I am putting in an offer on a recently renovated house and I am not sure the sellers got permits. Is there a way to protect myself in the contract?

Buying a newly renovated house is always an adventure. What do you ask for and what don’t you ask for in a seller’s market with very little inventory? Well, I asked around to a couple of attorneys that specifically handle construction cases and the following language is what they suggested to add into the offer:

"Notwithstanding anything in this agreement to the contrary, this agreement is contingent upon the Seller’s providing evidence that all construction, rehabilitation or renovation work done by Seller (whether themselves, or through any one or more contractors or subcontractors) complies with all applicable local law including (without limitation) any permitting or inspection requirement under the applicable building code. If sufficient evidence is not received by ____, then Buyer (in its sole and absolute discretion) can declare this agreement null and void."

Of course, there are ways to check for permits, but this language helps to put the onus on the seller. 

Other considerations you may want to check into with your seller is what work is covered under warranty and make sure you get a written warranty from the seller; as well as a list of subcontractors that worked on the house and any warranties they offer for their work.  

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

Most people buying a condominium understand the basics – you’re buying a unit, and you have to pay monthly dues to cover the general expenses of maintaining the building, and there are common areas (in legalese – "common elements") like the hallways and the elevators that all of the unit owners can use (in legalese, "have an undivided interest in"). But what a lot of people don’t understand is that in addition to buying the unit and the interest in the common elements, you may also be buying what is known as a "limited common element."

Click beyond the jump to continue reading.

Last week, the DC Office of Tax and Revenue increased the Homestead Deduction benefit from $67,500 to $69,100. This benefit is applied as a reduction to a property’s assessed value for the purpose of computing the annual tax liability.

The Homestead Deduction benefit is granted to those DC residents who own and occupy their property as a principal residence. For those DC property owners who qualify, the new increased benefit will reduce the annual property tax bill by $587.35.

From the DC Office of Tax & Revenue

The Homestead benefit is limited to residential property. To qualify:

1. An application must be on file with the Office of Tax and Revenue;
2. The property must be occupied by the owner/applicant and contain no more than five dwelling units (including the unit occupied by the owner); and
3. The property must be the principal residence of the owner/applicant.

For more information about the DC Homestead Deduction read our Q&A article on how to qualify and our discussion on the new application form, or visit Tax & Revenue's Homestead Deduction page.

As a settlement attorney in the District of Columbia, the last thing you want to hear for the first time at the settlement table is there are/were tenants in the property being sold.

The Tenant’s Opportunity to Purchase Act (TOPA) is very pro-tenant and is often daunting for agents to tackle as part of a listing or as part of a purchase. Fortunately, there is guidance out there and the shock of the last-minute TOPA issue has become less likely as agents and their clients have become more educated on the process. 

The Greater Capital Area Association of Realtors (GCAAR) has been proactive in getting forms out on its platform to assist agents, such as the Tenancy Addendum for Washington, DC and a TOPA Affidavit that is accepted by most title insurance underwriters.  

The DC Department of Housing and Community Development now provides the Tenant Notice forms online. These forms are very specific as to who is to be given notice, when notice is to be given and how notice is to be given. The forms also specify the timeframes in which all parties – property owners and tenants – are to act. 

It is important to note that giving notice to each of the tenants is not enough in the District of Columbia; you must also give notice to the Mayor c/o District of Columbia Department of Housing and Community Development – Rental Conversion and Sale Division.  

Following directions on these forms is imperative for a successful tenant occupied property sale.

As Todd mentioned in his blog post earlier this month, the biggest ticket item for closing costs for a real estate purchase in DC can be the transfer and recordation taxes collected by the DC government.

The same holds true for Maryland and Virginia transactions – with the added complication that in Maryland and Virginia, you can also pay a county transfer tax, and the rules and rates vary depending on your county. (See Todd’s post earlier this month about how complicated calculating these taxes can be in Montgomery County.)

I thought I’d sum up some recent changes to the rules on how these taxes are calculated in DC, Maryland, and Virginia for purchases and refinances.

Click beyond the jump to continue reading

Closing costs in Montgomery County, Maryland – both in terms of the required complex calculations and the high rates – may be the most unfriendly jurisdiction to home buyers and sellers compared to all other jurisdictions in the country.

Most homebuyers and sellers can very easily determine their closing costs for government transfer taxes by simply multiplying a base factor of say 1% or .05% against their contract purchase price. However, in Montgomery County, Maryland, a multitude of factors come into play when calculating this biggest chunk of closing costs.

At the time of closing on a Montgomery County, Maryland purchase transaction, the three different taxes imposed and generally split evenly between the buyer and the seller are:

1. County Transfer Tax
2. State Transfer Tax
3. State Recordation Tax

As a guide, I have identified each tax below with the respective rates and associated variables. Or if you want to make it easy on yourself, I suggest using our Quick Quote which accounts for all these factors and variables with a few easy questions.

Click beyond the jump for an explanation of county transfer taxes as well as state transfer & recordation taxes.

If homebuyers and refinancing homeowners want to achieve the very best value on closing costs, they should follow these three simple steps:

1. Shop mortgage terms

Since most mortgage lenders today all charge about the same in origination and ancillary charges (i.e., Processing Fees, Document Preparation Fees, Appraisal and Credit Report Costs, Tax Service Fees, Flood Certification Fees, etc.), it’s best to stay focused on the interest rate compared against loan term and payment of any discount points. For example, if you are in the hunt for a 30 year fixed rate without paying “Discount Points,” then compare the interest rate offered by several different lenders.

2. Shop title company settlement fees

While your real estate agent and/or mortgage lender may recommend or refer you to their preferred title company, the title company may not be providing you, the consumer, the best value since they are likely providing a financial benefit to the referral source (i.e., the real estate broker or mortgage company). This means that since the preferred title company is sharing some of its profits with the referral source, they are either charging you higher settlement fees or, at the very least, are unable to provide you lower settlement fees compared than customarily charged in the marketplace.

Thus, it is important that you shop for the best settlement fees among other locally established title companies. A simple Google search for will allow you to compare settlement fees among other local title companies. Be sure to make an apples-to-apples comparison since some title companies charge an all-inclusive flat fee while others itemize numerous charges such as: Settlement Fee, Title Search, Title Examination, Document Preparation/Processing, Notary Fees, Courier Fees, etc.

3. Shop title insurance rates

While nearly all jurisdictions regulate title insurance, which requires title insurance underwriters to file their respective rates, there is very little difference in title insurance premiums among various underwriters. However, while you are shopping for settlement fees with local title companies, check their title insurance rates and inquire as to whether you may be entitled to a “reissue rate” discount on the title insurance premiums to be paid at closing.

Typically, if your seller has owned the property for less than 10 years and possesses an owner’s title insurance policy, you should be entitled to either a partial or full reissue rate; depending on the amount of the existing coverage.

Closing costs in DC, like other jurisdictions, include lender charges, settlement fees and title insurance premiums as well as prepaid items like lender escrow reserves, pre-paid interest and real estate tax pro-rations.

But the biggest ticket item you will find on your closing disclosure statement on the day of closing will be the District of Columbia’s transfer/recordation taxes. In DC, it is customary for the seller to pay the transfer tax and the buyer to pay the recordation tax.

For more details on transfer and recordation taxes read our guide on paying transfer / recordation taxes. To see how much these taxes and other closing costs will affect your bottom line, get a free Quick Quote for closing costs from our website.

The chart below shows how the tax increases from 1.1% to 1.45% for both parties on properties over $400,000.

Guide to DC Closing Costs (Transfer and Recordation Taxes)

DC Tax Abatement Program lowers closing costs for some

As a homebuyer, if you earn less than a certain income and the purchase price of your property is (as of this writing) less than $367,200 you may qualify for a popular District homebuying program in which you exempt from paying recordation tax at closing and you receive an allowable credit of 1.1% from the seller, equal to the transfer tax.

This could mean a huge savings on your closing costs as a homebuyer, so it's worth the time to read up on the program. Beyond the closing table, you'll be exempt from paying real property taxes for 5 years beginning the next full tax year after filing if you qualify for the program.

To qualify for DC Tax Abatement you must provide a lot of documentation, including 2 years of income taxes and W-2s and your last two pay stubs. You must also be able to prove you are "domiciled" in the District of Columbia.

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.

The tax credit that has made homebuying affordable for thousands of DC residents since it was first introduced nearly 15 years ago was axed from legislation during negotiations over the fiscal cliff and was not included in the American Taxpayer Relief Act signed by President Barack Obama last week, according to a spokesman for Del. Eleanor Holmes Norton (D-DC).

An attempt to make the credit retroactive for 2012 purchases and extend it into 2013 was unsuccessful, but the congresswoman is working on a plan to get the credit reinstated, he said. There's no specific plan of action or timeline in place yet.

Click beyond the jump for reaction from Federal Title's president.

The Department of Veterans Affairs Loan Guaranty Program recently published county “limits” to be used for VA Loans effective January 1, 2013.  

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 2013 VA limit.  For example, an eligible veteran may borrow up to $843,750 to purchase a property in Washington, DC (2013 VA limit), with the VA guaranteeing twenty-five percent (25%) of the loan amount, or approximately $210,937.50.  These amounts have increased dramatically in most area of the DC Metro Area compared to the 2012 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 2013, please click here.  [Please note, if your county is not listed on the county limits chart on the VA website, the 2013 limit is $417,000.]

A closing at Federal Title last week resulted in a dispute between the buyer and seller over the definition of "settlement costs" that could have been avoided had the GCAAR Regional Sales Contract better defined the term.

I'll get to the language in just a moment real estate agents, but first let me tell you what the dispute was all about so your clients can avoid a similar situation at the settlement table.

In this case the seller had agreed to give the buyer a credit of $20,000 toward the buyer's settlement costs as per the GCAAR Addendum of Clauses paragraph #1. The contract provision read as follows:

Specifically, the 6-month Montgomery County, MD tax bill of $3,700 was itemized as a charge to the buyer on the HUD-1 Settlement Statement. This tax bill was required to be collected and paid at the time of closing as a requirement for recording the deed with the Montgomery County, MD clerk’s office. Further, this tax bill covered future taxes to the benefit of the buyer, covering the tax period of January 1-June 30, 2013.

In most cases, a lender will not allow any prepaid items (i.e., taxes, escrows, etc.) to be counted as settlement costs against the seller credit. However, in this case the lender allowed all settlement costs, including prepaid items, to be counted against the seller credit.

The seller argued that the $3,700 tax bill was not a "settlement cost" and thus, the credit should be reduced to $16,300. The buyer, on the other hand, argued that all items appearing on the HUD-1 Settlement Statement should be defined as "settlement costs" and that definition should include the prepaid taxes in this case since the payment of the taxes was a condition of closing – the taxes had to be collected by Federal Title and paid to Montgomery County, MD clerk’s office in order to record the deed.

Since "settlement costs" are not defined in the GCAAR Regional Sales Contract, the parties languished for a good length of time over the meaning and whether prepaid taxes should count against the seller credit.

How can real estate agents protect their homebuyers?

Agents would be well-advised in representing their client’s best interest to add their own definition of the term "settlement costs" to the GCAAR Regional Sales Contract. For example, if you are acting as a buyer agent where a seller credit exists, I would recommend adding an addendum or additional provision to the contract that reads:

As another year comes to a close, let's take a look back at some of the more popular articles that were posted to our blog in 2012.

What does 'no consideration' mean?
by Catherine Schmitt

When someone says “no consideration” deed, what does it mean? Does it mean no transfer and recordation taxes?  No. It actually means that the property is being transferred via deed without money exchanging hands. Not all no consideration deeds are exempt from transfer and recordation taxes. There are a number of situations where a “no consideration” deed is appropriate and some of them are as follows... [Read More]

Maryland Homestead Tax Credit eligibility application deadline is Dec. 31
by Joe Gentile

For Maryland homeowners who wish to submit their one-time application to confirm eligibility for the homestead tax credit, the deadline is finally approaching. Every principal residence homeowner in Maryland should follow these steps to make sure that their property is registered and eligible for the homestead tax credit... [Read More]

Real estate taxes factor in homebuying decision
by Nikki Smith

A lot of folks think real estate taxes across the board are always higher in DC compared to Maryland or Virginia. While it's true transfer (recordation) taxes paid at settlement are higher for DC purchases, those homebuyers pay a far lower annual property tax rate compared to Maryland and Virginia thanks to the Homestead Deduction... [Read More]

Say good-bye to the HUD-1 Settlement Statement
by Todd Ewing

Just barely two years since the title and mortgage industry was turned upside-down with regulatory changes to the Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedure Act (RESPA), the CFPB will be releasing its proposed forms and regulations next month to replace the HUD-1 Settlement Statement, Good Faith Estimate, and Truth-in-Lending Disclosure... [Read More]

Deed transfers in Montgomery County... Explained
by Joe Gentile

Today we will switch gears by taking a look at deed transfers as they relate to spouses and domestic partners in Montgomery County, MD.  Keep in mind that this is solely for Montgomery County – each county in Maryland has different rules.  All of the scenarios below are solely for changing the title of the property – these transactions are not part of a refinance or a modification... [Read More]

Owner's title insurance: Is it worth the price?
by Todd Ewing

While a homebuyer is required to pay for the lender’s title insurance premium, the owner’s title insurance is optional to the homebuyer, and sometimes homebuyers who are looking to shave dollars off their closing costs consider opting out of the owner's title insurance policy... [Read More]

Owner's title insurance: Seller fraud and HELOCs
by Todd Ewing

During our 16 years of business Federal Title has, on three separate transactions, paid out claims on owner’s title insurance policies due to a seller committing fraud by securing a home equity line of credit (HELOC) immediately prior to closing. These claims amounted to a total of $280,000... [Read More]

What is an Earnest Money Deposit?
by Joe Gentile

An EMD is essentially a good faith deposit to demonstrate to the seller that the purchaser is serious about the transaction and is willing to part with some money in advance of closing to prove his or her willingness to buy... [Read More]

3 reasons HELOCs create title headaches
by Joe Gentile

Home Equity Lines of Credit (HELOCs) may be difficult to obtain in today’s market, but not too long ago, everybody had one.  Recently, a series of closings were delayed in our office due to issues with HELOCs, and I expect that dealing with HELOCs will only get worse... [Read More]

Owner's title insurance: Encroachment from a neighboring property
by Todd Ewing

Just recently, during our underwriting review of an upcoming closing, our office discovered that the subject property — we will call it LOT 1 — was severely encroached upon by the improvements of the neighboring lot, which we will call LOT 2. I have included an actual copy of the location drawing below for your reference.

A boundary fence (also known as a division or partition fence) is that which runs along a property boundary line separating two lots or parcels and used by adjoining landowners.

While neither the District of Columbia nor Maryland have specific laws defining or regulating boundary fences, Virginia law (Va. Code Ann. §55-317) makes boundary fences an obligation of adjoining landowners.

Nonetheless, most properties in the Washington DC metro area have boundary fences.

When it comes to reviewing the location drawing (survey) at the real estate closing, the most common question I get from homebuyers is "Who owns it?"

The simple answer: She who uses it.

That is, the common law provides that, unless agreed otherwise, boundary line fences are owned by both property owners when both owners are using the fence. A fence built and used solely by the builder of the fence is owned by the builder of the fence and is not a boundary line fence at all. It only becomes a boundary line fence when both property owners use the fence.

So what does "use" of a fence mean? Well, here is where I could really make your head pop off if I were to present all the definitions of "use" as defined among and across the jurisprudential landscape. I’ll save you the pain and give it to you in its most basic form.

If you as a landowner join, connect, or "hook-up" to a fence built on the boundary by your neighbor to create some form of enclosure to your property, you are said to be "using" this fence, and thus, it becomes a "boundary line fence."

As noted above, a boundary line fence is owned by both property owners and thus, you are now a co-owner of the fence. In this instance, with the exception of local regulations, you probably owe your neighbor some money but we’ll save this discussion for later.

In most instances, adjoining landowners take ownership to their respective properties with existing fences built and "used" by prior owners. In this case, the adjoining landowners are co-owners of the boundary line fence and share the duty of maintenance.

If you have questions beyond mere ownership of a fence, you can visit various government websites for more information on building and permitting, including the Maryland municipal codes, DC's Department of Consumer & Regulatory affairs permits page and the Virginia municipal codes.

While trees provide shade and beauty to our homes, they can also wreak havoc when not properly maintained or cared for. As a homeowner, it's important to understand your responsibilities when it comes to tree care and the law.

By following these two golden rules, homeowners can maintain harmony with their neighbors.

The Self-help Rule

The Self-Help Rule permits and prohibits the following acts of a property owner:

• May cut or prune threatening tree limbs from a neighbor’s tree only up to and vertical to the boundary line
• Without permission, may not enter neighbor’s property to cut or prune unless the limbs threaten to cause imminent or grave harm
• May not cut or prune the tree to the extent the act may injure the tree (i.e., kill or alter its aesthetic appearance)
• May not cut down the tree itself

The Duty of Care vs. Act of God Rule

A tree owner may be liable for the damages caused to his neighbor’s property if the fallen tree limbs could have been reasonably anticipated and something one could protect against. That is, if the tree owner had knowledge, either by self-observance or prior notice by the damaged neighbor, of rot or decay of the tree, then the tree owner would have likely breached his Duty of Care.

A tree owner may not be liable for the damages caused to his neighbor’s property if the fallen tree limbs were caused by a heavy wind storm. That is, if the tree was healthy, then it would most likely be considered an Act of God and the tree owner would not be liable for damages.