What's New:

Reminder: The Governor’s Order/Executive Order allowing for remote ink notarization (RIN) of legal documents expires June 30, 2021. Thereafter, there are only certain title insurance underwriters that will allow documents to be notarized via RIN and only with the use of certain platforms. However, Remote Online Notarization (RON) of legal documents continues to be viable alternative to an in-person or overnight closing.

Federally, in May of this year, the US Senate re-introduced the Securing and Enabling Commerce Using Remote and Electronic Notarization Act of 2020 (the “SECURE Act”). This bipartisan legislation was first introduced in 2020 to authorize and establish minimum standards for electronic and remote notarizations that occur in or affect interstate commerce. The legislation would authorize every notary in the US to perform remote online notarizations using audio-visual communications and tamper-evident technology in connection with interstate transactions, making remote transactions more accessible for consumers. The US House has now also re-introduced the legislation.

The legislation is meant to complement existing state laws, while allowing states the flexibility and freedom to implement their own RON standards. If the state has already passed a RON law that meets the minimum national standards (e.g. Michigan’s RON law), it will not be impacted by the SECURE Notarization Act.

Please consult CSS for information if you are looking to close a transaction using the RIN or RON technologies.

Market News

Residential Market

According to Realtor.com, the median existing home sales price hit another new high in May 2021 by reaching $380,000.00. This is an increase of 15.2% compared to last year. And, relief does not appear to be on the horizon for homebuyers as inventory continues to shrink. At the same time, these homes are selling fast—an average of 17 days--which is about 32 days shorter on the market than at this time last year.

However, existing home sales are down for the fourth consecutive month, according to the National Association of Realtors (NAR) and down 4.4% for pending home sales, due in part to the low inventory. “Despite the decline, housing demand is still strong compared to one year ago, evidenced by home sales from this January to April, which are up 20% compared to 2020,” said Lawrence Yun, NAR's chief economist.

Commercial Market and COVID

Workers are expected to come back to the office over the next few months as Covid-19 restrictions lift, and many employers are trying to determine how and whether to bring everyone back to the office.

There are challenges to bringing employees back that have been working from home, including employees now having to deal with long commute times, traffic, gasoline costs, and health concerns as more people are working in a confined space.

According to Jay Kramer, a leading real estate attorney at Fennemore Craig in Arizona, short and long-term projections affecting the commercial market, include the following:

Short term:

• Commercial office market will continue to be bumpy.
• Most companies will be in a hybrid environment as they may have only 50% of their employees in the office on any given day.
• Subleasing glut.

Longer term:

• More office space may be required due to the need for more collaborative space, social spaces, quiet spaces, and zoom meeting conference rooms.
• Need for as much or additional space because of all these experiential requirements needed to motivate people to work in the office once again.
• Large headquarters may become more obsolete in favor of regional satellite offices closer to where employees are located to reduce commute time.
• Many offices will need to be “re-imagined” to make them more attractive to bring staff in for a few days a week or more.
• Time to think about flexible lease options to build in flexibility for expansion and contraction.
• Knowing that government mandates or orders can limit how many employees can be in the office, there will be more emphasis on force majeure provisions and leases and possibly condemnation.
• Residential real estate boom will benefit commercial market as more people move to the region, more “knowledge-based” businesses and higher salaries will follow.

1031 Exchanges 

1031 Exchanges on the firing line once again: Is it going away (for real) this time? 

We have seen numerous attempts to eliminate and/or minimize the benefit of Section 1031 tax-deferred exchanges over the years. It seems like we are in a constant state of defending the benefits of this tax provision that allows for the deferral of capital gains taxes on the sale of property held for productive use in a trade or business or for investment purposes. We saw a major change to Section 1031 in recent years when personal property exchanges were eliminated from tax-deferral treatment.

As you may know, President Biden is proposing a $500,00 cap on deferred gain from like-kind exchanges as a means to pay for his American Families Plan. On May 28, the president released his FY2022 budget proposal. The proposal includes “the deferral of gain up to an aggregate amount of $500,000 for each taxpayer ($1 million in the case of married individuals filing a joint return) each year for real property exchanges that are like-kind.” The proposal also states it “would be effective for exchanges completed in taxable years beginning after December 31, 2021.”

The Federation of Exchange Accommodators (the only professional association for 1031 exchange accommodators, of which Corporate Exchange Services is a member) is continuing to mount an aggressive Section 1031 advocacy campaign in response to President Biden’s proposal, and our GAC members are repeatedly sending the following message to Congress:

The proposed cap on Section 1031 is equivalent to repeal. It would effectively eliminate commercial real estate, as well as larger farm and ranch, exchanges. In 2021 alone, like-kind exchanges are expected to generate 568,000 jobs, $27.5 billion of labor income and $55.3 billion of value added to the US GDP. These are powerful figures that illustrate the economic impact of like-kind exchanges in their present form is a far better “pay for” than eliminating this powerful stimulus.

Please reach out to your legislator to support keeping the provisions of Section 1031 intact. The House is hoping to pass the bill by the Fourth of July recess, with the Senate giving its approval by the August recess.