Smart mortgage advisors

A Bright Spot in the Dismal Housing Market

admin — Fri, 17 Jul 2009 19:17:23 +0000

The housing market has taken a biog hit over the past 6 months, with the prices of houses tumbling and overall inventories of unoccupied homes increasing in many major markets including Florida, New Jersey, and Arizona. As mortgages start to adjust from adjustable rate mortgages, the payments are sometimes too high for owners and the home values too low to refinance as anticipated. This has led to ongoing foreclosures throughout the country. As the amount of empty homes increases, the money and resources spent to build new homes decreases. As soon as unoccupied inventory starts to sell, we may see a rapid increase in new home building.

The most recent house market predictions indicate a rise in new home starts and point to the fact new home building permits increased almost 9 percent in June. This indicates more activity than anticipated in building and gives rise to the hope of a developing trend toward sold homes and new home construction. This would be a leading indicator of positivity regarding the economy and an indication of consumer confidence. This trend counters past theories that the downward trend will continue through the next three months and that inventories will increase and new home building will continue to decrease.

The economic state that we are currently in plays a large role in the current overall housing decline from last year as many are jobless and others are forgoing any new home purchases due to lack of funds or credit issues related to their debt load. As the economy improves, we should see an increase in home purchases which will most likely be followed by an increase in new home construction. As people get back on their feet and find new jobs or ways to refinance their adjustable mortgages, the spending increase will have a dramatic effect on each individuals buying power and the home market in general.

Oklahoma Estate Tax

admin — Wed, 27 May 2009 09:15:47 +0000

The estate of any person who dies while a resident of Oklahoma, or a nonresident owning real property in Oklahoma, is subject to Oklahoma Estate Tax Laws. The fair market value of all assets at date of death or the alternative valuation date must be included in the gross estate.
All real or personal property, whether tangible or intangible, belonging to the deceased resident is included in the estate (see exclusions for spouse, below). The following are also included in determining the gross estate:
• Value of gifts made during three years prior to death, unless proof is furnished that gift was not made in contemplation of death. Credit will be allowed for gift taxes paid if such gifts are included in the estate. The three year contemplation of death provision is still in effect. (Title 68 O.S. Section 807(A)(2))
• Full value of property at date of death for transfers made while living in which the deceased retained some control.
• The full value of property owned in joint tenancy unless proof can be shown that part of the property was acquired through inheritance or moneys of the surviving joint tenant. Property owned with a spouse in joint tenancy is excluded.
• All life insurance policies owned or controlled in any manner by the deceased.
• All property must be valued at the fair cash market value, determined at time of death or six months thereafter. The assessed value for ad valorem taxes does not determine the value for estate taxes.
• Also, the remainder portion of life estates and trusts left to someone other than the surviving spouse will be in- cluded in the gross estate.

Federal Gift Taxes

admin — Sun, 17 May 2009 09:15:23 +0000

For gifts made in 2007 and thereafter the annual exclusion has been increased to $12,000 per recipient. Since 1997, the excludable amount has been indexed for inflation, but will only move in $1,000 increments. With gift-splitting, spouses may transfer $24,000 per recipient per year without gift tax even if one spouse owns all of the property. The consent of the spouse not owning property must be signified on the gift tax returns.
Also, an unlimited gift tax exclusion is allowed for amounts paid on behalf of a donee directly to an educational organization for tuition and to a health care provider for medical services.
For a gift in trust, each beneficiary is treated as a separate person for purposes of the exclusion. The annual exclusion is not available for gifts of future interests such as a remainder interest in a trust or life estate, except for gifts to minors in trust or under the Uniform Gift to Minors Act.
Gifts given within three years of death generally will not be included in the deceased donor’s estate. (The taxable portion of gifts would be included in the tax base for estate tax computations.) However, gifts with retained life estates, transfers effective at death, revocable transfers, transfers of general powers of appointment and transfers of life insurance will be included in the estate. The three year rule was retained for redemption of stock to pay estate taxes, special valuation of certain farm property, extension of time to pay estate tax, and for determining property subject to a lien for taxes.
Beginning in 2004, the gift tax exemption equivalent will remain at $1,000,000 even though the estate tax equivalent exemption continues to increase. In 2010, although estate taxes will be eliminated, gift taxes will remain in effect with a maximum rate of 35 percent and a $1,000,000 exemption equivalent amount.

Metes and Bounds

admin — Mon, 23 Feb 2009 11:04:02 +0000

Do you remember those old Pirate movies and cartoons, where they locate buried treasure by measuring off paces. They were basically using the metes and bounds system.

Metes is an Old English word for distance and bounds refers to direction. This surveying system identified the property’s boundaries by walking the reader along its path.

Just as in the old Pirate cartoons and movies, the metes and bounds system makes use of monuments, both natural or artificial, such as trees, boulders, stakes and concrete markers. In fact, the metes and bounds system usually begins and ends with a monument.

The metes and bounds approach includes three elements:

Point of Beginning. The POB is where the survey description begins, and is usually established relative to a clearly defined monument. It is usually one corner of the property’s boundaries. For example, the POB may begin 100′ from the street corner.
Distances. In the U.S., the distance is usually described in feet.
Directions. At the corners of each parcel of property, the survey indicates which way the boundary line turns with compass bearings (adjusted to true north, NOT magnetic north). Compass bearings are measured in degrees (360 degrees in a full circle), minutes (60 minutes in each degree) and seconds (60 seconds in each minute). Note that the turn’s compass bearing is not angle-measured from boundary, but from true north.

Non-disclosure

admin — Mon, 23 Feb 2009 10:57:53 +0000

Federal and state laws now require sellers of residential properties to provide a disclosure of all know defects afflicting the property. In addition, if the home was built before 1978, the seller must also provide a disclosure about any know lead-based paint hazards. The seller of residential properties is legally obligated to disclose all known defects, which would not be readily apparent with a standard inspection. Failure to do so may not be fraud in the strictest of terms, but it would
be grounds for damages or a rescission of the transaction. For example, Warren’s home is in unincorporated McHenry County, Illinois, and must use a septic tank. The septic tank needs to be replaced, due to lack of maintenance; but the damage is invisible from the surface. Warren sells his home to Lana without
disclosing the problem with the septic tank. After moving in, Lana has to spend about $5,000 to repair the septic tank. Lana can sue Warren for damages, if not rescission.

Many jurisdictions now recognize that undesirable history that is not revealed to the buyer may also be grounds for damages or rescission. For example,
properties that were the scene of vicious crimes (such as murder) may be subject to rescission of the sale, if that history is not revealed to the buyer.

This requirement for disclosure is balanced somewhat by the buyer’s responsibility to do some due diligence. The basic rule is that if the information is readily available to the buyer, the buyer may not be able to sue the seller for misrepresentation or nondisclosure. For example, a tour of the property reveals water stains
on the basement walls. Those were obviously caused by flood or water damage. The buyer decides to skip on the cost of an inspection, and the buyer does not ask questions about the water stains. This buyer may have a difficult time winning a suit for damages or rescission, because the damage was apparent and the buyer did not make any attempts to ascertain the facts.

Fraud issues is not limited to the condition of the property. In fact, most fraud suits revolve around problems with the title.

Real Estate Fraud

admin — Mon, 23 Feb 2009 10:53:15 +0000

Caveat emptor, let the buyer beware. Because of the large amounts involved with real estate, however, courts and the government have offered buyers some measure of relief. In fact, the trend in the courts has been away from the “caveat emptor” approach. Property buyers have two lawsuit options if and when they feel they have been defrauded by the seller (or the seller’s agent):

Sue for damages. The buyer can keep the newly purchased property but sue the seller for damages incurred from the fraud. For example, if the furnace is not working as warranted by the seller, the buyer can sue the seller for the cost of the replacement or repair-after the purchase closing has already been consummated.
Sue to set aside the sale. The buyer can also try to get the whole transaction rescinded. If the buyer is successful in the lawsuit, the property is returned to the seller and the funds are returned to the buyer.

The two tactics require different level of proofs from the buyer initiating the suit. To win a suit for damages, the buyer has to prove that the seller intentionally lied about the issue behind the damage. To win a ruling to set aside the sale, the buyer only needs to demonstrate a material fact; the buyer does not need to show that the seller intentionally lied.

Fraud committed by the seller’s agent is basically fraud committed in the seller’s name. The seller will still be liable. There are three basic ways in which sellers can commit fraud:

Misrepresentation
Conduct
Non-disclosure

Title insurance coverage

admin — Mon, 23 Feb 2009 10:47:41 +0000

Many sellers and buyers hold the mistaken belief that a defective title can be made marketable with title insurance. The fact that a title company is willing to insure the seller’s title does not make it marketable. The title insurance does give liability protection to the property owner against many damages that may arise because of the encumbrance or defect. Nevertheless, the title remains non-marketable, and the buyer would have the right to back out of the deal because of that defect.

However, the title insurance’s protection extends only over those items specifically listed in the title insurance commitment. If an encroachment is not recorded and amended into the insurance commitment, the title insurance policy will not cover that encroachment.

Encroachments

admin — Sun, 22 Feb 2009 14:25:34 +0000

Encroachments are serious title defects, although they are usually not recorded on the title. Surveys are normally required to uncover or disclose encroachments. Unfortunately, most buyers typically do not receive a copy of the survey until the day of closing.

Buyers and their attorneys must review the real estate contract carefully, to ensure that they won’t be forced to accept encroachments. Many sellers will try to protect themselves by inserting a clause in the contract stating that the buyer will accept a title “subject to questions of survey” or “subject to such a state of facts as an accurate survey would show.” By signing a contract that contains such a clause, the buyer would agree that any encroachment revealed by the survey would not make the title non-marketable.

Buyers should insist that the real estate contract require the seller to deliver a marketable title “free from all encumbrances and encroachments.” This would protect the buyer, by giving the buyer the option to accept or reject encroachments. Oftentimes, the encroachments are trivial, such as when the encroachment is a matter of two inches. Nevertheless, this clause would allow the buyer to judge the situation for his or her benefit and give that buyer the option to cancel the deal.

Encroachment refers to improvements that extend over the property owner’s legal boundaries. There are three common forms of encroachments:

Improvements on the subject property extend into public properties (or rights of way), such as streets and alleys.
Improvements on the subject property extend over a neighbor’s property, such as when the eaves on your roof protrude over your lot line into your neighbor’s air space.
Improvements on the neighboring property that extends over the subject property, such as when your neighbor’s fence has been built on your side of the boundary line.

The danger posed by encroachments—and technically makes the title non-marketable—is that the aggrieved
property owner may demand removal of the encroachment. The aggrieved property owner would be entitled to sue for such a cure. Most courts will routinely agree with the aggrieved property owner, except where the court deems that the encroachment is trivial. Triviality is fairly relative, but usually extends to a couple of inches, with regard to fixtures. Permanent improvements such as buildings are another matter.

Removal of an encroachment can be very expensive when the improvement involved is a building, rather than a fixture.