What's New

COVID-19

Well, this certainly was not the spring for which we all were hoping! COVID-19 is the top story and top priority right now. The sooner we can move through this pandemic, the better for everyone and everything, especially the economy. You should have already received a notification as to how CSS is handling the COVID-19 situation. CSS is fortunate in that it has long had a backup disaster plan (BDP) in place, which includes incidents of an epidemic or pandemic. While all of our main branches will have at least one employee physically in the office, many of our CSS employees will be working remotely via secured network. It is also a good time to think about whether your customer can close by remote online notarization (RON). As you know, CSS is one of the only title companies that has the ability to close transactions via RON.

CSS is following CDC guidelines relative to COVID-19, while ensuring that we can continue to provide the high level of service to which you are accustomed. So, rest assured that we will continue to be here for you and your customers.

SOC 2 Certification

CSS is now SOC 2 Type 2 Certified! You may have known that CSS had become SOC 2 Type 1 certified several years ago. Over the past year, CSS has been going through the process to become SOC 2 Type 2 certified. If you are not aware of this process, it is an arduous one, but well worth the effort. SOC 2 is designed for service providers storing customer data in the cloud. A SOC 2 Type 2 report, similar to a SOC 2 Type 1 report, evaluates internal controls, policies, and procedures. However, the difference is that a SOC 2 Type 2 report is an internal controls report capturing how a company safeguards customer data and how well those controls are operating. Companies that use cloud service providers use SOC 2 reports to assess and address the risks associated with third party technology services. These reports are issued by independent third-party auditors covering the principles of Security, Availability, Confidentiality, and Privacy. Just one more way CSS is protecting our customers and leading the way in the industry.

Market News

Interest rates

Even before the pandemic, mortgage rates had dropped to less than 3% for a 10- and 15-year mortgage and around 3.2% for a 30-year mortgage. Compare this to last year, on March 14, 2019, when the average 30-year mortgage rate was 4.31%, according to Freddie Mac. With the reduction of federal interest rates to near zero, this may bring down mortgage rates even further. In the week ending March 6, 2020, refinancing applications increased 78.6% from the week prior, according to the Mortgage Bankers Association. That's 479% higher than the same week in 2019! Looking even further back, mortgage rates peaked in 1981 at more than 18%. It’s a great time to refinance.

Home Sales

Home Sales and listings seem to be slowing due to obvious factors. Social Distancing recommendations are making people hesitant about having people walk through their house for sale or feeling comfortable about walking through someone else’s house that they may want to buy. Others are putting their purchase on hold because of the money they have lost from the sharp decline in the stock market and/or with their IRAs or 401(k)s. While we may not see a market crash due to the pandemic, the consensus is that the longer the pandemic, the harder hit to the economy and to the real estate market.

Cannabis News

On March 1, 2020, the Marijuana Regulatory Agency (MRA) issued an Advisory Bulletin entitled: “Guidance on the Phase-Out Process Ending External Transfers to the Regulated Market.” The Bulletin contains 3 Phases affecting transfers from Caregivers to growers, suppliers, processors, etc….

Phase 1 –March 1, 2020 - May 31, 2020

• Licensed growers and processors can source flower (i.e. bud, shake, and trim only) from caregivers.
• Must enter all inventory into METRC immediately upon receipt as an “external transfer” and only transfer to other licensed facilities once the product passes testing and all packaging and labeling is 100% compliant.

Phase 2 –June 1, 2020 - September 30, 2020

• Licensed growers can source flower from caregivers.
• Must follow the same procedures listed above for inventory tracking, testing, and packaging/labeling.
• Total weight of flower obtained must be less than or equal to total weight of flower (both wet and dry) harvested by licensee between March 1, 2020 and May 31, 2020 plus the projected harvest weight (dry) of all plants in the flowering process on May 31, 2020.
• Flower cannot be sold or transferred, must be processed into a different form.
• Total weight of flower obtained must be less than or equal to 50% of the total weight of flower licensee obtained from caregivers between March 1, 2020 and May 31, 2020.

Phase 3 –October 1, 2020 forward

• No external transfers from caregivers allowed.
• All licensed facilities will be subject to disciplinary action if caregiver product is sourced.

While the goal of the MRA is to “stimulate business growth while protecting patient safety,” it will certainly affect every caregiver that transfers the product to who/what is currently a legally qualified recipient. And,  with the Michigan Supreme Court decision in DeRuiter v. Byron Township looming, a case that could potentially restrict or eliminate a caregiver’s ability to grow medical cannabis in a non-residential location, it is uncertain how practical it will be for a caregiver to legally grow cannabis in the future.

Tax News

1031 Private Letter Ruling regarding application of Sections 121 and 1031

This private letter ruling addressed the use of both Section 121 and Section 1031 in a sale of property. Taxpayer resided in a property two of the previous five years and then moved to another principal residence. Subsequently, the taxpayer leased the property for a time and then utilized a short-term rental program thereafter. The home was thereafter destroyed and the receipt of the insurance proceeds was treated as a sale. Gain was excluded under Section 121, but there was still some of the maximum exclusion amount remaining. The next year, the taxpayer sold the land and wanted to apply the remainder of the Section 121 exclusion to the land sale, with the remaining gain being deferred under Section 1031. The taxpayer acquired a new rental property in the Section 1031 portion.

The IRS had to address two issues:

1. Whether a separate sale of the underlying land was part of the sale of a principal residence under IRC Section 121. The IRS concluded that land under the residence would also qualify as part of a Section 121 sale.
2. Whether a taxpayer could utilize the maximum gain exclusion under Section 121 and apply Section 1031 to the balance of the gain. The IRS concluded that this could be done and cited its own Revenue Procedure 2005-14. This revenue procedure allows the combination of both Code sections for one sale: excluding the gain under Section 121 first with any remaining gain being deferred under Section 1031.

Most of what was ruled here was consistent with prior rulings and Rev Procs but did provide some clarification of the underlying land being comparable to adjacent land for purposes of the Section 121 exclusion.

Corporate Settlement Solutions has many Michigan branch offices to serve you—Traverse City, Suttons Bay, Elk Rapids, Charlevoix, Bellaire, and Mt. Pleasant, in addition to providing services throughout the eastern United States.