Pitt & Frank Real Estate Blog

The Home Affordable Refinance Program (HARP)

2012-01-30T07:33:00.000-08:00

In 2009, the Home Affordable Refinance Program was established for Fannie Mae and Freddie Mac loans. It allows home owners to refinance their homes, even if the value of the home has decreased. Homeowners with a loan owned by Freddie Mac or Fannie Mae have the opportunity to refinance with any participating lender. The Home Affordable Refinance Program (HARP) has been extended until December 31, 2013.

The following criteria must be met to qualify for the Home Affordable Refinance Program:

1. The home must be owner-occupied.

2. HARP refinances apply only to Fannie Mae or Freddie Mac mortgages.

3. The homeowner must be able to afford the new lower payment.

4. The current mortgage must be current with no late payments in the past twelve (12) months.

5. Payments on the new loan must be more stable than on the existing loan.

6. The maximum loan to value (LTV) cap has been removed on home owners looking to refinance in to a fixed rate mortgage. It was originally set at 125%.

7. Homeowners can refinance with an adjustable rate mortgage (ARM), so long as the maximum LTV does not exceed 105%.

A participating HARP lender can determine if a loan is owned by Fannie Mae or Freddie Mac and can further evaluate eligibility.

Pitt attends National Symposium in Chicago

2011-08-26T09:21:00.000-07:00

Michael Pitt recently returned from the 3 day, 2011 Planning for the Generations Symposium in Chicago, where more than 400 estate planning attorneys from around the country gathered to advance their knowledge and discuss new strategies. Mike noted in particular that the knowledge he gained in how to incorporate advance asset protection strategies into estate plans will enable him to assist his clients to better protect the assets they have accumulated and give his clients greater peace of mind that those assets will be there always for their needs and the needs of their families.

“Estate planning today is a thoughtful, ongoing process … no longer merely a document created in a single legal transaction,” said Pitt. “Our goal at Pitt & Frank is to provide a high level of asset protection for out clients, so they can sleep better at night, not having to worry about preservation of their assets.”

Michael Pitt and Christine Emison of Pitt & Frank are members of WealthCounsel, a national, collaborative organization of estate planning attorneys dedicated to providing a comprehensive, client-centered approach to estate planning.

You Got the Tax Credit When You Purchased in 2009/2010 - What Happens When You Sell?

2011-08-15T07:25:00.000-07:00

Repaying the Credit

Q. When must I pay back the credit for the home I purchased in 2009?

A. Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009 or early 2010. The obligation to repay the credit arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence.

Q. If I claim the first-time homebuyer credit for a purchase in 2009 or early 2010 and stop using the property as my principal residence before the 36 month period expires after I purchase, how is the credit repaid and how long would I have to repay it?

A. If, within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full amount of the credit is due at the time the income tax return for the year the home ceased to be your principal residence is due. The full amount of the credit is reflected as additional tax on that year's tax return. Form 5405 and its instructions will be revised for tax year 2009 to include information about repayment of the credit.

Q. When does my home stop being my main home?

A. Here are examples of when your home stops being your main home:

     1. You sell the home.
     2. You transfer the home to a spouse or former spouse in a divorce settlement.
     3. You convert the entire home to a rental or business property.
     4. You converted the home to a vacation or second home.
     5. You no longer live in the home for the greater number of nights in a year.
     6. Your home is destroyed or condemned.
     7. You lose your home in foreclosure.
     8. You die.

Q. When do I have to repay the credit?

A. You repay the full or part of the credit as an additional tax on your tax return when the home stops being your main home during the 36-month period following the date you purchased your home.

     You must repay the full credit when:

     1. You sold your main home to a related person or entity
     2. Your home is destroyed, condemned or disposed of under threat of condemnation and you do not purchase or rebuild a replacement home within two years.
    3. You converted the entire home to a rental or business property.
     4. You converted the home to a vacation or second home.
     5. You no longer live in the home for the greater number of nights in a year.

     You may have to repay the full or a part of the credit when:

     1. You sold your main home to a non-related person or entity.
     2. You repay the amount of the credit up to the amount of your capital gain. Note: when calculating gain or loss on your main home if you received the first-time homebuyer credit, you reduce your basis by the amount of the credit. See Publication 551, Basis of Assets, for more information.
     3. You lost your home in a foreclosure.You must repay the credit only up to the amount of gain.

Divorced Persons

If you (transferor spouse) transfer your main home to a spouse or former spouse (transferee spouse) under a divorce decree, the transferee spouse who keeps the home is responsible for repayment of the entire credit if, during the 36-month period after the purchase of the home, the home ceases to be his or her main home. You (transferor spouse) are not responsible for any repayment of the credit.

Source: http://www.irs.gov/

Short Sale Basics

2011-07-11T07:30:00.000-07:00

1. What is a "Short Sale?"

A "short sale" typically occurs when an owner has no equity in the property under any reasonable measurement of value. Secured creditors are asked to voluntarily accept "short" payoffs in full satisfaction of their liens in order to facilitate a sale of the property at a price insufficient to pay all liens in full. Unlike a foreclosure, there is no legal leverage requiring secured creditors to release their liens upon the sale regardless of the amount of recovery for their liens, so cooperation and consent of all secured creditors is necessary.

2. Advantages of a "Short Sale"

In theory, unlike a foreclosure property, the property is marketed privately at its best potential value in the marketplace.  Also, while a typical short sale may take longer than a conventional third party sale to accomplish, the timeline is usually much shorter than current foreclosure actions are taking.

3.  Title Company Procedure is the Key to a Successful "Short Sale"

Prior to closing, the title company works with the secured creditors, both mortgage holders and lien holders, to insure that all items will be released from the property upon completion of the short sale closing. This function typically requires much more scrutiny by the title company. What may normally be an administrative function in obtaining a full payoff figure from a lender graduates to a more legally and conditional contractual agreement by the lender to even consent to a compromised payment. Involuntary lien holders (judgments, mechanics', tax liens, etc.), who are never pre-disposed to be cooperative in obtaining full payoffs and releases anyway, may be even more recalcitrant in their cooperation with a short sale.  The title company must exercise extreme diligence in obtaining unambiguous and clear releases of liens prior to closing because in most cases little to no consideration is being received in exchange for such releases. Upon the agreement of all secured creditors in writing to the title company, the closing can take place.

Combining the GFE and TIL Disclosures

2011-05-20T10:22:00.000-07:00

The Consumer Financial Protection Bureau (CFPB) announced recently that it has created two alternative prototype forms that are designed to combine the consumer disclosures required by the Truth in Lending Act and the Real Estate Settlement Procedures Act (RESPA).

The CFPB will use both in a testing process that will last for several months in preparation for the formal proposal of a single form. The agency said that it plans five rounds of evaluation, comment and revision before settling on a final form. The process will use forms in both English and Spanish.

The prototypes both offer disclosures for a $216,000 adjustable rate mortgage loan. They combine the disclosures required by the current RESPA Good Faith Estimate of Closing Costs and the current Truth in Lending disclosures in two-page formats. By selecting the right options, it is possible not only to review the two prototypes but also to comment on which of the two is better and why. The CFPB's webpage (LINK) also offers separate comment possibilities for consumers and industry participants.

The testing and public feedback process will enable the CFPB to revise the design and adjust the content based on how it works for consumers to develop a single form that will officially replace the dual TIL and RESPA disclosure requirements.

Source: jdsupra.com

Indiana Law - Statute of Limitations

2011-05-11T05:21:00.000-07:00

Detailed below are a few of the various time thresholds set out in Indiana law that you may run into when reviewing a title to real property located in Indiana.

Mortgages - The statute of limitations, IC 32-28-4-1, for the viability of a mortgage is reviewed with the terms of the mortgage to determine if the mortgage has expired. Mortgages executed after September 1982 have a ten (10) year life from the date of maturity. Mortgages executed prior to September 1982 have a twenty (20) year lien life from the date of maturity. If the mortgage is silent as to a maturity date, the mortgage remains viable twenty (20) years after the mortgage execution regardless of the mortgage's signing before or after 1982. If the execution date is not apparent from the mortgage, the lien will survive twenty (20) years from the mortgage's recording date.

Judgments - A judgment lien attaches to real property when the judgment has been entered and indexed in the judgment docket. IC 34-55-9-2. An Indiana judgment as well as a state tax warrant survive ten (10) years after the rendition of the judgment. However, this time period may be extended due to an appeal, injunction, bankruptcy, the judgment debtor's death, or upon agreement of the parties. A federal judgment does not need to be indexed in the same manner as a state judgment. It must be recorded with the county recorder and due to the Federal Debt Collection Procedures act of 1990, it has a twenty (20) year life.

Mechanics Liens - IC 32-28-3-1 et al governs the procedures and lien time frame for a valid and viable mechanic lien. The following criteria must be satisfied: 1) Pre-lien notice requirements with a residential property where a non owner contracts for the labor. 2) Sixty (60) day recording requirement from the last day of work or supply for mechanic's lien on residential property. 3) Ninety (90) day recording requirement from the last day of work or supply for mechanic's lien on commercial property. 4) The recorded notice of intent to hold a mechanic's lien meets the form requirements of the statute. 5) Whether recorded no lien contract is enforceable. A property owner can request by certified mail that the lien claimant foreclose the mechanic's lien. if the foreclosure is not instituted within thirty (30) days, the property owner can file an affidavit to void the mechanic's lien. The statute also requires the foreclosure of the mechanic's lien within one (1) year of the recording date.

Leases/Land Contracts - Under IC 32-23-8-1 et al a lease is null and void after a period of one year when rental payments, development, or oil/gas production have ceased.

Re-Post: Decedent's Estates and the Sale of Real Property

2011-04-28T07:10:00.000-07:00

We get many questions regarding the sale of real property that occurs after the title holder is deceased. For the most part, we have to follow the guidelines of our title insurance underwriters. These guidelines evolve from a combination of Kentucky case law and the KRS, as well as risk analysis and assessment. Included below is a simple outline that details the steps needed and action required when the title holder of real property is deceased.

I. Testate - Decedent had a Will. The Will must be probated.

    A. If the Will contains specific power to sell real estate (the Will must specifically mention real estate), only the Executor or the Administrator With Will Annexed (W/W/A) is needed to convey the real estate and the proceeds check shall be payable to the estate.

    B. If the Will does not give specific power to sell real estate, either:

        i. A court order allowing the Executor or the Administrator W/W/A is needed. This is set out at KRS 389A; or

        ii. The Executor/Administrator W/W/A can sign as well as all the heirs and their spouses with the proceeds check made payable to the estate. However, this option can only occur after the expiration of six (6) months from the appointment of the Executor/Administrator W/W/A. If the closing is to occur within the six (6) month period, the KRS 389A court order is needed.

II. Intestate - Decedent did not have a will.

    A. If an estate is opened and administered:

        i. The Administrator needs a KRS 389A court order allowing the estate to sell the real property, or

        ii. The Administrator can sign as well as all the heirs and their spouses with the proceeds check made payable to the estate. However, this option can only occur after the expiration of six (6) months from the appointment of the Administrator. If the closing is to occur within the six (6) month period, the KRS 389A court order is needed.

    B. If there is no probate:

        i. Record an Affidavit of Descent, and

        ii. All heirs named in Affidavit of Descent and their spouses muse sign the deed conveying the property.

        iii. There is a two (2) year wait period from the date of death before this can occur (See KRS 396.011).

Remember, these are guidelines and there may be exceptions. If you need further information we are always available.

Tenancy in Common v. Joint Tenancy

2011-04-26T08:10:00.000-07:00

A. TENANCY IN COMMON

    1. Nature of the Tenancy: Each tenant has an undivided interest in the property, including the right to possession of the whole. when one co-tenant dies, the remaining tenants in common have no survivorship rights. Equal shares are not necessary for tenants in common.

    2. Alienability: Each co-tenant can transfer his interest in the same manner as if he were the sole owner.

    3. Presumption: In Kentucky, a tenancy in common is presumed, unless there is language to the contrary in the vesting instrument.

B. JOINT TENANCY

    1. Nature of the Tenancy: Joint tenants own an undivided share of the property and the surviving joint tenant has the right to the whole estate. The right of survivorship is the distinctive element of a joint tenancy.

    2. Four Unities: To be joint tenants, the tenants must take their interests:

        a. At the same time

        b.  By the same instrument (title)

        c. With identical interests

        d.  With an equal right to possess the whole property.

    3. Creation: A joint tenancy can be created only by express words in an instrument.

Real Property Held in Trust and How it Affects A Transaction Involving That Real Property

2011-04-13T05:11:00.000-07:00

If real property is held in trust, it is imperative to determine the validity of the trust and how it pertains to the transaction at hand. A copy of the original trust agreement must be obtained and reviewed. To determine if it is a valid trust for purposes of the real estate transaction, here are some things to look for:

• Name of trust

• Named trustees

• The trust is revocable

• The borrowers are the settlors and the beneficiaries of the trust

• If sale, trustee has power to sell real property and remove property from the trust

• If refinance or purchase, the real estate owned by the trust may be used as collateral for a loan

• The trustees are authorized under the trust to encumber the subject real estate

• The trust appears to be validly created and is duly existing under KY law, document is signed and notarized

Covenants of Title

2011-03-30T11:54:00.000-07:00

Normally, the extent of the grantor's liabilities for some defect in title is governed by the covenants of title contained in the deed. If the deed contains no covenants of title, the grantor or seller is not liable if the title fails.

Various types of deeds are used to convey interests in property. Some warrant title and some do not. Although different jurisdictions may have peculiar local terminology (for example, the language and form of a deed in Indiana does not resemble the language and form of a deed in Kentucky), under standard classification deeds can be divided into three main types:

GENERAL WARRANTY DEED - A General Warranty Deed warrants title against defects arising before as well as during the time the grantor or seller held title.

SPECIAL WARRANTY DEED - A Special Warranty Deed warrants title against defects arising during the grantor's tenure and not defects arising prior to that time. The grantor is guaranteeing only that he or she has done nothing to make title defective.

QUITCLAIM DEED - A Quitclaim Deed warrants nothing. The grantor merely transfers whatever right, title, or interest he or she has.

Federal Trade Commission Rule Requiring Short Sale Disclosures

2011-03-30T11:20:00.000-07:00

The Federal Trade Commission ("FTC") has issued a final rule that may impact real estate professionals that represent clients involved in short sale transactions. The rule requires the professional to make certain disclosures to consumers if they negotiate a short sale with a lender, advertise short sale experience or take upfront fees from short sale sellers. the Mortgage Assistance Relief Services ("MARS") rule took effect on January 31, 2011.

The MARS rule covers short sale negotiations. The FTC has determined that the term "negotiate" includes communications with a lender about the possibility of a short sale transaction involving a consumer's loan. A short sale transaction is a transaction where: 1) The title to the property changes; and 2) The sales price is insufficient to pay all the liens; and 3) The seller does not provide funds to clear the liens on the property; and 4) The lender agrees to allow the sale to occur by releasing the liens on the property.

The MARS rule contains the following definitions:

Mortgage Assistance Relief Service - A service, plan or program offered or provided to the consumer in exchange for consideration that provides services in relation to a consumer's mortgage, including negotiating a possible loan modification, directing a consumer to stop or otherwise alter the amount of his or her mortgage payments, modifying the consumer's payment arrangements, or negotiating a short sale of a dwelling on behalf of a consumer.

Mortgage Assistance Relief Service Provider - Someone who provides, offers to provide or arranges to provide, any mortgage assistance relief service.

There are three disclosures required by the MARS rule:

1. General Commercial Communications Disclosures - A real estate professional that advertises MARS services which is not directed at a specific consumer will need to include in all advertisements a clear and prominent disclosure with the following:

IMPORTANT NOTICE (in two point-type larger than the font size of the disclosure):(Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.

2. Consumer-Specific Commercial Communications - This is required in all communications that the MARS provider directs to a specific prospective clients. These disclosures need to be made by the real estate professional that represents a seller in a short sale transaction. They must be made prior to the MARS provider beginning mortgage assistance services on behalf of the consumer. The time when the real estate professional needs to provide this disclosure will vary as a real estate professional may not be aware that the transaction will need to be a short sale until far into the listing process. Once the professional becomes aware that a transaction is a short sale, the disclosure should be provided to the consumer. This disclosure must provide the following:

IMPORTANT NOTICE: (in two point-type larger than the font size of the disclosure): You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our service. (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.

3. Disclosure When Providing an Offer of Mortgage Relief - This is to be provided at the time the real estate professional presents a client with the lender's short sale approval letter. The disclosure must be provided on a separate page and state:

IMPORTANT NOTICE: Before buying this service, consider the following infomation (in two point-type larger than the font size of the disclosure): This is an offer of mortgage assistance we obtained from your lender [or servicer]. You may accept or reject the offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (same amount as disclosed previously) for our services. If you stop paying your mortgage, you could lose your home or damage your credit rating.

Please remember to work with your attorney to draft and prepare the disclosure you need to comply with this important FTC rule.

Source: Kentucky Association of Realtors

Tenancy by the Entirety

2011-02-08T07:16:00.000-08:00

For all of you real estate agents and lenders doing business in Southern Indiana, it is imperative that you make yourself aware of tenancy by the entirety. The text below is meant to act as a primer or guide to make you familiar with tenancy by the entirety. Remember, Indiana recognizes tenancy by the entirety, while Kentucky does not. If you have other questions, you may e-mail Pitt & Frank at mbearden@pittandfrank.com.

1. Tenancy by the Entirety, Generally: A tenancy by the entirety is a form of concurrent ownership that can be created only between husband and wife, holding as one person or one entity. The tenancy by the entirety is similar to a joint tenancy in that the surviving spouse has a right of survivorship.

2. Marital Unit Treated as One Person: In a tenancy by the entirety, the husband and wife are considered to be one person or one unit. As such, they do not take the estate in equal shares, but rather both, holding as one unit, are seised.

3. Severance by One Tenant Impossible: Although the tenancy by the entirety resembles the joint tenancy, it is unlike the joint tenancy in that severance of the tenancy by one tenant (an individual spouse) is not possible. Neither tenant acting alone can destroy or disrupt the nature of the tenancy as can be done in a typical joint tenancy. In other words, an individual spouse cannot convey his or her interest individually. The interest must be conveyed by the marital unit.

4. Creation of Tenancy by the Entirety: In Indiana, where a conveyance in unclear, it is presumed that a conveyance to a husband and wife creates a tenancy by the entirety. However, it is always better that specific language setting out a tenancy by the entirety be included in the vesting instrument.

5. Creditor’s Rights: Since the property is held by the marital unit, an individual tenant’s creditor cannot seize that tenant’s interest and force sale. Only a creditor of the marital unit may do so.

6. Divorce: A divorce terminates the unity of husband and wife and, therefore, the tenancy by the entirety. In Indiana, the tenancy by the entirety is converted into a tenancy in common.

1031 Tax Deferred Exchanges

2011-01-31T06:28:00.000-08:00

WHAT IS A 1031 TAX DEFERRED EXCHANGE?

Section 1031 of the Internal Revenue Code offers the real estate investor a remarkable opportunity to sell one parcel of real estate and use the entire proceeds to acquire replacement real estate, without paying taxes on any gain from the sale. By careful planning and strict adherence to the safe-harbor provisions of the IRS regulations, investors can protect the full value of their appreciation and equity, expand their holdings of investment property and defer payment of tax on capital gains indefinitely.

Section 1031 of the Internal Revenue Code states: "No gain or loss shall be recognized on the exchange of property held...for investment, if such property is exchanged solely for property of like-kind which is held...for investment."

Safe-Harbor Requirements of Section 1031:

1. Replacement property must be properly identified within 45 days of closing on relinquished property.
2. Replacement property must be acquired within 180 days of closing on relinquished property.
3. Aggregate replacement property must be equal to, or greater in value than, the relinquished property.
4. Debt on the replacement property must be equal to, or greater than, debt on the relinquished property.

WHAT DO I NEED TO KNOW ABOUT 1031 TAX DEFERRED EXCHANGES?

What kind of property qualifies for a 1031 exchange? Any type of investment real estate may be exchanged for any other type of real estate, provided the replacement real estate is likewise held for investment, and not immediately used by the investor as a personal residence.

Can I complete a tax deferred exchange by myself somehow segregating the proceeds from the sale of my relinquished property and then using those funds to acquire a replacement property? No, actual or constructive receipt by the investor of all or any portion of the proceeds of sale of relinquished property will defeat the tax deferred exchange and require the investor to pay tax on any gain realized.

How can I avoid constructive receipt of the proceeds of sale of the relinquished property so that i can complete a tax deferred exchange? Through the use of a qualified intermediary, such as KENTUCKY TITLE EXCHANGE, an accommodation party who is not a disqualified person or entity pursuant to IRS regulations, the investor can avoid being deemed to be in actual or constructive receipt of the sale proceeds pending acquisition of the replacement property.

Can I exchange more than one replacement property? Yes, and in many tax deferred exchange transactions, the investor will leverage the exchange proceeds to acquire more or higher quality properties than what the investor started with.

Can I acquire a vacation or second home in a tax deferred exchange? No, both the relinquished and replacement properties must be property "held for investment." Property that is the residence of the investor will not qualify under the IRS regulations. Nevertheless, a residential property acquired in a vacation area may qualify as long as that property is not used for a period of time after the acquisition as the residence of the investor, but held for investment, such as rental.

How do I identify replacement property in a tax deferred exchange? Replacement property must be identified in writing to KENTUCKY TITLE EXCHANGE, within the appropriate time period. The investor may identify up to 3 properties, regardless of value, OR any number of properties, so long as their total value does not exceed 200% of the value of the relinquished property, OR any number of properties of any value, so long as the investor acquires at least 95% of the identified properties in the exchange.

Can I change my mind and not complete the exchange? Yes, an investor can change his or her mind at any time prior to the completion of the exchange and the sale of the relinquished property will become a taxable transaction. Any exchange proceeds held by KENTUCKY TITLE EXCHANGE, will be returned to the investor, subject only to compliance with restrictions in the IRS regulations concerning timing for the return of funds not used to acquire replacement property.

How much does a 1031 tax deferred exchange cost? The costs to set up a tax deferred exchange are minimal. KENTUCKY TITLE EXCHANGE charges fixed rate fees that are competitive with the lowest fees charged by qualified intermediaries across the country.

If you are interested in a 1031 tax deferred exchange and have any more questions you may contact KENTUCKY TITLE EXCHANGE at (502) 895-9900 or by e-mail at tarac@pittandfrank.com.

Questions and Answers about Title Insurance

2011-01-24T05:49:00.000-08:00

1. What is Title Insurance?

Title insurance is insurance against loss from defects in title to real property and from the invalidity or enforceability of mortgage liens. Before you purchased your home it may have gone through several ownership changes, and the land on which it stands may have went through many more. There may be a weak link at any point in the chain that could emerge to cause problems. For example, someone along the way may have forged a signature in transferring title or there may be unpaid real estate taxes or other liens. Title insurance covers the insured party for any claims and legal fees that arise from such problems.

2. Do I have to Purchase Title Insurance?

If you need a mortgage to acquire a property then the answer is yes. All mortgage lenders require protection for an amount equal to the loan amount. It lasts until the loan is repaid. When acquiring a loan, title insurance is required to protect the lender, but you, the consumer, pay the premium. The premium is a single payment made upfront at the time of the closing.

3. Does Title Insurance Do Anything for Me?

The required insurance protects the lender up to the amount of the mortgage, but it doesn't protect your equity in the property. For that, you need an owner's policy for the full value of the home. In most cases in Kentucky, the buyer will typically purchase the owner's policy simultaneously to purchasing the lender's pPlicy at closing, but it can be purchased at any time. In Southern Indiana, the seller will typically contribute toward the cost of the premium the buyer must pay for the purchase of the owner's policy. In any event it is a good idea to purchase both policies simultaneously, because there is a discounted premium when doing so.

4. Doesn't the Lender's Policy Indirectly protect me?

No, title policies are indemnity policies. That means they protect against loss. The lender's policy would, therefore, only cover a loss on the lender's part.

5. For How long is the Property Owners Purchasing Title Insurance Covered?

Indefinitely. The owner's protection lasts as long as the owner or any heirs have an interest in or any obligation with regard to the property. When they sell, the lender will require the purchaser to obtain a new policy. That policy protects the lender against any liens or other claims against the property that may have arisen since the date of the previous policy.

6. Will Title Insurance Prtoect Me Against False Claims That May Arise After I Purchase the Property?

The standard policy does not. To compensate for this deficiency a new policy with with expanded has been developed. This is commonly known as the ALTA Homeowners policy or Enhanced Owner's policy.

7. Does Title Insurance Rise with Increases in the Value of My Property?

No, but coverage under the ALTA policy referred to in Question 6 increases by 10% a year for the first 5 years after issuance to 150% of the initial amount. You can buy additional coverage as rider to the policy.

8. Why Do I Need to Purchase a New Policy When I Refinance?

You don't need a new owner's policy, although it is recommended for added protection for the homeowner. However, you will be required to purchase a new lender's policy. Even if you refinance with the same lender, the existing lender's policy terminates when you pay off the mortgage. Also, the lender may be concerned with any title issues that may have arisen since you purchased the property. In some cases, if you have previoulsy refinanced or puchased your home within 5 years you may be eligible for a discounted policy. This is known as a re-issue. Ask your title company or lender if you qualify.

The 2013 3.8% Tax

2011-01-19T06:10:00.000-08:00

Starting January 1, 2013, a 3.8% tax on some investment income will take effect. This tax will affect some, but not all, real estate transactions.  When the tax goes into effect two years from now, it MAY impose a 3.8% tax on some interest income, dividends, rental income (less expenses) and capital gains (less capital losses). The tax will apply only to those individuals with an adjusted gross income (AGI) above $200,000 and couples filing a joint return with an AGI of more than $250,000. The new tax would apply to the lesser of the investment income amount or the excess of AGI over the $200,000 or $250,000 amount.

The National Association of Realtors provides the following examples of the how tax will work in certain common situations:

Example 1: Capital Gain Sale of a Principal Residence

John and Mary sold their principal residence and realized a gain of $525,000.00. They have an AGI of $325,000.00 (before adding taxable gain).

The tax applies as follows:

AGI before taxable gain:                     $325,000

Gain on sale of residence:                    $525,000
Taxable Gain (added to AGI):              $25,000 ($525,000-$500,000)
New AGI:                                            $350,000 ($325,000+$25,000)

Excess of AGI over $250,000:             $100,000 ($350,000-$250,000)
Lesser Amount (table):                         $25,000.00

Tax Due:                                              $950.00 ($25,000x0.038)

* If John and Mary had a gain of less than $500,000 on the sale of their residence, none of that gain would be subject to the 3.8% tax. Whether they paid the 3.8% tax would depend on other components of their AGI.

Example 2: Income Sources Including Real Estate Investment Income

Hank has a "day job" from which he earns $85,000 a year. He owns several small apartment units and receives gross rents of $130,000. He also has expenses related to that income.

The tax applies as follows:

AGI Before Rents:                            $85,000

Gross Rents:                                       $130,000
Expenses (appreciation; debt service): $110,000
Net Rents:                                          $20,000
New AGI:                                            $105,000 ($85,000+net rents)

Excess of AGI over $200,000:            $0
Lesser Amount (table):                       $0

Tax Due:                                             $0

* Even if Hank's combined gross rents and day job earnings exceed $200,000, he would not be subject to the 3.8% tax because his investment income includes net, not gross, rents.

Back from the Abyss

2011-01-13T08:21:00.000-08:00

I haven't posted much on this blog recently due to a glut of closings. Rates have been very low for the past few months and because of this I've been extremely busy doing refinance closings. I did post links to two articles on Facebook today, but also thought it'd be a good idea to post these articles over here as well.

Also, I promise that I'll try and update the blog a bit more regularly this year...:-)

Happy Reading!!!!!

Washington Post article on Bank Owend/REO Properties

WSJ article regarding the positive outlook for the coming year.

Louisville is a Top 10 Market for Real Estate Investors

2010-10-07T09:57:00.000-07:00

Check out this article from the Wall Street Journal.

WSJ

Foreclosures Under Review

2010-10-01T06:58:00.000-07:00

It seems some lenders have not necessarily been above board with their foreclosure processes. Several revelations concerning these processes have come to light over the past couple weeks prompting the Office of the Comptroller of the Currency to order several large lenders to review their procedures. Both GMAC and JP Morgan Chase have halted pending foreclosures, while the following lenders have been contacted and ordered to review their foreclosure procedures: Bank of America, Citibank, HSBC, PNC Bank, US Bank and Wells Fargo. Below is a link the an article providing discussing the situation in greater detail.

The Washington Post

Status Report

2010-08-23T06:55:00.000-07:00

Currently, both the housing market and the economy as a whole are stuck in a rut. Click on the link below for a detailed explanation of where we are currently on a national level. Keep in mind, Bloomberg is a national publication and the Louisville area has seemed much more steady, not experiencing the deep troughs that has plagued the national market during the entire recession.

Bloomberg

Short Sale Process Getting Quicker

2010-08-20T12:03:00.000-07:00

Check out this link: American Land Title Association News

It appears that short sale approval turnaround time has shown a marked improvement recently. A year ago the process was estimated to take, on average, at least three months. The same process can now be completed in thirty days. Some will argue that the time frame had nowhere to go but up, but for those of us still practicing in this market, this is very good news as it appears short sales are with us for the near future.

Rates Still Low

2010-08-06T10:38:00.001-07:00

It has been a while since I've updated the blog and for that, I apologize. The good news is that the reason I've been unable to update is that it has turned into a fairly busy summer. Rates have remained low and we've seen an influx of refinance transactions. Sales transactions continue to remain steady as well. Please read the attached blurb from Realtor Magazine Daily...rates are still extremely low and hopefully will remain that way throughout the fall and winter.

Rates Remain Low

A Long, Slow Recovery

2010-06-08T06:53:00.000-07:00

Included herein is a link to an article located at the International Business Times website. The content is basically that the recovery will not be a quick touch of the bottom and then an immediate rebound, but rather a prolonged trough. good news is that we have most likely hit bottom, but it may take a longer to get off the bottom than we first realized.

International Business Times

Short Sale Article in The Courier Journal

2010-06-03T11:51:00.000-07:00

Attached hereto is an interesting article about short sale deals in our area. Notice that Mike Pitt is quoted within.

The Courier Journal

Indiana Good Funds Statute

2010-06-02T13:06:00.000-07:00

The statute, Indiana Code 27-2-3.7, prohibits a closing agent from making disbursements from an escrow account in connection with a real estate transaction unless the funds received for the transaction are good funds. Funds received from any party to the transaction in an amount of $10,000 or more must be wired funds that are unconditionally held by and irrevocably credited to the closing agent's escrow account. Funds received from any party in an amount less than $10,000 may consist of other good funds as defined in the statute, including irrevocable wire, cashier's check, certified check, check drawn on the escrow account of another closing agent, check drawn on the trust account of a real estate broker licensed under Indiana Code 25-34.1, or a personal check not exceeding $500.

Tips For A Home Purchaser Using A Power of Attorney

2010-05-21T04:44:00.000-07:00

It is entirely acceptable for a purchaser to use a power of attorney at the closing on the purchase of real estate. However, most lenders and title insurance companies have certain criteria they expect to be met when it comes to the content of the power of attorney document.

Listed below are a few of these:

The power of attorney document should be specific to the transaction. The POA should mention the real estate to be purchased. When mentioning the real estate, it is good form to include the legal description as well as the property address. Also, there should be a specific reference to the note and mortgage which are to executed at closing. This should include the name of the lender as well as the amount financed.

While it is acceptable for the POA to grant the power to execute certain general closing documents, it is a good idea that the POA specifically grant the power to execute the note, mortgage and deed as well as any documents which the lender feels need specific mention.

The POA should also be a durable one. This means it needs specific language that it will remain in effect despite the subsequent disability of the principal, the person granting the powers.

Finally, it is a good idea to have Pitt & Frank review any and all POA's prior to closing to insure their validity.

2010-04-22T08:48:00.000-07:00

Here is a link to another CNN - Money article regarding March home sales. Existing Home Sales Soar in March.

Short Sale Article

2010-03-29T07:56:00.000-07:00

Sorry this is not a very long post here, but please check out this link: CNN - Money. It is an excellent article on short sales.

$6,500.00 Tax Credit FAQ's

2010-03-25T08:13:00.000-07:00

Who is eligible to claim the $6,500 tax credit?
Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim this credit.

What is the definition of a move-up or repeat home buyer?
The law defines a tax credit qualified move-up home buyer (“long-time resident”) as a person who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. That is, both spouses must qualify as long-time residents, with at least five years of principal residency for each. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.

How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.

Are there any income limits for claiming the tax credit?
Yes. The income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) above those limits. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

What is “modified adjusted gross income”?
Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and the first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income.

If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $6,500 are available for some taxpayers whose MAGI exceeds the phaseout limits.

Can you give me an example of how the partial tax credit is determined?
Just as an example, assume that a married couple has a modified adjusted gross income of $235,000. The applicable phaseout to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $6,500 by 0.5. The result is $3,250.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $138,000. The buyer’s income exceeds $125,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $6,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,275.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008? How is this different than the rules established in early 2009?
The previous tax credits applied only to first-time home buyers and were for different amounts of money.

How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?
You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). Please note that although the Form is titled “First-Time Homebuyer Credit,” this is the correct form for claiming both the $8,000 first-time homebuyer tax credit and $6,500 repeat buyer tax credit.

No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and repeat home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase. In cases where a HUD-1 form is not used, such as for construction of some new homes, you should attach a copy of the certificate of occupancy in lieu of the HUD-1.

Homebuyers should be sure to read the instructions for the revised IRS Form 5405 to be sure they meet the new program requirements.

What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. Please consult with your tax advisor for more information.

I read that the tax credit is “refundable.” What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $6,500 home buyer tax credit. As a result, the taxpayer would receive a check for $5,500 ($6,500 minus the $1,000 owed).

Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be after November 6, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April 30, 2010).

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. To provide proof of purchase, homebuyers must attach a copy of the HUD-1 Form or certificate of occupancy to IRS Form 5405.

Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
Yes. The tax credit can be combined with an MRB home buyer program.

I am not a U.S. citizen. Can I claim the tax credit?
Perhaps. Anyone who is not a nonresident alien (as defined by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

Is a tax credit the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $6,500 in income taxes and who receives an $6,500 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $6,500 in income taxes. If the taxpayer receives a $6,500 deduction, the taxpayer’s tax liability would be reduced by $975 (15 percent of $6,500), or lowered from $6,500 to $5,525.

Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return?
Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.

Buyers should adjust the withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

In addition, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community. To date, 18 state agencies have announced tax credit assistance programs, and more are expected to follow suit.

HUD allows “monetization” of the tax credit. What does that mean?
It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.

Under the guidelines announced by HUD, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.

Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement.

In addition, approved FHA lenders can purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.

If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return?
Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year’s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.

For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, depending on in which year my credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.

How can two unmarried buyers allocate the tax credit if one qualifies for the $8,000 first-time home buyer tax credit and the other qualifies for the $6,500 repeat home buyer credit?
The buyers can allocate the tax credit in any reasonable manner, provided neither claims a tax credit higher than the one they qualify for and the home purchase does not yield a total of more than $8,000 in tax credits. For example, the repeat home buyer could claim $6,500 and the first-time home buyer could claim $1,500. Alternatively, both buyers could claim a $4,000 tax credit.
Does a married couple qualify for any home buyer tax credit in the following situation? Spouse A has lived in and owned the same principal residence for at least five years. Spouse B has lived in and owned the same principal residence for less than five years.
In this situation, the couple does not qualify for any home buyer tax credit. Because the couple is married, the law tests the ownership history of both spouses. Spouse A clearly does not qualify for the $8,000 first-time home buyer tax credit, so neither does Spouse B.

Spouse A does appear to qualify for the $6,500 repeat buyer credit, but because Spouse B has not owned and lived in the same principal residence for at least five years, neither of them can claim the repeat home buyer tax credit.

Information Courtesy of federalhousingtaxcredit.com

Statutory Lien Priority in Kentucky With One Exception

2010-03-08T05:16:00.000-08:00

When determining the priority of liens affecting real property, Kentucky is a race-notice state. KRS 382.280 is the controlling statute. It provides that: "all bona fide deeds of trusts or mortgages shall take effect in the order that they are legally acknowledged or proved AND lodged for record." (emphasis added). This statute provides for an orderly system that gives notice to those who seek to secure a subsequent interest in real property. It also provides for a sequential method for payment of debts.

However, there is an exception, the Doctrine of Equitable Subrogation. This doctrine is detailed in Kentucky Legal Systems Corp v. Dunn, 205 S.W.3d 235 (Ky. App. 2006). In the case, the Court held that a purchase money lien is superior to a prior judgment lien. It doesn't matter if the mortgagee had knowledge of the lien or failed to search for said lien. Id. at 237. The reasoning behind this holding is practical and fair. "Without this advance of money, the purchaser-mortgagor would never have received the property and the other claimants would never have had the opportunity to satisfy their claims from such a convenient source." Id., quoting Restatement (Third) of Property, Mortgages, Sec. 7.2 (1997).

Builder Confidence Going Up

2010-02-17T07:25:00.000-08:00

The National Association of Home Builders/Wells Fargo index of builder confidence increased to 17 from 15 the previous month. Any confidence in the housing market shown by builders is a good thing. Builders have been hit especially hard in the last couple years and the mere fact that this index is increasing at this time of year should give all of us hope that this year will be a successful one. This information came from the Bloomberg article linked here: Bloomberg

Rates to Remain Low

2010-02-05T06:03:00.000-08:00

There are have been many pundits that have worried about what direction the housing market will take when the Federal Reserve's $1.25 trillion purchases of mortgaged-backed securities ends. The Fed has propped up the market for a year or so now, but that program will end in March. Linked below is an article stating that all might not be lost. It looks as if there may be investors willing to jump in after all, which ultimately will keep consumer mortgage rates from jumping too much. Reuters

Decedent's Estates and the Sale of Real Property

2010-01-29T04:31:00.000-08:00

I. Testate - Decedent had a Will. The Will must be probated.

A. If the Will contains specific power to sell real estate (the Will must specifically mention real estate), only the Executor or the Administrator With Will Annexed (W/W/A) is needed to convey the real estate and the proceeds check shall be payable to the estate.

B. If the Will does not give specific power to sell real estate, either:

i. A court order allowing the Executor or the Administrator W/W/A is needed. This is set out at KRS 389A; or

ii. The Executor/Administrator W/W/A can sign as well as all the heirs and their spouses with the proceeds check made payable to the estate. However, this option can only occur after the expiration of six (6) months from the appointment of the Executor/Administrator W/W/A. If the closing is to occur within the six (6) month period, the KRS 389A court order is needed.

II. Intestate - Decedent did not have a will.

A. If an estate is opened and administered:

i. The Administrator needs a KRS 389A court order allowing the estate to sell the real property, or

ii. The Administrator can sign as well as all the heirs and their spouses with the proceeds check made payable to the estate. However, this option can only occur after the expiration of six (6) months from the appointment of the Administrator. If the closing is to occur within the six (6) month period, the KRS 389A court order is needed.

B. If there is no probate:

i. Record an Affidavit of Descent, and

ii. All heirs named in Affidavit of Descent and their spouses muse sign the deed conveying the property.

iii. There is a two (2) year wait period from the date of death before this can occur (See KRS 396.011).

Remember, these are guidelines and there may be exceptions. If you need further information we are always available.

Existing Home Sales Fall in December

2010-01-26T09:07:00.000-08:00

It seems the the extension of the $8,000.00 First Time Homebuyer's Credit caused December home sales to decrease at a considerable rate. There was a decrease of 16.7% from November; the largest in 40 years. This decrease hurt business for the month of December, but the extension of the credit time frame, as well as the addition of the $6,500.00 credit, will ultimately payoff in the late spring. It is a very good time to be in the market for a new home. See the link for more information: Washington Post Article

New IRS Form Available For 1st Time Home Buyer Credit

2010-01-25T07:14:00.001-08:00

Form 5405 is now available from the IRS. The form must be filled out, signed and forwarded to the Internal Revenue Service to enable First Time Home Buyers to take the $8,00o tax credit for tax years 2008 or 2009. http://www.irs.gov/pub/irs-pdf/f5405.pdf