Some Major Legal Aspects of Real Estate Investment Using the Law and Lawyers to Maximize your Benefit and Minimize your Risk Eduardo R. Arista, CPA, Esq. Notice: The following slides consist of general information, and are not meant to be used to analyze any specific situation. These slides should not be relied upon to resolve any specific legal issue. Please seek legal counsel as warranted. Arista & Herrán, P.L. Gables International Plaza 2655 Le Jeune Road, 5 th Floor Coral Gables, Florida Telephone:

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 2 Why Hire an Attorney to handle your Real Estate deal? Why hire an obstetrician to deliver your baby? 1. Reviewing Contract 2. Negotiation Support 3. Checking Title 4. Preparing and Attending Closing 5. Tax & Estate Planning / Asset Protection

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 3 HIRE YOUR LAWYER BEFORE YOU SIGN THE CONTRACT The Law normally will not protect you from making a bad deal.

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 4 The Real Estate Contract Realtors can help fill in the blanks, but modifying or drafting additional clauses is like taking scalpel to the contract. For that you want a surgeon. Clauses drafted by non-legal professionals can cause: Ambiguity; Vagueness; Conflicting Provisions; and Unenforceability. Disputes over interpretation of the contract can cause litigation. Litigation can cause unnecessary delay, headaches and expenses.

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 5 The Contract: Contingencies Clean Title; How clean is clean? Appraisal; What if it’s too high? Financing; Good, bad and ugly. Home Inspection Home Sale

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 6 Negotiation Support EVERYTHING is negotiable Common deal points beyond the “fill in the blank” and “check the box” parts of a form contract. Know what you want and ask for it. Know what they want and trade for it. “Let me check with my lawyer first” There is no such thing as a free lunch.

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 7 Checking Title Identifying vs. Resolving Issues Excluding from Coverage vs. Taking Legal Measures Understanding what you are getting and what is covered if things are not what they seem. Attorneys’ Title Insurance Fund, Inc.

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 8 Preparing for Closing Seller’s Representations; Put your money where your mouth is. Deal Maker vs. Deal Breaker Some People Don’t want you to Hire a Lawyer Going against legal advice / Acceptable Business Risk

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 9 Attending Closing Mortgages, Notes, Deeds and other documents you will sign at closing are extremely complex legal documents. Forget what you were told by anyone before or during closing; what counts is what the documents say. Your Lawyer is the only part of your team that won’t lose their commission if you don’t sign those documents.

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 10 “But they told me...” There is no Prepayment penalty The interest rate is X% The interest rate is fixed I can “quitclaim” the property to a corporation after the closing It’s not too late for a “1031” transaction My company is the only one liable for the mortgage I don’t have to live in the property. TALK IS CHEAP

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 11 Tax Planning 1031 tax-deferred, like-kind exchanges Capital Gain vs. Ordinary Income Depreciation Recapture Consult a qualified CPA before you sell or buy.

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 12 Estate Planning Who will manage the property and how when you are gone? –Succession planning –Giving the Appreciation to one heir and the income stream to another. Who will manage the property and how if you are temporarily incapacitated?

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 13 Estate Planning Durable Power of Attorney –What does it do? –Con: Blank Check Living Trust –How does it work? Not subject to Probate –Death vs. Incapacity/Guardianship –Transferring assets to Trust & Pour Over

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 14 Asset Protection Getting it right from the beginning Don’t put all your eggs in one basket; Structuring your real estate portfolio. Investment Property is not protected by the “Homestead Exemption” Foreign Owners

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 15 Limit Your Liability Insurance is only the first line of defense –Are you really covered? –What are your limits? Exposure to Tenants, Guests and others. Who gets sued when they “sue the owner”? How a properly drafted lease can help protect you. Pitfalls of personal involvement in property management

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved. 16 Cover Your Assets How to take title? –Joint Tenants (a/k/a Joint Targets) –Tenancy in Common –Tenancy by the Entireties –Limited Liability Companies, Corporations and Partnerships

Copyright 2006 Eduardo R. Arista, P.A. All rights reserved Eduardo R. Arista, CPA, Esq. Arista & Herrán, P.L. Gables International Plaza 2655 Le Jeune Road, 5 th Floor Coral Gables, Florida Telephone: