Published by the Florida Bar in 1997 as a chapter of
Florida Real Property Complex Transactions.
This Article has NOT been updated since publication!
I. [§4.1] INTRODUCTION
The aim of this chapter is to outline and discuss those practical
problems that confront the attorneys representing the subdivision developer, the
builder and the lender providing the financing. Clients will often look to their
attorney for counsel beyond drafting the legal documents. Therefore, the
attorney should become familiar with matters that are the responsibility of the
client, the surveyor, the engineer and others.
This chapter principally discusses typical residential subdivisions.
Commercial property is specifically covered in chapter _____. Retail and office
buildings, sometimes part of an over-all subdivision plan, are covered in Chapter
____. Business entities used to acquire, subdivide and sell real property are
discussed briefly; see Chapter ____ for comprehensive treatment.
Subdivision-specific financing is discused in this chapter; however, financing in
general is treated in Chapter ____.
II. [§4.2] CHOICE OF ENTITY
Historically, the owner-developer has been a corporation, but the real
estate developing entity may be an individual, general partnership, limited
partnership, joint venture off-shore corporations, business trust, real estate
investment trust, land trust or other vehicle of syndication. See Chapter ____.
If the client intends to develop the subdivision as well as build the
units, the attorney should consider whether separate entities should be
employed for the development and construction. The attorney will be called on
to point out many factors in advising his client as to a choice of business
structure. Among the matters that the attorney should consider and discuss
with the client are:
1. degree of risk and limitation on liability;
2. contemplated term of the endeavor;
3. effect of death, disability or divorce of a managing
principal;
4. potential number of investors;
5. anticipated need for transferring or hypothecating
interest in the proposed entity;
6. size and term of requisite financing;
7. exposure to personal liability as guarantor;
8. governmental regulation applicable to contemplated
development, as well as to type of entity;
9. control of the enterprise and effect on cost of
operation; and
10. tax consequences in relation to issues which arise
in organization and initial transfer and during the course of operation, as
well as on conclusion and liquidation, when appropriate, of the
enterprise. See generally REAL PROPERTY TAX CONSIDERATIONS
IN FLORIDA (CLE 1979).
In the past, a corporate entity provided additional financing flexibility
because of the special treatment of corporations with regard to usury.
However, Florida usury law no longer distinguishes between corporate and
non-corporate borrowers. See PRACTICE UNDER FLORIDA USURY LAW,
Section 7.2 (CLE 1987).
Sometimes a developer may utilize a "nominee" corporation to hold title
for a limited period of time. Great care must be taken in using nominee
corporations, however, inasmuch as an adverse determination that the nominee
corporation is the proper taxable entity can be disastrous. The seminal case as
to the tax treatment of corporate entities is Moline Properties, Inc. v.
Commissioner, 319 U.S. 436, 63 S.Ct. 1132, 87 L.Ed. 1499 (1943); see also:
Tomlinson v. Miles, 316 F.2d 710 (5th Cir. 1963); Paymer v. Commissioner,
150 F.2d 334 (2d Cir. 1945); F. 2d 760.
III. MATTERS TO BE CONSIDERED BEFORE CONTRACTING TO
PURCHASE
LAND TO BE SUBDIVIDED
A. [§4.3] In General
There are many matters to be considered in regard to the suitability of a
tract of land for a residential subdivision and development. Rather than treating
the purchase as an isolated transaction, the attorney should look ahead to the
multitude of problems to be confronted in securing all requisite approvals in
order to develop, subdivide and market the property. There also will be
problems concerning the development of the land, improvement and
construction on it, subdivision sales and the financing of each phase. These
matters should be reviewed carefully by the attorney and brought to the client's
attention.
Frequently, in assisting the developer in purchasing land suitable for
development as a subdivision, the lawyer is called upon to direct attention to the
various problems referred to later in this chapter. Many of these potential
problems can be avoided by a special term or condition in the purchase
contract. It is, therefore, important that the attorney become familiar with the
subject property early in the process. Whenever practicable, the attorney
should inspect the subject property itself in order to discover potential problems
that may not be disclosed by a survey and to have detailed knowledge of the
physical characteristics of the property. It is the rare exception in Florida today
that land may be purchased and then easily subdivided and sold. Therefore, a
"standard form" purchase and sale contract will not suffice to protect one's
client's interests.
References that may be consulted as to the many limitations and
controls on land use include:
1. FLORIDA ENVIRONMENTAL AND LAND USE LAW (CLE
1987);
2. ENVIRONMENTAL REGULATION AND LITIGATION IN
FLORIDA (CLE 1981); and
3. Juergensmeyer and Wadley, FLORIDA LAND USE
RESTRICTIONS (D&S 1989).
B. [§4.4] Vacation of Plats, Roads, Parks and Other
Public Areas
Much of Florida's undeveloped land has already been pre-platted, and
the client's development plan may be contrary to these plats. Public parks,
utility easements and roads on the property might also frustrate the client's
intent. The attorney may therefore be called upon to effect an abandonment of
prior plats or vacations of public areas.
Plats and public roads (other than state roads or federal highways) may
be vacated by the governing body of the county in which the client's property is
located. If, however, the property is within the corporate limits of a municipality,
the municipality must first approve the vacation before the matter may be
decided by the county government. A replatting does not fulfill the requirements
for the vocation of a public road.
If the existing plat is consistent with the client's development plan, the
attorney should review the plat to be sure that it has been properly accepted
and recorded. See Attorney's Title Insurance Fund Title Note ("TN") 24.02.01,
Plats Not Meeting Formal Requirements.
The following Florida Statutes should be considered:
1. 125.01, powers and duties of county commissions;
2. 125.35, county authorized to sell real and personal
property and to lease real property;
3. 125.39, nonapplicability to county lands acquired for
specific purposes;
4. 125.411, conveyance of land by county (form deed);
5. 177.101, vacation and annulment of plats subdividing
land;
6. 336.08, relocation or change of roads (county
commissioners may establish, locate, change or discontinue public
county roads by resolution);
7. 336.09, closing and abandonment of roads; authority;
8. 336.10, closing and abandonment of roads; publication of
notice;
9. 336.11, closing and abandonment of roads; ratification of
prior actions; and
10. 336.12, closing and abandonment of roads; termination of
easement; conveyance of fee.
See also T.N. 24.01 Dedication and Vacation of Streets and Parks.
The court in Sun Oil Company v. Gerstein, 206 So.2d 439 (Fla. 3d DCA
1968), cert. den. 211 So.2d 212, held that a wide latitude of discretion is
accorded to discontinue any street or highway laid out by a governmental
agency and "the exercise of that discretion will not be disturbed in the absence
of a clear abuse thereof or unless there occurs an invasion of property rights."
206 So. 2d at 440. Prior to abandonment of a road or right of way easement it
is important to determine that there is no reverter of the fee or easement to the
grantor of the property to the governmental agency. See Dean v. MOD
Properties, Ltd., 528 So.2d 432 (Fla. 5th DCA 1988); F.S. 255.22,
Reconveyance of lands not used for purpose specified.
C. [§4.5] Zoning Changes
If the land is not properly zoned for its intended use, the attorney and
client must discuss the advisability of seeking a rezoning; a change in zoning
classification is most often required if a portion of the subject property is to be
set apart for commercial or industrial use. The time and expense incurred in
rezoning property can be considerable. Therefore, when representing a buyer,
the attorney should include provisions concerning rezoning in the purchase and
sale agreement, such as the right to rescind the agreement if the desired
rezoning is not obtained. The contract should permit the buyer to seek the
rezoning in the name of the seller and include a covenant of good faith and
cooperation by the seller. In the alternative, the contract might require the seller
to attempt to secure rezoning of the property prior to closing. With either
contingency, the contract should provide that the buyer may elect to
consummate the transaction irrespective of whether the rezoning is
accomplished. There are legal theories which may be successfully asserted to
rezone property, but the courts give wide discretion to county and municipal
governments in the exercise of this authority. Rezoning is not a proper function
of the courts, but is the function of appropriate zoning authorities. See Town of
North Redington Beach v. Williams, 220 So.2d 22 (2d DCA Fla. 1969). A
zoning ordinance will not be ruled invalid if it is "fairly debatable" that the
ordinance bears a substantial relationship to protecting the public health, safety
or welfare. See Sarasota County v. Walker, 144 So.2d 345 (Fla. 1962); City of
Miami Beach v. Lachman, 71 So.2d 148 (Fla. 1953).
Although rezoning is a function of local government, the State plays an
ever larger role in the process. F.S. 125.66(5) sets forth the procedures
counties must follow in rezoning property. F.S. Chapter 380, Development of
Regional Impact Procedures, must be complied with if the size of the proposed
development so dictates, regardless of local government action. Finally, the
power to rezone is constrained by the comprehensive plan required by F.S.
Chapter 163, Part II. All land development regulations must be consistent with
the comprehensive plan (or adopted element of the plan if the entire plan is not
yet adopted). Where the desired rezoning would be inconsistent with the
comprehensive plan, the plan must be amended prior to the rezoning. The party
seeking the rezoning has the burden of proof to show that the proposed
development conforms with the comprehensive plan Machado v. Musgrove, 519
So.2d 629. Generally, comprehensive plans may be amended only twice a
year; however, amendments affecting 5 acres or less may be effected without
such limitation under certain circumstances. F.S. 163.3187. The
comprehensive plan procedures and pitfalls vary depending on the county, and
at time of this publication are in transition and development. See, Kobrin and
Rubin, "Concurrency," Florida Bar Journal, January 1990, p. 55. Attorneys are
cautioned to determine the current status in the relevant county for every
transaction which may involve construction.
The following Florida Statutes should be considered:
1. 125.01(h), county power to zone;
2. 125.66(5), procedures for rezoning by counties of private
property;
3. 166.021, power of municipalities;
4. 166.041(3)(c), procedures for rezoning of private property
by municipalities;
5. 380.06, developments of regional impact;
6. 163.3177, elements of comprehensive plan;
7. 163.3187, amendment of adopted comprehensive plan;
8. 163.3194, legal status of comprehensive plan;
9. 163.3197, legal status of prior comprehensive plan; and
10. 163.3201, 163.3202, 163.3213, implementation of
comprehensive plan by development regulation.
The following sections of the Florida Constitution should be reviewed:
1. Article VIII, Section 1 (Counties); and
2. Article VIII, Section 2 (Municipalities).
The following administrative rule should also be reviewed:
Fla. Admin. Code 9J-5 (Harrison).
Publications and articles on zoning which would be helpful to the
attorney include:
1. L. Davidson and M. MacConnell, FLORIDA ZONING LAW
(D&S 1988) Ch. 3.02, Initiating Zoning or Rezoning;
2. FLORIDA ZONING & LAND USE PLANNING (CLE 1983);
3. Juergensmeyer and Wadley, FLORIDA LAND USE
RESTRICTIONS (D&S 1989);
4. Davidson, Plan-Based Land Development and
Infrastructure Controls: New Directions for Growth Management, 2 J.
Land Use & Envtl. L. 151 (Fall, 1986);
5. Schnidman & Baker, Planning for Platted Lands: Land
Use Remedies for Lot Sale Subdivisions, 11 F.S.U. Law Rev. 505 (Fall,
1983);
6. Pelham, Regulating Developments of Regional Impact:
Florida and the Model Code, 29 U.Fla.L.Rev. 789 (1977);
7. Ravikoff, Land Use Planning, 31 U. Miami L. Rev. 1119
(1977); and
8. Rhodes, Hayler and Brown, Land Use Controls, 31 U.
Miami L. Rev. 1083 (1977).
The following newsletters which are also helpful may be obtained
without charge upon request to the publisher:
1. Growth Management Studies Newsletter
Growth Management Studies
University of Florida College of Law, Gainesville,
FL 32601;
2. Florida Environmental and Urban Issues
FAU-FIU Joint Center
Florida Atlantic University
Boca Raton, FL 33431;
3. Technical Memo
Florida Department of Community Affairs
Division of Resource Planning and Management
Bureau of Local Affairs
2740 Centerview Drive
Tallahassee, Florida 32399-2100
D. Elimination Of Objectionable Restrictions And
Easements
1. [§4.6] On The Land To Be Subdivided
Releases of restrictions and easements that will interfere with
the development of the proposed subdivision must be obtained;
otherwise, court action must be brought for their cancellation based
upon abandonment, adverse possession, merger or some other
grounds. See, Botts, Removal of Outmoded Restrictions, 8
U.Fla.L.Rev. 428 (1955). Unless the buyer has acquired title to the
property, the buyer may lack standing and any court action taken to
eliminate objectionable restrictions may have to be brought on behalf of
the seller. Any restriction sought to be cancelled should be reviewed
for possible challenges to its validity. In the past, courts took a
restrictive view towards the length of time a restriction could remain in
force. More recently, however, the courts have liberalized this position
and upheld restrictions which could remain in force almost indefinitely.
In Balzer v. Indian Lake Maintenance, Inc., 346
So.2d 146 (Fla. 2d DCA 1977), the court reviewed a covenant which
remained in force until a certain date, and subsequently would be
automatically renewed for ten-year periods unless the owners of at least
two-thirds of the lots in the subdivision agreed in writing to change or
abrogate it. The court held that the covenant was not invalid on the
theory that it imposed a perpetual obligation incapable of abrogation.
The key to the court's ruling was that "the covenant had definite
termination dates occurring every ten years thus the covenants could
be abrogated".
The following "Title Notes" published by Attorney's Title
Insurance Fund should be reviewed:
1. T.N. 11.04.13, Release of Restrictions By
Statutory Trustees Time - Limitations;
2. T.N. 24.03.01, Deeds Not Containing Restrictions
And Reverters Appearing In Plat Dedications - Effect;
3. T.N. 24.03.02, Replatting May Not Eliminate
Restrictions;
4. T.N. 27.01.03, Effect On Reservations;
5. T.N. 28.01.06, Waiver of Restrictions On Basis of
Other Numerous Violations Not Justified As To Unimproved
Property;
6. T.N. 28.03.01, Change in Character of
Neighborhood and Zoning - Marketable Record Title Act;
7. T.N. 28.03.03, Expiration of Restrictions and
Reverters;
8. T.N. 28.03.08, Statutory Cancellation - Sec.
689.18, F.S. 1975; and
9. T.N. 28.03.09, Subdivider's Release T.N. 28.03.10
Tax Titles Do Not Eliminate Restrictions 2.
2.
[§4.7] On Nearby Lands
The developer, in choosing a tract of land to be subdivided into
individual residential lots, should be aware that HUD/FHA and many
other lenders customarily will not approve loans on residential lots
unless the land in close proximity is restricted so that it cannot be used
in such a manner that it would materially impair the property on which
the loan is to be made. Usually, the restrictions on nearby lands are
not required to be as strict or as detailed as those within the proposed
subdivision. See, Land Planning Principles for Home Mortgage
Insurance, HUD Handbook 4140.1, 8-2 (1973). However, the attorney
should be aware that some lenders may require restrictions which are
more strict and detailed than the applicable zoning of the nearby lands.
E. [§4.8] Easements Over Adjoining Property
It may be necessary for the developer to secure easements over
adjoining or nearby lands. Easements are required most often in connection
with drainage and utilities and sometimes for access. Without them, the
developer may be unable to achieve the intended goal. It must be kept in mind
that such easements must be satisfactory in form and content to the entity that
will ultimately accept or approve them. The attorney should ensure that the
easements are free from encumbrances on the servient estate. 1A BOYER,
FLORIDA REAL ESTATE TRANSACTIONS, Chapter 23.
F. Approval By Secondary Mortgage Market Brokers &
Government Mortgage Insurers
1. [§4.9] In General
Essential to the success of many subdivisions is the ability of
an ultimate purchaser to finance a lot improved with a home with
Federal Housing Administration ("FHA") or Veterans Administration
("VA") guaranteed loans. As used in this chapter, FHA loans refer to
those secured by mortgages on single-family homes to be insured
under the National Housing Act, as amended, 12 U.S.C 1701 et seq.
VA loans as used in this chapter refer to those for single-family
residences, guaranteed under the Serviceman's Readjustment Act of
1944, as amended, 38 U.S.C. 1801 et seq. (Veterans Benefit Act).
Formerly both the FHA and VA established and monitored
subdivision standards, including approval of the subdivision site,
improvements and utilities. The VA has changed its practice and
focuses of its review on the determination of the value of homes to be
purchased. The VA relies upon the local permitting authorities, lenders,
surveyors and other private parties to review the subdivision as to
environmental and related issues. However, in subdivisions where there
are private roads or substantial recreational amenities, the attorney can
anticipate a review of the covenants and homeowners' association
documents by the VA. VA Circular DVB 26-80-30 should be consulted
as to VA review of planned unit developments. This circular may be
obtained from the Office of District Counsel, P.O. Box 5002, Bay Pines,
Florida 33504. HUD/FHA has continued to require subdivision review
before granting commitments to issue mortgages under Section 203(b)
of the National Housing Act of 1934, the most common mortgage
insurance program. See 1 Housing and Development Reporter 10:0014
(WG & L).
As the secondary mortgage market has emerged as a major
financial force, it has taken on increasing importance to the developer
and lender. The two major purchasers of residential mortgages are
the Federal National Mortgage Association ("Fannie Mae") and Federal
Home Loan Mortgage Corporation ("Freddie Mac"). Both entities have
requirements as to the property and homes securing the mortgages
they purchase and resell. While compliance with the FHA
requirements will generally satisfy Fannie Mae and Freddie Mac
requirements, these agencies should be consulted to assure the
marketability of mortgages created upon subdivision homes.
At time of this writing, the regional Fannie Mae office is:
100 Peachtree Street, N.W.
Atlanta, GA 30303
404/572-6000.
The regional Freddie Mac office is:
Federal Home Loan Mortgage Corporation
2839 Paces Ferry Road, N.W., Suite 700
Atlanta, GA 30339
404/438-3800
Guides available from the respective regional offices include:
1. FNMA Selling Guide;
2. FNMA Servicing Guide;
3. FNMA MBS Selling and Servicing Guide;
4. FNMA Multifamily Guide; and
5. Freddie Mac Bulletin
6. Freddie Mac Sellers' & Servicing Guide (includes
the Freddie Mac Bulletin).
Virtually every residential lender subscribes to these loose-leaf
guides and most will make them available upon request.
Although in the past there existed uniformity and reciprocity
between VA and FHA with regard to subdivision approval, this is no
longer the case. See HUD Circular letter 88-26 (HD-51). Therefore, if
the client seeks to satisfy both VA and FHA requirements, both
agencies should be contacted at an early stage to ensure compliance
with their respective. Fannie Mae and Freddie Mac should also be
consulted, whether FHA, VA or conventional financing is anticipated, to
assure that the important secondary mortgage market will be available
to lenders.
2. HUD/FHA Requirements
A. [§4.10] Generally
The objective of HUD/FHA is to assure that:
1 the improvements are sound;
2. each property is a separate real estate entity;
3. each unit will have satisfactory provisions for
utilities;
4. building sites are of sufficient size and
properly arranged;
5. proper streets, drains and public areas are
made available and accepted for maintenance by public
authority;
6. the requirements of local codes are met; and
7. environmental laws and regulations are followed.
B. [§4.11] Administration of HUD/FHA Requirements
The Federal Housing Administration is part of the Department of
Housing and Urban Development ("HUD"). HUD-FHA requirements are
administered and the required approvals obtained from the insuring office having
jurisdiction. At time of this writing, the four Florida offices are:
Department of Housing and Urban Development
Gables 1 Tower
1320 South Dixie Highway
Coral Gables, FL 33146-2911
305/662-4500
Department of Housing and Urban Development
Langley Building
3751 Maguire Boulevard, Suite 270
Orlando, FL 32803-3032
407/648-6441
Department of Housing and Urban Development
700 Twiggs Street, Room 527
Post Office Box 172910
Tampa, FL 33672-2910
813/228-2501
Department of Housing and Urban Development
325 West Adams Street
Jacksonville, FL 32202-4303
904/791-2626
Subdivision review is required before HUD/FHA will commit to insure
any mortgages in a new subdivision. The developer must apply for a Master
Conditional Commitment (MCC), the purpose of which is to enable HUD/FHA to
determine that the subdivision meets its objectives, described above.
Increasingly, HUD/FHA is emphasizing environmental requirements in its review.
There are two procedures for obtaining an MCC. One is for developer
certification whereby the developer applies for environmental review. In the other
procedure, HUD/FHA approves the regulations within a local jurisdiction to
determine that compliance with these regulations meets HUD/FHA
requirements. In addition, Planned Unit Developments are subject to additional
review. The HUD/FHA regional office having jurisdiction in the area where the
subdivision will be located should be consulted to determine which procedures
are applicable to the particular development.
HUD/FHA requirements for the analysis and processing of residential
subdivisions are set forth in HUD handbooks and bulletins, which are available
at the regional HUD offices. The general requirements are set forth in HUD
Handbook 4135.1, "Procedures for Approval of Single-Family Construction
Application."
If developer certification is required, the developer will have to submit an
application for environmental review on HUD Form No. 92-250, revised. A
receipt (FHA Form No. 2251) is then returned to the developer. HUD Handbook
1390.4, "A Guide to HUD Environmental Criteria and Standards Contained in 24
CFR Part 51" (August 1984), contains relevant background material as well as
an annotated copy of the regulations regarding HUD environmental
requirements.
After receiving the application, a representative travels to the site and
reviews the application and HUD/FHA prepares a subdivision feasibility valuation
report (HUD Form No. 92-1252). This report is documentation as to HUD/FHA's
inspection of the site and includes its conclusions and recommendations
regarding feasibility of the proposal. HUD/FHA then reviews the entire file and
either recommends rejection of the application or files a final report for
environmental assessment (HUD Form No. 92-253).
If HUD/FHA recommends major changes in the proposed development,
it schedules a conference on modification. If all conclusions are favorable, a
feasibility approval letter is sent to the developer, accompanied by a checklist
entitled "Exhibits Required For Certificate" (HUD Form No. 2256). This
checklist guides the developer in preparing exhibits required before the
beginning of construction and before the acceptance of applications for
commitments. HUD/FHA then returns an acknowledgment of receipt of certified
exhibits (HUD Form No. 92-257) to the developer.
The next step is issuance of HUD/FHA's commitment acceptance, the
Individual-Group Construction Application (HUD Form No. 92-258), to inform the
developer that preconstruction analysis has been completed and a favorable
determination reached. This form also provides the developer with a list of
requirements that will be imposed as commitment conditions on individual
properties.
The subdivision "Processing Record for Developer Certification" (FHA
Form No. 2259) provides an accurate file record of all processing and
compliance actions and records target dates.
There is also a streamlined area review procedure, referred to as the
"Improved Area Submission". The required exhibits for an Improved Area
Submission are:
1. Evidence that the local government has accepted the plat of
the subdivision and the plan for its principal development elements and
rights of way, and that all required government approvals have been
obtained;
2. Evidence that the streets, water and sewage system have
been or will be accepted by the local government for ownership and
maintenance;
3. A copy of the recorded subdivision plat;
4. An affirmative Fair Housing Plan;
5. A copy of a U.S.G.S. Map with the area of the subdivision
outlined; and
6. Appraiser/Review Appraiser Checklist, HUD 54891.
These Exhibits should be submitted by the lender to the HUD/FHA
appraiser along with the first application for mortgage insurance on a specific
property within the subdivision. The developer should consult the guide that
HUD/FHA has promulgated for its lenders and appraisers on valuation of
property securing HUD/FHA guaranteed loans. "Valuation Analysis For Home
Mortgage Insurance" 4150.1 (April 1973).
In addition to program guides and applications, HUD/FHA has produced
handbooks which may be helpful to the attorney even if HUD/FHA approval is
not being sought. For example, HUD/FHA and the VA have compiled a group of
suggested forms entitled "Suggested Legal Forms for Planned Unit
Developments" (FHA Form 1400; VA Form 26-8200). These forms, which are
adaptable for nationwide use, include: declaration of covenants, conditions and
restrictions; articles of incorporation and bylaws for a nonprofit corporation
formed for the maintenance, preservation and architectural control of the
residence lots and common areas in the subdivision; a dedication of common
areas; a clause for inclusion in deeds to the individual lots reserving title to the
grantor of those lands lying beneath common property; and appropriate
instructions. Other guides include 4075.10, Designing for Home Safety (1975);
4140.2, Land Planning Procedures and Data (1973); and 4075.12, Central Water
and Sewage System (1976). These guides and a complete index of guides may
be obtained from a regional HUD/FHA office.
The following bibliography is a list of materials on federal assistance in
subdivision development:
Housing and Development Reporter (WG&L)
Abuses in the Low Income Homeownership Programs - the
Need for a Consumer Protection Response by the HUD/FHA
, 45 Temp.L.Q. 461 (1972).
Boykin and Brincefield, The Federal New Communities
Program: The Legislation, Processing and
Documentation, 4 Urb. Law. 189 (1972)
Downs, Are Subsidies the Best Answer for
Housing Low and Moderate Income Households?, 4 Urb.
Law. 405 (1972).
Pozen, The Financing of Local Housing
Authorities: A Contract Approved for Public
Corporations, 82 Yale L.J. 1208 (1973).
Kleven, Inclusionary Ordinances - Policy and
Legal Issues in Requiring Private Developers to
Build Low Cost Housing, 21 UCLA L. Rev. 1432 (1974).
Salsich, Community Development - Some
Reflections on the Latest Federal Initiative, 19 St.
Louis U.L.J. 293 (1975).
Ellickson, Suburban Growth Controls: An Economic
and Legal Analysis, 86 Yale L.J. 385 (1977).
Alterwitz, Low-Income Housing Under The New
Conservatism: Trickle Down Or Dry Up? 26 Santa Clara L.
Rev. 461 (Spring 1986).
3. [§4.12] VA Requirements
The VA will permit, through its guaranteed loan program, an
eligible veteran to finance up to 100% of the cost of a home; therefore,
the availability of VA financing is essential to many subdivisions. The
procedures followed by the VA are very similar to those of the FHA as
to the determination of the reasonable value of a home for loan
guarantee purposes. The VA requires appraisals of proposed
construction and further requires that in all requests for such appraisals,
the plans submitted must be certified by architects, surveyors, land
planners, professional engineers, or such other individuals approved by
the VA as being in compliance with the VA Minimum Property
Requirements set forth in 24 CFR 200.926. The form of such
certification must be substantially as follows:
I do hereby certify that these drawings/plans and related
specifications meet all local code requirements and are in conformity
with VA Minimum Property Requirements.
Individual appraisals may be obtained for each dwelling or a
_______ may seek a "master certificate of reasonable value" conveying
all of the builders' plans within the subdivision at one time.
For more information, Bulletin 26-88-31 should be requested
from the regional VA office. The developer should request VA Form
26-1834a, which is an application for a Master Certificate of Reasonable
Value required for new subdivisions. Builders desiring to participate in
the VA loan guarantee program should obtain a copy of VA Information
Bulletin 26-88-34, which provides basic information as well as the forms
required for a builder to enroll in the program. The best source of
information regarding the VA practices and procedures are the regular
VA Regional bulletins. All VA Forms and Publications should by
requested by publication number (using VA Form 23-8800, "Request for
VA Forms and Publications") from the Regional Office at P.O. Box
1437 St. Petersburg, FL 33731.
Lenders and lenders' counsel should obtain the VA Lenders
Handbook, VA Pamphlet 26-7 (1977) from the Regional VA office or
from the Department of Veterans Benefits, Washington DC 20420.
Additional resources include VA Pamphlet 26-6, "A Guide for Veterans
Planning to Buy or Build Homes With a VA Loan" (Revised Jan. 1984);
VA Pamphlet 27-82-2, "A Summary of Veterans Administration
Benefits" (Revised June 1986); and VA Pamphlet 26-4, "VA-Guaranteed
Home Loans for Veterans (Revised May 1987).
4. [§4.13] Fannie Mae and Freddie Mac Requirements
Although independent from each other, Freddie Mac and Fannie Mae
have similar requirements for property before either will purchase mortgages
upon such property. The mortgaged premises must conform to all applicable
zoning and use restrictions and building and housing codes. Freddie Mac
Sellers and Servicers' Guide Section 2209. Preinspection and approval by
Freddie Mac for condominiums and PUDs may be available at a modest
inspection fee; requests should be submitted on Form 770. In general, see:
Housing and Development Reporter 70; Secondary Mortgage Finance
Programming (WG&L); Title III National Housing Act, 12 U.S.C. 1716 et. seq.;
Federal Home Loan Corporation Act, 12 U.S.C. 1451.
G. [§4.14] Checklist Of Conditions To Be Considered In
Purchase and Sale Agreement
1. Does the purchase contract assure that the title to the
property and easements serving the property from adjoining land will be
free of objectionable:
a. zoning classification;
b. covenants, conditions and restrictions such as
those limiting land use, controlling density and setting
minimum lot sizes;
c. reverter provisions;
d. outstanding mineral rights;
e. easements such as those for ingress, egress,
utilities and drainage; and
f. plats, streets and parks?
2. Do public roads exist for adequate access? Are roads
paved? Does the intended development call for a change in use of
property which has access by virtue of a state road? See proposed
F.A.C. rule which allows the Florida Department of Transportation
to rescind or deny curb cuts for the property.
3. Is right secured for adequate drainage which will meet all
governmental requirements, including those of the governing water
management district?
4. If a waterfront subdivision is contemplated, will title extend
to the mean high water line? See Chapter ____, "Ownership and Use
of Waterfront Property".
5. If land is submerged and is to be filled, are all requisite
permits obtainable and are bulkhead lines established?
6. Is there assurance of the availability and suitability of
utilities, such as gas, electricity, water and sewer or septic tanks?
What are the connection or "tap-in" charges? For what term can the
right to those utilities and capacity be protected? Is water pressure
adequate? Will a lift station be required? Can the sewer system be
accessed by gravity feed? What fire hydrant requirements will have to
be met?
7. Should the purchase be conditioned upon acceptable
boundary and topographic surveys? What state of facts would be
disclosed by an accurate survey and inspection of the property? Are
defects revealed by the survey treated as objections to title?
8. Are there any cemetery or burial plots located on the
property?
9. Should the purchase be conditioned upon load-bearing and
percolation soil tests?
10. Is the property within such close proximity to an airport or
a well field that the lots will be disqualified for sale and financing? Are
there restrictions on height of buildings in flight paths?
11. Will the subdivision be acceptable for financing without
imposition of land use restrictions on nearby property?
12. Are easements across nearby property required?
13. Has preliminary approval of the site been obtained from
HUD/FHA and lenders?
14. Does the purchase contract permit the purchaser to use
existing engineering plans, data and other work product?
15. Are terms and release clauses of mortgages to be given
or assumed in connection with a purchase acceptable and consistent
with intended development, construction mortgage financing and
requirements of regulations by all governing governmental entities? Do
all mortgages provide for subordination to proposed plat or joinder by
mortgagee in the plat? Do the mortgages permit development of the
property as contemplated by its developer? May the mortgages be
prepaid? Is there a penalty for prepayment? Do the mortgages provide
for the joinder by mortgagee in applications for zoning?
16. If an unsecured note is to be given to the seller as part of
the purchase price, is the necessary provision made for waiver of the
vendor's lien?
17. If the land being purchased forms only a part of the
intended subdivision, is closing conditioned on the ability to acquire the
remaining land? Is the purchaser protected against gaps and hiatuses
between the parcels?
18. Is entry permitted for inspection and tests prior to
closing? Is the seller indemnified against losses caused by purchaser
being upon the property?
19. Can there be any pending or threatened zoning changes
or condemnations at the time of closing?
20. Will the size and shape of the lots to be subdivided by the
developer meet the requirements of all governmental entities?
21. If private wells or septic tanks are contemplated, will the
location of the lots and the density of the lots permit their use? See,
F.S. 381.272.
22. Are there any endangered species within the area? In
particular, are there any eagle nests actually present or listed on the
Department of Environmental Regulation maps as located on the
property to be subdivided or in close enough proximity so as to affect
the use of the property to be subdivided? Are there any signs of red
cockaded woodpeckers? Is there a tree ordinance which will affect
development?
23. Are there any historic artifacts such as Indian mounds
which might delay or restrict development?
24. How will the local comprehensive plan and impact fees
affect the proposed development?
25. Is the purchaser protected in the event the property cannot
be developed by reason of concurrency, environmental problems or
building moratoriums?
26. Is the contract contingent upon the funding of an
environmental audit showing no hazardous waste on the property?
27. If there is an existing building on the property, is there an
asbestos within the building?
28. Can curb cuts be obtained on the road accessing the
property sufficient to service the property development?
H. Growth Management
A. [§4.15] Introduction
The impact of the Growth Management Act of 1985 ["GMA"] should be
discussed with the client at an early stage, because the decision to purchase
and subdivide a tract of land must be made in light of the additional risks and
complexity that exist as a result of the GMA. Perhaps the most important
requirement is that the facilities and services needed to support development
must be available concurrently with the impact of that development - the
so-called "concurrency" requirement. F.S. 163.3177(10)(h).
The key questions for subdivision decisions under the GMA are: how
does one determine what the "impact" of a development is; and how does one
know what "facilities and services needed to support development" will be
available?
B. [§4.16] The Impact of a Development
Impact in the context of growth management is determined by
comparing the anticipated effects of a new development on a series of
established "levels of service". A level of service is essentially the maximum
use of a service or facility that a community will allow. The GMA provides that
each local government will establish its own levels of service in its local
comprehensive plan. Typically, developers have had to be concerned with the
levels of service established for sewage treatment plants, drainage, parks and
recreational facilities, firehouses, and local and state major, secondary or
collector roads.
Levels of service will actually be established through a series of public
hearings, as local plans go through their public input stages. This process is
intended to produce local plans that are both realistic and reflect the will of the
citizens to maintain a certain level of service. Therefore, where plans are not yet
final, it is important that the attorney and client participate in the public hearings
to ensure that their views are represented in the final local plan. However, the
time for such input is running out. At time of writing, the Department of
Community Affairs ["DCA"] has received plans covering over seventy-five percent
of the population of Florida and has rendered compliance determinations upon
approximately seventy percent of the plans. About one half of these plans have
been found in compliance.
The most commonly recognized level of service to date has been the
Florida Department of Transportation ("FDOT") measures of road capacity at
peak hours. FDOT's standard ranges from an "A" level, which allows for
unimpeded progress and free flowing lane changes, to a level of "F", which
essentially means traffic is at a standstill at peak hours.
Other measures of facilities and service include a level of service for
parks measured on an acreage per capita basis. The attorney and client should
be aware of the various levels of service or benchmarks that a local government
has established in the area of the proposed subdivision.
C. [§4.17] Determining the Availability of Services for
Development
The GMA was based on planning and land use statute requirements in
existence for at least ten years prior to the GMA's enactment, and the capital
improvements element which is part of the GMA has always been a required
element for local government planning. However, the GMA changed the nature
of the capital improvements element from a community wish list into a
document of substantial significance. The GMA mandated a link between
project development and the actual construction of proposed capital
improvements facilities; a simple list of proposed facilities no longer suffices. A
community must now show the funding source for facilities proposed in the
capital improvements element. If the funding source for an improvement cannot
be identified, that improvement cannot be included in the element and the
project cannot be constructed.
These measurements and requirements must now become part of a
client's decision-making process. Especially in the area of subdividing tracts of
land, new checklists must be established and new costs must be anticipated
for the requirements of the counties and municipalities. The established level of
service of each element must be ascertained, and benchmarks that each local
government will use to determine the impact of new developments must be
understood. Determination should be made, as much as possible, whether
subdividing a tract and developing the subdivision will cause a reduction in an
established level of service below that which the local plan calls for.
If analysis of the development's impact on an established level of
service indicates that there will be no significant reduction in that level of
service, other permits and orders can be acquired and implemented and the
development can go forward. If the effects of the new development appear to
exceed the established limits of a level of service the investigation shifts to the
capital improvements element to determine whether the infrastructure required
to prevent a reduction in the service level will be in place in time to
accommodate the schedule of the proposed development.
As discussed above, the capital improvements element lists the
communities' expected expansion of their public facilities and the source of
funds to pay for such expansion. The capital improvements element is based
on five-year projections. If the subdivision development would reduce service
levels below the minimum service level called for in the capital improvements
element, and if the infrastructure required to increase the capacity of the
element is not identified in, or a source of funding allocated by, the capital
improvements plan, then the subdivision may be held up indefinitely. Of course
if the client is willing to incur the expenses and uncertainty involved, the client
may seek to challenge the moratorium; any victory in court would be hollow,
however, if the client did not budget time for the delays and expenses in
proceeding with the development. See, Kobrin and Rubin, "Concurrency,"
Florida Bar Journal, January 1990, p. 55, for methods of challenging moritoria.
D. [§4.18] The Impact of the Concurrency Requirement
The impact of concurrency will depend largely upon how strictly the
concurrency provisions of the GMA are construed and enforced and whether
funds will be made available to fund infrastructure improvements to be included
in a capital improvements plan.
One of the most common criticisms of the GMA is that the state has
mandated expensive infrastructure improvements in order for development to
continue, but the state has not provided funds nor the methodology for local
governments to raise funds. Most commentators anticipate that infrastructure
funding will come in the form of impact fees. Impact fees have been a
permissible revenue source pursuant to F.S. 163.3203 for some time; however,
the GMA will likely bring their use into greater popularity. The propriety of the
imposition of impact fees is being challenged in the case of Northeast Florida
Home Builders, Inc. v. St. Johns County pending before the First District Court
of Appeal at the time of this writing. It is likely such challenges will increase
with the imposition of impact fees. See Frisella v Town of Farmington, 550 A.2d
102 (N.H. 1988), for application of the rational nexus test to challenges of
impact fees.
Several comprehensive plans of counties throughout the state have
attempted to provide guidelines to make the rigid concurrency requirements
more flexible. The more flexible the concurrency standards are, the less teeth
the GMA has. Therefore, the DCA has been reluctant to approve plans where
the concurrency requirements allow too much flexibility. Some counties have
used an average of roadway levels of service for given "districts," rather than
requiring strict adherence to the level of service for the roadway fronting or
nearby a development seeking building approvals. Other counties have used
average speeds of vehicles to alleviate the rigid application of a level of service.
Some plans recognize certain roadway improvements as adding extra capacity,
such as timed traffic signals or adding lanes at intersections. A few counties
have implemented guidelines for not counting "ghost" trips - those trips
generated by planned developments which do not yet generate their full
allocated traffic flow. Some counties allow de minimis exemptions from rigid
concurrency requirements for small developments, such as for 3 to 11 homes,
or exceptions for small changes to road levels of service a certain minimum
distance from the development. Other plans provide for contracts between
developers and cities which require infrastructure construction in different
phases during development to meet concurrency. The attorney should be
familiar with the flexibility written into the plan which governs the area of his
clients' developments. If the comprehensive plan has not yet been adopted, the
attorney may wish to participate in influencing the plan to have areas of
flexibility which will benefit the attorney's clients.
While familiarity with the flexibility of the given comprehensive plan will
give the attorney and developer a sense of what leeway the plan will allow, the
ability to develop any given parcel at some time in the future will still remain
largely unpredictable. It is possible for a developer to commence construction
of a phased development and find that prior to the completion of the intended
phases, which was anticipated to be available to serve all of the phases of
infrastructure the development has been used up by surrounding development,
and the level of service has dropped below acceptable levels. A moratorium
could follow in which the developer will be denied further development approvals
for an indefinite period of time, or the developer must fund expensive
infrastructure improvements in order to proceed. A developer who is
constructing a development in phases may have initial large capital outlays that
are not intended to be recouped until later phases are developed. An
unpredicted moratorium on the development of the later phases could result in
financial disaster. At time of this writing, Broward, Dade, Manatee and Pinelas
counties, among others, are experiencing moratoria.
Unpredictability will probable have its greatest impact on lending
practices. Lenders will refuse to make loans for development in phases where
there is the possibility that a moratorium will block the development after
substantial expenditures have occurred. Some lenders are requesting opinion
letters from attorneys regarding a development's future ability to comply
concurrency. Attorneys rendering such opinions should be very cautious, and
the opinion should be qualified and conditioned by the uncertainty surrounding
the infrastructure capacity of the area.
Methods for lessening the unpredictability of the GMA normally center
on providing a point in the initial stages of development when the right to develop
a given parcel can be said to have "vested." Currently approved Developments
of Regional Impact are automatically vested under the GMA. Non-DRI
developments are only vested where a final local development order has been
issued and development has commenced and is continuing in good faith. F.S.
163.3167(8). A final local development order is ordinarily interpreted to mean a
building permit; however, it has been urged that the term should be expanded to
include adopted plats or other preliminary development approvals or agreements
with local government. A given local government may provide certain criteria for
when development rights have vested. Of course, the DCA will not approve a
comprehensive plan where vesting is too preliminary or arbitrary; the risk being
that all development rights may be used up by developments which are
speculative or very preliminary. The concept of "pipelining" has been promoted
in which the initial stages of a development will allow the development to be
allocated infrastructure and development rights. The development will receive
priority in relation to other developments depending upon the development's
timing and implementation. If the development does not proceed at a realistic
pace, the development may lose its priority. Commentators have requested
help fro the DCA in promulgating rules and formulating plans which add
predictability to development under the GMA. Currently, no solution is in sight.
Attorneys representing land developers must take an active interest in
the actions of the county commissions and city governments within the
attorney's practice area. Also, the attorney must become familiar with the staff
of the local office of planning and zoning. If the attorney isn't equipped to do so,
he should consult with another attorney who specializes in land use work.
IV. FINANCING THE PURCHASE OF THE LAND TO BE SUBDIVIDED
A. [§4.19] In General
In some instances, the developer pays cash for the land to be
subdivided, but more often a portion of the purchase price is deferred. Financing
may be obtained from the seller, third party lenders or equity investors such as
shareholders or limited partners.
Some of the matters discussed below concerning the financing of the
acquisition of the land will apply also to the financing of the development, the
construction of residences and the purchasing of individual residences. This is
particularly true concerning financing through sources other than the seller.
Usually, a lender will not consent to an improvement loan until the
developer has secured a proposed plat of the subdivision and completed plans
concerning utilities for the subdivision, together with evidence of requisite
governmental approvals and proposed detailed land use restrictions. Some
lenders may require assurances regarding the meeting of concurrency
requirements. The lender of funds for acquisition of the lands of course may
also wish to be informed concerning those matters, which will be discussed
further in this chapter. This situation is particularly true in view of the fact that
many lenders will not agree to finance the acquisition of the land unless they
also finance its improvement or have first right to provide residential financing.
See Chapter ____, Commercial Financing of Real Property.
B. Financing Purchase of the Tract Through Seller
1. The Purchase Money Mortgage
a. [§4.20] In General
In some transactions, the seller of the tract of land will
accept a purchase money mortgage and note for a portion of
the total price. Depending on the amount financed, the Seller
may accept a mortgage that covers only a portion of the land
purchased. The terms of the purchase contract should specify
the form of the purchase money mortgage and note and should
set forth all special provisions to be included in the purchase
money mortgage. See 36 Fla Jur 2d, Mortgages, and Deeds of
Trust, Sec. 11.
Attention should be given to the possible necessity of
purchase money mortgage.
b. [§4.21] Mortgage Provisions Permitting
Platting, Dedication Of Streets, Granting of
Easements And Recording Of Land Use
Restrictions
The loan instruments should be carefully drafted so as
to permit unhindered development of the property as a
subdivision while it is subject to the purchase money mortgage.
The mortgage should contain provisions permitting platting,
dedication of streets and easements and recordation of land
use restrictions and provisions that the mortgage will be
subordinate to such plats, dedications, grants and restrictions.
The following is a suggested form:
Mortgagee consents that Mortgagor may subdivide the
property and record a plat or plats of the subdivision,
dedicate or grant easements for streets and roads,
grant utilities (including cable TV) and drainage
easements and place land use restrictions on the
property as covenants running with the title. The lien
of this mortgage shall be subordinate to the
subdivision, plat, dedication or grant and to that land
use restriction without the necessity of the holder of
this mortgage executing any instrument to that effect.
If requested by the Mortgagor, the holder shall execute
recordable instruments evidencing and confirming the
consent or subordination, or joinder in such
instrument. The lender may wish to include provisions
requiring its consent to the plat or limiting the amount
of land that may be dedicated to the public.
In order for the lender to protect its security interest
from being impaired by imprudent action of the developer, the
subordination provisions may be made applicable only to plats,
streets, roads, easements and restrictions of a type and form
approved by the HUD/FHA. Some lenders will not subordinate,
but will agree to join in all relevant instruments. Further,
consideration should be given to imposing provisions which will
assure that no buildable portion of the mortgaged property will
effectively be denied access to roads, utilities and drainage by
virtue of such subordination or joinder.
c. [§4.22] Subordination to other Mortgages
Usually, additional financing will be needed for
development and construction. If so, the mortgage to the seller
should provide for subordination to development and
construction financing secured by the property. In a simple
transaction in which subordination to an improvement loan is
desired, the mortgage might contain the following provision:
The lien of this mortgage will be subordinate to the lien
of a mortgage given to an "Institutional Lender" to
secure a loan to assist in paying for subdivision
improvements and utilities on and to serve the lands
encumbered by this mortgage. "Institutional Lender"
means banks, savings and loan associations, savings
banks, insurance companies, real estate investment
trusts and their loan correspondents, and any entity
that is an HUD/FHA approved mortgagee. This
mortgage will automatically be and become
subordinate to the lien of such a mortgage to an
Institutional Lender; however, the holder of this
mortgage shall execute in recordable form any
instruments required by the Institutional Lender in order
to evidence and confirm such subordination.
Often, the purchase money mortgage will be
subordinated to loans made to finance construction by the
developer of houses on the individual lots. The following form
may be adapted to refer to a loan made to provide funds for
construction of houses and incidental improvements:
Provided mortgagor is not in default under this
mortgage at the time a subordination is requested,
mortgagee subordinates the lien of this mortgage to
the lien of any mortgage for subdivision improvements,
the terms of which provide:
(i). the net proceeds from a loan secured by such
mortgage are to be applied exclusively for subdivision
improvements and utilities on and to serve the property
encumbered by it;
(ii). the principal balance outstanding at any time
secured by such mortgage may not exceed the sum of
$__________________;
(iii). the interest rate may not exceed _____% per
annum;
(iv). the loan secured by such mortgage must mature
and come due within _______ months of execution
thereof;
(v). Mortgagee must be notified in writing of any
breach of the terms of such mortgage or note secured
by such mortgage; and
(vi) Mortgagee may but will not be obligated to cure
any default of Mortgagor within _____ days of written
notice as provided in section e. above, and Mortgagor
will not be in default if Mortgagee effects a cure of such
default within the time so provided.
When the purchase money mortgage covers a large
quantity of land and more than one development or construction
loan is contemplated, the subordination provision in the land
acquisition mortgage should be sufficiently comprehensive to
provide for flexibility in development and construction
mortgages. Great care should be exercised to assure that
subordination provisions do not affect mortgage priorities
except as intended. Consideration should be given to providing
for acceleration of a mortgage that is subordinated to an
improvement loan that is permitted to become in default.
Cross-default provisions should be included in the subordinated
mortgage to make such remedies available.
For a general discussion of the subject of agreements
affecting mortgage priorities, see 36 Fla.Jur 2d MORTGAGES.
Excellent forms are available in 4 Rohan, REAL ESTATE
FINANCING (Matthew Bender).
d. [§4.23] Partial Releases
The purchase money mortgage to finance the land
acquisition customarily contains a provision for the granting of
partial releases. In fact, this is often an essential requirement
of a lender providing financing for improvements. The drafting of
the release clause is simple if the plat of the subdivision has
been recorded at the time the purchase money mortgage is
given, but in the typical case it will not have been recorded.
Sometimes the release clause refers to a preliminary
subdivision layout and sets out the schedule of release
payments based on the layout, with agreement that when the
plat is recorded adjustment will be made if the plat contains
less or more lots than the layout. More typically, a subdivision
layout is not available, and in that case the release provision
might read as follows:
When the plat that covers all and only the lands
encumbered by this mortgage is recorded in the public
records of ________ County, Florida, the holder of this
mortgage shall release each of the platted lots from its
lien on receipt of payment to be applied on the
principal of the note secured hereby of the release
price of each such lot. The release price for each lot
will be (i) the original principal sum of the secured note
divided by the number of lots shown on the plat, or (ii)
$_________, whichever is greater. Upon receipt of the
release price for each lot the holder shall deliver a
recordable instrument releasing that lot but will not be
required to pay for the cost of recording the release.
The holder may decline to release any lot or lots at any
time that a default exists under this mortgage or during
any grace period.
If the land encumbered by the purchase money
mortgage is to be platted in phases or if land not covered by
the mortgage may be included in the plat, the first two
sentences of the above release clause could be amended to
read:
When the plat covering any part or all of the lands
encumbered by this mortgage is recorded in the public
records of ________ County, Florida, the holder of this
mortgage shall release each of the platted lots from its
lien on receipt of payment to be applied on the
principal of the note hereby secured on the release
price of each such lot. The release price for each lot
platted from those encumbered lands and shown on
any single recorded plat will be (i) that amount
computed by multiplying the sum of $____________
by the number of acres of the mortgage land that are
included in the plat and by dividing the result by the
number of lots that are encumbered by this mortgage
and included on that plat, or (ii) $_________________,
whichever is the greater.
Determination of the amount to be paid for each
release when the land has been platted can be made on
various bases, including: (a) appraisal by a designated third
party, (b) schedule made part of the mortgage and (c) dividing
the outstanding debt by the aggregate acreage. In any event in
determining the release price consideration must be given to
the aggregate number of units that may be constructed on the
mortgaged property.
In some instances, the various parts of the mortgaged
property will be of unequal value. For example, if a portion of
the subdivision lots are waterfront, they must be dealt with
specially in a release provision. Care must also be taken that
unbuildable portions of the mortgaged property, such as
jurisdictional land, will be taken into consideration in
determining the release formula.
The formulas developed for the granting of releases are
infinite. When structuring release clauses, care should be
exercised that the property is not unreasonably divided and that
reasonable access to roads, utilities and drainage will be
preserved for the benefit of the unreleased property. In any
event, release clauses should be designed so that at all times
the land remaining under the mortgage is of sufficient value to
secure the outstanding balance of the mortgage obligation. To
this end, provision may be included that land released must be
contiguous and that no unreleased land remains which does
not have street access.
2. [§4.24] Taking Title Subject To Existing Mortgages
In some instances, lands will be purchased by a developer
subject to existing mortgages with or without the seller receiving a
purchase money mortgage. The terms of such existing mortgages
must be examined carefully to ascertain whether they permit the
intended development and financing. From the standpoint of the buyer,
it is highly desirable, if not necessary, that such mortgages as well as
those given in connection with a purchase be subject to prepayment
without penalty.
Sometimes it is possible to secure the modification of existing
mortgages by agreement to effect changes in the terms involving
interest, payments or other matters, or to provide for partial releases.
This may permit refinancing or be otherwise useful in the prospective
development and sale of the property.
Before a seller agrees to accept a purchase money mortgage
which will be subject to an existing mortgage, determination should be
made as to whether the existing mortgage contains a future advance
provision, and if so consideration should be given to limiting future
advances in accordance with F.S. .
The seller may wish to defer any gains realized from the sale;
however, if the existing mortgage is assumed or taken subject to by the
buyer, the seller will be deemed to have received funds equal to the
amount of the loan assumed or taken subject to in the year of the sale.
An alternative would be for the buyer to make a wrap around second
mortgage to the buyer in which case the seller will not recognize a gain
until payments are made on account of the wrap around second
mortgage.
3. [§4.25] Use Of Options Or Contracts For Purchase
In Stages
When large tracts are involved, the developer sometimes
indirectly postpones a portion of the acquisition price by obtaining from
the seller an option agreement or land purchase contract. The option
money or binder payment usually will be credited on the ultimate
purchase price. Typically, the option or contract will permit acquisition
from time to time of various parts of the over-all tract. Often, the
provisions and conditions setting forth the financing arrangements are
supplied by attaching a copy of the purchase money note and mortgage
to the option.
4. [§4.26] Right Of Prepayment
The attorney should consider whether the mortgagor will be
entitled to prepay the designated principal payments. F.S. 697.06
provides that any note which is silent as to prepayment may be prepaid
in full without penalty. The application of the prepayments should be
designated; generally, prepayments are applied to the next ensuing
mandatory payment, or else in inverse order of maturity.
Considerations as to whether prepayments should be prohibited or
penalized include: (i) tax consequences to the lender/seller; (ii) fixed
administrative costs in making the loan; (iii) whether the prohibition or
penalty will apply if the loan balance is paid in full; (iv) whether the
borrower will need to pay off the loan to secure needed financing; and
(v) whether interest rates are declining or increasing.
5. [§4.27] Notice Of Default
Because the consequences of a default are disastrous to the
developer, the attorney representing the developer should attempt to
provide that the holder of the mortgage, before declaring a default, must
give written notice of any breach and allow for a reasonable grace period
within which the breach may be cured.
6. [§4.28] Personal Liability Of Maker; Forms For
Exculpation Clauses
Unless some provision is made to the contrary, the maker of a
purchase money mortgage can expose himself to personal liability.
Whenever possible, the maker should try to procure an exculpatory
provision barring personal liability in the mortgage and note.
The following form provides for exculpation in a mortgage:
No deficiency or money judgment may be sought or
rendered against Mortgagor on account of Mortgagor's
execution of this mortgage or the note secured by it by
reason of the nonpayment of principal or interest
evidenced by that note or by virtue of any other default
by Mortgagor on this mortgage or the note; but nothing
in this paragraph will be deemed to be a release or
impairment of the lien upon the premises described in
this mortgage nor to preclude the holder of the note
from foreclosing this mortgage [or seeking monetary
damages against any guarantors].
The following alternate form includes reference to the security
and loan instruments:
The promises and covenants of Mortgagor to pay the
principal sum and interest will be deemed to be
included in this mortgage and the note secured by it
for the purpose of further establishing and continuing
the evidence of the indebtedness, and the holder of
this mortgage and the note by the acceptance of this
agreement agrees that no deficiency or money
judgment shall be sought or rendered against
Mortgagor on account of Mortgagor's execution of this
mortgage or the note by reason of the nonpayment of
principal or interest evidenced by the note; but nothing
in this paragraph shall be deemed to be a release or
impairment of the indebtedness evidenced by the note
secured by this mortgage or an impairment of the lien
upon the mortgaged property or upon any other
property under any instrument given to secure the
payment of the note nor to preclude holder of the note
from foreclosing this mortgage or enforcing its lien and
other rights under any other instrument given by
Mortgagor to secure the payment of the note or from
enforcing any right of the holder by virtue of this
mortgage and other instrument given to secure the
payment of the sums evidenced by the note.
Failure to secure an exculpatory clause in a mortgage and note
by a limited partnership may result in adverse tax consequences to the
limited partners if they are relying upon the exculpation clause to
increase their basis.
The following alternate form is appropriate for a mortgage to be
executed by a partnership.
The covenant of Mortgagor to pay principal and interest
is included in the note secured by this mortgage for the
purpose of establishing and continuing the existence of
the indebtedness; however, it is a condition of that
covenant and those contained in this mortgage that, in
the event of default under this mortgage or the note,
the holder shall take no action against Mortgagor, or
any partner of Mortgagor, personally except such as
may be necessary to subject to the satisfaction of the
indebtedness the property described in the mortgage.
7. [§4.29] Right To Demolish
Care should be taken to make appropriate provision for razing
of structures or committing of waste (including the removal of fill and
trees), if necessary, in order to carry out contemplated subdivision
development without causing acceleration or constituting a breach
leading to foreclosure.
C. Financing Through Sources Other Than The Seller
1. [§4.30] Private Mortgage Companies and Investors
Private mortgage companies or mortgage bankers sometimes
finance a portion of the land purchase price. This type of mortgage
lending usually is extended only to a regular customer and is not
attractive to mortgage companies except when packaged with
development, construction and permanent loans.
Private investors are usually a poor source for this type of
financing, although some provide indirect financing by acquiring
purchase money mortgages at discount. Others, by arrangement,
purchase the property and then resell to the developer at a higher
price. The attorney handling these transactions should consider F.S.
Chapter 687 on the subject of usury. Some innovative developers have
secured development financing through discounted lot sales to the
ultimate home buyers. Although discounts of up to 40% of the lot price
may be offered, such discounting is offset by the reduced financing
costs.
The recent trend in private mortgage companies has been
toward affiliation through merger or purchase with commercial banks.
The principal function of these companies is to originate HUD/FHA and
VA loans for sale to institutional investors. Mortgage companies also
engage in land purchase and development and construction loans to tie
developers into permanent loans on the individual homes.
Pension funds also are a growing source of financing for real
estate projects.
2. [§4.31] Savings And Loan Associations
Federal and state savings and loan associations have been
another ready source of funds for subdivision financing. Because of the
"bailout" legislation affecting the Federal Savings and Loan Insurance
Corporation and growing sentiment for increased regulations, it remains
to be seen whether savings and loans will be a significant source of
subdivision funding in the future. See Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA), Pub. Law No.
101-73, 103 Stat. 183; Rose, "Financial Institutions Reform, Recovery,
and Enforcement Act of 1989," Florida Bar Journal, November, 1989, p.
54.
3. [§4.32] Commercial Banks
A developer with good credit and experience may be able to
obtain mortgage loans through commercial banks. In those instances
when the commercial bank is willing to finance the development of the
land and when local plat laws permit furnishing of an irrevocable letter of
credit in lieu of a bond, it is sometimes possible to secure the letter of
credit from the commercial bank as part of its mortgage loan program.
4. [§4.33] Insurance Companies
Insurance companies sometimes make direct loans to cover
subdivision financing; however, most of those loans are made only in
the case of large projects. These companies are subject to varying
limitations as to lending powers. The Florida Insurance Code, F.S.
Chapters 624-632, 634, 637, 638, 639, 641 and 651 contain the
regulations to which insurance companies are subject in Florida. In
particular F.S. 625.302 (Eligible Investments) and 625.327 (Mortgage
Loans) should be consulted concerning the limitations placed upon
mortgage loans by insurance companies.
5. [§4.34] The HUD/FHA And VA
There is no present authority for the VA to insure or guarantee
loans for the purpose of financing the acquisition or development of land
to be used in the usual type of subdivision. Title X of the National
Housing Act, as amended by the Housing Community Development Act
of 1987, provides a program for insuring loans for land development.
The statutory provisions governing this program may be found in 12
U.S.C. 1749 et seq. and the regulations at 24 CFR 205, et seq. Under
this program, HUD is now authorized to insure loans for land
development.
The insured loan must be secured by a first mortgage which
must (i) cover the land to be developed and (ii) must mature within 10
years (this 10 year limitation may be longer with approval of HUD) if
there is a privately owned water or sewerage system or if the secured
property is within a "new community" as defined in Section 1004 of the
National Housing Act. The mortgage must not exceed 80% of HUD's
estimate of the unimproved land or 90% of estimated costs of
development.
V. THE PLAT
A. [§4.35] In General
F.S. Chapter 177 Part 1 is the general act covering plat requirements.
Section 177.011, however, specifically provides that "this part establishes
minimum requirements and does not exclude additional provisions or regulations
by local ordinance, laws, or regulations." There are a number of such special
acts and acts applicable on a population basis. The special acts may be
located through the Index to Special and Local Laws prepared by and available
through the Statutory Revision Department in the office of the Attorney General
in Tallahassee. The attorney should consult the local ordinance and planning
staff to determine the local requirements for recording or amending a plat.
B. [§4.36] Private Ownership Of Common Areas
The ordinary plat shows roads, parks and other common areas and
dedicates them to the public. In many developments private roads have been
found desirable, and the roads and common areas are conveyed to an
association formed to maintain the roads and for other purposes.
There are a number of developments in which private roads are in the
form of easements granted to owners of building plots described by metes and
bounds description. In certain developments, the fee title to the road is
conveyed in undivided interests to the owners of the building plots together with
an easement, while in other developments the fee title to the portion of the road
in front of a building plot is conveyed with the building plot with an easement to
the remainder of the private road. In too many instances, effective provision for
maintenance is overlooked.
HUD/FHA requires that all streets, utilities and other common-use
improvements normally owned and operated by governmental authority must be
dedicated to, and accepted for, maintenance by the appropriate entity. Privately
owned streets must be constructed to meet requirements of HUD-FHA.
C. [§4.37] Governmental Controls
As an incident to the platting, development and construction of the
subdivision, it is necessary to comply not only with the general platting statute
(F.S. Chapter 177 Part 1) but also with other regulations, ordinances and local
policies relating to such matters as subdivision control, acceptance of streets
for maintenance and zoning. There is almost a complete lack of uniformity in
these requirements. By various general, special and population acts, control
has been given to the boards of county commissioners or the governing bodies
of the municipalities having jurisdiction. A number of counties have special
planning and zoning commissions. In some areas there are virtually no
requirements; in others the requirements are numerous. This situation should
change as a result of the Growth Management Act discussed in Section III. H.,
which requires consistency between local, regional and state comprehensive
plans. Information on requirements in specific locations generally is obtainable
from county or municipal authorities and their attorneys. HUD/FHA encourages
developers to conform to any general arrangement of land use established by
local governmental authorities' master plans of the city, county or region.
Of increasing importance is the use of impact fees as a supplement to
subdivision regulation requiring developer payments or "exactions". See
generally Rhodes, DEVELOPMENT EXACTIONS (APA); Nicholas ed., THE
CHANGING NATURE OF INFRASTRUCTURE FINANCE (Lincoln Institute of
Land Policy); Juergensmeyer, DRAFTING IMPACT FEES TO ALLEVIATE
FLORIDA'S PREPLATTED LANDS DILEMMA, Florida Environmental and
Urban Issues, (April 1988) 1 FLORIDA LAND USE RESTRICTIONS 17 "Impact
Fees" (D & S). These exceptions may be in the form of required improvements,
hookup charges or of the increasingly important impact fees. Impact fees
require the developer to pay a fee to the local government to offset the cost of
providing infrastructure necessary for the development. Typically, the fee is due
at the time the developer applies for a building permit; less common are fees
due at the time a certificate of occupancy is secured. Currently in Florida,
impact fees are most commonly assessed to pay for roads and parks. Impact
fees do not dictate the nature or type of any particular development; however,
the fees are weighted more heavily against some uses which may indirectly
affect the scope and type of development within a subdivision. Impact fees do
not replace other subdivision regulations, and local governments may continue
to impose requirements for improvements or, in lieu thereof, require payments
before granting the necessary approvals for subdivision development.
Attention should be given to F.S. 177.041 which requires the attorney to
issue an opinion of title to accompany any plats submitted to the local reviewing
agency. In the alternative, a certification by an abstractor or title company may
be submitted.
VI. LAND USE REQUIREMENTS
A. [§4.38] In General
Virtually all residential subdivisions are now subject to restrictive
covenants. The almost universal practice is for the developer to record a
declaration or notice of restrictions before any lots are sold. For a general
discussion of restrictive covenants, see 1A BOYER, FLORIDA REAL ESTATE
TRANSACTIONS, Chapter 24.
If HUD/FHA or VA loans are contemplated, the requirements of these
agencies must be met. These agencies promulgate suggested forms for the
restrictions, but it is not necessary that the forms be followed verbatim; the
requirements are not inflexible.
Racial restrictions are now regarded as void. Steuer v. Glevis, 243
So.2d 453 (Fla. 4th DCA 1971); see 3 A.L.R. 2d at 466 (Supp.).
The restrictions should be consistent with those matters and notes
appearing on the plat. Conditions, reservations and restrictions appearing on
the plat are binding upon those who accept conveyances based on the plat.
Wahrendorff v. Moore, 93 So.2d 720 (Fla. 1957); Peninsular Point, Inc. v. South
Georgia Dairy Co-op, 251 So.2d 690 (Fla. lst DCA 1971).
Restrictions should provide suitable enforcement provisions, be
recorded in the public records and be superior to the lien of any mortgage that
may be on record before the recording of protective covenants. See Bessemer
v. Gersten, 381 So. 2d 1344 (Fla. 1980), as to enforceability of liens created by
restrictions.
Land use restrictions normally provide for regulation of lot sizes, for
type, size and placement of buildings, for reservation of easements, and for
prohibition of nuisances and other land uses that might affect the desirability of
the area. They also serve to reserve definite areas for specific uses, for
example, parks, playgrounds, schools, churches and commercial centers.
The restrictions should not contain reverter or forfeiture provisions. If the
restrictions contain covenants for assessments for maintenance or other
services, any liens to secure amounts due in connection with the covenants
should be subordinated to institutional first mortgage financing existing at time
of recordation of liens.
B. [§4.39] Suggested Restrictions And Provisions
The covenants should be of sufficient duration to protect the original
investments and permit the amortization of the capital. Covenants which run
with the land forever may be unenforceable; however, covenants may be drawn
so as to automatically renew. See Balzer v. Indian Lake Maintenance, Inc., 346
So. 2d 146 (Fla. 2d DCA 1977), in relation to attempting to design covenants
that will renew automatically.
Experience has shown that restrictive covenants are often violated by
the developer-builder. It is urged that the subdivision restrictions contain a
provision to protect the developer-builder. The following provision is suggested:
When a building or other structure has been erected or its
construction substantially advanced and the building is located
on any lot or building plot in a manner that constitutes a
violation of these covenants and restrictions, the Architectural
Control Committee may release the lot or building plot, or parts
of it, from any part of the covenants and restrictions that are
violated. The Committee shall not give such a release except
for a violation that it determines to be a minor or insubstantial
violation in its sole judgment.
In many instances the developer will reserve to itself the right to release
violations.
In some cases, it is desirable to include in the restrictions a covenant
relating to water and sewerage service, and easements known to be essential
usually are shown on the recorded plat. If at the time the plat is recorded the
exact locations of all the utilities and drainage easements have not been
determined, it may be advisable to reserve to the developer alienable and
releasable easements along the rear and interior sidelines of the lots. If it
develops that the easements are not needed, they may be released. Caution
should be exercised when creating easements along interior sidelines to provide
for the possibility of replatting as well as for construction of a dwelling on more
than one lot.
Provision is normally made for the maintenance of water retention
facilities which are to be conveyed to an owners' association in order to comply
with requirements of governing water management districts. The attorney
should check with the governing water management district as to any special
requirements the district may __________ as to covenants or homeowners'
association documents.
Subdivisions of the more exclusive type naturally have more complete
restrictions. However, the integrity of even lower and moderate priced
developments can also be better preserved through the use of well considered
restrictions.
Other subjects often covered by restrictions are:
1. swimming pool fencing and screening;
2. shielding of garage doors and other unsightly areas or
objects from view;
3. parking of vehicles and boats;
4. window air conditioners;
5. underground electric and telephone lines;
6. television antennas and satellite dishes;
7. rental and sale signs;
8. mail and newspaper boxes;
9. landscaping;
10. fence height limitations; and
11. set back lines.
The following is a synopsis of suggested restrictions from HUD
Handbook 4140.1, "Land Planning Principles For Home Mortgage Insurance"
(May 1973) (reprinted in 1983 to include F.H.A. G4000.4A and 4000.4A):
1. [§4.40] RESTRICTIVE COVENANTS FOR RESIDENTIAL
AREAS
a. Land Use and Building Type. Among the basic
agreements protecting a new residential development is the covenant
regulating the type of land use and the type of building. Residential use
and an appropriate dwelling type are required on all lots in the
residential portion of the tract.
b. Architectural Control. Protective covenants usually include
a covenant providing architectural control by requiring approval of
building design and location by a designated committee.
c. Fences and Walls. It is usually desirable to include in the
protective covenants a restriction regarding fences and walls,
particularly between the front street line and the minimum building
setback line. Architectural Committee approval of fences and walls in
front yards should be required in order to prevent unsightly
constructions which detract from the neighborhood character. Fences
are usually permitted in rear yards, but in some cases are limited as to
height, material and design.
d. Dwelling Cost, Quality and Size. A protective covenant
establishing a minimum dwelling cost or quality and size is important in
maintaining value because it affords protection to existing dwellings
from the encroachment of buildings below the standards of residential
character originally established.
e. Building Location. Another basic protective covenant
provides for regulation of building location by establishing minimum
front, side and, in some cases, rear yards. In the recorded covenants,
the most satisfactory method of regulating the depth of front yards is by
reference to building setback lines shown on the recorded plat. It is
sometimes desirable to vary the setback in relation to topographic
conditions as well as to preclude the effect of monotony in appearance.
For corner lots the minimum setback from the side street line should
approximate the minimum setback from the front street line. This is
necessary for adequate visibility at street intersections and prevents the
projection of the side or rear of a corner dwelling on the side street. A
minimum side yard restriction should also be established to provide
necessary light, air and privacy. Placement of a detached garage or
other out-building nearer to the side lot line should be permitted,
however, if it is located in the rear of the lot away from the main dwelling
structure. To prevent the construction of a dwelling on the rear of a lot a
maximum setback from the front line is sometimes established.
Generally, dwellings at the rear of lots have had an adverse effect on the
successful use of the remaining land in a subdivision.
f. Lot Area and Width. To prevent overcrowding of the land
and subsequent deterioration of the neighborhood, a protective covenant
is included establishing a minimum lot area and a minimum lot width.
These should be established with respect to the typical properties in
the development making exceptions for special cases as shown on the
recorded plat. For typical lots, the lot lines shown on the recorded plat
are not binding as there is nothing to prevent the sale of portions of
adjoining lots. In other words, the indication of appropriate lot width and
area on the recorded plat is not in itself assurance of the maintenance
of proper lot area and width. Generally, there is no need of
resubdividing if the plans for development are properly prepared.
g. Easements. A protective covenant establishing necessary
easements and regulating their use and maintenance is important.
Easements are necessary to provide for immediate or future installation
of utility poles and wires and cable television. They may also be
necessary for installation of sanitary and storm sewers and water lines,
and for surface drainage channels.
h. Surface Drainage Channels. For small surface drainage
channels which are important to abutting properties but are not a part of
the drainage system maintained by public authority or utility company,
the covenants should clearly provide:
(1) That the lot owner keep the easement free from any
structure, planting or other material which might change the
direction of flow, or obstruct or retard the flow of surface water
in channels in the easements; and
(2) That the lot owner provide continuous maintenance of the
improvements in the easement except for the improvements for
which a public authority, utility company or property-owners'
maintenance association is responsible.
i. Nuisances and Temporary Structures. All protective
covenants for residential areas should include clauses prohibiting trade,
business, and obnoxious or offensive activity, or the use of shacks or
other objectionable outbuildings and temporary buildings.
j. Slope Control Areas. Where serious hazard or nuisance to
one property could be caused by lack of stabilization of a slope, located
in whole or in part on another property, protective covenants should be
established so that no structure, planting or other material is placed or
permitted to remain or other activities undertaken which may damage or
interfere with established slope ratios, which may create erosion or
sliding problems, or which may change the direction of flow of drainage
channels or obstruct the flow of water through drainage channels.
Provision should be made for continuous maintenance of the slope
control area of each lot by the owner of the lot, except for those
improvements for which a public authority or utility company is
responsible.
k. Other Residential Covenants. Other special conditions in
some developments necessitate the addition of other protective
covenants. These conditions may involve oil and mining operations,
livestock and poultry, water supply, sewage disposal, protective
screening, sight distance at intersections and land near parks and
water courses.
2. [§4.41] RESTRICTIVE COVENANTS FOR NON-
RESIDENTIAL AREAS
a. Sites for Community Facilities. In developments involving
parks, school sites, shopping center sites, or sites for other community
facilities, the protective covenants should provide for the reservation of
such sites for the purposes intended. Wherever possible, parks, school
and other sites for facilities customarily provided on publicly owned land
should be dedicated in the covenant for public use in perpetuity for the
purpose intended. Where this dedication is not possible, sites should
be reserved in the covenants exclusively for the purpose intended for a
reasonable period of years. This preserves the areas as open space for
public acquisition during the reservation period, after which, if so
acquired, they may be used by the owner for residential purposes.
b. Privately Owned Sites. Sites for shopping centers,
churches and other community facilities customarily provided on
privately-owned lands should be similarly reserved in the covenants for
the purposes intended, leaving to the owner the right to use the areas
for residential purposes after expiration of the reservation, usually five or
ten years. The sites should be subject to appropriate residential
restrictions if and when they are subsequently used for residential
purposes. Depending on the nature of the permitted use, limitations on
the use of sites for some community facilities should be included in the
protective covenants to protect adjoining, residential lots from adve |
