Law restricts certain foreign persons from acquiring real property in Florida.

A new Florida law is raising concerns for private lenders. Although its greatest impact is on transactions that finance Florida real property purchased by certain foreign persons associated with the People’s Republic of China, it also affects transactions that finance the property purchases of people associated with certain other foreign countries.

The new law does not appear to apply directly to private lenders who finance prohibited purchases of Florida real property. However, Florida government agencies are developing new rules to implement the new law. Here’s a summary of the law’s current and potential impact on private lenders:

1. There are secondary market repurchase obligations if a transaction is found to be in violation of the law.
2. The state of Florida can order a property forfeiture (with the state’s subsequent sale of the property not necessarily being in the lender’s interest).
3. Rules are forthcoming from the three Florida agencies tasked with implementation that may penalize lenders where the main law does not.
4. Lenders risk running afoul of the Fair Housing Act while trying to be compliant with the new law, especially since the Florida Real Estate Commission has yet to publish the promised form of affidavit that would help limit liability.

Florida is one of 12 states to enact a foreign ownership law in 2023 and is now one of 24 states that restrict certain foreign investments in land located within their state.

Overview of New Law

Specifically, the new law:

1. Limits foreign principals from the People’s Republic of China from owning, having a “controlling interest” in, or acquiring additional real property in Florida on and after July 1, 2023.
2. Limits foreign principals from other “foreign countries of concern” from owning, having a controlling interest in or acquiring:

• Additional agricultural land.
• Property on or within 10 miles of a military installation.
• Property on or within critical infrastructure facilities (e.g., chemical manufacturing facilities, refineries, electrical power plants, water treatment facilities, wastewater treatment plants, liquid natural gas terminals, telecommunications central switching offices, gas-processing plants, seaports, and spaceports and airports).

The restrictions on property ownership within 10 miles of military installations and critical infrastructure are particularly problematic, because there are no clear rules guiding how to measure the 10-mile requirement.

Foreign countries of concern include:

• People’s Republic of China
• Russian Federation
• Islamic Republic of Iran
• Democratic People’s Republic of Korea
• Republic of Cuba
• Syrian Arab Republic.
• The Venezuelan regime of Nicolás Maduro

Foreign principals include:

• Government officials or members of parties from the foreign countries of concern.
• Entities or a subsidiary organized or having a principal place of business in a foreign country of concern.
• Persons domiciled in a foreign country of concern and who are not citizens or lawful permanent residents of the United States.
• Any person described above that has a controlling interest in an entity or subsidiary formed for the purpose of owning real property in Florida.

Controlling interest means possession of the power to direct or cause the direction of the management or policies of a company, whether through ownership of securities, by contract, or otherwise. A person or entity that directly or indirectly has the right to vote 25% or more of the voting interests of the company or is entitled to 25% or more of its profits is presumed to possess a controlling interest.

Exceptions to the New Law

Exceptions to the new apply, including:

• A de minimis indirect interest in real property, which is either of the following:

1. A person’s ownership of registered equities in a publicly traded company owning the land if the person’s ownership in the company is either less than 5% of any class of registered equities or less than 5% in the aggregate in multiple classes of registered equities.
2. A person’s noncontrolling interest in an entity controlled by a company that is both registered with the Securities and Exchange Commission (SEC) as an investment adviser as long as the person is not a foreign entity.

• A person’s acquisition of additional real property by devise or descent.
• A person’s enforcement of security interest or through the collection of debts, as long as the person sells or divests the real property within three years after acquiring the real property.
• Grandfathered property acquired before July 1, 2023. However, these persons may not purchase or otherwise acquire by grant, devise, or descent any additional real property in Florida. Persons who exercise this exception and others must register with the Florida Department of Economic Opportunity.
• Natural persons who hold a current visa not merely for tourism or official documents confirming asylum in the U.S., where the documentation authorizes the person to be legally present within Florida, may acquire up to 2 acres not on or within 5 miles of any military installation in the name of the person who holds the visa or official documents. These people may still not acquire agricultural land.

Penalties for Violating the New Law

If a violation of the new law’s restrictions occurs, the Florida Department of Economic Opportunity is authorized to bring an action for the forfeiture of the property, meaning the state files a lawsuit against the foreign principal to obtain title to the property held in violation. If a court determines that property is held in violation of the law, the court must order a judgment of forfeiture and the Department “may sell” the property.

A foreign principal that purchases and a person who knowingly sells real property or any interest therein may commit a misdemeanor.

It can be a felony to violate the section prohibiting foreign principals from the People’s Republic of China from acquiring additional real property.

Closing agents with actual knowledge that a transaction will result in a violation of the act may also be penalized.

In addition, a grandfathered person who fails to file a registration with the Florida Department of Economic Opportunity is subject to a civil penalty of $1,000 for each day the registration is late. The Florida Department of Economic Opportunity or the Florida Department of Agriculture and Consumer Services may also initiate a civil action in circuit court for the forfeiture of the real property or any interest acquired in violation of the act.

Challenging the New Law

Florida Government Support. The De Santis administration and the Florida Legislature strongly support this new law; therefore, it may prove difficult to successfully challenge the law through traditional lobbying efforts.

Rulemaking Process. The Florida Department of Economic Opportunity, Florida Department of Agriculture and Consumer Services, and Florida Real Estate Commission have kicked off a rulemaking process that would enable private lenders to comment on and influence the final rules. For example, private lenders, working through the AAPL, could suggest an express carve-out from liability under the new law for lenders financing the purchase of Florida real property. The Geraci Law Firm will update private lenders on the rulemaking process and would be happy to assist lenders in submitting comments.

Legal Challenges. In May 2023, a lawsuit was filed by certain Chinese citizens and a Florida real estate broker in the U.S. District Court for the Northern District of Florida seeking an injunction against implementation of the new law, claiming the law violates the Equal Protection Clause, Due Process Clause and Supremacy Clause of the U.S. Constitution and the Fair Housing Act. The challenge is supported by and coordinated with the American Civil Liberties Union, the ACLU of Florida, DeHeng Law Offices PC, the Asian American Legal Defense and Education Fund, and the Chinese American Legal Defense Alliance.

The U.S. Department of Justice filed an amicus brief in support of the plaintiffs. As part of the amicus brief, the Department of Justice asserted the new law violates the U.S. Constitution and Fair Housing Act and argued the new law conflicts with existing federal regulations governing real property and national security.

The plaintiffs asked the court to halt the enforcement of the new law. However, on August 17, 2023, the federal judge issued an order denying the plaintiffs’ request. As a result, the state of Florida continues to enforce the law.

The state of Florida is strongly defending the new law, and the attorneys general of Arkansas, Georgia, Idaho, Indiana, Mississippi, Missouri, Montana, New Hampshire, North Dakota, South Carolina, South Dakota, and Utah have filed a joint amicus brief supporting the new law.

What Should Private Lenders Do?

Florida industry professionals generally advise parties to a Florida real estate transaction to avoid efforts to determine whether a person is a “foreign principal” because of potential Fair Housing Act liability. Instead, transaction parties, including private lenders, are advised to use affidavits from purchasers stating that the transaction complies with the new law. Many form affidavits are available on Florida real estate industry websites, including the Florida Land Title Association at https://www.flta.org/ForeignInterests.

Importantly, the Florida Real Estate Commission was tasked with preparing a form affidavit so real estate purchasers can certify that (1) they are not a foreign principal or (2) the transaction will otherwise comply with the law. It does not appear that the commission has published the form of affidavit.