Rusty Law

Minor Homeowners Create Major Changes

The youngest homeowner is four years of age on the books for the first-time homebuyer tax credit.  Apparently the kid was renting his first three years and wisely decided to cash in on that tax credit before he had mastered the alphabet.  There are hundreds of minor homeowners like him, who claimed the $8,000 on first time home purchases.  With the extension of the program, however, the Treasury Department put the tax credit jar on a higher shelf.  

The Treasury Department hosted millions of dollars in questionable claims, ranging from the four-year-old homeowner to the lack of documentation that would verify eligibility for the program.  The first-time home buyer tax credit, originally scheduled to sunset at the end of November 2009, was extended to the end of June for the actual close of the transaction, and with that extension comes additional specifications.  

The program is limited to primary residences, and those have to be purchased for less than $800,000—no million dollar homes for first time buyers!  Also, the purchaser must be at least old enough to vote and able to provide a HUD-1 Settlement Statement.  

Even with these higher requirements, the First-Time Homebuyer program has increased annual income limits ($125,000 for singles and $225,000 for married couples), and as long as the buyer uses that property as a primary residence for at least three years, the buyer gets to keep the money.  

Real estate has a lot of deals right now, and continues to be a first-time buyers’ market with the extension of this tax credit.  

Homestead Rentals

We have plenty of H1N1 vaccine in Florida now, but mortgage modifications are only proceeding at 7% completion as of December.  With nearly 3 million homes threatened with foreclosure last year and another record projected for this year, rentals become a homemade dose of wealthcare reform.  However, the elixir may render homestead exemption abandoned.  

Homestead exemption is powerful in Florida.  It is what keeps O. J. Simpson from losing his house, and what could keep a roof over Tiger Woods’ head if he loses too many more endorsements.  People flock to Florida for the mild weather and the hearty homestead.  

How many closets constitute a homestead?  In a recent case on Amelia Island, a homeowner put his clothes and personal effects into two locked closets while he rented out the rest of his house.  After all, he did not rent out his “entire dwelling” as stipulated in the Florida rental statute.  Those two closets were not big enough to hold his homestead.  

Houses used to be built without closets because of the extra tax expense of having them.  People used wardrobes and armoires (before they put TV’s in them) for their clothes.  Now closets may be the very thing for keeping your homestead, but you need at least more than two to claim exemption on a rental.  

Homestead exemption abandonment has been decided on a case-by-case basis, but property appraisers are going to be more aggressive in seeking abandoned homesteads.  If you intend to maintain your homestead exemption, you will have to maintain your intent to reside there, with stronger support than two closets of stuff.  

Eviction

Once upon a time, a tenant was more than $2,000 behind in rent.  The big bad landlord huffed and he puffed, but he failed to evict the tenant properly and the landlord wound up settling to pay the tenant $1,650, plus $5,600 in legal fees and costs.  The moral of this story is to follow the rules when evicting a tenant.  

I love the smell of bad landlords in the morning.  It is not that I favor tenants, but landlords can be bad actors when they do not have to be.  

No one wants piggies living in their rental property, especially if the piggies do not pay their rent, but you cannot huff and puff and put all their stuff out on the street, or cut off their utilities or change the locks.  Tenants in possession do have rights.  So do landlords.  

There is a proper legal procedure for eviction.  It can be done.  For more information, go to www.hud.gov and click on “Rental Assistance” under the “Topic Areas.”  Learn about your rights and duties, whether you are a landlord or a tenant.  

Clear Title

Moneymore is a village in Ireland.  The name is does not describe the financial wealth of citizens, but simply means “great shrubbery.”  This situation underscores the need for clear land title.  Clear title provides clear understanding and it is worth protecting with title insurance.  

Title insurance is a protection to defend against claims to the property.  It is not a guarantee; it is a defense, and it addresses what happened before the purchaser received the property.  Despite how correct a land owner’s title may be, without title insurance, legal defense costs of that title could exceed the value of the property.  

The village of Moneymore was founded by Drapers of London to grow flax in the surrounding fields, thereby allowing the company to develop its linen trade.  Thus the name Moneymore may be not so far off its meaning “great shrubbery,” though Americans might not understand the brogue.  

Title may be meaningless if it is defenseless.  Even Moneymore had its forts.  

FDIC Boosts Employment

In 2007, average employment among the nations of the Organization for Economic Cooperation and Development was at its lowest level since 1980; in July 2009, OECD unemployment reached its highest level since World War II at 8.5%.  (Florida of course is enjoying an unemployment rate of more than 11%.)  But the Federal Deposit Insurance Corporation is doing its part for hiring.  

In addition to giving itself a 35% budget raise for 2010, the FDIC is nearly doubling its staff from its employment level in 2006.  With more than the 130 banks which failed in 2009, there is plenty of fallout to go beyond the bailout in 2010, and 1600 new staffers will be there to handle the crisis.  

While the FDIC employee number should rise to about 8,600 this year, that number pales in comparison to the 20,000 employees working during the savings and loan crisis of the 1980’s and ‘90’s in which 747 savings and loan associations failed.  The current bank failure crisis is going to have to become more critical before the FDIC can contribute employment positions at the S&L level.  

Process Server

Don’t shoot the messenger, but you do not have to invite him in for tea either.  A process server is there on business; it is neither social nor emotional.  He is there to deliver a notice so you may be informed of legal actions against you.  The better informed you are, the better able you are to act.  

Sir Francis Bacon was admitted to the Bar in 1582.  He was a judge and Lord Chancellor.  He believed in collecting facts then drawing theories from them, an inductive approach we call scientific method.  He coined the phrase, “Knowledge is power.”  

A process server brings the facts to you, saves you the trouble of looking up on public record what you are in for.  It is a personalized delivery in an age where house calls have fallen out of common courtesy and professionalism.  

Knowledge is power, and a process server delivers the knowledge.  You have the power to react.  Seek qualified legal counsel for a full education as to what your options are, and empower yourself to make informed decisions.  

Estate Tax 2010

2010 is the year of Throw Momma From The Train!  For this year only, there is no federal estate tax, so if you are old and sick, beware of your relatives, especially the ones in your will.  

The thinking behind this tax break was that it was enacted so far in advance, it was difficult to consider the thinking.  Actually we had been raising the estate tax limit every year, and 2010 was a year to reset the rate to what it was about ten years earlier.  

Nothing is certain except death and taxes.  Congress still has the opportunity to combine the two this year if they include a retroactive provision, in which case you could still face federal estate taxes along with criminal charges if you throw momma from the train.  

Regardless whether Congress fails to restore death with taxes, the estate tax will rise from the dead in 2011 at its 2001 levels.  

Probate

Probate often sounds like a dirty word.  Probate-avoidance services and forms are marketed to make the process seem like a bad thing.  Actually, probate is the way the court verifies the will, makes sure certain debts are paid, and oversees the distribution of a decedent’s property.  It took a lifetime to generate the assets of the estate.  Probate ensures that the court does not take shortcuts in asset distribution.  

Probate can take time, though.  In some cases, depending on the size of the estate, tax implications, and desires of the testator, probate-avoidance methods, including trusts and pre-death distributions, are appropriate.  However, do not let anyone scare you into purchasing an estate planning package from a hotel ballroom seminar.  Seek competent legal advice.  

Here is some common terminology used in estate planning:

 

Beneficiary – someone who receives a gift or benefits from a trust

Codicil – an amendment or addition to a will

Decedent – the deceased person

Devise – testamentary gift of real property

Heir – person who is a spouse or descendant

Intestate – person who passes away prior to creating a will

What's Next

Bankruptcy is just a tool in the toolbox when it comes to wealthcare reform; however, it is becoming increasingly popular.  There were 32% more bankruptcies filed in 2009 than in the previous year, which could continue to increase this year, especially in Chapter 11 cases.  Commercial real estate bankruptcies could be the new red on the catwalk of financial fiasco.  

General Growth Properties Inc. recently opened a new trend, filing the largest commercial real estate bankruptcy ever in the US, plummeting from nearly $30 billion in assets in the first quarter of 2009.  And as it filed for bankruptcy, so did 166 of its subsidiaries.  By the year 2018, an estimated $1.97 trillion in similar commercial real estate loans will mature.  As with residential properties, the corporate borrowers face the challenges of devaluation, low occupancy (which decreases income from rent), and refinancing harder to come by.  However, unlike residential loans on 20 to 30 year terms, commercial real estate loans are generally arranged on a five to seven year term with a balloon payment at the end.  Thus the fatal imbalance between means and obligation is becoming more one-sided.  

Whether you are a giant commercial property or a single household, bankruptcy is an individual issue.  There are costs and benefits involved, and you need to be aware of both.  Financial hardship is often a situation seeking quick answers, but one that needs careful steps.  

Microsoft WORD Problem

Microsoft WORD has a problem.  It is not going to crash your computer or send viruses to all your closest e-pals.  The problem is that someone else owns part of the XML code, a part that is unique and patented.  And today is the deadline for the injunction.  

The code is protected under property right law and will cost Microsoft $290 million in damages.  After which Microsoft still will not own the code.  At this point, Microsoft will either have to fix the code or they will have to discontinue selling one of the most popular word processing programs on the planet.  Plus, they will have to pay that $290 million in damages.  

While that price tag is likely to set them back, it is not going to put Microsoft out of business.  Today is a bitter cold day in January, and maybe just a bit colder for Microsoft.