Feb 24, 2020

Dealing with an IRS Lien on a Property

If you’re in debt to the IRS, good old Uncle Sam may put a lien on your property. And he isn’t going to let you sell your home without paying that lien.

When someone has a federal income tax lien filed against them, the debt attaches to all of their property, which includes their homestead. Federal income tax liens (also known as IRS liens) are called Super Liens. That basically means you can be super sure they’re going to collect the money owed them when the house sells.

Any and all liens against a property must be released when a house is sold. Most homes have a mortgage lien attached to them. At closing, the title company collects the buyer’s funds due for the purchase. Those funds usually come from a lender and the buyer.

The title company then pays off the liens against the property and gives the seller their share of the proceeds from the sale. The title company helps ensure the buyer is getting the property clear of prior liens.

What if the IRS lien is more than the seller will make upon selling the property? Perhaps the funds from closing aren’t enough to pay off the tax lien.

If the equity in the home after paying all mortgages, commissions, closing costs, etc. is not enough to pay the income tax lien in full, then the seller will need to apply for a Certificate of Discharge from the IRS. They must complete an application and include all information concerning the sale. This must include the sales price, all contractual agreements, payoffs of existing mortgages, itemized closing costs, an appraisal, and a third-party price opinion. It is a detailed process.

Once all required information is complete and the application is submitted to the IRS, the feds will take 45-60 days at a minimum to review it. The transaction cannot close until the IRS approves the transaction and provides a Certificate of Discharge.

Title companies usually suggest that all parties allow 90 days to secure a Certificate of Discharge. If the seller is slow to obtain the required information or submit everything, the process can be longer.

A Certificate of Discharge only releases that particular property from the IRS lien. It does not release the debtor from their personal liability to remaining back income taxes. The debtor is still responsible for the remainder of any debt owed.

Uncle Sam wants to make sure you pay your income taxes. And an IRS lien will help ensure that happens.

Opinions expressed are of the individual author for informational purposes only and not legal or tax advice. Contact an attorney or accountant to obtain advice for any issue or problem.
[where: 75230]

Feb 17, 2020

When Disaster Strikes before a Home Closing

Disaster can strike a home at any time. Even the day before it’s scheduled to be sold. Be it hail, wind, fire or water, a casualty loss to property while it’s under contract can be disastrous.

But, there are remedies. The Texas real estate contract folks thought of many ‘what if’ scenarios and they’ve incorporated them in the standard sales contract. A casualty loss results from a sudden, unexpected event like a storm or fire. Casualty losses are addressed in paragraph 14 of the contract. It states that if any part of the property is damaged or destroyed by casualty loss between the time the contract is executed and the closing, the seller shall restore the property to its previous condition as soon as reasonably possible.

That sounds simple on paper but not so much in real life. Often the damage can’t be repaired prior to closing due to no fault of the seller. For example, when a hail storm hits the neighborhood two days before closing, it isn’t likely the roof will be replaced or repaired that quickly.

The seller has obligations and responsibilities for the property when it is under contract and before closing. They must make efforts to restore the property to its previous condition by the closing date. No messing around here. If the seller doesn’t comply, the seller can be in default. There are options available if the seller cannot restore the property before closing due to factors beyond the seller’s control. Note that I said, “due to factors beyond the seller’s control.”

If the seller cannot restore the property by the closing date due to factors beyond their control, the buyer has three options:
  1. They may terminate the contract and get their earnest money back.
  2. Extend the time for performance and the closing date up to 15 days.
  3. Accept the property in its damaged condition with an assignment of the insurance proceeds and a credit from the seller for the amount of the deductible under the insurance policy. This must be approved by the seller’s insurance carrier.
Many experienced Realtors, like Paige and Curtis Elliott, have helped their clients navigate through real estate disasters – both large and small. “At six in the morning on the day of closing, I got a call that the house caught fire the previous night,” said Paige Elliott. “I called my buyers and we all met at the property.” That couldn’t have been a pretty scene for folks ready to move into a new home.

“Obviously, we couldn’t close. We paused and came up with a new plan for the buyers in order to get them into someplace temporarily,” added Paige. “That was the immediate goal. They ended up finding another house to buy. The sellers had insurance and they were able to fix it and sell it the next year.“

The Elliotts advise that the first thing to do when a real estate disaster strikes is to “keep calm and look at your options.”

Most title companies will recommend that the closing be delayed until the seller has filed a claim with their insurance company and the insurance adjuster has given an estimate for repairs. Then they can move forward if the buyer is comfortable with the amount of the insurance coverage payment AND the seller’s insurance company is willing to assign the claim proceeds directly to the buyer. Some insurance companies will assign a claim and some won’t.

If the insurance company is on board, the insurance assignment paperwork must be signed at closing. The title company will collect from the seller and credit the buyer the amount of the insurance deductible. This must also be approved by the buyer’s mortgage company in advance.
If the insurance company will not assign the proceeds for repairs, then at closing the seller could pay the amount of the insurance claim to the buyer. The seller would collect their claim money from their insurance company. The buyer’s lender must approve this as well.

“Every transaction is different but the end goal remains the same,” Paige said. “Everyone wants to close and move on. Most things can be repaired.”

The opinions expressed are of the individual author for informational purposes only and not for the purpose of providing legal advice. Contact an attorney to obtain advice for any particular issue or problem.  [where: 75230]

Feb 10, 2020

Divorcing & Dividing your Real Estate

Selling the marital home. Some refer to this as the great divide. Getting divorcing spouses to agree on selling their home, an asking price, an agent, the final sales price, etc. can be difficult and stressful at best. Emotions and tensions can run high well before we add on the legal requirements of transferring title of the property.

The unfortunate, but real, scenario of legally selling a home while divorcing can combine some difficult tasks. It requires cooperation from all parties. While everyone’s situation is different, there are basically two ways to divide the property before, during, or after a divorce.

One option is for one spouse to keep the property. With agreement, they obtain it from the other spouse and put it in their name only. Once the divorce is final, an attorney can draw up a special deed to be signed and filed with the courts. It must be signed by the spouse giving up the property. If the property has a mortgage, the spouse getting the property may need to go through the mortgage process again. Typically they will refinance the home in only their name. Sometimes they need to get equity out in order to buy out the other spouse. This is done in the refinancing process.

The other option is to sell the property. To sell a homesteaded property while married, both spouses must sign the warranty deed at closing. In Texas, a spouse has certain rights to the homestead property while they are married. It doesn’t matter if the property is separate or community property. What matters is if they have lived in the property as their homestead. Neither spouse may sell the homestead without the other spouse signing. This was adopted years ago to ensure that one spouse didn’t sell the family homestead without the knowledge of the other spouse. 

I’ve seen divorcing partners who would rather burn the place down than see their soon-to-be-ex gain from the sale of the property. They sometimes don’t care if they financially hurt themselves in the process. Regardless of how high the monetary stakes may be, emotions often take over. It can become a dose of stress no one needs. 

Communicating the situation to the title company can help. While we’re not counselors or mediators, we may be able to ease the tension. I usually arrange for hostile parties to sign separately, even though it means taking twice as much time. It’s usually worth it to avoid the heated exchanges that can erupt.

The title company handling the sale will want to review the divorce decree or settlement agreement that has been issued by the court. They aren’t being nosy and don’t care about who got what – except when it comes to the property. How the property and proceeds are divided needs to be clear in advance of closing. 

Typically, the divorcing couple splits the proceeds or shortages from selling the home – but not necessarily 50/50. Sometimes, one spouse has been occupying the home and is being paid back at closing for additional expenses. Any number of other situations may have been worked out to divide the proceeds. At closing, the title company will distribute any monies (after liens and loans have been paid) per the directions of the divorce decree, agreement between spouses or court order.

What documents must be signed, and when and how the property is transferred can be complicated. Your title company can help lessen the frustration and any confusion. Remember that the title company is a neutral party. Communicate your situation with them to tie up the division of real estate neatly. 
The opinions expressed are of the individual author for informational purposes only and not for the purpose of providing legal advice. Contact an attorney to obtain advice for any particular issue or problem.   [where: 75230]