Real Estate Development And Finance

Real estate development and financing attract legal issues that an investor should be aware of. The major issues in real estate development and funding arise from the fierce land competition, where developers offer landlords unfair deals they cannot afford. Therefore, the landlords should seek legal guidance and conduct proper due diligence.

Legal Issues In Real Estate Development In Michigan

Form of ownership entity: Legal structures are essential when starting a business. The type of business can be a partnership, sole proprietorship, corporation or a limited liability company. However, the investor must understand the legal structure for their preferred investment option. Most small-scale investors opt for sole proprietorship or partnerships, depending on their financial power. The two options have a low personal liability factor because the investor is not likely to be sued for massive capital borrowing.

Conversely, the formation of a corporation is costly and has a high-risk level. Limited liability companies are a preferred venture because they limit the owner’s liability and court summons against the business. Consulting with an experienced lawyer offers the advantage of utilizing the most favorable tax rates. More so, the formation of the appropriate company entity may also guide how the organization will interact with various stakeholders. An investor should understand the level of the venture to focus on all risks involved.

The original form of ownership entity does not have to be permanent. You can start small with sole proprietorship and expand later to other forms such as partnerships. If your business grows and the risk level increases, it is advisable to convert the venture into a limited liability company.

You can consult our real estate development and finance attorney today for insight on whether your business is utilizing the best legal opportunities. You will be guided on the various investment entities based on the specific factors of your business.

Subordination: Real estate development and venture require the landowner and the developer to sign various agreements. The language used in the deal is critical in deciding the order of interaction, payments, and accomplishments of the parties that sign the contract. A subordination clause in Michigan applies when specific terms are placed within a more significant settlement, to make a claim senior to those that might be added later. Real estate development involves finance borrowing such as a mortgage, and thus a subordinate clause is vital in showing priority over any new loans. An example would be when there are claims of bankruptcy where the court disregards the subordinate loans, and a person is not subject to repayments.

On the contrary, a subordination contract can be added later when the number of parties in agreement expands. The parties wishing to join the original agreement create a separate subordinate agreement and then amend the original contract. However, the additional subordinate agreement must be signed by all parties from the original and the new deal. It is essential to ask for legal guidance before taking part in a subordinate clause or signing a new document to ensure that the document serves your bests interests.

Purchase and sale agreement: The purchase of a real estate property from a landowner involves a lengthy process which comprises of negotiations and development agreements. Timing for these types of transactions is crucial. A full purchase and sale agreement should not take place unless there is a guarantee that the ownership entity has a proper internal mechanism and is ready to take part in the negotiations.

Developers have two major avenues to tie up the land before engaging in a purchase agreement as indicated below:

  • Term Sheets and Letters of Intent secure the exclusive rights for the developer to engage in property negotiations before a full purchase and sale agreement. The agreement includes the price of the property, inspection date and due diligence. It also comprises of conditions of sale and even the period during the negotiation when the seller should not actively negotiate with another interested party.

  • Option Agreements

An agreement for improved land is different from that of raw land. The seller of an improved land may opt to make property representations besides the property’s historical details. However, the seller of the new land might be unwilling to offer more information before its purchase is confirmed. Therefore, the purchaser of new real estate is required to perform a high level of due diligence to make sure that property is viable for development.

Attorney services are vital in making sure the purchaser or the developer gets the most suitable terms in the agreement. Our law firms acknowledge that contingencies regarding the obligations of the purchase of the new property should be drafted broadly than that of developed property. Our team of attorneys will represent your best terms, including the evaluation of all possible scenarios before the purchase agreement is made.

Lien laws: Michigan has strict lien regulations that cover the right to hold another person’s property until the debt owed is repaid. Subcontractors, material suppliers, and laborers can file for a Mechanic’s Lien if they have evidence that they were not paid after improving a real estate property. However, if the property is residential, Michigan law only awards the lien rights if they are licensed, residential builders.

The Mechanic’s Lien claim has a deadline of ninety days after the last day of improving the property and the property participants must produce a Notice of Furnishing or a Sworn Statement. Finally, the Lien should also cover a description of the property.

Our law firm can represent your rights in a lien real estate property dispute. Our team of experts will prepare a Notice of Furnishing or a Sworn Statement on your behalf. We also provide you with additional legal guidelines on how to ensure that the person owing you compensation, does so within the shortest time possible.

Easement: At times, a property owner may want to seek rights over another person’s property. As a real estate developer, you might require an easement agreement to facilitate access to the landlocked property. With an easement, however, the ownership of the property does remain with the original owner.

On the other hand, if a landowner would like to keep a particular development from a specific area, he or she can file a conservation easement agreement, which details the duration that the land should remain untouched. A Conservation Easement Agreement pertains to donated land or when ecosystem protection is vital. Some easements, however, cannot be transferred to new owners, such as those that lack a formal written agreement.

Property Title Issues: When purchasing a property, a buyer must pay close attention to the property title or deed. The Title or Deed offers information on who the rightful owner is, as well as, other critical details of the history of the property. A buyer must have the skills to identify property title issues, so they know what they are getting into. Small mistakes in the Title, such as public record errors, can be detrimental. Such as if the original owner of the property owed another person money, that person can file a lien for payment and the property withheld.

Our law firm can help file a lien with the appropriate authorities. We will conduct due diligence on the property to be purchased and make sure it does not contain intended or unintended errors. We also offer advice on how to identify, mitigate and remedy the issues of property title.

Dealing With Issues In Financing And Real Estate Development Projects

Real estate is a venture that is guarded by commercial laws in Michigan. However, if an investor or a landowner fails to understand the application of the law, they could lose their investment. It is always advisable to exercise caution when entering into any real estate transaction. Consider the type of contract and make sure that you understand the terms included in the agreement. And if there is an issue, there are various legal options you can utilize.

Take advantage of our experience and consult us on all your real estate development and financing queries.

Real Estate Litigation

Real estate issues that require litigation differ as to the stakeholders vary and the interactions involve various policies and laws. The most common point of dispute is a real estate contract. A real estate contract guides the parties involved in the sale of property and transfer of title to the property. In some cases, the contract is unclear, which leads to a dispute. A real estate lawsuit generally results in an award being issued for damages caused by one party.

Common Real Estate Litigation Disputes

Other examples of real estate litigation include:

  • Property defects that a seller failed to disclose.

  • Mortgage issues.

  • Real estate agents.

  • House foreclosure disputes.

  • Real estate contract penalties.

Real Estate Contract

When parties come together in a binding contract, the terms of the contracts are to be adhered to without fail. In common cases, these terms may seem unfavorable to one party, leading to a breach of contract. This forms the leading issue in real estate litigation. A real estate contract includes details such as property sale, title clearance, and other specifics. In the case of a breached contract, the offended party or plaintiff has the burden to prove that they have fully adhered to their contractual obligations whereas the other party failed to fulfill their obligation.

Having succeeded in proving that failure, the offended party is then eligible for compensation for losses incurred, resulting in the breach of contract.

It is advisable to have an attorney review a contract before entering into an agreement. This enables both parties to better understand all provisions of the contract and avoiding a breach of contract later.

Failing To Reveal Property Defects

Real estate sellers/brokers have an obligation to make clients/buyers aware of any defects that exist or affect the value of the property. Upon discovering an undisclosed defect in a property, a buyer may be entitled to sue the seller for failing to reveal defects in the property during the selling stage.

A case of failure to disclose defect requires the offended buyer/plaintiff to prove that the defects were known or should have been known to the seller/defendant prior to sale and that the seller intentionally failed to disclose them to the buyer. It is advisable to have a property maintenance or surveying consultant accompany a buyer to view a property before purchase as this helps buyers identify defects in a property that a buyer, who lacks the expertise, can identify.

Real Estate Agents

Buying or selling a home is often the biggest financial decision people make. Whether you are a first-time home buyer, looking for a second home, or need to sell property, you will likely hire a real estate agent. When you hire a real estate agent, he or she enters into a kind of legal relationship known as a principal-agent relationship or the “agency relationship.” This relationship imposes on real estate agents a legal duty to act on behalf of the client (known as a “principal”), requiring the agent to act in specific ways.

The agent must act with your best interests in mind and cannot use their position to better their interests, nor the interests of their friends, co-agents, or business partners. This legal obligation is known as a “fiduciary duty.” The agent typically learns sensitive information about the principal, such as personal financial details. Agents have an obligation to keep such information confidential, not revealing any potentially damaging details.

Agents work on the principal’s behalf and are obligated to follow all instructions or wishes. In general, your agent has to do what you say unless your instructions violate the terms of a contractual relationship you have with the agent (or otherwise violate the law). For example, the Fair Housing Act is a federal law that prohibits certain types of discrimination when people buy or sell homes. Under this law, homeowners are not allowed to refuse to sell a home to someone based solely on specific factors, such as race, religion, family status, or disability. So, if you hire an agent to sell your home and tell that agent not to sell to people with children, your agent does not have to follow your instructions, and the refusal to follow those instructions does not violate the agent’s duty of obedience. Otherwise, agents have to follow your instructions during the course of the relationship.

Agents must be candid and disclose to you – information that furthers your interests. Also, agents cannot use their experience, knowledge, or insights to your detriment. For example, agents cannot keep secret the identity of potential buyers, nor can they keep negative information about the property from buyers in an attempt to make a sale and earn a commission.

Agents have to be competent and must act with care and diligence when representing their interests.

Real estate agents that fail to fulfill these and more of their duties as expected find themselves on the wrong side of the law.

House Foreclosure Dispute

In real estate, foreclosure of a house by an agent or the owner may be required. House foreclosure is protected by law and in most cases, filing a case to delay or prevent foreclosure is not advised.

Real Estate Litigation Legal Aid

The law applies to all, and stakeholders in real estate are no exception. Any person that finds themselves in a real estate dispute requires professional legal aid and a trusted attorney to ensure the dispute is resolved according to the law.

A real estate attorney is best equipped to handle real estate documents and understand them in relation to the law. The documents include the transfer of title and property documents as well as purchase agreements. The real estate attorney offers the client legal guidance and equips the clients with legal knowledge when in real estate engagement.

Legal knowledge in real estate is essential in making key decisions for real estate stakeholders.

Purchasing Of A Home

When one decides to buy a home, they deal with an intermediary broker who conducts negotiations between the buyer and the owner before reaching an agreement. The buyer, in this case, is advised to have legal advice while engaging in negotiations to ascertain that what they hear and what they say is clear and not legally binding in a negative manner.

The buyer is served with a contract and agreement to review and sign before the purchase of the house. The contract is a binding agreement and requires the buyer to fully understand the terms and provisions of the agreement. As this is a legally binding document, some terms and provisions are best explained by an attorney. Taking for granted the need for legal aid in this stage may put you, the buyer or the seller, at great risk.

In the case where the broker does not offer a contract, they tie themselves as liable to cater to their commission in case the sale does not happen. There also are agents that use standard forms with provisions that they hardly understand and this, for a buyer, costs more than not having a legal review of a contract before signing it.

One does not have to hire a full-time lawyer as this is costly to some. Real estate attorneys are available on a consultation basis.

Buying Agreement

Upon agreeing to purchase property, the buyer enters into an agreement with the seller. That agreement is a reflection of the buyer and seller’s desires and may include:

  • If changes to the property are lawfully made.

  • If the buyer is legally allowed to make changes to the property.

  • If the buyer finds the property contains harmful material, action to be taken.

  • Liabilities in case the buyer fails to purchase the property.

Title Search

If you are purchasing property, it is advisable to establish the position of the seller’s title (i.e. whether or not the seller actually owns the property, whether any liens on the property exist). This search called a “title search” is ordered by an abstract or insurance firm.

Once the title search is provided, the attorney reviews and provides advice in line with the title policy. Title insurance is not mandatory in all jurisdictions and, therefore, the title search should be reviewed.

Having completed the title search, the buyer then decides whether he or she wants to purchase the property.

The buyer completes payment for the property. This closing of the sale process is complex for most buyers as well as sellers and may require the assistance, at closing, of an attorney.

Condemnation

Condemnation comes as a result of a government (local city, state or federal) seeking to acquire or use the land for either public or private means, making an offer to the owner for compensation. This includes making space for a major project like a road, railway, or even a public utility like a school, a public part or residential settlement. There can also condemnation for other uses like military use, mining projects or for an environmental reason.

The owner of the asset cannot object to this role and is only allowed by law to negotiate the amount of compensation due to him. These are provisions under the 5th Amendment.

The condemnation processes are mostly guided by a court of law. The courts decide if the property is worth being condemned or whether or not the amount offered is fair or just.

This process can be extensive and taxing but with a formidable legal counsel, you are likely to go through it with ease. We have engaged in condemnation matters and assisted clients in obtaining a favorable result. The attorney, during this process, assists in negotiating a fair payment and also deals with the contractual issues, especially if the asset has tenants or other users who will require termination of their tenancy.

Condemnation mainly targets real estate though it is not limited to that. There have been cases of eminent domain on intellectual property as well as privately held funds when the government feels those funds can be used for the public good.

Circumstances Under Which An Asset Can Be Condemned

Governments are in frequent need of land and at various times a government requires the use of certain parcels of land for a specific need. The laws that govern condemnation (also known as eminent domain) dictate that the owner of the land has little or no say in whether the land will be acquired but can only negotiate the amount of compensation. Even then, the government uses valuation experts to determine an asset’s value.

  • Seizure of asset for private purposes – This is widely debated but it is something that can happen. The government may feel that private land is not having enough impact on the public good and might seize it to be converted to another private hand that will generate more revenue for the government. This can also involve taking over an asset or a building that, once in the hands of the government, can generate additional taxes, jobs or even investments. A city can seize private land in the event such as they are experiencing a housing shortage and then allows a private realtor to build houses for public use.

  • Seizure for public use – This is the most common type of condemnation. In this case, a state may choose to seize a private asset to allow construction of a road, a school, utility installation, such as power lines or pipelines, as well as, to construct public spaces like parks and game zones.

  • Seizure for military government agency use – When it comes to sensitive undertakings, a government might decide to take private land and convert it for use by the military or sensitive research. In this instance, the government finds it easy to convince the court that the land will be put to better use or argue that by removing the owners of the land, it shields them from grievous harm. There are elaborate clauses that grant the military power to establish defenses, fortifications and expand existing bases through condemnation.

  • Seizure for mineral and other state use – Mining laws allow mining companies to condemn land they feel holds substantial minerals, both at the surface and subsurface.

Processes Of Condemnation

  • Identification of the land for condemnation

The government may use the above reasons to identify an asset. This is an important step as they have to produce a valid reason why this asset must be condemned.

  • An offer of pro tanto award

The state then moves to discuss with the owner of the land or asset and offers a partial payment as compensation for the land being seized. If the owner accepts the offer, the process is made easy and the acquisition proceeds. However, if the owner objects to the offer, the state must move for an action before the court seeking the right to an eminent domain.

  • Seeking Issue of right to eminent domain

The state files a case or a suit in a court of law detailing the reason it needs to have full control or seizure of the asset. The court then schedules a hearing so that each party may present their case for or against condemnation.

  • Valuation

The court can order a valuation process to determine the actual cost of the asset. Most of the value given by the state is dictated by the market value, however, there instances when the state presents a value, lower than market value, at which time the assistance of an attorney can guide you through this process.

 

  • A court hearing for compensation


The court allows the parties to reach the most reasonable resolution and compensation is awarded pursuant to that resolution.

Processes Of Condemnation

We have defended and been granted fair compensation for clients on assets earmarked for condemnation. The attorney may present various grounds in building their case and defending the clients’ asset against compulsory seizure such as:

  • Identify errors either on the procedure used to file condemnation suit – This is mostly used as a delay tactic allowing the owner time and resources to obtain fair compensation. By challenging the procedure, the entity seeking eminent domain might delay and then return once the procedural error is rectified. The advantage is that, when they return, the value of the land may have increased.

  • Challenge on the intended use of the asset – If an owner convinces the judge that the land is not as important to the entity seeking to condemn it, they may receive relief and avoid the land being seized. For example, an attorney can prove that the land will not provide adequate public good as indicated by the party seeking seizure.

  • Produce evidence that the compensation package is inadequate – If your legal team sends viable evaluation reports showing the cost of the land being condemned, a judge may decide that the owner should receive higher compensation. The trick is to do your homework to ensure the right value is achieved.

  • Prove a case of inverse Condemnation – When a government takes over an asset without compensating the owner or giving poor compensation, the landowner can move for the court to grant fair compensation. This can occur in the case of both permanent land seizure and temporal use. For example, the government may be sued if, in the process of creating a dam, water seeped out and flooded areas downstream, displacing owners. The owners can then seek damages and inverse condemnation compensation. Various states have a different way of addressing this matter, but the procedures of compensation are generally standard. The 5th Amendment shields the population against unjustified compensation or takeovers.

Relocation Exercise

The entity seeking an eminent domain must provide clear ways under which it compensates those affected. This includes providing alternative land under which those affected can relocate. A relocation plan is sometimes requested by a court of law to ensure there is just and fairness in this exercise. Within this relocation plan, the Eminent Domain entity must cover the cost of relocation, which at times may involve the transportation or the cost of establishing a new base. In some instances, the eminent domain may also be required to pay for any costs associated with advertising/informing others of the new location address.

Reviewing Your Condemnation Suit

When a state or government agency approaches you for condemnation, it is best to immediately seek legal advice from your most-preferred attorney. Your legal team will help clear the grey areas of this process.

Every case is determined differently and no matter the number of times you have faced a condemnation suit, it is always important to pass it through your legal team.

For more information, contact us. We can assist you in dealing with matters in case they arise and help you get the fair hearing you deserve.

Land Use And Zoning

Land Use

Land Purchase

Upon deciding to purchase a piece of land, buyers may have to deal with an intermediary broker who conducts negotiations between the buyer and the owner before reaching an agreement. The buyer, in this case, is advised to seek legal advice while engaging in negotiations to ascertain that all they hear and say is clear and not legally binding in a negative manner. The buyer is served with a contract and agreement to review and sign prior to the purchase of the land. The contract is a binding agreement and requires the buyer to review the contract/agreement to fully understand all terms and conditions.

In the case where the broker does not offer a contract, the broker ties themselves as liable to cater to their commission in case the sale falls through. There also are agents that use standard forms with provisions which they barely understand and this, for a buyer, costs more than not having a legal review of a contract before signing it.

Buying Agreement

Upon agreeing to purchase or use the land, the buyer enters into an agreement with the seller. This agreement is a reflection of the buyer and seller’s desires and includes:

  • Whether changes are legally made.

  • Liabilities in case the buyer fails to purchase the property.

Such provisions are laid out to guide the selling process. It is essential for a buyer to seek legal aid prior to engaging with the seller to avoid future disputes.

Land Title

When a buyer purchases land, they expect evidence of ownership by the seller aka a “Title”. It is advisable to obtain a title search of the property if ownership is in question. That search is done by an abstract or insurance firm. Having completed the title search, the buyer decides whether or not he wishes to purchase the land. If the buyer does choose to go forward with the purchase, an offer is made, and a closing is scheduled. Once the buyer purchases the property, title is then moved from the seller to the buyer and the buyer completes payment for the property.

Land Use Laws

Since the 1920s, governments have imposed reasonable regulations on the use of privately-owned land. While some people argue these regulations, most recognize that when a person creates unsightly blight that others have to look at, or use their property in ways that create unreasonable noise, odors, lighting or create a threat to the safety of others, it is reasonable for the local government to step in and stop the nuisance behavior.

Local governments focus considerable attention reviewing plans for new development to prevent problems and conflicts before they materialize. Land use regulations protect the overall appearance of the community, protect the natural features that residents value, and help minimize the cost of local government services.

Local governments exercise land use authority through local planning and zoning.

A master plan guides the overall direction of where land uses are most appropriate by considering local and regional assets, needs and opportunities, as well as development patterns driven by market forces and infrastructure improvements.

A zoning ordinance is a township law establishing land development districts and regulating land development. In suburban and rural areas where the dominant intent of zoning is to protect the value and use of private residences, zoning often focuses on segregating incompatible land uses.

Land Use Laws

Zoning is the term used for designating permitted uses of certain parcels of land by local governments. The local government will designate various zones for different uses of land, such as industrial, agricultural, commercial, and residential. Zoning is also frequently used to designate the types of buildings that can be erected in a particular area, such as high-density housing, high-rises, maximum height restrictions, etc.

The primary philosophy behind zoning regulations is to separate different, incompatible property uses. For example, keeping large, smoke-producing factories away from residential neighborhoods. However, in many instances, variances, or exceptions to the zoning rules, are possible. For example, a small residential variance might be granted to allow for a home in an industrial zone to house the night watchman. Usually, variances are granted because of some perceived hardship caused by the particular nature of the property in question or to satisfy a unique need that is not otherwise against the public interests.

Of course, zoning laws are not without their critics or misuse. Along with potential property rights infringements, zoning has also been criticized as a means to promote social and economic segregation through exclusion. By improper use of various land-use restrictions, such as maximum density requirements, municipalities are able to artificially maintain high housing costs, increasing the tax base while effectively excluding lower-income groups.

If you have questions about zoning, land-use, obtaining variances, or fighting government sponsored housing segregation, contact our office to meet with one of our qualified attorneys.

Land use litigation is a review of zoning decisions by various jurisdictions. In most jurisdictions, appeals are made on zoning permits granted to determine whether variances should be permitted. A constituted body is mandated to handle the appeals. This body normally has more power and jurisdiction legally, than the one that issued the previous order. Evidence for land use and zoning litigation cases must prove beyond doubt that there is a need for a review of the previous order given.

Litigation cases in land use and zoning are mainly between the leading master planners against a given order or directive. Other factors also call for litigation in that line or sector. These cases include

  • Land development laws and zoning appeals issued.

  • Issues with master plan amendments.

  • Land use and zoning appeals on rulings.

  • Due process violations especially by a local authority.

  • Rights to water.

  • Environmental laws and regulations

  • Sustainability.

Land is used for various purposes. Land can be utilized for agriculture, real estate, and many other reasons. To put land into use, the user is expected to adhere to set regulations. Real estate investors, for instance, have to follow environmental laws for construction, insurance laws and others.

Land use is first permitted by local municipal councils or local jurisdictions, however, these permits and decisions may be appealed at a court of higher jurisdiction.

Dearborn 

18572 West Outer Drive

Dearborn, Michigan 48128

Phone: (313) 274-7377

Fax: (313) 274-5946

Plymouth

1058 Maple St., Suite 100
Plymouth, Michigan 48170

©2020 by John R. Foley, P.C. - All rights reserved. Do not copy.

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