Michigan Insights

Summer Newsletter: 2020

June 27, 2020 - Posted by Maura Snabes | SVP, Corporate Counsel

Artboard 2-Jun-27-2020-05-13-01-60-AM

What's New

COVID-19 and other world events

It looks like we are coming toward the end of the stay-at-home orders and business restrictions and limitations relative to the COVID-19 pandemic. As realtors, lenders, appraisers, title companies and other essential and non-essential businesses get back to (not quite) business as usual, I think we all can agree that 2020 has been a year of many challenges and surprises.

As you know, CSS has provided many different methods of closing transactions during the COVID-19 restrictions, including: curbside closings, RON closings, and the traditional closing methods of overnight mail and in-person closings as needed. Please be sure to keep these alternative methods of closing in mind as we ease out of the restrictions—if you can close by a method other than an in-person closing, do it. No need to put your customers, your staff and yourself at risk if everyone is on board with closing by one of the alternative methods. And, the alternative methods may even be more convenient for your customer!

In all cases, CSS continues to follow 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.

Market News

COVID-19: Positive Impact?

According to HousingWire, the stay-at-home orders that have been in place are causing more people to feel “antsy” and to look for a home to buy this summer. 28% said they would move due to being stuck in their small space for so long.

LendingTree says that 53% of homebuyers are more likely to buy a home in the next year because of the COVID-19 pandemic. However, while the pandemic may be prompting some homebuyers, the record-low mortgage rates are the real reason that home-buying is on the rise. 67% of potential homebuyers confirmed that this was the primary reason they would be willing to move into a new home sooner than later.

And, they are certainly right about the interest rates. Just with the last 2 weeks, the average U.S. mortgage rate for a 30-year fixed mortgage fell to 3.15%, the lowest ever recorded in a Freddie Mac data series that goes back almost five decades.

Another theory behind the increase in potential homebuyers is due to existing homeowners’ mortgages and loans being in forbearance. 32% of homeowners said they were able to save more money for a down payment due to reduced spending.

Virtual Reality: What is the future of the Virtual Tour post-COVID-19?

Virtual property tours offered a way for investors and buyers in lieu of onsite visits during the COVID-19 pandemic. Virus-fighting measures, such as preventing strangers from crowding into homes at the same time, will remain the norm for the foreseeable future. During the pandemic and going forward, agents need to be more creative than they have been in the past to have their listings stay relevant. Many are scrambling to have more of a virtual presence, from doing 3D tours or virtual presentations to having video previews of their listings. Virtual tours, a growing technology pre-crisis, are rapidly gaining traction in lockdown times – and could become a mainstay of the commercial and residential real estate transaction process.

For many real estate professionals currently working remotely, virtual tools (think drone technology, Google Street View footage, Matterport 3D tours, FaceTime, Zoom, etc….) are being used in the early stages of the selling, buying or leasing process to help identify opportunities for buyers and investors. Maetterport cameras, which build virtual 3D tours using the company’s proprietary optical technology and software, for example, have become a “must have” for many realtors that want to attract today’s buyers and lessees.

“Interest in virtual building tours really picked up as COVID-19 increasingly curtailed travel,” explains Edward Parry-Jones, data director in JLL’s central London office markets team.

Prior to the COVID-19 outbreak, virtual tours were largely the domain of the residential lease sector, and had limited use among commercial occupiers and investors. While most commercial investors and lessees still wanted to view the property in person, attitudes have changed dramatically over the past few months.

In the National Association of Realtors’ “Home Buyer and Seller Generational Trends” report for 2019, 48% of buyers ages 39 to 63 responded that they found virtual tours a “very useful” tool in their search.

While virtual tours are a necessity as long as travel remains restricted or other restrictive measures are in place, they could have proven their worth sufficiently in just a few months to secure a longer-term place in the decision-making process. Many agree that we will see a shift in the way things are traditionally done in the coming years. “I think virtual tours will definitely become a new normal once this is all over,” Brian Caluori, a broker with Gibson Sotheby’s International Realty, said. “Why take the time to go see a property when you can view the virtual tour before you even step inside the house?”
Even Zillow has jumped on board the virtual express. Zillow has been working on accelerating its technology “to deliver seamless and now more virtual real estate shopping and transaction experiences, or Real Estate 2.0, " said Richard Barton, CEO of Zillow. In fact, Zillow created 525% more 3D home tours in April than in February. "The virtual tools home shoppers need for safety today will become their expectations for convenience tomorrow. Our focus now is not just on managing our way through this crisis. We're also moving faster to the future," added Barton.

Tax News

1031 T.C. Memo (2020-66)
Tenant in common interest or Partnership interest? In Gluck v C.I.R., (T.C. Memo. 2020-66) (May 26, 2020), this issue was examined and involved a gain (and potential capital gains tax) of over $10 million to the taxpayer. In 2012, the taxpayer exchanged into replacement property that was described as a 25% interest in an apartment building. It was unclear from the facts of the case whether legal title to the apartment building was in fact held as a tenancy-in-common (TIC), but the purchase agreement described it as a TIC.

The existing owners of the apartment building had entered into a written TIC agreement in 1992, but filed an IRS Form 1065 partnership return for the property since at least 1967 under the name “Greenberg & Portnoy” (G&P). A partnership tax return was also filed by G&P, in the year of the taxpayer’s acquisition of his interest, which showed G&P owned of 100% of the building on the Form 1065, and the taxpayer was issued a K-1 for a partnership interest. The taxpayer ignored the K-1 and filed an IRS Form 8824 with his 2012 IRS Form 1040, representing that he had acquired a direct percentage interest in the apartment building as replacement property in his exchange.

The IRS audited the taxpayer and disallowed the exchange on the basis that the taxpayer acquired a partnership interest in G&P and not a TIC interest in the apartment building. It also assessed an accuracy-related penalty.

Unfortunately, no ultimate decision was made, as the Tax Court found it lacked jurisdiction to hear the case under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). However, it noted that the validity of the exchange depends on whether there was a valid partnership, whether the taxpayer was a partner in that partnership, and what percentage interest the taxpayer held in that partnership. It further stated that the taxpayer should have disputed the partnership’s treatment when he received the K-1 for the 2012 tax year. Instead, he took an inconsistent reporting position from G&P, and did not file IRS Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR).

It further points out the responsibility of the taxpayer to confirm that a partnership tax return is not being filed even though the legal title may be in a TIC—do not rely on legal title alone when acquiring into a TIC interest. The taxpayer should confirm with his/her/its CPA that no Form 1065 is being filed and if this is not the case, the taxpayer should take steps to cease filing the Form 1065 prior to the exchange.

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.

Maura A. Snabes, Esq., CES®, CLTP - Sr. Underwriting & Compliance Counsel
Phone: (231) 547-5220x102/802 Bridge St., Charlevoix, MI 49720
e-mail: msnabes@visitcss.com.

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