MoCo Council to consider increase to recordation taxes

The cost of buying a home in Montgomery County may soon increase, as County Council President Nancy Floreen has proposed an increase in the recordation taxes paid at real estate closings as a way to finance school construction.

The measure is projected to raise $185 million in revenues with $155 million earmarked for school construction, and a hearing on the bill is scheduled for May 10.

The current recordation tax in Montgomery County is $6.90 per $1,000 for the first $500,000 of purchase price. The recordation tax rate increases to $10 per $1,000 for anything over the $500,000 mark. Buyers and sellers customarily split the recordation tax 50/50.

For example, a purchase price of $400,000 at the current recordation tax rate would amount to $2,415 split between the buyer and seller. On a home sold for $600,000 the recordation tax would amount to $4,105 split between the buyer and seller.

Real estate agents are opposed to the tax increase saying it will hurt first-time homebuyers in particular and may have a negative impact on the local real estate market overall. Proponents of the legislation say it is necessary to fund school expansions in the growing county.

Montgomery County’s population has increased by more than 100,000 residents over the last 10 years and exceeds 1 million residents, making it the most populated county in Maryland.

Check back for updates on this legislation.

What’s the status on B21-0417, aka The First-time Homebuyer Tax Benefit Amendment Act of 2015?

Legislation that would offer tax relief for District residents buying DC real estate is currently under committee review and awaiting scheduling for a mark-up, a spokeswoman for the Council's Committee on Finance and Revenue said.

Known as the First-time Homebuyer Tax Benefit Amendment Act of 2015 (B21-0417), the bill would create a new transfer tax rate of 0.725% for homebuyers who have never purchased a house, condo or share in a cooperative unit in the District. It would go into effect Sept. 30, 2016.

During mark-up, which is a vote in the Committee to send the bill before the whole Council, the Committee will have an opportunity to amend the bill (or not) and will also have a chance to review a financial impact statement to analyze costs and revenues of the proposed legislation.

If the bill passes mark-up, it will go to Mayor Muriel Bowser for a signature before going to Congress for review and passive approval. If it fails mark-up, the bill will get kicked to the Committee of the Whole and added to the agenda for the next legislative meeting.

Impact on low- to moderate-income residents a concern

The Council held a public hearing about the bill on February 10 of this year, which is when Settlement Observer picked up on the story. Then on February 24 a representative from the DC Fiscal Policy Institute testified before the Committee about concerns regarding a lack of income restrictions and the impact the tax cut would have on the city’s Housing Production Trust Fund.

“Rather than provide a new tax benefit for all first-time homebuyers, DCFPI recommends that policymakers review the city’s current deed tax assistance to low- and moderate-income homebuyers and make adjustments if they appear warranted,” said DCFPI Housing Policy Associate Claire Zippel in her testimony.

The bill was introduced last October by councilmembers Jack Evans (D-Ward 2), David Grosso (I-At Large) and Anita Bonds (D-At Large).

Grosso acknowledged concerns regarding the economic impact of lowering the transfer tax rate across the board and, in particular, how such a deduction would affect the Trust Fund.

“I am committed to working with my colleagues to ensure that the [Trust Fund] receives annual commitments so that it is not dependent on yearly fluctuations in recordation tax revenues,” Grosso said in a statement.

Mayor Bowser’s budget proposal last year included $100 million for the Trust Fund in fiscal year 2016, according to the website of the Coalition for Nonprofit Housing & Economic Development. The Trust Fund is administered by the DC Department of Housing and Community Development with support from the Coalition.

The Trust Fund “enables non-profit housing providers, mission-driven for-profit developers and renters wishing to exercise their Tenant Opportunity to Purchase rights to improve and develop affordable housing in all eight wards,” according to the Coalition’s website.

Since its inception in 2002, The Trust Fund has produced or preserved more than 8,000 affordable homes with upward of 2,000 more in the pipeline, according to the Coalition’s website. In addition the Trust Fund has created an estimated 10,000 short-term and permanent jobs and has helped more than 18,000 DC residents.

The District's homebuying taxes significantly higher than Maryland or Virginia, about 50% higher on average

Current DC transfer and recordation taxes are on average 50% higher than neighboring Maryland and Virginia, Grosso said in a statement, which was the impetus for introducing a bill that would lower the tax burden for homebuyers purchasing for the first time in the District.

Transfer tax rates for District properties vary depending on the purchase price, from 1.1% for purchases $399,999 and below to 1.45% for purchases of $400,000 or more. The tax payment is traditionally paid by both the buyer and seller.

The DC tax abatement program offers relief for some, but homebuyers must satisfy income, purchase price and other restrictions and provide documentation to qualify.

Tax abatement waives the recordation tax obligation for low- to moderate-income first-time homebuyers while also crediting the seller’s portion of the tax to the homebuyer, resulting in a 2.2% swing in favor of the homebuyer. In addition, a qualifying homebuyer is exempt from paying property taxes for the first five years of ownership, but again some restrictions apply.

“If policymakers are concerned that the current deed tax assistance programs are inadequate, the District should look to modify existing programs while keeping a focus on low- and moderate-income families, rather than adopt another tax break that has no income targeting,” Zippel, the housing policy associate, said in her testimony.

We will continue to monitor the story, and readers can also follow along on the Council's website.

Have you stopped by our new location on 14th Street?

We are pleased to announce a second Federal Title office located at 1803 14th Street, NW is now open for business.

Our new location is two blocks south of U Street and three blocks north of Logan Circle in the heart of the burgeoning 14th Street Corridor.

Use our main phone number (202) 362-1500 to get in touch with that office or send your general inquiries to info@federaltitle.com. Be sure and bookmark our Contact Page to keep our information for both locations at the ready.

Stephanie Dudley will lead our team at our U Street / Logan Circle location as managing attorney. Stephanie has been with our company for about three years now. She received her Juris Doctor from The Catholic University of America in 2005 and has been working in the title industry as an attorney and settlement processor ever since.

Attorney Chris David and settlement coordinator Shantae Holland have made the move with Stephanie from headquarters in Friendship Heights to the new location.

Next time you're in the U Street or Logan Circle neighborhoods, look for our logo on a blue awning, and be sure to drop in and say hello. We look forward to serving you from a location that's even closer to the neighborhoods a growing number of homebuyers are calling home.

'Grave concerns' about use of Marketing Service Agreements: CFPB

'Grave concerns' about use of Marketing Service Agreements: CFPB

Having determined Marketing Service Agreements involve "substantial legal and regulatory risk," the Consumer Financial Protection Bureau issued a word of caution to the mortgage industry in a compliance bulletin published Thursday.

"We are deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks," CFPB Director Richard Cordray said in a separate statement about the bulletin. "Companies do not seem to be recognizing the extent of the risks posed by implementing and monitoring these agreements within the bounds of the law."

Marketing Service Agreements, or MSAs as they are commonly known, are usually framed as payments for advertising or promotional services, according to the bulletin, but sometimes payments are actually disguised as compensation for referrals.

"It appears that many MSAs are designed to evade RESPA's prohibition on the payment and acceptance of kickbacks and referral fees," according to the bulletin.

MSAs often involve lenders, real estate agents and third-party settlement service providers such as title companies, and they undermine the primary purpose of RESPA, which is to eliminate "kickbacks or referral fees that tend to increase unnecessarily the costs of settlement services."

Offering a thing of value in exchange for a business referral, whether it's a written or an oral agreement, is a compliance risk that leaves participants vulnerable to civil and criminal penalties, according to the bulletin.

The bulletin goes on to state RESPA violations have resulted in penalties upward of $75 million since the CFPB began taking enforcement actions.

Here at Federal Title, we've been leery of MSAs for some time. They seem to have become increasingly popular over the last couple years as the CFPB has cracked down on their not-so-distant cousin the Affiliated Business Arrangement.

CFPB to institute ‘hold harmless’ period when TRID takes effect

CFPB to institute ‘hold harmless’ period when TRID takes effect

The Consumer Financial Protection Bureau is instituting a hold-harmless period during the initial implementation of the Know Before You Owe TILA-RESPA Integrated Disclosure rule, wrote CFPB director Richard Cordray in a letter to the industry obtained by Federal Title.

The letter does not specifically state how long the hold-harmless period will last. Cordray noted in the letter CFPB’s approach is similar to the one it took to enforce mortgage rules that went into effect in January 2014, adding that the hold-harmless approach was successful at that time in making the transition to new regulations a bit smoother.

“During initial examinations for compliance with the Rule, the agencies’ examiners will evaluate an institution’s compliance management system and overall efforts to come into compliance, recognizing the scope and scale of changes necessary for each supervised institution to achieve effective compliance,” Cordray said in the letter.

The letter went to the heads of several groups in the mortgage and real estate industry, including the American Land Title Association, the National Association of REALTORS and the American Bankers Association, and is a response to their efforts to delay implementation of TRID.

“We recognize that the mortgage industry has dedicated substantial resources to understand the requirements, adapt systems, and train affected personnel, and that additional technical and other questions are likely to be identified once the new forms are used in practice after the effective date,” Cordray said in the letter.

While TRID is slated to go into effect October 3, ALTA and others continue to support legislative action to extend the hold-harmless period to February 1, 2016 and provide relief from civil liability, said ALTA CEO Michelle Korsmo in an announcement sent to members last night in response to Cordray’s letter.

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