October 12, 2009
Dear Real Estate Professional:
DC: Tax Sale Postponed After Court Invalidates "Emergency Regulation". Motions for TRO and preliminary injunction (“PI”) were filed by an institutional tax sale purchaser. The District had recently implemented, by emergency regulation, a threshold whereby the District would not bother auctioning properties if the amount of taxes owned did not exceed $1,200. The Complaint averred that this threshold was not authorized by statute because no valid emergency existed and that the threshold would reduce the properties sold by roughly 40% (D.C. responded that the omitted properties only represented 5% of the taxes to be collected and that the threshold was a result of a cost-benefit analysis). While the TRO was denied, the PI was granted and the September tax sale was postponed. A copy of the final order and judgment can be found here. OTR currently does not have a target date for a rescheduled auction.
Federal: New HUD-1's and Good Faith Estimate Forms Will be Used Effective January 1, 2010. Title companies and lenders should be working with their software vendors to ensure that, come January 1, the new HUD-1 and GFE will be used. Note the very careful correlation between the two forms (there are software packages available that do a quick audit of the two forms to make sure that they match), that the HUD-1 now has three pages (the final page allows borrowers to compare their loan terms with the disclosures found on the GFE), the title insurance premium "split" is now disclosed and that there are strict time deadlines for providing documents to the borrower. Two good resources: HUD RESPA SITE and ALTA Site.
DC: Legislative Chronology of the Vacancy Exemption and Condo Conversion Fee Changes. Lauren Pair, the Rental Conversion and Sale Administrator with the D.C. Department of Housing and Community Development, has shared with us a chronological chart of the vacancy exemption and conversion fee legislative amendments. Please see attached chart here.
DC: Termination of the Vacant Property Tax Rate. One year after increasing the vacant rate from $5 per $100 of assessed value to $10 per $100 of assessed value, the D.C. Council terminated the rate. The vacant rate was an ill thought-out statute that produced many more problems than solutions, specifically increasing the taxes on residents who were unable to sell their homes. The 2010 Budget Support Act included some changes that had been proposed in a separate Blighted Properties Abatement Reform Act of 2009. The Budget Support Act replaced the vacant rate with a $10 rate that applies only to “blighted” properties, which are “unsafe, insanitary [sic.], or which is otherwise determined to threaten the public health, safety, or general welfare of the community” due to poorly kept exterior features. There are several criteria recited that would be considered, one of which is whether the property is boarded-up. For some reason the text of the Budget Support Act is not available online. We are advised by the Council that there will be some clean-up legislation (forgive the pun) on this issue because the amendments to the Budget Support Act did not deal with the issue in sufficient detail. . As soon as the Budget Support Act is available for viewing, it will be included in the next newsletter.
DC: Co-ops: Transfer Tax Now In Effect Emergency legislation (anticipated to be followed by permanent law) was passed on Sept 29 that assesses an economic interest tax to transfers of co-ops. It appears that the effective date is October 1, although questions remain about contracts executed before October 1. An economic interest deed will be recorded and will be taxed at 2.9% for properties over $400,000 and 2.2% for those under $400,000. The Recorder of Deeds indicates that it is creating a new index for co-op recordings.
DC: Inclusionary Zoning Program Implemented. The inclusionary program was approved by the D.C. Zoning Commission and adopted into law by the D.C. Council in 2006, but the regulations for implementing the program were just enacted. Supporters of the program assert that mixed-income housing will be created at no cost to builders or the government; while the opposition, led by development and real estate interests, argue that the zoning will decrease land values.
The program requires contractors of large developments to include below-market-rate units in exchange for the contractors to construct larger buildings or obtain other benefits. The regulations require that builders of new development with 10 or more units, or of existing buildings that increase its size by 50 percent, must designate 8 to 10 percent of the new units as “affordable.” Developers who follow the rules can construct buildings 20 percent larger than allowed under existing zoning. Georgetown, Dupont Circle, historic Anacostia as well as sections of downtown and Capitol Hill are exempt from the program. Individuals must make between 50 percent and 80 percent of the area's median income in order to qualify to buy or rent “affordable” units. Interested parties can learn more at D.C.'s Inclusionary Zoning (IZ) Affordable Housing Program click here.
DC: Zanders v. Reid and Butler TOPA: Jury May Award Monetary Damages - Remedy Not Limited to Specific Performance The DC Court of Appeals held that specific performance may (not "shall") be granted in TOPA cases, that the jury has the authority to award monetary damages and that the Plaintiff's claims for fraud, etc. may not be dismissed because the Plaintiff failed to make protective order payments. For copy of decision click here.
DC: Recorder of Deeds: Title Company Escrow Accounts Need to be Updated. At the recent general meeting of the DC Land Title Association, Larry Todd, Recorder of Deeds, reported that November 2 is the deadline for all title companies to supply a list to ROD of authorized users of the title company's escrow account. The current escrow system is problematic to auditors and the Recorder is welcoming alternative systems. The DCLTA is researching one system to propose to ROD.
Federal: Servicemembers Civil Relief Act: New Search Results Format Discloses Active Duty Termination Date. The SCRA provides for protections that last beyond the servicemember's active duty. For example, foreclosures are prohibitted for 9 months after termination of duty. The 6% interest rate cap expires one year after active duty. Until now, active duty searches simply provided a "yes/no" as to active duty. Effective October 11, 2009, searches at www.ServicemembersCivilReliefAct.com will include active duty termination dates for servicemembers who have terminate active duty within the past year. For further information, click here.
Federal: Mortgage Disclosure Improvement Act (MDIA) Disclosure Requirements. There are several material characteristics of the new MDIA (effective January 1, 2010), including:
- Early disclosures – The initial TIL (early disclosure) must be returned by the lender to the applicant within three business days of receiving the application.
- The mailing rule – Lenders are able to deliver the initial TIL by U.S. mail and the waiting period begins three days after the TIL was mailed. The TIL can also be sent by email or any other method and rely on actual receipt, at which time the lender may begin counting the seven day waiting period.
- Seven day waiting period – After the lender receives the loan application and issues the initial TIL, there must be a seven business day waiting period, which begins when the applicant is believed to have the TIL, before the loan may be consummated.
- Business days – Business days in MDIA are considered any day other than Sunday or statutory federal holidays.
- Fees – No creditor or any other individual is allowed to impose a fee on a loan applicant before the applicant received the initial TIL. An exemption exists for fees that are issued to cover the expense of obtaining a consumer credit card. Fees are allowed to be charged to the applicant after midnight on the third business day following receipt of the applicant receiving the TIL.
- Corrected disclosures – A correct TIL must be issued if estimates of fees and charges push the loan's APR greater than one-eighth of a percent over the original estimate.
- Closing delay – If a corrected TIL has to be issued with the proper APR, the lender must wait three business days after the applicant has received the updated disclosure before closing can take place.
- The exception – If a consumer has the initial disclosure from the creditor and wishes to waive the additional waiting period of seven business days before the loan can close, a bonafide personal financial emergency must be proven and show that loan consummation is required before the end of the seven days.
Federal: Anti-Foreclosure Legislation. President Obama signed the Federal Protecting Tenants at Foreclosure Act of 2009 to strengthen the government's failing foreclosure prevention program. The legislation includes protections for renters when their landlords fall into foreclosure. Under the new law, renters' leases will be honored or, if they are on a month-to-month lease, the tenant will get at least 90 days notice before displacement. In addition, the legislation seeks to bolster the prosecution of mortgage fraud by expanding the Justice Department's authority to prosecute mortgage fraud. To view a copy of the Maryland Rules of Procedure relative to foreclosures, adopted by the MD Court of Appeals, click here.
Federal: Short Sales with No Profit Can Be Subject to Taxable Capital Gains. The sale of property in short sales or other transactions with no profit are subject to tax gains resulting from gain deferred from previous transactions, depreciation deductions taken during ownership of the property, and from borrowing against appreciated equity in a declining market. The taxable gain is calculated by subtracting the adjusted basis from the sales price. Therefore, it is crucial to determine the basis in the property to be sold. There is an exemption for personal residences and a Section 1031 tax deferred exchange can be utilized to avoid adverse tax consequences. An excellent article on this topic by William Gessner can be found here.
MD: Washington Mutual Bank v. Susie M. Homan et al. A D/T filed by Bona Fide Lender for Value's D/T Valid even If Not Recorded Buyers had a contract to purchase a home from a developer. Settlement was delayed. Buyers filed suit for specific performance and won. Unbeknownst to Buyers and court, Developer had, in the interim, conveyed the unit to the Developer's managing member via quit claim deed and the transaction was financed by WaMu, but the deed and deed of trust were recorded after the court order on the specific performance action. Buyers filed suit in Circuit Court to quiet title in their favor and prevailed. Court of Special Appeals remanded for a determination of whether WaMu was a bona fide lender for value, in which event its deed of trust would have attached to the property before recordation. To view the Court of Special Appeals' decision, please click here .
MD: Montgomery County: Transfer/Recordation Office Requiring Changes in Language. Click here to view the current preferred language for documents recorded in Montgomery County. The T/R Office notes that # 2, # 5, # 7, and # 10 have been revised and # 14 has been added.
DC: Tangoren, et al v. Stephenson, et al. Tax Sale: Foreclosure Suit not time-barred if Tax Certificate improperly dated. The appellants purchased properties at a tax sale and were issued certificates of sale by the Office of Tax and Revenue (OTR). The Tax Clarity Act of 2000 requires a certificate of sale to have a date, and the statute expressly distinguishes that date from the date on which the sale was conducted as well as the date of purchase. The certificates issued to the purchasers lacked the date for the certificate of sale as well as failed to set forth a specific date on which the one-year period for initiating foreclosure proceedings would end.
When the purchasers commenced foreclosure actions in Superior Court the actions were dismissed by a magistrate judge on the grounds that the actions were time-barred since they were not filed within the statutory one-year window. The dismissal was affirmed by Superior Court Associate Judge Zeldon. The property purchasers appealed the decision to the D.C. Court of Appeals, where they sought to reverse the finding that their foreclose efforts were time-barred. The Court of Appeals reversed, holding that “[u]nder the tax sale statute, unless and until OTR dates a tax sale certificate, the limited time in which the purchaser must file a foreclosure action does not begin to run.” Click here for the decision.
MD: Amnesty Program Ends on October 30, 2009. Legislation (S.B. 552). During the amnesty period, the comptroller will waive half the interest due during the period as well as civil penalties, except previously assessed fraud penalties. In addition, taxpayers will not be charged with a criminal tax offense from a return filed or tax paid during the amnesty period unless a criminal tax charge is already pending or under investigation. One exception to the program, is that amnesty is not available to taxpayers who have more than 500 U.S. employees, were eligible for the 2004 Delaware holding company settlement period, or participated in the 2001 Maryland amnesty program.
Federal: Simmons v. Commissioner (T.C. Memo. 2009-208). The U.S. Tax Court upheld the deductibility of conservation easements, holding that the Internal Revenue Service was incorrect in disallowing the deduction of the easements as charitable contributions. To view a more expansive article on the subject click here.
Federal: Changes to the Federal Rules. Attached is a table of deadlines that are scheduled to change on December 1, 2009, under the Federal Rules of Civil Procedure, the Federal Rules of Appellate Procedure, and the Federal Rules of Bankruptcy Procedure. The affected rules are listed sequentially and summaries of required or permitted actions that are scheduled to change are provided. Click for the rules here.
Federal: Lead-Hazard Prevention and Elimination Act of 2008. The disclosure/turnover requirements of the Act took effect on September 28, 2009. The Apartment and Office Building Association of Metropolitan Washington (AOBA) has provided a copy of the Act here and summary of the Act here.
DC: Allen v. Schultheiss.Life Estates may be held as tenants by the entirety. Plaintiff filed suit to quiet title and for ejectment against other parties in possession, claiming that she had a life interest in it pursuant to a deed. The trial court held that the deed purporting to grant Plaintiff an interest in the property was void because, as a matter of law, a life estate cannot be held as a tenancy by the entirety. D.C. Court of Appeals reversed the grant of summary judgment, holding that a life estate may be held as a tenancy by the entirety. For the D.C. Court of Appeals opinion please click here. Editor's note: domestic partners may hold property as tenants by the entirety and personal property may be held as tenants by the entirety.
DC: Jackson & Campbell, P.C. makes available a CHART OF PENDING D.C. LEGISLATION.
Upcoming Seminars of Interest to the Real Estate Community:
What Civil Court Judges Want You to Know. National Business Institute ("NBI") seminar set for October 13, 2009 in Washington, DC. Panelists include Clifton M. Mount, Esq. of Jackson & Campbell, P.C. Click HERE for link to NBI Seminars.
Fidelity National Title & Lawyers Title 2009 Annual Fall Seminar. Set for November 4, 2009 in Greenbelt, MD. Speakers include David H. Cox, Esq. and Russell S. Drazin, Esq. of Jackson & Campbell, P.C. Click HERE for more information.
Announcements:
David H. Cox, Esq., Co-Chair of the Real Property and Asset Management Practice Group at Jackson & Campbell has been named a "Best Lawyer" in the area of Real Estate Law in the 2010 edition of Best Lawyers®. Best Lawyers is based on an exhaustive annual peer-review survey. This is the first year that Mr. Cox is named a “Best Lawyer.” in the area of Real Estate Law. He has developed a reputation as an effective negotiator, advisor, and litigator, having successfully resolved a myriad of issues arising out of various corporate as well as commercial and residential real estate matters.
OTHER LEGAL UPDATES:
Jackson & Campbell, P.C.'s Trusts & Estates Legal Update
To subscribe to this publication, click here.
Jackson & Campbell, P.C.'s Employment Law Alert
To subscribe to this publication, email here.
Please feel free to circulate this newsletter to others in the industry, both within and outside your office.
Sincerely,
Roy L. Kaufmann of the Real Property and Asset Management Group
Jackson & Campbell P.C.
email: Roy L. Kaufmann at rkaufmann@jackscamp.com
voice: (202) 457-1600
web: www.JacksCamp.com
The editor acknowledges with thanks the research and preparation for this newsletter by Nicholas C. Lipresti, an intern with the Firm.
The contents of this Update are intended for general informational purposes only and should not be relied upon as legal advice or as a substitute for consultation with a qualified attorney. Moreover, the mailing hereof is not intended to create nor does it constitute an attorney-client relationship.
If you wish to not receive these mailings, click here or reply to this message.
.gif)
.gif){kind=small}