Terms and Conditions

Introduction And Overview

The contract which is referred to in this article, and set forth in its entirety elsewhere in this publication, is the Residential Sale and Purchase Contract (version FAR 9), ("Contract") which generally also contains certain Paragraphs from the Residential Sale and Purchase Contract: Comprehensive Addendum (version FAR JO). The Residential Sale and Purchase Contract and Residential Sale and Purchase Contract: Comprehensive Addendum may sometime be referred to individually or collectively as the Contract. The Contract and all rights associated with the Contract are the property of the Florida Realtors® formerly known as the Florida Association of REALTORS® The Contract is util ized in residential transactions throughout the entire State of Florida.

In a real estate transaction the most important single document is the contract for sale and purchase, because it sets forth all the terms and conditions and defines the obligations and responsibilities of the parties to the Contract. Therefore, utilizing the Contract, assuming that all blanks have been properly filled out and completed, will help assure that the transaction contemplated will occur in the manner desired by the parties.

This article will outline the salient provisions of the Contract and matters that should be taken into consideration when preparing the Contract. Limitation i n the length of this article do not allow for a discussion of all areas. The author believes that the Contract constitutes a comprehensive form that has taken into consideration almost all of the factors that should be addressed in connection with the sale and purchase of real property in the State of Florida. It is well suited for the purchase by U.S. citizens and residents, as well as a foreign investor. Notwithstanding this fact, particularly when dealing with a foreign investor, there may be issues involved that require additional considerations, and therefore, it is usually wise to consult with an attorney experienced in this area before the Contract is finalized. In instances where the parties feel compelled to execute a contract without prior attorney review, a provision may be inserted into the Contract allowing for a short period i n which the parties attorneys may review the Contract and approve it subsequent to its execution.

There are some professionals that believe that an individually drafted contract is necessary when dealing with foreign investors. The author does not agree with this assumption and believes that the Residential Sale and Purchase Contract and Comprehensive Addendum are sufficient (sometimes with minor revisions) to meet the needs of foreign investors, as long as the considerations set forth in this article are completed prior to final izing the Contract.

Wherever possible, the author will attempt to refer to specific Paragraphs and line numbering in the Contract. Also note, that any sentences or paragraphs which are italicized and contained in quotes in the article, indicate that they are taken directly from the Contract, unless they are defined speci fically in the article.

Residential Sale and Purchase Contract

FAR-9 04/07 ©2007 Florida Association of REALTORS® All Rights Reserved

Paragraph I.
Sale and Pu rchase:

Line 2, ("Buyer"): The Buyer may be an individual, corporation, limited l iability company, trust or another form of entity. In many instances, the Contract is executed before the Buyer has had sufficient time to determine if the Property should be purchased in the name of an individual or an entity. If this decision has not been made when the offer if submitted, provision should be made in the Contract, allowing the Buyer to assign the Contract. Many times the Buyer is listed as John Smith and/or assigns: however, this language is not sufficient to provide for assignability since Paragraph 14 requires the Seller=s written consent for an assignment to be effective. Paragraph 14 can be deleted or in the alternative, language may be inserted i n ( 1) Paragraph 21, under Additional Terms, (2) an individually drafted Addendum providing for assignability, or (3) in Paragraph "U" of the Comprehensive Addendum, which will be discussed more fully, later.

The entity in which Buyer takes title is extremely important when a foreigner is purchasing United States real estate, due to the various factors that should be considered, including but not limited to: ( 1) Foreign or United States Income tax considerations, (2) Foreign or U nited States estate and gift tax considerations, (3) a desire for anonymity, (4) objectives in directing property ownership at the death of the Buyer or a principal of the Buyer if Buyer is an entity.

Line(s) 8 to 11, Improvements and Attached Items ("Personal Property"): The contractual language automatically includes all built-in furnishings and major appliances. In many instances the parties disagree, at closing, as to what items of Personal Property are included in the sale. Frequently, there are issues over heirloom chandeliers, statues, audio/visual equipment, multiple dryers, washers. and refrigerator and freezer combinations. It is important to be specific in listing which items are included, and if, any items are to be excluded, to list those on line 14, which provides for the exclusion of certain items which are set forth.

Paragraph 2. Purchase Price:

The Purchase Price is payable in U.S. currency; therefore, it is important to understand that any fluctuation in rates to convert from foreign to U.S. currency are borne by the Buyer who is the party responsible for paying the Purchase Price.

The Purchase Price is normally payable in the form of an initial deposit, an additional deposit and the balance at closing, assuming that there is no financing involved. lt is always recommended, when setting forth the deposits, to utilize a percentage of the Purchase Price rather than a fixed dollar amount. The reason for this is that during the negotiation of the Contract, the Purchase Price in the offer and subsequent counter offers may change. It is inconvenient to continually change the deposit amounts during negotiations, and often errors are made in computing the deposit amounts which may cause disputes during the pendency of the transaction. When percentages are used, the amounts for the contract deposits automatically change since they are based on a percentage of the Purchase Price.

Paragraph 2(c): Total Financing: In the event the Buyer is obtaining a loan to finance a portion of the Purchase Price, the amount of the loan is entered on line 28. Percentages should be used to determine the amount of the loan, as opposed to a fixed amount. In underwriting loans, Lenders take into consideration the ratio of the loan to the Purchase Price. By utilizing a percentage, the ratio desired will remain constant without having to reinsert a new loan amount.

While the general rule above is to utilize percentages instead of fixed amounts for deposits and amounts of financi ng, in some instances there may be exceptions to that rule.

Paragraph 2(e): Balance to Close: Rather than attempting to compute the amount, which again, may change during the negotiations, it is preferable to write in the word ABalance@ on line 30.

his Paragraph provides two options:

Paragraph 3. Financing

Line 31: 3(a) provides that the Buyer will pay cash for the Property with no financing contingency;

Line 32: 3(b) provides that the Buyer will apply for financing.

It is important to understand that when a Buyer indicates that he will pay cash for the Property, he is not prohibited from seeking financing. In this instance, if the Buyer does not obtain financing, the Buyer is still required to close on the transaction. In the event the Buyer fails to close, the Buyer will be in default under the terms of the Contract.

If the Buyer will be applying for financing, it is important that the Buyer become familiarized with the financing process; particularly if the Buyer has no previous experience in obtaining financing for the purchase of United States real estate. The entire loan process and loan documentation at closing is very di fferent from the process utilized in almost all foreign countries. In general, the paperwork is more vol umi nous, more detailed, and there are various requirements and costs that a foreign investor has not been exposed to outside the U.S. In addition, when a foreign individual or entity seeks financing, the time it takes to apply, be approved and ultimately obtain or not obtain financing is a more cumbersome and lengthy process than for a U.S. resident. For this reason, it is very important that the Buyer understand the process, requirements and time lines provided for i n the Contract and by the lender. It is advisable for the Buyer to speak with a competent banker or mortgage broker to familiarize himself with this process.

The Contract provides a blank space which should be completed which sets forth the amount of days the Buyer has to apply for financing. There is an additional blank space that sets forth the outside time when the Buyer must obtain a commitment from the lender ("Commitment Period") and the time when the Buyer must receive an approval for the financing ("Commitment"). The time allowed to apply and receive the Commitment should usually be extended to provide sufficient time to allow a foreign investor to meet the deadline. If the days have not been filled in the blank provided the Contract provides that the Buyer has five (5) days to apply for financing and thirty (30) days to obtain the Commitment. I n the current financing climate these periods should be extended. Please note that when computing days under the Contract, all days are computed in what is defined as a business day, which is considered to be "every calendar day except Saturday, Sunday and national legal holidays. If any deadline falls on a Saturday, Sunday or national legal holiday. performance will be due the next business day". If the Buyer fails to
obtain financing during the Commitment Period, Buyer must notify the Seller of Buyer=s inability to obtain a Commitment within the Commitment Period. Lines 41 and 42 provide that failure to furnish this notification will result in a forfeiture of Buyer=s deposits. Deposits are defined in the Contract on line 295 as Aall deposits paid and agreed to be paid@. Therefore, if the Buyer defaults in this regard he will be subject to forfeiture of deposits he has already paid and any additional deposits to be paid set forth in Paragraph 2 of the Contract.

In addition, it is important to understand: "Once B11yer provides the Commitment to Seller, the financing contingency is waived and Seller will be entitled to retain the deposits if the transaction does not close by the Closing Date unless {I) the Property appraises below the purchase price and either the parties cannot agree on a new purchase price or Buyer elects not to proceed. (2) the property related conditions of the Commitment have not been met (except when such conditions are waived by other provisions of this Contract), or (3) another provision of this Contract provides for cancellation".

Paragraph 4. Closing Date; Occupancy
There is a blank on line 49 to insert the number of days from the Effective Date or a specific date that will be the Closing Date. It is recommended to state a specific number of days from the Effective Date to determine the

Closing Date. I f a fixed date, such as March l 51

is inserted, it is possible that due to the back and forth process of

offers and counter offers and the fact that the parties may be negotiating in different time zones, the fixed Closing Date could turn out to be a date which does not give sufficient time to complete other requirements such as those related to financing, Inspection Periods, etc.

Line 49 provides, Athe Closing Date shall prevail over all other time periods including but limited to inspection andfinancing periods@.

Paragraph 5. Closing Procedure; Costs

Line 56 provides: "Closing will take place in the county where the Property is located and may be conducted by mail or electronic means ".

In many instances, closings are conducted electronically, without the need for a physical closing, especially when the Seller or Buyer will be out of the country. In the absence of financing, an individual, or the attorney representing the Buyer, generally can execute all required documents on behalf of the Buyer with the use of a Power of Attorney or an entity resolution. There may be a need to have some documentation executed by the Buyer, but this can usually be completed in advance to avoid the Buyer having to attend the Closing (assuming Buyer does not wish to attend). The same can be accomplished for the Seller; however, there are some documents that custom requires the Seller to execute in front of witnesses and a notary public, and therefore, these must be provided for well in advance if the Seller will not be attending the closing. This is because execution of these documents outside of the United States will require notarization which generally takes place at the U.S. Consulate, in the country where the Seller will be signing. Notaries in foreign countries generally have greater authority than the notaries in the U.S and this should be explained to a foreign investor, since they may think they can utilize the services of their notaries, which is not the case.

The Seller and Buyer costs are set forth in this Paragraph. In general, since most transactions are "as is" transactions (which will be dealt with in greater detail subsequently) most of the costs and services will be arranged through the Buyer's or Seller's attorney, respectively. It is usual and customary in most counties for the Buyers' attorney to represent the Buyer, and issue the owner and lender title insurance and to provide for, and obtain, a property survey and other necessary items. Generally inspections of the Property will be handled and facilitated through the REALTOR®, and casualty and liability insurance will be handled by an insurance agent, who will probably be recommended, if desired, by the REALTOR® or attorney.

Paragraph S(c) Title Evidence and Insurance: Title insurance is a form of insurance which insures that the owner of the Property has insurable and marketable title to the Property. It is recommended that a Buyer obtain a title insurance policy to guarantee that the Buyer acquires marketable and insurable title to the Property. The process of issuing the title insurance is generally accomplished by working through a recognized national title insurer ("Title Insurer"). It is normal for the attorney representing the Buyer to function as the agent issuing the title insurance for the Title Insurer. It is the responsibility of the Seller to furnish certain evidence to the Buyers' attorney to enable the Buyers' attorney to issue the title insurance. The process involves the title agent issuing a title insurance commitment, which sets forth the requirements the Seller must meet in either clearing certai n issues and/or furnishing the closing documentation required to insure that the Buyer acquires marketable and insurable title. The responsibility as to whether Buyer or Seller pays for the title insurance policy is based on the usual and customary procedures followed in the state and county where the Property is located. In general, the Buyer pays the premium for the title insurance policy in Miami-Dade County and in most other counties; however, in some counties, such as Palm Beach, and some counties in northern Florida and the Florida Keys, it is usual and customary for the Seller to pay for the title insurance. In some counties, the party responsible for paying the title insurance premiums may be negotiated. The attorneys' involved in the transaction will be familiar with the usual and customary procedures; however, in general when in Miami-Dade County, and other counties which follow the Miami-Dade County format, lines 78 and 80, Buyer should be checked. In Palm Beach and other similar counties, line 81, Seller should be checked.

Paragraph S(d) Prorations: This Paragraph provides for the proration and allocation between Buyer and Seller of certain charges; one of the most common being, the proration of real estate taxes. In Florida, real estate taxes are paid for in arrears. Real estate taxes, are due for the period of January I through December 31st of each year; however, the real estate tax bill for the current year is not due until November of the current year and may be paid, without penalty, through and including March of the following year. Practically speaking, the real estate taxes will not be paid, if closing takes place prior to November of the current year. The Seller is responsible for the portion of the real estate taxes accrued from January 1 through the date of closing; and therefore, since the real estate taxes have not been paid for the current year, the Buyer will receive a credit from the Seller. If the real estate taxes have been paid for the current year, the Seller will receive a credit from the Buyer, for the real estate taxes paid in advance. In the event that the tax bill has not been issued for the current year prior to the closing, the parties will utilize the real estate taxes from the previous year, for purposes of proration. In the event the actual real estate tax bill when issued is either higher or lower than last year's real estate taxes, which were utilized in determining the prorations on the Closing Statement, then the parties at the demand of either will re-prorate and any difference owed will be paid from one to the other. There are certain other intricacies involved in connection with prorating of real estate taxes that arise when the Property is new construction. Special attention is also required in a nev · development when there is one tax bill for the entire development, without yet being divided by the county into a new folio number, which results in an individual bi l l. The attorney handling the transaction will be prepared to deal with this matter. It is important to note that provisions contained in the Contract do not survive the Closing. This means that once the Closing has occurred, the parties will then rely on the documentation delivered at closing, and the Contract will no longer be applicable. The exception to this rule is where the Contract specifically contains a provision indicating that this provision will survive the Closing. Because the reproration of real estate taxes is a common occurrence, line 95 specifically provides: "thisprovision shall survive closing··.

Paragraph 5(e) Special Assessment by Pu blic Body: Many times, a public body, such as the municipality in which the Property is located, will pass a special assessment upon all property owners in the municipality to pay for certain improvements for the common benefit of all properties i n the m unicipality or area. An example of this would be a special lighting district which requires lighting or other improvements. All property owners who receive the benefit will pay a share of the cost through a special assessment. These special assessments can be paid in full or in installments. Line 99 provides whether the Buyer or Seller should be responsible to pay the installments before and after the closing. Unless the Buyer is aware of the special assessment, and the parties have discussed and come to a decision with respect to same, the Contract will generally be prepared providing that the Seller will pay any installments due after Closing Date.

Paragraph 6. Inspection Periods and Paragraph 8. Maintenance, Inspections and Repair
These Paragraphs primarily deal with inspections of the Property in a transaction where the Seller is responsible to make certain repairs to the Property .if discovered during the Inspection Period. In most real estate transactions in Florida, to avoid haggling and to foster a clean and smooth transaction, the Buyer and Seller usually opt for what is called an ..as is" transaction. This means that after the Buyer has had an opportunity to inspect the Property, the Buyer has the right to either cancel the Contract or to accept the Property in "as is" condition. If the parties agree that the transaction wil l be "as is", the parties will utilize Paragraph H. As Is With Right To Inspect of the Comprehensive Addendum, which is one of the numerous Addenda referred to in Paragraph 20 of the Contract and contained in the Comprehensive Addendum.

Since the "as is" transaction is the most common, the writer will not delve into the intricacies of the inspections and what is/is not the responsibility of the Seller to repair, as set forth in Paragraphs 6 and 8. In the event Paragraphs 6 and 8 are utilized, a competent REALTOR® and/or attorney will be able to advise what needs to be considered.

Whether the transaction is "as is" or not, the number of days allowed to conduct the inspections should be considered in light of the items that need to be inspected, and the size and type of Property involved. Generally, condominiums do not require as much time to inspect as a free standing single family dwelling. If the Buyer does not reside in the United States, and wishes to attend the inspections additional, time should be allowed, as is the case with all other deadlines when dealing with someone who must travel to be available. The inspections are usually conducted by professionals who hold an occupational license to conduct inspections and the REALTOR® and/or attorney will generally be famil iar with competent home inspectors which may be utilized.

Paragraph 7. Real Property Disclosures
The disclosures contained in this Paragraph in connection with radon, flood zone, and coastal construction line may be applicable, depending on the type and location of the Property. If they are, the attorney should discuss these issues with the Buyer, since the ramifications could be significant.

Paragraph 9. Risk of Loss
Because of the possibility of damage to the Property through some form of casualty, (including, but not l imited to damage caused by a hurricane) the Contract provides if the Property is damaged and the Seller can restore the Property by the Closing Date or within forty-five (45) days after the Closing Date to substantially the same condition it was on the Effective Date, then the Seller will be required to do so. I f the restoration can be completed within the forty-five (45) days, then the Closing Date may be extended in order to close the transaction. If the restoration cannot be completed in time, then the Buyer has the option of cancelling the Contract or the Buyer may accept the Property in"as is" condition. If the Buyer elects to go forward and accept the Property in ••as is" condition, the Contract provides that the Buyer is entitled to receive an assignment of any insurance proceeds and a credit in the amount of the deductible contained in the insurance policy.

Paragraph 11. Effective Date; Time; Force Maieure
Paragraph ll(a) Effective Date: ''The "Effective Date" of the Contract is the date on which the last of the parties initials or signs and delivers the final offer or counteroffer. " Delivery is an essential element in determining the Effective Date, and, del ivery to an agent of either the Seller or Buyer, which would include an attorney or Broker, constitutes delivery. Also included in this Paragraph is a statement that "time is of the essencefor all provisions of this Contract", which means that in the absence of an "act of God" or "force majeure", that the parties are responsible to meet all deadlines.

Paragraph ll(b) Time: "All time periods will be computed in business days (a "business day" is every calendar day except Saturday, Sunday and national legal holidays). If any deadline falls on a Saturday, Sunday or national legal holiday, performance will be due the next business day. All time periods will end at 5:00 p.m. local time (meaning in the county ·where the Property is located) of the appropriate day."

Paragraph Il(c) Force Majeu re: This Paragraph provides that if an ''act of God or force majeure such as a hurricanes, earthquakes, floods, fire, unusual transportation delays. wars, insurrections and any other cause not reasonably within the control of the Buyer or Seller and which by the exercise of due diligence the non-performing party is unable in whole or in part to prevent or overcome. " In the event of an act of God or force majeure, time periods, including the Closing Date, will be extended; however not to exceed thirty (30) days from the time the force majeure or act of God is in place. In the event the act of God or force majeure continues beyond the thirty (30) days, either party may cancel the Contract by delivering written notice to the other party.

Paragraph 12. Notices
Notices must be in writing and may be delivered by mail, personal delivery or electronic media. Failure to deliver notice in a timely manner regarding any contingency set forth in the Contract will render the contingency, null and void. This emphasizes the fact that if a party has an available contingency such as the right to cancel, failure to furnish proper notice will waive the contingency, and the party will not have the contingency available to them. This Paragraph also provides: "Any notice, doc11ment or item delivered to or received by an attorney or Broker (inc/11ding a transaction broker) representing a party will be as effective as if delivered to or by that party. "

Paragraph 13. Complete Agreement
This Paragraph clearly provides that any agreement of Buyer and Seller, to be binding, must be in writing and signed or initialed and delivered to the party to be bound. This is important because there are many oral representations which are made or misunderstood between the parties and in a Contract for the sale and purchase of real estate, these must be in writing and delivered to be effective.

Paragraph 14. Assignability; Persons Bound
"Buyer may not assign this Contract without Seller's written consent."

Paragraph 15. Default
Paragraphs 15(a) and I 5(b) provide the normal remedies that a Seller and Buyer would have in the event of a default. I n addition, there is a provision that "if Buyer fails to pe,form this Contract within the time specified, including timely payment of all deposits, Seller may choose to retain and collect all deposits paid and agreed to be paid as liquidated damages". This is important to note because a Buyer who places a small initial deposit may not take into consideration that if he fails to move forward with the transaction, that he may not only be liable for the deposit that the Buyer has made, as well as, any additional deposits that the Buyer has agreed to pay.

Paragraph 18. Professional Advise; Broker Liability
This Paragraph emphasizes and directs the Buyer and Seller "to consult an appropriate professional for legal advice (for example, inte,preting contracts, determining the effect of laws on the Property and transaction, status of title, foreign investor reporting requirements, the effect qf property lying partially or totally seaward of the coastal construction control line, etc.) and for tax. property condition, environmental and other specialized advice. " This statement is appropriate for all Sellers and Buyers; however, even more so for a foreign investor, since there are various additional considerations brought about by foreign ownership.

Paragraph 20. Addenda
This Paragraph refers to the following Addenda listed below which are contained in the Residential Sale and Purchase Contract: Comprehensive Addendum, which may be utilized if appropriate.

A. Condo. Association
B. Homeowners' Assn.
C. Seller Financing
D. Mort. AssumptionE. FHA Financing
F. VA Financing
H. As Is w/Right to Inspect
I. Inspections
J. Insulation Disclosure
K. Pre-1978 Housing Stmt.L. Insurance
M. Housing Older Persons
N. Lease purchase/Lease
0. Interest-Bearing Account
P. Back-up Contract
Q. Broker - Pers. Int. i n Prop.
R. Rentals
S. Sale/Lease of Buyer's Property
T. Rezoning

V. Prop. Disclosure Stmt.
X. I 03 I Exchange
Y. Additional Clauses


G. New Mort. Rates


U. Assignment Other:-----

Depending on the type of property involved and other circumstances, some of the above listed Addenda may be incorporated in the Contract by checking the appropriate box and attaching the completed Addendum. A few of the Addenda will be discussed below which have particular importance on a regular basis and/or are particularly relevant to a foreign investor.

Residential Sale and Pu rchase Contract: Comprehensive Addendum
FAR-10 01/09 ©2009 Florida Association of REALTORS® All Rights Reserved

Association Disclosures

Paragraph A. Condominium Association: This Paragraph must be utilized anytime the Property is a unit in a Condominium. The Paragraph contains disclosure of various items which the Seller is required to make under Florida law and many others which are necessary for the Buyer to fully understand about significant factors concerning the Condominium and its Association. These items include but are not limited to, whether or not approval by the Association is required, and whether the Condominium Association has a right of first refusal to purchase, prior to the Buyer being allowed to Purchase. Most condomini ums do require that the Association approve the Buyer. In the event the Buyer is an entity, then the Association will generally require information about the individual who will be the principal occupant of the Unit, in order to access and evaluate whether approval will be granted or not. In addition, it is important to be sure that any other common or limited common elements that are designated for the exclusive use of the Buyer, in connection with the Property, be specifically listed. Some of these elements would, include but not be limited to, parking spaces, storage spaces, boat slips and cabanas.

Paragraph A. Condominium Association, (6) Fees: The amount of the current assessments, maintenance and/or association fees must be set forth. Seller must also represent if there are any pending special or other assessments in addition to the regular current assessment, maintenance and/or association fees. If a special assessment may be paid in installments, either Buyer or Seller may be designated as the person to pay any installments due after the closing by checking the appropriate box on line 32.

Section 718.503 of the Florida Statutes specifically provides that a Seller must furnish to the Buyer who is purchasing a pre-owned Condominium, (as opposed to new construction), the following documents:

1 .A current copy of the Declaration of Condomi nium;
2. Articles of Incorporation of the Association;
3. Bylaws and Rules of the Association;
4. A copy of the most recent Year-End Financial information; and
5. Frequently Asked Questions and Answers Document if requested in writings.

Once these documents have been provided to the Buyer, the Buyer has a statutory right to rescind the Contract, and void the transaction by delivering written notice of the Buyer's intent to cancel. Notice must be delivered within three (3) days (excluding Saturdays, Sundays and national legal holidays) after the date the Contact is executed, and all of the required documents have been delivered to the Buyer. It is particularly important that the Seller be certain that current documents are furnished. It is common practice for Sellers to furnish the documents they received when they purchased the Property. Unless the Seller purchased the Property he is selling within the last few months, the documents may be outdated and the three (3) day period will not expire until the date of closing. Obviously, this allows the Buyer the opportunity to cancel, when, otherwise, the Buyer would have no right to cancel under the terms and conditions of the Contract.

In connection with the purchase of a newly constructed condominium, commonly referred to as a developer unit, the rescission period is fifteen ( 15) days, rather than three (3) days, and there are various other documents that must be furnished by the Seller. This is not being dealt with at length because the FAR-9 Contract would not generally be utilized as developers who are selling new construction condominiums have form contracts which have been submitted to the State Florida in connection with the approval of their condominium project.

Paragraph B. Homeowners' Association: The information contained in this Addendum is similar to the information contained in the Condominium Association, except this applies to Homeowner's Associations. Florida Statues Section 720.40 I provides that the Disclosure Summary must be provided prior to executing the Contract. In the event it is not provided, the Buyer has three (3) days to cancel after receipt of the Disclosure Summary.

Paragraph H. As Is With Right To Inspect: Since the majority of transactions in Florida are "as is" transactions, Paragraph "H" of the Comprehensive Addendum is utilized to document that the transaction is an "as is" transaction. Three (3) blanks must be filled in. On line 9, the number of days allowed for inspections (''Inspection Period") must be filled in. Failure to fill in the blank will automatically make the Inspection Period ten (I0) days from the Effective Date. Depending on the type of property involved, the availability of inspectors, whether or not the Buyer wishes to attend the inspection and the Buyers availability, the number of days should be considered carefully, and the appropriate amount of days should then should be filled in. The second blank on line 12 sets forth how many days after the expiration of the Inspection Period the Buyer has to cancel. The third blank on line 14 sets forth a dollar amount. The repairs must exceed this dollar amount to enable the Buyer to cancel. It is not uncommon to fill in zero as the dollar amount; however, if the blank is not filled in it is automatically Two Hundred and Fifty Dollars ($250.00). The fact that the Buyer agrees to accept the property in "as is" condition does not eliminate the responsibility of the Seller to maintain the property in the same condition as it was in on the Effective Date.

Paragraph U. Assignment: This Paragraph provides that the Seller and Buyer agree that the Contract may be assigned to whoever is set forth in the blank on lines 4 and 5. In a cash transaction which has no contingency for financing, a Seller will generally not have any objection to an assignment. In a sale which is contingent on financing, a Seller generally will have an objection to an assignment, because the Contract, if assigned to someone other than the original Buyer, could have a negative impact on the assignee qualifying for financing. It is not uncommon for the Seller to allow a Buyer to designate the potential Assignee as an entity to be formed. Many Buyers, when submitting an offer, have not adequately considered the various entity choices available. This is typically the case when a foreign investor is involved, due to the various income tax, estate tax, gift tax, and other considerations. A detailed discussion of these considerations is beyond the scope of this article; however, this Paragraph, or options for assignment set forth previously, should be utilized if a firm decision has not been made as to who the appropriate ultimate Buyer should be. Line 6 provides that the original Buyer will either be or not be released from the duty to perform the Contract by checking the appropriate box. Most Sellers feel more comfortable with an Assignment when they know that the original Buyer is still liable. The Buyer has no significant liability after the closing, by not being released of the duty to perform the Contract.

Paragraph V. Property Disclosu re Statement: Most Buyers desire to see a Property Disclosure Statement from the Seller that discloses material information about the Property. Generally, this is furnished prior to, or simultaneously, with the Contract. This Paragraph provides that the Buyer may cancel the Contract by furnishing written notice within three (3) days of receipt of the Property Disclosure Statement. Furnishing of the statement is also a benefit to the Seller, in that it provides certain protections to Seller after the closing in connection with defects that may be later discovered. A detailed discussion of these benefits is beyond the scope of this article.

Paragraph W. Foreign Investment in Real Property Tax Act ("FIRPTA"): If the Seller is a "foreign person" as defined by FIRPTA, Section 1445 of the Internal Revenue Code ("'IRC"), then the Buyer is responsible to withhold ten ( I 0%) percent of the Purchase Price from the sales proceeds unless one of a few l imited exemptions apply. In layman's terms, a "foreign person" is an individual who is not a U.S. taxpayer. The Buyers' attorney/closi ng agent, will collect the ten ( I 0%) percent withholding and forward the funds to the IRS.

The IRS requires both the Buyer and Seller to have a U.S. federal taxpayer identification number (TIN), or in the case of an entity an Employer Identification Number (EIN). In the alternative a non-U.S. taxpayer may obtain an International Taxpayer Identification Number (''(TIN") and must furnish same to the closing agent in order to facilitate the closing. Unfortunately, i n many instances this is not dealt with until the last moment and will result in a delay of the closing that could have been prevented if timely application had been made.

The IRS does have a procedure where a Seller who believes that the amount of tax that he owes is less than the ten ( I 0%) percent withholding can apply for a Withholding Certificate (Form 8288-B). This is obtained by filing an application with the IRS, together with the appropriate forms and documentation. An attorney or Certified Public Accountant generally handles this application for the Seller. In the event the Withholding Certificate has been applied for properly, the attorney/closing agent will escrow an amount equal to the ten (10%) percent withholding until the IRS determines how much tax is actually due. The IRS usually decides within a period of thirty to ninety (30-90) days, and then the attorney/closing agent will disburse from the ten ( 10%) percent escrow the tax due to the IRS and the balance to the Seller.The IRS does have a procedure where if a Seller, who believes that the amount of tax that he owes is less than the ten ( 10%) percent withholding, may apply for a Withholding Certificate. This is obtained by filing an application with the IRS, together with appropriate documentation, which is generally handled by an attorney or Certified Public Accountant. In the event the Withholding Certificate has been applied for properly, the attorney/closing Agent will hold an escrow in the amount of the ten ( I 0%) percent withholding and not deliver the funds to the IRS. The IRS will rule (usually within a period of thirty to ninety (30- 90) days), on how much tax is actually due, and the attorney/closing Agent will disburse from the ten ( I 0%) percent escrow, the tax due to the IRS and the balance of the escrowed funds to the Seller.

The filing of the application for the Withholding Certificate (Form 8288-B), does not relieve the Seller from the responsibility of filing a U.S. Income Tax Return, subsequently.

Paragraph X. 1031 Exchange: Section I 031 of the Internal Revenue Code provides that under certain circumstances, a Seller may sell a property, and, through an exchange procedure, purchase one or more additional properties (subject to various rules set forth by the IRS). Section I 031 provides for certain income tax advantages. If the Seller wishes to take advantage of this provision, there are certain documents that will be required to be executed by the Buyer, which will not subject the Buyer to liability or cost. In order to obligate the Buyer to execute the documents if a 1031 Exchange is contemplated, this Paragraph should be utilized. Failure to do so could frustrate the Seller's efforts to accomplish the tax advantages available through a I 031 Exchange, if the Buyer chooses to be unwilling to cooperate.

The combination of a weak U.S. dollar and low interest rates has resulted in an increase in foreign investment in U.S. commercial real estate. From a U.S. federal income tax perspective, the primary obstacle facing foreign persons who invest in U.S. real estate is the Foreign Investment in Real Property Tax Act (FIRPTA), more specifically Section 897 . Under this provision, any gain recognized by a foreign person on the disposition of a "United States real property interest" (USRPI) will be treated as if such gain were effectively connected to a U.S. trade or business and, therefore, subject to U.S. federal income tax at the graduated rates that apply to U.S. persons. Additionally, when Section 897 applies, the purchaser of a USRPI typically is required to withhold and remit to the IRS 10% of the purchase price i n accordance with tion 1445.

One possible strategy to avoid FIRPTA is the use of a shared appreciation mortgage (SAM). In a typical SAM arrangement, a lender provides a developer with a loan bearing a below-market fixed rate of interest, plus a share of the profit on a subsequent disposition of the property. As this article will illustrate, if the transaction is structured correctly the taxpayers investing in U.S. real estate who may have the most to gain from the use of SAMs are non-U .S. taxpayers.

FIRPTA in General. Foreign persons typically are not subject to U.S. federal income tax on U.S. source capital gains unless those gains are effectively connected to a U.S. trade or busi ness. As stated above, Section 897 treats any gain recognized by a foreign person on the disposition of a USRPI as if it were effectively connected to a U.S. trade or business.

A USRPI is broadly defined as ( I ) a direct interest in real property located in the U.S., and (2) an interest (other than an interest solely as a creditor) i n any domestic corporation that constitutes a U.S. real property holding corporation (i.e., a corporation whose USRPls make up at least 50% of the total value of the corporation's real property interests and business assets).

Reg.1.897-l@ru_(j) elaborates on the phrase "an interest other than an interest solely as a creditor" by stating it includes "any direct or indirect right to share in the appreciation in the value, or in the gross or net proceeds or profits generated by, the real property." The Regulation goes on to state that a "loan to an individual or entity under the terms of which a holder of the indebtedness has any direct or indirect right to share in appreciation i n value of, or in the gross or net proceeds or profits generated by, an interest in real property of the debtor is, in its entirety, an interest in real property other than solely as a creditor."

This principle is illustrated by example in f!e _g.1.897-l@fllill : A non-U.S. taxpayer lends money to a U.S. resident to use in purchasing a condomini um. The nonresident lender is entitled to receive 13% annual interest for the first ten years of the loan and 35% of any appreciation in the FMV of the condominium at the end of the ten-year period. The example concludes that, because the lender has a right to share in the appreciation of the value of the condom inium, he has an interest other than solely as a creditor in the condominium (i.e., a USRPI). Accordingly, a SAM that is tied to U.S. real estate is a USRPI for purposes of ectio'Z.

Simply owning a USRPI, however, does not necessarily trigger any adverse tax consequences under Section 897 . Rather, a non-U.S. taxpayer will be subject to tax under that provision only when the USRPI is "disposed of." Although Section _JJ97 does not define "disposition," Reg. 1.897-l(g) provides that disposition "means any transfer that would constitute a disposition by the transferor for any purpose of the Internal Revenue Code and regulations thereunder."

With respect to SAMs, Reg. 1.897-l(h.h_Exam ple 2 , illustrates a significant planning opportunity for non­ U.S. taxpayers investing in U.S. real estate. In the example, a foreign corporation lends $1 million to a domestic individual, secured by a mortgage on residential real property purchased with the loan proceeds. Under the loan I agreement, the foreign corporate lender will receive fixed monthly payments from the domestic borrower, constituting repayment of principal plus interest at a fixed rate, and a percentage of the appreciation in the value of the real property at the time the loan is retired.

The example states that, because of the foreign lender's right to share in the appreciation in the value of the real property, the debt obligation gives the foreign lender an interest in the real property "other than solely as a creditor." Nevertheless, the example concludes that Section 897 will not apply to the foreign lender on the receipt of either the monthly or the final payments because these payments are considered to consist solely of principal and / interest for U.S. federal income tax purposes. Thus, the example concludes the receipt of the final appreciation payment that is tied to the gain from the sale of the U.S. real property does not result in a disposition of a USRPI for purposes of Section 897 because the amount is considered to be interest rather than gain under Section I 001 . The example does note, however, that a sale of the debt obligation by the foreign corporate lender will result in gain that is taxable under Section 897.

By characterizing the contingent payment in a SAM as interest (and not a disposition of a USRPI) for tax purposes, the Section 897 Regulations potentially allow non-U.S. taxpayers to avoid U.S. federal income tax on gain arising from the sale of U.S. real estate, if structured correctly.

Withholding on U.S.-Source Interest. Non-U.S. taxpayers generally are subject to a 30% withholding tax (unless reduced by treaty) on certain passive types of U.S. source income, including interest. An important exception to this rule exists for "portfolio interest," which is exempt from withholding tax in the U.S. For this purpose, portfolio interest is defined as any interest (including OID) that is paid on a note that is either ( l ) in registered form or (2) that is not in registered form, if there are arrangements reasonably designed to ensure that the note will be sold only to non-U.S. persons and certain other conditions are satisfied.

There are, however, exceptions to portfolio interest. In particular, it does not include certain "contingent interest." For purposes of this provision, contingent interest is interest that is determined by reference to any of the following: ( 1) Any receipts, sales, or other cash flow of the debtor or related person; (2) Any income or profits of the debtor or a related person; (3) Any change in value of any property of the debtor or a related person; (4) Any dividend, partnership distribution, or similar payments made by the debtor or a related person; and (5) any other type of contingent interest that is identified in Regulations, where a denial of the portfolio interest exemption is necessary or appropriate to prevent avoidance of federal income tax.

Therefore, a payment on a SAM that is otherwise treated for U.S. federal income tax purposes as interest will not qualify for the portfolio interest exemption if the payment is contingent on the appreciation of the financed real property. Accordingly, unless a treaty applies to reduce the withholding tax, the contingent interest feature of a SAM would be subject to a 30% withholding tax in the U.S.

Currently, there are at least seven jurisdictions that have concluded income tax treaties with the U.S. that contain provisions that entirely eliminate U.S. withholding tax on contingent interest paid from the U.S. to the respective treaty jurisdiction: ( l ) The Czech Republic; (2) Hungary; (3) Norway; (4) Poland; (5) The Russian Federation; (6) Greece; and (7) Ukraine.

A payment of U.S. source interest made to a resident of one of these treaty jurisdictions generally would
not be subject to U.S. withholding tax, assuming such person otherwise is eligible for treaty benefits. (It should be / noted that the United States and Hungry have signed a new income tax treaty, which would tax contingent interest, , although this treaty is not yet in effect).

For a non-U.S. taxpayer to be eligible for treaty benefits, the taxpayer must be considered a resident of the particular treaty jurisdiction and must satisfy any l imitation on benefits (LOB) provision in the treaty. Under most "modern" income tax treaties, a resident of a treaty country will satisfy the LOB provision if that resident is an individual, or a corporation that is at least 50% owned by citizens or residents of the U.S. or by residents of the jurisdiction where the corporation is formed and not more than 50% of the gross income of the foreign corporation is paid or accrued, in the form of deductible payments, to persons who are neither citizens nor residents of the U.S. or residents of the jurisdiction where the corporation is formed.

Accordingly, a non-U.S. taxpayer that satisfies both the residence and LOB provisions in one of the treaties listed above should not be subject to U.S. withholding tax on the SAM payments, including the contingent payment. In order for a non-U.S. taxpayer that is not resident in one of the treaty jurisdictions listed above to obtain a complete exemption from U.S. withholding tax on the contingent interest payment, that taxpayer must rely on a treaty that has been concluded with the U.S. which has no LOB provision. Currently, four treaty jurisdictions provide an exemption from withholding on payments of U.S.-source interest, including contingent interest, and do not have LOB provisions: ( I) Hungary; (2) Norway; (3) Poland; and (4) Greece.

Therefore, a non-U.S. taxpayer that is not resident in a favorable treaty jurisdiction can obtain a complete exemption from withholding on contingent interest (and therefore avoid FIRPTA) by investing through a corporation formed in one of these three jurisdictions. (As noted above, the United States and Hungry have signed a new treaty, which does include a comprehensive LOB provision). Once the income is received in the respective foreign jurisdiction, there are alternative strategies available to minim ize or eliminate any foreign corporate tax on such income.

Immigrant visa: the $1 million investment

This article wants to highlight some of the most utilized visa categories for foreign real estate investment and the investors or companies engaged in it.

Different visa categories are available depending on the individual's country of origin, whether the real estate investment will be passive or active, the intended duration of stay in the United States and the possibility to directly or indirectly earn money from a U.S. source.

1. The Visa Waiver Program (VWP)
Depending on the country of origin, no visa might be required to simply buy, sell, own, or lease real estate as an individual as long as this activity does not reach commercial proportions.

If the investor comes from a visa waiver country, he does not need a visa to enter the United States for a maximum of 30 to 90 days at a time. The only requirements are a machine readable passport and a return or onward ticket. The applicants will be photographed and fingerprinted when seeking admission. The participating countries are currently: Andorra, }\v.stralia, Austria, Belgium, Brunei, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Irel{a1d, Italy, Japan, Lativia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, the Netherlands, New Zealand, Norway, Portugal, San Marino, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, and the United Kingdom. There is no black law, but if the immigration authorities deem that a person spends too much time in any given year or in a period of time in the United States, entry can be refused to that individual. Once entry on a visa waiver has been refused, the Applicant can only reenter the United States if in possession of a valid visa. Thus, the visa waiver is suitable only for short vacation or business trips.

2. B visas
If the investor is not a citizen of a country that participates in the visa waiver pilot program or intends to remain in the United States for up to six (6) months, a B-1 "business visitor" or B-2 "extended tourist" visa might be the right choice.

a) B-1Overview

The B-1 "business visitor" visa allows an individual to come to the U.S. for a short period of time for purposes that include the following:

  • engaging in meetings and consultations with U.S. business associates attending non-productive training for the benefit the overseas company
  • attending professional conferences or seminars

A B-1 visitor is not authorized to perform productive work in the U.S. and must maintain a foreign residence to which the B-1 visitor intends to return at the end of the authorized period of stay. The B-1 status may not be used as a means to accelerate a candidate's eligibility to enter the U.S. to work. The B-1 entrant will generally remain on a foreign employer's home country's payroll and cannot receive compensation from a U.S. source, other than reimbursement for incidental expenses.

The B-1 visa is applied for directly at the U.S. Embassy or Consulate. 8-1 visa holders are generally admitted for the period of time necessary to conduct the business. In theory, a B-1 entrant may be admitted up to a maximum of six months. However, in practice, immigration officers typically allow business visitors to remain in the United States for no more than 30-90 days. If unexpected events necessitate an extension, individuals may apply to extend the authorized period of stay up to six (6) months. However, prolonged business visits may give rise to a presumption that the visitor is engaged in prohibited productive employment.

b) B-2 Overview

The extended tourist visa is normally issued by the foreign U.S. Consulate for ten (10) years and allows a tourist to remain in the United States for up to six (6) months at a time. This visa is used by many foreigners who own holiday residences in the United States. Typical examples are the so called "snowbirds" that leave Europe to spend the winter months in Florida. However, even if the visa holder never overstayed, too frequent visits to the U.S. may at some point become a problem and will be asked to return with a more permanent visa.

If the investor intends to engage in active real estate investments that are connected with an ongoing business activity and from which he derives revenues, the investor needs a visa category which allows longer periods of admission and the authorization to directly or indirectly earn money from a U.S. source.

The most used visa in this category is the E-2 treaty investor visa for citizens of a country that has a Treaty of Commerce and Navigation with the United States. However, many Latin American and former Soviet Union countries do not yet have such treaties in place with the U.S.

3. Treaty Investor visa

The E treaty investor visa allows an individual to come to the U.S. for the purpose of furthering a substantial investment in a U.S. enterprise made by individuals or businesses that are citize ·s of a treaty country.

a) Requirements

At least 50% of the U.S. entity must be owned by nationals of the treaty country in or4er to qualify to utilize E visas. In order for a business to qualify, the company must demonstrate that a substantial instment in the U.S. business has been made by individuals or companies that are citizens of the treaty country. Irr order to be considered a substantial investment, the funds must be "at risk". Whether the actual amount invested is substantial depends on the type of business and is weighed based upon a variety of factors. In addition, the investment must not be "marginal", i.e. not made solely for the purpose of earning a living.

Ownership. The Principal Investor needs at least 50% ownership of the investing company and the nationality of the treaty country.

Active investment. The investor must have made an irrevocable commitment of funds into an active·, commercial investment.

Substantial investment. Only those financial transactions in which the investor's own resources are at risk will be considered.

Marginality. The investment needs to generate a return that is greater than just covering the cost of living for the principal investor and his family. The investment should create job opportunities for U.S. workers.

Essential role in the company. The treaty investor must have a key position within the company, either as the investor, who will develop and oversee the investment, or as a supervisory manager, or as a specially trained, highly qualified employee necessary for the development of the investment.

b) Essential Employees

Under the E visa category, a qualifying company can employ ..essential employees" from the Treaty country if this person will have supervisory and managerial functions in the company and/or ••possess skills that are essential to the efficient operation of the business". Accordingly, the candidate's qualifications and the necessity to employ the foreign national over a U.S. worker (i.e. the availability of a U.S. worker or the possibility to train a U.S. worker) are closely scrutinized.

c) The application process

Before an individual can apply for an E visa, the company in the United States where he or she will work must become E qualified. An initial request to quality the U.S. company for E status must be filed together with at least one individual's E application at the U.S. Embassy or Consulate that has jurisdiction over the treaty country. Once the company is E qualified, an individual who is a national of the treaty country can apply for an E visa if he or she is coming to work as an executive or supervisor, or an essential employee. The individual does not have to be employed by the company abroad in order to qualify for E status.

E visas can be issued for up to five (5) years and are renewable indefinitely as long as the company and the individual continues to qualify for E status. Upon each entry to the United States, E visa holders are generally granted two (2) years of E status on Form 1-94 Arrival/Departure Record as long as the E visa is valid at the time of entry.

E Visas are generally applied for directly at a U.S. Embassy or Consulate at the non-immigrant alien's country of citizenship or residency (visa granted for 5 years), or with the U.S. Citizenship & Immigration Services (visa granted for 2 years). Filings in the U.S. can ask for Premium Processing by paying an additional $1,000.00.

d) Spouse and children
The spouse and unmarried children under the age of 21 may obtain a "Dependant Beneficiary" E visa. The E spouse and children can attend school in the United States and the E spouse can obtain an independent employment authorization (E children are not permitted to be employed under their dependant beneficiary status).e) Permanent Residency
The normal procedure for an E essential employee to obtain permanent residency is the labor certification process. However, E-2 Principal Investors cannot file labor certifications because of their controlling interest in the qualifying company.

4. The Intra-company Transferee visa

For investors who are citizens of a country that has not yet entered into the required Treaty of Commerce with the United States, the International Transferee visa is an option.

This category is for international business people coming to the U.S. as intra-company transferees from a foreign parent or subsidiary of the U.S. company (51% ownership) that will engage in real estate investment and development in the United States. L-1 visas are available to people who have worked for the foreign company for at least one ( l ) continuous year within the three (3) years preceding the application. They must have been employed in an executive/managerial or specialized knowledge position and will be transferred to the United States temporarily to work in an executive or managerial capacity for the U.S. company.

a) Duration of stay

An L-1 non-immigrant alien will be admitted to the U.S. for the time required by the employer up to a maximum initial period of stay of three (3) years. An exception to the three (3) year initial stay exists for newly created companies in the U.S. (existing for less than one (l ) year) in which case the visa will be issued for only one ( 1) year in order to control the new company's viability beyond the first year of operations. The visa may then be extended for three (3) years and another three (3) years up to a maximum of seven (7) years for L-1A managers and executives.

b) The application process

The U.S. employer must file a petition with the U.S. Citizenship & Immigration Services (USCIS). The application requires various supporting letters, documentation, and other materials that need to be submitted in order to give a complete picture of company's viability and the transferee's position. Once the petition is approved, the Approval is sent to the competent U.S. Embassy or Consulate where the alien can obtain issuance of the visa into the passport. If the alien is already in the United States in a different non-immigrant category, his or her status can be changed to the L-1 A category. For payment of an additional $1000.00 USC IS offers premium processing whereunder a visa application needs to be approved or denied by USCIS within fifteen (15) business days from the date of filing. As of March 2005, a $500.00 fraud fee needs to be paid to the U.S. Citizenship & Immigration Services in addition to the basic filing fee (currently $185.00) and the afore-mentioned premium processing filing fee.

c) Spouse and Children

The spouse and unmarried children under the age of 21 may obtain a '"Dependant Beneficiary" L visa. The L spouse and children can attend school in the United States and the L spouse can obtain an independent employment authorization (L children are not permitted to be employed under their dependant beneficiary status).

d) Permanent Residency

L-1 A executives and managers have the opportunity to directly file an immigrant petition without going through the labor certification process. The application can be filed once the U.S. company has been in existence for one ( 1) year. Under the so-called '•dual intent doctrine" the applicant can maintain and extend their L-1 A status during the permanent residence application process and do not need to obtain separate employment authorizations and travel permits. L-1 B specialized knowledge workers have to go through the labor certification process. The L structure i.e. the relationship between the foreign and the U.S. company (at least 51% ownership) must be maintained during the whole period i n L status and up to the granting of permanent residency.


The U.S. government generally favors investment into the U.S. However, the investment must be into an active, commercial enterprise and, thereby, justify the presence of a foreign individual. Passive investments into vacation homes, etc. are subject to restrictions on the duration of stay in the U.S. Thus, the "simply live in the U.S." visa, i.e. own a house and live off funds accumulated outside the U.S., unfortunately, does not exist. Many other nonimmigrant and immigrant visa categories are available, but they are less used for real estate investments and would exceed the scope of this article.

With a booming economy, attractive beaches and numerous attractions, South Florida has, over the last years, seen a flood of foreign investors seeking, among other things, to purchase real estate for either residential or com mercial purposes. In a world where many foreign currencies fluctuate greatly on a monthly, if not daily, basis, a real property investment protected by a stable U.S. economy and a strong currency justifiably appears to be a reasonably safe method to protect one's assets against the roller coaster of the world's and developing countries' economies.

Once a foreign investor has made the decision to purchase real estate in Florida, the next issue to resolve is exactly how this foreign investor will hold title to the property he intends to acquire. Unlike many other foreign countries, the United States allows foreign citizens to hold title to real estate in fee simple, i.e. personally and absolutely regardless of any immigration status and without the need for assistance from a U.S. trustee or company. This article will discuss the most common methods of ownership in Florida, which can be divided into ownership through persons and ownership through legal entities.

Sole Proprietorship in Fee Simple

This is the simplest form of ownership. The Buyer purchases the real property in his own individual name. It should be noted that when this method of ownership is selected, the attorney or title company handling the closing will usually require the Buyer to disclose his marital status. The marriage status of the owner becomes especially im portant when he or she will in turn sell or mortgage the property to a third party. Because of the homestead protection from creditors pursuant to the Florida Constitution, the signature of the unnamed spouse is required in order to mortgage or sell a primary residence located withi n the State of Florida. If the real property is a second home, the deed or instrument of conveyance executed by the Seller must contain language affirmatively stating that the property bei ng conveyed is not the Seller's primary residence or homestead.

The main advantage of sole proprietorship in fee simple is the fact that it can be easily conveyed without the necessity to produce the signatures of others (except for the spouse in case of homestead) or any other sort of trust or corporate formalities.

Co- Tenancies

Co-Tenancies are created when two or more individuals or entities share ownership of real property as a whole. There are three basic forms of co-tenancies.

Tenants In Common

A common form of co-tenancy is the ..tenancy in common". The most common way of creating a tenancy
in common is by conveyance or transfer to two or more persons. It may arise by a deed or conveyance of an undivided tract of land to two or more persons, in which case the new owners are tenants in common until the tract is divided by agreement or otherwise. A tenancy in common among partners may be created if a partner purchases properties out of the partnership funds where the property is not to be used for partnership purposes. If one partner conveys his partnership interest to a stranger, the latter and the remaining partners become tenants in common.

The interest of tenants in common in real property ownership is subject to the laws of descent and distribution. I n the event of the death of a tenant in common, his interest in the subject real property will be included in the tenant's estate and will pass on to his hei rs or beneficiaries through probate. Unless specifically described in the instrument of conveyance (or Deed), it may be presumed that the interests of tenants in common are equal. For example, i f Property A is conveyed to Mr. Smith and M r. Wilson as tenants in common, it will be presumed that Mr. Smith and Mr. Wilson each have a 50% interest in that property. If Mr. Smith and Mr. Wilson intend to split the property otherwise, it should be specifically spelled out in the Deed. The percentile interest of tenants in common becomes really relevant only when revenues generated by the real property or sales proceeds are divided among the co-owners because an important feature of a tenancy in common is '"unity of possession". Unity of possession means that tenants in common must be vested with such title as will authorize them to take and hold possession of the property.

Joint Tenancy with Right of Survivorship

An estate in joint tenancy can only be created through a Deed or a Will. In order to create a joint tenancy with right of survivorship, there must be unity of possession, interest, title and time. In Florida, the right of survivorship must be expressly provided for in the Deed or Will. Unity of possession, interest, title and time means that all joint tenants of a property must have acquired equal rights and an equal interest in the property at the same time.

A joint tenancy may be broken or terminated voluntarily through a partition of the property or involuntarily by conveyance of the interest of any joint tenant to a third party. Indeed, any conveyance by a joint tenant to a third party would extinguish the requisite unity of title and time. The most popular advantage of joint tenancy is that it is not subject to the laws of descent and distribution. Therefore, upon death of a joint tenant, the property passes to the surviving tenant(s) to the exclusion of the heirs of the decedent. It should be mentioned that the last surviving tenant will receive the estate in sole proprietorship and the property will pass to his heir through probate upon his death.

Estate by The Entirety

An estate by the entirety is basically a joint tenancy by husband and wife. As tenants by the entirety, husband and wife own and control the whole estate as if one person under the law. The estate by the entirety also features the right of survivorship. However, because of the required marital relationship between the owners, the right of survivorship does not need to be expressly described in the Deed or instrument of conveyance. Because a tenancy in the entirety is based on the marital relationship between the two owners, the general rule is that dissolution of the marriage destroys an estate by the entirety and converts the husband and wife into tenants in common as if they were never married.

While the use of co-tenancies has been justifiably recommended by attorneys advising foreign clients in connection with the estate planning aspect of their real estate acquisitions, it should be pointed out that the necessity of obtaining the signature of all co-tenants in order to convey full fee simple title to a third party can create some difficulties where the other co-tenants may be difficult to reach and/or their relationship may have deteriorated and cooperation from them may be hard to obtain. On the other hand, a tenancy by the entirety provides some asset protection to those foreigners who do not qualify for the homestead protection from creditors otherwise, as collection into such property is only possible i f a judgment exists against both husband and wife.

Real Property Ownership Through A Corporate Entity

For estate planning or liability purposes, foreign investors may be advised by their attorney to purchase real estate in the name of a domestic or foreign corporation (or as tenants by the entirety as stated above). The advantages of owning real estate through a corporate or similar business entity has numerous advantages which are discussed in this article. It should be noted, however, that these advantages come at a cost. In addition to the annual fees and additional accounting requirements which wi ll be required for the proper maintenance of corporate fonnalities, financing will be more difficult and costly to obtain (larger equity in the property required, higher interest rate, personal guarantees of foreigners) and insurance premiums for the property will probably also be higher. Consequently, the typical foreign investor, in light of his own personal situation should balance the potential advantages and costs of corporate ownership before setting up sophisticated corporate structures for real estate purposes. On the other hand, where foreigners can take advantage of double tax avoidance treaties, they might have a significant advantage exempting property from estate taxation in the United States by holding it through a corporate entity.


Some estate planners may recommend the use of a trust or '·Florida Land Trust" under certain circumstances. Most trusts grant the power to hold, manage and convey the property to one or more trustees who m ust perform their duties in the best interest and for benefit of the beneficiaries of the trust. Under certain types of trusts, the trustee(s) may also be beneficiaries of the trust (grantor trusts). Dependi ng on the language of each trust agreement, the powers of trustees can be more or less restricted to fit the specific intent and purpose of the individual(s) creating said trusts. There are several types of trust agreements (revocable, non-revocable, land trusts, etc.). The choice of a specific type of trust should only be made after consulting a specialized professional.


When selecting a form or method of real estate ownership, foreign investors should seek professional advice, and should not only consider the tax and estate planning ramifications of their choice, but also consider the short- and long-term costs which will result from their choice (facilities i n obtaining).


The credit situation i n the United States and the real estate market are both characterized by unusually stressful circumstances. Foreign and domestic purchasers of U.S. real estate will find it increasingly difficult to obtain mortgage loans. For purchasers who are able to pay cash and who seek medium and long term placements, the real estate market in Florida offers very attractive investment opportunities. For anyone who needs third party financing, the landscape is at present somewhat bleak.

This being said, financing opportunities still exist. In this article, we will discuss those opportunities. While banks are undergoing a definite ''credit crunch", banks are still lending to appropriate potential buyers. The United States banking system is exceedingly complex, and at present becoming daily more so. The basic structure of the banking industry remains unchanged, however, and we will first point out the types of financial institutions that may offer financing to foreign borrowers. We then analyze the terms and conditions of a typical mortgage contract and the promissory note the mortgage secures, as well as other documents typically used in connection with the mortgage loan. Finally, we underscore the items of which the foreign borrower-buyer must be aware at and after the closing of the purchase.


Our professional experience has confirmed that foreign buyers must consult two professionals when seeking to purchase real property in the United States: a qualified real estate broker and an attorney experienced in real estate transactions. In Europe and Latin America, the acquisition of real property involves different types of documents and takes place in a framework that is often so different that foreigners rely on home country knowledge when buying property in the U.S. at their peril. Obviously, the value of realty depends on many factors that a person who is unfamiliar with a region is not able to weigh properly when making investment decisions. For this reason, the input of a real estate broker experienced in the region and in the type of property to be purchased is essential. In addition, properly following local law and custom when purchasing realty is clearly the key to a successful transaction and requires the input of an attorney.

Initially, foreign purchasers should consult real estate professionals with respect to the present state of the market: areas of expansion and growth; the relationship between price and quality is in the various neighborhoods; whether present economic conditions make the market more favorable to buyers or to sellers; and other practical information such as availability of schools, distance from commercial areas and possible effects of catastrophic events such as hurricanes. Once one or more properties that correspond to the purchaser's requirements have been found, the broker will assist the potential purchaser in deciding how best to formulate an offer, and in particular, what strategy to adopt as regards price (a buyer generally offers less - even 20 to 30% less under present circumstances - than the asking price, and negotiations continue until the parties reach an agreement). When a proposal regarding price has been decided upon, the purchaser makes an offer to the seller by delivering a draft contract that sets forth the terms of the transaction: price, conditions, closing date, etc.

Because U.S. real property law is quite different from that of other countries, the preparation of the contract should be entrusted to an attorney. Even if the broker uses a printed contract form that the broker has assisted the buyer in filling out, the buyer should consult with an attorney before tendering the contract to the Seller, especially since the contract is not a '"pre-contract" as is used in many countries, but the key document that governs the entire transaction, far more than general law. The assistance of an attorney is essential for many reasons. For example, the U.S. does not have a real property registry in the strict sense of the term, and as a result, determining whether a Seller is in fact the owner of the property being transferred requires expertise that the layman often does not possess. A purchaser of realty in the United States is protected as to title by a system of title insurance that guarantees that a purchaser will in fact be the full owner of the property and provides for the curing of any defects. Real estate attorneys help a purchaser in obtaining and understanding a title insurance policy. Foreign purchasers should be aware also that in the U.S. there are no "Notaries" as there are in the civil law countries of the U.S. and Latin ( America. In the U.S. real property transactions are handled by attorneys, not "Notaries" ( Notaires or Notarios ).

It must be noted in addition that U.S. real estate acquisitions tend to involve more documentation than is the case in foreign countries. When a buyer obtains financing, the documentation at closing is indeed voluminous and includes all the mortgage documents as well as the real estate documents that transfer title to the buyer. The number and complexity of documents are all the more reason to use an attorney. Although it is possible to close a purchase transaction though a title insurance company only, experience shows that it is advisable to hire an attorney whose job is to protect the buyer only.

The U.S. tax system also can make it advisable to purchase U.S. real property in the name of a legal entity, such as a Florida or an offshore (non-U.S.) corporation or limited liability company or both. This is another reason to consult an attorney, as it is practically impossible for a foreign national (or a broker) to assist with establishing a corporate structure for a real estate acquisition.

The cost of professional assistance consists essentially of the broker's commission and legal fees payable to the attorney. The realtors' commission is generally paid by the seller but at times by the Buyer. The rate of the commission and the names of the Brokers (or of the Broker if there is only one) is established in the contract. It is suggested that the potential purchaser discuss the commission question with Realtors from the beginning. As for attorneys, they can be hired in the United States on a fixed fee basis or on an hourly basis. The advantage of hiring an attorney on a fixed fee basis is the avoidance of any surprise when the time comes to pay the bill. Fixed fees for real estate acquisitions run anywhere from 0.5 percent to l percent of the gross purchase price of the property, depending on the circumstances. As a practical matter, attorneys in the U.S. spend much more time in assisting foreign purchasers than would be required to assist U.S. persons, simply because foreign clients are unfamiliar with the system and need lengthy explanations and generally more assistance than local clients.

In summary, the enlightened sel f interest of a foreign participant in a U.S. real estate transaction definitely benefits from the assistance of real estate professionals and attorneys.


In theory, a foreign purchaser of U.S. realty could obtain a loan from foreign banks or finance companies. Under Florida law, a foreign financial institution may lend money for the purchase of Florida realty and take a purchase money mortgage encumbering that realty to guarantee repayment of the loan. Some foreign purchasers mortgage real property they own in their home country and use the proceeds for the purchase of Florida property.

However, foreign banks and finance companies often are not willing to make loans for the acquisition of real property outside their home countries (in this case, in the United States) for reasons of unfamiliarity with the system Ir and the corresponding increase in costs (they must hire an attorney also!), not to mention the tax situation. The reality is that the foreign purchaser generally must consult a local lender. These lenders normally fall into two categories: mortgage, or "finance" companies, and banks.


Experienced mortgage brokers maintain contacts with finance companies and banks who are willing to lend to foreign buyers. They are often able to save foreign buyers considerable time i n finding a program that corresponds to their needs. A mortgage broker explains the essential terms and conditions of the various loans that are offered and assist the foreign buyers i n completing the documentation that each lender requires. Foreign buyers should always ask all necessary questions when dealing with mortgage brokers (and indeed when dealing with the lenders themselves). When considering certain types of mortgages, in particular those with an adjustable rate feature, they should definitely be sure they understand exactly how the interest rate adjusts.


In Miami, several mortgage and finance companies specialize in financing the acquisition of Florida realty by foreign buyers. The situation is comparable in other states with a large foreign presence. Most real estate attorneys can direct buyers to mortgage companies dealing with foreign borrowers in their area. In addition, some foreign consulates maintain lists of such institutions. Brokers also are a good source of information in this regard. Here, foreign buyers must be aware of the primary rule in American business practices: always get more than one quote for any transaction. This is especially important when shopping for a real estate mortgage loan. The considerable differences in conditions from one lender to the next are often surprising.

At the outset, it must be noted that these companies generally requi re that the Buyer furnish 30 to 40 or even 45% percent of the total price as a down payment. As a general rule, moreover, given the reduced availability of credit in late 2008 and very likely throughout 2009, obtaining financing in the U.S. for foreign buyers will remain difficult for the foreseeable future, and down payments required will be in the neighborhood of 40% or 45%. Note also that most of these specialized companies charge interest rates somewhat higher than local banks lending to U.S. persons. Finally, they ask for extensive information from the Buyer regarding creditworthiness: bank references, financial statements, recommendations, etc.

Foreign buyers planning on financing their purchase m ust be sure that their attorney includes a financing contingency in the purchase contract, that is, a clause granting the buyer a certain time to obtain financing, and providing that if the buyer cannot get financing by a certain date, the buyer can cancel the contract and get the deposit back (often I 0% of the purchase price). Note that the financing contingency section of a contract usually requires that the buyer initiate immediately the loan application process. Also, if the foreign buyer plans to take title in the name of an offshore (non-U.S.) corporation, this intention should be expressed to the potential lender during the first meeting. While most lenders finance acquisitions by foreign corporations, they usually will require a personal guarantee by the principal of the company.

Once a mortgage company is found, the application process is generally straightforward. An application form m ust be filled out and the closing itself prepared. Although straightforward, the application form as indicated is usually quite thorough and calls for personal and professional references, especially from bankers, and personal and professional data. One Miami mortgage company req uires the following from a potential foreign borrower, for example: a letter from the borrower's accountant; two bank references; three credit references (with payment history); corporate documents if the borrower is a corporation; U.S. credit history; copy of the passport with the entry visa; and an appraisal of the real property.

Mortgage companies, like banks, assist the Buyer throughout the acq uisition process, among other reasons because their security depends on the Buyer's obtaining good title. When a mortgage company provides financing, the purchase process itself is almost identical to what it would be in the case of a purchase financed by a bank, and the remarks below apply to all such financed transactions no matter what type of institution finances the purchase.


Foreign purchasers seeking financi ng sometimes will want to contact U.S. banks, some of which are willing to lend to foreigners acquiring U.S. real estate, although at present the amount financed by banks rarely will be over 60% in Florida. There are many types of banking institutions in the U.S. and the banking regulatory system is complex and undergoing change at present. Because of the volatility now affecting banks and other financial institutions in the U.S., foreign buyers, again, should always consult experienced professionals when seeking financing through relations with U.S financial institutions. The following discussion will help to familiarize foreign buyers with the system.


The first division one must point out is the distinction between Savings and Loan Associations and commercial banks. These are the two main types of banks that make real estate loans. Generally, it may prove somewhat more difficult for a foreign purchaser to obtain financing from a Savings and Loan institution ("S&L"), even in cities such as Miami where many such financial institutions have a "foreign" department. The reason for this reluctance on the part of S&L's to make loans to foreigners is often the perceived difficulty in properly verifying the creditworthiness of the potential buyer and in recovering any deficiency in a foreign country if the borrower defaults on the loan. Having said this, many Miami commercial banks and banks in other large cities can and do make real estate loans to foreigners. Here again, it is necessary to consult attorneys and brokers and others knowledgeable in this area to find potential lenders.


Many of the financing institutions mentioned above can and do make real estate loans to foreign buyers. The terms and conditions of these loans are worthy of analysis for the foreign purchaser. We underscore that the substantive aspects of a real estate acquisition by a foreigner, such as the transfer of title by deed and the documentation of the transaction (no lien affidavit, bill of sale for personal property, inspections, purchase of title insurance, etc.), are quite similar to what they would be if the purchaser were payi ng cash. In other words, there is a core of common procedures and documents that one finds in all real estate transactions, whether the purchaser is foreign or domestic and whether the transaction is all cash or with a mortgage loan. What is different in a financed acquisition is the subject of the following discussion.

A purchaser who finances the acquisition of real property m ust consider the following points: Amount financed and the terms of the financing, essentially the following:

  • Amount of down payment.
  • Interest rates (fixed or adjustable). Promissory Note: terms and conditions. Mortgage: terms and conditions.
  • Financing Fees and Costs Title Insurance.
  • Post Closing Considerations


Assuming the foreign purchaser locates a lender willing to finance the purchaser's acquisition of U.S. real property, the purchaser will be asked to fill out an application, provide references, and fulfill any other requirements I the lender may have. Some buyers ••pre-qualify" for a mortgage loan before signing a contract to purchase. This practice is to be recommended. Other buyers sign the contract and then begin to look for financing. Obviously, a Buyer who intends to finance the acquisition must be sure that the purchase contract provides a reasonable period of time for the Buyer to find a lender and that it permits the Buyer to recover the Buyer's deposit if after making good faith efforts to obtain a loan, the Buyer ultimately is unsuccessful.

Once the Buyer has com pleted the loan application and the loan is approved, the lender will give the purchaser a good faith estimate of the costs and expenses to be incurred by the Buyer i n connection with the transaction, the remainder of the down payment, and the amount of cash to be provided by the purchaser at closing. The "closing" in question is the second stage of a U .S.-style purchase transaction that begins with the signature of the purchase contract and ends with the closing, a ceremony at which the payment of the purchase price by the Buyer is made in exchange for the delivery by the Seller to the Buyer of the deed, the document that represents the ownership of the property.



During the preliminary examination of the terms and conditions of the loan, the purchaser must verify that the amount financed is correctly stated and that the terms of the financing are those agreed upon with the lender. In particular, the amount of the down payment to be paid by the Buyer must be correctly indicated, and the term of the loan and the interest rates must be as agreed. As regards the down payment generally, banks or other financial institutions lending to foreigners will require that the percentage of the price paid in cash by the Buyer (in the form of a "down payment" that appears in the purchase contract and on the closing statement as a "deposit" or "deposits" if more than one) be in the neighborhood, at present, of 40 or even 45 percent. During the height of the real estate bubble in Florida, lenders would sometimes finance 100% of the purchase price of realty for U.S. buyers, whereas at present U.S. citizens or residents generally must make down payments of 20%.


Interest rates may be fixed or variable (in the so called "adjustable rate mortgages" or ARMs). Foreign purchasers may obtain an idea of prevailing rates in The Wall Street Journal or other financial publications or even on the internet. Here again, the foreign purchaser will be well advised to seek quotes from more than one lender and to keep in mind that loans to foreign purchasers often are made on terms that are less favorable than those governing loans made to U.S. residents.

The potential borrower will find that variable (or adjustable) interest rates are generally lower than fixed rates for the first few years, but that as their name indicates, they then may vary by reference to an agreed-upon figure such as the prime rate. Purchasers who request variable rates often need lower monthly payments in the beginning and believe that when (and it) the rates go up subsequently, they will be in a better financial situation and will have access to more funds than at the time of purchase. Finally, if opting for a variable rate mortgage loan, the foreign purchaser should ask the lender to go through and explain several scenarios including increases and decreases in the prime rate of various magnitudes. Also, if more exotic mechanisms such as balloon mortgage are used, in which the payments are lower for a preliminary period but the entire loan becomes due at the end of that period, usually fairly short, it becomes essential that the purchaser request complete explanations from the lender and from the purchaser's attorney.

Many classic calculations used by foreign buyers in the past when considering the purchase of U.S. realty have unfortunately become obsolete as a result of the bursti ng of the so-called real estate "bubble" in Florida and the increasi ng unavailability of financing for real property purchases. Foreign buyers who are able to pay cash will find very favorable transactions but they too must be aware of the rapidly evolving market conditions if they are to take full advantage of the situation. Consulting a qualified real estate broker is all the more crucial under present circumstances for a successful transaction.


A mortgage lender will provide the prospecti ve purchaser-borrower a good faith estimate of all costs to be incurred by the purchaser at closing. This estimate generally takes the form of a pro forma closing statement.

I should be carefully reviewed by the purchaser and by purchaser's attorney. Among the expenses, fees and charges that the purchaser can expect to see on the closing statement when bank or mortgage company financing is involved are the following:

"Points": Lenders often charge a certain percentage ( I percent, 1 .5 percent) of the loan amount as a ..loan ( origination fee", i.e., the cost of the loan. The actual amount of this fee is subject to negotiation and its reasonableness should be considered in relation to the interest rate being charged. The term ''points" also refers to discount points that lenders use to bring the yield on their loan as close as possible to prevailing market conditions. For the borrower, this is simply another charge to be paid.


Mortgage lenders require an appraisal of the property performed by a qualified professional. The cost of the appraisal, several hundred dollars generally, is often charged to the borrower, although this is subject to negotiation.


Mortgagees (lenders) do not want to run the risk that the borrower, as new owner of the property, will not pay the property taxes or casualty insurance premiums when due. Mortgagees (lenders) thus require that the buyer pay part of those charges in advance, into escrow, for use at the proper time to pay these taxes and premiums.


A mortgage lender often requires that the purchaser have the property inspected, in particular for termites, at least in Florida, and also will require that the Buyer insure the property. Costs involved for these items are generally charged to the borrower. Of course, a Buyer paying cash also will want to keep the property fully insured.

Lender's Attorney's Fees: It is quite common for the borrower to have to pay the attorneys' fees incurred by the mortgage lender. As a general rule, mortgage lenders use attorneys who are highly specialized in real estate closings. Consequently, these attorneys' fees are generally reasonable. Nevertheless, they represent another item that must be considered by the Buyer.

Mortgagee's Title Insurance: The borrower-purchaser generally must pay the premium for the mortgagee's title insurance. As described above, title insurance provides greater certainty to the owner and other parties such as the mortgage lender having an interest in the property that their interests are as they should be, and that if problems arise, these parties, owner and mortgagee, will not suffer economic harm. The State of Florida has published minimum premium rates for title insurance. The agent of a title insurance company, often the attorney for the lender, may charge more than the minimum rate, although some charge the strict minimum. Such agent collects part of the premium as a commission. Here again, the borrower-purchaser should verify carefully the pro forma closing statement to determine what the actual premium will be.


Because the risk is practically the same as in the case of a mortgagee insurance policy, the title insurance company usually will issue an owner's title insurance policy simultaneously with the mortgagee's policy at a much lower premium, also l isted on the pro forma closing statement. This policy, also paid for by the Buyer, protects the Buyer's title as owner of the property and obviously is very important for the peace of mind of the purchaser of U.S. real property.


The State of Florida levies a tax on intangibles, that is, on ''intangible" evidence of indebtedness such as a mortgage. The rate is 2 mills per dollar (0.002 percent) of the principal indebtedness. This tax is normally paid by the borrower-purchaser.


The bank or mortgage company will be on the Buyer's side as regards title, since the validity of the Bank's security, its mortgage, depends on the mortgagor (Buyer) being truly the owner of the mortgaged property. As a result, the bank's attorneys or the attorneys or closing agent for the mortgage company will carefully scrutinize all the documents to make sure there are no flaws or errors.


The principal instruments of the financing transaction are the mortgage and the promissory note, or '"note." The Promissory Note evidences the debt, that is, the promise by the borrower to repay the loan. The mortgage secures the Note: if the borrower defaults, that is, fails to make the promised payment (or fails to comply in some other way with the req uirements and conditions contained in the mortgage), the lender, or mortgagee, may foreclose its mortgage, take possession of the property and sell it. From the Proceeds of the sale, the lender recovers (hopefully) the amount of the Loan. Any excess goes to other creditors and the borrower. Any deficiency still must be paid by the borrower if the loan is a recourse loan as most mortgage loans are.


Because the Note and Mortgage govern the entire financing transaction, the borrower must be extremely careful when reviewing these instruments. Generally, the borrower's attorney will review the documents and negotiate any necessary modifications with the lender's attorney. As an educated buyer is better able to discuss the transaction with the other parties, we set forth below a few of the main points to verify in connection with each of these documents.


The Promissory Note embodies a promise by the borrower to repay a specific amount of money over a speci fic period of time at a given interest rate. Promissory Notes are negotiable instruments. Unlike promissory notes in many foreign countries, notes in the U nited States may call for staggered repayments over very long periods ( 15 or 30 years being quite common) in one instrument. When reviewi ng the terms of the promissory note, the following items should be carefully checked:

  • Principal Amount: This must be the amount of the mortgage loan.
  • Interest Rate: All the details regarding the interest rate m ust be clear, fixed or variable; if variable, how it is calculated; and how and where the interest is to be paid.
  • Payment Schedule: The Note should set forth a schedule of payments, indicating what each payment consists of (usually princi pal and interest). I f the loan calls for a balloon payment, this fact must be indicated conspicuously on the note itself. The place of payment also should be indicated.
  • Grace Period: Generally, the borrower wi ll not want to be declared in default if a payment is one or two days late. The Note should provide for a grace period of from 5 to I O days, at least. That is, if the payment is due on the first day of the month, the borrower has until the tenth (10th) day, for example, to pay and can only be declared in default ten days after the payment date.
  • Right of Prepayment: They will want to verify whether or not the lender permits prepayment of the outstanding balance due on the mortgage loan, and whether or not prepayment entails payment of a penalty.
  • Events of Default: The principal "'event of default" is. of course nonpayment of an installment. There I usually are other such ••events of default," however, such as the borrower's insolvency or the filing of a judgment / against the borrower, that the borrower will want to know about.
  • Acceleration:Most notes call for an acceleration of the debt in the event of borrower's default, i.e., if the borrower fails to make a payment when due, the lender may declare the entire amount of the loan immediately due < and payable, and if the borrower cannot reimburse the entire amount of the loan, the lender may foreclosure the mortgage. It is important that the borrower know of this consequence of a failure to comply with applicable obligations.


The mortgage is a contract between the borrower and lender. Its purpose is to secure, or guarantee, the lender against loss of the loan amount in the event of Buyer's default. A mortgage creates a lien on the property in Florida and in many other states. In some '"title theory" states, the mortgagee, i.e., the lender, becomes the actual owner of record of the mortgaged property, but the effect is identical and methods of foreclosure, etc. are not significantly different in "title theory" states than in '"lien theory" states such as Florida.

The mortgage agreement is executed by the borrower and recorded in the real property records of the county where the property is situated. Before the mortgage can be recorded, certain taxes must be paid (in Florida, for example, the intangibles tax). Because a mortgage contains requirements affecting the use of the mortgaged property and because it also governs the foreclosure process, the prospective borrower will want to have a lawyer review the document. In particular, a borrower should ask about, and examine, the following matters:

  • Legal Description: any error in the legal description harms the lender more than the Buyer, but it nevertheless is important that this description be correct at the outset.
  • Loan Amount: Check to be sure the description of the debt being secured by the mortgage is complete and correct, including interest rates and default rates, if any.
  • Special Requirements: If the lender requires that the Buyer insure the encumbered property, for example, or fulfill other requirements (keep the property in good condition, etc.), these requirements will figure in the mortgage agreement and should be reviewed by the borrower.
  • Events of Default and Acceleration Clauses: The borrower will want to review the so-called "Events of Default" and the remedies provided for the lender in the event of a default (acceleration of the outstanding debt, foreclosure, etc.). Grace periods for payment of installments should be verified, and if none are provided, should be requested.
  • Second (Junior) Mortgages: Some lenders pennit the borrower as owner of the property to contract for subsequent loans from other lenders and to secure such later loans by a second mortgage on the property. Others strictly prohibit any 'junior" mortgages or encumbrances. The borrower will want to verify the rules governing junior mortgages if any are contained in the mortgage instrument.


A Buyer who purchases real property for cash has less to worry about than a Buyer who finances the acquisition of the property through a loan provided by a financial institution. The borrower who acquires real property encumbered by a mortgage should be aware of several matters that must be attended to for as Payment of mortgage installments: Obviously, the foreign borrower will want to take steps to have mortgage payments made in a timely manner, in U.S. dollars. The easiest system is to have the borrower's bank in the U.S. make pre-authorized payments. It is most important also that the foreign owner verify from time to time that the payment arrangements in fact are being respected. Some foreign borrowers have had to defend foreclosure actions by lenders because payments on the mortgage were never made by the person charged with making them. Finally, foreign owners should be sure to get the name of the bankor mortgage company officer with whom they will be dealing in connection with the mortgage. In case of difficulty, a U.S. representative of the foreign owner will need this information before all else. Taxes and Insurance Payments: Many mortgage lenders require that insurance and real property tax payments be made in advance and held in escrow so as to be sure that proper and timely payment will be made. If this is not done in a specific case, the borrower will be responsible for ensuring that taxes and insurance premiums are paid on time. The danger of not doing so is obvious. Nonpayment of real property taxes, for example, can result not only in a default under the mortgage agreement (with the attendant danger of foreclosure) but also in administrative liens being placed on the property and eventually, a tax sale of the property.

Condition of the Property: The foreign owner who does not travel often to the U.S. should make arrangements to have someone inspect the property periodically to make sure that nothing happens to violate any local ordinances or laws affecting any structures on it. The electrical and plumbing systems also should be checked.

Mail forwarding: It is extremely important to have any mail concerning the property forwarded promptly to a responsible person. In many U.S. cities, local authorities mail out administrative notices concerning the property to the owner at the address indicated on the public record. These notices can be very important insofar as the status of ownership of the property is concerned. Foreign owners must take every precaution to be sure that such mail is forwarded to the owner or to the owner's U.S. attorney or other responsible person.


Despite present market conditions, United States real property has generally proved to be an excellent investment and financing is in fact available to potential non-resident alien purchasers.

Potential purchasers should keep in mind that speculation is no longer advisable. Buying real estate for a quick resale at a profit is no longer as feasible as it was only a short time ago, although in certain locations this remains possible. It is now more important than ever, even indispensable, to consult qualified brokers and other professionals before incurring obligations involving Florida real property.

Financing the acquisition of U.S. real property entails particularly for non-resident borrowers, much paper work and the execution of numerous documents and instruments. The above discussion underscores important precautions to be taken by a foreign purchaser who obtains financing in connection with an investment in real property. There are, of course, other issues. We conclude, therefore, as we began, by recommending that the foreign investor obtain competent professional advice regarding any transaction in the U.S. The cost of this advice almost always is minor when compared to the dangers and pitfalls it allows the investor to avoid.