Tax Consequences for Taking Title in Real Estate in Michigan

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Hello Everyone, My name is Alicia Kellogg, and I am the on-staff attorney for Access Title Agency. Back in August, I spoke briefly about tips related to uncapping property taxes. This month I wanted to focus on some of the biggest tax considerations as part of a real estate transaction when it comes to both buyers and sellers. Tax issues can be quite complicated so it is important to consult with someone if you have specific questions over a transaction.

All too often, tax issues are overlooked in real estate transactions. While most people concern themselves with the purchase price and possession date, they fail to fully consider the implications of taxes on the transaction.

While negotiations cannot affect the amount of property taxes, they can affect who pays the taxes in the year of the sale.

Real property taxes are based on the assessed value of the property. Normally a sale reflects an increase in the value of property and therefore the assessment increases. The increase in assessment will then cause an increase in the taxes on the real property.

So, the buyer should anticipate a higher taxable value when budgeting for the costs and expenses of owning a piece of property.

Note: The buyer of real property is required to notify the assessor of the transfer by filing a property transfer affidavit within 45 days of the date of transfer.

Assessments are set by local officials, which are usually referred to as the township assessor. And these assessments are set on December 31 of the year before the tax is levied.

Because the assessments can change tremendously in some scenarios, it is always best that the buyer understands this before purchasing the property. Buyers have to be aware that, in most cases, purchasing a piece of property will cause the assessment to uncap. So while the seller’s property taxes were low, the buyers could later turn out to be much higher than expected.

So it is important to do your research, don’t ignore the issues of taxes, and consult someone if you are unsure.

P.S. Don’t forget to pay your Winter 2017 taxes!

Then there is transfer tax and the exemptions. Michigan imposes transfer taxes on any conveyance of a real property interest for consideration. And there are two transfer taxes in Michigan: county and state.

Transfer taxes must be discussed in any real property transaction. They are charged to the seller unless it is negotiated that the buyer pays those funds. In larger transactions, transfer taxes can be significant. But there are also many exemptions for transfer taxes to pay attention to. When you record a deed, a number of exemptions to state and county transfer taxes may apply to the transition. Some of the common exemptions are where consideration is less than $100, a transfer between husband and wife, a transfer that creates a joint tenancy with a current owner, or where the transaction is a land contract in which legal title does not yet pass.

So whether you are the buyer or seller, there are several tax considerations that you will not want to overlook. It is important to be aware of them and talk about the taxes during negotiations. Again, while you cannot typically change the amount owed, you can negotiate who will pay them and how you will prorate them.

By Alicia Kellogg

Alicia Kellogg is Access Title Agency’s new on-staff attorney for the Traverse City and Suttons Bay, Michigan offices. She graduated cum laude from Western Michigan University Cooley Law School and is licensed to practice law in the State of Michigan. Contact info: [email protected] or (231) 539-1203.

More Changes to the National Flood Insurance Program

Now is the time to purchase flood insurance in preparation for the upcoming hurricane season

HurricaneTALLAHASSEE, Fla. – Florida Insurance Commissioner Kevin M. McCarty is alerting consumers to new changes taking effect this Friday, April 1st with the National Flood Insurance Program (NFIP), while also encouraging consumers to consider purchasing flood insurance for the protection of their homes and businesses as they begin making preparations for the upcoming hurricane season. Every person living in Florida is at risk to experience the impacts of flooding.

“Although Florida’s hurricane season has been mild over the last 10 years, it is important that we not forget how easy it is for one storm to cause a great deal of damage and destruction from flooding. Tropical Storm Fay is a good example of a storm that made slow progress through the state leading to massive flooding problems for several Florida counties back in 2008, “ stated McCarty. “Consumers should carefully evaluate their insurance coverage now and have a plan in place for this year’s hurricane season.”

As a result of federal legislative reforms mandated by the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters) and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA), the NFIP changes taking effect on April 1 will include price and fee increases for all policies and the elimination of some subsidies for certain lapsed and reinstated Pre-Flood Insurance Rate Map (Pre-FIRM) policies.

On average, Floridians with policies on pre-FIRM primary residences could see individual policy increases between 15% – 18%. Certain pre-FIRM policies (including non-primary residential and business properties) may see an increase of 25%. The federal policy fee will increase from $22-$25 for preferred-risk policies and from $45 to $50 for standard-rated policies. The annual HFIAA surcharge, which began last year, will remain at $25 annually for the primary residence of a homeowner and $250 for non-primary residences and non-residential properties. For more information, visit www.floodsmart.gov.

Flood insurance is not typically covered under a homeowners insurance policy and must be purchased separately. Most flood insurance is administered through the NFIP, but several private insurance companies in Florida are also now offering this coverage at prices similar to or below those of the NFIP, giving Floridians more choices. For flood insurance coverage to be in effect at the start of hurricane season on June 1, homeowners and businesses should make the purchase by May 1, as a typical policy purchased through the NFIP has a 30-day waiting period before it becomes effective.

Consumers can purchase flood insurance from the NFIP, usually directly from their existing insurance agent or company. The insurance will cover up to $250,000 in property damage to a home and $500,000 to a business, along with additional contents coverage. Excess flood insurance can be purchased from a private insurance company for homes and businesses valued at more than $250,000.

For information on private insurers writing primary or excess flood coverage in Florida along with resources available on flooding, visit the Office’s “Flood Insurance” webpage. For more information about ways to prepare for hurricane season, to include a helpful list of website and claims numbers for the top property insurance companies in Florida, visit the Office’s “Hurricane Season Resources” webpage.

Encrypted email is important!

The American Land Title Association best practices recommend that Title Agents adopt and maintain a written privacy and information security program to protect Non-public Personal Information (NPI) as required by local, state and federal laws. Email Encryption is highly recommended because Title professionals are third-party vendors to Lenders and the requirements placed on Lenders by Gramm-Leach-Bliley and similar laws flow through to title and settlement providers.Encrypted email

As a Realtor, you should also demand that your title provider have email encryption to protect your Buyers and Sellers. Title Agents and Attorneys obtain social security numbers for payoffs, tax returns, wire instructions for sending proceeds and other sensitive information. You want to ensure that a breach does not occur with a company you recommended! What a great marketing tool for you to promote to your clients…that you have researched and are looking out for their security and protection to the best of your ability!

Our encryption service at Access Title Agency is smooth, without passwords or links to deal with. In fact 90% of our email recipients will not even notice.

Peace of mind for your and your clients!

Same Sex Marriage and Title Insurance

Are you prepared to discuss real estate and vesting on deeds with your clients since Florida is issuing same-sex marriage licenses?

Read on for one Underwriters perspective.

Old Republic continues to monitor the law regarding same sex marriage, but currently it is still unsettled. Until there is a definitive ruling, our position is as follows:

When both spouses are going into title, you should put their marital status on the deed as instructed. Same sex marriageThey should tell you how they want to take title (i.e., a married couple, married to each other, husband and husband, wife and wife, etc.).

If they do not tell you, you should ask them if they want title vested “as joint tenants with rights of survivorship” or “as tenants in common.” If they do not know, advise them to consult with their attorney to discuss which method adequately meets their estate planning goals for the future. Right now, it is not clear if Florida will be recognizing a tenancy by the entirety (which is automatic when someone takes title as “husband and wife”).

At this point, since we don’t know yet if Florida will be recognizing tenancy by the entireties, judgments against one spouse should be cleared, and a probate will be required if one spouse dies and the grantees did not take title as joint tenants with right of survivorship. If only one spouse is on title, you will need joinder of the other spouse on a mortgage or deed for homestead rights. Commitments should include this in the requirements section if the owner tells you he/she has been legally married in a same-sex ceremony (just like we do now with heterosexual marriages).

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We are here to help if you have any questions.

 

Note: No legal advice or suggestions are being given.
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Title Insurance Policy Surcharge-NEW!

Have you noticed the new fee being collect on closing statements in Florida?
surcharge feesAs of the first of September, the Florida Department of Financial Division has mandated a surcharge be collected for every policy issued in the amount of $3.28. This charge must be shown as a separate entry on the closing statement and payable to the Underwriter.They are trying to protect the consumer from two failed underwriters (National Title Insurance Company and K.E.L. Title Insurance Group, Inc.) and anticipate that it will take approximately one year to recoup the funds extended.

Please note that it is charged only once per closing, meaning that it would not be charged against an Owner’s Policy and a Mortgage Policy for the same file. It is assessed against the party contractually responsible for the payment of the policy.

Unable to write your name?

When a competent grantor, who is unable to write, executes a deed using a mark, an affidavit should be obtained from the witnesses, stating which of the following:
I. The contents of the deed were read to the grantor.
II. The grantor, by making the mark, consented to the effect of the deed.
III. The mark was made voluntarily.
IV. The mark was made using an “X”.

The answer is I, II, III

For more information on the proper Notarization of someone signing by a mark, please see the attached link http://members.usnotaries.net/news.asp?AssetID=600

What does “POB” and “POE” mean in legal descriptions?

Point-of-BeginningIn a metes and bounds survey, the location of the starting point is referred to as the Point of Beginning or POB, which should be exactly  the same as the Point of Ending or POE.  Some surveys will only refer to the Point of Beginning and then return to the Point of Beginning rather than referencing this as the Point of Ending.  Either way, this will create a closed tract of property, provided that the proper calls or dimensions have been met.  If the description does not “close”, there could be a defect of the legal description.  If the intent of the description is obvious, some states have Title Standards that allow for clear title if the incorrect description was contained in a legal on a deed.  If the intent of the legal description can not be determined, then a corrective deed may be required.

 

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Oil and Gas Rights Changes in FDIC Contracts

Contract addendumBeginning April 1, 2013, the FDIC is reserving oil and gas rights in any real estate transaction in the nation.

The new policy applies to residential as well as commercial property with the exception of property valued under $50,000.00 and individual condominium units.

It will appear in an addendum to the standard FDIC contract and the closing instructions will call for the reservation language to appear in the deed. This could result in mineral reservations in many locations that typically do not have activity, such as urban areas.

Affidavit of Continuous Marriage

Access_Title_Agency_continuous_marriageTitle commitments will frequently contain a requirement for an affidavit of continuous marriage….why?

 

The affidavits may be used to demonstrate that the title was continuously held as tenants by the entirety to assure the Underwriter that the ownership was not broken. A break in the ownership through divorce, death or deed may allow certain liens or judgments against one spouse to attach to the marital property held by both.

Another reason for the use may be in the instance when one spouse is deceased. The affidavit aids in assuring the Underwriter that the rights to the property of the deceased spouse automatically transfer to the remaining spouse.

Note: No legal advice or suggestions are being given.

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