What's Wrong with This House?
In recent months the real estate market has changed. Albeit for the better in most cases, but there is still some skepticism and some unrealistic expectations on all sides of the transaction. Yes, there are properties that go under contract quickly and are being sold above asking price, and yes in a lot of cases the house closes. However, not all houses are the same, even when located in the same market, so what worked for your neighbor may not work for you.
There are some problems that I see repeatedly. One is when the buyer makes an offer on a house and the house doesn’t appraise for the agreed upon purchase price. In many cases the seller only wants to sell at that contract price. The buyer sometimes assumes that if the house doesn’t appraise the seller will lower its price to make the sale. The buyer may lose costs expended in appraisal, title exam and inspection among other things if the seller refuses to lower the price. He may also lose the home of his dreams. The seller may lose the sale if the buyer cannot pay above appraisal. In this case no one wins.
It is important to have realistic expectations of a home’s appraisal value, whether you are the buyer or the seller, especially if the buyer is obtaining financing to purchase. As a seller, having a pre-appraisal prepared prior to listing can be money well spent and will provide you an in depth understanding of what the house will appraise for, not what someone is willing to offer. As a buyer, you want to protect your offer by making your contract contingent upon the appraisal.
If you are willing and able to make the transaction work no matter how the appraisal comes in, then you are that much closer to having a successful transaction. Experienced real estate agents can help the buyer and seller come to an agreed upon price (based on recent market information) that should be approved for financing so that all parties win. For those that want to go it alone, it can work, however you should be prepared to do a lot of homework and be willing rely on other professionals, whether it be an appraiser or an attorney or both to help achieve a successful sale.
It has been pretty busy around the office, so it has been a while since my last eblast. For some of my clients this is the first one you have received. When I can, I try and provide a little information about issues that I see on a regular basis and I hope that you find it beneficial.
Since the beginning of the year I have set up quite a few new Limited Liability Companies (“LLCs”). In many cases it is good practice to own real estate in an LLC. This may not be the correct vehicle for everyone, so it is important to discuss the plethora of considerations related to your particular property with an attorney. Some people shy away from using an LLC because of the initial start up costs, the potentially higher loan rate or the additional tax returns. In many instances however, an LLC can be extremely beneficial and may save you time and money in the long run.
When buying property with another person, the LLC Operating Agreement outlines what happens to the property when partners want to split, if one partner dies as well as other matters. Without a written agreement there is the potential for litigation or becoming partners with someone’s relatives. An LLC can also provide asset protection from creditors and perhaps insulate a liability to the specific property and LLC.
One overlooked area is the benefit of using the LLC to own real estate in states where you do not reside. Most people know that upon death their estate gets administered or probated. When there are assets in other states, an ancillary proceeding is needed (a second probate). If you own out of state property through an LLC, you can eliminate the need for the ancillary proceeding, since your Executor will be able to transfer the ownership of the Company privately. This small adjustment in your Estate Plan can save your Executor time and extra probate costs.
So prior to your next real estate transaction or maybe in reviewing your current holdings, consult with a professional and decide if the benefits outweigh your cost and consider transferring your property to an LLC.
Do I Need a Revocable Trust?
Now that your taxes have been filed, it is time to think about your estate plan. If you don't have a Will or a current one, it is in your best interest to seek professional guidance and make sure your family and assets are protected.
I get numerous phone calls asking questions about estate planning, so I thought I'd give you the benefit of the easy answer to one of the most common questions.
Can you draft a Revocable Trust for me, and how much will it cost?
Most of the time, the simple answer is YES, I can, but NO, I WILL NOT.
Most people in Georgia don't need Revocable Trusts. If you hear on a syndicated radio show that everyone needs one, don't worry! Those shows educate the masses and every state is different. In Georgia, it is quick and cheap to probate a Will, therefore you don't need a trust to bypass probate.
Revocable Trusts are used here for only a few reasons:
1. You suspect the chances are high that your Last Will and Testament will be contested. This means that one of your heirs will not think he or she is getting their fair share and they want more money. The heir files a Caveat to the Petition to Probate and argue in court, for example, that you were senile or someone forced you to leave them out of your Will at the time it was drafted.
2. You don't want the public to know whom you left your assets to once you pass. In GA, when you probate a Will, it is filed in the County Probate Court. Anyone can go to the courthouse, check the records and purchase a copy. Please remember a Will is only filed after death and most people do not check the court records. Therefore, most times it doesn't matter that your Will is recorded. This exception would apply mainly to public figures and celebrities.
3. The person telling you that you need a Revocable Trust is trying to make money. Most of the time these "trust packages" are sold to the unsuspecting client for a few thousand dollars. Not only do you receive a nice binder with a long Trust, containing a bunch of fancy words for which you have no idea their meaning, but you then have to transfer every asset you own to your new Trust. This means you re-title the deeds to your house, your stock accounts, your car, etc. It is a lot of work and while beneficial in some states, it is NOT in Georgia.
Call me if you have other qusestions. There is no charge to ask a question. I look forward to hearing from you!
Effects of Foreclosure
It used to be the case that the landlord worried that the tenant wouldn't pay the rent. When drafting and reviewing leases we discussed default and eviction proceedings and what to do in the event the tenant packed up in the middle of the night or even worse - wouldn't leave and wouldn't pay.
In this market there is a new set of concerns, and those affect the tenant. What happens if the landlord collects the tenant's rent and doesn't pay the mortgage or taxes? Landlords want to see the prospective tenant's financials, but the tenant never thinks to ask about the landlord's solvency. In fact most tenants would assume that if they are paying the full rent on time, then the landlord is paying his mortgage. That is not always the case. Landlords can take rent income and apply it to other expenses. While that may not be ethical or even legal; it happens.
It is important for the landlord and tenant to have subordination and attornment language in their lease or for all parties to sign a Subordination, Non-Disturbance and Attornment Agreement at the time the lease is executed. When worded properly this added language can stop the new landlord (Lender) from having the ability to evict the paying tenant and can protect the landlord from losing a tenant, who wants to vacate after a foreclosure.
Every day I get calls with questions, and the answers I give may be helpful for many clients. So here is one question or variation that surfaces often.
“My dad had stock investments, and in his Will he said those accounts should be split among my brother (2/6), me (1/6) and my three kids (1/6 each). I understand from my financial adviser in Georgia (my Dad died in New York) that in order to move the investments from the current account to an account for my kids, which I can control I have to become their financial guardian in the State of Georgia. I’m their dad how can this be right?”
In Georgia a gift to a minor that doesn’t pass through a trust (for example life insurance proceeds and stock accounts) must be overseen by the Probate Court. This requires a parent or interested party to become the financial guardian under the control of the Probate Court, post a bond, and report spending and earnings to the Probate Court on a regular basis. This creates extra cost and hassle for the parties involved. Many times this diminishes much of the intended gift. Once the child turns 18 the money must be turned over to him. This however, can create a whole new set of issues.
When drafting your estate plan. It isn’t just the Will and Health care Directives that are important. It is important that you know exactly how to name beneficiaries on your accounts as well.
When you buy or sell your home, or any real property for that matter, do you use an attorney you trust and know? Or do you leave it up to your real estate agent or lender to refer you to someone? If you chose the latter, did you know that there could be a financial relationship between the two parties or that you may be paying for a service, but not receiving the personal attention you deserve? Buying real property is probably the biggest investment you will make in your lifetime. As the market begins to pick up, it is becoming painfully obvious to closing attorneys that attention to detail was not a huge concern in the past. Properties were selling so fast and all involved were so busy that errors from multiple sources are now surfacing.
I will share with you two painful examples that I have seen since starting the firm in March.
Client A went to borrow money from his preferred Lender, and he wanted to use property he already owned..or so he thought as collateral. It turns out that years ago, Client A sold one of his many residential lots to Purchaser. However, the warranty deed drafted by Purchaser’s attorney included property in the legal description that was to be retained by Client A. Technically, Client A no longer owns the property. Oops! Not only that, but Purchaser obtained a loan on property, which included Client A’s property. Bigger Oops! I have spent two months, trying to get the attorney who handled this closing to correct the mistake; he has to get approval from the Purchaser and his lender, which is taking too much time. Maybe the Purchaser doesn't want to give up its bonus property?? Client A could have had documents reviewed by his attorney prior to sale; instead Client A must now spend a lot more money trying to correct a problem that he did not create.
Client B loaned money to a business associate (“BA”) and took property as collateral. The promissory Note and Deed to Secure Debt contained a due on sale clause, which means that the loan was to be paid in full upon sale of the property. The loan deed was not indexed properly by the county clerk. When BA went to sell, the attorney, although he searched the title records of the County, did not find a copy of the Deed to Secure Debt in the records and therefore did not have notice of the recorded loan. BA fell on hard times and didn’t have any money to pay the loan at closing. BA sold the property and didn’t tell the closing attorney that there was a loan to be repaid to Client B. Client B can sue BA for nonpayment of debt and pursue criminal charges against BA, however it will now cost Client B time and money that it shouldn’t have to pay.
No matter how small the transaction, or how easy it may appear, make sure you have someone involved that you know and trust to protect your interests. Let Lisa Shippel Law, LLC provide you with the personal service you should expect.
Names and exact details have been omitted or modified to protect attorney client privilege.
Now that real estate transactions are increasing, and purchasers are still looking to save money, I am getting asked (a bit more than I used to) by the purchaser: Do I really need title insurance? My answer is yes. Title insurance is a one time purchase for as long as you own the property. Do you question whether you should buy homeowner’s insurance? Chances are you will not have to make a claim, however you purchase it for the peace of mind that if you need it; it’s there.
The same should hold true for title insurance. Title insurance provides you protection in the event there is an existing lien that was not found at your Closing or a prior one. It also protects you in the event a lien is filed in the “gap”. For example, the people, who are selling you their house, get the requested repair work done in order to sell. Maybe they didn't pay the contractor or the contractor didn’t pay his subcontractor. One of the unpaid worker’s files a lien for nonpayment. He has 90 days from completion of work to do so. Since the work was so recent the purchaser most likely will not receive notice until after he closed and the seller has moved out of state. Purchaser didn’t incur the bill; however it is now a lien against his property, so it’s now his issue to handle. Title insurance covers this claim.
Just this week, I had an instance where an old loan was not removed from record by the previous closing attorney. Although it was paid, it was still a recorded lien at the county court house. The seller was packing her house, dealing with the movers and the last thing she wanted to do was contact her last attorney (who by the way is no longer practicing law) or the bank that gave the outstanding loan to the previous owner. Guess what! The bank has merged two times since that closing…would you like to try and speak with someone at a large national bank and get transferred ten times to someone who has no records of a loan payoff from the predecessor bank?
Closing was not an issue for the Seller at my closing because she had title insurance. A copy of that policy allowed me to issue new insurance to my purchaser/client and take the risk of any outstanding lien or loan away from the purchaser. There is enough to deal with when buying or selling a property. My advice is to allow your one time purchase of title insurance make things easier. Hopefully you won’t need it, but if you do it’s worth the investment.
Effective January 1, 2013, the Federal Estate, Gift and Generation-Skipping Tax Exemptions are all $5,250,000. Not only is this a relief to most tax payers, the Estate Tax Exemption is portable up to $10,500,000, which means that a surviving spouse can use their late husband or wife’s unused exemption up to their total marital exemption amount of $10,500,000.
The American Taxpayer Relief Act of 2012 also changed the Annual Gift Exclusion to $14,000. During 2013 gifts to any one person during a given year up to $14,000 are not taxable. Any additional amount to one person may be gifted and credited against the maximum exemption, but when doing so you should seek assistance from your accountant to file a gift tax return as necessary.
The new provisions keep the vast majority of my clients and most Americans from requiring extensive trusts in their Wills or otherwise, but it does not eliminate the need for well-constructed estate planning documents. Everyone with minor children in Georgia still needs a trust within their Will and to make sure the proper beneficiaries are named on assets that don’t pass through Probate.
In Georgia, as I have said previously, it is not necessary in most cases to avoid probate, but it is necessary to have a well written comprehensive plan for probate. A proper plan gives you peace of mind and your survivors the tools needed to manage your estate appropriately and according to your wishes.
Now is a great time for home improvement. Instead of selling a home, many are modernizing their existing interiors with dream kitchens and bathrooms. The goal should be to protect and improve your investment. Be carful! If you don't protect yourself financially you can be paying in more ways than initially anticipated, and the process can turn into a nightmare.
Here are some things to consider when you get work done at your home or business:
Price shouldn't be the main concern, because too often you get what you pay for and maybe even less. Always get references. Most good contractors won't request payment in full prior to completing the job. An experienced contractor knows that if he delivers what is expected he will be paid; and if the property owner does not pay, the contractor can lien the property and collect.
A property owner should get Lien Waivers signed when making payments to contractors. A lien waiver is a "receipt" for payment. By having a signed lien waiver, a property owner precludes the contractor and his subcontractors from being able to lien the property. Unfortunately, there are "contractors" that will require money up front, not complete the job, and not pay his subs. This is a very small number, however, in the worst situations, if the owner does not have a signed lien waiver, the result is that the owner paid the contractor, the work did not get completed, and the owner is required to pay additional money to the subs and suppliers for unfinished work, thereby paying twice for a job that was not completed.
Make sure you deal with reputable contractors. Contractors who are honest and good at what they do expect to sign lien waivers. if you need lien waiver forms for your next project or further information, I am happy to assist. Home renovation is a more pleasant experience for all involved if these matters are dealt with up front rather than through litigation.
I want to take this opportunity to wish my friends and clients HAPPY HOLIDAYS and all the best for the years to come. As most businesses wind down this time of year, so does the legal world, or at least my world, so I am able to take this time to reflect a little on the past year.
What a great experience it has been to start my own firm. Thank you all for your enthusiasm, support, cheering, etc. Without you I would have never been able to take this giant step, which has been extremely rewarding.
For the past 18 years I have helped others start their own businesses. I sit with clients for hours sometimes, making plans for how they can create their own destiny, follow their dreams, control their futures and become truly satisfied with their chosen path. Finally, I took some of my own advice (and some advice from others; thank you!) and dove in head first to the second phase of my legal career.
So as 2011 comes to a close, I can share the following with you:
It is rewarding to create your own future.
If you work hard and love what you do the rest comes easy, and you will be successful.
If you help others at the same time; the rewards are exponential.
Thank you for the opportunity to allow me to be a part of your life and you a part of mine, and may 2012 be even better for all of us!
Lisa Glauber Shippel