Real Estate Transfer Tax Refund Clarity

At the close of 2015, Governor Snyder signed into law legislation providing clarity to Michigan's State Real Estate Transfer Tax. House Bill 4173, sponsored by Realtor®-member and Representative Dave Maturen (R-Brady Twp.) revises the State Real Estate Transfer Tax to clarify two items:

1. The party that paid the transfer tax may request the refund if a refund is due, and
2. Clarify that Exemption (u) applies when the SEV at the time of sale of a Principle Residence is less than or equal to the original SEV on the purchase.

The Michigan Supreme Court recently broadened the application of Exemption (u) by removing the requirement that True Cash Value be realized in a transfer. The legislation enshrines this change, offering important clarity and tax relief to distressed sellers. 

In addition, this legislation gives buyers the same refund rights as sellers when it is determined that the transfer tax was paid unnecessarily by a buyer. Refund rights under the Sate Transfer Tax are available up to 4 years and 15 days from a transfer.

To better aid members in reaching out to their former and current clients that may qualify, the refund application form is found here. (Please note that the current refund form does not reflect the change in law. The State Treasury will be updating the form in the coming weeks).

The following Q&A's are intended to illustrate exemption (u)'s applicability:
 
QUESTION: Some clients of mine sold their principal residence in 2013 and the SEV was lower at the time they sold it than when they purchased it. They just found out that they might be entitled to a refund of the state transfer tax they paid. They sold the house at a profit; will they still be entitled to the refund?
 
ANSWER: YES, to qualify for the state transfer tax refund, the SEV at the time of purchase must be higher than the SEV at the time of sale. The fact that they sold the house at a profit has no effect on their ability to get a refund.
 
QUESTION: Some clients of mine bought vacant land in 2011 on which they had a house constructed in 2012. They sold the house in late 2014. Will they be entitled to a state transfer tax refund if the SEV of their property at the time the house was completed was more than at the time of sale?
 
ANSWER: NO, since at the time of purchase, the land was vacant, they cannot claim a refund of the state transfer tax since the property was not their principal residence at the time of purchase.

Source: Greater Metropolitan Area Realtors

Morris Hagerman is a local real estate agent with Real Estate One in Royal Oak, Michigan.  He serves Berkley and the other Woodward 5 communities, including Ferndale, Pleasant Ridge, Royal Oak and Huntington Woods.  Hagerman is also a member of the Berkley/Huntington Woods Area Chamber of Commerce.  You can contact him by phone at 248-854-8440, email at morrishagermanproperties@gmail.com or visit his web page.

Watch for these 10 surprises when inheriting real estate

Unfortunately, your relative’s home likely comes with strings attached

November 01, 2014 11:00AM

Inheriting a home can seem like a windfall, but it’s rarely that simple. From reverse mortgages to estranged relatives eager to stake a claim, here is a roundup of the 10 most common headaches real estate heirs face via the Huffington Post.

Mortgage Transfer

Typically, upon the transfer of ownership of a property with a mortgage, there is a due-on-sale clause contained within the contractual documents. That clause means that the entire loan is billed rather than just the installment payment.

Reverse Mortgage

The money owed on the reverse mortgage that sustained your relative in their twilight years must be repaid to the lender, including all of the capitalized interest thereon, before you are able to take ownership of the property.

Rental

However, when an inherited property is encumbered by a home loan, you can sometimes rent out the property without first refinancing the mortgage from a residential home loan to an investment loan. Although none of that applies if you are stuck with a reverse mortgage.

Homeowners Insurance

Don’t expect to keep the prior homeowners insurance policy following the death of the decedent-insured when you inherit, because you can’t.

Testamentary Substitutes

Best-case scenario, ownership can transfer without the need for a court order or even a deed change upon the death of the owner. If the property was titled as either a joint tenancy, tenancy or was owned by a trust, pre-death, than the surviving co-owner automatically will receive full ownership at the time of death.

Estate Tax

Get ready to pay taxes out the nose. In New York, descendants may be liable for both state and federal Estate taxes. Estates valued over $5.34 million will not only face New York State’s Estates taxes, but also require payment of a federal Estate tax bill, at a rate of 40 percent, for the amount that the Estate valued in excess of $5.34 million.

Capital Gains Tax

In New York, capital gains tax can reach a rate of 31.5 percent when combined with federal capital gains tax. Luckily, inherited estates are assessed at the date of death value of the property to the date of sale for capital gains purposes and therefore avoid a great deal of this cumbersome tax on future transactions, according to the Huffington Post.

Probate

When property is owned by the decedent, or with another person, as tenants in common, then the inheritance can only be transferred through a court proceeding called probate. So get ready to pay those court fees.

Heirs at Law

If the property owner did not leave a will, estranged family members may have a claim. New York State utilizes a table of consanguinity that prescribes the heirs at law when a decedent died without leaving a will. Under that table, a surviving spouse only receives the first $50,000 and then, must split the remaining assets 50/50 with the decedent’s surviving children – even children from prior marriages.

Right of Election

No matter how wicked the step-parent, you cannot disinherit a spouse completely, no matter how the will reads — except if the surviving spouse expressly waived their rights (i.e. incident to a prenuptial agreement). Your step-parent can elect the greater of $50,000 or 1/3 of your parent’s entire net estate. [Huffington Post] – Christopher Cameron

Morris Hagerman is a local real estate agent with Real Estate One in Royal Oak, Michigan.  He serves Berkley and the other Woodward 5 communities, including Ferndale, Pleasant Ridge, Royal Oak and Huntington Woods.  Hagerman is also a member of the Berkley/Huntington Woods Area Chamber of Commerce.  You can contact him by phone at 248-854-8440, email at morrishagermanproperties@gmail.com or visit his web page.

It is smart to review the value of your home annually

Many people when asked if they would like to know the current value of their home shrug.  They don’t see any reason why they should at least get an estimate of the market value of their home on an annual basis.

Truth is, there are many reason homeowners should get a real estate professional to provide an estimate on the market value of their home.  One example comes to mind of a man that left his house to one son and his investments to another.  (The situations are changed to protect privacy.) When he made the will, things were about even.  But, when he died, the estate was split like his will required, but the house was worth so much more than the investments that it was a very uneven split.  If the man had monitored the value of his house throughout the years, he would have been able to make adjustments to his will to keep it up to date.

Think about it, it is considered smart for people to meet with their financial adviser annually to review their investments.  It is also smart to meet with your real estate agent to review the value of what is for most of us, the biggest investment we make.

Here are some reasons to review the value of your home annually but certainly not an all inclusive list:  

• Make judgements about your own home by comparing it to the value of your neighbor’s home.  

• Make judgements about your community by comparing the value of your home to county, state and national home values.

• Knowing the equity in the home helps you plan for repairs that are needed.

• Your net worth can be more precisely known.

• You may want to make adjusts to your insurance policy to keep up with your home value.

• Some communities have rebuilding requirements that may affect your ability to rebuild if you are under insured.  

• Don’t pay property taxes beyond the value of your home.

• Better plan for retirement by keeping track of the equity in the home.

• If you are considering a reverse mortgage, knowing the value will help you make a better decision.

• Let’s hope you never need emergency cash, but knowing the value will help you plan for emergencies better and save money on insurance.

• Know if an improvement will be right for the house by not over investing in your home.  

• Be aware of the value of your estate.

• If you pay PMI (private mortgage insurance) when a equity level is reached, you many not have to continue to pay.

• If the equity in your home reaches a certain level you may not need to make monthly escrow payments for property taxes, allowing you to invest the money instead of letting someone else hold it.

• Pay off bills by taking some of the equity out of the home.

• If you plan on refinancing the mortgage you will need to know when you reach the equity level you may need.

A real estate agent that is looking out for your best interest will not charge you for a CMA (Comparable Market Analysis) for your home.  To get the best idea of the value of the home, the agent will need to visit to home, research recent history on comparable homes that have sold in the market and make adjustments in the value based on your home.  

Help paying your back property taxes

ACT NOW TO GET $30,000 TO SAVE YOUR HOME

Dear Friend:

This letter is to inform you of a new program to help pay your delinquent property taxes up to

$30,000 if you face a hardship preventing you from paying your property taxes.

The program is called the “Step Forward Michigan Loan Rescue Program for Property Tax

Assistance,” and is helping some eligible homeowners pay off their delinquent taxes.

You may be eligible if the following criteria apply to you:

1. Owner Occupied Homes Only – You must live in your home, no land contracts.

2. Delinquent Taxes – You must owe delinquent taxes, interest, or fees on that home.

3. Hardship – You must face a hardship preventing you from paying your taxes.

4. Cash Reserves – Less than 1.5 times your annual property tax bill in your account.

Applicants are encouraged to apply with help from our partner agencies, including:

Community and Home Improvement, Oakland County; Community Housing Network;

GreenPath; JVS; Lighthouse; New Hope; OLHSA; Southwest Housing Solutions; and

University of Detroit-Mercy Legal Aid Clinic.

With the help of your certified housing counselor, apply for the “Step Forward Michigan

Loan Rescue Program” online at www.stepforwardmichigan.org or by calling 866-946-7432.

Please contact our office at 248-858-0624 and we will get you connected with a certified

housing counselor to begin the application process.

Taxpayers with delinquent taxes should schedule a Taxpayer Assistance Meeting with

our office to arrange a payment plan and prevent foreclosure.

Sincerely,

Andy Meisner

Oakland County Treasurer

Here is a list of partner agencies

Oakland County Treasurer

1200 N. Telegraph Rd., Dept. 479

Pontiac, Mi 48341-0479

Andy Meisner

County Treasurer

Jody Weissler Defoe

Chief Deputy Treasurer Office

(248) 858-0612 Fax (248) 858-1810

Certified Housing Counselors

Community & Home Improvement, Oakland County

250 Elizabeth Lake Rd., Suite 1900,

Pontiac 48341

(248) 858-1891

Community Housing Network

570 Kirts Blvd., Suite 231,

Troy 48084

Step Forward Michigan Hotline

(248) 269-1330

GreenPath

36500 Corporate Drive,

Farmington Hills, MI 48331

888-776-6735

JVS

29699 Southfield Rd.,

Southfield 48076

Clarissa McMillon (248) 233-4482

Reda Nafso (248) 233-4263

Lighthouse

46156 Woodward Ave.,

Pontiac 48342

 (248) 920-6060 Ext. 2411

New Hope Community Development

19487 Evergreen Road,

Detroit 48219

(313) 255-6275

OLHSA

196 Cesar E. Chavez Avenue,

Pontiac 48343

Autumn Butler (248) 209-2797

Elena Steek (248) 209-2644

Southwest Housing Counseling Solutions

3627 W Vernor,

Detroit 48216

Main Line (313) 841-9641

Tina Ellis (313) 297-0065

LEGAL AID

University of Detroit-Mercy Law Clinics

651 E. Jefferson,

Detroit 48226

Professor Joon Sung (313) 596-0262

Blog post by:

Morris Hagerman, Realtor

Real Estate One Royal Oak

26236 Woodward Avenue

Royal Oak, Michigan  48072

248-854-8440

morrishagermanproperties@gmail.com

Morris Hagerman Real Estate One website

Help for people behind on their property taxes

A letter from Andy Meisner, Oakland County Treasurer

Dear Friend:

This letter is to inform you of a new program to help pay your delinquent property taxes up to $30,000 if you face a hardship preventing you from paying your property taxes.

The program is called the “Step Forward Michigan Loan Rescue Program for Property Tax Assistance,” and is helping some eligible homeowners pay off their delinquent taxes. You may be eligible if the following criteria apply to you: 

1. Owner Occupied Homes Only – You must live in your home, no land contracts.
2. Delinquent Taxes – You must owe delinquent taxes, interest, or fees on that home.
3. Hardship – You must face a hardship preventing you from paying your taxes.
4. Cash Reserves – Less than 1.5 times your annual property tax bill in your account.

Applicants are encouraged to apply with help from our partner agencies, including: Community and Home Improvement, Oakland County; Community Housing Network; GreenPath; JVS; Lighthouse; New Hope; OLHSA; Southwest Housing Solutions; and University of Detroit-Mercy Legal Aid Clinic.

With the help of your certified housing counselor, apply for the “Step Forward Michigan Loan Rescue Program” online at www.stepforwardmichigan.org or by calling 866-946-7432. Please contact our office at 248-858-0624 and we will get you connected with a certified housing counselor to begin the application process. 

Taxpayers with delinquent taxes should schedule a Taxpayer Assistance Meeting with

our office to arrange a payment plan and prevent foreclosure. 

Sincerely,

Andy Meisner

Oakland County Treasurer

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Morris Hagerman Real Estate One Website

A New Michigan Tax Law May Help Families Avoid Uncapping on Certain Inter-Family Real Property Transfers

A New Michigan Tax Law May Help Families Avoid Uncapping on Certain Inter-Family Real Property Transfers

Article By: Judith Fertel Layne, Dickinson Wright PLLC

Effective December 31, 2013, a parent can transfer residential real estate located in Michigan to his or her child without uncapping the taxable value of the property if the child continues to use the property for residential purposes. Subject to several exemptions, the Michigan General Property Tax Act provides that upon a transfer of ownership of real property, the property’s taxable value is increased to the property’s state equalized value, causing the new owner’s property taxes to increase. Historically, this included transfers of residential real estate from parent to child. This often created a hardship for children inheriting a family residence, including a family cottage that had been owned by the family for decades, because the property’s real estate taxes could increase dramatically upon the transfer. As a result, the Michigan Legislature recently created a new exemption from the definition of “transfer of ownership” to exclude “a transfer of residential real property if the transferee is related to the transferor by blood or affinity to the first degree and the use of the residential real property does not change following the transfer.” MCL 211.27a(7)(s). Accordingly, a child can now receive residential real property from his parent, by gift or inheritance, without fear that the real estate taxes will increase meaningfully.

While this change to the statute will be good news for many families who wish to keep vacation or other residential property in the family for generations, the statute, as currently drafted, is not as flexible as some families may desire. The statutory language makes it clear that the property must pass from parent to child. Property held in a parent’s trust is not included.[1]  Because this will create planning problems for many families, the probate bar is currently pressing the Legislature to broaden the statute to include transfers from a trust. In addition, the Michigan Department of Treasury may create regulations that will establish that a transfer from a trust would fall within the exemption.

Families wishing to take advantage of this new law should be mindful of the statutory language as it currently exists and as it may be modified in the future to make sure that any proposed transfer falls within the exemption. In addition to the limitation on transfers from trust, the exemption only applies to a transfer if the transferee is related to the transferor by blood or affinity “to the first degree.” As a result, a transfer to the transferor’s grandchild would not fall within the exemption. Because of these traps for the unwary, families may wish to seek guidance from counsel prior to transferring residential real estate within the family.

[1] Indeed, the statutory language can even be read to imply that a transfer from a parent’s

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An FHA may not be the best mortgage for everyone

Report on thefiscaltimes.com

The most popular type of mortgage for buyers with low down payments keeps getting pricier and less appealing as more buyers question whether it's still worth getting an FHA loan.

The mortgage insurance premium on loans backed by the Federal Housing Administration has nearly tripled since 2008. A few months ago, the FHA changed its rules to require borrowers to pay for mortgage insurance for the life of the loan.

"FHA loans really used to be a first option for homebuyers with a low down payment," says Scott Schang, a branch manager for Broadview Mortgage Katella in Orange, Calif. "Now, I see people doing them because they have to and not because it's their first option."

The FHA allows buyers to get a mortgage with a down payment as low as 3.5 percent. The underwriting requirements to qualify for an FHA loan generally are less stringent than for conventional loans. But after the recent change and the numerous fee increases, FHA loans are generally not a borrower's best mortgage option, Schang says.

Historically, the purpose of FHA loans was to help low-income buyers afford homes. During the subprime boom from 2003 to 2007, less than 10 percent of the purchase loans being originated each year were backed by the FHA.

After the financial crisis of 2008, when mortgage standards tightened, more borrowers and lenders turned to these easier-to-get loans. About 40 percent of purchase loans being originated by the end of 2009 were backed by the FHA, according to the U.S. Department of Housing and Urban Development's latest annual report to Congress. It dropped to about 26 percent at the end of last fiscal year.

As demand for FHA loans grew, HUD tried to shore up the FHA's insurance fund through a series of hikes in mortgage insurance premiums. The latest increase was in April.

The cost of getting an FHA loan

FHA borrowers are charged an annual mortgage insurance premium of up to 1.35 percent of the average outstanding balances of their loans. The fee is added to the borrower's monthly mortgage payment. The FHA also charges a 1.75 percent upfront fee when the borrower gets the loan.

A borrower getting a $200,000 loan, after making a 3.5 percent down payment, pays $225 per month in FHA mortgage insurance, plus an upfront fee of $3,500. Say you keep that mortgage for 10 years before you sell or refinance -- that adds up to about $30,000 in mortgage insurance fees.

That's substantially more than what a borrower would pay for private mortgage insurance on a conventional loan, which doesn't have an upfront fee. The mortgage insurance premium on a conventional mortgage can be less than half of FHA's insurance, depending on the borrower's credit, according to estimates from mortgage insurance company United Guaranty.

"A conventional loan generally is less expensive for borrowers in almost all cases," says Brian Gould, chief operating officer for United Guaranty, a mortgage insurer.

Why would anyone want an FHA loan?

Homebuyers normally opt for FHA loans because they don't have enough money saved for the 5 percent minimum down payment that most conventional loans require. But even those homeowners should explore their opportunities, including down payment assistance programs, says Rob Chrane, president of Down Payment Resource.

Chrane says there are various programs offered by states' housing finance agencies and city or county agencies that buyers often overlook. They tend to think they make too much money to qualify, when in reality, many of these programs are available to moderate-income families as well, Chrane says.

"I can't say everyone would qualify, but by the same token, the income limits for these programs are not just strictly to low-income households," he says. "They can range anywhere from 80 percent of area median income up to 120 percent of median income."

And if you find a lender willing to offer conventional loans with less than 5 percent down, mortgage insurance won't be an issue as some mortgage insurance companies are willing to insure loans with as little as 3 percent down.

Borrowers with high DTI need FHA loans

Although there are alternative solutions for borrowers with low down payments, some borrowers are stuck with an FHA loan for a different reason, one that can't be easily fixed. Their debt-to-income ratio, or their monthly debt obligations compared with their income, is too high for a conventional mortgage. In lender lingo, the debt-to-income ratio is known as DTI.

"I'd worry less about the down payment and more about the DTI," Schang says. "That seems to be the deciding factor on half of our deals."

Conventional mortgages generally require borrowers to have debt-to-income of 45 percent or less, while the FHA allows borrowers to spend up to 56 or 57 percent of their income on their monthly obligations, such as credit card payments, student loans and car loans, he says.

"There's a huge difference there," he says. "Somebody who has less money to spend at the end of the month is going to get stuck with FHA because that's their only option."

This piece originally appeared at Bankrate.com

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