Legal Considerations

Buying and Selling Homes in Florida

Buying or selling a home in Florida can be a confusing process, especially if it is your first time. If you are going through the process right now, the following article provides basic information on some key rights and some topics buyers and sellers should be aware of: homestead exemptions and buyers' deposit rights

Florida Homestead Exemptions

The concept of homestead is as old as the State of Florida. There are only a few states with homestead exemptions, and Florida is considered one of the most generous. There are two types of homestead exemptions available to property owners in Florida: (a) homestead exemption for real property tax purposes and (b) homestead exemption for asset protection purposes. The fact that you have one type of exemption does not necessarily mean that you have the other type of exemption as each exemption has distinct requirements.

1: The home and adjoining land with any buildings that is occupied usually by a family as its principal residence .

2: A tract of land acquired from U.S. public lands by filing a record and living on and cultivating the tract.

Homestead Tax Exemption

Specifically, the homestead exemption forreal property tax purposes provides an owner of property with a $25,000.00 reduction from the assessed value of the property, thereby currently reducing the amount of real property taxes by approximately $650.00 each year.

Since real property taxes are paid in arrears in Florida (just like interest on your mortgage), this type of homestead exemption is only available if the owner is the permanent resident of residential property as of December 31 of the prior year and owner makes application for the exemption at the property appraiser's office on or before March 1 of the following year. If you are widowed or permanently disabled, you may be entitled to an additional reduction from the assessed value of the property.
Property Tax Exemptions

One of the least favorite bills homeowners receive is the property tax(1)bill. Depending on where you live and the value of your property, it could take a sizeable chunk out of your income, especially if you don't plan for it and have to scramble the cash together when it's due.

Fortunately, homeowners may be exempt from some of these taxes. For instance, you may be entitled to certain exemptions for moving into a historic building and renovating it; in this case, the exemption is used as a motivator to beautify a town or city. Property tax exemptions -- what they are and how they work -- are briefly explained below.

Property Taxes and Location

An important issue in property tax law deals with the location of property (or its "situs") for tax purposes. If a taxpayer owns property in more than one area -- or if the taxpayer owns property that is moveable, like a car or a trailer -- it can be difficult to determine the most appropriate location from which to determine the property tax on those items. Because the law can be so variable from one place to the next, this issue is often in dispute.

The general rule states that land will be taxed according to the laws of the county where the land is located, regardless of where the owner resides. On the other hand, moveable property is generally taxable according to the laws of the county where the taxpayer resides.
Property Tax Exemptions: Basics

Basically, all real and personal property is subject to tax unless specifically exempted. Exemptions -- relief from certain tax obligations -- come in many forms. These tax exemptions include the property's use (such as property used for religious or charitable purposes) and the form of the property's ownership (such as household goods). Exemptions are used by state and local governments to help attract new businesses or to encourage certain types of development, such as low-income housing or reclamation of historic sites.

Exemptions range from full to partial tax relief, depending on the laws of the particular taxing authority (state, local) and the nature of the exemption. One town may provide a full exemption for personal or business property, whereas another town may provide only a partial exemption for these types of property. The limitations can be expressed in terms of dollar amounts or by a percentage of value. Homeowners' exemptions are an example of this kind of partial exemption. Other forms of exemptions exist for the following:

  • Certain municipal levies
  • County city, town and school purposes
  • Government property (these are required by state law)
  • Persons over age 65
  • Veterans

Homestead Exemption for Asset Protection

The homestead exemption for asset protection purposes provides the owner of property with a shield from virtually all non-lien creditors. This type of homestead exemption is only available if the property is your primary residence and a court makes a determination that the property is within a municipality or outside of a municipality. If your property is within a municipality, protection is provided for only one half acre of contiguous land. If your property is outside of a municipality, protection is provided for 160 acres of contiguous land.
Homestead Exemption

An exemption from liability that prevents creditors from obtaining satisfaction from a debtor's homestead see also declaration of homestead at declaration.

NOTE:The laws governing the homestead exemption vary greatly from state to state. Most states have limits on the amount for which a debtor is exempted, but a few have no limits at all. Others have limits that are dependent on the size or type of property, or the age of the property owner.

Know Your Rights concerning Real Estate Deposits on New Homes

If one is buying a new home, a question that arises is whether or not to place your deposit in escrow or release the funds to the builder. Under Florida law, the buyer has a choice and must decide in writing which option to choose. At first glance the decision would appear simple: just put the money in escrow where it is safe and secure. However, the decision requires carefully weighing factors, such as whether or not the builder is likely to complete the project, as well as the general risk tolerance of the buyer.

If the buyer elects to place the earnest money deposit in escrow, the builder has the right under Florida law to charge the purchaser the builder's cost of borrowing that amount of money, less any interest that the builder is able to obtain on the escrows while the deposits are being held in the bank.
How Escrow Works
A house is the most expensive purchase most people make in their lifetime. Since the purchase is so large, securing funding for your home may take longer than the actual sale. The company that manages the funds for the house until closing is called the "escrow company," "escrow agent," or simply "escrow.".
What is escrow?
An escrow company or agent is an independent third party that handles aspects of the purchase and related loan transaction. The escrow company will often:

  • Hold the down payment until the closing.
  • Receive the amount of the loan from the lender.
  • Transfer the down payment and mortgage money to the seller.
  • Transfer and record the deed of title to the buyer or title company.
  • Make sure the lender is protected by filing and recording the mortgage with the local county recorder of deeds.
Who handles escrow?
In some states, the escrow functions are handled by a licensed title insurance company or an escrow company. However, in others, an attorney handles the transaction. In many states, escrow agents must be properly licensed in order to conduct business. In addition, the escrow agent must be someone who is not otherwise associated with the transaction. For example, the buyer's real estate agent or the seller's attorney cannot hold the escrow account. They may, however, recommend escrow agents that they have used before.
How does escrow fit into the home buying process?
The home buyer and seller usually pick an escrow agent while negotiating the purchase agreement. They can also draft specific instructions to the escrow agent. The agent will then collect the buyer's earnest money deposit, along with copies of the purchase agreement and any other paperwork.

The buyer will then work with a lender to finalize the mortgage. That can involve:

  • A home inspection.
  • A title report and title insurance.
  • Acquiring homeowner's insurance.
  • Comparing the final mortgage offer with the good faith estimate.
  • The final walkthrough.

After these steps are completed, the escrow agent will collect the loan money from the mortgage. That money, along with the down payment, is then transferred to the seller at closing.

Source: Merriam-Webster's Dictionary of Law ©1996. Merriam-Webster, Incorporated. Published under license with Merriam-Webster, Incorporated.

[1] Will be developed on another article.