Services, Inc., and Asset Preservation, Inc.) are: 

When Selling the Relinquished Property Option #1

“Buyer is aware that Seller intends to perform an IRC §1031 taxdeferred exchange. Seller requests Buyer’s cooperation in such exchange and agrees to hold Buyer harmless from any and all claims, liabilities, costs, or delays in time resulting from such an exchange.  Buyer agrees to an assignment of this contract to a Qualified Intermediary, by Seller.”

When Selling the Relinquished Property Option #2

“It is the intent of the Seller to perform an IRC §1031 tax-deferred exchange by trading the property herein with a QI.  Buyer agrees to execute an Assignment Agreement at the request of Seller at no additional cost or liability to Buyer.”

When Buying the Replacement Property Option #1

“It is the intent of the Buyer to perform an IRC §1031 tax-deferred exchange by trading the property herein with a QI, Seller agrees to execute an Assignment Agreement at the request of Buyer at no additional cost or liability to Seller.”

VII. STRICT TIMELINE FOR COMPLETING §1031 EXCHANGES

1031 Exchange Timeline

There is a limited time to select and purchase a Replacement Property so don’t place yourself in a time crunch.  Exchangers have been known toget stuck with a Hobson’s Choice –  Lose the favorable tax treatment and pay tons of capital gains tax, or close on a Replacement Propertythat the Exchanger otherwise would not have bought.  Exchangers who run out of time, may also find themselves having little to no negotiating power after discovering defects during a due diligence inspection.  Section 1031(a)(3) of the IRC sets two deadlines: an Identification deadline, and an Exchange deadline. 


A. 45 Day “Identification” Deadline. “You must identify the [Replacement] property to be received within 45 days after the date you transfer the property given up in the exchange. This period of time is called the identification period. Any property received during the identification period is considered to have been identified.”  In other words, the potential Replacement Property must be identified within 45 days of the sale of the Relinquished Property. 

  • Specific Requirements on How To Identify The Replacement Property. “You must identify the replacement property in a [1] signed written document and [2] deliver it to the person obligated to transfer the replacement property or any other person involved in the exchange other than you or a disqualified person. … [3] You must clearly describe the replacement property in the written document. For example, use the legal description or street address for real property …. In the same manner, you can cancel an identification of replacement property at any time before the end of the identification period.”
  • What does a Written Exchange Agreement with a QI entail?  “The written exchange agreement must expressly limit your rights to receive, pledge, borrow, or otherwise obtain the benefits of money or unlike property held by the qualified intermediary.”  The Written Exchange Agreement requires the QI to do the following for you:
  • Acquire your Relinquished Property, and Transfer your Relinquished Property,
  • How?  Typically You would assign the QI your rights as the Seller under your Purchase and Sale Agreement to sell your Property, You sign the Deed, the QI transfers your signed deed to your Relinquished Property to the new Buyer.
  • Acquire the Replacement Property, and Transfers the Replacement Property to you.
  • How?  Typically the QI enters into an agreement with the owner of the Replacement Property for the transfer of that property and, pursuant to that agreement, the Replacement Property is transferred to You (that is, by direct deed to you).
  • Who may be a Qualified Intermediary (QI) and who is Disqualified?  Persons who are disqualified from serving as QI’s include: “your employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the 2-year period ending on the date of the transfer of the first of the relinquished properties….”  On the other hand, Routine financial, title insurance, escrow, or trust services by a financial institution, title insurance company, or escrow company, and Services with respect to exchanges of property intended to qualify for nonrecognition of gain or loss as like-kind exchanges may serve as QIs.

B. *180 Day “Exchange” Deadline. Additionally, the closing of the purchase must occur within 180 days of the sale of the Relinquished Property.  “The property must be received by the earlier of the following dates: (1) The 180th day after the date on which you transfer the property given up in the ex-change; [*or] (2) The due date, including extensions, for your tax return for the tax year in which the transfer of the property given up occurs.  This period of time is called the exchange period.”

VIII. How Will You Exchange the Two Properties?

There are four (4) different types of 1031 Exchanges.  The illustration above is the first and most common; it is called a Delayed Exchange

Simultaneous Exchange, is when the sale of the Relinquished Property and the purchase of the Replacement Property happen at the same time. 

Reverse Exchange is the opposite of a Delayed Exchange.  Ideally, an investor will be able to sell the Relinquished Property first, and then use that money to close on a Replacement Property. But sometimes investors may need to buy the Replacement Property first, without selling their Relinquished Property. This can be accomplished through a reverse exchange.  In it, the Replacement Property is purchased before the Relinquished Property is sold.  The same timing rules apply, but in reverse.  The Relinquished Property must be identified within 45 calendar days and sold with 180 calendar days.

“A reverse exchange is somewhat more complex than a deferred exchange. It involves the acquisition of replacement property through an ‘Exchange Accommodation Titleholder’ [EAT], with whom it is parked for no more than 180 days. During this parking period the taxpayer disposes of its relinquished property to close the exchange.” IRS Fact Sheet 2008-18, February 2008, See also, IRC Rev. Proc. 2000–37 for more detail.

Construction Exchange a/k/a Improvement Exchange  Is utilized when repairs, construction or maintenance needs to be completed on the Replacement Property before the Buyer takes ownership of the Replacement Property.  The IRS specifically prohibits using §1031 proceeds from the Relinquished Property to directly pay for repairs, maintenance, or new construction.  So how do investors make improvements to Replacement Properties without directly violating the rules.  The short version is the If you want to build or improve your replacement property then it must be purchased and held, temporarily, by a holding company known as an Exchange Accommodation Titleholder (EAT). The EAT stays on title during the building period. The EAT names you “construction manager,” you oversee the improvements (work with contractors, inspect work, collect invoices, etc).  The construction Funds are drawn, at your direction, from the exchange account. The EAT makes the payments.  Once the construction is complete or the 180-day exchange period is over, whichever is first, the EAT transfers title of the property to you and the exchange is finished.  However, usually a Delayed Exchange will suffice and the Exchanger will take ownership to the property and perform the repairs.  The procedures to safely accomplish construction 1031 exchanges are set forth in IRC Rev. Proc. 2000–37.

IX. How Much Tax is Deferrable?  Am I Doing This Right? Do the “Napkin Test” to determine if there is “Boot” (* You Don’t want a Partial 1031 exchange *)

Boot is bad.  You don’t want Boot.  Performing a partial 1031 exchange results in creating Boot.  So let’s figure out if your Replacement Property is going to result in you having to pay taxable gains or not. 

The term “Boot” is not used in either the IRC nor the Regulations, but is the term commonly used to describe the money (or fair market value of “other property” received by the taxpayer) in an exchange and which is not tax deferrable.  A partial 1031 exchange may produce two different types of boot: (1) Cash Boot or (2) Mortgage Boot.


A. “The Napkin Test” a/k/a “The Even Up Rule” is used to determine whether there is “Boot.”  The Napkin test is simply a matter of determining if the Exchanger is trading across (i.e. $0.00) or up in value.  To avoid “Boot” an exchanger must trade either “across” or “up” in both Equity and Mortgage (this will be repeated several times).  

Napkin Test #1 – No Boot.

Purchase price Increased and Mortgage Increased

 A Relinquished PropertyB Replacement PropertyUp / Across / Down ?  Boot
Value$1,500,000$2,250,000UP 
Mortgage$1,000,000$1,700,000UP 
Equity$   500,000   $   500,000   ACROSS 

* To avoid “Boot” an exchanger must trade either “across” or “up” in both equity and mortgage. * “Boot” exists if either: equity or mortgage are Down.

In the example above, the Exchanger is trading up in Value, across in Equity and up in Mortgage; therefore, the Exchanger has no taxable boot.   To avoid a taxable gain, always trade your Properties and Mortgage either “across” or “up;” never trade them down (the “even or up rule”). In the scenario above, the Seller’s equity position of $500,000 never changed when he replaced property A with Property B. 

Napkin Test #2 – Boot.

Purchase price Increased and Mortgage Increased

 A Relinquished PropertyB Replacement PropertyUp / Across / Down ?  Boot
Value$1,500,000$2,000,000UP 
Mortgage$1,000,000$1,700,000UP 
Equity$   500,000   $   300,000   DOWN$200,000

* To avoid “Boot” an exchanger must trade either “across” or “up” in both equity and mortgage. * “Boot” exists if either: equity or mortgage are Down.

Trading down always results in boot received, either cash, debt reduction, or both.  In the example above, the Seller made $500,000 but rather than reinvest his $500,00 gains he only reinvested $300,000 in gains, thereby receiving $200,000 in cash boot when he replaced the property A with Property B. 


B. Cash Boot.  If you receive cash from a sale and do not fully reinvest the proceeds in the new property, this results in Cash Boot.   When the value of the new property (i.e. replacement property) is less than the value of the old property (i.e. relinquished property) it results in Cash Boot. For example in scenario #1(A), if you sold a property for $250,000, and bought a replacement property for $200,000, the $50,000 in Gain is considered Cash Boot.  This makes the exchange a partial 1031 exchange. You need to reinvest 100% of the $50,000 Gain (see Example #1B)) from the like-kind exchange in order to defer all taxes.

CASH TRANSACTION EXAMPLE #1(A) – BOOT

Purchase price Decreased

 A Relinquished PropertyB Replacement PropertyUp / Across / Down ?  Boot
Value$250,000$200,000DOWN$50,000

CASH TRANSACTION EXAMPLE #1(B) – NO BOOT

Purchase price Increased

 A Relinquished PropertyB Replacement PropertyUp / Across / Down ?  Boot
Value$200,000$250,000UP$0.00

C. Mortgage Boot.  If the new mortgage on the Replacement Property is less than the old mortgage you paid off on the Relinquished Property then this results in Mortgage Boot  “Mortgage boot” results when an Exchangor reduces the amount of their loan or debt by exchanging properties. If the old loan was $1,000,000 on the Relinquished Property and the new loan on the Replacement Property is $900,000, there is $100,000 worth of mortgage boot, which may be taxable. Another example. If you loan $100,000 to a friend and only require him to pay back $70,000, then your friend will have received $30,000 of relief of indebtedness income which he will have to pay tax upon.

To avoid Boot, not only must the Replacement Property be of equal or greater value, but additionally, the amount of equity to be reinvested must also be equal to or greater than the equity from the Replacement Property.  If the mortgage balance on the Replacement Property is not equal to or greater than the mortgage balance from the Relinquished Property, then the difference is considered to be “mortgage boot” and taxable.

FINANCED TRANSACTION EXAMPLE #2(A) – CASH BOOT

Purchase price remains the same and Mortgage increases

Up / Across / Down ?A Relinquished PropertyB Replacement PropertyUp / Across / Down ?  Boot
Value$250,000$250,000ACROSS 
Mortgage$100,000$170,000UP 
Equity$150,000$  80,000DOWN$70,000

* To avoid “Boot” an exchanger must trade either “across” or “up” in both equity and mortgage. * “Boot” exists if either: equity or mortgage are Down.

FINANCED TRANSACTION EXAMPLE #2(B) – CASH BOOT

Purchase price increases and Mortgage increases

 A Relinquished PropertyB Replacement PropertyUp / Across / Down ?  Boot
Value$250,000$500,000UP 
Mortgage$100,000$450,000UP 
Equity$150,000$  50,000DOWN$100,000

* To avoid “Boot” an exchanger must trade either “across” or “up” in both equity and mortgage. * “Boot” exists if either: equity or mortgage are Down.


D. You think you know boot but you don’t – Common Misconception.  The above Example #2(A) and #2(B) will help you visualize a common misconception about Boot.  It is commonly believed that so long as a taxpayer buys Replacement Property equal to or greater in value than the net sale price of the Relinquished Property and takes on new mortgages more than the old mortgages, then there is no net Boot received; however, this isn’t always true!  This is why you need the Napkin Test.  For example, the taxpayer will be in receipt of net taxable cash Boot if the taxpayer sells Relinquished Property valued at $250,000.00 with existing mortgages of $100,000.00 and buys Replacement Property valued at $250,000.00 with $170,000.00 new mortgages. In this example, the taxpayer cashed out $70,000.00 in equity and is in receipt of net taxable cash Boot. The taxpayer over-financed the acquisition of the replacement property, which resulted in the receipt of net taxable cash Boot in the amount of $70,000.00.

FINANCED TRANSACTION EXAMPLE #2(C) – MORTGAGE BOOT

Purchase price stays the same and Mortgage Decreases

 A Relinquished PropertyB Replacement PropertyUp / Across / Down ?  Boot
Value$250,000$250,000ACROSS 
Mortgage$100,000$  80,000DOWN$20,000
Equity$150,000$170,000UP 

* To avoid “Boot” an exchanger must trade either “across” or “up” in both equity and mortgage. * “Boot” exists if either: equity or mortgage are Down.

FINANCED TRANSACTION EXAMPLE #2(D) – MORTGAGE BOOT

Purchase price Increases and Mortgage Decreases

 A Relinquished PropertyB Replacement PropertyUp / Across / Down ?  Boot
Value$250,000$500,000UP 
Mortgage$100,000$  50,000DOWN$50,000
Equity$150,000$450,000UP 

* To avoid “Boot” an exchanger must trade either “across” or “up” in both equity and mortgage. * “Boot” exists if either: equity or mortgage are Down.

Another common misconceptions is what I liken to the poker mentality when players only play with their winnings.  One misconception is that a Seller can receive net cash in an exchange in the amount of the taxpayer’s initial capital investment in the acquisition of the relinquished property (i.e. I invested $100,000, so when I sell and buy a new property I can take out my original $100,000 = MISCONCEPTION).  A second misconception is that a taxpayer need only replace the profit in the relinquished property and not its value net of exchange expenses (i.e. I will make a $100,000 profit, so when I sell and buy a new property I only need to play with my winnings of $100,000 = MISCONCEPTION). In all of these cases, the taxpayer would be in receipt of taxable Boot either as Net Cash Boot received or Net Mortgage Boot received, or both.  That is why it is important to run a Napkin Test.


E. Rules of Thumb for Avoiding Boot

If the Seller buys a new Replacement Property equal (=) or greater (>) in value to the net sale price of the old Relinquished Property and spends all of the old Relinquished Property proceeds on buying the new Replacement Property, then the Exchange will be fully tax deferred. If the taxpayer follows this rule, then there is no cash Boot received and the taxpayer either took on new mortgages in excess of the old mortgages (no mortgage Boot received) or the taxpayer gave cash Boot to offset any mortgage Boot received.

X. REPORTING

To report a like-kind exchange, taxpayers must file Form 8824, Like-Kind Exchanges, with their tax return for the year they transfer property as part of a like-kind exchange. This form helps taxpayers figure the amount of gain deferred as a result of the like-kind exchange, as well as the basis of the like-kind property received. Form 8824 also helps taxpayers compute the amount of gain they must report if cash or property that isn’t of a like-kind is involved in the exchange.


DISCLAIMER:  Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney or accountant.  The author is neither an attorney nor an accountant.  FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ®

[1] SECTION 4. APPLICATION

.01 In general. The Service will not challenge whether a dwelling unit as defined in section 3.02 of this revenue procedure qualifies under § 1031 as property held for productive use in a trade or business or for investment if the qualifying use standards in section 4.02 of this revenue procedure are met for the dwelling unit.

.02 Qualifying use standards.

(1) Relinquished property. A dwelling unit that a taxpayer intends to be relinquished property in a § 1031 exchange qualifies as property held for productive use in a trade or business or for investment if:

(a) The dwelling unit is owned by the taxpayer for at least 24 months immediately before the exchange (the “qualifying use period”); and

(b) Within the qualifying use period, in each of the two 12-month periods immediately preceding the exchange,

(i) The taxpayer rents the dwelling unit to another person or persons at a fair rental for 14 days or more, and

(ii) The period of the taxpayer’s personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.

For this purpose, the first 12-month period immediately preceding the exchange ends on the day before the exchange takes place (and begins 12 months prior to that day) and the second 12-month period ends on the day before the first 12-month period begins (and begins 12 months prior to that day).

(2) Replacement property. A dwelling unit that a taxpayer intends to be replacement property in a § 1031 exchange qualifies as property held for productive use in a trade or business or for investment if:

(a) The dwelling unit is owned by the taxpayer for at least 24 months immediately after the exchange (the “qualifying use period”); and

(b) Within the qualifying use period, in each of the two 12-month periods immediately after the exchange,

(i) The taxpayer rents the dwelling unit to another person or persons at a fair rental for 14 days or more, and

(ii) The period of the taxpayer’s personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.

For this purpose, the first 12-month period immediately after the exchange begins on the day after the exchange takes place and the second 12-month period begins on the day after the first 12-month period ends.

[2] Fair market value. Fair market value is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. If parties with adverse interests place a value on property in an arm’s-length transaction, that is strong evidence of fair market value. If there is a stated price for services, this price is treated as the fair market value unless there is evidence to the contrary.

[3] “You can identify more than one re-placement property. However, regardless of the number of properties you give up, the maximum number of replacement properties you can identify is: Three properties regardless of their fair market value; or Any number of properties whose total fair market value at the end of the identification period is not more than double the total fair market value, on the date of transfer, of all properties you give up.”

If, as of the end of the identification period, you have identified more properties than permit-ted under this rule, the only property that will be considered identified is: Any replacement property you received before the end of the identification period, and Any replacement property identified before the end of the identification period and received before the end of the exchange period, but only if the fair market value of the property is at least 95% of the total fair market value of all identified replacement properties. Fair market value is determined on the earlier of the date you received the property or the last day of the exchange period. See Receipt requirement, later.

Realtor Resolutions – Maybe in 2021

Resolutions are short lived and fade by February.  A goal on the other hand is a dream with a deadline.  – Napoleon Hill.  So when you set your goal, commit to making yourself S.M.A.R.T.E.R.; that is, make your goals Specific, Measurable, Attainable, Realisticand Timed (E.g. done in 4 months).  I interviewed the presidents of both Realtor Associations, a top-notch-pack-the-room real estate instructor, and then offer my own list of 24 goals.

Broward, Palm Beaches, and St. Lucie Realtors President Karen Johnson foresees real estate as the number one driver for Florida’s economy.  Therefore, it is paramount that realtors focus on Professionalism, Integrity, and Excellence (“P.I.E.”).  (1) Answer your phones, (2) Do what you say you are going to do; (3) Look professional; and (4) Update the MLS with Active and Pending Sales promptly as misinformation distorts market data for supply and demand which directly affects pricing.

Miami Association of Realtors’ President Daniel Guerrasays: (1) Understand your market.  Your realtor association offers a lot of good information.  Realtors are attracted to glitz and glamour, but consumers are more interested in knowledge.  Educate yourself with data specifically for the market you are in. (2) In a COVID world find more ways to connect with your prospects.  Reach out to your top prospects by phone, not just by text, or emails.  Call for birthdays.  Go the extra step.

Real Estate Instructor Adam Von Romer.whom I affectionately call “the real estate slayer,” teaches realtors how to be better agents.  (1) “For all those sucked into the internet phenomenon thinking all you have to do is slap something on the internet and it will fall in your lap,” Von Romer offers omens, “If you sit and wait for the phone to ring, you are going to go out of business.”  Don’t fish where everyone is fishing.  Go out and distinguish yourself.  “Social media is part of the solution; it is not the total solution.” (2) Education does not stop the moment you get a real estate license. “You’re not done, this is just the beginning!”   NAR Ethics Rule 11 mandates realtors achieve competency in handling real estate transactions.  “Many don’t strive to take their education to the next level. I’m not talking about satisfying bare minimum bi-annual 14 hour FREC CE requirements; I mean real, practical, experience.”  Good is the enemy of great, and complacency is not an option for Von Romer, who wants to see more realtors get designated as: GRIs (Graduate Realtor Institute), CRS (Certified Residential Specialist), CRB (Certified Real Estate Brokerage Manager).

My Suggested Resolutions and pet peeves:

  1. Get rid of your prom picture and get a new headshot already. I will even help photoshop the first ten (10) I receive.
  2. Take on a new leadership role.
  3. Get a business coach.
  4. Stop pinching pennies. Like a general contractor, surround yourself with a go-to trusted team of highly qualified vendors to get the job done smoothly and without headache (not so subtle hint – LIKE USING US AS YOUR TITLE COMPANY).
  5. Make a video of your intended goals, share it, keep yourself accountable.
  6. Regular contact with your tenants, stimulate buying opportunities.
  7. Enhance your customer experience. How would you rate yourself?
  8. Buyer-Broker Agreements with every prospective buyer, no exceptions.
  9. Hire a transaction coordinator.
  10. My personal pet peeve – When initialing revisions DATE the initials!
  11. Don’t be a secret agent, promote yourself to everyone.
  12. Learn new ways to prospect each month and find out what works.
  13. Take a real estate class a week.
  14. Utilize programs your broker has to make you more efficient.
  15. Get out and get more. Join a non-profit board or organization; trust me it repays you in dividends in more ways than just ROI.
  16. Master Social Media
  17. Start dialing. utilize cold call and CRM programs: LionDeskMojoColeReboGatewayRedXLandVoiceVulcan7Espresso Agent,
  18. If you already have one, then utilize your CRM more effectively.
  19. Post but don’t pester on Social media.
  20. Make more videos.
  21. Expand your sphere of influence.
  22. Try new technologies
  23. Be kind.
  24. Be very patient, this is not an overnight success story, have grit and don’t give up.

REALTOR GIFTS – How do you compare?

Why do business gifts, these spontaneous tokens of unexpected affection work?  Because they make someone feel good?  Create bonds and stronger relationships?  Drive loyalty?  Boost reputations?  Show appreciation?  Reward?  Encourage reciprocity?  Planning and buying gifts is an endeavor. The true task is much more than choosing the right gift.  I had the pleasure of interviewing 46 Realtors offering enlightening and creative ideas.

But before we dive in, I heard a lot of misinformation about the gift giving.  According to tax expert Misty Weinger, CPA “Per tax law, business gifts to clients are only deductible up to $25.00 per client.  Promotion and advertising expenses are not subject to the $25.00 gift limitation. It is important to review with your CPA to determine which category your expenses will qualify.”  So, this does not mean that you cannot give gifts.  The question simply is how much can be deducted as a business expense for tax purposes.

Adam Bursztein – Compass.  Practical and kind, and all-around cool guy. Expect to have something thoughtful and useful from Adam. In addition to cigars and baskets, Adam has purchased washers, and dryers for his clients.  Just watch out you don’t find one of Adam’s pairs of underwear in there.    

Adolfo Gil – Weichert, Miami.  Adolfo runs a non-profit called “Selling Real Estate for a Cure.”  Ten percent (10%) of his commission is donated to a client’s choice of charities.  Certificates are prepared and personally addressed along with a lovely note stating, “If it wasn’t for your sale, this donation could not have happened.”  It pays off because not only do the clients become more aware about the charity, but those at the charitable organizations have also referred clients.  Additionally, he listens to buyers, picking up on what they love.  For instance, for love of his wife, a relenting husband bought a house, despite concerns where he would put his beer with such a small fridge.  A stack of cold beers were promptly delivered to the husband.

Audrey Muller – Keyes, Ft. Lauderdale.  Audrey is super hip but at heart an old sole.  A merry old sole.  Her go to gift re”treats” back in time, framing a historical map of the location, and a cutting board.

Barbara Shapiro – Coldwell Banker, Weston.  The Elipse Vase is a stellar combination of smooth glass and a thin, elliptical shape gives a futuristic sense of style and provide countless decorative possibilities  “I give it because everyone loves it and it displays magnificently, adding to the home.”

Ben Garcia – List Realty. Finds out what clients like throughout the deal. Nicaraguan Cigars and specifically tailored brands of liquor.  If he hasn’t broken the ice, then edible arrangements or a basket.

Ben Moss – Compass.  Compass’ boutique website, accessible exclusively to Compass agents, allows for the perfect array to select client gifts.  Family engraved cutting boards made of cherry wood and marble.

Chip Falkanger – Compass.  Many clients are transplants unfamiliar with the area.  So why not show them a good time?  Along with a gift basket, Chip has been known to give five (5) one hundred dollar ($100.00) gift cards to different restaurants.  Ironically, he even saw a client eating at one of the restaurants, elated to see him, promptly displayed their gift card and said, “this one is on you Chip!”

Chris Brooks – Compass.  In touch with the vibe and emotion of the family, personalizes each gift but for her Brazilian clients, edible arrangements is a completely new and unique concept.  Children love the hand-dipped chocolate covered fruit which come in an assortment of shapes.

Chris Ricci – Re/Max Integrity, Davie.  The Captain of this and President of that, this man is everywhere in the real estate world but is he spreading himself thin?  Chris knows how to give impressionable gifts such as: a spreading knife which says, “Spread the Word;” or a Carving knife etched with “Cut above the Rest.”

Connie Cabral – BHHS EWM, Aventura.  Connie is too hot in the real estate world.  Be ready to soak in the tub with a fine bottle of wine etched with your family’s name on it, and then dry off in white embroidered Egyptian cotton towels and washcloths with your family’s initials.  “Nothing with our company name on it, as I find that tacky.”

Connie Cooper – Connie Cooper Realty.  First thing she does is build a rapport.  Client loved a house but it had no outdoor kitchen.   So Connie delivered a Bar-B-Que with “Willie’s BBQ” engraved on it.  A woman loved to garden was surprised when Connie had a landscaper install a lemon tree in her yard.  No the lemon tree was not engraved.

David Carrion-Levy – Compass, This realtor really knows how to clean up. Roombas, the robotic vacuum cleaners.  “People don’t realize how good they are until they actually have one and it is seen regularly.”  Bottle of Dom Perignon and name engraved baccarat champagne flutes.

Debra Hilsenroth – Coral Shores Realty.  Move over Etsy, Debra is blessed with the gift giving and creating talent.  Making her own baskets better than professionals using shrink wrap and heat guns, you will love her love.  Moscow mules, copper mugs, mint filled, limes, vodka, dog treats, crystal bowls, picture frames, who knows what goodies you will get?

Denise Rubin – Coldwell Banker, Aventura.  Who does not know Denise?  Well you also won’t be able to forget her, as she likes to give .  Stylish and compact, welcome people over and show off your new home with a trillium engraved bamboo cutting board in the shape of a home, champagne with her logo, door knockers, and display books about Miami.

Desiree Avila – Charles Rutenberg Realty, Ft. Lauderdale.  Care to share a pint at the local pub?In addition to receiving a photography session from a professional photographer of your new home and family, enjoy artesian spirits crafted by a local distillery right in Oakland Park from Chainbridge Distillery. Just make sure you take your photos before you partake in the spirits, or not.

Diana Escobar – United Realty, Plantation.  Recalls placing golfers in a home located on a golf-course.  A golf basket with balls, gloves, outfits, and an entire package was a natural fit for this couple.

Emel Onur – Lead Realty, Boca Raton.   Catering to international Turkish clients, blesses the home with protection from jealousy or bad feelings, by gifting a Nazarboncuk (evil eye in Turkish) but in the shape of a home.  Meaningful to her clients, this gift cannot be duplicated here, as it is designed, crafted, and purchased by Emel on her regular visits to motherland Turkey.

Eric Manten – Silmar Realty, North Miami Beach.  If I ever lit anything on fire this expensive, I would be arrested for arson.  Who knew $400 candles existed?  Eric’s response, “but they smell so good.”  And it is understandable, we have all been swept back to a moment in our lives after perhaps smelling the nectar of a sweet perfume, the beach’s air, a campfire, popcorn, a sharpened pencil.  Well Eric wants to be remembered and indelibly will be burned into his client’s brain.  Check out Diptqyue’s French candles and home décor.

Erica Stowers – Florida Luxurious Properties.  Picture this,  No literally, a picture book of the house being sold was presented to a woman who was just emotionally detached from her home when it sold (albeit for a record price) after 30 years of memories.

Gina Tarr – One Sotheby’s, Las Olas.  This I have never seen before, and it is so simple but so elegant, and all I can say is I want one.  Pineapples appear on all sorts of décor, from door knockers to quilts. “The fruit symbolizes the intangible assets we appreciate in a home: warmth, welcome, friendship and hospitality,” says Gina.  Champagne and chocolates are symbols of celebration, special occasions, love, and romance.  Gina combines it by selecting the finest champagne, hot gluing Ferrero Rocher Chocolates around, fountain into a green stem.  This is my kind of healthy fruit treat.

Ilana Gross – Level Realty Partners, Ft. Lauderdale.  Artsy at heartsy, Ilana loves to present clients with art from Galleries.  When people ask “Oh Wow! Where did you get that?” her clients naturally respond “Oh, my realtor.”  A client who lost her cat received a portrait of the cat.  A Jewish couple may receive a Mezuzah, Birkat Habayit ( A blessing over the house), and/or a Hanukkiah like none other.  “They have to be conversation pieces.”

Jeanette Pressman – Dezer Platinum.  A fish out of water, got her feet wet in real estate and now hosts open houses by stocking the pool with real-live mermaids.  A creature of the sea, and a concerned for safety, gives swimming lessons to children in homes with a pool.

Joel Matus – William’s Island Realty, Aventura.  Reminds us “Don’t think of giving a gift as a chore. And don’t get it done just for the sake of getting it done.”  Whatever the gift may be, which her personalizes for every client, “the presentation of the gift together with the packaging is just as important.”  Joel enjoys personally delivering each-and-every gift himself.  If he is not at his exclusive brokerage inside William’s Island, or at the club, you will probably find him in Aventura Mall on the 3rd floor of Bloomingdales selecting just the right gift, tailored for each special client.  He also likes to use Reservebar.com to engrave high end MacCallan, Tequila, or Champagne bottles, which hare enveloped in embroidered Williams Island: robes, slippers, and monogrammed soaps and bubble bath salts.

Kim Hackett – Compass.  The best part of waking up is to a Kim Hackett present.  Jura espresso machines,  are the finest aromatic, fully automated, specialty coffee machine and are simply stunning.  It is like parking a Ferrari (or cappuccino) in your garage, so make sure you have the home to match so Kim can freshly grind this luxury item for you.

Lara Orlanis – Exclusively Baronoff Realty, Sunny Isles Beach.  Developer’s models look amazing because they are decorated with coffee table books.  Depending on client interests, Lara buys Coffee table books about fashion, art, racing cars.  “I think books are more valuable because, they are always out, and you have it forever.”

Larry Genet – CBRE, Las Olas.  Winner of the legend & leaders community award, and seen on social media and video more than a George Foreman grill, he is everywhere.   I bow to you sir.  Expect a crystal award with a floating picture of the acquired building or shopping center.  But the genius of Larry comes in when he hosts an annual dinner and allows all his high-net-worth clients to socialize, meet each other, and recapture some of that commission they paid him.  I would love to get on that exclusive list; as soon as a I have $10M+ to buy commercial Larry.

Laurie Richter-Spector – Compass.  Personally selects hand made cutting boards.  A client liked sage so much, Laurie hand-created an entire sage basket dawning Sage: recipes, candles, aromas, herbs, soaps, syrup, swag, scrubs, infused honey, and oils.  Somethings you just cannot buy off the shelf.  Non-residents have also received gift certificates to great local restaurants allowing them to get to know the area. How refreshing Laurie!

Lenzel Davis – One Sotheby’s, Coral Gables.  Always the stylish one who turns heads in a room, founded his own shoe company, Machiko, known for their bespoke Italian designs.  Be prepared to step into your luxury home with your new hand crafted shoes, custom measured to your foot.  This man is charming, so don’t be surprised when he also presents you with your favorite songs, on today’s equivalent of a mix-tape, as he harnesses his radio talents when he used to work as an electric engineering for some of our favorite radio stations.

Linda Seitel – One Sotheby’s, Las Olas.  What resonates with clients is something personal to them.  Recalling one especially strifeful transaction, and we have all had them, Linda hysterically assembled a basket of wines based on the wines’ names like: Tension; Conundrum; Freak Show; etc…  She has the best smile, so I’m glad she could keep her sense of humor.

Lori St John – Keller Williams Partners, Plantation.  Reminds us that it is not just a house that is being sold; but memories, which can be very emotional.   Sometimes, I think that it may be even more emotional for Lori because she invests so much of herself into learning all about the house, down to the studs, and the accretion of the beaches.  Lori featured a home on the cover of a magazine and had it framed, another was painted in watercolors by an artist, and the most unusual has to be the 3-D models replicating the home with a sterling silver tab identifying the family.  Additionally, Lori listens to her clients and family is very important to her.  So she has given fun gifts like private family trips or the Miami Zoo.

Lucy & Eduardo Cofresi – Dezer Platinum / Armani Residences, Sunny Isles Beach.  This power couple have been my friends for almost 20 years, and rose to the top, being sought after by developers to sell out their buildings like the Porsche building and now the Armani.  Armani has broadened their brand into home and décor under Armani/Casa.  Expect to be presented with a unique accent piece from the designer. At the Porsche building it is Porsche glasses, belts, and other designer accoutrements.  Brand names are collected by their clients so why not add to the collection?  Open up a matching Gucci, Channel, LV, wallet and purse.  If you don’t like it then you can easily exchange it.  For that reason, they do not give spa certificates at the buildings because many of their clients have their own people, give the certificates away, or never use them.

LysandraDevonaand Romina Wu – Luxe, Coral Gables.  Super as three (3), this family of Avengers combine to give the ultimate attention to their clients, and their gifting is no different.  Using a cricket machine they personalize pillows, portraits, and coasters, and capture that moment by chronicling the closing, familial surname, and address.  “Ring doorbells have been given too, but where’s the fun in that?”

Matt Weiner – Laurie Finkelstein Reader Realty, Plantation.   Just to say his name makes you smile and want to party, both of which I have done with this guy.  I can’t keep up.  So get ready to have fun, as Matt caters a house warming party for 20 of your closest friends and even handles the invite, and photographer of the party and even the family for a before and after party shoot.

Meryl Koslow – One Sotheby’s, Las Olas.  Enough said when that impressionable “Tiffany Blue” box arrives at your door.  Did you know that color was used on Tiffany’s Blue book first published in 1845?  Toast your new purchase with Tiffany champagne flutes, and two (2) bottles of Napa Valley’s Caymus.  Touched by a family member suffering with Alzheimer’s, and wanting to make a difference, Meryl made a sizeable charitable donation.

Michael & Wendy Ledwitz – Engel & Volkers, Boca Raton.  Living in the Polo Club, Michael and Wendy have catapulted into being the number one (#1) realtors at Boca Raton’s Polo Club.  But “the Club” is much more than their office.  It is their community.  “It is important to get to know clients, but it is even more important to make wonderful friends.  Living at the Polo Club allows us to expand our friendships every day.”  Michael and Wendy can be found dining with their new found friends, whether it be at the Club’s elegant Crown Room or SteepleChase.

Michele Tabb – Compass.  Looking for that special something?  Michele’s secret helper is Chef Mom, with an bevy of uniquely styled kitchenware, tableware, blankets, pillows, candles, totes, décor, and more.  She has also found, what I call “Michele’s Picks,” that her laminated list of favorite restaurants and necessities have drawn the most attention and gratitude.

Nana Rezaie – Keller Williams, Wellington.  One gift that never leaves your site, because it is too heavy, is the Breville Smart Oven Air, which includes 13 baking and roasting features including warming, dehydrating, air frying, and super convection.   I don’t know how I ever lived without mine; this is truly a fantastic gift.

Nicki Riettie – Douglas Elliman, Las Olas.  Known for being tres chic, after moving in a professional photographer will show at your home for a 2 hour session and present you with a large frameless photograph of the happy family in their new home.

Regina Vasquez – Coldwell Banker, Aventura.  Stylish and compact, welcome people over and show off your new home with a trillium engraved bamboo cutting board, chocolates wrapped in gold, and an invaluable kitchen gadget like Cutco’s super shears.

Robyn Selner – Coldwell Banker, Weston.  As a professional and a mom, Robyn has an eye for detail and will incorporate the playfulness of Romero Britto into your home.  It could be his artwork of children playing, a colorful house, a functional lighting fixture, or something that just speaks to her client.

Scott Kaplan – Re/Max Realty Associates.     Learned his lesson that oak cutting boards required too much maintenance and may only be brought out on special occasions, shifted his gift giving to practicality, with a reusable and recyclable Publix bag, beach towels, Turvis tumblers, golf sized umbrella, Chapstick, jar opener, and other everyday useable items.

Sherri Pfefer & Megan Pfefer – Coldwell Banker, Las Olas.  Known for their humor and always keeping it “Pfresh,” especially in the kitchen who knows what homebaked good may rise?  Prada and Gucci key chains help the clients arrive to their house. Home warranties, with notices from the warranty company, allow them to follow up and keep in touch with their clients should any appliance fail.  And coasters designed on Shutterfly, transition images of old into the new house so, clients see where they came from and how far they’ve come.

William Webb III – Webb & Associates, Hollywood.  Don’t mess with Bill.  With him, your first cleaning from a maid service will be provided by him.  And today, he has even added a COVID cleaning prior to moving in.

Zachary Oppenheim – Oppenheim Realty, Ft. Lauderdale.  Every client comes with a story, and Zachary helps write it by adding in details.  It could be a knife block for a couple that just got engaged yet to share the same last name, or a Publix card with a note to enjoy their first family meal courtesy of Oppenheim Realty.  Ever so stylish, he has created a demand for his clothing, so coming soon is an online boutique where each client will be given a gift certificate to buy swag and merch.

DISCLAIMER:  Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney. FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ®

REAL ESTATE’S 2020 LEGISLATIVE CHANGES

Senate Resolution 1008 “Great American Realtor Days is designated for February 3-5, “in recognition of the outstanding services realtors provide to residents and visitors of the state and the critical contribution they make to the state economy.” Finding teal estate represents 21.9% of Florida’s gross state product.

Fla. Stat. §40.013. Excuse Me? Jury Duty. Excuses from jury service 18-21 year old full-time-students.

Fla. Stat. §83.5615 Tenant Protection from Foreclosures. Prohibiting buyers of foreclosed properties from terminating bona fide residential leases without first providing the tenants with a 90-day notice to vacate (unless federal law requires more time).

Fla. Stat. §193.155 Homestead Portability. In the 2021 tax roll, increases timeframe which accrued benefits on homestead property tax assessments may be transferred from a prior homestead to a new homestead from 2 years to 3 years.

Fla. Stat. §196.082Ad Valorem Tax Reduction for Disabled Veteran’s Surviving Spouse. So long as the surviving spouse does not remarry, the ad valorem tax discount will be extended to surviving spouse, also allows for the discount to be ported over to surviving spouse’s new residence.

Fla. Stat. §§ 420.621-420.6275 Homelessness. Redefining homelessness as “An individual or family who lacks a fixed, regular, and adequate nighttime residence … or who will imminently lose their primary nighttime residence ….” Adds prohibition on excluding based on race, color, national origin, sex, handicap, familial status, or religion.

Fla. Stat. §§ 455.213, 489.115. Reciprocity for Out-Of-State Contractors. Opens up ability to get Florida construction license for those who held a valid and current contracting license for at least 10 years issued by another U.S. state.

Fla. Stat. §455.2278DBPR Licensure and Student Loans. Eliminating license suspensions or revocation based on student loan default or delinquencies.

Fla. Stat. §§ 456.072, 460.27, 760.22, 817.265 False use of Emotional Support Animals (“ESA”), Criminalizing, Disabilities. Word “Handicap” is no longer used, replace with “Disability.” Disciplining health care professionals if without personal knowledge they state a person is disabled or needs an emotional support animal (“ESA”). Makes it a 2nd degree misdemeanor and requires 30 hours of community service, if a person misrepresents they have a disability or disability-related need for an ESA. Makes persons with ESAs liable for damages caused by their ESA. Unless federally prohibited, housing providers:

  • May, require proof of licensing and vaccination of the ESA.
  • May, deny an ESA if it (1) poses a direct threat to safety or health of others; (2) physical damage to other’s property; and the threat cannot e reduced or eliminated by another reasonable accommodation.
  • May, If the disability is not readily apparent, request reliable information reasonably supporting the person’s disability like:

(1) Determination from the government,

(2) Disability benefits or services from the government,

(3) Proof of eligibility for housing assistance or housing voucher due to disability,

(4) Information from a health care or telehealth provider,

(5) Information identifying the particular assistance or therapeutic emotional support provided by the animal.

(6) Animal registrations of any kind (i.e. ID card, patch, certificate, or internet registration) by themselves are insufficient to reliably establish a person’s disability or need for an ESA.

  • May NOT, request information disclosing diagnosis or severity of a person’s disability
  • May NOT, request medical records relating to the disability
  • May NOT, require the use of a specific form or notarized statement
  • May NOT, discriminate in housing against persons with disabilities or needs for an ESA.
  • May NOT charge extra for an ESA.

Fla. Stat. §481.209Interior Designer Licensure. Eases the requirements for becoming a registered interior designer and obtaining a seal.

Fla. Stat. §489.103. Handyman licensure exception. Raises from $1,000 to $2,500, the exemption from licensure as a contractor. Doesn’t apply if work is part of a larger operation undertaken by the same or a different contractor.

Fla. Stat. §501.2106 Deceptive Legal Advertising. Solicitations for legal services directed to the public must clearly and conspicuously state “This is a paid advertisement for legal services”; Disclose the sponsor of the advertisement; Disclose the attorney or law firm who will represent persons responding to the advertisement or how those persons will be referred if the sponsor will not represent the persons; cannot imply it is a consumer alert or public service announcement; display logos or similar thereof implying affiliation with a government agency.

Fla. Stat. §613.57 Increases Property Insurance Requirements for Associations. Increases coverage for property insurance claims by a condo, co-op, or HOA under Florida’s Insurance Guaranty Association (FIGA) from $100,000 to $200,000 multiplied by the number of units.

Fla. Stat. §689.01Eliminates 2 Witness Requirement for Leases. “[N]o subscribing witnesses shall be required for a lease of real property or any such instrument pertaining to a lease of real property.”

Fla. Stat. §689.041Curing Scrivener’s Errors in deeds. Correcting an erroneous deed can be costly and time-consuming, as such action requires either tracking down the original grantor and getting the grantor to file a corrective deed or bringing a lawsuit in court for deed reformation. Now a single error or omission of: a lot or block; unit, building or phase number for condos or co-ops; a directional designation; or a fraction in the section township or range, can be fixed by recording a “curative notice” of the erroneous deed.

Fla. Stat. §712.05 Voids Discriminatory Restrictions in Property Records. Declaring “discriminatory restrictions” (meaning restrictions on an individual’s ownership, occupancy, or use of real property based on their race, color, national origin, religion, gender, physical disability, or other protected class) found within recorded title transactions (e.g. deeds, easements, condo docs) null and void.

Florida Chapter 714Adopts the Uniform Commercial Real Estate Receivership Act (UCRERA): A receiver is a person appointed by a court to take possession of another’s property and to “receive, collect, care for, and dispose of the property or [its] fruits.” In some instances, a receiver’s appointment (“receivership”) is governed by Florida statute. In other cases, such as receiverships for commercial real estate, a receiver is appointed under the court’s equity powers (“equitable receivership”). The Uniform Commercial Real Estate Receivership Act (UCRERA), adopted by seven states since 2017, specifies the circumstances under which a receiver may be appointed for commercial real estate, the scope of such a receivership proceeding, and the receiver’s powers, duties, and liabilities.

Fla. Stat. §§ 718.129, 719.131, 720.318Curbs Law Enforcement Parking Restrictions at HOAs. Condos, Co-Ops, and HOAs may not treat law enforcement vehicles as commercial vehicles, and may not prohibit them from parking in an area where the unit owner, or its tenant, guest, or invitee has a right to park.

Fla. Stat. §760.34 Private Lawsuits for Housing Discrimination. No more waiting and having to exhaust administrative remedies. Housing discrimination lawsuits alleging violations of the Florida’s Fair Housing Act (“FFHA”) may now be immediately filed in court without having to be first presented to Florida Agencies like the Florida Commission on Human Relations and waiting for their outcome.

Fla. Stat. §791.08 Fireworks and HOAs. HOAs may not prohibit homeowner’s from using fireworks on December 31st (New Year’s Eve), January 1st (New Year’s Day), or July 4th (Independence Day).

DISCLAIMER:  Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney. FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ®