How to Differentiate Deeds

Michna Law Group often receives questions pertaining to the home buying and selling process. Sometimes we're asked to differentiate the different types of deeds. In today's blog post, we distinguish a general warranty deed, special (limited warranty deed), quitclaim deed, sheriff's deed, and a fiduciary deed.

General Warranty Deed

The primary type of deed guarantees the grantor’s good title before the conveyance. In addition, it guarantees that the warranty continues after the conveyance. The usual guarantees or warranties by the seller are: good title, freedom from encumbrance other than as specifically identified, and right of possession to the buyer as against all others. The warranty includes any claims arising during or prior to the grantor’s ownership.

Special (or Limited) Warranty Deed

A special warranty deed, sometimes referred to as a limited warranty deed (and some states may have a different name for this form of deed), provides less extensive warranties than the grantee receives from a general warranty deed. Under a special warranty deed, the grantor warrants only against claims arising during the period of the grantor ownership but does not warrant against any claims arising prior to the grantor’s ownership of the property.

Quitclaim Deed

A quitclaim deed contains no warranties of any kind and conveys only the interest, if any, held by the grantor (for example, if the grantor actually had no interest to convey, the quitclaim deed would not vest any ownership in the grantee). The quit-claim deed is not typically used for residential real estate purchase transactions.

Sheriff’s Deed

A sheriff’s deed is a deed granted at the end of a mortgage foreclosure, in which the sheriff, under the order of the court in the foreclosure case, grants ownership of the property to the successful bidder at the sheriff’s sale. These deeds are quitclaim deeds and carry no warranty because the bidder at the sheriff’s sale takes title “subject to all legal encumbrances” including any flaws in the foreclosure procedure.

Fiduciary Deed

A fiduciary deed is a deed granted by a trustee or other fiduciary (often a court-appointed individual or entity) who conveys title to property pursuant to that grantor’s authority under a trust agreement or as the result of a court-supervised proceeding.

For further information on real estate law, please contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Title Insurance Fundamentals

As a real estate law firm, Michna Law Group is well-versed in all aspects of the home buying and selling process. Oftentimes, one of the more overlooked yet vital pieces of this process is title insurance. But what is title insurance?

Essentially, there are two types: lender’s title insurance and owner’s title insurance.

Lender’s Title Insurance

Lender’s title insurance protects your loan lender against any title dispute that may arise pertaining to your property. For example, if there's an issue in the home closing process, another party may claim ownership of your home. Title insurance basically puts a stop to that claim.

Title insurance granted by the title search company is used to protect the title, or ownership, of the property against unpaid mortgages or legal judgments. In the event that someone files a claim against your property, title insurance provides the lender with legal protection. In addition, any court fees and related costs are covered.

Owner’s Title Insurance

Meanwhile, homebuyers can individually purchase title insurance to protect their rights as a homeowner. Usually referred to as owner’s title insurance, this variation protects the property owner from potential liens and ownership disputes held against the property. In doing so, owners are offered all the same protections in the event of a claim or judgment against your property.

Along with protecting homeowners after the fact, many title companies conduct a title search before granting insurance. By doing so, title insurance companies can gather information pertaining to title defects in advance. Lastly, this information also entails history pertaining to the property’s ownership.

For nearly 25 years, Michna Law Group has closed on homes throughout the Chicagoland area. In doing so, our business has familiarized itself with numerous national and local title insurance agencies.

For more information on title insurance, contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Post-Good Faith Estimate

Previously, we defined a good-faith estimate, which you can read about here. But what do you do after receiving your estimate?

Since good faith estimates promote price shopping, it’s best to obtain several estimates. Once you've compared several good-faith estimates, it's time for you to sit down and select the best-suited loan option. Following this, notify your loan originator of your intention to proceed with their option.

Throughout this process, it's important to hold onto your good faith estimate. This will enable you to compare the estimate with final costs, providing insights into where those costs may have fluctuated.

Despite what the forms say, inquire with both your mortgage lender and your settlement agent in regards to any changes between the good faith estimate and your HUD-1 Settlement Statement.
Also, keep in mind that a good faith estimate is just that: an estimate. So, your final costs can be affected by numerous variables.

As an example, for those purchasing a new home that is either being built or hasn't been built at the time of receiving the good faith estimate, the costs may change. In this event, the loan originator must notify you up to 60 days before the settlement. With altered costs, it's vital that you reevaluate whether or not this loan is ideal for your circumstances.

Additionally, your personal circumstances may be subject to change as well. Changes could include a different credit score, the loan amount, the property value, or other information that was relied on when issuing the good faith estimate was initially presented. When this happens, you may receive a revised good faith estimate. Ultimately, only these additional charges may be later altered.

For additional information on good faith estimates, contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Real Estate Industry Facing Tax Reform

Recently, the GOP has revealed their plans for a tax reform bill. Under this new bill, the House proposes for income tax brackets would be consolidated from seven to four. However, the Senate's variation retains the seven brackets but adjusts their ceilings and corresponding percentages. But how will the Tax Reform bill affect the real estate market?

Additionally, both the House and Senate took a swing at itemized deductions, eliminating many of them. As it pertains to the real estate industry, one of the impacted deductions is the mortgage interest deduction (MID). But what is a mortgage interest deduction?

Investopedia describes mortgage interest deductions as an "itemized deduction that allows homeowners to deduct the interest they pay on any loan used to build, purchase or make improvements upon their residence."

While the House initially lowered the cap on mortgage interest deductions from $1.1 million to $500,000, the Senate primarily spared this deduction, permitting a $1 million cap. According to Zillow, the initial cap of $500,000 lowered mortgage interest rates because the loss of itemized deductions made borrowing a mortgage less attractive. Thus, home buying as a whole appears less likely for many first-time home buyers.

Additionally, the Senate's Tax Reform plan completely shutters the property tax deduction, whereas the House' plan would've capped it at $10,000. Based on Zillow's research, a smaller percentage of homeowners would benefit from the deductions, declining from 44% of homes to 12%. Following the Senate's strategy that percentage drops to a mere 7%.

Lastly, the Senate bill takes aim at another topic we've previously covered on this blog: the capital gains tax.

While the law currently allows an individual and a married couple to deduct $250,000 and $500,000 on a home sale respectively, the caveat is that they must own and live in the home for a minimum of two out of the last five years. The new Tax Reform bill bumps that requirement to five out of the last eight years.

For additional information on real estate law, contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

When to Apply for a Mortgage

As a real estate law firm, Michna Law Group often receives questions for clients pertaining to the home buying and selling process. Today, we'd like to examine another one of those questions: "How early should I apply for a mortgage when looking for a house?"

The first thing to keep in mind is that any information can be useful information. It doesn't hurt to meet with lenders, banks, mortgage brokers, and other real estate industry workers prior to signing a real estate contract.

By educating yourself about the costs of financing a home, you'll wind up better prepared for the eventual costs. Additionally, this information can help you decide how expensive of a home you can purchase.

In general, prequalifying for a mortgage offers a couple key benefits:

1) Sellers are more comfortable with a pre-approved buyer. In general, the last thing anyone wants is another hiccup in the homebuying process. In fact, prequalification can help you wain out over a competing buyer.

2) Standard residential real estate contracts allow the buyer five days to apply for a loan with a 30-day final approval deadline. Through prequalification, this issue is completely negated.

So when is the best time to apply for a mortgage? Assuming you know you want to own a home, the earlier the better.

For further information on real estate law, please contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Avoiding Capital Gains on a Sale

Lately, we've focused a little more on the home buying aspect of real estate law. This week, Michna Law Group is going to delve more into the home selling end of the spectrum. Specifically, we want to talk about how to remain tax-exempt when selling your home.

Every year, the U.S. tax code grows more advanced. Prior to August 5th, 1997, home sellers would face a capital gains tax on the sale of their home. This could only be avoided if they were upgrading to a more expensive property. The Taxpayer Relief Act changed that. Now, those filing individually can exclude up to $250,000 of capital gains from taxation. For married couples, the benefit is even better, allowing them to exclude up to $500,000. However, there are some caveats to this rule.

First of all, people can only qualify for this form of tax exemption once every two years. In addition, individuals must own and live in the house for at least two out of the last five years. While the two-year period doesn't have to be consecutive, the property must be your primary domain for at least two years.

Even if you don't meet these minimum standards, there are still ways to qualify for a prorated exclusion. For example, if you sold your property due to a change in employment, health reasons, or other circumstances, you would be entitled to a 50% exemption. This would be $125,000 for individuals and $250,000 for married couples.

Additionally, there are still more caveats to the caveats. If you wind up living in a nursing home, for example, the two-year minimum can be reduced to one. On the other hand, if you claim a home office exemption that amount will be subtracted from your capital gains exclusion.

For two individuals sharing a property, you can each claim a $250,000 exemption assuming you both meet the standards. Couples who lived together and later married can claim any unmarried time living in the residence towards their two-year goal. Divorced couples can include any portion of time that a former spouse lives in the home after the divorce.

Families living together can include their children in home ownership to receive larger still tax exemptions. If a husband and wife gave their son or daughter one-third ownership of the property, he or she can apply their time living in the home as an individual exemption. Meanwhile, the parents could still benefit from the couples' $500,000 exemption.

For further information on real estate law, please contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Commercial Financing: Why It's Important

Michna Law Group has received tons of questions over the years pertaining to real estate law. Today, we'd like to cover the concept of commercial financing and why it's important.

Financing enables individuals to purchase something without paying the full price up front. In terms of real estate, this method of purchase permits individuals and/or businesses to buy residential and commercial real estate without paying the full amount at the closing.

When financing non-residential real estate, the buyer(s) generally obtains funds from a bank, insurance company, or another lender for the acquisition, development, and operation of a commercial real estate venture.

In order to finance commercial real estate, you'll need to secure a commercial financing loan, usually using assets owned by the debtor (you). These assets act as collateral for the investment of the financial entity lending the loan.

Collateral assets, outside of additional real estate, can include the following:

• Fixtures
• Equipment
• Bank and/or Trade Accounts Receivables
• Inventory
• General Intangibles
• Supplies.

Lastly, an assortment of documents is needed to secure the commercial real estate loan. These can include:

• Loan Agreements
• Promissory Notes
• Mortgages
• Deeds of Trust
• Assignments of Rents and Leases
• Financing Statements
• Environmental Indemnity Agreements
• Guaranties
• Subordination
• Non-disturbance and Attornment Agreements
• Estoppel Certificates

For further information on real estate law, please contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.