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How 2010 Property Taxes affect your 2011 Closing

Dec 6

Posted by Jim Renshaw in Tech Bulletin | No Comments

Two options for paying property taxes

There are two options available for paying real estate taxes in Colorado. The first option is to pay the entire amount of the prior year’s taxes in full on or before April 30. It is also possible to pay the real estate taxes in two installments—the first installment on or before February 28 and the second installment on or before June 15.

Property taxes and your closing

Depending on the time of year that a property closes and which method the lender uses to pay property taxes, Land
Title will follow one of several procedures for collecting taxes at closing.

If you’re closing early in the year…

For closings that take place during the first couple of weeks of each year, before the counties have certified new mill levies, Land Title will normally escrow from the seller 120% of the previous year’s property tax amount (or use the most recent assessed value, if higher). These are short-term escrows, and no escrow fee is charged. Land Title can provide you with the complete escrow instructions and W-9 forms that are needed. Once the mill levies are certified and the actual tax amount is available, the prior year’s (2010) taxes will be paid from
the escrow, and the difference will be refunded to the seller.

The lender’s procedure for handling property taxes

Lenders also play a role in how the title insurance company determines what real estate taxes to collect at closing. At this time of year, lenders typically request that we handle the payment of the prior year’s (2010) real estate taxes in one of two ways.The first option is to collect from the seller (by means of a debit entry on their Settlement Statement/HUD-1) the entire amount of taxes due and remit that amount to the appropriate county treasurer prior to April 30. The second option is for Land Title to pay only the first half of the prior year’s (2010) taxes.

When paying only the first half of the prior year’s taxes…

In the event that the new lender requests that Land Title pay only the first half of last year’s property taxes to the
county, Land Title typically follows this procedure:

The seller will be debited and the buyer credited for the entire amount of 2010 taxes.
The buyer will be debited for the first half of the 2010 tax amount and Land Title will pay this amount to the
county. The lender will collect a tax escrow and will pay the second installment when it comes due.
The buyer and seller will both execute a Memorandum of Understanding Regarding Payment of 2010 Real Prop-
erty Taxes. This document explains to the buyer and seller that Land Title has paid the first half of the taxes in accordance with the instructions from the buyer’s lender and that the lender will be remitting the second half of the taxes on or before June 15.

Taxes disbursed but not received by the treasurer

By the first part of February, parties to a real estate transaction often encounter the problem of what to do when the payoff statement indicates the prior year’s (2010) taxes (either all or half) have been disbursed from the escrow account by the existing lender but have not yet been received by the treasurer. When this is the case, these options are available:

Land Title will accept an escrow of 110% or more, depending on the county, of the prior year’s (2010) real estate taxes from the seller/owner until such time as payment of the taxes can be confirmed with the county treasurer. These are short-term escrows, and no escrow fee is charged. Keep in mind that by the time payments can be confirmed, taxes may be past due.
On streamline refinances where escrows are being transferred to the new loan to pay for 2010 taxes, an indemnity letter is required from the lender stating that the lender will be responsible for the payment of said taxes.
Land Title will accept an indemnity from the lender (who paid the taxes) stating that the taxes have been paid in full (or that the appropriate half has been paid). In this case Land Title will close without collecting a duplicate payment from the sellers.
The last option is for Land Title not to pay the taxes and have this shown as an exception on Schedule B-2 of the title commitment and Schedule B-II of the policy. The title policy would be issued insuring only the previous year’s (2009) taxes as being paid. New lenders requesting a mortgagee’s policy will not, in most cases, accept this option.

If you have any questions regarding these procedures, please contact your Land Title Sales Representative or Closing Manager.

Tags: Property Taxes, Real Estate closings

First-Time Home Buyer Tax Credit – All the answers you need

Jan 11

Posted by Jim Renshaw in Tech Bulletin | 8 Comments

Extension and expansion of the program in 2010

The Worker, Home ownership, and Business Assistance Act of 2009 extends the existing tax credit of up to $8,000 for qualified first time home buyers until April 30, 2010. It also expands the program by granting up to $6,500 credit for certain qualified current home owners purchasing a new or existing home between November 7, 2009, and April 30, 2010.

•The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.

• There is an additional tax credit for repeat or move-up buyers. Purchasers can receive up to a $6,500 incentive to buy their next home, if they’ve lived in the same principal residence for 5 consecutive years during the 8-year period that ends when the new home is purchased.

• For homes purchased in 2009 or 2010, the credit does not have to be paid back unless the home ceases to be the taxpayer’s main residence within a three-year period following the purchase.

• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

• The credit extends the deadline to purchase a home by April 30, 2010. If a binding sales contract is signed by April 30, 2010, home purchases completed on or before June 30, 2010, will qualify.

• For sales after November 6, 2009, income limits for the full $8,000 credit are $125,000 for single taxpayers and $225,000 for married taxpayers filing joint returns.

• Joint filers with income up to $245,000 and single filers up to $145,000 are eligible for a reduced credit.

• The tax credit is refundable, meaning it can be claimed even if there is little or no income tax paid. The federal government will issue a refund check back to the purchaser for the difference.

The following information has been edited for length and is used with permission from the National Association of Home Builders’ .

Who is eligible to claim the $8,000 tax credit?

First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009, and on or before April 30, 2010. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner. However, the law also allows home sales occurring by June 30, 2010, to qualify, provided they are due to a binding sales contract in force on or before April 30, 2010.

What is the definition of a first-time home buyer?

The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the home ownership history of both the home buyer and his or her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Unmarried joint purchasers, however, may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

How is the amount of the tax credit determined?

The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

Are there any income limits for claiming the tax credit?

Yes. For sales occurring after November 6, 2009, the income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $125,000 for single taxpayers and $225,000 for married taxpayers filing a joint return. The phase-out range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

The income limits for claiming the tax credit were raised when the tax credit was extended. Are the higher limits retroactive?

No. The new income limits are only applicable to purchases occurring after November 6, 2009. The income limits for sales occurring on or after January 1, 2009, and on or before November 6, 2009, are $75,000 for single taxpayers and $150,000 for married couples filing jointly.

What is “modified adjusted gross income”?

Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or AGI. AGI is total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007).

If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?

Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phase-out limits.

How is this home buyer tax credit different from the tax credit that Congress enacted in early 2009?

The tax credit’s income limits were increased, the documentation requirements were tightened, and the program’s deadlines were extended.

How do I claim the tax credit? Do I need to complete a form or application?

You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 67 of their 1040 income tax return for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). No other applications or forms are required, and no preapproval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers much attach a copy of their HUD-1 settlement statement to Form 5405 as proof of the completed home purchase.

What home types qualify for the tax credit?

Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes), and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

I read that the tax credit is “refundable.” What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

Is a tax credit the same as a tax deduction?

No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS. A tax deduction is subtracted from the amount of income that is taxed.

Disclaimer: This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal or accounting advice or other expert assistance is required, the services of a competent professional should be sought.

Tags: First-Time Home Buyer Tax Credit

New GFE or RESPA Questions? Land Title Can Help

Nov 23

Posted by Jim Renshaw in Tech Bulletin | No Comments

RESPA mandates use of new GFE and HUD-1 by January 1, 2010 The goal of the current reforms taking place in the mortgage industry is a more informed consumer and, ultimately, better home financing decisions by homeowners. respa_reform

Beginning January 1, 2010, all lenders will be required to use the new Good Faith Estimate (GFE) form, and the new HUD-1 Settlement Statement must be used in conjunction with the new GFE. Quoted costs in the GFE are subject to “tolerances,” which are defined as the maximum amount by which the charge for a category or categories of settlements may exceed the amount of the estimate on the GFE. (For more information about actual changes to the HUD-1, the GFE, and tolerances, see the October 2009 Technical Bulletin.)

While there has been some concern among our Realtor clients that use of the new GFE will delay closings, this should not be the case. Realtors will still do business as usual, taking care to provide the borrower with additional information upfront that will allow consumers to shop for the best loan and feel they have made the best borrowing decision.

A few proactive steps at the beginning of the transaction can go a long way toward avoiding closing delays. For example, Realtors can encourage clients to lock interest rates early rather than gamble on a small dip in interest rates. Realtors can also assist their clients in negotiating the final purchase price up front rather than haggling about price later.

Land Title’s Proactive Processes

Land Title has been working closely with industry experts at NAR, CAR, CMLA, and HUD to ensure we have accurate, up-to-date information and answers for our clients. Additionally, we’ve invested in over 1,500 hours of training for our staff and updated our processes and systems to help our clients meet the new requirements accurately and efficiently.

Our new forms are ready to go when you are, whether you start using them now or when they become mandatory January 1, 2010. Your closing team will inform you immediately when a change in circumstances causes our fees to change.

Source - Land Title Guarantee Company

The New Mortgage Regulations

Jul 15

Posted by Jim Renshaw in Mortgage News, Tech Bulletin | No Comments

How they may affect your closing date and how to expedite your transaction

The Housing and Economic Recovery Act of 2009 (HERA) is a wide-ranging piece of legislation that strengthens and modernizes the regulation of government sponsored enterprises Fannie Mae and Freddie Mac, along with the Federal Home Loan Banks. Part of HERA imposes sweeping changes in the lending industry, placing greater focus on consumer protection. HERA aims to assure borrowers are better informed about the loan process and better protected against deceptive lending practices. These changes, effective July 30, 2009, will have a direct impact on how Realtors structure their transactions and how lenders keep the consumer informed of loan charges through stricter disclosure requirements.

Four Key Elements

1. If the home buyer is financing the property, the new regulatory and investor guidelines will impact and perhaps even dictate the closing date.

In the past, the parties to the transaction agreed upon a closing date and all service providers, including the lender, worked to meet that date. After July 30, a closing date may still be written into the contract, but the earliest any home purchase transaction can close is 7 days after the home buyer receives the initial mortgage disclosures from the lender.

2. With the exception of the credit report fee, the lender cannot collect upfront fees until the initial disclosures have been received.

Disclosures that are sent overnight are considered “received” the next business day (except Saturdays),allowing fees to be collected the following business day. Historically, lenders could collect upfront fees immediately at the time of application for both telephone and in-person applications. Now, the buyer must receive initial disclosures before any fees can exchange hands. The single exception is the credit report fee, which can be collected at the time of application. If a lender takes an application in personand delivers the disclosures at that time, the fee can be accepted at that time as well.

3. The home buyer must receive a copy of his appraisal a minimum of 3 business days prior to closing.

A home buyer who believes the required 3-business-day review period is not necessary may waive that requirement in writing.

4. Any increase of more than .125% in the Annual Percentage Rate (APR) from the initial Truth in Lending Disclosure (TIL) requires that the TIL Disclosure be revised and reissued to the homeowner.

The home buyer must receive the revised TIL Disclosure at least 3 business days before the closing. If the TIL is mailed, it is considered “received” 3 business days after the mailing. It is typical for many details to change during the course of the transaction,including the APR, which can delay the closing. The APR can be impacted by many details of the market and the transaction, including an unlocked rate,a change in the loan amount, a change to a different loan product, a rate re lock because of market improvement, a change in closing date, and changes to fees associated with the transaction. If the closing date is critical, it is imperative that the lender ensure that the estimated fees are as accurate as possible.

How do you think this will affect your business? Please comment.

Tags: The New Mortgage Regulations

Avoiding Real Estate Closing Delays

May 26

Posted by Jim Renshaw in Tech Bulletin | 2 Comments

Payoffs

One of the title company’s responsibilities when a new order is processed is to obtain payoff information for any existing loans. If the information does not come in with the order, Land Title contacts the listing agent for the name of the lender, the lender’s phone number, and the applicable loan number(s). It is also helpful to have the seller’s Social Security number (or the last four digits), since the majority of lenders require that information when payoffs are ordered. For best service, simply include all of this information with the contract. Please be aware that the Colorado payoff statute states that a closing company is entitled to reasonably rely on the amounts set forth in such a payoff statement for the stated time frame if the payoff statement is addressed to the closing company. Therefore, a payoff statement should not be ordered unless it can be addressed to Land Title Guarantee Company. Many payoff lenders require borrowers’ written payoff authorizations to obtain payoffs; please include them with the contract. Land Title can supply these forms to agents upon request. Many lenders, especially on second mortgages, can take several days to get the payoff figures to the title company. If the closing is in the first part of the month, it is also helpful for the closer to know whether or not the sellers will be making the current month’s payment. If the title company has this information ahead of time, there willbe less chance of last minute changes at the closing table. If the seller has a second mortgage and it is a line of credit, the line is required to be closed prior to or at the closing. If the account is not closed, the seller could use the account up to and even past the closing date, creating a shortage in the payoff that would come up after the closing. It is unfortunate, but sometimes after a closing the title company will need to contact the seller if the payoff is short. Some reasons there might be a shortage include insurance or taxes that were paid out of the escrow account, a line of credit that was used, or a bridge loan that was taken out right before the closing and is not yet of public record. Land Title’s closers will always try to contact the seller’s agent prior to contacting the seller so the agent is aware of the issue.

Wires

Many lenders fund by wire instead of cashier’s check. If an early morning closing is scheduled, it is best for the Realtor and/or the closer to contact the lender to see if they will wire the funds the day before closing to avoid having to close in escrow. The title company receives wires throughout the day, with the earliest wires beginning to come in at 10:30 a.m. Often, Land Title is asked to disburse on a file using the Fed Reference number provided by the lender. This is difficult to do, because the Fed Reference number indicates that the wire has been received by the Federal Reserve, but it does not guarantee that the wire will be delivered to our bank or our account.

Property Taxes

Title companies must collect at closing any property taxes that are due. The title company will confirm with the county if taxes have been paid or are still due. Any amounts due will be withheld from the sales proceeds and paid directly to the county or held in the title company’s file until the payment of taxes can be confirmed with the county.

Power of Attorney

If either party will not be at the closing to sign documents and will therefore be using a Power of Attorney, please remember:

• The title company must approve the Power of Attorney prior to closing. If the buyer is using a Power of Attorney, it also must be approved by the lender.

• Land Title must have the original Power of Attorney prior to closing.

• The original Power of Attorney must be recorded with the county Clerk and Recorder ahead of all other closing documents. (Land Title records the documents.)

• The title company must be able to contact the absent party via telephone on the day of closing to be certain he/she is alive and well and has not revoked the Power of Attorney.

Out-of-town Mailouts

If any documents must be mailed out for signatures:

• All documents must be signed exactly as requested.

• All documents must have proper notarization.

• All documents mailed out of the country must be notarized in English. Although Land Title does have a method of verifying out-of-country notarizations, it is preferable that the client go to an embassy to sign and notarize documents.

• All original documents must be received at Land Title prior to closing.

What to Bring to Your Real Estate Closing

To avoid delays at the closing table, you may want to remind your buyers and/or sellers of the following:

• All buyers and sellers must bring to closing a driver’s license, a picture ID issued by the state, or a valid passport.

• If there has been a change in marital status, the party whose name has changed should bring to the closing a driver’s license reflecting the new name, as well as a marriage license or divorce decree documenting the change.

• By Colorado law, the buyers must bring good funds to closing. Good funds can be a cashier’s check or wire. On cash transactions, Land Title requires wired funds from the buyer. Money orders and Western Union transfers are not considered good funds.Land Title does not accept cash over $500.00 for employee safety reasons.

• Buyers and sellers need to know their Social Security number (or TIN for entities) to complete IRS documents at the closing table, as the sale of property must be reported to the IRS.

• The seller can bring extra house keys, garage door openers, security access or gate card keys, etc. to closing to give to the buyer.

• The seller should leave at the home any operating guides or warranty materials for appliances or items that will stay with the property.

• If there is extra wallpaper or paint that was used at the property, the seller can leave these materials for the new owners, who may need to do a paint or wallpaper touchup after they move in.

Jim Renshaw

Land Title Guarantee Company