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Here is something for you.
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FREE CONSULTATION: We have 34 years of experience dealing with foreclosures, short sales, forbearance agreements and lender workouts. Call for your free legal consultation. OTHER FREEBIES: Housing Needs Analysis Comparative Market Analysis of Your Home. List of Bank-Owned Properties For Sale Do you own a rental… but don’t want to hire a property management company? Ask us about our tenant placement service. |
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The Lost Land Contract By Kirby K. Gordon Attorney/Broker since 1974 Is it time to dust off the old Land Contracts formally known as Long Form Security (Installment) Land Contract with Power of Sale and Assignment of Rents? Widely used in the 1970's, these once popular instruments for conveying an interest in real property should not be overlooked in today's market by sophisticated investors and real estate professionals. Why use a Land Contract? Traditionally, Land Contracts have been used to "wrap around" a low interest fixed rate loan. They differ from the typical All-Inclusive Note Secured by a Deed of Trust in that no grant deed is immediately recorded. The Land Contract is an agreement to transfer the deed in the future. The Seller (known as the "Vendor") retains bare legal title in his/her name and transfers the beneficial interest in the property to the buyer (known as the "Vendee"). The IRS and most local taxing authorities consider the recordation of the Land Contract to be a transfer which triggers a taxable event for both income taxes and property tax assessments. Since you can combine an installment sale with a 1031 tax deferred exchange you could use the Land Contract as part of an overall tax strategy for sophisticated clients. Although they do not like to publish the fact, several national title insurance companies will issue Vendor/Vendee Title Insurance Policies on the recorded Land Contract. They usually require the Land Contract to be prepared by an attorney since it is considered the practice of law in most jurisdictions to prepare such agreements. The title companies, however, will give you the required provisions that they need in order to issue their title insurance policy. Land Contracts with the Power of Sale clause can be foreclosed non-judicially by the Trustee of the Land Contract, just like the typical deed of trust. Without this important safeguard of having title insurance Land Contracts would have little practical value. The major reason to use a Land Contract is to obtain the spread between a low fixed interest rate charged by the underlying lender and the current market rate which a buyer/vendee would accept on the Land Contract. A simple example will illustrate the benefit to the seller/vendor. If the seller has a $500,000 fixed rate loan at 5.5% and the buyer/vendee is willing to pay 6.5% then the "spread" is 1% per year ($5,000). Thus, the seller/vendor makes $5,000 on the lender's money. If in the example above the seller/vendor carries a Land Contract for $501,000 which wraps around the $500,000 then he/she is only carrying $1,000 of new loan money. When you calculate the return on the $1,000 that is being carried you can see that it is enormous! Therefore, the less you carry over and above the underlying loan, the higher your rate of return. Lenders, however, rarely want anyone else to make interest, especially on their money. Even though their focus should be whether there is an impairment of their security (there is none), they will usually try to accelerate the loan under their alienation clause contained in the note if they discover it. Since the Land Contract is an agreement to transfer the deed in the future, the lenders rarely see the recording. The smart practitioner will keep the same insurance coverage and simply add the buyer/vendee to the existing policy as an additional insured. The lender does not see a change in insureds, which triggers an investigation of the loan. Payments to the underlying lender should be made by a trusted 3rd party collection agent/escrow. Many times you can have the lender impound for taxes and insurance and the buyer/vendee can simply add this impound amount to the payment and everyone knows that the insurance and property taxes are paid on time. Obviously, there are risks in using the Land Contract, and they should only be used with sophisticated clients who can evaluate the risks and rewards. Where both the buyer and the seller are experienced and knowledgeable the Land Contract has benefits to each. The buyer/vendee saves the points and loan fees or assumption fees since it is a type of owner financing, and the seller/vendor makes additional interest on the spread. Structuring such a transaction requires competent legal, accounting and title professionals.
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It’s a Buyer’s Market!! Yes, that’s old news but here’s something new… If you invest in real estate, here is a great way to save money: Binder Policies Binder: A report issued by a title insurance company setting forth the condition of title to certain property as of a certain date, and also setting forth conditions which, if satisfied, will cause a policy of title insurance to be issued. Also called a commitment. A policy of title insurance (used primarily by investors) calling for a reduced rate for a future policy if the property is sold within a specified period. Useful for: An investor or homeowner who is likely to re-sell a property within two years of its acquisition. The up-front premium for a Binder Policy is an additional 10% over the base title insurance rate. The Seller usually pays for the Owner’s Title Insurance Policy and the buyer usually pays the smaller fee for the Lender’s policy if there is a loan. The Buyer needs to request the Binder Policy prior to the close of escrow (or at least prior to the issuance of the Owner’s Policy of Title Insurance which is within a few days of closing). By paying an extra 10% at closing the Buyer receives a credit for the Binder amount towards the full price of a new policy any time within two years of the acquisition of the property. Some Title Companies will allow you to purchase an additional amount of coverage over and above the sales price of the acquired property. Also, most Title Companies will allow you to extend the Binder Policy for another 2 years for an additional 10%. You have to be diligent about watching the dates because they will not send you a renewal notice like most types of insurance. Example: Property Acquisition Price = $ 450,000.00 CLTA Standard Owner’s Policy $ 1,438.00 (Seller usually pays) CLYA Binder Policy (10%) $ 143.80 (Buyer usually pays) ALTA Loan Policy (if applicable) $ 648.00 (Buyer usually pays) If the property is re-sold within 2 years then the first $450,000 of title insurance is free. You just saved $1,294.20 ($1438 – 143.80 = $1,294.20). If you went out 4 years your savings is still $1150.40 ($1438 – 287.60 = $1150.40). None of the title insurance companies advertise this great savings opportunity. They cannot, however, give it only to their best customers because it would be an illegal perk. You have to know to ask for it! It is one of the very best deals in real estate. Too shy to ask- call us and we will arrange it for you free of charge. Now that is the best deal in real estate!! |
The Best Deals on Title Insurance and Escrow Fees By Kirby K. Gordon Attorney/Broker since 1974 Title Insurance do not advertise their special deals in the past it was impossible to comparison shop for rates. Our goal in this article is to let you in on the insider’s secrets, since this author once owned an independent escrow company. There are deals available for the asking – if you know what to ask for. First, a little background. Today 4 companies control 92% of all the title insurance Business: First American, Fidelity National, Land America and Stewart Title. Their rates are published with the California Department of Insurance (add website). As of October 2007, the California Land Title Association (CLTA) created a website which allows the public to check rates for 83 title companies, www.clta.titlewizard.com. Rates vary as much as $500 on and $500,000 loan. Always ask for a discount! If you are a senior citizen, a veteran, or a member of a non-profit board and involved in a transaction, there are special discounts from 10% to 20%. If the property has been sold or refinanced within the last 5 years you qualify for a short term rate on the title insurance. On most escrows over $500,000, you can negotiate the escrow fee because the published rates stop at $500,000. For example if the sale is $750,000 ask for the $500,000 rate. The largest savings, however, is to purchase a “Binder Policy”. By paying an extra 10% premium when you purchase the property you can get a free policy for the same amount of coverage within 2 years. You can also renew this Binder for an additional 2 years for another 10%. Therefore, if you plan on reselling a property within 2-4 years you can save thousands of dollars. Only insiders know of this bargain and, obviously, title companies do not advertise this product. This is part of the extra service and superior knowledge that our company offers. Call us anytime if you have any questions or comments. |
Excerpts from the Los Angeles Times article published February 8, 2009 entitled “Tips for Navigating the new 2008 Tax Rules”: PROPERTY TAX AID If you own a home but don’t itemize deductions, you can boost your standard deduction to compensate for some of the property tax you pay. The maximum increase is the amount of tax paid, up to $500 for an individual or $1,000 for a married couple. For example, a married couple who paid $1,000 or more in property taxes could claim an $11,900 standard deduction, up from $10,900. To take advantage of the provision, check like 39C on Form 1040. THANK THE OIL BUBBLE If you drive for business purposes, the amount you can deduct has soared because of the spike last year in gasoline prices. For driving on the job in the first half of 2008, you can deduct 50.5 cents a mile, up from 48.5 cents for 2007. For driving in the second half of 2008, you can deduct 58.5 cents. BUSINESS GEAR If you own a small business, you can write off up to $250,000 in new equipment purchases made in 2008. That’s up from $128,000 in 2007. To claim this, you need to file Schedule C to show your profit or loss from a business. |
“ACCELERATION” CLAUSES IN NOTES & TRUST DEEDS by Kirby K. Gordon, Esq. Some transfers are NOT subject to the lender being able to call the loan all due and payable despite what the lender says! I am constantly amazed by the bullying tactics employed by money lenders – especially those from out of state! In its simplest form an “acceleration” clause means that a lender can call the note all due and payable if there is a sale or other transfer of the property without the lender’s written consent. However, by California state law certain transfers are exempt from acceleration no matter what the loan documents say. As a borrower these protections are not waiveable and are unenforceable by the lender if the property is one to four unit residential properties. A lender is prohibited from accelerating the loan if: 1. A transfer to a spouse upon death of a co-borrower. 2. Adding a spouse or new spouse to the title. 3. Dissolution of marriage where one spouse deeds off the property. 4. Transfer of property into a family trust. 5. Where the borrower takes out additional (junior) financing like a line of credit or home equity loan. (Due on Encumbrance Clause.) Source: California Civil Code § 2924.6.) Number 5 actually refers to a related topic which is often in a separate section of the note/deed of trust. The Due on Encumbrance clause usually states that the first lender (senior lender) can call the note due if you put any new loan behind his (a junior loan). Why do lenders try to enforce these clauses? Greed! The lenders will either demand a 1% assumption fee or a refinance at a higher interest rate. How does a lender even know about a transfer? When the lender’s insurance department receives a new policy in the mail, or their tax department receives a property tax bill with a new or different name they will often times send you a computer generated letter. Know your rights, and stand-up for them! Always consult a real estate attorney when you are dealing with the largest financial transaction in your life. |
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