Articles Posted in Real Estate

Like all other unique forms of real estate ownership, Co-Op Housing presents some interesting difficulties for those in the real estate market.

The end of World War II marked the beginning of an acute housing shortage in the United States. Returning servicemen and woman, many of whom had lived with their parents before the war, returned home looking to live independently and to begin raising families. Unfortunately, major cities like Chicago, had little to offer.

The Federal Government recognized the need and opportunity to provide service members with affordable housing while stimulating the building trades. As part of the Serviceman’s Readjustment Act, federally approved builders were given the green light to construct 4-unit apartment style buildings to house veterans and their families. The veterans would obtain a mortgage subsidized by the Veteran’s Administration and enter into an agreement to manage the property.

The Reverse Mortgage has gotten a bad reputation in the time since it was first created by the Federal Housing Administration in 1988. The mere mention of the Reverse Mortgage usually brings to mind foreclosed homes and declining financial health. In fact a Reverse Mortgage is simply an equity loan secured by someone’s home with a deferred payment plan. Unlike a traditional home equity line of credit, no reverse mortgage interest or principal is due until the loan reaches maturity. As long as the homeowner resides in the property and stays current on property tax and insurance payments, they can reside in the home without making any payments on the money they have borrowed.

In order to qualify for a reverse mortgage, a homeowner must be age 62 or older with substantial equity in their home. There are no income or credit score requirements. Typically, the older the homeowner, the more they can borrow. A homeowner has the option of taking out a lump sum amount or establishing a line of credit that grows over time if money is not withdrawn.

A homeowner does have the option to pay down the balance of a reverse mortgage over time. Interest paid on the loan can be taken as a tax deduction. If no payments are made, the reverse mortgage is still not due until the last surviving borrower passes away or fails to occupy the home as their primary residence. Reverse mortgage lenders will give the heirs of an estate up to 12 months to complete the sale of the home or refinance the balance of the reverse mortgage. It is VERY important that the heirs of a deceased home owner contact the mortgage lender as soon as possible to inform them of the passing and the heirs’ plans for the property.

A Home Equity Line of Credit allows you to get cash from the equity you have in your home. Most lenders look for a cushion of 30% equity already in the home before they will consider allowing the homeowner to borrow against the home’s equity. With house values only beginning to rebound, some homeowners can’t meet this 30% requirement. Other homeowners find they have little in excess of this 30% requirement available to borrow against.

The rates offered by lenders for Home Equity Lines of Credit are close to those offered to home buyers.

Home equity is a consideration for estate planning. It is a major asset and in many cases the largest asset in an estate. Careful consideration needs to be given before a decision is made which will affect home equity in the short term and the long term.
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If you live in Illinois, you are married and you own your home, it is worth becoming familiar with the meaning of holding title to your home in the form of a tenancy by the entirety.

A tenancy by the entirety differs in several important ways from the other two ways title to real estate may be held by two or more people (tenancy in common and joint tenancy with rights of survivorship).

First, only married couples may hold title as tenants by the entirety. There is no marriage requirement to hold title as tenants in common or as joint tenants with rights of survivorship.

Second, the property must be a primary personal residence. No restriction exists regarding the type of property which can be held by tenants in common or joint tenants with rights of survivorship.

Third, there must be agreement between the tenants by the entirety if the tenancy is to be broken by them. No such agreement is required if fewer than all tenants in common or all joint tenants want to change how they hold title.

Fourth, only joint creditors (creditors of both the husband and the wife) may reach the home of the husband and wife where the home is held in tenancy by the entirety. If a creditor has a claim against only the husband or only the wife, the home held in tenancy by the entirety cannot be partitioned, sold or encumbered without the permission of both spouses.

Fifth, specific terminology must be used to create a tenancy by the entirety. In Illinois, the deed language must indicate that the parties are married and must use specific words creating the tenancy by the entirety. The following language is commonly used to create a tenancy by the entirety between Sam and Sally Smith: “to Sam Smith and Sally Smith, husband and wife, not as tenants in common nor as joint tenants with rights of survivorship but at tenants by the entirety”.

As stated earlier, a tenancy by the entirety may be terminated by agreement of the tenants. It may also be terminated by a court ordered sale to satisfy a joint debt of the husband and the wife, by a divorce or by the death of either the husband or the wife.

One last point, in many states, a husband and wife who take title jointly will automatically take title to their home as tenants by the entirety. Illinois is not one of those states. The specific language referenced earlier must be used for a tenancy by the entirety to be created in Illinois.
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When real estate is held by two individuals as joint tenants with rights of survivorship, the surviving joint tenant will not receive the full step-up in cost basis he would have received if he had inherited the real estate.

For example, Sue and her son, Sam, purchased a house as joint tenants twenty years ago for $50,000 and today it is worth $550,000. After Sue dies, only half of the real estate receives a step up in cost basis for tax purposes. If Sam sells the property for $550,000, Sam has a $250,000 gain on the sale which is subject to capital gains tax.

If Sue had kept title to the real estate in her name alone and left the real estate to Sam in her Will or in her revocable living trust, upon Sue’s death the real estate would receive the full step up in cost basis. Sam would have no gain on the sale subject to capital gains tax.
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When a Seller assures a Buyer that he will stand behind the title to the property he is conveying, the Seller executes a Warranty Deed. With a Warranty Deed, the Seller discloses to the Buyer all of the encumbrances on the property and certifies to the Buyer that no other outstanding claims against title to the property exist. The Seller stands behind this certification by guaranteeing that if there is a problem with the title, the Seller will compensate the Buyer for any loss.

When a Seller does not assure the Buyer that he will stand behind the title he is conveying, the Seller executes a Quitclaim Deed. With a Quitclaim Deed, the Seller conveys to the buyer only the right, title and interest that he has, whatever that may be. The Seller does not guarantee that other parties do not have an interest in the property, and the Seller does not agree to compensate the Buyer for any loss because of these outstanding interests.

Both Warranty Deeds and Quitclaim Deeds have there useful place when parties are interested in transferring title to property.
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Effective November 6, 2009 a new tax credit is available for both repeat and first-time home buyers. The National Association of Home Builders’s website provides specific details.

One can qualify for a tax credit up to 10% of the purchase price of a new home (maximum credit $6500) if one has lived in one residence for five consecutive years of the last eight years.

Income limits apply. For single filers the credits phase out between $125,000 and $145,000 of modified adjusted gross income. For married couples, the phase out is between $225,000 and $245,000.

Other limits apply. The credit cannot be taken if the home is purchased from a spouse or the spouse’s lineal relatives. The person claiming the credit must use the home as a principal residence.

The new law is unclear as to whether one must sell one’s previous home to qualify for the credit.
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In Amy Hoak’s Wall Street Journal article, Mortgage Lending for Sellers, she points out the advantages to both buyers and sellers when a private mortgage is used to purchase a home.

With a private mortgage, the seller or some other interested individual holds the mortgage on the property. There are no bank or mortgage company requirements for the buyer to meet such as a steady income history for the past two years or a particular credit report score. Instead, the buyer and the seller reach their own agreement with their own terms.

Private mortgage income is attractive to sellers who are looking for a steady stream of income and are looking to defer capital gains.

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