If you are an agent listing a property for a decedent’s estate/personal representative in DC, help your client and the prospective purchaser avoid a potential big surprise – the real property recapture tax.

DC Office of Tax and Revenue has recently been imposing a recapture tax against properties that were receiving senior citizen tax relief but ineligible due to the property owner’s death – i.e., a change in eligibility.

That is, upon the death of the owner, the personal representative for the estate would be responsible for notifying DC, within 30 days, that the property is no longer eligible for the benefit.

Since it’s unlikely the personal representative is aware of this requirement, the property continues to unjustly receive the benefit until such time as the property is sold.

Once the property is conveyed, DCOTR is notified by DCROD of the change in status and retroactively applies the proper tax status from the date of death through the date of conveyance. This often results in a hefty recapture tax amount then applied against the real property tax account.

As the settlement company, we are being proactive in our efforts to notify DC prior to closing and obtain the recapture tax amount such that it can be handled prior to or at the time of closing.

In some cases, due to timing, this is not possible and the purchasers are left with a recapture tax incurred by the decedent’s estate.

We advise all agents listing a property for a decedent’s estate to be aware of this issue, check the tax status to determine whether it is unjustly receiving the senior citizen tax relief benefit, and make the personal representative aware of the requirement to notify DC of the status change and be prepared to pay a recapture tax.

The other day I handled a split closing – the buyer used Federal Title & Escrow Company and the seller used another title company – and things did not go so smoothly.

A closing already has many different parties involved: buyers, sellers, buyer’s agent, seller’s agent, loan officer.

But two title companies?

For a closing in the DC metro area, it just doesn’t make sense to complicate the transaction further by adding a superfluous second company.

Superfluous? Yes, that’s right, because the "seller’s title company" is going to perform the exact same tasks that the "buyer’s title company" would have performed, and almost certainly at a higher cost.

Since the "buyer’s title company" is responsible for sending out the payoff and issuing the title insurance, and consequently responsible for either releasing the mortgage lien on the property or following up to make sure it is released, most of the main functions will be handled by the buyer’s title company.

Really, all the seller’s title company will do is order a payoff (maybe), prepare the deed (maybe), and handle the closing for the seller, which is typically ten pages or less.

Despite having such a small role, the seller’s title company charges higher fees. They have to; they are handling virtually no major functions and are not issuing the title insurance and the only way to make it worth the title company’s time is to charge the seller a significant fee.

Here is a look at the closing fees from the last three closings in our office for which the seller chose to use another title company:

So if the seller is paying so much more, it must mean that the seller is being provided with better service, right? Wrong.

By adding a second title company you now have your classic "too many cooks in the kitchen" scenario.
Only one of the three closings above went smoothly, the other two had issues. Think about it, when has hiring more lawyers made for a smoother transaction?

So if it costs more to split the closing, and the service is not better (and often worse), why do people do it?

Well, most of the time, sellers don’t realize how much more it is costing them. That is why I strongly urge sellers to obtain quotes and make sure that it makes sense. 

We've posted a seller's fee schedule on our website. Unfortunately, since most title companies do not post their fees, you will have to call or email them – and shouldn’t the lack of transparency make you suspicious?

Ten members of the Council of the District of Columbia voted for and passed the "Senior Citizen Real Property Tax Relief Act of 2013" earlier this week. The bill will now be submitted to DC Mayor Gray for his signature.

If it passes, it will provide a significant savings to seniors who own property and have lived in DC for a significant time by exempting seniors who qualify from having to pay any property taxes on their residence. In order to qualify the resident must:

• Be at least 70 years of age,
• Have maintained DC residency for at least 20 years,
• Have a household adjusted gross income of less than $60,000, and
• Maintain total assets of $250,000 or less, excluding the residence

We will have updated information once the bill has been either signed or vetoed by the mayor.

For the second straight year, the DC Office of Tax and Revenue increased the Homestead Deduction benefit from $69,100 to $70,200 for those DC residents who own and occupy their property as their principal residence. This results in an annual property tax bill reduction of $596.70.

Per the DC Office of Tax and Revenue, in order to qualify for the deduction, the homeowners must:

• Submit an application with the Office of Tax and Revenue;
• Occupy the property, and the property must not contain more than 5 dwelling units (including the unit occupied by the owner); and
• Use the property as their principal residence

If the DC property owner files an application and it is approved by the Office of Tax and Revenue between October 1 and March 31, the benefit will be granted to the homeowner for the entire tax year and all future tax years.

If the application is filed and approved between April 1 and September 30, the benefit will be granted for the second half tax bill of that year and all future tax years.

You can complete the new form online, or visit the Office of Tax and Revenue’s Homestead Deduction website link for additional information.

Did you know that the District of Columbia provides a substantial discount on real estate property taxes for seniors?

If eligible, a senior can save 50% on his or her property tax bill. Further, the threshold for the income level was raised to its current level on October 1, 2013 (previously the threshold was $100,000), so some seniors who were unable to qualify previously might want to take another look at their eligibility.

To be eligible:

• At least one owner of the property must be 65 of older;
• The total household adjusted gross income must be less than $125,000; and
• The senior must have at least 50% ownership of the property to qualify.

Failure to do so could result in the DC Office of Tax and Revenue applying penalties and interest.

The Senior Citizen Tax Relief application can be found the DC Office of Tax and Revenue website.

Maryland law requires the seller to provide specific information pertaining to the resale of property within a Homeowner’s Association (HOA) or a property designated under a condominium regime.

Typically, this information is produced by the management for the HOA or condominium, and the HOA or condominium charges the seller a fee for the production and delivery of the information.

It is the belief of some Maryland legislators that the fees being charged are excessive and, as such, these legislators are seeking to limit the amount that may be charged.

Before the Maryland legislature are bills S229/HB412, which would limit the fee a condominium council of unit owners or HOA may charge an owner (seller) for providing this legally required information to a prospective homebuyer.

The current law calls for a "reasonable fee," but it is left undefined so many organizations have simply been using the requirement as a way to profit – charging upwards of $400 to $500.

There's currently a proposal to limit the fee to $50. Hearings on the legislation continue and we will keep you apprised of the final bill.

UPDATE: The Senate passed SB 229.  They amended HOA’s out of the bill, thus making it applicable only to Condo Associations; and they upped the fee that could be charged from $50 to $100.

An often overlooked provision in paragraph #6 of the GCAAR Regional Sales Contract provides that the "Purchaser agrees to contact the Settlement Agent within 10 Days after the Date of Ratification to schedule Settlement and to arrange for ordering the title exam and, if required, a survey."

Homebuyers and their agents should pay particular attention to this requirement.

Recently our office was notified that a seller had declared the purchaser in breach of contract due to purchaser's failure to schedule settlement within 10 days from the date of ratification.

While the purchaser had ordered a title exam with our office, neither he nor his agent had scheduled the settlement date.

Through email notification, Federal Title reminds homebuyers and their agents to schedule the closing with our office within this time period. Unfortunately, in this particular instance, our notifications were ignored.

Housing outlook 2014: 10 predictions from the experts
Forbes

In 2013 the housing recovery was a welcome bright spot for the economy: prices were shooting up, fewer homeowners were underwater, and builder confidence was finally on the upswing. It's looking like 2014 should be another good year for housing – mostly.

What are your gripes about closings?
Realtor Magazine

The Consumer Financial Protection Bureau (CFPB) is asking for feedback on the most stressful, confusing, and problematic areas for consumers when it comes to the closing process in a home purchase.

This guy spent the last month dressing up like local realtors and pasting himself over their bench ads
Buzzfeed

For the last month Phil Jones has been recreating the ads from local realtors and then taping over them with his own version. He called it The Faces Of Real Estate.

Local news

Photos: Metro shows off railcar of the future
DCist

Metro today gave the media a look at its new 7000 series railcar, which was greeted at the Greenbelt station by Mayor Vince Gray, Del. Eleanor Holmes Norton, Maryland Gov. Martin O'Malley and other politicians.

New condo supply on the rise
DC Urban Turf

The number of unsold condo units in new projects or those under construction (and not yet marketing) rose to 3,308 in the DC area by the end of 2013, an increase of 1,000 units from the third quarter when the new condo supply hit its lowest level in a decade.

Report: DC-area condo prices to keep rising for the next three years
Washington Business Journal

In its quarterly snapshot of the Washington condo market, Delta notes the year-over-year change in condo prices in the third quarter was positive for the sixth consecutive quarter, even as sales volume fell to the lowest level since the final quarter of 2011.

Technology

4 methods for your mobile house hunt madness
Trulia Blog

You’ll want to make sure you find the best solution (home), with the most efficiency (time, money, etc.) and strategic smarts (not driving yourself wild with anxiety or overwhelm). What you need is a little method to avoid the madness that mobile house hunting can bring.

5 DC startups positioned for major growth in 2014
Huffington Post

HomeSnap makes hunting for real estate a breeze. The algorithm uses a combination of big data and iPhone features (accelerometer, gyroscope, location services) to determine where you are and then present a home's details.

Home Improvement

7 storage solutions you didn't know you had
House Logic

Every square foot of your home is valuable. These storage solutions take advantage of underused nooks and crannies. And just for fun, we did some back-of-the-napkin calculations based on the average price per square foot of a U.S. home ($81) to attach a theoretical value to the bonus space.

Low-cost cabinet makeovers
Better Homes & Gardens

Save thousands of dollars by using paint and new hardware to update your existing kitchen cabinets instead of buying new ones. These colorful, budget-friendly examples will help you get started.

What is a supplemental tax bill?

What "triggers" a reassessment of a property?

What constitutes completion?

Why would this affect a new home buyer?

The Department of Veterans Affairs Loan Guaranty Program recently published county "limits" to be used for VA Loans effective January 1, 2014.

Please note, these limits do not reflect a maximum amount that an eligible veteran is permitted to borrow, but rather, reflects the VA’s maximum guaranty amount for a particular county.

The maximum VA guaranty amount for loans over $144,000 is twenty-five (25%) percent of the 2014 VA limit. For example, an eligible veteran may borrow up to $692,500 to purchase a property in Washington, DC (2014 VA limit), with the VA guaranteeing twenty-five percent (25%) of the loan amount, or approximately $173,125.00. These amounts have decreased dramatically in most area of the DC Metro Area compared to the 2013 VA limits.

The limits listed below are for some counties in Maryland and Virginia, as well as for the District of Columbia. To get a complete list of the county limits for 2014, please click here. [Please note, if your county is not listed on the county limits chart on the VA website, the 2014 limit is $417,000.]

Demand will remain high and the cost of homebuying will increase for homebuyers in the Washington, DC metro area.

LIMITED HOUSING INVENTORY is the biggest driver of the DC region's housing market, says Federal Title & Escrow Company's founder, and as long as supply is limited the market in 2014 will look a lot like last year.

Houses with multiple offers selling for tens of thousands dollars above asking price in some cases – it happened frequently enough in 2013 that the editors at Urban Turf created a new column called Above Asking.

"You've got a migration of folks from all over the country trying to crack the DC [housing] market," said Todd Ewing, whose company handled more than 1,400 purchase closings in 2013. "That trend will continue."

Higher interest rates should not affect the region

Increased oversight from CFBP will increase closing costs

Phasing out the HUD-1 Settlement Statement

Tech developments from Federal Title

It proved to be an exciting year for us with the release of our iOS and Web app, Close It!, which has garnered more than 8,000 downloads and was nominated last October for a Tabby Award.

Several publications wrote stories about our app, including the Washington Post, Washington Business Journal, DC Urban Turf and Curbed DC.

42 best tablet apps for business finalists announced by Tabby Awards
PR Web | Oct. 8, 2013

The Tabby Awards /Business, the only competition for the best business and enterprise tablet apps, announced its finalists today in its second competition. The Tabby Awards /Business received submissions this year from a dozen countries: Australia, Canada, Germany, India, Ireland, Israel, Japan, Poland, Switzerland, Turkey, the United Kingdom and the United States.

Real estate settlement app for Apple users
Heads Up RE | June 8, 2013

If you are in the market for a new home and are worried about how much it is going to cost you to complete the transaction, there is a new real estate settlement app for iPhone and iPad users called Close It!. This real estate settlement app allows you to figure out what your settlement costs are going to be when you sit down at the closing table and have to produce your downpayment monies. Oh, and did I mention it is free, yes, it is free.

Title company unveils mobile app that produces customizable HUD-1
American Land Title Association | June 4, 2013

The company said getting started with the app is as easy as entering a purchase or sales price. The results can be fine tuned on a live worksheet to narrow down cash to close or cash in pocket within hundreds of dollars or less for consumers in D.C., Maryland, Virginia and Florida. 

Federal Title & Escrow creates app to generate cash to close info
The Title Report | May 31, 2013

Federal Title & Escrow released a mobile app called Close It! that produces a detailed picture of cash to close and monthly mortgage payments for homebuyers and cash in pocket for home sellers on an editable, shareable closing disclosure statement.

Tip of the week: New mobile app
Washington Post | May 31, 2013

Whether you’re the buyer or the seller, you want to know how much cash will cross the table at your real estate settlement. Federal Title & Escrow, a Washington title company, has developed a mobile app called Close It that works like Turbo Tax for real estate transactions.

Free app calculates closing costs
Baltimore Business Journal | May 29, 2013

Washington, D.C.-based Federal Title & Escrow Co. has launched a free application that helps homebuyers and sellers know exactly what their closing costs will be...

New app from D.C. company calculates closing costs
Washington Business Journal | May 29, 2013

The iPad app, called Close It!, produces customizable HUD-1 settlement statements for D.C., Virginia, Maryland and Florida residential real estate transactions, with a detailed picture of cash to close and monthly mortgage payments for buyers and cash in pocket for sellers...

Free app calculates closing costs
Washington Business Journal | May 28, 2013

The app includes 45 closing cost variables on the buyer's side and 22 variables on the seller's side, and produces an official HUD-1 Settlement Statement that can be saved, printed or emailed....

New app calculates total cash outlay for homebuyers
DC Urban Turf | May 20, 2013

Close It! from local title company Federal Title will work on mobile devices — though it’s currently available only on the iPad — and creates a document that replicates what you would see on a HUD-1 on the day that a buyers closes on a new home.

Testing Close It!, an app that calculates homebuying costs
Curbed DC | May 20, 2013

The ease of use on this app is pretty nice. The big important numbers (the cash to close and monthly payments) are significantly larger and anything in red, whether it's the interest rate or the type of property can be changed. Overall, this seems rather helpful in terms of doing the quick math for any purchaser that gets frustrated by that part of the process.

Realtors aim to help buyers navigate a D.C. market short on inventory
NW Current | Apr. 10, 2013

Even so, activity is solid. In the first three months, there was a 9.9 percent rise in contracts for condos and co-ops and a 0.8 percent increase in contracts for single-family homes, compared with the same period in 2012. Settlements are up in both categories — 25.6 percent for condos and co-ops, 6.3 percent for single-family homes.

“We’ve definitely seen things picking up,” said Joe Gentile, vice president of Federal Title & Escrow Co.

DC Tax Credit not renewed
Curbed DC | Jan. 10, 2013

The $5,000 DC Homebuyer tax credit was not renewed under fiscal cliff talks...

At Federal Title we believe educating consumers and their agents is the best way to ensure the real estate closing process is as quick, painless and affordable as possible. Our attorneys regularly write articles based on their experiences "in the trenches" and provide insight and, occasionally, commentary on the current state of our industry.

Over the course of 2013, visitors to our website viewed Federal Title's official blog more than 65,000 times. The blog contains literally hundreds of articles, and the following is a list of the most popular articles written in the past year.

New simplified loan modification initiative announced to help troubled homeowners avoid foreclosure 
by Jackie Kurz

Fannie Mae and Freddie Mac will offer a new loan modification initiative designed to help troubled borrowers avoid foreclosure and remain in their homes, according to an announcement today from the Federal Housing Finance Agency. (3/27/2013)

What does it mean when my DC property is classified as Class 3? 
by Catherine Schmitt

As a real property owner in the District of Columbia, the last thing you would ever want or need is for the Department of Consumer and Regulatory Affairs to classify your property as Class 3 – Vacant Real Property. (4/9/2013)

My parents are going to be on title with me. Can I still qualify for the DC Homestead Deduction? 
by Todd Ewing

If you are buying a property in DC and otherwise qualify for the Homestead Deduction, you will still qualify even if your parents, who live somewhere else, are co-owners with you. As a benefit to homeowners living in a property as their principal residence, the DC Homestead Deduction subtracts $69,100 from the assessed value of the property before real estate taxes are calculated. (5/30/2013)

Loan payoff includes more than just principal balance 
by Joe Gentile

In about half of the settlements that I conduct a seller will stop me and comment, “The payoff is too high, I owe less than what’s listed.” This is because the seller is confusing the mortgage principal balance with the payoff amount. (3/20/2013)

I just bought a property in Maryland. How do I qualify for the Homestead Tax Credit? 
by Todd Ewing

If you just bought a property in Maryland, there is nothing that you need to do right now to qualify for the Maryland Homestead Tax Credit. The property taxes you pay are calculated based upon the assessed value of your property. If the assessed value goes up, your property taxes go up. (5/28/2013)

Refinance appraisal: What you can expect 
by Dianne Pickersgill

The following are some thoughts, based on my own personal experiences with refinance appraisals, including a refinance appraisal of my DC condo that took place this month. I’m not an appraiser, so this is not a professional opinion. (2/25/2013)

Popular $5,000 DC Homebuyer Tax Credit for first-time buyers not renewed for 2012 tax year 
by Nikki Smith

First-time homeowners in the District of Columbia, who purchased their principal residence after Dec. 31, 2011, will not be able to take advantage of the popular $5,000 DC Homebuyer Tax Credit when they file taxes this year. (1/8/2013)

Condominium limited common elements: Know what you're buying 
by Dianne Pickersgill

Condominium ownership is really popular in DC, Maryland, and Virginia. Here at Federal Title, condominium sales make up about 25% of our transactions. (2/11/2013)

6 real estate apps that make you look like a genius 
by Nikki Smith

Want to look smart in front of your clients? It’s gonna take more than having a smart phone with access to email and Internet. You need to know what real estate apps can increase your productivity, expand your networks and, well, make you look like a tech genius in front of your clients. (7/1/2013)

Benefits of a VA loan in today's real estate market 
by Jackie Kurz

With interest rates remaining steady at all-time lows and a housing market that has seen below-market prices in most areas, now is a great time for servicemembers to purchase a home or refinance their existing home and take advantage of the benefits of a VA loan. (4/10/2013)

A post settlement occupancy agreement allows a seller to continue to live in his home after settlement, under an arrangement where the seller is essentially renting the home back from the new purchaser.

This type of arrangement can be a life-saver for a seller who is purchasing another home but won’t be able to close on that purchase until a few days or weeks after he sells his current home. Joe wrote a very informative blog post about post settlement occupancy agreements and how they can be a solution to settlement timing issues. 

I thought I would take a look at things from a different perspective and point out some potential pitfalls of such arrangements. In order to be protected, both purchasers and sellers need to prepare for the worst.

What do I mean by the worst? Imagine a case where a seller who is renting back catches the house on fire, and the house burns down to the ground. There are a lot of tricky issues in such a situation.

One thing we know for sure is that the purchaser now has no home to move into, which is obviously a problem, no matter how the liability issues get resolved.

In the normal case of a house fire, there is a homeowner’s insurance policy that would provide coverage. Here, presumably the purchaser obtained a homeowner’s policy with an effective date of the date of the settlement.

The GCAAR standard post settlement occupancy form states: "From the date of settlement the Buyer shall obtain and maintain insurance on the Property with the Buyer’s policy being primary in the event of other available insurance." (Form #1309, paragraph 6.)

The trouble is that despite this provision, the purchaser’s insurance company might have a different opinion.

For example, it is possible that the purchaser’s insurance would not cover the fire, under an exclusion based on the fact that the policy holder was not living in the property at the time of the fire?

Even if the purchaser thought ahead and got coverage for someone renting property, the typical post settlement occupancy agreement will say that the arrangement is not a landlord/tenant relationship, which might cause complications for insurance coverage.
For example, the GCAAR form states, "Nothing in this Agreement shall constitute a Landlord/Tenant relationship between Buyer and Seller." (Form #1309, paragraph 8.)

It also may be that the seller continued his/her homeowner’s policy through the rent-back period, but it is possible that this insurance would not cover the fire damage, due to the fact that the seller no longer owned the home at the time of the fire. The seller may have also gotten renter’s insurance for the rent-back period (the GCAAR form requires it), but typically that will cover only belongings, not damage to the house itself.

Even something less extreme than a whole house burning down can pose some tricky questions in a post settlement occupancy situation.

The buyer now owns the house, along with the appliances, HVAC, etc. If the seller negligently breaks the door off of the refrigerator during the rent-back period, one would think that the seller should be held responsible, and, normally, that would be the case, at least under the GCAAR standard form, which provides for a deposit by the seller to be applied to any damages to the property caused by the seller in excess of ordinary wear and tear. (Form #1309, paragraph 2.)

But what if the refrigerator simply stops working 2 weeks after the closing, during the rent-back period? Whose responsibility would that be?

Since the refrigerator is now the buyer’s, generally one might think the buyer would be responsible, but paragraph 3 of the GCAAR form provides that the seller is to deliver the property (i.e., deliver it at the end of the rent-back period) in the condition specified in the sales contract. The sales contract provides that the condition of the property at delivery is to be in substantially the same condition as of the date of the contract, the home inspection or some other date to be specified. If the refrigerator was working at the specified date, then the seller is responsible if it is not working at the end of the rent-back.

The bottom line is that both buyers and sellers should carefully review any post settlement occupancy agreement to see what the agreement provides concerning liability for issues that arise during the rent-back period and concerning the responsibility for obtaining insurance.

They then should make any revisions to that agreement that are necessary to protect their interests, in consultation with an attorney, if possible. They should also contact their insurance agent to discuss insurance coverage for the rent-back period.

One other thing that a buyer should do before agreeing to allow the seller to rent back after closing is to check with his lender to see whether the lender will permit it.
Typically lenders will allow a short rent back. For anything longer, the buyer could be in violation of the covenant in the loan documents that states that the property will be owner-occupied.

If the seller is paying a security deposit and/or "rent" at closing, these numbers will appear on the closing statement, which the lender needs to review and sign off on.

You don’t want the lender learning about the rent-back for the first time when they receive the draft closing statement from the title company and see those numbers.