The Importance of Knowing Your Buyer

On May 8, 2023, Governor Ron DeSantis signed into law Florida Senate Bill 264, which prohibits the acquisition of certain types of Florida real estate by persons from so-called “Foreign Countries of Concern” (China, Russia, Iran, North Korea, Cuba, Venezuela, and Syria).

LAND RESTRICTIONS

The types of restricted property include agricultural land, and land located within ten (10) miles of military installations or critical infrastructure facilities (ex: airport, electrical power plant, etc.).

For those domiciled in China, the law is even more restrictive: it prohibits their ownership of any type of Florida real estate. This law does not apply to U.S. citizens or lawful permanent residents.

HEAFTY CONSEQUENCES

The consequences for violations are steep. A “foreign principal” who purchases Florida real estate in violation of the law faces criminal liability, and the property is subject to forfeiture to the state. Sellers and closing agents face potential liability if they knowingly participate in a prohibited transaction.

REALTOR’S® RESPONSIBILITY

Real estate agents are often the first individuals with whom a potential buyer interacts when embarking on the buying process. As such, agents have the opportunity to take the lead in helping prevent unwitting foreign buyers from running afoul of this new law.

An open conversation at the outset about a potential buyer’s country of residence can avert a crisis later. If the client is from a “Foreign Country of Concern,” the agent should recommend they immediately seek counsel, and certainly before entering into a purchase agreement of any sort. Sometimes, however, deals come together so quickly there is not much time to become fully acquainted, much less comfortable that the potential purchase is legal.

FLORIDA BAR (FR/BAR) CONTRACTS

In this instance, we recommend building protections into the purchase agreement. The Florida REALTORS® Florida Bar (FR/BAR) contracts have been updated to include a disclosure of the law and the requirement for buyers to sign an affidavit at closing. But the update did not address what happens if a buyer accidentally enters into a purchase agreement in violation of the law. If a buyer is unsure of their compliance with the law, consider adding language to the purchase agreement that should it be determined the purchase violates the law, the contract shall automatically terminate, and the buyer receive a refund of all earnest money deposits.

Closing agents should adopt a comprehensive set of procedures to comply with SB 264, including informing buyers of its requirements at the outset of their transactions, and making compulsory inquiries about – and subsequently documenting – buyers’ lawful permanent residency.

NAVIGATE THE LANDMILES

SB 264 is a prime example of the unending pressure for agents to know, understand and do more and more in their practices. It is important to understand how to navigate the landmines an unsuspecting agent can encounter when faced with new and potentially threatening issues like these. Staying ahead of the curve has never been more important.