2016 Winter Newsletter

Posted by admin on Dec 27, 2016 11:48:00 PM
“Making You Look Good is Our #1 Priority ”

What’s New:

We at CSS want to thank you for your continued support and wish you a Happy New Year!

Abolishment of Dower in Michigan—one step closer. As you know, in Michigan, the dower rights of a wife attach to real property in which the husband owns a fee simple estate (with some caveats) during the marriage. There is a package of bills which would abolish dower that have been waiting for passage. On December 13, 2016, the House passed Senate Bills 558 and 560 both on a vote of 66-42. They returned those bills back to the Senate and the Senate concurred in the House’s changes. The Senate also passed House Bill 5520 on a vote of 32-5. They are now returning that bill back to the House. Once the House receives it they will order it enrolled. After the House and Senate have had an opportunity to enroll the bills, they will then prepare them for the Governor’s signature to enact them into law. Below are links to the bills:

SB 558 – http://www.legislature.mi.gov/documents/2015-2016/billconcurred/Senate/pdf/2015-SCB-0558.pdf

SB 560 – http://www.legislature.mi.gov/documents/2015-2016/billconcurred/Senate/pdf/2015-SCB-0560.pdf

HB 5520 – http://www.legislature.mi.gov/documents/2015-2016/billengrossed/House/pdf/2016-HEBS-5520.pdf

1031 Exchanges.

Approval of reverse 1031 outside of safe harbor. The Tax Court issued a long-awaited ruling on the case of Estate of Bartell, which involved a reverse (improvement) 1031 exchange. The Tax Court held that the replacement property to be acquired as a part of a like-kind exchange can be parked with an Exchange Accommodation Titleholder (EAT) for longer than the 180-day limit permitted under the established reverse exchange safe harbor. In September of 2000, the IRS issued Rev. Proc. 2000-37, which allowed taxpayers to park replacement property with an EAT. To qualify for tax deferral treatment, among other requirements, the EAT had to hold qualified indicia of ownership (legal title or other beneficial ownership) and not be the taxpayer or a disqualified person; within 45 days of the EAT acquiring the replacement property, the relinquished property had to be identified; and not later than 180 days after the EAT acquired ownership of the replacement property, the property had to be transferred to the taxpayer as replacement property. Thus, the time period for the relinquished and replacement properties to be held pursuant to the reverse exchange Qualified Exchange Accommodation Agreement could not exceed 180 days. This still did not prevent a taxpayer from effectuating a reverse exchange outside of the safe harbor, but that essentially meant that it may be challenged and tax deferment denied by the IRS.

In the Estate of Bartell case, the EAT acquired the replacement property on 8/1/00 and closed on the relinquished property on 12/28/01, with Bartell’s acquisition of the replacement property from the EAT on 1/3/02, well outside of the safe harbor deadline. The IRS in denying tax deferral treatment argued that it was Bartell who had the burdens and benefits of ownership, and not the EAT. The Tax Court, however, did not seem extremely concerned with who held the benefits and burdens of ownership and agreed with a 9th Circuit ruling (Alderson) that proper title can be acquired by an EAT solely for the purpose of the exchange.

The Tax Court also found “no specific limit on the period in which a third-party exchange facilitator may hold title to the replacement property before the titles to the relinquished property and replacement properties are transferred in a reverse exchange.”

Note that this case is appealable to the 9th Circuit, and the Tax Court’s decision cited the Alderson9th Circuit precedent in its decision. Tax Courts in other circuits do not necessarily need to apply the precedent relied upon in this case. Also, this exchange began prior to the safe harbor rules for reverse exchanges becoming effective.

Taxpayers are still highly encouraged to consult their tax advisors when contemplating a 1031 exchange, particularly if the transaction will fall outside of the safe harbor.

Market News:

2017 Real Estate predictions. Only time will tell if any of the real estate predictions for the coming year will come to fruition, but some of the more popular predictions for 2017 include the following:

  • Drones. With FAA reigns lessening, the use of the drone to show unique aspects of properties by realtors and owners alike should increase.
  • “Surban” properties. A move from suburban-style sprawl to more dense communities of different housing such as townhouses, apartments and single-family homes in the same neighborhoods. Urban amenities are being added to existing subdivisions.
  • Millennials. More millennials buying their first home, but it will be more than your typical starter home or condo unit, according to the National Association of Realtors (NAR).
  • Relative strong 2017. For the majority of this year, the housing market could not get past low inventory levels. Next year should be better, according to the newly released forecast from NAR, but will not necessarily happen quickly. In addition, new single-family home sales are likely to total 570,000 this year and rise to around 620,000 in 2017, with existing home sales projected to grow roughly 2% to around 5.46 million. The national median existing-home price is expected to rise to around 4% both this year and in 2017.

Legal News and Case Law:

In the case of In re Surplus Proceeds from Sheriff Sale, the Michigan Court of Appeals affirmed the trial court’s decision against the Petitioner/bidder at the foreclosure sale, Trademark Properties of Michigan, LLC (“Trademark”). Trademark attempted to claim that there was a surplus owed to it, where in fact, there was a deficiency. The original mortgagor (borrower) defaulted on her mortgage leaving a balance of $55,030.58. During the sheriff’s sale, the mortgagee bid $20,572.80 (“initial credit bid”) as an initial partial credit bid. Trademark was the highest bidder at $31,572.80 (“final bid”). Following the foreclosure sale, the mortgagor assigned her rights to any surplus proceeds to Trademark, who filed a petition for the return of surplus proceeds in the amount of $11,000 (which was the difference between the initial credit bid and the final bid). The trial court granted summary disposition in favor of the County of Macomb (Respondent), noting it did not “‘recognize the total satisfaction under the statute by bid from the mortgagor’” of less than the mortgage amount. On appeal, the court noted that “a surplus constitutes the difference between the amount the mortgagor owes the mortgagee, plus the costs and expenses of the foreclosure and sale, and the amount for which the property is sold during the foreclosure sale.” Here, “the amount owing on the mortgage, including fees, interest, and costs,” was $55,030.58, and the “successful bid was $31,572.80.” Thus, “there was a deficiency of $23,457.78.” Affirmed.

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) 547-5220×102/802 Bridge St., Charlevoix, MI 49720

e-mail: msnabes@visitcss.com.

This Newsletter may be construed as an advertisement as defined in Public Law 108-187. A recipient of this Newsletter may decline to receive future messages by making such a request to the above email address.


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