STATUTE OF FRAUDS APPLIES TO SALE OF REAL PROPERTY

Posted on April 3, 2022April 3, 2022 by Edward Garber

In law school, one of the first legal doctrines we learn is known as the “statute of frauds.” The statute of frauds is essentially a defense to a contract enforcement action claiming the contract is unenforceable due to the statute of frauds. In other words, this doctrine is raised when one party seeks to enforce a contract. The other party argues, “not so fast,” because the contract is NOT enforceable in light of the statute of frauds.

Common scenarios where the statute of frauds comes into play are with transactions involving real property or agreements where services are not to be performed within one year.

The statue of frauds doctrine is contained in Florida Statute s. 725.01:

No action shall be brought whereby to charge any executor or administrator upon any special promise to answer or pay any debt or damages out of her or his own estate, or whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriage of another person or to charge any person upon any agreement made upon consideration of marriage, or upon any contract for the sale of lands, tenements or hereditaments, or of any uncertain interest in or concerning them, or for any lease thereof for a period longer than 1 year, or upon any agreement that is not to be performed within the space of 1 year from the making thereof, or whereby to charge any health care provider upon any guarantee, warranty, or assurance as to the results of any medical, surgical, or diagnostic procedure performed by any physician licensed under chapter 458, osteopathic physician licensed under chapter 459, chiropractic physician licensed under chapter 460, podiatric physician licensed under chapter 461, or dentist licensed under chapter 466, unless the agreement or promise upon which such action shall be brought, or some note or memorandum thereof shall be in writing and signed by the party to be charged therewith or by some other person by her or him thereunto lawfully authorized.

In Walsh v. Kimberly Abate, Successor Trustee of the 3388 Barrow Island Trust, 47 Fla.L.Weekly D702c (Fla. 4^th DCA 2022), the underlined aspect of the statute of fraud was at-issue involving the sale of real property. Here, a buyer, through an agent, made a written offer to purchase a home for $3.1 Million. The seller, through an agent, e-mailed the buyer’s agent that the seller would only accept $3.4 Million. The buyer’s agent responded to the e-mail that the buyer will pay the $3.4 Million with other terms in the written offer remaining the same. The seller’s agent sent a text to the buyer’s agent that the $3.4 Million was accepted, and the buyer’s agent responded with a confirmatory text. Days later, the seller apparently had a change of heart. The seller’s agent notified the buyer’s agent that the property was being sold to a third party.

The buyer then sued the seller for specific performance to force the sale of the property to the buyer. The seller moved to dismiss the complaint. The trial court granted the motion, which was affirmed on appeal.

While e-mails and text exchanges between the real estate agents made clear there was an agreement, here lies the problem…the statute of frauds. When it comes to the sale of real property:

The statute of frauds requires that (1) “the contract must be a writing signed by the party against whom enforcement is sought,” and (2) “the writing must contain all of the essential terms of the sale and these terms may not be explained by resort to parol evidence.” Additionally, the statute of frauds “should be strictly construed to prevent the fraud it was designed to correct.”

Walsh, supra (citations omitted).

The seller, in this case, NEVER signed a contract. The seller never sent back the written offer with a signed counter-offer at the $3.4 Million, irrespective of the e-mails and texts. On this point, the appellate court noted:

[T]he record reflects an initial offer signed by [buyer] and thereafter only unsigned text messages and emails exchanged between the buyer’s and sellers’ agents. Significantly, the offer of purchase itself contemplated a signed written agreement as it stated that the effective date of the agreement would be “the date when the last one of the Buyer and Seller has signed or initialed and delivered this offer or final counter-offer.” Dispositively, the sellers did not sign the initial contract, and neither party signed the modification of price and closing date.”

Walsh, supra.

When it comes to transactions involving real property, there is a reason why signed written offers are transmitted, and signed written counter-offers are exchanged. This is why – the statute of frauds.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.s

SPECIFIC PERFORMANCE: EQUITABLE REMEDY TO ENFORCE AFFIRMATIVE OBLIGATION

Posted on December 19, 2020December 19, 2020 by Edward Garber

When a party breaches an agreement, particularly when dealing with real estate, there is an equitable remedy known as specific performance that requests the trial judge issue an order to affirmatively force the breaching party to perform, i.e., close on the real estate contract. You are asking the court to require the other party to specifically perform an affirmative obligation. See Melbourne Ocean Club Condominium Ass’n, Inc. v. Elledge, 71 So.3d 144, 146 (Fla. 2011).

A decree of specific performance is an equitable remedy ‘not granted as a matter of right or grace but as a matter of sound judicial discretion’ governed by legal and equitable principles. Specific performance shall only be granted when 1) the plaintiff is clearly entitled to it, 2) there is no adequate remedy at law, and 3) the judge believes that justice requires it.

Castigliano v. O’Connor, 911 So.2d 145, 148 (Fla. 3d DCA 2005) (internal citations omitted).

An example of specific performance may play out, as mentioned, in a real estate contract where a seller refuses to close on the transaction.

For instance, in M&M Realty Partners at Hagen Ranch, LLC v. Mazzoni, 2020 WL 7296793 (11^th Cir. 2020), a buyer entered into a land sale contract with a seller. The contract included a six-year (contingency) period for the buyer to secure permits required to develop the land. Closing never occurred and the buyer sued the seller for specific performance – to force the seller to close on the sale of the land.

During the six-year contingency period, the buyer spent substantial monies to secure permits. Meanwhile, during this period, the seller received a better offer for the land. The buyer claimed this prompted the seller to avoid closing. Nonetheless, when the buyer secured the approvals to develop the land, it notified the seller that it wants to close on the land. The seller refused claiming the buyer had not satisfied all conditions to closing, prompting this lawsuit for specific performance. The trial court ruled in favor of the seller holding that the buyer failed to prove it was ready, willing, and able to perform (close) under the contract because there was no evidence that the buyer had sufficient funds to close. The Eleventh Circuit Court of Appeals affirmed.

To establish a prima facie claim for specific performance of a contract or for damages for breach of a contract, Florida law requires the plaintiff to show it was ready, willing, and able to perform the contract. A purchaser may show it is financially ready and able by showing it has (1) the necessary “cash in hand,” (2) “personal[ ] possess[ion] of assets … and a credit rating” that show a “reasonable certainty to command the requisite funds,” or (3) “a binding commitment … by a financially able third party.” It is undisputed that [the buyer]…in this case, had neither (1) the necessary $5 million of cash in hand [to close] nor (2) assets and a credit rating sufficient to command that sum. Therefore [the buyer’s] only hope is to show it had (3) a binding commitment from a financially able third party.

[The buyer] argues that it was ready, willing, and able to perform under the contract, first, because [the ultimate principals of the members of the buyer limited liability company] could command credit from a bank in excess of $5 million and, second, because [the principals] each had over $5 million in cash. As [the buyer] is relying upon the resources of third parties, namely [principals], to show it was ready, willing, and able to close, [the buyer’s] arguments properly go to the third possible showing, i.e., that it has a binding commitment from a financially able third party. [The buyer] argues that its principals’ personal resources are sufficient to show the company had a “reasonable certainty” of being able to complete the purchase, but this falls short of the “binding commitment” the law requires.

M&M Realty Partners at Hagen Ranch, supra, at *2 (internal citations omitted).

The Eleventh Circuit agreed that the fact that the buyer’s ultimate principals had the funds is of no moment. There was no evidence to support that either of the principals made a binding commitment (or any commitment, for that matter) to give or lend the money to the buyer to close on the land. The Eleventh Circuit was not going to disregard corporate formalities of setting up a limited liability company for purposes of insulating liability simply because the principals of the two members of the limited liability company independently had money to close.

LIS PENDENS – RECORDATION AND DISSOLUTION

Posted on July 24, 2016November 8, 2024 by Edward Garber

When you file a construction lien foreclosure lawsuit, you must also record a lis pendens in the official (public) records against the property. This lis pendens serves as written notice that there is a lawsuit concerning the real property, and more specifically, title relating to that real property. If the property is then sold or rented, the buyer or tenant will ultimately be bound by a final determination relating to the lawsuit concerning title to the property. This is the value in recording a lis pendens and why it is a MUST in any foreclosure lawsuit. (This is the same value in any mortgage foreclosure lawsuit and why lis pendens are recorded in these lawsuits too.) A lis pendens will show up in a title report. In most instances, title companies will not issue a title policy if there is a lis pendens or may require a certain amount of money escrowed as a result of the lis pendens and pending action in order to issue a title policy. Also, a buyer, in particular, and a tenant are not going to want to invest in property where the title to that property is at-issue in a lawsuit. Hence, the lis pendens impacts the sale and potential re-financing of the property.

With respect to the dissolution of a lis pendens, Florida Statute s. 48.23(3) provides:

When the pending pleading does not show that the action is founded on a duly recorded instrument [e.g., mortgage or Declaration of Condominium] or on a [construction] lien claimed under part I of chapter 713 or when the action no longer affects the subject property, the court shall control and discharge the recorded notice of lis pendens as the court would grant and dissolve injunctions.

Therefore, if the lawsuit (i) does not affect title to the real property, (ii) is not based on a construction lien, or (iii) is not based on a duly recorded instrument, such as a mortgage, an owner of real property is going to move to dissolve the lis pendens so that title to their property is not impacted by the lis pendens. This is, at least, what an owner should do.

What happens if a lis pendens is recorded but the lawsuit is not a construction lien foreclosure lawsuit or founded on a duly recorded instrument such as a mortgage?

For example, what if there is a lawsuit for the specific performance of a purchase-sale contract involving real property? In this instance, the party suing for the specific performance of the real property to be sold to it will want to record a lis pendens to put the public on notice that there is an action concerning title to that property. But, this type of lawsuit is not founded on a duly recorded instrument or construction lien. For this reason, the owner of the property will move to dissolve the lis pendens so that they can sell the property or re-finance the property, as the case may be.

A recent decision in Regents Park Investments, LLC v. Bankers Lending Services, Inc., 41 Fla.L.Weekly D1688c (Fla. 3d DCA 2016), exemplifies the scenario of a lis pendens being recorded in a dispute concerning the sale of real property and the owner of the property moving to dissolve the lis pendens. The buyer filed a lawsuit for specific performance to force the owner to sell the property to it. The buyer also recorded a lis pendens (as the buyer did not want the owner to sell the property to another buyer). The owner moved to dissolve the lis pendens so that it could do what it wanted with the property without the impact of the lis pendens.

The Third District explained that the burden was on the proponent of the lis pendens—the buyer that sued for specific performance that recorded the lis pendens—to establish a fair nexus between the claim asserted in the lawsuit and the real property’s title. Regents Park Investments, quoting Nu-Vision, LLC v. Corporate Convenience, Inc., 965 So.2d 232, 234-36 (Fla. 5^th DCA 2007). This fair nexus means the proponent of the lis pendens must make a minimal evidentiary showing they have a good faith, viable claim in the lawsuit concerning the property’s title. Id.

The appellate court, based on this minimal evidentiary showing of a fair nexus between the asserted claim and title the property, maintained:

Applying the standard of a minimal showing that there is at least some basis for the underlying claim and a good faith basis to allege facts that would at least state a viable claim, we conclude that Regents [buyer suing for specific performance that recorded lis pendens] met that standard. Regents’ showing that its claims arose out of a written contract for sale of the subject properties established a “fair nexus” to the properties and its Interrogatory answers swearing that it was ready, willing and able to close on the closing date, together with evidence that Bankers [owner] was not able to close because of the outstanding lot clearing liens against the property, provided a sufficient minimal basis to support either a claim that Regents could have performed or that its performance was excused. Consequently, we find that the trial court should not have discharged the lis pendens and reverse with instructions that it be reinstated.

This fair nexus standard requiring a minimal evidentiary showing provides an advantage to a buyer that sued for specific performance and recorded the lis pendens. It simply requires the buyer to proffer some evidence to support that they have a good faith, viable claim concerning title to the property. If the buyer cannot do this, the lis pendens should be dissolved. On the other hand, if a buyer supports this fair nexus standard, then the lis pendens will not be dissolved meaning the owner’s real property will continue to be impacted by the lis pendens. In such scenario, the owner may ask the court to require that the proponent of the lis pendens furnish a bond in the event it turns out that the buyer’s claim is not valid meaning the lis pendens was wrongfully recorded.