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.
Thursday, April 28, 2011
Tuesday, April 26, 2011
Tenancy in Common v. Joint Tenancy
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.
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.
Wednesday, April 13, 2011
Real Property Held in Trust and How it Affects A Transaction Involving That Real Property
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
• 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
Wednesday, March 30, 2011
Covenants of Title
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.
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
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
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
Tuesday, February 8, 2011
Tenancy by the Entirety
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.
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.
Monday, January 31, 2011
1031 Tax Deferred Exchanges
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.
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.
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