Mortgage Forgiveness Debt Relief Act Extended

Due to our great gov peeps extending the Mortgage Forgiveness Debt Relief Act, I thought it would be a good idea to provide you with the IRS’s overview of how debt forgiveness can be excluded as income.

If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Yesterday, it was extended through 2013. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.

The following are the most commonly asked questions and answers about The Mortgage Forgiveness Debt Relief Act and debt cancellation:

What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

• Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
• Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
• Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
• Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
• Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

We are here to help sellers and Realtors with short sales.  If you need assistance or would just like a free consult, please call Bryant Title & Escrow at (239) 690-6934.

Happy New Year!

Flat Screen TV”s – Should They Stay or Go?

Many times, buyers and sellers Clash over the wall-hung flat screen TV and argue over the question: “should it stay or should it go.” (get it?) The result may differ on a case by case basis.
Under the NABOR contract, fixtures generally stay with the real property. Fixtures by definition are generally fixed to the property and a quick rule of thumb is that a tool is needed to remove them. Personal property, on the other hand, which generally does not come with the property (unless specifically stated), is property that is “moveable.”

So the question becomes whether a flat screen TV on the wall is a fixture that stays with the property or personal property that leaves with the seller. I have consulted with the Geek Squad at Best Buy about how TV’s are hung and have determined that it all depends on the type of bracket used to mount the TV. The bracket is almost always screwed into the wall. So the bracket would be a fixture that stays with the house. But what about the TV? It will depend on whether the TV is screwed into the bracket or not. You will note that some TV’s are screwed into the bracket (making it a fixture), while others are hung on the bracket like a picture (making it personal property).

Of course the best way to avoid the issue is to expressly state in the contract whether the TV should stay or go.

Happy Thanksgiving!

Overview of FIRPTA

You have probably noticed that the market is hot with both foreign buyers and sellers at this time. So I wanted to give you a brief overview/refresher on what FIRPTA is and how it relates to you as a Realtor and your clients. If you have questions on the details, please let us know.

FIRPTA, the Foreign Investment in Real Property Tax Act, provides that if the Seller of real property is a foreign person, the Buyer must withhold a tax equal to 10% of the gross purchase price, unless an exemption applies. A foreign person is a nonresident alien individual; a foreign corporation not treated as a domestic corporation; or a foreign partnership, trust or estate. A resident alien is not considered a foreign person under FIRPTA.

There are quite a few exemptions to the FIRPTA requirements. The most common exemption is when the seller furnishes a non-foreign affidavit stating under penalty of perjury that the seller is not a foreign person. Another common exemption involves the transfer of a property acquired for use as the buyer’s residence (or used more as a residence than investment) and the purchase price does not exceed $300,000. Additionally, sometimes a seller may obtain a “qualifying statement” from the IRS stating that no withholding is required.

It is important to note that a real estate broker or agent for either party can be held liable for the tax that should have been withheld (up to the amount of compensation received), if the broker or agent has actual knowledge that the non-foreign affidavit is false and fails to notify the buyer and the IRS.

If you need assistance with a foreign buyer or seller, please contact my office. We have a great deal of experience in this area and are here to help you and your clients.

CHANGES TO THE NABOR CONTRACT

Here is a brief overview of the most significant (in my opinion) changes to the Naples Area Board of Realtors Sales Contract.

First, the list of items pertaining to fixtures has been expanded to include “rods, draperies, curtains, blinds, shades, decorative shutters, and other window treatments, storm shutters and panels…” Basically, this exands on the previously used term – window coverings.

There is a new “check a box” provision for initial deposits where the buyer indicates if the deposit is made at the time of the offer or on or after the Effective Date.

Significantly more important is the change in the provision for payment of buyer funds at closing. The allowance for a local cashier’s check or official bank check has been deleted. Instead, the funds at closing must be made by wire transfer. This is in response to wide spread use of fraudulent checks. Although some title companies and law firms still might accept such checks, it will technically be a breach of contract if a wire transfer is not made for the closing funds. Please note that initial escrow deposits can still be made by check.

I believe the waters have been muddied a bit with the change in the financing contigency language. The prior language allowed a buyer to cancel the contract with an Equal Credit Opportunity Act statement from an institutional lender. Now the buyer can also cancel the contract with “other evidence that Buyer has complied with and completed the application process but has received neither loan approval nor loan denial from the lender.” I suppose this clause was included in the event that the Buyer properly applies for the loan but hears absolutely nothing from the bank.  However, “other evidence” is quite a vague standard.

The contract also states under the Addendum provision that “[t]o the extent such Addendum terms conflict with the terms of this Contract, the Addendum terms shall control.”  I beieve this is entirely consistent with Florida case law and helps clarify conflicting language in the Contract and Addendum.

Instead of a $350 credit at closing for Seller’s failure to provide a prior title policy, the credit has been reduced to $150.

There has also been a change to the Seller disclosure language.  It places a duty on the Seller to not only disclose material facts that materially affect the value of the property but also obligates the Seller to obtain acknowledgment from the Buyer of such disclosures.  Note that it does not require the acknowledgment to be in writing but certainly would be best practice to do so.

Lastly, there is a disclosure stating that any reference to square footage and size of property and improvements are approximate and not warranted, and should be independently verified by Buyer prior to signing the contract.  I have handled litigatin cases on this very issue and this disclosure will certainly protect the Seller.  Hopefully, it will not encourage Sellers to be lazy or exaggerate the size of the property in MLS and rely on this clause as an easy “out.”

As always, please contact our office at (239) 690-6934 if we can be of assistance or answer any questions.  Thank you.

What You Get and Avoid When Using an Attorney at Closing

Here is what you get when using an attorney for closing:
1. Review of the contract and explanation of the provisions and contingencies.
2. Providing other terms and conditions of the contract in proper legal language.
3. Legal analysis of rights and obligations under the contract.
4. Obtaining and analyzing the title search and provide legal remedies to cure any title defect
5. A search for any unrecorded municipal liens.
6. Advice on what a title insurance policy does and does not protect against, so you understand any issues with the marketability of title.
7. Preparation and legal review the closing statement and other closing documents.
8. Interpret and counsel you about all legal documents related to the title and transaction including deeds, mortgages, and closing statements.
9. Advice on how title should be taken to the home on the buying side.
10. Prepare a bill of sale to cover personal property.
11. Inform you about possible income, estate, and gift tax consequences of the sale.
12. Review the property survey and discuss any potential problems.

Without an Attorney, you may face the following:
1. Unnecessary taxes or expenses because the contract is not negotiated in your favor.
2. A contract that isn’t enforceable, complete, or consistent with your original intent.
3. Breach of contract caused by lack of full understanding of the terms and contingencies.
4. Lawsuits that can result from not understanding responsibilities for seller disclosures.
5. Finding that someone else has or is claiming rights to your property.
6. Problems with title that make it difficult for you to sell the property.

Feel free to contact me for additional details.

What are the Homestead Laws in Florida? Well, it Depends on the Context.

The term Homestead property is thrown around quite a bit in the real estate industry and some agents have told me it is a bit confusing. So I wanted to give everyone a brief over view because the term can mean different things depending on the context in which it is used. The term Homestead can refer to three different areas under Florida law:

1. Protection of the primary home from creditors;
2. Property tax exemptions for primary homes; and
3. Restrictions on transferring property.

Protection From Creditors – Florida’s Constitution provides broad protection of a primary home from creditors. This means that a creditor cannot force the sale of a primary home no matter the value of the home. Interestingly, even the cash proceeds from a sale of a homestead property cannot be touched by creditors if such funds are set aside with the intent to purchase another homestead property in Florida. The exceptions (of course) to homestead creditor protection are mortgages on the home; association/mechanic liens; property tax liens; and federal tax liens. Otherwise, creditors cannot force the sale of a homestead property in Florida. A famous example is OJ Simpson’s move to Florida with the threat of a big judgment in the civil suit he lost for wrongful death.

Property Tax Exemptions – Generally, the assessed value of a homestead property is reduced by $50,000 when computing property taxes. This exemption is not automatic, however. Application must be made by March 1st in the year the exemption is sought. Also, this exemption allows for an increase in the assessed value of no more than 3% of the assessed value or the CPI, whichever is less. There are additional exemptions and much more information on homestead as it relates to property taxes at http://www.collierappraiser.com.

Restrictions on Transferring Property – Florida’s Homestead laws also restrict the transfer of primary homes to protect spouses. For example, one spouse may not transfer homestead property by deed without the signature of the other spouse, even if the property is held soley in the first spouse’s name. Nor can homestead property be effectively transferred by will to another if there is a surviving spouse or minor child. The intent of this law is to stop one spouse from transferring property and depriving the other spouse from having a place to live.

BASICS OF SHORT SALES

Generally, a short sale is a sale of real property in which the real property’s sale proceeds fall short of the amount owed on the mortgage loan. Typically, the bank or mortgagee will agree to release its lien on the real estate and accept less than the full amount owed on the loan. The remaining unpaid balance owed to the bank is called a deficiency. Short sale agreements do not always release borrowers from their obligations to repay deficiencies of the loans, unless the bank agrees to release or waive the deficiency. Typically, a bank will issue a written letter when a short sale is approved. That letter will need to be examined carefully to determine if there is language in it stating that the borrower is released from the deficiency. Releasing the mortgage or lien does not necessarily mean the deficiency is being released.

The short sale process will typically have an adverse affect on the borrower’s credit rating. Additionally, a release of the deficiency can have significant tax consequences as the IRS views debt forgiveness as income. There are some exceptions to the tax consequences which may be applicable to sales of primary homes or if the borrower can prove insolvency.

Some banks are offering incentives to those who sell their homes through the short sale process. Bank of America was giving incentives up to $20,000 to borrowers who successfully sold their homes in short sales. That “promotion” ended on December 12, 2011 but we will keep you posted on this site if the offer is extended. Although some banks are giving money to sellers in short sales, some banks are demanding that the sellers contribute money at closing to make up for some of the shortfall.

If you need assistance with a short sale, do not hesitate to call Bryant Title & Escrow at (239) 690-6934.

Tenant Rights Under Florida Law

When a person pays to live in a house, apartment or mobile home—whether payment is made weekly, monthly, or at other regular periods and whether the apartment or house or mobile home is rented from a private person, a corporation, or most governmental units – this is true even when this is no written “lease” agreement- the renter becomes a tenant governed by Florida law.

A tenant has certain basic rights protected by Florida law, which the landlord must observe. Of course, the tenant also has certain responsibilities.

The tenant’s rights are specified in the Florida Statutes at chapter 83 part 2. A tenant in public housing has rights under federal law, as well. If there is no written lease, these laws regulate the tenant’s rights. There may also be a written lease which could affect a tenant’s rights. If there is a written lease, it should be carefully reviewed. The Landlord-Tenant Law prevails over what the lease says.

A tenant is entitled to the right of private, peaceful possession of the dwelling. Once rented, the dwelling is the tenant’s to lawfully use. The landlord may only enter the dwelling in order to inspect the premises or to make necessary or agreed repairs, but only if he or she first gives the tenant reasonable notice and comes at a convenient time. If an emergency exists, the requirement for notice may be shortened or waived.

The landlord is required to rent a dwelling that is fit to be lived in. It must have working plumbing, hot water and heating, be structurally sound and have reasonable security, including working and locking doors and windows, and it must be free of pests. The landlord must also comply with local health, building and safety codes. If the landlord has to make repairs to comply, the landlord must pay.

If the landlord claims the tenant has violated the rental agreement, he or she must inform the tenant in writing of the specific problem and give the tenant time to correct the problem–even if the problem is non-payment of rent–before the landlord can go to court to have the tenant removed. If the tenant commits a serious act endangering the property (such as committing a crime on the premises) or the tenant fails to correct a problem after written notice from the landlord, the landlord must still go to court to be permitted to evict the tenant. In any court proceeding, the tenant has the absolute right to be present, argue his or her case and be represented by an attorney.

If the landlord requires the tenant to pay a security deposit, the landlord must preserve the deposit during the tenancy. In addition, the landlord must return the full amount of the deposit within (15) days after the tenant leaves the dwelling or give the tenant written notice of why some or all of it won’t be returned within thirty (30) days after the tenant leaves the dwelling. The tenant then has the right to object in writing within fifteen (15) days of receipt of the notice. Under some circumstances, the tenant may receive the security deposit plus interest. Before moving out the tenant must provide the landlord with an address for receipt of the security deposit, or else the tenant may lose the right to object if the landlord claims the right to keep the deposit money.

The tenant has the right, under certain very aggravated circumstances caused by the landlord’s neglect, to withhold rent. This can only be done when the landlord fails to comply with an important responsibility, such as providing a safe and habitable home in compliance with local housing codes. Before rent is withheld, the tenant must give the landlord seven (7) days written notice of the problem so the landlord can fix it. Even after withholding rent, the tenant should preserve the money and seek court permission to spend part of it to do what the landlord should have done. If the tenant does not preserve the money and seek court assistance, the tenant may be evicted for nonpayment.

Finally, the tenant has the right to move out. If there is a written lease, the tenant can move out when a written lease is up. If there is no written lease, the tenant may move out for no reason by giving written notice of his or her intent to leave no less than seven (7) days before the next rent payment is due if the rent is paid weekly or fifteen (15) days if the rent is paid monthly. The tenant may terminate the rental agreement if the landlord has failed to live up to one of his or her major obligations, provided the tenant has sent written notice to the landlord, seven (7) days before the rent is due (there are some exceptions to the right to move out).

If a landlord loses in court, the landlord may be held liable for any costs and attorney’s fees incurred by the tenant. If the tenant loses in court, the tenant may be liable for the landlord’s costs and attorney’s fees.

A tenant also has responsibilities, which if not observed can lead to eviction. The tenant must pay the agreed upon rent and do so on time. The tenant must comply with building, housing and health codes. The tenant must maintain the dwelling without damage, keep the dwelling clean, and maintain the plumbing. The tenant must not violate the law or disturb the peace, nor allow guests to do so.

In trying to evict a tenant, a landlord will try to prove the tenant violated a tenant responsibility. However, the landlord may not seek to evict a tenant in retaliation for legitimate complaints about housing conditions to proper authorities. No eviction can occur, though, until the landlord first gives the tenant notice of the problem, and then gets a court order. Without the court order, the landlord has no power to interfere with the tenant. The landlord cannot, for instance, lock a tenant out or cutoff tenant’s utilities. A landlord engaging in this type of prohibited practice may be liable to the tenant for damages in the amount of three months rent or actual damages whichever is higher. The landlord must get a court order of eviction before he or she can interfere with the tenant’s occupancy. If a tenant is served with papers seeking eviction, the tenant should immediately seek legal assistance. The tenant may have legal defenses. For instance, the landlord cannot try to get even with a tenant by evicting him or her when the tenant has not violated tenant responsibilities. To raise defenses in an eviction proceeding, a tenant normally must pay into the court registry past due rent if any is owed and rent which comes due during the proceeding. If the tenant disputes the amount of rent claimed to be due, he or she may ask the court to determine the correct amount, but the tenant must show why he or she believes the amount is wrong. In an eviction proceeding, a tenant has very little time to respond, so quick action is extremely important.

The landlord can never remove the tenant’s property or lock the tenant out. Only the sheriff’s office may do this after a Court Order and Writ of Possession.

The preceding is published by the Florida Bar on their website http://www.flabar.org.

For help on Landlord Tenant matters, please contact Bryant Law Office at 4851 Tamiami Trail North, Suite 300, Naples, FL, 34103, (239) 566-1001 or bbryant@naples-law.com

Landlord Duties Under Florida Law

If you rent a house or apartment or mobile home to another person, you enter into a legal contract known as a rental agreement. This rental agreement need not be in writing. If the rental agreement is in writing, it is a “lease.” This agreement has certain basic conditions specified by law which you should understand before you enter into the agreement. As a landlord you have certain rights; you also have certain duties. Even in the absence of a written lease, the law imposes duties and gives rights to the parties.

Your obvious right as a landlord is to receive rent for the use of the property.
Another important right is to have your property returned to you undamaged at the end of the agreement. It should be returned in the same condition in which it was received, except for ordinary wear and tear.

In return for these rights, it is your duty to provide a home that is safe, meets housing code requirements and to make reasonable repairs when necessary. The obligations can be limited sometimes under the lease. It is also your duty to respect the tenant’s rights. One of the most important of these is the right of peaceful possession. By renting to the tenant, you give that tenant the possession and use of your property free from interference. That means that you may not enter the home frequently, at odd hours, or without notice. Rights relating to reasonable inspection are often set forth in a written rental agreement, as well as in Florida law. You have a right to protect your property through inspection, but you must give reasonable notice. You don’t have the right to show the property to possible buyers without notice to and agreement of the tenants, except in cases of emergency.

It is unlawful for a landlord to discriminatorily increase a tenants rent or decrease services to a tenant, or threaten to bring an action for possession or other civil action, primarily because the landlord is retaliating against the tenant. Retaliation may be presumed if it occurs after a tenant has complained about housing conditions. It is also unlawful for a landlord to lock the tenant out, intercept or shut off utilities, water or electric services to the tenant or to remove tenants’ property, doors or appliances from the home. A landlord who does this can be ordered to pay a tenant damages in the amount of three months rent, or actual damages whichever is greater.

To end the tenancy, if the house or apartment is rented on a month to month basis, you must give at least fifteen days notice in writing prior to the end of any monthly period to terminate the tenancy. A week to week rental period requires seven days notice prior to the end of any weekly period. Any such notice must be in writing and should be delivered personally to the tenant, but may be posted at the door if tenant is absent from the premises.

Finally, both the landlord and the tenant have the duty to observe state and local laws concerning the use and condition of the property.

The basic rights and duties which have been mentioned apply whether or not the agreement between you and the tenant is in writing. A written agreement is best because it serves as a memorandum of other terms and conditions you may wish to include, such as restrictions on the number of adults or children or types of pets to be allowed. And if you wish to provide for lease terms of one year or more the agreement must be in writing to be enforceable.

If the tenant permanently moves out before the end of the rental term and leaves your property vacant, this is usually considered as an abandonment of his or her rights. The law presumes an abandonment if the tenant is absent for at least 15 days without previously notifying you of his or her intent to be absent. After abandonment, the landlord may then re-enter the dwelling unit. The rights and remedies often are complex, and legal advice or assistance should be considered.

The situation is more complicated if the tenant seems to have gone away but has left some of his or her personal property on the premises or there is a considerable amount of unpaid rent. In such a case, you should consult an attorney before trying to dispose of the tenant’s possessions or re-renting the property.

Another complicated problem is the situation in which a tenant fails to pay the rent or refuses to move out at the end of the rental term. Under these circumstances you may evict the tenant, but only after you have taken the proper legal steps to commence an action for possession according to a very specific timetable. You must serve proper notice or notices on the tenant to terminate this rental agreement. If the tenant ignores these notices, you are next required to file a complaint in Court and have the tenant properly served with a summons and complaint. Five business days after the complaint is served, you may request the court to set a date for a hearing. However, if the tenant fails to answer the complaint within the five (5) business days or fails to pay the rent that is due then, you can proceed to evict him/her without having a hearing first. If the tenant disputes the amount of rent that is due the rent does not have to be deposited at the court and a hearing must be held. If you wish to collect money damages from the tenant, you must wait 20 days to set a hearing on damages. At the hearing, you can ask that the tenant be evicted. If the judge agrees that the tenant has violated the terms of the agreement, a sheriff will serve an eviction notice on the tenant. The tenant now has twenty-four hours to get out of your property, or the sheriff can return to remove the tenant and the tenant’s belongings. Because these proceedings are so technical, it is wise to have them handled by an attorney. Even if you decide to file the claim yourself in county court, you should have an attorney review the notices you have given and the ways you have served them to make sure you have properly observed all of the necessary requirements of the timetable. A single mistake can result in serious delay in your regaining possession of your property.

Because the landlord/tenant relationship is a legal contract, you should understand its various provisions before you rent your property to anyone. Remember that as a landlord you will be required to provide living quarters that are safe and keep them in good repair. Your obligations for repairs can sometimes be limited under the lease. You will have to turn over possession of the property to the tenant, free from unnecessary interference from you. In return, you may collect rent, and on reasonable notice you may inspect the property or in cases of emergency. At the end of the rental term, the property must be returned to you with no damage beyond ordinary wear and tear.
The landlord has certain duties to account for or refund tenant deposits upon termination of the tenancy. Many of these basic conditions apply whether or not there is a written agreement.

The preceeding is published by the Florida Bar at their website – http://www.flabar.org

For issues in Landlord Tenant Law, please contact Bryant Law Office, 4851 Tamiami Trail North, Suite 300, Naples, Florida 34103, (239) 566-1001 or bbryant@naples-law.com

BUYERS LOSING DEPOSITS

Occassionally, a Buyer will ask: “Can they come after me for anything other than my deposit if I decide not to buy the property?”  The answer to this question depends on the contract language, and the results can vary greatly depending on whether the NABOR contract or the FAR/BAR contract is being used.

Under the NABOR contract, begining at line 394, it says that all deposits made shall be paid to Seller in the event Buyer does not perform under the contract.  So if the Buyer has made a $1,000.00 deposit and has not yet made the second deposit of, let’s say, $15,000.00, the Buyer is only at risk of losing the initial $1,000.00 if the breach occurs before making the second deposit.

There would be a different outcome under the FAR/BAR contract.  Line 34 defines Deposit as all deposits paid or agreed to be paid.  So under the scenario above, the Buyer would not only be liable for the $1,000.00 made, but also for the additional $15,000.00 the Buyer agreed to pay (even though it had not yet been paid). 

I hope this little tip helps you in the future.  When a contract closes through Bryant Title & Escrow, we provide legal advice on matters such as this and the many other legal issues that come up at no charge to your clients.    Legal advice during the transaction not only protects the client’s best interests, but also keeps the Realtor from having to deal with potential tricky legal issues.