Follow these simple guidelines and enlist the help of an independent expert and you’ll find your house purchase in Florida can be a simple and enjoyable process.
Deciding to buy a property in Florida is an easy decision to make but navigating Florida’s legal system can sometimes be difficult, as it differs drastically from that of the UK. It is becoming increasingly important to make yourself aware of, and where at all possible avoid, the possible pitfalls associated with buying a property in the Sunshine State. Things can get rather confusing for the British buyer who is accustomed to buying property with a lawyer’s aid, as in Florida it is the insurance companies (normally selected by the seller)
who handle the conveyancing aspect of a property purchase. In fact, the buyer is not legally required to have a lawyer. On top of this, there are no restrictions placed upon a British buyer purchasing a second or investment property, which further adds to the wealth of choices available. In order to help you make the right choices and ensure the buying process runs smoothly, this chapter strives to give a clear and detailed analysis of the mechanics of buying a home in Florida. It isn’t absolutely necessary to follow all the subsequent steps in the order presented, but we suggest it would be in your best interests to do so.
Step 1: taking initial advice
Having decided that you would like to purchase a property in Florida, you should take preliminary advice about the relevant legal issues before even visiting the US.
Preliminary tax and legal advice
One of the first things you should do is speak to a lawyer, preferably one who is qualified in, and can advise on, both UK and Floridian law. Your lawyer should inform you of the various types of estate agents you may deal with, and explain what roles they might play. Your lawyer’s advice should also include the setting up of a US bank account, relevant tax implications resulting from purchasing a property in Florida, general international estate planning and, perhaps most significantly, the best way a UK buyer might try to purchase a property: for example, through sole ownership, joint tenancy, tenancy in common, or through a company, trust or other entity. Picking the right terms by which you hold your property
can potentially save you thousands of pounds. This can also have implications for estate or inheritance taxes when you come to passing your estate on to a spouse or to children.
Being a “non-resident alien” for US tax purposes, a UK buyer isn’t in the same tax position as a US citizen. Most Florida property sellers and estate agents won’t be aware of this as they deal mainly with US buyers. Only your own lawyer can properly assess your potential exposure to US and UK taxes and tell you how to minimise, or in some instances eliminate, such tax exposure. It is likely that you’ll have to make decisions about these things incredibly early on. For instance, many Floridian developers will not allow changes or assignments of the contract. It’s a good idea to be well prepared for even the earliest negotiations. You may also wish to talk to a personal tax adviser about your financial circumstances, so you get a tailored view of your tax exposure in both the US and UK when purchasing a Floridian property. Financial assessment is a very wise move, given that you’re considering an enormous financial outlay which could jeopardise your entire financial future.
Preliminary financial advice
Before even attempting to fulfil your dream of buying a property in Florida, it’s crucial to establish whether or not you (or any entity you might use to hold title) are a financially viable buyer. You must seek financial advice to ensure that you can afford the expenditure involved in buying your Floridian home without jeopardising your assets in the UK. Secondly, before putting in a bid for your property, you should also ask your financial adviser if you are prequalified for a mortgage. There is nothing worse than finding your potential new dream home, putting in a bid and then failing to even qualify for a mortgage, especially as this situation can be easily avoided.
Mortgage advice
After ensuring that you’ve been preapproved for a mortgage, you’ll then have the option of borrowing from US or UK lenders. With some UK lenders, you may then have the option to borrow against either your UK assets or against the property you intend to purchase in Florida. You can choose to borrow in sterling or in dollars. Whichever you choose, getting preapproved allows you to safely make an offer on a property with the knowledge that you have full financial backing before ever becoming contractually obliged to buy.
A mortgage contingency clause can sometimes be written into the buyer’s contract, which allows the buyer to be released from the purchase if a satisfactory mortgage could not be obtained within a certain period of time. It is particularly crucial to get preapproval when there is no such contingency clause in the purchase contract (as is the case with most condominium purchases). Where at all possible, it’s always preferable to be preapproved for your maximum home mortgage amount in writing by an actual lender, rather than just by a mortgage broker where no lender has yet made a loan commitment to you. Getting preapproval will give you peace of mind, help you to establish your price bracket and help avoid problems of over-commitment beyond your personal budget. Always inform the lender or mortgage broker if you’re intending to purchase the property through an entity rather than in your own name(s), as the terms and rates do differ. Also, despite some mortgage brokers making statements to the contrary, lenders do exist (although admittedly not many) who will lend in sterling or dollars to companies or other entities buying Floridian properties. It’s always worth looking around so you can find the best lender for your needs.
Quite early on, your mortgage broker should offer you different borrowing options, depending on whether the property is a second home or an investment property. The term “second home” normally implies that the property is not your principal residence but that you will occupy it for part of the year, while the term “investment property” implies that the property will be held purely for investment purposes. The rates are normally more advantageous if you’re treating the property as a second home and, because of this, it is common for some lenders or brokers to fail to inform you of the option and simply proceed on this basis. However, if you are intending to use the property for both short-term letting and your own holiday visits, you may not fit into the narrow categories some lenders will try to box you into, and will need more thorough research and organisation.
Whether you use a lender of your own choosing or are directed by the developer or their agents to use a particular mortgage broker or lender, there are certain things you should request of your mortgage broker. If treating the property as a second home, you should ask for written confirmation that you won’t have to sign or swear in any “second home rider” or “affidavit (or statement) of occupancy” in the closing documents, which will forbid you from renting your property or using a property management agent.
Where the property is treated as an investment property, you need to find out whether there is any similar rider or document requiring your signature or a promise that you will not occupy the property. Always ask to see these documents in advance, as some mortgage brokers will initially tell you not to worry, but then surprise you on the eve of closing with these
documents which frequently set out statutory penalties for perjury. Not all lenders’ documents set out such prohibitions but many do, so you may need to take steps to protect yourself.
Additional costs to prepare for
Get ready for the fact that there are lots of outgoings for you to cover when buying a home, beyond the purchase price itself. There are closing costs, mortgage costs, furnishing costs, payments in escrow (which nonresidents are obliged to pay, covering three to six months worth of mortgage payments), property tax, insurance premiums, home or condominium owners’ association fees and, in some instances, special assessments for items agreed by the majority of owners and benefiting them such as new sewer lines, improved roads, etc.
The day-to-day running costs of a property will also need to be calculated by the potential buyer.
Tax deductions
If you are planning on making a cash purchase, you may want to take note of the fact that in financing your purchase, you would be able to offset mortgage interest paid during the year against any income from rentals made in the US. By paying the mortgage interest, the amount of which is listed on Form 1098, you are entitled to deductions on your US income tax. You should ask any lender who’s lending against Floridian property in dollars (whether in the UK or the US) for the 1098 form which will enable you to apply for your income tax deductions. Also, the “points” you would pay to a lender on the completion of a Florida property purchase can usually be deducted as a prepayment of interest. These points are also described on the relevant closing statement as:
• Loan origination fees
• Maximum loan charges
• Loan discount
• Discount points
Step 2: appointing a lawyer
Whether you have taken preliminary legal advice or not, once you’ve decided to go ahead and purchase in Florida – and before you sign anything – you should secure the services of a specialist lawyer who can advise you on all of the relevant Florida and UK property issues. Your lawyer is there to guide you through the legal issues, make you feel secure, and try to obtain an advantageous contract for you. Your lawyer should also advise you of what you should prepare for. This should include the relevant US and UK tax implications, your options in holding title, and perhaps discussing arrangements for appropriate wills or trusts where you buy in an individual capacity. The work done by a buyer’s lawyer is complementary to that done by a title closing agent and deals with far more than the conveyancing itself. If you’re buying the Floridian property together with family members, friends or other associates, make sure that you have a partnership agreement drafted beforehand, setting out precisely who is responsible for arranging lettings, how time spent in the property is allotted, and how taxes are paid. Your lawyer can assist in drafting an agreement. These decisions should be made long before you enter into a contract with friends or associates. At an early stage in the purchase process you will be presented with a Florida property purchase contract for your eventual signature. By retaining the services of a UK resident lawyer, who will normally have been appointed before you visit Florida, you’ll be in a position to fax the contract to the lawyer for his or her advice before arranging a date for the signing. Your lawyer will consider the terms concerning the deposit, general terms and conditions addressing breaches of contract, as well as all the other points. You will need to be advised about your own contractual obligations, as well as the seller’s. As always, getting professional, specialist advice is essential.
Each purchase contract for a new build will contain a “Liquidated Damages” clause, which normally states that the deposits received for up to a certain percentage of the cost of the property need to go to the builder if you cause the sale to fall through. If you pull out of a sale on a new build, builders usually claim 10 per cent or more of the overall purchase price as liquidated damages. You may find that they also seek other costs: deposits agreed but as yet unpaid, charges for additional options you may have agreed on (such as swimming pools, etc), and/or lot premiums.
Lawyer-free purchases?
It is possible to purchase a property in Florida without the services of a lawyer. In that instance, you rely solely on the relevant real estate agents, brokers and the title-closing agents. However, always remember that unless you have something in writing to the contrary, you should assume these individuals do not represent you. In fact, when you’re navigating Florida’s property market, some Floridian estate agents may even tell you that the property purchase process is lawyer-free. There is no such thing as a standard contract in Florida, unlike in the UK, so a seller will always use a lawyer to draft the purchase contract for a new build and their lawyer’s title insurance company to handle the closing. Some sellers and estate agents in Florida may try to dissuade buyers from retaining a lawyer, usually just because they prefer unrepresented buyers who tend to sign all the documents and return them swiftly without raising any queries. Many such agents and sellers are used to dealing mainly with local purchasers, and tend to be unaware of all the additional requirements faced by an overseas buyer, such as the tax treaty, estate planning and other various lawyer-assisted options which could potentially save the foreign buyer thousands of pounds. While the benefits of having a lawyer come at a sizeable cost, those choosing to buy without a lawyer run the risk of being faced with far higher costs and penalties. Buyers may find themselves obliged to comply with terms or sign a contract they do not fully understand, often under great pressure due to the technical terms and extremely short time limits. If a breach of contract does occur and you have not had the contract checked by a lawyer, you will be faced with the expense of litigation. The legal fees paid to a buyer’s lawyer to advise the buyer before signing or to check over closing documents on a contract are much less than this. While many Floridians may choose not to use a lawyer when they purchase a residential
property, you as a UK buyer should remember that you would never consider buying a property in the UK without a lawyer, so why would you decide not to use one in a foreign country? Engaging a lawyer to represent you is the best way to protect yourself. Otherwise, there will be no one on your side if things begin to go wrong.
Step 3: choosing an agent
If you want to use a Florida buyer’s estate agent (who, under Florida law, is loyal to you and owes you confidentiality), always choose and retain your agent before starting to look at any properties. That way, the seller will be obliged to pay your buyer’s agent a share of the sales commission. Simply by walking through the door of a model home (a showhome in the UK) you have effectively waived your right to use an unbiased agent. Instead, you will have bound yourself to the seller’s agent by dealing directly with them instead of retaining your own agent. You can still hire your own agent at this point, but you will then be responsible for their fees yourself. To avoid this, you really should carefully consider all of the types of agents you may be dealing with at an early stage in the process. The differences between estate agents in Florida and the UK lie not just with who they represent, but also who they are loyal to. Florida is a state that allows transactional brokers. These transactional brokers, by definition, act on behalf of neither the buyer nor the seller and owe no loyalty or confidentiality to either one, although they are still obliged to bring about the sale of the property. Trans actional brokerage is basically a means of providing neutral third-party real
estate services to buyers and sellers with reduced liability to the broker. Agents still act for either the buyer or the seller at any given stage of the conveyancing, but never both at the same time. Transactional brokers are not technically agents, because they do not actually represent either party. An alternative choice of broker is a buyer’s broker or agent who works exclusively for you. While a buyer’s agent may be a good option, you may, especially when dealing with agents in the UK, want to weigh up the benefit of using such an agent against any discounts or reduced purchase prices sometimes available with a seller’s agent. Make sure you find out exactly what is offered by the agent before hiring them. There are numerous estate agents touting for business, so if you’re looking for an agency located in the UK, you may want to check that it’s a registered member of FOPDAC (the Federation of Overseas Property Developers, Agents and Consultants; www.fopdac.com). Member agents have been vetted and approved, and offer unbiased advice for the buyer. The common aim of FOPDAC members is to conduct their activities in a manner which seeks to protect the interests of those who have decided to buy or sell a property overseas. Membership of the federation is restricted to UK resident companies or individuals whose probity is beyond reasonable question. The agents themselves will have the experience and professional expertise that meet the strict criteria set out in their Code of Ethics. You will note that FOPDAC’s members include sellers, developers, consultants and lawyers.
Licensed realtor
Alternatively, you may want to secure the services of an estate agent in Florida. If so, you must make certain that the agent is an experienced realtor licensed with the Florida Real Estate Commission, and is affiliated with either the National Association of Realtors, or the Florida Association of Realtors. It’s certainly true that viewing a home with a realtor sends out a strong and impressive message, implying that you will see, and have seen, a large portfolio of homes. It is a common misconception that dealing directly with a builder saves money. This simply isn’t true, because the independent broker gives unbiased advice and is only paid their share of the seller’s commission once the deal is completed or, in the case of a new build, once the build is completed. There are many estate agents based in the UK and Florida who are willing to handle the process from start to finish, but it’s well
worth shopping around, especially when it comes to finding the property of your dreams. Whatever happens, always assume that unless you have entered into a written agreement, an agent is not instructing you and is unable to keep confidential information about you. In the absence of a written disclosure be sure to always ask for a written “notice of non-representation”.
Step 4: steps to take in Florida
Opening a bank account
Once you’ve established the feasibility of purchasing your home in Florida, the next step is to open a US bank account so you can transfer your money back and forth. It’s best to open one while you’re out in Florida, otherwise you’ll almost certainly end up having to post your passport and utility bills over to the US bank in order to open an account. Having your own US bank account will avoid the complexities of worrying about ongoing currency issues and the exchange rate, and means that you’ll easily be able to pay things like utility deposits and administrative expenses. It will also minimise the stress of worrying about meeting the deadline for final payments. This is the buyer’s responsibility and generally occurs
over a very stressful two to three days. The first thing you need to learn about the bank you plan to open an account with is whether or not it is covered by FDIC insurance. FDIC is the Federal Deposit Insurance Corporation, which protects against bank failures and guarantees deposits, covering up to $100,000 per account. Never deposit money in a financial institution bank which isn’t insured by the FDIC. For more information go to www.fdic.gov. America has two types of bank: commercial banks that offer a very wide range of services, and savings banks which offer a better rate of interest. Savings banks are granted government charters to hold half of all mortgage loans and can collect deposits and make home loans. In addition to banks there are also loan associations known as “thrifts”, but there are fewer of these now. When choosing a bank, do bear in mind that Florida’s 250 or so banks are all regularly competing for customers, and offer comprehensive packages detailing the variety of services on offer. An initial deposit of $50 will be enough to open an account.
ITIN number
An ITIN (Individual Tax Identification Number) is required when an individual without a Social Security number (such as a foreign national who is still based outside the US) does the following:
• Sells a US real property interest (the seller needs an identification number so the purchaser can withhold and remit the required US withholding tax, FIRPTA)
• Is subject to reporting and withholding on investments in US partnerships and rental properties
US mortgage lenders, banks and developers may require you to have or apply for an ITIN. Some banks will require the ITIN number before permitting you to open an account. You may need to explain to them that you cannot yet get an ITIN number (subject to certain exceptions) because foreign nationals are now required to have an income tax return ready to be filed before they can apply for one. This new requirement does not seem to have reached many mortgage lenders, banks or developers, and they will often give you the forms without explaining this. In any case, one of the exceptions to the rule is where you can provide evidence that you have already opened up an interest-bearing US bank account or have a US mortgage arranged. This means that you can apply for an ITIN by submitting a completed W-7 form along with your UK passport (or two or more original documents confirming
your identity). If you haven’t yet completed the purchase, you could send the relevant bank account documents, mortgage documents and a real estate purchase contract. The rules keep changing and you may want to look at the recent list of exceptions on the IRS (Internal Revenue Services) website, which you’ll find at www.irs.gov. However, should you wish to wait until you’re ready to file your first US income tax return, you should probably try to obtain your ITIN when in Florida or at the US embassy in London. It can be risky and costly to post your passport and relevant documents to the IRS in the US, and visiting an approved IRS acceptance agent in the UK might cost you more than £400. Another option to consider, rather than sending your original passport to the embassy or to the IRS in the US, is to visit an English notary to have a copy of your UK passport notarised and to forward this with the necessary documents. In order to apply while you’re in the US, you will need to visit your nearest IRS office. You will be required to produce your UK passport or other identification documents. The application will be done for you completely free of charge and will require you to complete a W-7 form. You can visit the IRS website for further information, or telephone them directly at 001 800 829 1040.
Finding a property management agency
Although many estate agents also act as property management agencies for their clients, we recommend that, if you are a buyer seeking to let your property, you consider using the services of an independent property management agency. Something to be aware of is that as estate agents may earn between six and seven per cent commission from selling a home, there is always a lingering concern that they may start to neglect the management of your property in the hope that you will resell with them in the future. Of course, this only applies to a very small percentage of rather ruthless estate agents/management agents, but it’s worth bearing in mind when considering what type of property management agency
you’re going to employ. It is extremely important for you to get independent, well-informed advice. If you’re planning a viewing trip to Florida, it’s suggested that you organise a number of interviews and viewings with estate agents and management agents, thus making your time in Florida as productive as possible. Make sure you make plans in advance
to speak directly to people who have actually bought property in Florida and have experienced the buying process; you will learn a lot from their experiences and mistakes, and also get very useful tips about individual firms and areas.
Step 5: finding the right property
As with every country, the dynamics of buying a second home are largely down to the personality of the buyer, although there are some fundamental rules to bear in mind. Florida offers plenty of choice, boasting everything from coastal properties to the ideal investment homes of bustling Orlando and the swampy Everglades. It is this abundance of choice, however, that can often prove problematic for the buyer. Research is the key word here, and it’s best to visit the intended destination on holiday before deciding to search for a home there. It’s crucial to study the potential location of your property as there are many counties or individual developments with property restrictions in place. If you’re buying with rental in mind, it’s vital to receive written confirmation that the area or development in which you wish to buy has an unlimited rental season. The term used in Florida is “short-term rentals”, and where they are allowed (in correctly zoned areas) you should have no problem at all. However, where short-term lettings are not allowed, you will often be limited to no more than four lettings a year for a minimum of 30 days, or else not be permitted to let at all. Again, it is important to review the terms of your mortgage with your mortgage broker at an early stage and make sure they are suitable for your purposes. Some lenders may want you to swear you won’t rent out your second home or give any control to a property management agent (in other words, provide a power of attorney), or in other cases that you will not occupy your investment property.
Buying a condominium
A condo is referred to as a “box in the sky”. It is pretty much the same thing as a UK apartment and often has resort facilities. Condos are usually available within a community, and include a clubhouse, swimming pool, gym and so on. Your purchase will provide you with a title similar to freehold, because you should have ownership of your individual condo as well as shared ownership of communal areas and facilities in the entire development. With a condominium, only the interior space is individually owned. In fact most homes, whether residential or vacation, will be located within a community where there will be an operating condominium association. This association will control the maintenance of the communal areas: hallways, private roads, lawn care and so on. Typical monthly costs can range from $100 to $400, depending on what kind of amenities are provided. The association is normally owned and controlled jointly by the owners themselves, though there will be a separate management firm involved to administrate it. If you use a property management agency you will also probably be paying to cover the maintenance of your own condo. You can expect to pay a monthly sum that reflects the cost of the whole package as well as
any maintenance work required. An older condominium in poor shape will demand a much higher cost than a new one. Typical monthly maintenance costs can range from around $200 to $600. When buying a condo with rental in mind, you need to check if your prospective neighbours are happy with short-term rentals. Recent cases in the Florida courts have stated that residents’ associations can vote to change condominium policies, restricting owners’ rights to rent out their apartments. However, as of 1 October 2004, any amendments to condo documents which restrict rental rights will only apply to owners who consent to the amendment, and to those who purchase their units after the effective date of any such amendment. Even if you’re letting your property legally, having unhappy neighbours could be a problem.
Buying to let
If you want to let your property, you must make sure it is located within the correct rental zone. With escalating property prices comes a hefty risk that is very worthy of your consideration: what are the chances of the property you want to buy actually meeting your rental income expectation? Are the rents rising in line with property price increases? Your research into location, size and price will help determine this. Whatever you do, don’t just be tempted by glossy brochures and unrealistic projected rental offers. Do your homework and talk to other people who have already bought in that area. The future rental management of your home is of vital importance. Capable owners who can control rental bookings themselves will get the best results as they can control their own lets and rental income. There are various things they need to do though; apply for a Florida hotel license, make themselves aware of Florida tangible personal property taxes and local tourist taxes, acquire a Florida sales tax identification number and occupational licenses for the county and city where the property is located. These owners may want to speak to a lawyer to prepare suitable terms and conditions for letting. There is also nothing to stop a management firm from being employed to work with an owner on bookings, and to create an operating agreement stating that the first booking obtained is the one accepted. Try to get truly independent advice from someone knowledgeable before employing any firms.
Buying off-plan
Buying an as yet unbuilt house is extremely common due to an unprecedented demand for new homes, with many excellent opportunities existing for potential capital appreciation during the build time. Different developments will have varying payment structures, although it’s wise to consider whether or not the building works will be done in advance of any payments you make. We recommend that you should be most wary of buying off-plan purely to make any capital gains, because there’s absolutely no guarantee of that happening.
Buying a business
Your first action should be to take advice from a qualified US immigration lawyer who is a member of the American Immigration Lawyers’ Association. Be wary of immigration “consultants” who are not lawyers. They normally carry no insurance, are not legally allowed to represent you and sometimes fail to appreciate the detailed procedures and many documents required by the US embassy in London. Try to ensure that everyone you deal with (including the seller) is genuine. Employ a qualified business broker to find a proposal
that will suit your requirements and look carefully at any competition. Be particularly careful if you hope to purchase or lease a business as part of any E-2 non-immigration visa application: you’ll need to make sure that this will be regarded as a qualifying business and any such purchase will need to have a contract that is conditional on this visa being
obtained. Don’t assume that an approval for any subsequent change of business will be automatically approved.
Step 6: the contract
Nowhere in the Florida conveyancing process is there a “subject to contract” period. This means that you must ensure you are happy to buy the property before signing the contract
because there are very few ways of getting out of it afterwards. As everything hinges on the signing of the contract, it is suggested that you consider putting contingencies and
protections against any potential problems into the contract itself. You also need to be very cautious when dealing with a developer’s contract. As mentioned earlier, there is no such thing as a standard purchase contract in the US, so you need to scrutinise every contract carefully. With regard to resales, the contract used is usually (but not always) one of two basic forms: the FAR/BAR (drafted by the Florida Association of Realtors and the Florida Bar) or the FAR contract (drafted by the Florida Association of Realtors only). While these
contracts are generally more reasonable than developers’ contracts, it’s useful to have further contingencies or addenda made to them. Where possible, every contract should
incorporate the “legal” description of the property (which is not the street address as it is in the UK). The purchase price, payment dates and terms should definitely be included
in every contract. It’s important that the contract details or addenda also include any additional extras and options that have been agreed by the seller, such as the inclusion of furniture, closing costs contribution and an agreed closing date.
Good faith deposit
Payments to the seller usually start with the payment of a “holding deposit” or “goodfaith deposit”, which normally refers to the amount you put down to reserve the property when you are first shown the real estate contract before signing. There is often no set amount for a true good faith deposit but it may range between $100 and $5,000, and sometimes more.
Never part with more money than you’re willing to lose, and try to get written confirmation as to whether or not the seller will refund your holding deposit if you decide not to go ahead with the purchase. If the seller wants a large good faith deposit, you might be able to negotiate a two-part payment where you pay the larger half of the deposit upon the signing of the contract, or after any contingencies have been met. With all deposits totalled, including any good faith deposit, you will normally have paid between 10 to 30 per cent of the purchase price. A 20 per cent deposit of the property’s full price is often asked for with new builds, and usually during the period of signing the contract. The usual size of deposit requested for a resale or renovation home is 10 per cent. Under Florida state law, deposits paid of up to 10 per cent of the purchase price may not be used by the seller towards construction
costs, and must be held in escrow until completion/closing unless you waive your rights in the contract. It is unfortunately, though, fairly common for sellers and developers to ask you to waive this right.
Contingency clauses
A contingency clause can be very significant, in so far as it may be your only means of ensuring the property meets your requirements. Such a clause may allow you to withdraw from the purchase without penalty. Contingencies can also be used by the seller and can involve anything from setting out payment schedules to obtaining proof that the funds can be raised. Essentially, contingency clauses contain deadlines, and permit either party to enter into the sale without being sure that they can meet the terms of the contract (for example, a
buyer’s contingency clause could allow them to enter into the contract without having yet secured a mortgage). You may want to condition your purchase on certain contingencies such as the approval of your lawyer, a satisfactory valuation of the property, a satisfactory inspection/survey of the property, the receipt of completed disclosure documents and questionnaires from the seller, or on the seller’s approval of your right to assign the contract to any entity you may need to establish before closing for tax purposes. You may also want to stipulate the deadline by which the seller should have approved the buyer’s offer and contract. When you’re buying a condo, you’re given a 15 day period of grace in which to decide whether you want to revoke the contract. Common clauses include a satisfactory appraisal, which gives the value of the property to be no less than the price paid by the buyer. Arranging for two appraisals is sometimes done to alleviate the worries of the mortgage lender, and should not be treated with suspicion. The cost of such appraisals is usually met by the buyer. Another contingency clause can cover the buyer making the purchase contingent on the sale of another property, although this is not very common in Florida. Another can cover the buyer needing to get the approval of a family member in order to go ahead with the purchase. Approval by third parties can be made a contingency, for example the formal agreement from a lender agreeing to issue the buyer with a mortgage. Where contracts hold a mortgage contingency clause, they sometimes state that the buyer should ensure they apply for a mortgage within a week of signing the final contract. The contract may also then contain a loophole which states that if the buyer cannot get a loan commitment within 30 days of signing a contract, they may back out of the sale (or the seller may likewise cancel the sale). However, some sellers will refuse to write this into the contract.
Step 7: securing a mortgage
As discussed in Step 1, one of the first things you should do is get preapproved for a mortgage, as this defines your price bracket and allows you to safely put your name to a contract. We also suggest that you look into securing both a dollar and sterling mortgage because despite the current favourable exchange rate, variables such as currency exchange could cause problems. Mortgages from US lenders are available from a number of different sources, with savings and loan associations providing over half the mortgages in the US. Non-residents will be lent no more than 70 to 80 per cent of the market value of their property, while a resident can secure up to 95 per cent. When you’re purchasing your Florida
property through a company or other such entity, you will normally have to put down 20 per cent and you’ll find that the rates are not very favourable. Therefore, if the value of your home is $100,000 you will have to cover at least $20,000 of the cost with your own money. However, if for some reason you have secured residency before you buy, you also have to ensure that you have enough credit to be entitled to a US mortgage. If you buy as a non-resident then no preliminary credit check is necessary, and you are immediately entitled to apply for a US mortgage. If you pay less than 20 per cent of the value of the property, mortgage lenders will insist that you have private mortgage insurance, or a mortgage life insurance policy. This pays off the outstanding balance of the mortgage should you die before payment completion. Please note that most US lenders – even in a no documentation mortgage – will still require letters from your UK bank confirming your good standing. Some UK banks may have policies under which they may refuse to sign the type of letter required.
Credit rating
In order for you to qualify for a mortgage, an assessment is carried out through an evaluation of the property in order to confirm its value, and your credit rating will then be checked. It will have to be perfect in order to qualify for a home loan. As in the UK, the amount the mortgage company will lend you is determined by your income and is limited to no more than three times your income. It’s also possible to take out a nonincome status mortgage which will loan you between 60 to 70 per cent of the cost of your home without proof of income. It’s much more difficult to finance a home in Florida than in the UK and it takes a lot longer to secure a mortgage, usually between 30 to 90 days and sometimes even longer. All mortgage applicants must be homeowners in the UK, and some lenders will allow potential rental income to be taken into account when deciding on the size of the loan, but not if you remortgage your UK home.You can also obtain an interest-only mortgage as well as a repayment mortgage. Lenders can charge a fee for supplying you with a mortgage and these charges are known as “points”, which are equal to one per cent of the total mortgage provided. As the mortgage market is competitive some loans can be offered with no points, but it’s important to check.
Types of mortgage
You can take out a mortgage for 10, 15 or 30 years, and you can normally opt for either a fixed rate mortgage or an adjustable rate mortgage. An adjustable rate mortgage is more risky and is only recommended for those who believe their income will increase enough to offset a rise in repayments. As little as a one per cent increase could enlarge the cost of repayments by $75 a month. It is also possible to secure a mortgage which is repaid on a weekly basis. Alternatively, you can apply for a two-step mortgage, which has an adjustable rate that changes just once in its 30-year lifespan. A minimum loan would be £30,000 in the UK or $50,000 in the US. The maximum loan is £1,000,000 or $1,000,000, although the
average loan is fixed at 4.65 per cent, with a maximum LTV (Loan To Value ratio) of 80 per cent. You would be well advised to gain preapproval for your mortgage before you sign any binding contract.
Step 8: home inspection
There is a fundamental difference between a home inspection and a walkthrough, both of which can be a crucial part of the purchase process. With a walkthrough the seller invites you to inspect the property so you can both agree to a checklist of any items to be repaired or replaced, while with a home inspection a professional inspects the property with you before the formal walkthrough occurs. A home inspection is the US equivalent of a survey. You should request to have your right to arrange a home inspection written into the contract, as some sellers will try to avoid allowing an inspection to happen. Where the property is being purchased “as is” – which is how some homes are being sold now – a home inspection may well be critical. It is the main opportunity for you to understand what defects the house has so that you can bring them to the seller’s attention prior to completion. The home inspection is focused on taking in the actual state of repair of the home. Do be careful though: anyone can call themselves a home inspector in the US, as it requires no professional qualification. If possible, use someone with professional qualifications like an engineer, architect or licensed contractor. Alternatively, you could find an inspector through an organisation like the American Society of Home Inspectors (ASHI) which has developed formal inspection guidelines and a professional code of ethics for its members. Membership
of ASHI is not automatic: proven field experience and technical knowledge of structures and their various systems and appliances are a prerequisite. Make sure that the inspector has “errors and omissions” insurance coverage so that you are protected against any mistakes he makes. New builds should also be checked to ensure that they are hurricane proof if located in an area prone to hurricanes, which many parts of Florida are. It’s also beneficial (where the sellers will agree to it) to write the builder’s responsibilities into the contract,
thus reducing the chances of shoddy and irresponsible workmanship. Where this is not permitted by the seller, you may want to arrange for a home and termite inspection to be performed immediately after the sale. The importance of securing a home inspection is enhanced by Florida’s building laws and regulations, which vary from county to county. In Tampa it is law that a potential buyer be made aware of the possibility of flooding in the area, thus avoiding costs in the future. It also counters construction in areas that are prone to flooding. Full details of the Florida building code can be found online at this address: www.floridabuilding.org. In order to ensure the checks are properly carried out, make sure you ask the home inspector to check for these specifics.
The walkthrough
At the walkthrough, the seller gives you a last opportunity to inspect the property. This should always happen before the final closing takes place. The walkthrough is sometimes your only means of actually checking that the seller has completed the construction to your liking. If you have already had a home inspection performed, it gives you an opportunity to
ensure the repairs suggested by the home inspector are listed on the seller’s checklist. If a copy of the inspector’s report was already given to the seller, some of the items found by the inspector may have already been repaired. If you cannot attend the walkthrough, and the seller will not accept the home inspector as your agent for purposes of the walkthrough, you should refuse to agree to the reference provided by a real estate agent. The buyer, with an agreed proxy, should take the home inspector’s report with them to the property to check whether recommendations against the property have been implemented. The buyer and seller then, as discussed above, agree a checklist of things that the seller will agree to repair or change. However, most, if not all, developers’ contracts, will not allow the buyer to withhold payment at the closing if these changes haven’t been made by then. Such repairs may have to be made shortly after closing instead.
Step 9: contract follow-up
Between signing your contract and closing the sale there are likely to be a number of deadlines to meet. If you have bought a preconstruction property, then there are likely to be payment schedules that run throughout the period of construction. For example, five per cent of the sale price may be due on the laying of the foundations. This is something you will obviously need to be aware of, so make sure your lawyer checks the contract for this and similar clauses. With a resale property (particularly where the property is being sold “as is”) you should make sure that an inspection or home survey is carried out before closing the sale, so that any repairs that need to be made are carried out and/or written into the contract. The buyer may also have to guarantee that certain documents are returned to the lender or seller within this period to help the smooth transfer of property. The most important part of this period is making sure that payment of funds for your deposit reach the seller’s broker by the deadline set out in the contract. If this doesn’t happen, then the contract may well be terminated and you could lose your deposit. Wiring money from the UK can be problematic, so you should check with your bank as to how long this procedure will take them: it can take between one and seven days to reach the US. If the money does not reach Florida before your deadline then, aside from termination of contract, you can also be liable for huge, ongoing financial penalties. These could be anything between $200 and $3,000 depending on the terms of the contract. Closing isn’t just about signing the
documents: it’s just as much about securing the financial backing. If you intend to use a currency trader, you should arrange this well in advance so you can be sure there will be
enough time to use their services. A significant part of setting the closing date itself is the issuing of the Certificate of Occupancy (the CO). This has to be issued by the local government, stating that the property is in a fit state for habitation. The date for closing the sale can only be set after this has been issued, although some developers will set a closing date anyway, on the assumption that the CO will be received in the meantime.
Step 10: title services
This is one of the final stages and one that you as the buyer will not normally be aware of (if at all) until long after the contract is signed and returned to the sellers. The title insurance agents will research the county title records and prepare the relevant documents which enable the property transfer process to reach a conclusion. The essence of this part of the transaction is the proving of the “title” or registered ownership of the vendor in the public records and, consequently, the right of the vendor to actually sell the property. Where you use a lender, they will prepare their own documents for your signature before a notary. The title work, known as the conveyancing to UK buyers, is defined as the transfer of the deeds of ownership of the property from the vendor to the purchaser. Do keep in mind that, as the title insurance agents are normally the seller’s lawyers or agents (or in the case of resales, independent of both parties), you will not be advised as to the meaning of the title documents. In fact, it is unlikely that you will speak to the agents at all. The process will involve the
certification of the title, the preparation of the relevant documents to declare you as the new owner of the property (upon payment of the purchase price) and the payment of the
closing and/or notary costs. During this process the title company will undertake title research to ensure that there are no problems, outstanding debts or costs on file in the county records that might be linked to your new home. The more often a property has been sold and the more complex its ownership history, the more necessary it is to make these checks.
It’s also essential, especially where lenders are involved, to check that the documented property boundaries tally with the property’s actual boundaries. This is done by carrying out a boundary survey, not to be confused with a home inspection. As a rule, boundary surveys aren’t usually prepared for condominium purchases located in shared developments, but rather for larger premises that include private land.
Step 11: closing the sale
This is the final stage of the conveyancing process, with the date being agreed on in the purchase contract. It’s also where the title closing agent should be getting ready to record the deed of title and distribute the funds to the relevant party. Where you are represented by a lawyer, your lawyer will either have requested a copy of the closing documents, or have arranged for you to attend his or her offices before the closing date with the documents to review them. A review of these documents is crucial as the deed can quite often contain errors in the buyer’s name or in the technical legal description of the property. The “HUD closing statement” should be reviewed to ensure that the seller is making the agreed
contributions to the closing costs, and to make sure you are not paying any more in closing costs than is reasonably acceptable. A review of the “title commitment” is necessary to make sure that the property is insured, as well as checking there are no exceptions to the title insurance coverage which can be removed, thus providing you with the broadest possible coverage. If you choose not to have a lawyer, be sure you examine the closing documents as carefully as you can, so you can uncover any errors. Your final deposit, or the balance of the purchase price, will be due before the closing and should normally be paid to the title-closing agent. Do not pay your deposit directly to the builder unless you have
written confirmation that it will be delivered to the title-closing agent or escrow agent. For the buyer, the act of signing the deed of sale confirms the transaction. The closing consists of signing the deed, the transferral of legal ownership of a property and the payment of the balance of the purchase price, as well as other costs, such as closing costs, taxes and insurance. Both the buyer and seller are issued with a closing statement, which details all the costs and fees that each party is responsible for. Before the deed of sale is actually signed, the closing agent must make sure that all the conditions detailed in the preliminary contract have been fulfilled, with any costs due being collected. The agent then witnesses
the signing of the deed and arranges for the name of the new owner to be listed in the local property registry. One very important thing to remember, however, is that the closing agent does not actually verify or guarantee the accuracy of any statements in the closing contract, or guarantee either party against fraud. The closing agent is only a witness. It is common practice for both the buyer and seller to attend the closing, where a Florida public notary is present to witness the signing of the contract. There is also the “mail-away closing” where all the documents are posted to the out-of-state buyer by the closing agents in Florida, ready for the buyer’s signature. If you have your own lawyer in the UK, he or she will review the documents and inform you when they have been corrected or approved. You may have already taken the documents to a UK notary for signing and notarisation so that the documents can be returned to the closing agent in Florida. Once the closing agent has received the documents, followed the title insurance company’s requirements and confirmed that everything is ready, the original deed is forwarded for registration at the local county court’s official property records department. It is at this point that you will be the proud owner of your new Florida home.
Title insurance
The first thing to be aware of as the buyer is that the title insurance policy is probably more valuable than your deed, as it’s the insurance company who protects you against a claim concerning ownership of your property. Title insurance can be taken out by both the mortgage company and the buyer (and you should always insist on getting your own policy) and it insures against a number of occurrences. Firstly, a lender can take it out to protect themselves against failure to meet any mortgage repayments and thus protect their title. Whether you finance your purchase or not, you should always make sure that you have title insurance. This protects you, the buyer, against any problems that may occur after the purchase: things like problems regarding legal ownership, or anything that was not discovered during the title service before the contract was signed. For instance, if the deed was forged, or part of the land was sold to you while the property actually belonged to someone other than the seller, then you as the new owner are protected. If you have to defend your title, the title
insurance will cover attorney fees and all other costs incurred in defending the title. Title problems are infrequent but they can lead to the loss of your home if they do arise. Title insurance does not cover all instances that might jeopardise the ownership of your home however. Any problems which aren’t listed in the county real estate records, such as unpaid utility bills or other community fees, cannot be dealt with and resolved through the title insurance.
FIRPTA
If the seller is a foreigner and not a US resident, the closing agent is obliged to withhold 10 per cent of the purchase price (credited to the seller’s income taxes on the capital gain) when the property is sold. This is a legal obligation which falls under federal law rather than state or county law, and is known as FIRPTA (the Foreign Investment in Real Property Tax Act). This is obviously only a concern for non-US buyers once they later come to sell their property. In certain appropriate circumstances, your accountant or lawyer may be able to
assist you in avoiding this or else seeking a refund. The only exception to this rule is where the buyer is a resident who is buying to permanently relocate, and the property is sold for less than $300,000.
Step 12: things to be aware of
Letting your home
If you’re planning on letting your Florida property, you’re required to have a State Hotel Licence from the Florida Department of Business and Professional Regulation. You can contact them at: Department of Business and Professional Regulations, 1940 North Monroe Street, Tallahassee, FL 32399-1027, www.myfloridalicense.com/dbpr/index.html, Tel: 001 850 487 1395. You will require a county occupational licence, as well as a city occupational licence in certain cities in Florida. You should inquire with the appropriate municipality about licences: you will need to provide them with a copy of your State Hotel Licence. As a non-resident alien, you will be required to pay 30 per cent of your gross rental income to the state. There is a way around this, if a you fill out a W8ECI form. The W8ECI form should be passed to the withholding or property management agency, and your rental income will be treated as business income. Consequently, you will be subject to the standard income tax rates only on net proceeds, with deductions being possible for business expenses and losses. The W8ECI form is available from the IRS website, www.irs.gov.
Property tax
As a non-resident alien in Florida you may be subject to US federal, Florida, and UK income, capital gains and estate/inheritance taxes on your property. If you let out the property, income tax will be charged on an annual basis. If you were to die while still holding the property, you may be subject to US inheritance tax if the value of your US assets (ie the property) is in excess of the threshold amount of $60,000. You may be entitled to use the US/UK inheritance tax treaty, or otherwise may have the option to minimise or eliminate an exposure to US inheritance taxes. If you gift the property, you may also be subject to US gift taxes. If you own the property through an entity, such as a corporation or a partnership, there are US corporation and partnership forms which must be filed annually. With a partnership, you may have flow-through amounts which may have to be reported in the US or the
UK. You should consult an accountant (preferably one who is knowledgeable on US and UK taxes) to determine which forms need to be filed for your entity and how these flow through to your personal US and UK tax returns. There are three different types of property tax in existence in Florida, and you need to know about all of them: a real property tax
for home owners, a tangible tax on business assets, which includes tax on rental income, and an intangible tax on stocks, bonds, mutual funds and money market funds.
Ad valorem tax
Real estate taxes are known as “ad valorem” taxes, which simply means they are taxes based on the value of your home. If you are purchasing a home in Florida, whether you are legally a Florida resident, or merely a non-resident, you will still be liable to pay ad valorem tax. However, there are differences in the amount you have to pay, depending on the
functionality of the property: for example, a farm owner would pay much less property tax than a city centre property owner, and retirement buyers will be faced with smaller payments than a working couple. Ad valorem payments are calculated per thousand dollars and usually range from between one and two per cent of the property’s value. These are based upon the assessed value of the property and the non-ad valorem assessments, including costs such as providing fire protection and rubbish collection. The School Board, Board of County Commissioners, municipalities and other ad valorem taxing bodies set the “millage rates” for properties within their boundaries. The millage rate is the dollar amount to be paid in taxes for every $1,000 of their appraised value. For instance, if your property is valued at $100,000, and the millage rate is $15, you would pay approximately $1,500 a year. Assessments for the payment of ad valorem tax begin in November of each year, as soon as the tax roll has been certified, with tax notices mailed on 31 October. Florida state law requires property owners to be responsible for paying their property taxes and ensuring that they pay before the due date of 1 April.
Tangible personal property tax
Tangible personal property tax is an ad valorem tax that is assessed against:
• Any equipment, fixtures or furniture used for a business or commercial purpose
• Leased equipment: for example, articles contained in properties that are rented, such as furniture and white goods
• Furnishings and appliances in a rental property that are owned by the real property owner
• Any attachments made to a mobile home or manufactured housing in a rental park
Any person, firm or corporation owning any tangible personal property as described above is required to complete and file an annual return with a Property Appraiser. Anyone earning income from their property through rental is also liable for tangible personal property tax. If you own a home which you rent out, then make sure that you keep the receipts of any purchases you make, in order to file your tangible tax return. Household goods or personal items used by the homeowner in their own home are exempt. All returns are to be filed between 1 January and 1 April of each year to avoid any financial penalties, which rise by five per cent each month after the 1 April deadline. If no return is filed at all, a 25 per cent penalty is enforced and an assessment made on the property. Returns that are filed early are subject to a discount:
• 14 per cent if paid in November
• 13 per cent if paid in December
• 12 per cent if paid in January
• 11 per cent if paid in February
The payment amount is based on an estimate by the Property Appraiser and taxes are assessed at the same rate as ad valorem tax. Some payments differ from county to county,
with some assessments based on the length of time you rent the property out for every year. The most definitive answer regarding all the state taxes will come from the Florida Department of Revenue.
Florida intangible tax
Due to changes in Florida law, non-residents are no longer subject to the Florida intangible tax, even if they might have assets managed or controlled by a Florida resident. The only
time they should normally pay this tax is when they buy their property in Florida with a mortgage, as the mortgage is taxed as part of the closing costs for the buyer. You may want to refer to the website http://dor.myflorida.com/dor for further information on this tax.
Your will
While Florida law generally provides that the Florida courts should accept and attempt to follow valid foreign wills, there may occasionally be administrative difficulties. Wills prepared under Florida law provide for a “proof of execution” form to be signed at the same time as the will, which generally avoids any requirement for the witnesses to be brought before a court on a challenge to prove the execution of the will. Foreign wills which do not have this clause can sometimes be problematic. Another important point is that there is no spousal exemption for US inheritance taxes for non-resident aliens. You can include a qualified domestic trust (or “QDOT” trust) in a will, so that any such inheritance tax liability may be deferred until the death of the surviving spouse, or the sale of the property. Also, there is a very useful will substitute in Florida, ideal for foreign owners of property: a lawyer can set up a revocable living trust where, in contrast to a will, your estate can avoid the delays and costs of a probate in Florida while your spouse retains full control of the property during their lifetime.
Step 13: relocating to Florida
Once you have bought your Floridian home, you may want to ship items out to Florida, unless you are purchasing furniture out there or have a furniture package provided to you from your seller. This can take anything from between four and eight weeks, so it’s advisable to approach a number of companies and get a wide selection of written quotes before committing yourself to any one removal company. You could also consider air freight, which is swifter and simpler than waiting up to two months for your personal effects to reach
your new home. The first thing to check is whether or not the quotes you are given include insurance and the packaging of your furniture and effects. The second thing to be aware of is clearing your freight through customs. There are two ways of doing this: the first is to pay for custody in-bond where a third party clears your effects through customs; the second way is to fill out Form 3299 to ensure your effects can be cleared by customs, but this does take longer. Also, bear in mind the possibility of having to pay duty and internal revenue tax on importing your items, although in most instances you won’t have to. In general, international moves are best commissioned to a removal company that is a member of the International Federation of Furniture Removal (FIDI), the Overseas Moving Network Inc (OMNI) or the Association of International Removers Ltd (see pages 181-191 for contact details). Companies associated with these bodies usually subscribe to a payment guarantee or bond scheme, so that if your contract is not fulfilled by your chosen mover, the
contract will be completed at the agreed cost by another company or your money will be refunded. Ensure you make a list of all items being shipped so you can prove if something
goes missing. Leave your televisions, 220V electrical items and wardrobes behind, as Florida homes operate off an 120V electrical system and have walk-in wardrobes. Once you take possession of your new home, make an inventory of all the fittings and furnishings to check against your contract. Make sure the previous owner hasn’t run off with anything that was promised to you. Ideally you should get written instructions for the appliances from the previous owner, as well as check with the local town hall to make sure you adhere to all the regulations about recycling, parking and home maintenance.