Real Estate Law

6 Tips for Keeping Real Estate Marketing Legal

Facebook has allegedly enabled housing discrimination by allowing real estate advertisers to exclude audiences protected under the Fair Housing Act.

As a result, real estate professionals are advised to take several steps to ensure their marketing on the social media platform is legal and ethical.

  • Never use targeted marketing that excludes a specific protected class on a listing.
  • Don't use Facebook as your only advertising tool – its algorithm doesn't guarantee that a broad section of the population will see your ad, even if your targeting isn't exclusive.
  • Know your state and local fair housing laws and ensure your marketing is in compliance will all of these laws. In many cases, local laws protect more groups than the ones specified under the federal Fair Housing Act.
  • Consider working with a digital marketing firm or hire an individual to do that work exclusively for your company.
  • In addition, use other types of marketing methods to reach parts of the market not reached by the MLS.
  • Avoid engaging, commenting, liking or clicking on a post from someone else that could be a fair housing violation.

Finally, brokers should require agents to market consistently, including rules that extend to social media marketing as well.

How to Verify an Escrow Deposit was Made

A lot of Legal Hotline questions focus on escrow deposits, and a significant number of those questions come from listing agents who are upset that they haven't received proof that the funds actually made it into an escrow account – or even just a simple notification that the buyers did indeed deposit money by the dates stated in the contract.

Most common escrow deposit issues

Proof of deposit
No law requires an agent to send a copy of an escrow check (or wire transfer) to prove that an escrow deposit was made. Furthermore, a copy of a check doesn't do much good. It proves only that a check was written – not that it was given to the escrow agent in accordance with the contract.

Verification of deposit
The requirement for verification of the escrow depends on who chooses the escrow agent, the buyer or the seller. If the buyer chooses the escrow agent and it is a title company or an attorney, Section 61J2 of the Florida Administrative Code says the following rules apply:

  • If the buyer chooses a title company or attorney as the escrow agent, the licensee who prepares the contract must indicate the name, address and telephone number of the selected title company or attorney on the contract.
  • Within 10 business days after each deposit is due, the broker representing the buyer must make a written request to the title company or attorney, asking the escrow agent to verify receipt of the buyer's deposit.
  • Then, within 10 business days of the date that request was sent, the broker for the buyer must provide the seller's broker with a copy of the confirmation of receipt from the escrow agent.
  • If there is no response from the title company or attorney, the buyer's broker must inform the listing broker that they did not receive verification from the escrow agent.

Note that this rule only applies if:

1.The buyer chooses the escrow agent

2.The escrow agent is an attorney or title company

If the seller picks a title company or attorney as the escrow agent, the above rules do not apply and there is no verification requirement.

The listing broker can confirm receipt by contacting the escrow agent directly after each deposit is due according to the dates in the contract. If the buyer chooses a title company or attorney as escrow agent, the buyer's broker must comply with Florida Administrative Code and provide a response to the listing broker.

If a broker – not a title company or attorney – is holding the escrow, then the two brokers involved in the transaction can confirm receipt upon request, but there is no procedure for verification required by law.

Understanding the role of the agents with respect to escrow verification is key to avoiding potential unnecessary conflict.

Can a Seller do That?

A seller gives explicit instructions to the listing office: No showings take place unless the buyer supplies proof of funds first. The listing agent puts this information in the "Broker Remarks" section of the MLS listing. A buyer's agent then sees the listing and requests to see the property with his buyers. The listing agent agrees but reminds the buyer's rep about the proof of funds requirement.

The buyer's agent is furious – he feels his customers shouldn't have to show personal information like this before even seeing the inside of the property. This has to be illegal, right? Or at least unethical behavior on the part of the listing agent?

In short, the answer to both questions is no.

A seller has a fairly wide range of prerequisites he can choose from before he allows a property showing; he can even demand an actual offer from the buyer. While this tends to happen with high-end or celebrity-owned properties, it's important to understand that a seller can require information from a buyer before the buyer can step onto the property.

Many times, a seller requires information, such as proof of funds, as evidence that the buyer has a serious interest in the property.

If you are a listing agent with a specific seller request, make sure to get this instruction in writing – i.e., as part of your listing agreement or in an email sent by the seller. If you're a buyer's agent, let the buyer know what the seller requests when you bring the listing to them.

Please note: In many cases, personal information regarding the buyer can be redacted or blacked-out. For instance, an account number or a social security number or a home address could be redacted in any document requested by the seller, such as a proof of funds.

Standard of Practice 3-9, which supports Article 3 of the Code of Ethics, says Realtors shall not provide access to listed property on terms other than those established by the owner or the listing broker. When a seller requires a buyer to meet certain prerequisites before entering the property, Realtors are obligated to comply.

If the listing agent permits access contrary to the seller's instruction or if he ignores the seller's instructions, both Realtors could be the subject of an ethics violation. If the listing agent is at fault, it would be a possible violation of Article 1 based Standard of Practice 1-16 and in the case of a cooperating agent, Article 3, Standard of Practice 3-9, could apply.

When to Use an Addendum

In an ideal world, after a buyer and seller execute a contract, things proceed seamlessly, no issues arise at all, and the parties close on their agreed-upon closing date.

The reality: While that can occur in your transactions, many times it just isn't the case. One thing or another pops up along the way, and the parties need to change their current agreement, whether that's an extension of a closing date or amending the contract to add a new term. Before you race to grab an addendum, though, first consider whether or not it's actually needed. Depending on the details, it's entirely possible you don't need to do anything.

This article considers a few different scenarios that can occur and whether or not an addendum is needed. (For purposes of this article, the Florida Realtors/Florida Bar ("FR/Bar") contract is referenced).

Scenario 1
The title company handling the closing finds a lien on the property that the seller didn't realize was there. The seller says he'll handle it, but it probably can't be settled on time for the agreed-upon contract closing date.

Do the parties need to sign an extension for the closing date? In short, no.

Per Standard 18A of the FR/Bar contract, the buyer is supposed to notify the seller, in writing, of any defect in the title commitment within five days after receiving it. The seller then has 30 days after receiving this notice, defined as the seller's Cure Period, to "take reasonable diligent efforts" to remove the defect. Assuming the seller is able to fix the defect within the Cure Period, the seller needs to notify the buyer in writing, along with proof of the cure acceptable to the buyer, and the parties should proceed to closing.

If the closing date has passed during the 30-day cure period, the closing is to take place "within 10 days after buyer's receipt of seller's notice." In this example, there's no need for the parties to sign an extension since the contract already addresses how the closing should proceed in the event of a title defect.

Scenario 2
The buyer and seller have an "As-Is" version of the FR/Bar contract. The buyer performs her inspection and decides she wants to ask the seller for repairs. The buyer's agent emails the listing agent to ask about the seller's willingness to make repairs. The seller verbally indicates he is willing to fix the some of the items the buyer is asking about – but not all.

Is an addendum needed? In short, it probably is.

It could be an addendum extending the inspection period so the parties can further negotiate the repairs, or it could be an addendum to address the agreed upon repairs. In either case, the parties should have something in writing. It's not a good idea to rely on verbal representations about a party's willingness to make repairs; and it's not a good idea to think that simply inquiring about repairs provides more time or an automatic extension of the inspection period. The seller could refuse to honor the repairs later and the buyer likely would have little recourse.

Additionally, there is no "pause button" on your inspection period clock. Even if the parties are negotiating repairs, the clock is still ticking. If the buyer can't get an agreement in writing with the seller about the repairs or an extension for the inspection period, she will need to decide whether to cancel the contract before the inspection period ends or her deposit could be at risk.

Scenario 3
A hurricane sweeps across Florida. While the property isn't damaged, power is out around the state and the title company doesn't have any power to conduct a closing on the agreed-upon contract closing date.

Do the parties need to get an addendum to extend the closing date? In short, no.

Standard 18G addresses this scenario and states, in sum, that neither party will be required to perform any obligations under the contract when the non-performance is due to Force Majeure. All time periods will be extended "a reasonable time up to 7 days after" such Force Majeure no longer prevents performance. So, in this example, the parties should close within 7 days after the title company regains power and can process the closing. No addendum is necessary since the contract already addresses what happens when a defined Force Majeure event prevents performance.

Note: It's important to keep in mind that all contracts are different, and the above examples are specific to just one contract. In general, when in doubt over whether an addendum is necessary or not, look to the contract provision that covers the issue. Many times, these types of "what if" scenarios are considered by the contract terms and can save the agent from taking additional – and possibly unnecessary – steps.

HUD Cuts Red Tape to Help Speed Up Hurricane Recovery

The U.S. Department of Housing and Urban Development (HUD) announced a package of 19 regulatory and administrative waivers aimed at helping communities to accelerate their recovery from Hurricanes Harvey, Irma and Maria.

While HUD granted a number of individual waivers after earlier disasters, HUD says the latest announcement is one of the largest collections of regulatory and administrative waivers ever issued by the department at one time.

"The recent storms are unprecedented so it makes sense that our response be unprecedented as well," says Assistant Secretary for Community Planning and Development Neal Rackleff. "We must be as flexible as we possibly can to help our state and local partners at a time they need our help the most."

The relief covers the following HUD programs:

  • The Community Development Block Grant (CDBG) Program
  • HOME Investment Partnerships (HOME) Program
  • Housing Opportunities for Persons with AIDS (HOPWA) Program
  • Emergency Solutions Grant (ESG) Program.

To expedite the use of funds, HUD says that state and local partners can access a waiver through a new simplified notification process.

HUD's latest relief efforts

  • HUD is allowing an abbreviated public comment requirement on changes to a grantee's community redevelopment plans. Upon notification, HUD will reduce the customary 30-day comment period to seven days.
  • Hurricanes Harvey, Irma and Maria destroyed communications networks, particularly in the Commonwealth of Puerto Rico and the U.S. Virgin Islands. Therefore, HUD is waiving the normal communication requirements and allowing these grantees to determine what constitutes reasonable notice and opportunity to comment.
  • The hurricanes also caused extensive damage and destruction to the housing stock in certain impacted areas. To accelerate construction, HUD is suspending normal rules to enable CDBG grantees to replace affordable housing units that were lost as a result of the hurricanes and flooding.
  • HUD will suspend a cap limiting CDBG expenditures for public services to 15 percent. HUD will temporarily allow CDBG grantees to pay for additional support services for individuals and families affected by the hurricanes. Services could include, but not be limited to, the provision of food, emergency shelter, case management and related services to help residents in declared-disaster areas until long-term recovery resources become available.

HUD offers more info online about the regulatory and administrative changes.

Homebuyers: Don't Believe the Reality TV Show Myths

A lot of real estate reality TV shows air across the nation, but "like most programs billed as 'reality,' they are often misleading, and some are far from reality," says RE/MAX Complete Solutions Broker-Owner Jenniffer Lee.

Lee outlines 10 reality TV show myths:

1. Myth No. 1: Buyers on reality shows are shown three near-perfect homes.
Fact: "In reality, buyers look at many homes before finding the right one," says Lee.

2. Myth No. 2: A home can be completely gutted and redone in 2-4 weeks.
Fact: It can take a long time to totally redo a home due to permit pulling, coordinating different crews and the specific aspects of the job.

3. Myth No. 3: The homes buyers are interested in are still for sale and there is plenty of time to make a decision.
Fact: "Many homes that buyers are interested in are already under contract by the time they go to view them, or they go to contract before the buyer decides to make an offer. If you like a home, act quickly," says Lee.

4. Myth No. 4: Staging a home for sale takes power tools and lots of money for fancy furniture and accessories.
Fact: "You can go a long way towards staging a home by merely cleaning, touching up paint and removing clutter," says Lee.

5. Myth No. 5: Buyers make an offer on the home they want and move in a week later.
Fact: There is much more to the process, including pre-qualification by a lender, inspections, appraisals, escrow and title.

6. Myth No. 6: A house should sell after the first open house.
Fact: Very few homes sell at an open house. "Most sell after multiple independent showings," says Lee.

7. Myth No. 7: The buying process simply revolves around a buyer and a Realtor.
Fact: There are usually many parties involved, including a second Realtor, a lender, an escrow agent or title company, an appraiser and oftentimes an attorney.

8. Myth No. 8: The net from flipping a house is the sales price less the cost of the home repairs and real estate commission.
Fact: There are many other costs involved, including settlement fees for both the purchase and the sale, utilities and other holding costs, property tax and other prorations, doc stamps and transfer taxes, title insurance and other closing costs.

9. Myth No. 9: Any floor plan can be easily altered.
Fact: "Some items in a floor plan are structural and can't be moved easily," says Lee. "It takes an analysis by an architect or engineer to determine if some items can be moved at all."

10. Myth No. 10: Finding the right home is easy and fast.
Fact: "Buyers often look for several weeks and even months to find the right home," says Lee. "A reputable Realtor will skillfully guide you through the process and help you make the right decision."

What Appliances Stay and Which ones Go?

Question: We are in the process of buying a home and did the day-before-closing walk-through, only to find that the property is missing the appliances. The fridge, stove, washer, dryer and dishwasher are gone. We do not want to buy the house this way. Is there anything we can do? – Ali

Answer: I can understand your surprise. Most home sales include the appliances and fixtures. Your first step is to check your contract to see if any of the missing items are specifically mentioned. Most standard contracts have a section that speaks to what items are included.

The general rule is that anything permanently attached to the house when you went under contract – light fixtures, doors, stoves – should be included in the sale. And the item must be the exact one that was in the home when the contract was signed.

Most arguments I see on this subject involve washing machines and automatic pool cleaners. Some contracts don't include the washer and dryer, and buyers always should take note of any exclusions.

Sellers should be sure to specifically exclude any fixtures they want to take with them, such as an heirloom chandelier hanging in the foyer.

In your case, you may need to postpone the closing. If the missing items weren't excluded in the sales contract, the (seller) must replace them or provide a credit at closing.

Selling to a Relative? Put it in Writing!

Question: What do we need to consider if we sell our home to a close relative? Specifically, are there any tax ramifications or other potential issues if we want to help our family member by selling for significantly below market value? – Anonymous

Answer: You can sell your property at a discount and offer favorable terms, but get all that in a written contract.

I have seen this favor turn sour many times. The problem most often occurs when the parties involved don't treat this as a standard business transaction.

People often seem reluctant to use a written contract when dealing with close friends or relatives, but the truth is that a detailed written contract avoids misunderstandings that lead to disputes and hurt feelings. A favorite saying of mine is, "If you can say it, you can sign it."

Another frequent mistake I often see is not getting title insurance for this kind of transaction. The owners usually say they've had the house all these years and there's nothing to worry about. But if something does pop up, the buyers may not find out about it until years later when they go to sell the house – and it may be too late to resolve what may have been a simple issue.

This type of transaction most likely will be income-tax-neutral for both you and your relative. However, everyone's tax situation is different, so you shouldn't ever make any large transaction without consulting a tax professional.

Also, your relative should understand that the transfer will cause the property taxes to be reassessed to market value, so he or she can't count on any discounts that you may have had.

Finally, if you as the seller intend to hold the mortgage for the buyer, there are certain lending laws that still need to be followed.

What Should you do About Medical Marijuana?

Since 1996, over two dozen U.S. states and the District of Columbia have passed laws allowing the legal use of marijuana.

In Florida, voters passed Amendment 2 in 2016 and expanded Floridians access to medical marijuana. The amendment created a list of ailments that a doctor could consider when prescribing medical marijuana as a treatment.

When it comes to medical marijuana, however, Florida law is still in its infancy and highly restrictive. Efforts are underway to allow more access and broader usage, but currently, Florida law extremely limits marijuana use. At this point, for example, Floridians who are prescribed medical marijuana can consume it only in oils, tinctures and capsules, and only for allowable medical conditions. All recreational use is still illegal.

In addition, federal law has not changed, and marijuana is still illegal. It's defined as a Schedule I substance under the Controlled Substances Act. However, federal law has prohibited the Justice Department from using any of its funding from Congress to prosecute medical marijuana in any state where it's legal.

This raises a question to housing providers: What must they allow in housing units regarding medical marijuana usage?

State and federal fair housing laws require housing providers to offer reasonable accommodation to individuals who are members of a protected class, and the Fair Housing Act defines a person with a disability as:

  1. Individuals with a physical or mental impairment that substantially limits one or more major life activities
  2. Individuals who are regarded as having such an impairment
  3. Individuals with a record of such impairment

This arguably includes individuals being treated with medical marijuana that's legally prescribed under Florida law. Seeing this, many housing providers are now wondering if they must allow medical marijuana usage in a Florida dwelling unit.

Like all legal questions, the devil is in the details, but due to the current restrictions under Florida law, the allowance to use medical marijuana is not that dramatic.

Housing providers are currently allowed to deny the smoking of medical marijuana since Florida law doesn't permit it. If a request is received to consume marijuana in a legally authorized way under state law, the housing provider most likely needs to grant it as a reasonable accommodation.

There were proposals before the 2017 Florida Legislature to expand this allowed use of medical marijuana, but they failed to pass. However, housing providers should continue to monitor the status of the laws in Florida. They may continue to evolve.

College Debt No Longer a Deal Breaker for Millennials

Home buyers with student loans could find it easier to get a conventional mortgage under some important new rules.

And parents who took on student debt to help their children go to college now have a new refinance option to tap into home equity to pay off those student loans, as well. It might make sense to refinance out of a higher student loan rate into a lower mortgage rate for some, but it's not smart for everyone.

Fannie Mae has re-done its rules to reflect the growing burden that student loan debt has on many households. Outstanding student loan debt now adds up to more than $1.4 trillion, according to the Federal Reserve Bank of St. Louis.

Overall household debt today is just 0.8 percent below its peak of $12.68 trillion reached in the third quarter of 2008, according to the Federal Reserve Bank of New York.

Bill Banfield, executive vice president of capital markets for Detroit-based Quicken Loans, said it became more difficult for many borrowers with student loans to obtain a mortgage when tighter guidelines relating to college debt went into place after the financial crisis in 2008-09. Under the restrictions, he said, lenders had to calculate student debt payments according to certain, generally more conservative formulas when underwriting a new mortgage.

One such calculation: The lender could take 1 percent of the outstanding student loan balance to calculate the potential monthly student loan payment. So a mortgage applicant with $30,000 in student loans would be considered to be paying $300 a month for student loans.

How much you're paying on other debt, of course, influences how much you can afford to pay for a new mortgage.

In reality, though, Banfield said the borrower could be paying far less than that $300 a month under some situations, such as when the borrower has an income-driven repayment plan that reduces their monthly payment.

Under the rule change, the lender now can accept the student loan payment information that's included on the borrower's credit report. For some millennials and other borrowers, the change can help provide more access to a mortgage.

Fannie Mae said its new policies address the obstacles to home ownership that hit because of a significant increase in student loan debt over the past decade.

"We think it's going to help people with student loans qualify," Banfield said. "It's a positive and meaningful change. "It doesn't mean we're taking on more risk necessarily. It just means we're not penalizing people with an overstated payment on their student loans."

Under Fannie Mae's new rules, the lender can take into account student loans that are actually paid by someone else, such as the parent, too. Documentation would be needed to prove that the parent is making the monthly payments on the student loans taken out under the child's name. For example, lenders must obtain the most recent 12 months of checks or bank statements to prove payment by the parent and there can be no delinquent payments in that 12 months.

But if the parent is paying those loans, the younger borrower is better able to take on a monthly mortgage payment. Fannie Mae said that looking at debt paid by others would widen borrower eligibility to qualify for a home loan.

Banfield said it is not unusual to hear millennials say that their parents are making their student loan payments.

Perhaps the parent didn't have savings or want to use their savings to pay college tuition and room-and-board, but the parent feels comfortable paying off a child's student loans over time.

"Who doesn't want their child to have a higher education?" Banfield said.

Sometimes, it's cheaper for a student to take out loans than the parent. For example, undergraduates who obtain student loans get a lower rate than parents under federal student loan programs. The rate on subsidized and unsubsidized federal loans taken out by undergraduates is 3.76 percent for loans taken out between July 1, 2016 and July 1, 2017. The interest rate is fixed for the life of the loan.

By contrast, the current rate is a fixed 6.31 percent for Parent PLUS loans first disbursed on or after July 1, 2016, and before July 1, 2017.

Rohit Chopra, senior fellow at the Consumer Federation of America and former assistant director of the Consumer Financial Protection Bureau, said the new cash-out refinancing option for home owners will likely be marketed to parents who want to pay off some of that student loan debt, too.

Under the new cash-out refinancing program, cash taken out of the equity in the home would go directly to the student loan servicer to fully pay off at least one loan.

Chopra noted that the Parent PLUS loan rate can be higher than the going rate on mortgages. But parents have to make certain that the mortgage rate they'd qualify for when they refinance would be lower than what they are paying on student loan debt.

Another attractive selling point: Mortgage interest is deductible for people who itemize so refinancing could be an advantage to some parents.

But it's important to pay attention to your own tax return and situation. Depending on your income, student loan interest is deductible for some taxpayers. The maximum amount of student loan interest that can be deducted from your income each year is $2,500. If you're in the 25 percent tax bracket, for example, the tax savings would be $625 if you were able to claim the full $2,500. This deduction applies to the interest payment – not the entire payment on your student loans.

The interest paid must apply to qualified education loans, which include federal student loans, private student loans, and parent education loans.

The student loan interest deduction is claimed as an adjustment to income. So you can claim this deduction even if you don't itemize deductions on Schedule A of Form 1040.

And income limits apply. To qualify for the deduction, you'd have to have a modified adjusted gross income that's less than $80,000 if single or less than $160,000 if married and filing a joint return.

But before anyone rushes to take equity out of the house to pay off student debt, ask another question: Will you be putting your home at risk?

If someone has a good paying job and stable employment, refinancing could help. But someone who could face a layoff or a wage cut could be signing away some student loan benefits that can ease the financial pain when a hardship hits.

Borrowers who hold federal student loans and face financial difficulty can tap into attractive deferment and forbearance plans, loan forgiveness options and income-driven repayment plans. By applying for an income-driven repayment plan, a borrower can obtain a monthly payment amount that is intended to be affordable based on your income and family size.

Income-driven repayment options on federal student loans cap federal student loan payments at roughly 10 percent of the borrower's income. These programs are generally targeted at student borrowers, not parents, though some ways exist for parents with Parent PLUS loans to deal with some hardships.

"Swapping student debt for mortgage debt can free up cash in your family budget, but it can also increase the risk of foreclosure when you run into trouble," Chopra said in a news release.