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Orlando, Florida www.lowndes-law.com March 1, 2012 FLORIDA DISTRESSED REAL ESTATE: Practical Tips for Investors Moderator: Michael Ryan Presenters: Gary.

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Presentation on theme: "Orlando, Florida www.lowndes-law.com March 1, 2012 FLORIDA DISTRESSED REAL ESTATE: Practical Tips for Investors Moderator: Michael Ryan Presenters: Gary."— Presentation transcript:

1 Orlando, Florida www.lowndes-law.com March 1, 2012 FLORIDA DISTRESSED REAL ESTATE: Practical Tips for Investors Moderator: Michael Ryan Presenters: Gary M. Kaleita Gary Soles Robert F. Higgins Alexander Dobrev Zachary J. Bancroft Jason W. Johnson M. Rebecca Wilson © 2011 Lowndes, Drosdick, Doster, Kantor & Reed, P.A. All Rights Reserved

2 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com PART ONE STRUCTURING THE PURCHASE

3 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Eight Possible Methods of Acquisition Short Sale Buy loan documents Hybrid approach Buy final judgment Buy winning bid Bid at foreclosure sale Buy from Lender after foreclosure Section 363 Bankruptcy Sale

4 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Short Sale Pros: ºPotentially lowest purchase price ºNo legal fees/costs to foreclose ºNo defenses or counterclaims to overcome ºAbility to include/exclude development rights/entitlements/liabilities ºNo phantom income issue for Buyer ºReduced brokerage commissions possible ºUnder contract at front end

5 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Short Sale Cons: ºJunior liens still exist ºRights of tenants still exist ºBuyer liable for past-due HOA and Condo assessments ºDoc stamp tax due on deed ºOwner’s title policy premium ºDeficiency claim by Lender

6 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Buy Loan Documents Pros: ºTraditionally lowest purchase price ºDevelopment rights/entitlements/liabilities may be acquired ºDeed-in-lieu or stipulation to foreclosure possible ºStatutory limit on liability for past-due HOA and Condo assessments ºNo doc stamp tax due on assignment of loan docs

7 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Buy Loan Documents Cons: ºRiskiest structure for Buyer ºOwner bankruptcy will stay foreclosure proceedings ºBuyer may have phantom income

8 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Buy Loan Documents Notes: ºEnsure that Lender has authority to sell ºGet payment history and originals of Notes & Endorsements ºAdjust purchase price if Owner makes loan payments after Contract signed ºProhibit loan modifications pending closing ºTransfer escrow/impound accounts (taxes & insurance) ºLender’s reps and warranties ºAssignment of Mortgage Endorsement

9 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Hybrid Approach (combination of Short Sale and Purchase of Loan Docs) Pros: ºLeverage over junior lienors ºAbility to foreclose junior lienors and tenants ºNo Owner defenses or counterclaims ºInclude/exclude development rights/entitlements/ liabilities ºNo significant Owner bankruptcy issues ºNo phantom income issue.

10 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Cons: ºBuyer liable for past-due HOA and Condo assessments, but can still foreclose mortgage to reduce liability to safe harbor amount ºDoc stamp tax due on deed-in-lieu ºOwner’s title policy premium Hybrid Approach (combination of Short Sale and Purchase of Loan Docs)

11 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Buy Final Judgment Pros: ºForeclosure done - risks to purchaser substantially reduced ºLender already paid bulk of attorneys’ fees/costs ºNo doc stamp tax due on assignment Cons: ºPurchase price may be higher ºOwner bankruptcy will stay foreclosure ºBuyer may have phantom income issue

12 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Buy Final Judgment Notes: ºContract should provide deadline to obtain Final Judgment ºFinal Judgment must be assignable ºImpact of 30-day appeal period ºBuyer will not qualify for statutory safe harbor for past-due HOA or Condo assessments

13 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Buy Winning Bid Pros: ºRisks to purchaser further reduced ºRisk posed by Owner bankruptcy minimal Cons: ºPurchase price may be higher ºDouble doc stamp tax ºIRS may still claim phantom income ºBuyer will not qualify for statutory safe harbor for past-due HOA and Condo assessments

14 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Buy Winning Bid Notes: ºContract should obligate Lender to make full credit bid ºFinal Judgment should allow assignment of winning bid ºImpact of 10-day period for filing objections to sale

15 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Bid at Foreclosure Sale Pros: ºNo Contract needed with either Owner or Lender Cons: ºMust complete all due diligence before bidding ºMust be familiar with bidding process ºDoc stamp tax payable on amount of bid ºBuyer will not qualify for statutory safe harbor for past- due HOA or Condo assessments

16 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Pros: ºTraditional land purchase Contract ºDue diligence period negotiable ºClosing expenses negotiable ºSince Lender is Seller, Lender is liable for past-due HOA or Condo Association assessments… Buyer only pays going forward Buy from Lender after Foreclosure

17 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Cons: ºProbably highest purchase price ºDoc stamp tax payable on purchase price ºOwner’s title premium payable Buy from Lender after Foreclosure

18 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Section 363 Bankruptcy Sales oSale is approved by bankruptcy court. oMust be noticed to creditors. oMight be contested, or draw competing bidders. oCould be subject to appeal. oIn most instances, it will be free and clear of liens. oThe court may order that the liens attach to the proceeds. oIn most cases, faster than a state court foreclosure action.

19 Approx. 11,000 CMBS loans in Florida Approx. 1400 in the hands of special servicers

20 TREPP Demonstration

21 Office Properties at Special Servicers (sample)

22 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com PART TWO PURCHASER’S DUE DILIGENCE CONSIDERATIONS

23 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Purchaser’s Due Diligence Considerations Land use & entitlements HOA and Condo Association Issues Physical condition of property Loan documents Communication with Borrower & Guarantors Physical condition of property Rent roll, leases and tenants Status of title Insurance Outstanding Security interests Unpaid taxes & CDD assessments

24 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Purchaser’s Due Diligence Considerations Land use & entitlements ºWhat development entitlements exist? ºDo they run with the land or must they be assigned? ºZoning investigations ºDRI/ PD issues ºConcurrency, road and utility capacity, school capacity ºMoratoriums

25 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Purchaser’s Due Diligence Considerations HOA and Condo Association Issues ºOutstanding assessments & other charges ºViolations of Condo docs or Declaration ºWaivers of Condo Association or HOA approval rights or rights to purchase ºEstoppel letters from Association(s) ºForm 9 Owner’s Policy Endorsement ºSuccessor Developer liabilities ºAssociation control issues

26 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Purchaser’s Due Diligence Considerations Loan documents ºChain of ownership of loan documents ºPledges of monetary accounts ºDocuments to obtain from Lender ºSmoking guns

27 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Purchaser’s Due Diligence Considerations Communication with Borrower & Guarantors ºWill Borrower contest foreclosure or cooperate? ºReleasing Guarantors

28 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Purchaser’s Due Diligence Considerations Physical condition of property ºInspect improvements ºConsider deferred maintenance ºBuilding/health code violations ºEnvironmental report

29 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Purchaser’s Due Diligence Considerations Rent roll, leases and tenants ºStatus and priority of leases ºSNDA’s with Tenants ºAutomatic subordination clauses ºSweetheart leases ºExtinguishing leases in foreclosure ºEvicting tenants who are foreclosed

30 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Purchaser’s Due Diligence Considerations Status of title ºTitle defects (Buyer financing) ºExamination of foreclosure proceedings ºAssignment of Mortgage Endorsement ºEstoppel letters from third parties ºOwner’s title policy ºForm 9 Endorsement

31 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Purchaser’s Due Diligence Considerations Insurance ºCasualty insurance ºSelf-insurance ºDeductible ºReplacement value vs. depreciated value

32 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Purchaser’s Due Diligence Considerations Outstanding Security Interests ºLender’s reps ºUCC searches ºFederal tax lien searches

33 Florida Distressed Real Estate: Practical Tips for Investors Orlando, Florida | www.lowndes-law.com Purchaser’s Due Diligence Considerations Unpaid taxes & CDD assessments ºReal estate tax and CDD assessment liens survive foreclosure ºCity/County Code liens may also ºLien searches ºDelinquencies in taxes and CDD assessments


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