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What you can expect from the 2nd Quarter 2018 issue of ASSURANCE:

  • Discussion on the new Illinois Disclosure of Financial Interest form
  • Is Congress getting closer to fixing TRID?
  • Are you using Prairie’s secure portal, PrairieSecure, to submit orders and upload your title and closing documents?
  • And much more…

I hope you find it interesting and useful.

Frank

In the News: Can CRE Lead the Way?

Last year’s federal tax legislation has begun to sink in, with employers adjusting withholding levels to match the new IRS charts and many employees seeing larger paychecks as a result. It’s hard to tell what effect the tax changes will have on the economy overall, and the real estate market in particular, but there is hope that changes affecting real estate LLCs will boost commercial real estate this year.

In a slideshow posted on nreionline.com, six economists give their generally positive views on the state of CRE in 2018. For instance, Ryan Severino, chief economist at JLL asserts: “The recent tax cuts are likely to benefit real estate significantly and should have a far more substantial impact than either changes to immigration policy or infrastructure policy.”

We may need commercial to lead the way this year as housing continues to be a puzzle despite January housing construction news termed “terrific” by NAR Chief Economist Laurence Yun. This rise in single-family housing construction will help tame home price growth,” Yun said.

As Reuters reported: “Housing starts jumped 9.7 percent to a seasonally adjusted annual rate of 1.326 million units in January. …Economists polled by Reuters had forecast housing starts rising to a pace of 1.234 million units last month after a previously reported rate of 1.192 million units. Building permits surged 7.4 percent to a rate of 1.396 million units in January.”

Will January’s construction numbers provide a push for housing? We hope so, but continued lack of inventory and high prices are keeping the overall housing market flat at best. And it remains to be seen if the elimination of federal deductibility of state and local taxes will negatively impact housing.  

Good news out of Washington: The House recently passed bipartisan ALTA-supported legislation that corrects the inaccurate disclosure of title insurance premiums on the TILA-RESPA Integrated Disclosures (TRID) form and will help consumers understand the true cost of their real estate transaction.  Here’s hoping the Senate follows suit and the fix becomes law.

A final thought. We’re moving more and more toward a digital mortgage/closing process from start to finish. It won’t happen overnight but there are signs of movement. Just last month Chase announced its intention to soon offer digital mortgages on smartphones. Also, I found this article on operationalizing the digital mortgage process in Housing Wire to be an interesting read.

Finally, finally. I recently authored an article in an Illinois State Bar publication titled, “The Bond that’s not: How to convey real estate in an unprobated estate.”  For those interested in the subject matter, or others who might suffer from insomnia, I thought you might find it helpful.

Let’s close out the first quarter strong!

The Bond That’s Not: How to convey real estate in an unprobated estate

Upon the death of an owner of real estate, a determination must be made as to who succeeds the deceased owner in title to the real estate.  Title must vest in some other person or entity.

In the event that the deceased owner left a will and the disposition of the testator’s real estate was provided in that will, the will determines ownership succession.  However, it is necessary that the will be admitted to probate lest there be any question of its efficacy.  If the deceased owner does not leave a valid will, or if a will is not admitted to probate, the rules of descent and distribution of the State of Illinois, as codified in 755 ILCS 5/2-1, determines who the successors in title are to be.  It could be said that if we do not write our own will, the State of Illinois does so for us.

It should be made clear that this article pertains only to real estate which is not held in a manner that provides for its disposition without necessity of probate (i. e. non-probate assets).  Examples of non-probate assets include joint tenancy and tenancy by the entirety, Illinois land trusts, inter vivos trusts, and transfer-on-death instruments (TODI).  For such non-probate assets, title passes by operation of law or automatically through the provisions of the governing instrument. Real estate interests solely in the name of the decedent, and not otherwise governed through a trust agreement or a TODI, requires the practitioner to reflect upon whether it is in the clients’ best interest to open a probate proceeding or to seek an alternative means of conveying the interest of heirs or devisees.

Whether the decedent died testate or intestate, the decision to dispose of the property through probate will depend on the circumstances of the estate, the best interests of the heirs or devisees, the advice of counsel, and consideration of applicable costs and fees.  Keep in mind that, besides establishing a successor interest in property, a probate proceeding will shorten the period of time within which claims against an estate must be asserted.  Without probate, claims may be asserted up to two (2) years after the death of the decedent (755 ILCS 5/18-12).  A probate proceeding will shorten that time to six (6) months (755 ILCS 5/18-3). Claimants are afforded greater assurances in a probated estate since the personal representative and the assets of the estate are under the jurisdiction of the court.  This is true regardless of when the real estate is sold (even if closed before the expiration of the claims period) since the proceeds of sale will be paid to the estate.

Notwithstanding the protections and certainty provided by probate, many clients have preconceived notions about probate and often wish to avoid it altogether. It is widely believed that probate is cumbersome and expensive.  As such, many practitioners seek alternatives to probate, especially when almost all the value in a modest estate is represented by a parcel of

real estate. Further, in many instances, the heirs, descendants, or devisees wish to sell the real estate as soon as possible. Opening the estate and waiting for appointment of the personal representative may cause delays in marketing, negotiating, or finalizing the sale of the property.

A very useful option to probating real estate is what has become known as a “bond-in-lieu-of-probate”. Ironically, there is actually not a bond, at all. It is more correctly viewed as an additional premium charged for title insurance at the time of sale of the subject property. The additional premium reflects the assumption of risk the title insurer agrees to assume in covering possible claims against the estate of the deceased owner of the subject property.

Real estate interests are not easily divisible. The typical fact scenario where the “bond-in-lieu-of-probate” is most helpful involves heirs and/or devisees who desire to sell the property to a third party as soon as possible after the owner’s death in order to facilitate division of the proceeds of sale, which are clearly less complicated to divide that the real estate, itself.

Proper underwriting for the “bond-in-lieu-of-probate” will involve assessing the risk of potential claims and obtaining adequate assurances and indemnities from appropriate parties in the event claims are asserted. Before that, all interested parties must be identified and brought into the process. The attorney for the estate must obtain proof of death of the title holder. An original death certificate is required. To establish descendancy, an affidavit of heirship will have to be prepared and furnished to the title company. The affidavit of heirship should contain a statement that the expenses of last illness and all funeral/burial expenses have been paid. It should also state that the affiant has no knowledge of potential claims. Further, the affiant should state that the affidavit is given to induce the title company to issue its policy free and clear of any exception related to claims against the estate. This establishes reliance on the part of the insurer.

Also, if a will exists, the title company should be furnished with a copy of it to determine if there are legatees and devisees other than the heirs named in the affidavit of heirship. Keep in mind that, even though the will is not probated, Illinois law requires that it be filed with the Clerk of the Probate Court of the applicable county (755 ILCS 5/6-1). Once filed, certified copies of the will are available through the Probate Court Clerk.

The documentation described above will provide the title insurer with essential details to make a good assessment of the risk and to determine an appropriate additional premium. Obviously, as the expiration of the claims period approaches, the additional premium amount should decrease. A transfer shortly after death of the owner will require a higher amount. In addition to the premium, the title insurer will likely require title indemnity agreements from the parties interested in the estate. This affords the title insurer reliance upon the statements made by the various parties in interest. Finally, the deed or deeds must be signed by each heir, devisee, and legatee, as applicable.

Through this arrangement, the risk of possible claims against the estate is shifted to the title insurer. The purchasers of the property can rest assured that their title as the new owners is protected from possible outstanding claims against the estate of the former owner. In exchange, the selling estate achieves a quick and efficient conveyance without the delay, forms, and proceedings incumbent upon the opening an estate and issuance of letters of office. For many families this is the most desirable outcome. With this option, estate and real estate practitioners have another arrow in their quiver for a cost-effective and time-saving alternative to transfer a probate asset without actually probating the estate.

 

1st Quarter 2018 ASSURANCE Newsletter is Out!

The 1st Quarter 2018 edition of ASSURANCE is here!  In this edition of our newsletter, I discuss where real estate may be heading under the new tax laws and a legislative update.  Additionally, learn more about two of our staff members, Steve Gillum and Amanda Miller, under Five Fast Questions.

Don’t miss out on other industry news and topics too!  I hope you find it interesting and useful.

Frank

 

In the News: Closing a Volatile Year

In the News

December 21, 2017

Closing a Volatile Year

As 2017 comes to a close, I am hard pressed to think of a year in my lifetime that witnessed so much Washington-based controversy since Vietnam coupled with Watergate. Front and center on my mind at the end of a tumultuous year is that state of the real estate economy and just how much real estate impacts the U.S. economy as a whole.

An interesting piece in Mortgage Professional America recently spoke of the benefits to the real estate economy if a home purchase tax credit were adopted, and a statistical note in the article really stood out to me: “According to the Bureau of Economic Analysis, the GDP reached $18.6 trillion in 2016. Of this amount, real estate chipped in $2.48 trillion, or 13.3 percent. In comparison, manufacturing was worth $2.18 trillion, retail contributed $1.1 trillion, and lawyers produced services worth $245 billion.”

Clearly, the need to promote real estate transactions through the tax code is imperative. Thankfully, the tax bill just passed in Congress ended up being less unfavorable to real estate than previous versions. Some deductibility for property taxes was maintained and the mortgage interest deduction was largely preserved, while capital gains treatment on the sale of a primary residence was preserved. Commercial real estate also should benefit as pass-through entities such as LLCs will be treated more favorably in the new tax environment.

For my part, I am keeping an open mind on the possibilities for the real estate market as the new tax laws come into greater focus during 2018.

CFPB Follies. There’s no need to discuss the spectacle of the agency temporarily having two directors, but there has been movement on TRID disclosures since we last published.

On Dec. 6, CFPB issued an updated version of the TRID Guide to the Loan Estimate and Closing Disclosure forms, which did not really help solve disclosure issues. More hopefully, there is some momentum behind a bipartisan effort in Congress to legislate needed changes to the disclosure rule. We hope the new year will bring good news in this arena.

Finally, We recently saw Mudbound, an early 2017 movie release set in post World War II Mississippi. While I enjoyed the entire movie, one scene struck me as it unfolded: A family arrives at a home they believe they have rented (and indeed put $100 down on, quite a sum in those days) only to find that the homeowner has sold the home in the interim and they are out their money. The renter had made the deal on a handshake, with no paperwork, and unfortunately paid the price for that mistake.

To me, the scene was a reminder that real estate fraud has always been and always will be with us, and the need for vigilance to guard against fraud and theft remains and grows greater every day.

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