What is a Tax-Deferred Exchange?

 

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What is a tax-deferred exchange?  A tax-deferred exchange is also called a 1031 tax-deferred exchange, and 1031 is a section of the Internal Revenue Service that identifies investment property. The exchange aspect of it is if you exchange one piece of property of equal or greater value than the value of the property that you have, you don’t have to recognize any gain.  You cannot accept any boot, and the amount of the liens or encumbrances on the property have to be equal or you have to have less equity in your property than the property that you’re acquiring as well as the purchase price being higher.

Now, the Internal Revenue Service has promulgated various regulations and rules as to how you can sell your property, and if you deposit the money with what they call an intermediary, you can then have a certain time period to select the property and you can select up to three properties and close on them within a six-month period.  There are also other provisions as far as you can select as many as ten properties, but there are specific rules that you must follow in order to take advantage of a tax-deferred exchange.

If you have any questions about handling a 1031 tax-deferred exchange, give me a call at 727-847-2288.  I’ll be happy to assist you.  Thank you.

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Should I Have a Revocable Trust?

 

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Should I have a revocable trust?  Well, many people contact me and ask about having a revocable trust prepared, and I always ask them, “Why do you want a trust?”  And the usual answer is, “Well, we wish to avoid probate.”  If you have a functional family wherein you’re still on your first marriage and you want your inheritance to simply go to your children, then I don’t usually recommend a revocable trust for the purposes of avoiding probate, since if you hold property as husband and wife then you avoid probate when the first person passes away.  If you’re by yourself, however, then you may want to consider drafting a revocable trust.

There are also other circumstances such as second marriages or if you have a child that has special needs that you need to set up a trust for.  Also, if you have a child that has a spending problem, cannot manage money, we can set up a trust to protect whatever inheritance you leave behind.  Also, something that we’re seeing more and more is grandparents want to provide for their grandchildren. Possibly their children already have enough money or they want to take care of their grandchildren, since they don’t know whether their children will be able to take care of the education of their grandchildren.  So there are any number of reasons to set up a revocable trust.

Whether you need a trust or not, or whether you should set one up depends upon your circumstances.  So if you’d like to come in and talk about setting up a revocable trust, give me a call at 727-847-2288.  Thank you.

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Should I Buy a Foreclosure Home?

 

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Should you buy a foreclosure home? Well, homes that have been foreclosed upon are usually held by a bank. Well, you may want to buy it because the price is right; because with this real estate market, there’s a lot of bank-owned property. One of the problems with buying bank-owned property is the addendums they put on contracts. The contracts exclude the bank from any liability as far as the condition of the home, particularly if it had any particular latent or hidden defects. Of course, the big one is sinkholes.

You would need to do a very thorough job of having the property inspected to make sure it was not a prior sinkhole home. If it was, it’s almost impossible to get these engineer’s reports to determine whether or not it was repaired properly. And that will impair your ability to insure it, where if it was an unrepaired sinkhole home, you’re not going to be able to get insurance on the property, or you won’t have coverage even if you do. The insurance company may decline coverage. There’s any other number of other problems in buying these – physical problems with the property.

It would be to your benefit to hire an inspector to thoroughly inspect the property, make sure there are no sinkholes, make sure everything’s in working order –especially the roof– so you know what you’re buying and you don’t wind up buying a pig in a poke. You also need to look at the title and keep in mind that these contracts, or the addendums they put on bank-owned property, say that the bank can get out of the contract for any particular reason, and so it’s problematic. You don’t have absolute certainty, particularly if they discover that they’ve got some title problems. Well, they’ll say, “I’m sorry. I can’t close because we found that we didn’t do the foreclosure right,” or whatever, and they cancel your contract, which makes it very frustrating.

So, those are some of the pitfalls or things that you need to look out for if you’re going to buy foreclosed property, particularly from a bank, which is usually who you’re buying it from. The addendums are almost as long as the contract and they just exclude the bank from any liability as to any problems with the property, and you have no recourse. So, the advantages are that you usually get a super-good deal. The downside is, you’ve really got to do your homework and investigate the property, and also investigate the title to make sure they’re not going to back out at the last minute and that all the liens are cleared up.

Another big pitfall, particularly in this area, is unpaid utility bills. Many times, the utility company has a lien against the property, particularly in the Gulf Harbors, which was formerly Lindrick, or the Aloha district, which is now Florida Government Utility Association, and they will not give you utility service unless you pay the past-due utility bill. So, you need to look out for that. If you’re buying property in a Homeowners Association, you need to check and make sure that there are no past-due Homeowners Association dues or Condominium Association dues if you’re buying from a bank-owned or foreclosed property. If you’d like representation concerning a purchase of foreclosed property, give me a call at (727) 847-2288 and I’ll be happy to represent you. Thank you.

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Should I Buy a Short Sale Home?

 

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Should you buy a house that is going to be short-sold, or a short-sale house? Well, short sale means that you are purchasing the property for less than what is owed to the lenders, whether it has a first mortgage and a second mortgage or just a first mortgage. Well, you need to do your homework whenever you’re buying a property that is in a short sale. The owner of the property is the one who enters into the contract, and then there’s an addendum that says that this contract is contingent upon the lender approving the sale.

So, it is not that you’re purchasing it from the lender; you just need to have the lender approve the sale. They usually go through the process of sending out someone to look at the property, which is called a BPO – a brokerage price opinion – to determine that the price that you’re paying is about what the property is worth, to approve the sale. This takes some time, and you have uncertainty whenever you’re dealing with short sales in that you don’t whether the lender’s going to approve it. It takes sometimes months to determine whether or not the bank will approve it; if they take other contracts. You don’t have any certainty that they’re going to approve your deal, and so you need a healthy dose of patience.

Once the bank does approve the short sale, then they want to close yesterday, or give you a very short time period. This presents a problem if you’re going to go through a bank or FHA in order to finance the home. You can start to process and get it all ready to go, but you don’t have an approved contract. So, then your appraisals and all the expense involved as far as getting financing is concerned may be outdated by the time they approve the contract. Or, if you turn around and wait until your contract is approved, they’re going to want to have the transaction closed within a 30-day period, which may present a real problem as far as getting your appraisals and everything done by your lender in time to close on the short sale agreement.

So, you have a lot of uncertainty in dealing with short sales, although you usually get a very good deal. Remember, though, that you need to do a good job researching the property because the person who’s selling the property probably does not have the money to pay you for any damages you might be incurring as a result of their failure to disclose any defects about the property. So, you should have the property thoroughly investigated as far as that’s concerned. So, if you’d like representation in conjunction with a short sale, please give me a call at (727) 847-2288. Thank you.

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What Should I Do if I’m in Danger of Foreclosure?

 

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What’s the first thing you should do if your property’s going to go into foreclosure? Well, the first thing that I suggest you do is contact an attorney who specializes in foreclosure defense. He should be able to tell you the foreclosure process and tell you what your potential liability is for the bank coming after your other assets. Also, he can give you some idea as to how long it will take the bank to foreclose on your property, give you some kind of timeline.

You also have various options, one of which is to try and do a mortgage modification, which many people try and do before they ever contact an attorney and come in very, very frustrated. But my suggestion to you is to continue to send to the lender your financial information in order to try and do a mortgage modification. I will say that the lenders have not, in my experience, reduced your principal amount. What they try and do if they do a modification is to reduce the amount of your monthly payment rather than your principal balance. Depending on who your lender is and who the owner of your loan is, you may or may not be successful.

One of the other options is a deed in lieu of foreclosure. Chase Bank does have a program – it’s called Cash for Keys – where they may agree to give you relocation money if you deed your property over to them rather than them having to go through a foreclosure action. That program was available several months ago. I haven’t seen too much activity lately, but I know that Chase did have that program. It’s a problem if you have a second mortgage because you have to be able to transfer your property to them without a second mortgage.

The other process or option you have, which the banks really encourage, is to do a short sale, meaning that you sell the property to someone for less than the amount of money that is owed and then negotiate with the lender as to whether or not they’ll approve the sale and agree to release you from any responsibility for the remaining money that’s owed under your loan. The problem with a short sale is, you need to have some place to move once you sell your property because when you sell it – well, you no longer have a house. And so, that is something you must consider.

So, I suggest you contact a knowledgeable foreclosure defense lawyer and he will explain your various options, what your timeline is and even answer your questions as to whether or not bankruptcy is an option. If you have any more questions, give me a call and I’ll be glad to try and answer them for you. The number is (727) 847-2288.

 

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