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Date 07/30/2007 |
Big real estate joins the fight over tax hike |
TAXES |
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WASHINGTON – July 30, 2007 – The House Ways and Means Committee is considering a
bill that would dramatically boost the tax rate on companies that forge
partnerships; and while the legislation is geared toward private equity firms
and hedge funds, real estate firms that partner with investors to finance
property acquisitions will be impacted as well. Under the proposal, managers of such partnerships no longer would be taxed at the 15-percent capital gains rate but instead would face income tax rates of as much as 35 percent. The Mortgage Bankers Association and the National Association of Realtors are among the trade groups that signed a letter to the House penned by Real Estate Roundtable Senior Vice President Steven Renna, who noted that the bill unfairly targets companies of all size – not just the “super rich.” Renna expects the bill to further weaken the real estate market, spark property-value declines by putting a damper on after-tax returns, and minimize revenues tied to federal capital gains taxes and local transfer taxes. However, a spokesman for the House Ways and Means Committee says that taxes on investments of actual capital will not be increased. Legislators add that landlords provide services – not capital – and should be taxed accordingly.
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Date 07/01/2007 |
INSURERS UNSURE |
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Effective July 1, Florida property insurers were supposed to offer clients an option to forego windstorm coverage to save money. But according to the Florida Office of Insurance Regulation (FOIR), not all insurers offer that option, a non-compliance action that, according to FOIR, could lead to administrative action. Most homeowners’ mortgage lenders mandate windstorm coverage, but some older owners or retirees who paid cash for their house could save money if they opt to drop windstorm – unless a hurricane hits their house, of course. http://www.floir.com/consumerinitiatives/consumerlinksofinterest.htm. |
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Date 09/10/2007 |
DEED CONTRACTS |
DEEDS |
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LAKE COUNTY, Fla. – Sept. 11, 2007 – It seems like a simple enough arrangement.
Skip the mortgage, the bank, the title company. Instead, sign a two-page
contract that lays out an agreement so clear it seems like simple
genius. Pay for the land, get the deed. But watch out. The simplicity of the document belies the nightmarish knots of hidden mortgages and clouded titles, insurmountable tax bills and liens that these agreements can entangle, experts say. And in the end, the buyer could be left nowhere near the thing he came for: the deed. Worse, he could face eviction from a home he thought he owned. Agreements for deed, also called contracts for deed, are essentially loans financed by the seller. They’re left over from America’s early days, when buyers acquired land without the help of a mortgage. There are only two parties – the seller and the buyer. It’s not an arrangement likely to ensnare the wealthy, or even those who are troubled now by subprime mortgages, experts say. They’re more attractive to lower-income and working-class people who can’t qualify for a mortgage or can’t afford one and its fees and closing costs. If everyone acts in good faith, it’s a fair way for those who earn low wages to stake their claim on a home. “They’re desperate to be part of the American dream. They start out the race thinking they can make it to the end,” said Darryl C. Wilson, property law professor at Stetson University College of Law. The catch is that even if they make it to the end, they still may lose. There are few protections for buyers, who often are unsophisticated and inexperienced in real estate transactions and not savvy enough to protect their own interests, experts say. When misused, the contracts can scam buyers out of down payments, equity and any investment or work they put into their homes. And for those who find themselves on the losing end of an agreement for deed, criminal law is not on their side. The agreements are largely unregulated; no state agency has a clearly defined jurisdiction over them. That means the state considers them a civil matter, a contract between two consenting parties. The buyer – who couldn’t afford a mortgage to start with – most likely has to hire a lawyer to right a wrong. Even if the seller were to be criminally prosecuted, the buyer would have to sue to clear the title on the land in question. A criminal prosecution won’t do that. The heart of the risk lies with the agreement’s central tenet: unlike a mortgage, the buyer doesn’t get the deed up front. It gets turned over only when the buyer makes the final payment, which could be decades away. And, as experts point out: A lot of things can go wrong between now and then. The owner could mortgage the property. He could default on that mortgage. He could sell it to a third party. He could let the tax bills pile up, incur a tax lien and leave the property open for auctioning off. They’ve long been used in Florida’s undeveloped parts, where landowners have collected undervalued lots, divided and cleared them, put in septic tanks and electricity and sold them vacant or with a mobile home attached. In Texas, they’re blamed for creating colonias, or unincorporated slums of low-quality houses without basic public services. Situation spooked Lake County tenant They’re common in rural areas such as Lake County, where county clerk records show 68 have been filed this year. That doesn’t include contracts that are unrecorded, which still are considered legally binding. Marshall Gaard, a retired Postal Service worker who owns 130 properties in Lake County and has recorded hundreds of agreements for deed since the mid-1970s, acknowledges that most of them don’t end up with the buyer owning the land. He said only about 20 percent of the contracts he has initiated over the years have been successful. He says that’s because most of his buyers don’t hold up their end of the bargain. They sign the contract, a promise to make monthly payments until the property – a cleared lot with or without a used mobile home – is paid off. When they stop, they have no rights to the property or any of the equity. It’s written into the contracts that if a buyer misses a payment or part of a payment, he forfeits his investment and Gaard has the right to “re-enter and take possession” of the property. He says he holds off 30 days – the minimal waiting period – before starting foreclosure proceedings. Gaard has filed 199 tenant evictions and more than 100 actions to terminate agreements for deed. William J. Nolan was paying Gaard $450 a month on a lot in east Lake County for a year, until he got spooked and moved out in 1993. Nolan had lived in a trailer on the property and had signed a $38,500 (with 12 percent interest) agreement for deed. But he started hearing from neighbors that Gaard’s properties had liens against them because of trouble with the IRS. After a year of investing in the property, making the trailer a home and even putting $1,500 worth of skirting around it, Nolan gave up and stopped making payments. He bailed out, scared that he would never see the deed to it. Because he released it back to Gaard, a county judge dismissed the foreclosure claim Gaard filed against him. “I got out from under it and never went back to see the man,” Nolan said. Gaard acknowledges he faced an IRS lien on his properties at that time, after the agency discovered he had been underpaying his taxes for three years. He blamed the “bargain-basement” accountant he had hired. Within a year, he had paid the fines, he said. The next year, when Nolan signed a new agreement with a different seller, he checked with the county clerk to make sure the deed was free and clear. Buyers need to be detectives Once an agreement for deed is signed, it’s the buyer’s responsibility to pay taxes on it – another requirement that can trip up unknowing buyers. Even if the seller pledges to pay the taxes, the buyer should make sure he’s doing it. “If I were buying land through an agreement for deed, I’d be checking with the tax collector to make sure those payments were made. I wouldn’t wait,” said John Topa, chief of enforcement for the Department of Business and Professional Regulation’s division of land sales. Back taxes even could be owed on the property upfront, when the agreement is first signed. A buyer wouldn’t find that out unless he hired a title company to research the property or, at the least, did a cursory check at the county courthouse. The same goes for other liens and mortgages on the property. There’s no regulation to compel a seller to disclose that up front. That still doesn’t take care of what could happen down the line. The buyer should make sure his agreement for deed clearly prohibits the seller from incurring debt on the property until the deed is handed over, said Wayne Chalu, the assistant state’s attorney for Hillsborough County who heads the agency’s economic crime unit. “The problem with agreements for deed is there is a long time between the time you sign the agreement and the closing. It may be years. In the meantime, what’s to keep the guy from racking up debt?” Chalu said. It’s the lag time between signing an agreement and getting the deed that makes financial fraud investigators nervous about the contracts. “The problem is you just don’t know until you’re in the ninth hour if that person who is going to give you the deed is actually going to do it,” said Mark Mathosian, who manages economic crime investigations for the state Office of Financial Regulation. “What happens if, at the end, you find out the property has been sold out from under you?” Bottom line: Don’t go into an agreement alone. Hire an attorney, for $200 or $300, to look at the paperwork first. Or ask someone you know who’s knowledgeable to review it for you. If not, Chalu said, “You’re going to a gunfight unarmed, when you deal with people
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