What's the benefit of the DC First Time Homebuyer Recordation Tax Deduction

What's the benefit of the DC First Time Homebuyer Recordation Tax  Deduction

What’s the Benefit?

DC First-Time Recordation Tax is reduced to 0.725% from customary 1.1% or 1.4%.

Qualifications*

  • Homebuyer* has never owned a principal residence in the District of Columbia.
  • Homebuyer must qualify for the DC Homestead Deduction.
  • Purchase price cannot exceed $625,000.
  • Total Household Income cannot exceed defined thresholds listed below:
    • Persons in Households / Income Limits
      • 1 / $139,140
      • 2 / $158,940
      • 3 / $178,740
      • 4 / $198,540
      • 5 / $214,560
      • 6 / $230,400
      • 7 / $246,240
      • 8 / $262,080

Seller Property Disclosure Requirements in DC

Question from an Agent:  My client, a seller of a DC property, has recently purchased a property and has never occupied it.  Is the seller still required to complete the property disclosure form or is the seller exempt?

Answer from an attorney:  There is no statutory exemption that would preclude the above seller from providing the property disclosure statement.   DC Code § 42-1301 (b), provides guidance and lists certain types of property transfers that are exempt from anyone having to fill out the Disclosure statement.  Some, but not all of these include:  transfers between co-tenants; foreclosure sales; court ordered transfers such as probate, bankruptcy, divorce; and transfers made by a person of a newly constructed residential property that has not been inhabited. 

Assignment OF TOPA Rights vs. TOPA Affidavit

I am often asked which is preferable – Assignment of TOPA Rights or a TOPA Affidavit? 

The answer is it depends on multiple factors i.e. is Owner/Seller/Landlord willing to pay consideration to a tenant; is there a ratified contract; how much time is there before settlement; etc.

Assignment

TOPA rights can be assigned with or without a contract – there must be consideration of at least $300 per current underwriting guidelines and this consideration can be in the form of cash, forgiven rent, waiver of rent, moving expenses, etc. If the rights are to be assigned before there is a contract, the agent must send out TOPA Form B via certified mail prior to the tenant signing the Assignment.  Form C will not be necessary, as the rights of first refusal will be assigned at the same time as the rights to purchase. If there is a contract, the agent must send out TOPA Form A via certified mail prior to the tenant signing the Assignment. 

Please note NOTICE either FORM A or FORM B MUST BE SENT VIA CERTIFIED MAIL TO MEET THE STATUTORY GUIDELINES AND TRIGGER THE RIGHTS SO THEY ARE ASSIGNABLE. Once the Assignment is fully executed, settlement can happen immediately – no waiting period.

Affidavit

If the agent wants to use the Affidavit, the appropriate TOPA forms must be sent via certified mail.  Ideally, the Affidavit should be signed after the 45 day period (30 days right to purchase plus 15 days right of first refusal). In most cases, the tenant will sign the Affidavit prior to the conclusion of the waiting period, but the 45 day period must pass. The reason an underwriter requires the 45 day period to pass is the affidavit is “retractable”; in other words, the tenant is allowed to change his or her mind making the affidavit no good. 

In addition, when an affidavit is used; the title company will need to get a Review of File Letter issued from the District (DCHD) prior to settlement. The Review of File letter will confirm there was not Notice of Intent to Purchase filed with the District and solidifies tenant’s intent – to purchase or not purchase.  This closes the underwriting loop and allows settlement to happen.

Judgment Creditor Lien: When does it Automatically Release in DC?

Listing Agent QuestionI have a client with a judgment creditor lien – arising from credit card debt – that has attached to the property we are trying to sell in the District of Columbia. The judgment creditor lien arose from a judgment issued in December, 2005. The judgment was issued in the amount of ~$10,000.00 at a rate of 15.50% per annum – that judgment has ballooned to over $55,000.00 courtesy of the power of compounding interest. This amount would force a short sale and cause major delays for closing. What do we do?

The Listing Agent’s question essentially boils down to this: When do judgment creditor liens automatically release in the District of Columbia?

A judgment creditor is a person or entity that has obtained a valid judgment for the payment of money from a court of competent jurisdiction. Once a valid judgment has been issued, the judgement creditor must perfect the lien by filing the judgment in the land records – this puts the world on notice that the judgment creditor has a lien against the property. Judgment creditor liens encumber the property and prevent debtors from selling the property without paying off the lien. 

DC Code §15-101, titled “Enforceable Period of Judgments; Expiration” states:

(a) Except as provided in subsection (b) of this section, every final judgment or final decree for the payment of money rendered in the – (1) United States District Court for the District of Columbia; or (2) Superior Court for the District of Columbia, when filed and recorded in the office of the Recorder of Deeds of the District of Columbia, is enforceable, by execution issued thereon, for the period of twelve years only from the date when an execution might first be issued thereon, or from the date of the last order of revival thereof.

(b) At the expiration of the twelve-year period provided by subsection (a), the judgment or decree shall cease to have any operation or effect. Thereafter, except in the case of a proceeding that may be then pending for the enforcement of the judgment or decreed, action may not be brought on it, nor may it be revived, and execution may not issue on it.

The ultimate answer to the Listing Agent’s question was that they needed to do nothing! In this particular case, the judgment was issued over twelve years ago. Federal Title & Escrow was able to verify that the judgment creditor had failed to renew their judgment creditor lien prior to expiration.  The lien automatically discharged pursuant to DC Code §15-101, and the settlement closed without a hitch.

 

Insurability vs. Marketability: How is a property’s insurability different from its marketability?

The terms “marketable” title and “insurable” title are very common real estate terms that come up in every contract for sale of real property. They are frequently used but commonly misunderstood. First, “marketable” title is generally defined as title that is free from encumbrances or defects that would legally or physically restrict the property owner’s use of the property. Some examples would be: outstanding mortgages/liens; restrictive covenants; easements on the property; zoning restriction violations; and building setbacks. In addition, “marketable” title is free from any reasonable doubt as to its validity. Some examples would be variations in the chain of title; variations in the names of the grantors and grantees; outstanding heir issues after an estate conveyed title; and unrecorded leases. 

So what happens when unmarketable title presents itself? It is at this stage that you turn to a reputable title insurance company. “Insurable” title is title that a reasonably prudent title insurance company is willing to insure at normal market rates. Here, the title does have a known defect or defects in the chain in title.  The determination to insure a property may differ between title insurance companies. Their decision to insure title is made after marketability issues have either been resolved or it has been determined that these issues present a low risk of turning into claims in the future. It is important to note that there are some marketability issues that title companies cannot insure over and these issues, such as easements and building setback lines, are commonly excepted from the title policy.

It is fair to say that unmarketable title presents itself quite often and there exists some form of defect or encumbrance on virtually every property that is sold. It is important to obtain as much information from the seller beforehand as possible, information such as copies of prior title insurance policies or copies of existing surveys. Such documentation and information is helpful and assists in addressing any potential issues early on. Understanding the difference between “marketable” and “insurable” can help facilitate a smooth transaction.

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