Starting January 1, 2008, the sale of a residence that had been jointly owned and occupied by the surviving and deceased spouse is entitled to the $500,000 gain exclusion provided the sale occurs no later than two years after the date of death of the individual's spouse. The surviving spouse continues to be allowed a step up in basis in the residence for the deceased spouse's one-half share. The $500,000 exclusion is in addition to that benefit.
Columbia County R.E. Transfer Tax
On December 1, 2007, Columbia County imposed a Supplemental Transfer Tax for all sales. Both seller(s) and purchaser(s) must now sign a Supplemental Real Estate Transfer Tax Return form and submit said form along with the deed presented for recording in Columbia County. The Tax is paid to the Columbia County Clerk. The first $150,000 of the transfer amount is exempt; amounts of $150,001 and above are calculated at $2.00 per thousand.
2008 Tax Lien Sales
A signed bill now authorizes the NYC Department of Finance to sell tax liens until 2010. The bill authorizes the City to conduct stand-alone water lien sales on certain class one and class two residential properties. Water delinquencies at $1,000.00+, of one year or more, will be sold to a private lien holder. DEP is currently offering all account holders a one-time payment incentive plan (PIP) wherein the late payment charges would be dismissed if the customer agrees to immediately pay the delinquent water bill in full. Properties receiving the Senior Citizen Homeowners' Exemption and the Disabled Homeowners' Exemption will not be subject to the stand-alone water sale. Also, the notification period of tax lien sales has been extended from 60 to 90 days.
While a price cut seems to be the prevailing strategy to impact housing sales in many parts of the country, the New York experience is a very different one with cooperative apartment prices soaring, some even to the multi-million-dollar range. At these remarkable price points, a commensurately greater risk is undertaken in the event of a title loss, ultimately placing the onus on attorneys to investigate strategies and offer recommendations on title insurance in an effort to counter the associated risks.
Historically, title insurance products offering protection for cooperative apartments comparable to their real property counterparts have been limited, and clients operated on the basis of trust placed upon an attorney's efficacy, but with ordinary two bedroom co-ops subject to mansion tax, these same trusted attorneys are now faced with a greater potential risk of being sued for the smallest oversight. Attorneys must now consider everything including the risks of non-insurance based upon known circumstances relating to additional risk especially in foreclosure cases'of a UCC-1 on an individual co-op apartment or maintenance charges against an individual co-op apartment.
Title insurance limitations on the purchase of co-op apartments are due to the fact that a co-op is not considered real estate, but rather an interest in personal property in the form of stock in a corporation (that owns a fee or leasehold interest in a building) together with, or the right to, a long-term lease of a particular residential or commercial unit. Despite this fact, the possessory rights and their value are based in large part on the underlying real estate interest of the co-op corporation whose stock is being purchased, and therefore, many of the risks attendant upon a real estate purchase may also apply to the case of the co-op. That being said, it becomes prudent to weigh the risks of the substantial investment against the extent of protection pertaining to loss that is available keeping in mind that ''it is not the frequency with which a possible loss may occur that is important, but the impact or extent of the loss if it should occur.' Continues the New York Real Property Law Journal, the risks of the investment may include:
1. Defects, liens and encumbrances attached to the property since the original purchase of title insurance at the time of acquisition.
2. Particulars pertaining to a lease-hold including term expiration, possible rental escalation, lease-to-purchase options, termination options, etc.
3. Any and all underlying mortgages and such liens, restrictions and encumbrances that may have been created by the co-op corporation after the acquisition of the property that may affects costs or quality of resident life.
4. Outstanding taxes of the cooperative corporation
5. Hidden risks that apply to the sale of real estate such as fraud, forgery, impersonation, etc. Additionally, other risks may arise if any of the transfers come through a bankruptcy, foreclosure, infancy, death, or mental impairment of an owner. Experts indicate that an especially significant risk is an undisclosed seller bankruptcy because local bankruptcy records may not disclose that information. Section 549-c of the Bankruptcy Code protects buyers of real property in those circumstances, but no such protection exists for co-op purchasers
6. Inaccuracy of the co-op corporate records'some of which may be missing or incomplete and can result in mis-information and financial loss
7. Transfer & Mansion tax issues
8. The Estates, Powers and Trust Law, Sections 6-2.1 and 6-2.2 currently amended to provide that on or after January 1, 1996, a husband and wife may own a co-op as tenants in entirety passing title to the other in the event of death.
9. Inadvertent loss or misplacement of the original proprietary lease and stock certificate
10. An action pursuant to the security agreement brought against the co-op apartment owner for non-payment of the loan secured by the UCC-1 OR the co-op corporation for non-payment of the maintenance charges
Customarily, the extent of due diligence in a co-op purchase involves a Co-op Lien Search which searches for UCC filings, judgments and liens against the co-op corporation/sponsor or individual seller (whichever is appropriate) and the purchaser in the case of lender financing. The search investigates prior loans secured by the stock and lease, open mortgages on the building, judgments and liens against the seller, etc. Sometimes where there are weightier title concerns, a Title Insurance Rate Service Association (TIRSA) leasehold title insurance policy may be purchased for the benefit of the purchaser addressing matters that could attach to or encumber his/her assigned shares of stock. The TIRSA lender's policy ensures that the bank has a valid, perfected lien. Additionally, a TIRSA cooperative endorsement may be added on either side to further insure good title including the unit's maintenance charges are up to date. For a premium of 70% of the standard rate for real property fee insurance, TIRSA operates under the same insuring provisions of the American Land Title Association (ALTA) with a few additions (see our September 2007 Newsletter on TOEPP). But, according to S.H. Spencer Compton of First American Title Insurance, more recently, a more ''moderately priced insurance product which specifically insures a buyer's title to its cooperative interest has become available''e.g., the new Eagle 9' UCC Cooperative Interest Insurance Policy for Buyers
Compton explains that the Eagle 9' Policy addresses a variety of potential issues and provides insurance against:
1. A person other than the insured claiming right of ownership (an heir, legatee, other stockholder, etc.)
2. A lender's attempt to enforce a wrongfully terminated financing statement. This is of particular significance in light of the revision to Article 9 pertaining to secured transactions under New York's Uniform Commercial Code (UCC) specifying that when a security interest in a co-op interest was perfected by filing before July 1, 2001, either the UCC-3 (perfecting security interest for 5 years) OR the Co-op Addendum (perfecting security interest for 50 years) should have been filed prior to July 1, 2006. Failure to comply results in the lapse of the UCC-1 filings perfecting the lien against the co-op interest
3. A co-op unit being transferred without the knowledge that the seller is in bankruptcy
4. A federal tax lien filed against the seller in another jurisdiction now being enforced against the unit
5. A claim that the person transferring the unit did not have the authority to do so. This includes a seller with a claim of fraud or undue influence
6. Commenced proceedings to enforce a lien in a bankruptcy
7. A lender attempting to enforce an unknown, filed, but mis-indexed, financing statement
8. The transfer of a unit after a notice was served concerning the enforcement of a judgment against the unit
9. The federal or state government's attempt to enforce a federal or NY state tax lien filed against the seller
The premium to purchase an Eagle 9' UCC Cooperative Interest Insurance Policy for Buyers is more moderately priced than that of a TIRSA Co-op Leasehold Owner's Policy. Significant refinance discounts and simultaneous issuance are available for a lender's equivalent of this policy.
The bottom line is, whatever the choice'the TIRSA Co-op Leasehold Title Insurance Policy or the new Eagle 9' UCC Cooperative Interest Insurance Policy for Buyers (currently offered exclusively through First American Title Insurance Company)'one thing is clear: dramatic price increases in co-op units along with other endemic issues like recording indexing errors and lack of timely UCC-3 filings associated with the revised Article 9 deadline date are creating a new level of need for title insurance coverage that addresses very specific risks associated with co-op apartment purchases.
With home prices as high as they are, jumbo loans (mortgages over $417,000) have been the only option for buyers despite the interest rate of at least half a percentage point more than smaller loans. The percentage point condition results from Fannie Mae and Freddie Mac being federally barred from purchasing loans over the $417,000 marker, and with no guaranteed market for the bigger loans, lenders assume more risk and offset that with a higher interest rate. But under a proposed stimulus plan, Fannie Mae and Freddie Mac may be permitted to buy loans of up to $729,750.00, thereby leading to greater affordability in the general market because of the anticipated reduction in rate. So, per the Times, whereas a fixed rate mortgage of $625,000 would have required a payment of $3,848.23 under the 6.25 percent jumbo rate, the same loan would require $3,548.68 at the low non-jumbo rate of 5.5 percent. If interest rates do not change drastically before the new policies take effect, mortgage experts are predicting 2008 as the year of the refinance.
The government's new loan policies also include an increase in the size of Federal Housing Administration mortgages that carry less risk for lenders and consequently better terms for borrowers. Under the new plan, the F.H.A. limit also rises to $729,50.00. With the new limit and only 3% needed as down payment, homes in sought-after counties may no longer be out of reach for the average consumer.