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Refinance appraisal: How you can prepare

Part 2 of 2

Now you’re doing a refinance, and your appraisal is scheduled for next week. We talked earlier about what you can expect from an appraisal. Now let’s discuss some things you can do to prepare.

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.    

You will probably have at least a few days notice of the appraisal.  You can’t do every last project on your to-do list in those days before the appraisal.  You probably don’t have time to clean every surface of your home.  So how do you decide what to do?  Pick the things that matter and the things that will have the most impact.

If you have time, you should clean your home.  No, you’re not getting graded on your housekeeping, but it is only natural that the appraiser’s opinion on how well your home has been maintained will be influenced by how clean it is.  The key places to clean are the kitchen (whole room), bathroom (whole room), floors, walls, and baseboards, because they reflect on the condition of your home.  The layer of dust on your coffee table?  Probably not as important.  Also, remember that the appraiser will be taking photographs, so make sure to clean up anything that you might be embarrassed about if it were photographed and included in the report, like a messy, unmade bed or a laundry rack full of drying clothes.  

Be prepared, because the appraiser is probably going to open your closets.  When I was getting ready for my recent appraisal, I had forgotten this, and I did what I normally do when I have to clean up clutter quickly – I stuffed things in closets.  Appraisers are looking in your closets not to evaluate storage space but because they can sometimes count the closet towards square footage.  It doesn’t really matter if the closet is crammed with junk, as long as the appraiser can fit their tape measure in there to measure, but you don’t want an embarrassing avalanche to happen when they open the door.  

Depending on how much notice you have of the appraiser’s visit, you might have time to complete some unfinished projects.  If you do have time, you should again focus on the things that can impact the appraiser’s evaluation of the condition of your home.  Using another coffee table example, if you have “fix wobbly coffee table leg” and “patch hole in wall” on your to-do list, and you only have time to do one of the two, you should patch the hole in the wall, or at least cover it up with something.  And remember that the appraiser isn’t a home inspector, so he probably isn’t going to be checking to see if something is working properly, unless there is something that he sees or that you say that calls his attention to the problem.  

This leads to a general comment.  Unless it’s in response to a question, there is no need for you to highlight the negatives about your property.  So, for example, if the appraiser looks at your shiny, new washer and dryer and asks you when it was installed, you should say, “In December 2012” and not finish the sentence with “but it doesn’t work because as soon as we bought it the hose ruptured and flooded the whole basement, and we still haven’t had it fixed.” 

Another important way that you can prepare for the appraisal is to walk through your home and make a list of all of the major improvements you have completed since you purchased the property, if you don’t already have a list put together.  Include on the list the date and the cost of the improvement.  The list should include things like bathroom and kitchen upgrades, building system improvements (e.g., new water heater, new furnace), energy-efficient changes, new light fixtures, crown molding, built-in shelving, a new deck, exterior painting, new roof, etc.  The appraiser might not be able to consider some things that you put on your list, but there is nothing wrong with being over-inclusive and letting him decide.  In some situations, it may be appropriate for you to give the appraiser a copy of the list you prepared.  Ask the appraiser if that’s something he would like to review.  

Refinance appraisal: What you can expect

Part 1 of 2

You’re refinancing the mortgage on your home, and your lender tells you there will be an appraisal. 

If this is your first refinance, you probably have only a vague memory of the last appraisal of your home, which would have been before you purchased the property.  Most likely, your real estate agent took care of scheduling it and meeting the appraiser at the property, and you weren’t involved in the process at all.  All you cared about was whether the property appraised at the number you needed it to in order for your financing to work out.  You probably did a quick review of the appraisal report if/when you received it and then filed it away with your closing documents.

Now you’re doing a refinance, and your appraisal is scheduled for next week.  What can you expect from the appraisal? 

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.    

Click beyond the jump to continue reading.

Cost saving tips for home insurance

Homeowners can do a number of things to ensure they get the best home insurance rate possible, and today I'd like to share some of my top suggestions, created with the help of manifested data and proven reports.  

While most companies' premiums for home insurance policies proposing the same coverage and policy forms are usually within $50 to $100 of each other. I should mention, too, that homeowners with repossessions, collection items, judgments, late payments and bankruptcies in the last five years of their credit history, will pay more for insurance – and may even be denied. 

That being said, here are 3 ways to lower the cost of your home insurance:

Increase your deductible

Deductibles are the amount of money you have to pay toward a loss before your insurance company starts to pay a claim, according to the terms of your policy. The higher your deductible, the more money you can save on your premiums. Nowadays, most insurance companies recommend a deductible of at least $500. 

If you can afford to raise your deductible to $1,000, you may save as much as 25 percent. Remember, if you live in a disaster-prone area, your insurance policy may have a separate deductible for certain kinds of damage. If you live near the coast in the East, you may have a separate windstorm deductible; if you live in a state vulnerable to hail storms, you may have a separate deductible for hail; and if you live in an earthquake-prone area, your earthquake policy has a deductible. 

Combine home and auto policies under same insurer

Some companies that sell homeowners, auto and liability coverage will take 5% to 15% off your premium if you buy two or more policies from them. But make certain this combined price is lower than buying the separate policies from different companies.

Improve your home security

You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm or dead-bolt locks. Some companies offer to cut your premium by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police, fire or other monitoring stations. These systems aren't cheap and not every system qualifies for a discount. Before you buy such a system, find out what kind your insurer recommends, how much the device would cost and how much you'd save on premiums.

Louis Settle is an insurance agent with Liberty Mutual

Condominium limited common elements: Know what you're buying

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.

Round-up of recent changes to DC metro area transfer, recordation taxes

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

5 ways to find buyers for investment properties

If you are interested in wholesale real estate investing, it’s important to know that you have to have a list of viable buyers. The wholesaling process itself requires quick action, which is virtually impossible without at least having an idea of where you will be able to sell the properties. The last thing you want to get stuck with is paying for a property because were unable to find a buyer.

Because it’s so vital to have a buyers list prior to getting started with wholesaling, the following tips will help you compile a list of buyers you can contact next time you have a property deal.

First of all, there are many areas of the country that have real estate investor clubs. Look around in your area, find such a club and become a member. This is a great way to network and meet other investors. Let them know that you are into the wholesaling business, and ask if you can call them when you have properties available.

As you drive around town, look for uninhabited houses that are in the process of being remodeled. You can talk to the workers to get the owner’s contact information. Chances are, the owner is an investor who will be more than happy to be added to your buyers list.

Another great source for property buyers is a property management firm. While they may not be able to give you a list of their clients, they may be willing to give your contact information to their clients. Ask them to have their clients contact you if they are interested in being put on an exclusive contact list; when they contact you, explain that they will be put on a list of buyers who get contacted first when you have new properties available.

Look through the classified ads; often you will find houses for sale listed as "newly renovated." Words like that are usually indicative of an investor purchase. Call the number listed in the ad to see if they would be interested in getting a heads up as new properties become available.

One last idea is to buy your own classified ad. You can list them with words such as "priced below market" or other catch phrases to catch people’s attention. This won’t necessarily put you in contact with investors, but some of the responses you receive may be from investors.

All in all, finding buyers to create a contact list is a must-have for wholesale investors. This article has only outlined a few suggestions for finding interested property investors to add to your list. Remember that in order to successfully close a sale in real estate wholesaling, a predetermined buyer is vital, so have that list ready!


 

About the author

Jennifer Hill and the agents at Realnet of Tampa Bay are experts at finding the best investment properties or sale. Don't fall for the trap of buying investment properties without researching a property thoroughly.

5 tax deductions for Florida landlords

The first thing most people think of when they hear the words "real estate investing" is buying cheap houses, fixing them up and reselling them at market prices. However, if the current housing market isn’t really conducive to home sales, then it is important for an investor to be able to adapt.

A lot of investors dislike the thought of being a landlord, saying that there are just too many headaches to deal with. Luckily, there are a lot of benefits of renting out properties as well, including tax deductions. The following list details five of the available tax deductions for landlords.

  1. Tax Deductible Property Repairs – If you have ever rented a home, you know that there is a lot that can go wrong. Anything that needs fixing on a rental property, such as roof repairs, tile replacements, or any other necessary repairs are tax deductible. This makes it easier to deal with costly repairs throughout the year.

  2. Insurance Premiums – Insurance is a requirement; it’s nice that for investors who are renting out the property, the premiums can be deducted from the income at the end of the year.

  3. Property Depreciation – Property values of real estate fluctuate, but generally houses appreciate rather than depreciate. This makes the fact that you deduct the depreciation of the property over time on your taxes.

  4. Tax Deductible Interest – Interest that investors pay on mortgages and other loans used for properties is tax deductible. Not only that, but if you have a credit card used solely for spending on repairs, renovations, or anything on the property, the interest is deductible on your taxes as well.

  5. Cost of Services – Perhaps one of the biggest reasons that many investors don’t want to be landlords is because they would have to deal with tenants. Hiring a project manager is the perfect way to deal with that aversion. The costs of these and other services such as lawyers and accountants are tax deductible.

These are only five of the top tax deductions available to landlords who rent out their properties. There are so many reasons to rent out properties instead of selling them: residual, steady monthly income, as well as the extra tax benefits. Many of these tax deductions are not available for the everyday home buyer. Enjoy the benefits of being a landlord, and remember not to put all of your eggs in one basket.


 

About the author:

Jennifer Hill and the agents at Realnet of Tampa Bay are experts at finding the best investment properties or sale. Don't fall for the trap of buying investment properties without researching a property thoroughly.

How to stay optimistic in a down market

Investments are never a sure thing, no matter what type of investments you're talking about. When it comes to the stock market, common belief dictates that the higher the risk, the higher the potential for profit. In a down economy, however, it can be a little daunting to take risks with your money.

Even in real estate investing, which is often considered safer than the stock market, investors may be nervous about tying their money up during a down market.

Real estate investors may have a little more security than stock market investors but when the economy is in a slump, no one feels secure taking risks with their hard earned cash. Sometimes it is best to keep investing even when things look grim and other times it is necessary to change with the times. Staying optimistic in hard times can be a challenge.

As previously stated, real estate investors have it a little easier as far as staying optimistic, even in a bad economy. Why? Because people will always need housing. The demand for a house to live in will never go away! Even if the prices fall for a short period, it's highly unlikely that the housing market will "crash" like the stock market.

While it won't "crash," the housing market will fluctuate; property prices rise and fall, based on how the economy is. As a result, property investors should keep a close eye on current market trends. Knowing whether to rent or flip a property is often as simple as knowing the current market.

If jobs are scarce and layoffs are rampant, home sales may drastically slow down. This doesn't mean that investors should stop their investing activities, however. It just means that their strategy needs to change. This is one reason why it’s so important to know the market; if homes aren't selling, it's not a good time to try to renovate a large amount of homes and sell them.

In a selling slump, homes should be renovated and rented out, rather than sold. This may not create a large lump sum profit, but it will generate a nice steady residual monthly income. Being optimistic in a down market is easy; just remember that in the housing industry, there is no such thing as a "down market." It's an ever changing market, for sure, but there will always be a need for housing.


 

About the author

Jennifer Hill and the agents at Realnet of Tampa Bay are experts at finding the best investment property for sale. Don't fall for the trap of buying cheap houses for sale without researching a property thoroughly.

New rules attempt to clarify DC mortgage foreclosure legislation

The D.C. Department of Insurance, Securities & Banking ("DISB") proposed new rules for governing residential mortgage foreclosures in an attempt to clarify legislation that affects the city's mortgage foreclosure process.

D.C. Council had made fundamental changes to the city's mortgage foreclosure process last year by adding (among other things) a requirement that lenders and borrowers make an attempt to mediate their disputes.

After the parties concluded their attempt to mediate, the lender was then entitled to record a "mediation certificate" and proceed to a foreclosure sale and enforce its rights under the deed of trust.

However, the requirement mandated by the "Saving D.C. Homes from Foreclosure Act of 2010," which the Council passed in an attempt to keep pace with reforms made by Maryland and other states, raised concerns among lenders and title insurers.

The raft of changes to the D.C. mortgage foreclosure law and rules thereunder opened a Pandora's Box of loopholes that increased the risk of clouded title for any property sold at, or even after, a foreclosure sale.

The aim of the new rules is to clarify the legal effect of recording a mediation certificate and make an amendment to the wording in the certificate.

Lenders and their allies have been clamoring for a change to the rules to state that recording a mediation certificate is prima facie evidence - that means presumptive validity - of all the procedural steps taken prior recording.

This change would prevent a borrower who participated in mediation and loss prevention from raising any objection to the conduct of this process after the foreclosure sale.

An aggrieved borrower could still raise objections, file a lawsuit, or take any other action to contest the lender's conduct during the process.

It will still take some initial stumbling through the maze of new rules by both lenders and borrowers to work out the kinks in the new procedure.

Hopefully, the new requirements will give borrowers increased opportunity to modify loans, and if modification isn't realistic, it will give title insurers, lenders and purchasers confidence that their title will be undisturbed.


 

About the author

Jack Reid is Of Counsel with the firm Tobin, O'Connor, Ewing and handles matters in the areas of real estate, probate and business law.

Condo insurance considerations

While the need for casualty and other insurance in connection with single-family homes is obvious, the issues that confront condominium owners need just as much scrutiny. While the condominium association’s "master policy" may cover some rebuilding costs, the unit-owner needs to be assured that there are no gaps (or costly overlaps) in coverage.

A review of the condominium association’s master policy is an essential place to start.

Click beyond the jump to continue reading.

Investing in Florida real estate

People have successfully built fortunes through real estate investment for decades. In the current housing crisis, many more people are finding success by snatching up the many foreclosures available. To reduce the risk of failure, beginning real estate investors and first-time homebuyers should research the many different aspects of property investing before getting started.

Here are a few basic things to consider first:

• Personal goals
• Level of responsibility
• Location
• Current market

All of these factors can be addressed in a business plan. Real estate investing is a business, and just like any other business, should include a “road map.”; Having a business plan or financial goal will help keep you on track, reduce frivolous investments, and help you reach your goals faster. Let’s look at each aspect a little closer.

Personal goals

First of all, it’s important to have specific goals. Do you want to set up a residual monthly income through rental properties, or would you rather buy and sell properties for a quick profit? Are you interested in commercial properties or residential? When outlining your goals, be as specific as possible.

Responsibility

Next, what level of responsibility are you looking for? If you’re purchasing properties for resale, more renovations are usually needed. You'll also need to consider resources needed to list the property and find a buyer. Rentals often require renovations as well as regular maintenance and the time consuming task of finding tenants. It’s possible to hire others to do the property management side of things, but that will add more costs.

Location

The location of a property is important; not only what area of the country, but also what part of the city or town, and even what section of a street the property is on. The location affects the value as much as the appearance of the home.

Assess the market

The final consideration new investors and homebuyers must make involvesthe current market. For example, in Florida, because so many people are currently losing their homes to foreclosure, it’s more of a rental market than a selling market. Either way, it’s important to look at the values of other properties in the area. This involves looking at what houses in the area have recently sold for and what price rentals are bringing in.

Don’t get discouraged; investing in real estate really is a great way to build wealth. It’s just important to learn everything you can before diving in. There are many investment brokers that deal strictly with property investments. Contact one in your area, or the area you wish to invest in, and ask them for advice.


About the author

Jennifer Hill and the agents at Realnet of Tampa Bay are experts at finding the best investment property for sale. Setting your goals and knowing how to get there are vital to your success! Realnet can help you determine the best investment properties to help you meet those goals.

Closing on your home: Are you walking in blind?

By the time you arrive at the table to close on your home purchase, you're tired. It's been a long haul to get to this point, and the last thing you want is any kind of surprise.

Particularly if you're a first-time homebuyer, knowing ahead of time what to expect at closing can help ease any anxieties you may have, and ensure that you get your keys with no unforeseen hiccups.

The good news is, if you have worked with a trustworthy real estate agent and have chosen a reliable mortgage lender, you should anticipate a smooth settlement. All the professionals you've been working with are helping you get through the final steps of the transaction.

"Buyers should not expect any surprises at the settlement as long as they have carefully reviewed their Good Faith Estimate (GFE), shopped for their title services and compared written estimates of closing costs," said Todd Ewing, president of Federal Title and Escrow Co. in Washington, D.C.

Read full story...

Price + Staging = SOLD

It’s a buyer’s market, right? Everyone knows that. It’s all over the papers and the media. It’s in the blogosphere. Everywhere.

No one told the folks looking for a home in Silver Spring. Or at least they didn’t tell this one home seller, because their home went under contract in six days with a choice of four offers. I’m not talking high end. In fact, I’m talking the ICC going in right behind the house. Full construction going full tilt.

So? How did this happen? Oddly enough it was what we in the real estate profession call “the basics.” We looked at the comps – the Actives, Pendings, Solds – and there was plenty of data to support the recommended price. The home sellers had equity to spare so they could set a price that was competitive and attractive. Then we brought in the home stager.

Declutter. Declutter. Decutter. Rearrange. Add a few nice accessories here and there and voila! The home looked like Martha Stewart came for a visit.

Then we flipped the switch for MRIS and CSS, and the phone never stopped ringing for five days. There were 45+ showings, and people were still making appointments when the sellers and their Realtor sat down to review the four offers that had come in.

It can be done. A little money up front to stage a home and sellers willing to price to the market and buyers are the ones competing.

About the author

Ken Montville is author of the blog mdsuburbanhomes.com and a Certified Residential Specialist. He began his career in real estate in 1999 and served as president of the MD/DC Chapter of the Council of Residential Specialists in 2007.

What to consider when starting the homebuying process

Without a doubt, industry guidelines have tightened, and lending restrictions have increased for home financing. If you are planning to purchase a home, there a few things to think about and certain documentation you should be prepared to provide.

1. If your credit score is below 720, your interest rate could be .25% higher than a homebuyer with a score of 720. Factors effecting your credit score could be the following:

a) revolving debt balance vs. credit limit
b) late payments
c) excessive credit inquiries

Ideally, you want your revolving credit card debt to be 1/3 of the available credit limit. Simply paying down a credit card could increase your credit score by 10 points, which may be just what you need to push your middle score over the 720 mark.

2. You will have to show 2 years of consecutive employment. If you are a W2 wage earner, you will provide your 2008 and 2009 W2’s. If you are self-employed, you will be required to provide 2007 and 2008 tax returns and will be qualified for the loan based on the adjusted income. If you want to use bonus income to qualify for the mortgage, you will need a 2-year history of earnings.

3. When considering down payment options, keep in mind that you will pay mortgage insurance if you are not putting down at least 20%. The minimum down payment is available with FHA and requires just 3.5% down with an upfront 2.25% mortgage insurance premium beginning April 5th. FHA requires homeowners to pay mortgage insurance for a minimum of 5 years AND until there is 21% equity in the property.

If you do not want to put down 20% and do not want the obligation of mortgage insurance for 5 years, you can put down 10% and obtain a conforming loan with mortgage insurance that you are required to pay until you have 20% equity in the home. This can be achieved by paying more to principal and/or increase in property value.

You also have the option of putting down 15% and paying mortgage insurance. Typically, mortgage insurance for FHA loans is less than conforming, but conforming programs do not require an up-front premium and a finite mortgage insurance payment period.

4. The maximum debt-to-income ratio is now 45%. Your total monthly housing payment plus all revolving and installment debt can not exceed 45% of your gross income.

5. Which program is right for you? Since the 30-year fixed is at an all time low, most homebuyers are taking advantage of locking into a low rate for a fixed period. However, if you plan to stay in your home for only 5 to 7 years, you may want to consider a 5 or 7 year ARM. These interest rates have been down to 3.25% because the LIBOR index is extremely low right now. FHA also offers ARM programs which offers a lower rate than the 30-year fixed FHA.


About the author

Jennifer Murawski is a loan specialist with First Financial Services, Inc. in Washington, D.C. Browse loan programs, decision-making tools and calculators on her website.

Debunking 5 common mortgage misconceptions

The national mortgage industry has experienced unprecedented change during the past two years, which has resulted in a number of popular consumer misconceptions regarding the availability of home financing.

Don’t believe everything you hear, however. For people considering buying or selling a home – or both – it’s important to take a good look at some of the most prevalent mortgage rumors making the rounds, because you’ll quickly discover there’s more to the story than meets the eye. The truth is, with rates at near-historic lows and good deals on properties to be found everywhere, it’s a buyer’s market, and there may never be a better time to buy.

Mortgage Misconception #1: “There’s no money available for home loans.”

While it’s true that the recent credit crunch temporarily affected the mortgage markets, the 2009 credit market has progressively improved for homebuyers. In fact, many established homeowners have already seized upon the opportunity to refinance to lower interest rates. These “refis” prove that savvy consumers can do more than survive in a tough market – they can improve their long-term financial outlook and save thousands over the life of their home’s financing.

Mortgage Misconception #2: “The days of low down payments are gone for good.”

While it’s true that “no money down” loans are almost exclusively restricted to VA loan qualifiers with full entitlement, Federal Housing Administration (FHA) loans with down payments beginning at 3.5% are available and popular. Some FHA loans allow borrowers to use gift funds from family members, friends or employers to help cover the down payment.

Mortgage Misconception #3: “Buying a home in a high-cost area is almost impossible.”

Although jumbo loan figures fell in 2008, similar to many other financial statistics, perhaps surprisingly, they’ve made a comeback in the first quarter of 2009. According to a recent issue of Inside Mortgage Finance®, the Jumbo sector’s production figures were up 109% over the 4th quarter of 2008. While credit requirements for Jumbo loans have become somewhat more restrictive, they’re still available for qualified borrowers.

Mortgage Misconception #4: “In today’s market, closing on a loan is difficult and complicated.”

The majority of loans closing in 2009 are no more complex than they were in the past. Keep in mind, even in boom times, there were still a great number of disclosures and necessary paperwork associated with closing a conventional “full doc” loan. This hasn’t changed. Although first-time home buyers may find the process a bit overwhelming at first, the truth of the matter is, most of this paperwork is mainly designed to protect the consumer. A reputable lender will take the time to go over all closing documents with buyers before the day arrives, making the experience as fulfilling and exciting as any other major life event should be.

Mortgage Misconception #5: “Low interest rates are a thing of the past.”

Even though mortgage rates are beginning to creep upwards, the truth is that today’s numbers are still some of the lowest in years. Take a few minutes to check out your local newspapers or visit some rate-comparison websites -- you'll quickly discover that highly competitive rates are far from yesterday's news.

For all the misconceptions that are out there, it may be comforting to know that a quick “reality check” can make you feel much better about the current homeowners market. There’s nothing stopping you from making that dream house a reality, here and now, in even in challenging economic times.


About the author

Noel Shepherd is a MetLife Home Loans Relationship Manager with over 10 years experience in the home loans industry. For additional information on the home loan process, visit his website or call Noel Shepherd at 202.642.4305.

GCAAR Tenancy Addendum no solution to insoluble problem

There is great consternation among Realtors®, title attorneys, buyers and sellers of residential rental property in D.C. and for good reason.

The creation of Tenancy Addendum Form to be used with Form 1313 (enough to cause tristadecaphobics agita) is more curse than blessing. As a litigator of real property disputes in D.C. and Maryland for close to 30 years, use of this form will be a boon to business. Now for the skinny.

Click beyond the jump to continue reading.

Is your buyer really the only one out there?

I’ve often found that people looking for homes tend to think they’re the only ones looking for a home. The first clue comes when they call and ask to see a house in next 30 minutes. The next clue is when they see a home they would like to purchase but want to take a week to "think about it."

I used to think this was just buyer insanity. Then I realized it’s really just a trick of the mind. Homebuyers are so focused on their own goals and objectives that they block out the possibility someone else could have the same goals.

During any other time, this wouldn’t bother me so much. Now, though, we are heading into the “sweet spot” for the federal homebuyer tax credit – Sales contracts must be inked by April 30.

If a homebuyer doesn’t get under contract by then … oh well. Of course, there are tons of other homebuyers working toward the same deadline. This creates a sort of “mini seller’s market” in some pockets and, more to the point, it creates a last-minute frenzy for all the other players in the real estate transaction – lenders, appraisers, underwriters, home inspectors, contractors to fix inspection items, and the title company with all the people they put into play.

As a result, some homebuyers are going to be mightily disappointed when they hear about delays caused by backlogs in the transaction pipeline. No doubt all the real estate professionals will be working long hours to make things happen.

It would be nice, though, if the Realtors® involved in the transaction prepped their clients. It’s getting close to crunch time, after all, and their buyer-clients aren't the only buyers out there.

About the author

Ken Montville is author of the blog mdsuburbanhomes.com and a Certified Residential Specialist. He began his career in real estate in 1999 and served as president of the MD/DC Chapter of the Council of Residential Specialists in 2007.

Real estate agent alert: New rules for lead-based paint

A new rule issued by the Environmental Protection Agency aimed at preventing lead poisoning from lead-based paint goes into effect next month.

The rule requires the use of lead-safe practices and is part of the Lead Renovation, Repair and Painting Program, created by the EPA to help keep people safe from lead contaminated dust. Beginning in April 2010, contractors performing renovation, repair and painting projects that disturb lead-based paint in homes, child care facilities, and schools built before 1978 must be certified and must follow specific work practices to prevent lead contamination, according to the EPA.

These rules apply to any activity or renovation at will disturb more than 6 square feet of lead based paint in the interior and 20 square feet on the exterior, in a residential and multi family structures. This new rule affects general contractors, painters, plumbers, residential property owners and managers, carpenters, electricians, and even maintenance personnel. Realtors and property managers should also make themselves aware of the requirements as well. They should be aware of the hazards of lead paint poisoning and ways to prevent it.

The EPA also states that “Deteriorating paint in such homes present a lead hazard through inhalation and ingestion of paint chips and lead contaminated dust and soil. Lead may also be present in varnish, caulk, and other materials. It is important to find out if your home has lead in it or around it!"

About the author

Marla Ray is owner of Urban Referrals, a company that connects homeowners and homebuyers with licensed, insured and certified contractors in the DC Metro Area. Contact 202.332.0848 for more information.

A primer for the sale of DC residential rental property

Selling tenant occupied residential property in the District of Columbia can be a challenging experience filled with potential pitfalls. For the novice and veteran Realtor®, due care must be taken at every step of the process.

When approaching a client for a listing, always inquire as to whether the property is registered with the Department of Consumer and Regulatory Affairs (DCRA), Rental Accommodations and Conversion Division (RACD). All D.C. residential landlords are required to be registered with DCRA and failure to register can result in complaints issued by the Agency or the tenants.

Click beyond the jump to continue reading.

Top title insurance claims (1 - 5)

Title insurance claims arise more often that you might think. Below is a list of the most common title insurance claims for the District of Columbia, compiled by Elisabeth Zajic, vice president and senior counsel for First American Title Insurance Companyin D.C.

For further reading, the Underwriter Bulletins contain a wealth of information geared more toward the industry but still valuable for anyone who's planning to buy a home.

Click beyond the jump to continue reading.

Top title insurance claims (6 - 10)

Part 2 of a series

Title insurance claims arise more often that you might think. Below is a list of the most common title insurance claims for the District of Columbia, compiled by Elisabeth Zajic, vice president and senior counsel for First American Title Insurance Company in D.C.

For further reading, the Underwriter Bulletins contain a wealth of information geared more toward the industry but still valuable for anyone who's planning to buy a home.

6. Mortgagors holding over after foreclosure. A claim will almost invariably arise when title derives from foreclosure and the mortgagor (borrower) whose property interest was extinguished in the foreclosure sale remains in possession of the property. The claim is precipitated when the successful bidder at the foreclosure sale seeks to evict the former owner/mortgagor in an action for possession, who will respond with a plea of title seeking to invalidate the foreclosure sale. The plea of title gives rise to a duty of defense and indemnification to the foreclosure sale buyer who purchased an owner's title insurance policy.

Because of the near certainty of litigation giving rise to a duty of defense under the title policy issued, First American Title Insurance will not insure title out of foreclosure when the mortgagor remains in possession of the property. Foreclosure requirements listed in your commitment for title insurance should be amended as follows:

I. Recording of Notice of Foreclosure in the Office of the Recorder of Deeds for the District of Columbia pursuant to which captioned property is sold to the proposed insured.

II. Proof of mailing of the notice by certified mail with return receipt to the record owner, complying with the District of Columbia Code and the terms of the Deed of Trust relating to notice of sale.

III. Proof of Publication of Notice in the Washington Post of other English language newspaper with general circulation in the District of Columbia. The proof also must establish that the notice was published five times within a 10-day period.

IV. Certificate of Sale and Auctioneer's Report

V. True copy of Deed of Trust note.

VI. Copy of Affidavit in compliance with Soldier's and Sailor's Civil Relief Act of 1940.

VII. Proof of notice of the sale to all junior lien holders known or of record.

VIII. Proof that possession of the premises has been surrendered to the insured owner/or assigns.

More info: Mortgagors Holding over after Foreclosure

7. Survey issues. A surprising number of claims in D.C. are caused by survey issues. They frequently involve bitter disputes between neighbors, resulting in lengthy and expensive litigation.

In D.C. survey coverage is not given to owners based on a house location survey except with special approval. When a house location survey is provided for closing, the general survey exception should remain in the owner's policy, including Eagle policy. You should read the plat into the owner's policy as well as the loan policy, taking specific exception to matters adverse to title shown on the plat. The survey should be reviewed with the buyer(s) by the settlement officer, who should point out those survey matters which exception is taken. The buyers should sign off on a copy of the plat to be maintained in the settlement file.

8. Disclosure issues. Recently, there has been a surge of litigation stemming from claims of breach of the duty of reasonable care by settlement attorneys who fail to advise purchasers of real property of the title consequences of certain matters of record. Various types of historic preservation easements given by prior owners of record have proven to be particularly problematic. These are not title insurance claims, but claims of negligence on the part of settlement attorneys.

Without going into lengthy discussion of the duty of care of a settlement attorney or settlement company, all of you should be sensitive to directing attention to matters of record which will affect the use and enjoyment of the property by the new owners, such as survey matters, easement issues and restrictive covenants. If possible, it is a good idea to send a copy of the title insurance commitment and survey to the buyers in advance of closing.

If, for whatever reason, you are not providing title insurance coverage for matters which a buyer could reasonably expect such coverage, you must disclose that fact and get a written waiver of coverage. These matters could include TOPA rights, mortgagors holding over after foreclosure, title to parking spaces, easement rights, pending litigation and unpaid taxes and assessments, although this list is by no means comprehensive.

9. Parking space claims. We have dozens of them!

For example, a parking space is listed in the contract but overlooked in the title order and neither conveyed nor insured. If the contract references parking, we have a claim even if the space is not included in the legal description in the policy.

OR – limited common element parking spaces are not properly assigned by amendment to the condo docs and the appropriate exception is not taken in the policy.

OR – the A & T number for the parking space is not included in the FP-7C and the tax bills continue to go to the prior owner, who does not, of course, pay the bills or forward them. The parking space is then sold at tax sale, and we have a claim.

*Pay attention to parking spaces! In many areas of D.C. they are now worth a small fortune!

10. Eagle policy schedule of caps and deductibles. Don't forget to include it when issuing Eagle policies! If the schedule of limitation of liability is not included with the policy, the argument can be made that there is no limitation on liability, thereby drastically increasing the potential amount of coverage for certain risks.


About the author

Elisabeth Zajic is a vice president and senior counsel at First American Title Insurance Corporation in Washington, DC.

Estate tax: trouble brewing

With the average cost of a house rapidly rising in the DC metropolitan area, it is especially important that homeowners recognize the need for tax and estate planning. Each and every homeowner should make sure that he has planned for his certain and eventual demise.

For example, the estate of a resident of the District of Columbia with equity in a house of $1,500,000 could pay $64,400 in estate taxes to the District. Proper estate planning could help the homeowner defer, reduce or even potentially eliminate the tax.

The federal situation

As you may already be aware, in 2001, Congress passed the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) which, among other things, increased the federal estate tax applicable exclusion amount as follows:

Year -- Applicable Exclusion Amount
2006-2008 -- $2,000,000
2009 -- $3,500,000

EGTRRA eliminated the federal estate tax for individuals dying on or after January 1, 2010. However, unless between now and then, Congress and the President extend the law beyond December 31, 2010, or provide alternative tax relief, the estate tax as is existed in 2001, i.e. only a $1,000,000 applicable exclusion amount per person, will be reinstated on January 1, 2011, including a marginal rate of 55 percent.

Many of the documents drafted for our clients in the past include the establishment of a "by-pass trust" the funding of which is determined by a formula providing that the largest amount that can pass free of federal estate tax (the applicable exclusion amount) will fund such by-pass trust. By "forcing" the funding of a by-pass trust, each spouse is assured of utilizing his or her applicable exclusion amount thereby enabling each family to pass the largest amount possible of their estate to the next generation free of estate tax.

The states react

Many states, facing deficits and losses in revenue as a result of EGTRRA, have taken action to prevent a similar increase in their exemption amounts for state death tax purposes. As such, the issue of "decoupling" has arisen. For example, even though the federal applicable exclusion amount is $2,000,000 this year, the State of Maryland and the District of Columbia have capped their exclusion amounts at $1,000,000.

Virginia has repealed its estate tax for individuals dying on or after July 1, 2007. Since many clients' estate planning documents include the forced by-pass trust formula, $2,000,000 (the federal applicable exclusion amount) would pass to the by-pass trust upon the death of the first spouse. This would result in no federal estate tax at the time of the first spouse's death, however, there would be a tax on the excess $1,000,000 in Maryland and the District of Columbia. The amount of that state death tax is pretty hefty; in 2007, the tax may be almost $85,000. For a death which occurs in 2009, where the federal applicable exclusion amount of $3,500,000 would pass to the by-pass trust (and Maryland and the District of Columbia continued to cap their exclusion amounts at $1,000,000) the state estate tax could be over a whopping $225,000! Maryland has, however, capped its estate tax to 16 percent of amounts over the $1,000,000 exclusion amount.

Our response

The current differences between the federal and state death taxes, as well as the differences among the local jurisdictions, require a case-by-case analysis for each client. For example, in some instances, it will be preferable to pay the state death tax assessed at the time of the first spouse's death by fully funding the by-pass trust with the federal applicable exclusion amount. Although this will accelerate the payment of state death taxes, the excess amount funded into the by-pass trust (i.e., $1,000,000 in 2007), including all appreciation thereon, will then be excluded from the surviving spouse's estate, thereby potentially sheltering significant wealth and saving federal tax at the top marginal estate tax rate which is 46 percent in 2007.

However, many clients may prefer to avoid the payment of state estate taxes upon the death of the first spouse and in such cases, it may be necessary to prepare new wills/revocable trusts. These new documents can provide that the by-pass trust will be funded with the lesser of the federal or state exclusion amounts. Another option provides that the entire estate would pass to the surviving spouse, subject, however, to the surviving spouse having a power to "disclaim" a portion of the bequest into the by-pass trust. This option would allow maximum flexibility on a post-mortem basis to the ever evolving estate tax landscape. Alternatively, the entire estate of the first spouse to die may be paid over to a marital trust for the benefit of the surviving spouse. In such case, the personal representative may determine after the death of the first spouse not to elect "marital deduction" treatment for any portion of the marital trust (the state estate tax exclusion amount or the federal estate tax exclusion amount).

Make an appointment

We recommend that each of our clients have their existing estate planning documents reviewed as soon as possible. Please contact us at 202-362-5900 to arrange a time to discuss your documents and what changes, if any, are appropriate for your needs.


About the author

Jennifer C. Concino is a partner of the firm Tobin, O'Connor, Ewing and practices in the areas of estate and trust planning and administration, probate, guardianships, non-profit entities, real estate and business law.

Incorporating your real estate business

A corporation or limited liability company (LLC) can be formed quickly and efficiently by filing standardized documents with the appropriate jurisdiction. A corporation that, after being formed, elects to be taxed as a "pass-through" entity under Subchapter "S" of Chapter 1 of the Internal Revenue Code is known as an S corporation.

So, why should you consider forming an S corporation or LLC to operate your real estate business?There are two principal reasons.

Protection from personal liability

First, each of these entities may protect you from personal liability for the debts and obligations of your real estate business. By contrast, a self-employed real estate agent (often called a "sole proprietor") can be liable for damages and injuries caused by the business, such as a "slip and fall" incident.

The sole proprietor real estate agent also may be legally responsible for the professional errors/omissions or negligent acts of other agents or staff he or she employs or engages.

No liability-shielding entity, however, can protect your personal assets from debts and obligations arising out of your own professional errors/omissions or negligent acts.

Lower income taxes

Second, your overall income taxes may be lowered by choosing an entity to operate your real estate business. An LLC or S corporation, for the most part, is not subject to income tax at the entity level.

Owners avoid "double taxation" by paying income taxes on the profits of the LLC or S corporation on a flow-through basis like a sole proprietor. While an LLC with just one owner (or "member") is disregarded as a separate entity for tax purposes (and therefore treated as a sole proprietorship), an LLC with multiple members can allocate profits/losses in any way they choose.

In an S corporation, shareholders must receive dividends in proportion to their shareholdings, regardless of the amount of time or effort they "invest" in the business.

The biggest tax advantage enjoyed by S corporation shareholders is that they pay employment taxes (FICA and Medicare) only on money received by them as wages or salary, but not on profits or dividends (a savings of up to 12.4% compared to an LLC or sole proprietorship).

LLC members typically pay employment taxes on the entire amount of LLC profits (regardless of whether or not the profits are distributed to the members).

Read beyond the jump for distinctions between an LLC and an S corporation.

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Our blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. Rate tables and figures that appear on our blog are deemed reliable but not guaranteed. For current rates & policies, refer to our Quick Quote and Consumer Guide. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on our blog.