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.

Examining Your Title

Michna Law Group has received numerous questions from clients over the years pertaining to real estate law. Today, we'd like to answer another question related to the residential real estate industry: What are title examinations and abstracts?

When you are considering purchasing a property, you may want to learn a little more about its history. Title examinations are used to shed light on the subject.

A title examination is a study of the property's historical ownership. Sometimes, this examination can provide information on others outside of immediate ownership facts, such as whether there was a dispute in ownership.

Meanwhile, a title abstract is a collection of public records containing information on the ownership of a piece of real estate. Throughout the examination process, a title examiner will determine who currently owns the land along with potential defects or claims against the ownership.

If there are any issues, the title examiner will be able to answer what the home buyer(s) must do to receive good title record at closing.

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

Paying the Realtor

Michna Law Group receives tons of common questions pertaining to real estate law. Today, we'd like to take a look at another party in the home closing transaction: the realtor.

With closing costs and other associated fees mounting on both sides, who typically pays the realtor?

Usually, in a home closing, it is the seller's responsibility to pay both the listing agent and the selling agent. Sometimes, both agents can, in fact, be the same individual.

The reason for this stems from common agency law. This means that both the listing and selling agent are working on behalf of the home seller. On occasion, the prospective home buyer may hire a realtor to work exclusively for them. In this case, it would be the home buyer's responsibility.

Generally, realtor commissions reflect 6% of the property's sales price. But with virtually everything in real estate, this, too, may be negotiable.

In either case, when finalizing a real estate sale, both the buyer(s) and the seller(s) must carefully review the contract to determine whether the realtor is charging either party an additional administrative or processing fee (typically between $150.00 to $400.00).

For more questions pertaining to real estate law, contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Find Our Chicago Office on Yelp!

Michna Law Group now has a Yelp page for its Chicago office.

Previously, our Northbrook-based real estate law firm only had a page for the Northbrook office. However, with numerous home closings taking place at our Chicago location, it seemed about time to introduce a separate page.

For those unfamiliar with our Chicago location, it can be found at this address:

221 N LaSalle St
Suite 814
Chicago, IL 60601

For those who have worked with us in the past, we would appreciate if you can please leave a review describing your experience. Every review helps!

For questions pertaining to real estate law, contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Why You Need a Real Estate Attorney

Real estate law is a special concentration within the law, not usually covered under general contract law. This particular field of law practice contains special nuances and fiduciary requirements not found in other forms of law.

While some states mandate using an attorney for the home buying or home selling process, Illinois is not one of them. That said, there are numerous key advantages to working with a real estate attorney.

For one, real estate attorneys receive education and training on state-specific laws. Even if you're familiar with the legal system's layout in one state, in another, it can be completely different.

More so, the home buying process can often have complications. These complications can range from structural issues with the property to questions of ownership and who has the actual right to sell said property.

Overall, the purpose of a real estate attorney is to ensure that the closing transaction comes together as seamlessly as possible. This is done through a thorough contract review process, often including negotiation for any needed home repairs. When it comes time for the closing, the real estate attorney is part of your team designed to help you, working collaboratively with your realtor and lending agent.

For more questions pertaining to real estate law, contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

What is a Good-Faith Estimate?

When it comes to securing a loan, the good-faith estimate is a three-page form. The good-faith estimate is primarily used to encourage price shopping when it comes to mortgage loans and settlement services, enabling you to determine the best mortgage deal for you.

In terms of content, the form displays the loan terms and settlement charges you will pay if you decide to proceed with a given loan. Furthermore, some charges can be changed prior to the loan's beginning, whereas others must remain the same. The most helpful feature is the "shopping cart" on the form, allowing you to instantly compare multiple loans and settlement costs.

Ultimately, the good-faith estimate may be provided by either a mortgage broker or a mortgage lender. Prior to receiving the report, the loan originators can only charge you for a credit report.
That said, they are unable to charge you additional fees, such as appraisals and inspections prior to the estimate.

For the loan originator to provide a good-faith estimate, he/she will need the following:

• Name
• Social Security Number
• Gross Monthly Income
• Property Address
• Estimated Property Value
• Prospective Amount of Mortgage Loan

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

Illinois Real Estate Market - June 2017

Spring and summer are generally Illinois' meat and potatoes when it comes to performing real estate transactions. While this past winter was slow, the market saw a great uptick once springtime arrived.

As a whole, June 2017 home sales saw an increase from June 2016. According to the Illinois Association of Realtors, sales are up 0.3% year-over-year, going from 19,001 to 19,066.

The story is even better for Chicago. The Windy City jumped a full percentage point from 2016 to 2017. One year ago, 13,916 homes were sold, whereas 14,052 were sold this year.

But there is a downside. Illinois home inventory saw a 14% decline from June 2016 to June 2017 as there are now only 59,088 homes for sale (from 68,720).

In response to this, Geoffrey J.D. Hewings, Director of the Regional Economics Applications Laboratory at the University of Illinois said,

"While the housing market continues to record gains in prices and sales, the inventory problem remains an important issue. Hopefully, now that the state has a budget, a recovering state economy will encourage more investment in housing – both new construction and investment by first-time buyers."

In addition,  Matt Silver, President of the Chicago Association of REALTORS® and Partner at Urban Real Estate.

"In June, the market exhibited a bit of a holding pattern. Inventory was a
contributing factor, as once you sell your home, you’ll need to then buy another – so, sellers are being firm on their pricing, and while some buyers are willing to wait for their perfect home, other motivated buyers are driving down the time on market. As the weather continues to heat up, people will get down to business, provided the price is right."

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

Protection for Home Buyers

Due to federal law, home buyers are protected by certain provisions during the loan process and the loan servicing process following a settlement. The circumstances in which your protected are widespread.

Some of them include:

• Your lender overcharged you during settlement without reimbursement.

• A settlement service paid or received a kickback for a business referral.

• You were mandated to use a company affiliated with your real estate agent, builder, or originator.

• Your loan servicer failed to pay your taxes or insurance premiums in a timely manner.

• You don't receive a response from your loan servicer regarding a request for information or a reported error.

• You were charged for insurance you don't need or overcharged for force-placed insurance.

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

2017 Real Estate Trends

Fortune Finance recently published an article detailing real estate trends that will be on the rise throughout the next year. They entail the following:

1. Rising Rates


2. More Credit


3. More New Homes


4. The Continued Rise of Medium-sized Cities


5. Foreign Buyers Aren't Going Away

But how do these coming trends affect you? Let's go down the list.

1. With rising interest rates, there seem to be two separate mentalities: A) When rates rise, income rises so the housing marketing will be just fine, and B) Rising rates don't equate rising income levels, harming home-buying ability. In an article by CNBC, Doug Duncan, Fannie Mae's chief economist said, "If interest rates are rising because the economy is growing more rapidly, then, typically, incomes also rise, and the rise in incomes offset the increase in the size of the mortgage payment, and housing goes just fine." But what if income levels don't increase? After Donald Trump's presidential victory, Fortune also reported that "The increase in purchase activity was driven by borrowers seeking larger loans and that drove up the average loan amount on home purchase applications to $310 thousand, the highest in the survey, which dates back to 1990."


2. In the face of rising interest rates, loan borrowers are seeing additional credit granted. In 2015, Barack Obama's administration lowered its fees for first-time homebuyers and "the Federal Housing Administration will likely lower fees it charges first-time homebuyers" moving forward. As an added bonus, Yahoo! Finance reports that Federal Housing Administration loans come with three key benefits, including easy qualification, competitive rates, and low fees.


3. Because of the rising finances, the creation of homes is following suite, allowing for an economically feasible real estate market. Fortune reports that "average annual rate of new groundbreakings reaching a 1.163 million rate so far in 2016, up about 5% from 1.108 million in 2015". This allows for a greater selection of properties when considering purchasing that first home.


4. While large-scale metropolitan cities may contain the highest-paying jobs in the country, it's actually the medium-sized cities that provide affordable housing. This stems from a basic supply-and-demand model with the larger cities unable to keep up with new homes to meet those flocking from around the world.


5. Foreign buyers, particularly those from China, are seeking high-priced homes in large, metropolitan cities. While this trend will be least likely to directly affect you, "U.S. and Europe continue to attract growing amounts of foreign capital", which will in turn, further develop the housing market and U.S. economy as a whole.

While these trends are said to characterize the pending real estate market, Michna Law Group can help you protect your interests with its title insurance and escrow services. For more information on how we do just that, please contact us via phone at 847.446.4600 or via email at BJM@MichnaLaw.com.

Zillow "Zestimate" in Trouble?

Although they say, "Any press is good press," Zillow hasn't received "good press" as of late. Back in May, a class action lawsuit was filed against Zillow.

The claim alleges that Zillow's Zestimate system, their platform for providing home valuation estimates, is inaccurate. If the inaccuracy is proven in court, damages can be award to the plaintiffs on the grounds that this inaccuracy hurt their bargaining position, and in some cases, sales price, during home closings.

In response to these claims, the Chicago Tribune writes, "Zillow has stressed that its Zestimates should be used as a starting point for what a property is worth." So instead of home sellers and home buyers basing their actual pricing on a Zestimate, they should merely factor it into play, along with other variables affecting a home's valuation, such as recent improvements.

But a more long-term solution may be available.

The Motley Fool writes, "The company is looking to crowdsource an improvement to the accuracy of its "Zestimates" just weeks after a class action lawsuit was filed over the flaws in its proprietary algorithms."

By doing so, this would be the first time Zillow is releasing a portion of its proprietary data available to non-Zillow employees. While this obviously can be risky, the one million dollar payout would be rather difficult to turn down.

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

The Illinois Budget Crisis Continues...

Throughout his term, Illinois Governor Bruce Rauner has continually emphasized the high property taxes assessed to Illinois residents. Yesterday (May 31st, 2017), the Illinois State Senate passed a measure to enact a two-year cap on property taxes.

While initially, this sounds like a pro, the Illinois House of Representatives still needs to vote on the issue at hand. Currently, it's unlikely that the House passes the budget with the property tax freeze intact. But Crain's Chicago Business states that "The freeze is like that old Mary Poppins song, "A Spoonful of Sugar." It helps the medicine go down, although definitely not in a "most delightful way." There are undoubtedly other issues which could help make a tax hike more palatable, but we're stuck with this one because the governor is so adamant about a win on this topic."

The eponymous "sugar" is to counteract an increase on Illinois income taxes. To elaborate, the Chicago Tribune illustrates that "House Democrats are united in their opposition to making the income tax hike retroactive to Jan. 1 of this year as the Senate called for. If lawmakers approved a higher rate starting at the first of the year, Illinoisans would have more money withheld from their paychecks to cover income from the first several months of 2017. The biggest question that remains, however, is what kind of tax proposal House Democrats could get behind, and whether they would be willing to pass it without Republican support."

However, Illinois is in a Catch-22. Illinois heavily relies on taxes for funding and education funding has been cut through budget mismanagement. Critics have claimed that the Illinois property tax freeze is an answer to the increase in income taxes, which itself is an answer to underfunding for education.

The Chicago Sun-Times writes, "Yet of all the money actually spent on public education in Illinois, this state contributes only 26 percent. Since state lawmakers have deliberately failed to adequately fund education, as directed by the Constitution, property taxpayers must pick up 67 percent of the cost."

Will Illinois resolve the two-plus-year-long budget crisis? Time will tell.

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

Which Trust Fund is Right for Me?

Last week, Michna Law Group discussed the "Basics of a Trust Fund". In that article, we covered the two primary types of trust funds: a living trust and an after-death trust. As a quick recap, here are the differences between the two:

Living (Inter-Vivos) Trust

• Activated during grantor's lifetime
• Assets distributed to beneficiaries upon grantor's death
• Revocable or irrevocable
• Avoids probate

After-Death (Testamentary) Trust

• Activated after grantor's death
• Considered part of a will
• Reviewed in probate court prior to asset distribution
• Revocable during grantor's lifetime

In addition to inter-vivos and testamentary trusts, there are numerous other types. Today, we will examine the following trusts:

• Asset Protection
• Charitable
• Constructive
• Special Needs
• Spendthrift
• Tax By-Pass
• Totten

Asset Protection Trusts

Often (but not always) set up in a foreign market, asset protection trusts are created for the purpose of protecting assets against the threat of creditors. To ensure that the grantor is not a current benefit, these trusts are typically set for a number of years. After the trust's term is up, the assets can be returned to the grantor, assuming that the grantor isn't under attack by creditors.

Charitable Trusts

Set up to benefit the general public or a specific charity, charitable trusts can also be used as a strategic tool for financial planning. This trust is typically set up as part of an estate plan, permitting the avoidance of estate or gift taxes. Not only does this offer tax benefits for the grantor and his/her heirs, the grantor's altruistic gesture is typically recognized by the charity of choice. While these trusts are primarily irrevocable, grantors can establish a revocable version until his/her death. 

Constructive Trust

The only "implied trust" on this list, constructive trusts don't require a formal establishment. Instead, if a person's intention is to distribute assets to another, a court may recognize that a trust was, in fact, created.

Special Needs Trust

A special needs trust is created mainly to provide the beneficiary with additional assets, such as an inheritance, while simultaneously maintaining said beneficiary's eligibility for government benefits. In many instances, this is a necessity because receiving a large sum of money can disqualify the beneficiary from government benefits. Because the beneficiary receives government benefits, he/she can not act as trustee. However, the beneficiary can be the grantor of the trust.

Spendthrift Trust

Similar to an asset protection trust, a spendthrift trust is set up to protect the beneficiary from having to give assets in the trust away to creditors. Once the trust's assets are distributed to the beneficiary, they are no longer protected against creditors.

Tax By-Pass Trust

A tax-by-pass trust is a legal way to avoid federal taxes. The purpose of this trust is for a spouse to leave the other spouse and their children with tax-free assets, Without this type of trust, assets are tax-free for the children up to a certain legal limit. Any money over that limit can be heavily taxed by the federal government, leaving children to pay thousands of dollars in taxes.

Totten Trust

The final type of trust that we're going cover is a totten trust. This trust provides many of the same benefits as an inter-vivos trust, including its revocable nature and the allowance of assets to avoid probate upon distribution. That said, totten trusts can't be used with a property. Alternatively, totten trusts are primarily used for financial accounts and securities.

Summary

As you can see, there is a type of trust for virtually any circumstance. The wide variety allows people to structure their assets in a way that's most beneficial for them. To have a conversation with a trust lawyer, please contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Basics of a Trust Fund

Last week, we discussed the importance of setting up a will, a service offered by +Michna Law Group. This week, we're going to talk about another service we offer: setting up a trust fund.

Define the Terms

A "trust fund" can be defined as a legal entity that holds assets for an individual or an organization. This can include cash, stocks, bonds, property, or additional financial products.

The individual or group benefiting from a trust fund is known as a "beneficiary".

The one who sets up a trust fund can be referred to using several terms, including a "grantor", a "donor", or "settler".

Lastly, the individual or group in charge of maintaining a trust is known as a "trustee".

Primary Types of Trusts

Trusts come in two primary flavors: living and after-death.

Living Trust

A living trust is also known as an inter-vivos trust. This form is set up during the lifetime of the grantor, who sometimes acts simultaneously as the trustee. Upon the death of the grantor, the assets in the trust are then distributed to the beneficiaries in compliance with the original terms and conditions of the trust.

Living Trusts can be either revocable or irrevocable, with the former representing the most common type. While this type of trust allows everyone involved to avoid probate, assets in the trust are still susceptible to state and federal taxes.

After-Death Trust

After-death trusts are also referred to as testamentary trusts. In this format, the trust is activated upon the death of the grantor, or "testator" in this case. Testamentary trusts are comprised as a part of the testator's will, thus need to be reviewed by a probate court. Because of this, a longer period is needed before the testator's assets are distributed to the beneficiaries.

Summary

While we've discussed the basic information pertaining to a trust fund, there are many additional types of trusts with corresponding benefits. For more information on these types of trusts, refer back to our blog next week.

For additional questions pertaining to trust law, contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Why Everyone Needs a Will

Although Michna Law Group primarily handles real estate closings, our firm also is known for practicing law pertaining to wills and trusts. Today, we'd like to discuss the former and why setting up a will is so important.

First, Merriam-Webster defines a "will" as "a written instrument legally executed by which a person makes disposition of his or her estate to take effect after death".

When many think of a "will", our thoughts immediately tend to head towards the morbid side of things with that final word: "death". However, similar to insurance (life, health, car, etc.), wills are better thought for their primary purpose: To protect your assets and ensure that your wishes are followed.

With that said, here are a few good reasons to create a will:

1) To appoint a legal guardian for your children.

2) To declare who will receive your assets and how they will be divided.

3) To pass on an economic interest, such as a business or stocks.

4) To donate money to your favorite charity.

5) To ease the burden for your loved ones during a surely difficult time.

All of these reasons are viable reasons to create a will, especially with the last one having the added benefit of preemptive planning. Many are of the mindset that wills are only something that people in their middle age can or should form. However, it's important to note that a will can be formed by anyone of legal age, which in most states, is 18.

For additional questions pertaining to wills, contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Anti-Discrimination in Home Buying

Many people may be afraid of facing discrimination when applying for credit. However, numerous protections are offered throughout this process.

The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against applicants throughout the transaction process. These protections are focused on discrimination because of race, color, religion, national origin, gender, marital status, or age.

In addition, creditors are unable to discriminate against an applicant due to any portion of his or her income deriving from a public assistance program (i.e. welfare). For those afraid of retaliation for exercising rights under federal consumer credit protection laws, there are protections in this case as well.

Not only does the ECOA apply to credit transactions involving residential property, it also extends to other credit transactions. For example, if you're applying for a credit card or an auto loan, you would be covered here.

Another law, the Fair Housing Act, prohibits housing discrimination because of race, color, religion, sex, disability, familial status, or national origin. This ranges from someone selling a home to you, loan application, property improvement, and residential real estate appraisal

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

Governor Bruce Rauner Planning to Freeze Property Taxes

Back in late November 2016, Illinois Governor Bruce Rauner announced that he plans to freeze property taxes throughout the state. Illinois has gained an increasing reputation for its high property tax rate.

As a matter of fact, SmartAsset states that "the state of Illinois has the second highest property taxes in the country. The statewide average effective tax rate is 2.13%, nearly double the national average."

In response to this, Governor Rauner is attempting to create a permanent property tax freeze. But along with high property tax rates, Illinois has also been without a budget for nearly two years as Democrats in the Illinois House of Representatives face a continual standoff with Governor Rauner.

As a theoretical win-win solution, Governor Rauner "told legislative leaders Wednesday that he’d consider a partial budget only if term limits and a permanent property tax freeze were included", according to the Chicago Sun-Times.

But when we dive deeper into the issue of a permanent property tax freeze, the issue may not be as cut and dry as it seems.

According to NPR, "none of the freeze legislation introduced over the last couple of years would guarantee that taxes never increased on a particular piece of property. Rather, like the existing tax caps law, they all would cap the total amount of money a government body could ask from all property owners within its borders."

Essentially, an individual could potentially pay more money in property taxes in the coming years with a government-induced cap on what that amount could be.

NPR continues to discuss how many municipalities, especially those in smaller districts, depend largely on property taxes for their funding. Without property taxes, pensions are in danger, municipality employees (such as teachers) can be laid off, and infrastructure as a whole can see a decline. This leaves the local municipalities to find another route to gather their funding.

Ultimately, time will tell whether or not a property tax freeze is included in a budget deal between the governor and state lawmakers. But with any policy decision, there needs to be an investigation into solutions for the potential pitfalls.

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

IRS Using Private Debt Collectors

Tax day has come and gone as millions finally breathe that sigh of relief. As of yesterday, April 18th, the entire country had to file their 2016 taxes. But for some, the "fun" may just be getting started.

According to MLive, "The Internal Revenue Service audited about 0.7 percent of individual 2015 tax returns, about 1 million of 148 individual returns, according to IRS data."

So the odds seem small, right? Well, the IRS now has a new way to go after outstanding debts owed from over the years.

According to the IRS, "The new program, authorized under a federal law enacted by Congress last December, enables these designated contractors to collect, on the government’s behalf, outstanding inactive tax receivables."

They go on to say that "these private collection agencies will work on accounts where taxpayers owe money, but the IRS is no longer actively working them. Several factors contribute to the IRS assigning these accounts to private collection agencies, including older, overdue tax accounts or lack of resources preventing the IRS from working the cases."

The downside of this plan is that it potentially leaves taxpayers open to fraudulent activity. For example, a person can call up another pretending to be from the IRS, only as an attempt to gather your personal information and even your money.

In addition, NBC News reports that the National Consumer Law Center has their own concerns.

"There are so many reasons why it's a bad idea that the IRS has been forced to use private debt collectors," said Chi Chi Wu, staff attorney with the National Consumer Law Center. "They're the most complained about industry to the Federal Trade Commission and the Consumer Financial Protection Bureau. All too often, consumers are being mistreated by debt collectors and now taxpayers are at risk of that in the collection of tax debt."

However, the IRS has safeguards in place as an answer to the criticism they've received regarding this initiative.

For example, they've outlined the debt collection agencies who will take part in this program on their website: CBE, ConServe, Performant, and Pioneer.

Also, the IRS will not be targeting taxpayers in these subgroups:

Deceased

Under the age of 18

In designated combat zones

Victims of tax-related identity theft

Currently under examination, litigation, criminal investigation or levy

Subject to pending or active offers in compromise

Subject to an installment agreement

Subject to a right of appeal

Classified as innocent spouse cases

In presidentially declared disaster areas and requesting relief from collection

Lastly, the IRS informs that "Private collection agencies will not ask for payment on a prepaid debit, iTunes or gift card. Taxpayers will be informed about electronic payment options for taxpayers on IRS.gov/Pay Your Tax Bill. Payment by check should be payable to the U.S. Treasury and sent directly to IRS, not the private collection agency."

Ultimately, it's too soon to see how their best-laid plan pans out in practice.

For additional information on tax scams and consumer alerts, visit the IRS website page here. For more information on Michna Law Group, contact us by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Illinois Asset Forfeiture

Asset forfeiture is designed to hinder crime throughout the United States. When police suspect someone is using an item to commit a crime, say a vehicle, for instance, they can legally seize said vehicle.

According to the U.S. Department of Justice, asset forfeiture "encompasses the seizure and forfeiture of assets that represent the proceeds of, or were used to facilitate federal crimes. The primary mission of the Program is to employ asset forfeiture powers in a manner that enhances public safety and security. This is accomplished by removing the proceeds of crime and other assets relied upon by criminals and their associates to perpetuate their criminal activity against our society. Asset forfeiture has the power to disrupt or dismantle criminal organizations that would continue to function if we only convicted and incarcerated specific individuals."

In recent years, this program has come under fire, though. John Oliver, hose of Last Week Tonight, even dedicated asset (civil) forfeiture to the main story for one of his episodes in 2014.

IllinoisPolicy.org has covered this topic in detail. Because "practically any type of property may be forfeited, including cash, a vehicle, personal property, or even real estate", this has led many to accuse police officers of abusing their authority.

In addition, the Chicago Sun-Times writes that the philosophy of "innocent until proven guilty doesn’t apply in civil forfeiture cases, nor do indigent people have a right to a lawyer."

Along with that, "someone who contests a forfeiture must pay filing fees and a “cost bond” equal to 10 percent of the value of the confiscated property just to appeal. Even if they win, they only get 90 percent of their cost bond back, and they can’t recover their legal fees." By this point, it's abundantly obvious that the system is against the little guy.

In their defense, law enforcement officials claim that "the civil forfeitures system fights crime by seizing the rewards of criminal activity. The money, much of which goes to police and prosecutors, also supports law enforcement activities." In theory, this sounds like a solid idea, this has led to countless nightmare scenarios in practice.

For example, QCOnline wrote a story about Judy Wiese, a woman in Moline, Illinois, who had her car taken away after her grandson was caught driving it with a revoked license. Because the burden of proof is on Wiese, it was her duty to show the courts that her car wasn't "guilty" in her grandson's crime. Eventually, a lawyer helped her to reclaim her vehicle, but the majority out there aren't so fortunate.

In similar instance, Francis Pizano Martinez lost her vehicle after her son was caught driving with a suspended license. However, this tale has a different ending. Despite putting a lot of time and money into her car, she ultimately permanently surrendered it, becoming another victim of the same system.

But there is hope.

Democratic Illinois House Representative Will Guzzardi created House Bill 689, along with Republican House Representatives Tom Demmer and Steven Andersson as the chief co-sponsors, reports NPR Illinois.

Creates the Seizure and Forfeiture Reporting Act. Provides that the Illinois Criminal Justice Information Authority shall establish and maintain on its official website a searchable public database that includes specified information about property seized and forfeited under State law and under any agreement with the federal government. Provides that every law enforcement agency that seizes property subject to reporting under the Act shall report the specified information required under the Act on a monthly basis. Provides that the Illinois Criminal Justice Information Authority may recoup its costs under the Act by charging a fee to law enforcement agencies required to file a report. Provides that the Act applies to provisions of law that authorizes a law enforcement agency to seize property alleged to have been used in or derived from the commission of a criminal offense. Creates the Asset Forfeiture Proceeds Disbursement Law. Provides that the Illinois Criminal Justice Information Authority shall award grants under the procedures of the Act for the disbursement of monies collected in the Asset Forfeiture Proceeds Fund. Amends various Acts concerning criminal forfeiture to make conforming changes. Changes most forfeiture distributions from law enforcement agencies to the Asset Forfeiture Proceeds Fund. Makes changes to the procedures and distribution of contraband proceeds to various governmental units and agencies.

Meanwhile, it the Illinois State Senate, Senator Don Harmon has introduced Senate Bill 1578.

Creates the Seizure and Forfeiture Reporting Act. Provides that the Illinois Criminal Justice Information Authority shall establish and maintain on its official website a searchable public database that includes specified information about property seized and forfeited under State law and under any agreement with the federal government. Provides that every law enforcement agency that seizes property subject to reporting under the Act shall report the specified information required under the Act on a monthly basis. Provides that the Illinois Criminal Justice Information Authority may recoup its costs under the Act by charging a fee to law enforcement agencies required to file a report. Provides that the Act applies to provisions of law that authorizes a law enforcement agency to seize property alleged to have been used in or derived from the commission of a criminal offense. Creates the Asset Forfeiture Proceeds Disbursement Law. Provides that the Illinois Criminal Justice Information Authority shall award grants under the procedures of the Act for the disbursement of monies collected in the Asset Forfeiture Proceeds Fund. Amends various Acts concerning criminal forfeiture to make conforming changes. Changes most forfeiture distributions from law enforcement agencies to the Asset Forfeiture Proceeds Fund. Makes changes to the procedures and distribution of contraband proceeds to various governmental units and agencies.

In essence, NPR Illinois writes that "if the Guzzardi and Harmon bills become law, people would have to be convicted of crimes before their property could be forfeited. And the burden of proving a property’s role in a crime would fall on the state instead of the property owner."

While it will still be quite some time before these bills can go through, at least Illinois has agents for positive change.

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

Determining a Home within Your Budget

Home buying mandates a series of small decisions. Do I live in the city or in the suburbs? How many bedrooms do I want to have? How far is the location from my work environment?

All of these decisions cumulate in one large one: Where will I live?

For many prospective home buyers, the first step is to determine your budget. To calculate what type of home you can afford, it's crucial to first know your monthly income. Secondly, determine your total monthly expenses, including items such as credit card bills, insurance premiums, and car payments.

When synthesizing this information, consider reaching out to a financial professional. For example, a housing counselor can help you determine what you can reasonably afford. By keeping your payments within an affordable budget, you can avoid potential financial hurdles, such as foreclosure.

Mortgage lenders will tell you the amount of the loan they're willing to offer you. This takes your ability to repay the loan into consideration. That said, it's probably safe to say that you comprehend your socioeconomic situation better than anyone, so invest thorough thought into one of the biggest decisions you'll ever make.

For more information on the finances of home buying, contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

House Flipping: An Update

Investopedia defines "flipping" as "A type of real estate investment strategy in which an investor purchases properties with the goal of reselling them for a profit. Profit is generated either through the price appreciation that occurs as a result of a hot housing market and/or from renovations and capital improvements. Investors who employ these strategies face the risk of price depreciation in bad housing markets."

Beginning as a day-trading trend in the early 2000's, house flipping has seen continual increases in business throughout the country's real estate market. As a matter of fact, RealtyTrac recently reported house flipping saw a 3% increase in 2016, leading this trend to a ten-year high.

This boom has carried over to the Chicagoland metropolitan area. Chicago is one of many metropolitan areas with a population of 1 million plus people and a gross flipping return on investment of 75% or higher, closing out 2016 at 75.9%.

Meanwhile, Illinois as a whole has landed in the top five states with the highest gross flipping ROI as evidenced by the infographic below.

With 2016 being a record-high year in a decade for house-flipping, it's difficult to picture the trend slowing down any time soon. This could be especially true due to the next statistic.

Although house flipping is at a ten-year high, Crain's Chicago Business reported that Illinois' home inventory levels are at a ten-year low.

"In the week that ended Jan. 7, 7,028 homes were on the market in the city, according to a report posted by the Chicago Association of Realtors on Monday. That's the lowest recorded in CAR's data, which goes back to January 2007. It's 3.7 percent below the inventory on hand at the same time last year, when the 7,297 listed homes were the lowest recorded."

With a low inventory, it's easier for real estate investors to flip houses in a timely manner. This is because prospective home buyers have fewer options to consider in the market.

However, despite having the ability to make a quick profit on a home flip, be wary. Despite being able to potentially make a quick buck with a flip, there are a few disadvantages including issues with cash flow and tax management. Even worse, those attempting to get involved with house flipping may find that it's easier is theory than it is practice.

Investopedia actually prepared a list of some qualities exhibited by those who run into issues with a home flip, including the lack of:

• Money
• Time
• Skills
• Knowledge
• Patience

Each of these items in their own right, can prove to be detrimental, especially to first-time house flipper. But as long as you do your research and invest some time into your house flipping expeditions, these shouldn't be an issue.

For all of our real estate legal needs, contact Michna Law Group by email at BJM@MichnaLaw.com or by phone at 847.446.4600.

Economic Growth Triggering Housing Demand

With spring homebuying around the corner, we would like to take a look back on last spring's market. In spring of 2016, we were treated to mortgage rates below 4%, even dropping as far as 3.4% in the summer. However, this year started out with mortgage rates already at 4.25%.

Despite this statistic, January existing home sales numbers saw a dramatic increase, setting the fastest pace in nearly a decade. So what does this mean? Well, it could be a trigger moment in the housing market. This is all in the face of low inventory and median home prices increasing for 59 straight months.

A cause for these conflicting statistics can be an increase in household income. Changes in economic conditions and consumer access to mortgage financing are also important influences on homeownership. Overall, one's decision and ability to buy a home is closely tied to all of these economic factors. Recently improving economic conditions have helped fuel a resurgence in the homeownership rate.

While it's difficult to predict future economic conditions, a growing economy and rising income levels play a role in increasing homeownership. Higher household incomes and continued good news on the economy are also increasing demand to buy a home as we enter the spring home buying season. This may be the trigger moment that pushes the housing market to a whole new level.