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.

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!

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

Land Title Professionals

Did you know that Land Title Professionals play an important role in our national economy?

The public benefits from our work in the following ways:
Access_Title_Agency_Land_Title_Professionals_2At no cost to taxpayers, the land title industry collects $1.75 Billion per year in back income taxes.
At no cost to taxpayers, the land title industry collects $3 Billion per year in delinquent real estate taxes.
At no cost to taxpayers, the land title industry collects $325 Million in delinquent child support payments.
The land title industry spends $225 Million a year to correct errors in the public property records.

 

Our work brings down the risk of a mortgage loan, which reduces the cost of borrowing for the consumer because investors are more apt to invest in mortgages that are backed by GSEs and title insurance.

The above is an excerpt from an article on the Florida Land Title Association Website.

 

Note: No legal advice or suggestions are being given.

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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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Protect Your Checks

Protect your checks!

Access_Title_Agency_Check_FraudOur Underwriter has shared a story of a title agency falling victim to a fraud scheme involving emerging technology……..depositing checks via Smartphone.

A couple was issued a check for their closing proceeds. They left the title agent’s office but returned several hours later and asked the title agent to wire the proceeds instead. The agent took the check, voided it, and wired the proceeds to the couple’s account. The agent was not aware that the check had already been deposited using a Smartphone which uses the phone’s camera feature to take a picture of the front and back of the check and deposit it into the payee’s account. Unfortunately, there are no markings on the check to indicate that it has been processed since it is scanned.

 

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24 Month Chain of Title

Access_Title_Agency_Chain_of_TitleMost lenders will require a 24 month chain of title on a refinance or purchase money mortgage from the title agency. Most often, it will appear as part of the title commitment itself and will either disclose the documents that transferred title within that time frame or state that there were no transfers.

Lenders (and title agencies) pay attention to this time frame to assess for any potential fraud. Quit Claim Deeds, for example, could be a sign of a fraudulent transfer, or lien and bankruptcy avoidance. Too many transfers within 2 years could be a sign that the property may have been artificially inflated and may request some assurance that the property transfers were “arm’s length”.

Note: No legal advice or suggestions are being given.
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Title Searches

Methods of  Title Searches

Access_Title_Agency_Title_Search

There are various methods by which title to a parcel of real property can be examined.

Direct Search

In some areas of the country, title companies or lawyers retained by the customer go directly to the county records when conducting a title search. In others, title companies maintain copies of those records in “title plants,” which are located right in the company’s offices.

In some parts of the country, predominantly in the northeast, the counties’ records are maintained in Grantor/Grantee books that index properties by seller’s and buyer’s names and are laborious to search. In some states, the county real estate records are indexed in a Tract Index similar to a title company’s title plant. A tract index indexes properties by the property location, i.e., lot number, and if reliable, title companies may use them instead of going to the expense of building their own title plants.

 

Title Plant Examination

The other method of title searching is called the Title Plant Examination. The title examiner makes the search from the company’s title plant records. The plant contains a duplicate of the “public records”, which has been reorganized and indexed in a more useful fashion. This means that once the searcher locates the property, the searcher has instant access to all instruments affecting that property. This method of title search has been used in most metropolitan areas since the advent of title insurance. It requires that the title insurer or its agent own a title or abstract plant.

 

Title Examination

When the search is completed, copies of all pertinent documents, tax searches, name searches, etc., are sent to a title officer. It is the officer’s responsibility to examine those items and arrive at a conclusion as to who owns the property and what encumbrances or defects exist. The officer may also set out certain requirements to clear up any problems disclosed by the search and examination.

 

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Quiet Title Suit

Access_Title_Agency_Quiet_Title_SuitIs a lawsuit brought against a real property owner to cancel or wipeout inconsequential or unenforceable claims or interest which may cloud the title. The proceeding may also be used following adverse possession, or after acquiring property via a Tax Deed to perfect the title into the name of the party who commenced the action. Quiet title may generally be required prior to insuring in such matters.

 

Note: No legal advice or suggestions are being given.
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