ASK THE EXPERT- Enhanced vs. Basic Title Insurance

Thursday, December 15th, 2011

I am purchasing a new home and don’t understand why I would want to pay extra for enhanced title insurance?  Can you help explain?

Yes, the answer is simple.  The “enhanced” policy (also referred to as “gold”, “eagle”, and  “advantage”) offers essential additional coverage not found in a standard owner’s policy.  The enhanced policy (ALTA Homeowner’s Policy) includes additional coverage for an improved residential property including some post -settlement/post-policy events.

To highlight a few:

-Someone claiming rights to your property arising from forgery or impersonation even post policy.

-Policy will insure you forever during your ownership and also insures anyone who inherits your property upon death and the trustee of a trust to whom you transfer title after policy issued.

-Includes built in inflation protection—the policy amount will increase by ten percent each year for the first five years up to 150% of the original policy amount.

-Protects owner from loss due to encroachments of their building structure (other than boundary walls and fences) over property lines and against loss due to encroachments of neighbors’ building structure (other than boundary walls or fences) built post-policy and without your consent.

These are just a few examples of enhanced coverage; for a more comprehensive list please see (link) to our website “What does title insurance cover? Basic vs. Enhanced Compare the Coverage”.

Please note, the usual and customary title search will be conducted;   accordingly, an adverse matter discovered may be noted on title commitment and included in final title policy as an exception. I encourage purchasers to review and ask questions regarding their proposed title policy.  The underwriting attorneys and marketing representatives at Lakeside Title Company are always willing to answer your questions.

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Scam Alert ***

Friday, July 15th, 2011

Lakeside Title Co. and Deardorff & Moon, LLC want to notify all of our clients and partners of a recent up tick of  fraud relating to “potential purchasers”  sending cashier’s checks  to third party title companies or attorneys.  The scam starts with an email to an agent expressing interest in a listing; and also requesting a  recommendation for an attorney to hold the deposit.  The “Interested Buyer” only communicates via email, is  located out of the country usually, intends to pay cash, and is not available by telephone during normal business hours. The goal of the scam is to deposit the entire purchase price (fraudulent cashier’s check) with third party, cancel contract, then request funds to be wired back.  Below are some  links to which provide sufficient proof this common scenario is most likely a scam.  We recommend that agents do a simple online GOOGLE on their prospective buyers so they can verify they are working with legitimate clients.  Also provided is a link to report this fraud to the FBI.

http://www.sarasotahomesforsalenow.com/sarasota-real-estate-scam/

You will see that the scam was reported by a general counsel for a Remax in the NW region and all of these sites report similar scams :

http://www.trulia.com/profile/paulettejonesrealtor/qanda/ , https://point2.zendesk.com/entries/218728-real-estate-scam-using-pt-2-to-find-agents , http://activerain.com/blogsview/1930492/scammers-or-legitimate-buyers- and at http://activerain.com/blogsview/1770880/scam-to-buy-expensive-home-from-masaaski-sasamoto

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Lakeside Title Donates Settlement to Habitat for Humanity

Tuesday, July 27th, 2010

In an effort to support a worthwhile cause, Lakeside Title Company donated all its services for the settlement of the recent Habitat for Humanity Howard County home.

Donating our time and services was a great experience.

This build was called the Apostles Build as 12 congregations were to each raise $12,000 toward the costs of construction.

This Elkridge property is now home to the Ali family, refugees from Somalia. Their tale is truly amazing. This family trekked from Somalia to Uganda with no food or water to escape the Somali coup.

To view the video of this family’s struggles and wonderful outcome here in Howard County, click on this link: http://howardhabitat.org/

As with all Habitat for Humanity families, they must apply to be selected and they must volunteer at least 500 hours of sweat equity either on the job site or with office assistance. For this particular build, applications were accepted at Wilde Lake High School. They were then reviewed by a family selection committee.

The home, a 3 bedroom, 1,100 square foot single family home with a walk out lower level was one of the larger homes Habitat has constructed.

Khalid Ali, his wife and their six children now live in a wonderful new home and with the generosity of Lakeside Title Company, they did not have to pay any of their settlement expenses at this June’s settlement. Raina Rath of Lakeside’s Columbia office actually did the settlement.

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Real Property Entity Tax Law Change

Sunday, June 15th, 2008

DID YOU KNOW that a significant change in Maryland’s tax law impacting real estate transactions will take effect on July 1, 2008. In Maryland it has been possible to transfer real property owned by an entity, such as a limited liability company, corporation, or partnership, without paying transfer or recordation fees, simply by transferringthe entity from one owner to another. For example, if an LLC owns real estate as its sole asset, the LLC members sell their interest to buyers who then become the members. This requires only a document called Assignment of Membership Interest, which is signed by all parties and retained with the LLC operating agreement. No State filing is required, although most times the name and address of the resident agent will have to be changed. And so the real property owned by the LLC is effectively transferred from seller to buyer; no deed is recorded and no transfer and recordation taxes are paid. This same technique has been used for partnerships, bya transfer of the partnership interests, and for corporations by a transfer of the stock.

Beginning July 1, 2008 transfer and recordation taxes will be collected for transfers of a Controlling Interest in a real property entity, just as if a deed is recorded. A real property entity is defined as any type of entity or trust that directly or indirectly owns real property in the state if that real property(a) constitutes at least 80% of its assets, and (b) has an aggregate value of at least $1,000,000.00. A Controlling Interest is defined as more that 80% of total value of all classes of stock in a corporation, of the beneficial interest in a trust, or of the total interest in any other entity.

The new law does not include transfers of interests in farm property. It does not include the admission of new owners, partners shareholders, or members incident to the raising of additional capital so long as the effective management of the real property entity is not substantially changed, and none of the new members is expected to participate in the day-to-day management of the entity.

The entity will be responsible for paying the tax; regulations, reporting, and payment methods will be developed by SDAT.

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Withholding Rule Revised

Wednesday, April 2nd, 2008

DID YOU KNOW that there have been recent changes made to the Maryland income tax laws and regulations which affect
nonresident sales of real property?

1. Effective January 1, 2008, the tax rates that apply to withholding on a sale or transfer of real property are 6.75% for a nonresident individual, and 8.25% for a nonresident entity.

2. A nonresident entity which qualifies or registers to do businessin Maryland, or is formed in Maryland, less than 90 days before the settlement date is still considered a nonresident entity for purposesof withholding.

3. Form MW506R, the Application for Tentative Refund of Withholding on Sales of Real Property by Nonresidents, must be filed no later than November 1st of the calendar year in which the nonresident withholding was paid.

4. The Affidavit of Residence or Principal Residence form, signed by all sellers at settlement and recorded with the deed, has changed.

The last item will have the most impact on the settlement process. On the affidavit, in the block captioned Reasons for Exemption, the paragraph to be checked by the seller marked Principal Residence now reads as follows (the bold portion is new):

Although I am no longer a resident of the State of Maryland, the Property is my principal residence as defined in IRC Section 121 and has been recorded as such with the State Department of Assessments and Taxation.

Now, when a seller checks the Principal Residence box, it does not guarantee an exemption from withholding; the records of SDAT must also be checked as a requirement of this exemption. If those records indicate that the property is not the seller’s principal residence, the tax must be withheld at closing or an application for an exemption must be filed, and an exemption granted. If the seller’s property qualifies as principal residence under IRC Section 121, meaning he has resided in it for 2 of the past 5 years, the tax may still have to be withheld.

In the event the seller checks the first box in the Resident Status block, indicating that he is a resident, no withholding is necessary even if SDAT records indicate that the property is not the seller’s principal residence. Maryland Code defines “Resident” as an individual who (a) is domiciled in Maryland on the last day of the taxable year; or (b) for more than 6 months of the taxable year, maintained a place of abode in Maryland, whether domiciled in Maryland or not; or (c) is domiciled in Maryland and moves outside Maryland before the last day of the taxable year with the bona fide intention to remain permanently outside the State. So long as the seller meets one of those requirements, the residency box can be checked.

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Homeowner’s Tax Credit

Wednesday, February 20th, 2008

DID YOU KNOW that legislation enacted by the 2007 session of the Maryland General Assembly will require homeowners to submit a one-time application in order to initiate or continue their eligibility for the Homestead Tax Credit? The homestead credit limits the amount of the assessment increase on which a homeowner will pay property taxes in that tax year on the one property actually used as the homeowner’s principal residence, and it had been the only tax credit given without a written application. The legislation was enacted because some property owners are receiving the credit for vacation and investment homes, in addition to their principal residence.

Applications will be mailed by SDAT with the Assessment Notices mailed to homeowners in the normal course, over the next three (3) years. New purchasers(after December 31, 2007) will receive an application after the transfer is recorded and must file it within 180 days of the transfer date. Applications may be filed by mail or electronically on SDAT’s website at: https://sdathtc.resiusa.org/homestead/.

If a dwelling is transferred whose property tax contained a homestead credit, that credit will not be given to the new owner for the tax year following the transfer, whether they file an application or not. A homeowner must actually reside in the dwelling by July 1 of the taxable year for which the tax credit is to be allowed.

This will impact the purchase transaction. When a title company provides tax information to a mortgage lender, it should no longer base that information on last year’s property taxes; it will base it on the taxes less the homestead credit. The lender will compute the monthly tax escrow payment on that increased amount, therefore, the buyer’s monthly PITI payment will exceed an amount based on the seller’s annual taxes. If the realtor or mortgage loan officer predicts a monthly payment based on the seller’s annual taxes, and the seller has been receiving a substantial homestead credit, the monthly payment amount presented at the settlement table could be several hundred dollars higher than the predicted amount, or the amount shown on the good faith estimate. This could cause some discomfort.

The amount of the homestead tax credit may be found on the web site for the county in which the property is located. It is shown as a line item on the tax bill. Settlement will be a much more pleasant process if the homeowner receives an accurate payment prediction in advance.

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Prepayment Penalties

Friday, November 9th, 2007

DID YOU KNOW that Maryland law contains several provisions which govern limitations on fees and charges made by a mortgage lender licensed by the State, including prepayment penalties, and which depend on the characteristics of the particular loan. Sections 12-308(c)(1) and 12-1009(e) of the Commercial Law Article permit a borrower to prepay a “consumer” loan in full or in part at any time, without penalty. Section 12-407(d)(1) prohibits prepayment penalties for second mortgage loans. Section 12-905(b) prohibits prepayment penalties for secured, open ended credit plans,which would include HELOC loans. By contrast, 12-103(a) permits a prepayment penalty so long as the total interest and penalty does not exceed the 8% interest rate ceiling, and the penalty is limited to the restrictions set out in 12-105(b)(4) as follows: (i) that the penalty may only be imposed on prepayments made within 3 years from the date the loan is made; and, (ii) that the prepayment penalty may not exceed an amount determined by a formula contained in that section. 12-126(b) provides that the borrower whose primary residence is secured by a mortgage loan may prepay in whole or in part at any time, except to the extent expressly provided otherwise in the loan contract.

These State law prohibitions against prepayment fees place non-federally chartered mortgage lenders in Maryland at a competitive disadvantage with their federally chartered counterparts, which are not subject to State requirements. These restrictions have been preempted by the Federal Parity Act of 1982, which created an environment wherein all mortgage lenders, including state licensed or chartered institutions, may make, purchase, and enforce “alternative mortgage transactions” in conformity with applicable Federal regulations. An“alternative mortgage transaction” is defined as a loan secured by an interest in residential real property wherein the interest rate may be adjusted or renegotiated. The purpose of the Parity Act was to prevent discrimination against State chartered institutions, and to increase the overall availability of mortgages to creditors’ reliance on alternative mortgage transactions.

The Parity Act has effectively preempted those sections of the Commercial Law Article set forth above which limit the charging of prepayment fees for adjustable rate mortgage loans made by State licensed institutions. The Act does not preempt State law if the loan is a traditional fully amortized, fixed interest mortgage loan; however, Federally chartered mortgage lenders are not subject to State imposed restrictions.

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Land Installment Contracts

Sunday, October 28th, 2007

In the past when it became more difficult for borrowers to qualify for mortgage loans, sellers sometimes resortedto the use of Land Installment Contracts to sell their property. Since the market is experiencing similar symptoms,it may be timely to review the contract’s features.

The Land Installment Contract was created by statute in Maryland (Section 10, 101-110 of the Real Property Article). It is essentially an owner financing tool whereby seller agrees to sell the property to buyer and buyer agrees to pay the purchase price in five (5) or more installment payments, exclusive of the down payment. The seller retains title to the property as security. The property must be occupied by the buyer as a dwelling or may be an unimproved, subdivided residential lot. To be valid, a copy of the contract must be given to the buyer. The original must be recorded in the land records within fifteen (15) days of its execution, and the recorder’s receipt given tothe buyer.

The statute contains requirements to make the Land Installment Contract valid. For example, the contract must contain a provision stating that once the buyer has paid forty percent (40%) of the purchase price, he is entitled to ask the seller to record a deed and take back a mortgage for the balance. There are similar technicalities which should discourage the preparation of a Land Installment Contract by anyone except a qualified attorney.

There are few practical advantages to the use of a Land Installment Contract. It is tempting to use it as a technique for “assuming” an existing mortgage; however,whether or not its use violates the “due on sale” clause in a standard FNMA deed of trust has never been determined by the Court of Appeals in Maryland. If the mortgage lender accelerates the loan because of the land contract, it may be impossible for the buyer to retain the property. Equitable title is transferred from seller to buyer at the time the contract is recorded, so subsequent judgments against the seller will not attach to the property; however, legal title remains in the seller’s name, so the tax and assessment records are not transferred. This may confuse the buyer and lead to issues later, even if the proper disclosures are made at settlement. If the buyer defaults, the seller does not “get the property back”, but must go through a foreclosure process, the same as if he had simply held a purchase money mortgage. There are no State transfer or recordation taxes assessed when Land Installment Contract is recorded, and most counties do not collect local transfer tax. The IRS considers a transfer by land contract a “sale”, so the normal tax treatment applies.

Although it may appear that a Land Installment Contract is a solution for a cash poor buyer who cannot qualify for a new mortgage loan, its use for this purpose is not recommended. It may be practical for some transfers between knowledgeable parties as a way to achieve their objectives and defer transfer taxes, but they must be informed of all the possible consequences, and have alternatives in place.

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Lis Pendens and the Mediation Clause

Sunday, July 1st, 2007

DID YOU KNOW that a lawsuit filed to enforce a contract for the sale of real estate automatically becomes lis pendens, defined as pending litigation, or pending suit. The actual filing of the lawsuit in the county where the property is located creates the lis pendens. A “notice of lis pendens” is a notice filed in the county land records for the purpose of warning all persons that the title to certain property located in that county is in litigation, and a person who purchases that property may be bound by an adverse judgment. Filing a notice of lis pendens which merely gives notice of a possible claim is of no effect unless a lawsuit which sets out that claim is actually filed. The lawsuit must be related to the property; for example, an action filed to collect a property owner’s debt is not lis pendens.

For some time, the MAR Statewide contract has contained a mediation clause, requiring that neither Buyer or Seller shall commence an action under the terms of the contract without “first submitting the dispute or claim to mediation”. Mediation, as opposed to arbitration, only requires the parties to discuss their claim with each other in the presence of a mediator, who listens, counsels, and attempts to encourage them to reach an agreement. The mediator himself does not decide the merit of the claim, and, if the parties do not reach an agreement, either party may seek a judicial remedy by filing a court action. The purpose of the mediation clause is to require the parties to attempt to solve their conflict relatively quickly without incurring attorney’s fees. If a Buyer or Seller initiates a court action before submitting his claim to mediation, the party commencing said action must pay allcosts and expenses, including attorney’s fees, incurred by the other party to enforce the mediation provision.

A Buyer who files suit to enforce the contract to create a lis pendens will stop the sale of the property to a third party as long as the title company has knowledge of the action. If a Buyer files such an action without first attempting mediation, he breaches the contract mediation provision, and he may be liable for the damages the Seller incurs because of the Seller’s inability to convey the property, regardless of the eventual outcome. So, one can conclude that the requirement to mediate prevents a disgruntled Buyer from stopping the Seller’s legitimate sale to a third party before first submitting to mediation. But how does a good faith Buyer quickly prevent an unscrupulous Seller from wrongly selling the property to a third party? A notice of lis pendens cannot be filed unless a lawsuit has been filed, and the suit may not be filed before mediation.

Faced with this contradictory situation, a Buyer or Seller may look to his agent for advice. The consequences for filing a lawsuit may be less than those from refraining to do so. There is no general rule, and each situation must be evaluated individually. If a real estate agent represents a Buyer or Seller eager to bring an action to enforce a contract, the agent’s advice should be limited to promptly referring his client to a competent real estate attorney.

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