Tuesday, March 19, 2019

Trust Basics

            The creation of a trust for estate planning is a valuable tool that can be used to solve many specific needs, such as avoiding probate, reducing estate taxes, creating a charitable legacy, providing for future generations, protection of disabled or spendthrift beneficiaries, obtaining Medicaid reimbursement and other estate needs.  Depending on the issue to be addressed, specific types of trust can be created to provide for these goals.  Trusts can be complex or simple, can combine multiple outcomes, can be standalone or incorporated into a will as a pour over trust.  The most common types of trusts are as follows:

          1.       Revocable Trust.  A revocable trust that holds real and personal property with the creator or grantor of the trust serving as the trustee and initial beneficiary, with the power to terminate the trust at any time.  This is the most common and is used to reduce or eliminate the need for probate after death.  Upon the death of the grantor/trustee, a successor trust takes their place and directs the distribution of the trust assets to the grantor’s beneficiaries as directed in the trust.  A revocable trust does not provide creditor protection for the grantor or the grantor’s assets in trust.

          2.       Irrevocable Trust: An irrevocable trust is similar to a revocable trust that holds real and personal property.  However, the main difference is that the grantor is not the trustee of the trust and does not have the power to terminate or amend the trust after creation. Unlike a revocable trust, a properly created irrevocable trust can provide creditor protection for the grantor’s assets in trust.

          3.       Qualified Terminable Interest Property or QTIP Trust:  QTIP Trusts are used to gift a surviving spouse a lifetime income in an asset or property, and have the remainder pass to a third party (like children from a previous marriage), but gain the benefit of marital exemption from gift or estate tax that usually requires the surviving spouse to obtain 100% title to the asset.

          4.       Credit Shelter Trust:  Allows for the first spouse to place the value of the estate tax exemption in Trust at death with the remaining sum passed tax free to the spouse.  After the death of the surviving spouse, the beneficiaries get the sheltered funds tax free plus the surviving spouse’s funds with a full exemption as opposed to the surviving spouse getting the whole estate and then passing on a large tax bill to the beneficiaries.

          5.       Qualified Personal Residence Trust or QPRT:  A QPRT Trust allows for the owner of a valuable residence to place their home in trust for the purpose of reducing the amount of gift tax that is incurred when transferring assets to a beneficiary.  The grantor of the trust receives exclusive rent-free use, possession and enjoyment of the residence during the term of the QPRT and any tax deduction benefit for taxes they pay.  The benefit only works if the grantor outlives the term of the trust, when the property must be transferred to the beneficiaries.

          6.       Charitable Trusts:  These are irrevocable trusts that provide charitable benefits for the grantor and/or beneficiary. A Charitable Lead Trust gives the designated charity payments for a fixed term and at the end of the trust term, the remaining funds  go to the designated beneficiary tax free.  A Charitable Remainder Trust gives the trust funds to the charity subject to the charities’ obligation to pay the beneficiary income from the trust funds for up to twenty years with an income spread of not less than 5% or more than 50% of the initial fair market value of the trust’s assets

          7.       Special Needs Trust:  An irrevocable trust that allows the disabled beneficiary to enjoy the use of property that is held in the trust for his or her benefit, while at the same time allowing the beneficiary to receive essential needs-based government benefits such as Medicaid and Supplemental Security Income.

          8.       Irrevocable Asset Protection Trusts for Medicaid:  A specialized irrevocable trust created to allow the preservation of principal to prevent the loss for medical expenses that would otherwise be covered by Medicaid benefits.  The trust must be created and funded at least five years before applying for Medicaid benefits.  A child can usually serve as Trustee, and income from the trust can be paid to the grantor.

          9.       Spendthrift Trust:  A spendthrift trust is a type of trust (or a provision in a trust) that prevents the creditors of a trust reaching the beneficiary’s interest by forcing the Trustee to pay over the claimed sum.  This does not apply to federal and state taxes or an enforceable support order.

        Creation of an appropriate trust can result in substantial benefits to both the grantor and the beneficiary.  While estate taxes are not currently an issue today due to the high exemption (11 million for individuals, 22 million for couples), these exemptions can change so proper planning is still warranted.  Choosing the right attorney, financial planner and tax accountant can assist in creating the proper tools without wasting funds on unnecessary products.

4 Steps To Real Estate Investing (guest blog)

Did You Know that 90% of millionaires have one thing in common? This investment is what
helped countless entrepreneurs into millionaire status.

Real Estate Investing. Many millionaires owe their success to this strategy.

No wonder house flipping has spiked in the last few years!

But real estate investing is easier said than done. With the right tools, you can start real estate
investing and be one step closing to your million.

Step 1: Know Where To Invest

Realtors love to say this: “It’s all about the location.” But there’s a reason why everyone repeats
this.

“Finding the right locations is key to being a successful real estate Investor. In order to
maximize the return on interest of a property it has to be sellable, and if the area is bad, it’s hard
to hit the ROI.” - Loren Howard, Phoenix Hard Money Lender, Prime Plus Mortgages.

How can you find the right areas to invest in?

Thankfully, sites like Zillow and Trulia make it easy to find the right areas. Your ideal investing
locations will have the following:

● Low Crime
● Good Schools
● Room For Growth
● Easy Access To Amenities
● Nearby Business Parks

If your heart is set on a property that does not have some of the following, that is okay. Areas with
strong development promise can be very smart investments, so make sure to keep an eye on
the commercial real estate projections.

2: Know What Kind Of Investment

Know what kind of investment strategy works best for you before you begin looking at properties
will save you a major headache.

The 2 most common types of real estate investing are:

     A. House Flipping
     B. Renting

Similar to the shows, house flipping means that you buy undervalued properties, make crucial
repairs, and ‘flipping’ them for a profit. For first-time investors house flipping can be tricky, as it
requires a lot of capital to not only purchase the property, and fund the repairs. Thankfully Fix
and Flip Loans make funding first-time investments easy.

Some first-time investors find that renting is easy for a first-time real estate investment as it
guarantees a monthly passive income to fuel your other investments. Home Rehab loans are
especially helpful for first-time investors. Home Rehab Loans make upgrading your properties
easy and making it easier to rent your property

3: Pick Your Investing Team

It takes a village. One of the most important real estate tools you can have is a great team
behind you. Here are the top 4 team members you need to have to be a successful real estate
investor:

1. Contractor
2. Lender
3. Accountant
4. Realtor

Each of these team members makes real estate investing easy, from building, financing, listing
and keeping the books clean. Finding these valuable team members can be tricky, but a well
oiled investing machine brings you one step closer to successful real estate investing.

4: Fund Your Investments

Many first time investors don’t know where to go for funding. For most real estate investors
finding funds for their first-time investment can be nearly impossible, especially with high credit
scores requirements, proof of income, and other strings attached,

For house flippers looking to fund their first real estate investments, hard money loans say yes,
in a sea of no’s. Hard money lenders use properties After Repair Value (ARV) to determine the
loan amount. That means with a Hard Money Loan you can get funded for the property, and
repairs, and still, make a profit.

Without having to wait for funds, you can purchase more properties and start investing today!
Summary:

Real Estate Investing can be tricky, but it doesn’t have to be. By having the following knowledge
and tools you can start investing smarter today.

● Step 1: Know Where To Invest. Pick the right locations in your city that you know will
have high market demand, like those with the best schools, or plans for business parks.

● Step 2: Know What Kind Of Investment. Know the ins and outs of your preferred type of
real estate investment and learn what other real estate investors are doing to be more
successful.

● Step 3: Pick Your Investing Team. Make your real estate investing A-team that can help
you find, upgrade, list and fund your investments.

● Step 4: Fund Your Investments. Have funding to put down on great properties before
someone else picks up a great property. Hard money loans are fast, don’t require credit
checks, and are more flexible than a traditional mortgage.

What’s the best real estate investing advice you have received?

Catherine Way has never been able to stop talking. She took her love of talking and graduated
from Michigan State University with her Bachelor’s of Advertising with a specialization in
Graphic Design. She spends her free time finding new ways to talk to people, through writing,
designing, dancing, and more. You can see her newest creations here. You can see her new creations here

Condominium and HOA Approval Issues - Part 2


            In addition to the issue of Association and landlord denying approvals based on criminal history, many Associations and landlords are restricting, limiting or outright denying applicants based solely on credit history, employment issues and past bad conduct unrelated to a criminal matter. These restrictions, coupled with the already restrictive criminal matters, has made purchasing and leasing property even more difficult for those people with a previous felony conviction, bad credit, short employment history, or other background matter that, in the past, would not have prohibited the purchasing or leasing of property as long as the prospective buyer or tenant had sufficient funds to consummate the transaction.

            A credit check of a prospective buyer or tenant is now a very common requirement of Associations and landlords. Obtaining the credit score of any prospective purchaser or tenant is an inexpensive way to weed out candidates who may not be financially responsible. The real question is whether or not a credit score is determinative of a person’s ability to pay assessments as an owner or rent as a tenant.

            Much of what determines a person’s credit score is proprietary based on the formula created by the Fair Isaac Corporation.  The company uses credit data included in a consumer’s credit report consisting of the following five elements: payment history; credit utilization; length of credit history; new credit and credit mix.  These five items are then put through a proprietary system by the Fair Isaac Corporation to create a credit score which ranges from 300 to 850 (for the most common FICO8 program). 

            The FICO score does not include a person’s employment, income or bank account information. Therefore, having a low FICO score does not necessarily equate to having low income or low savings. Many people who go through a divorce or a difficult medical issue may have had their credit score fall substantially, either due to a short-term inability to pay past due obligations, the running up of credit to cover substantial medical expenses, or even have issues relating to a spouse or child or issues due to identity theft.

            Fair Isaac provides scoring but does not specifically state the value of each number. However, a typical breakdown of the various scores is as follows:  

580 and below             very poor credit score
580-660                       fair credit score
661-720                       good credit score
721-799                       very good credit score
800+                            excellent credit score

            Utilizing the foregoing system, many landlords and Associations are conditioning approval on a minimum credit score for each occupant over 18. This score generally ranges from 620 to 700 as a minimum for approva,l regardless of an applicant’s other information. In addition, many Associations and landlords impose conditional approval on scores below 700, adding additional requirements that other applicants may not have to address, such as additional deposits or a third-party guarantor. 

            Currently, the average credit score is 695, which is below the threshold that some Associations or landlords have established for approval. In addition, a majority of Americans have a credit score between 660 and 720, and at least 15% have no credit score.  This means many candidates for purchasing or leasing a property may not qualify due to credit score restrictions.  At least one third of all consumers have a credit score below 620. These low scores can make purchasing or leasing a property virtually impossible, and a whole industry has sprung up to help people improve their credit scores due to the debilitating effects that a low score can have.

            Some consumer advocates have stated that imposing restrictions on leasing and purchasing based on credit score is a form of discrimination, but so far no guidelines have been promulgated by the HUD regarding same as they have done for the issues relating to approvals and past felonies. It is possible that such guidelines may arise, or a court may determine that the usage of a credit score to deny an applicant is, on its face, discriminatory.

            In processing any application for lease or purchase approval, it is recommended that the credit score be a factor but not the only determining factor in whether or not to grant approval. Age, employment, income and savings should be used side-by-side with the credit score in order to determine an applicant’s suitability and financial ability. Furthermore, if an applicant is denied as a result of the credit score, it is imperative that the Association or landlord provide adequate written notice of the denial based on credit score and the name and address of the credit reporting agency that provided the credit information.


Sunday, January 27, 2019

Condominium and HOA Approval Issues - Part 1


     A few years ago a client sought to purchase a small cooperative unit on Palm Beach at a price far south of $100,000.00.It was a cash purchase by a very successful independent contractor.  The contract was summarily rejected by the Cooperative Association without any written explanation.  When pushed, they said it was an income issue, they had just completed a large project with high monthly unit expenses, and they were concerned that my client did not have sufficient “regular income” to pay the estimated $1,300 extra per month.

     My client amended the contract to add her daughter as a purchaser, and resubmitted the application, showing that the daughter, a salaried employee made six figures a year.  The revised contract was also summarily rejected by the Cooperative Association, again without any written explanation.  At this point my client called me and after threatening the Association with a lawsuit, they agreed to approve the sale, subject to our client maintaining a three year escrow of assessments of nearly $40,000.  While there was a suspicion of animosity toward my client due to her religion, it was never proven and she has had no further issues.

     This story illustrates a growing problem for certain buyers and tenants looking to buy or rent in many communities in South Florida.  Communities are increasingly adopting tighter rules regarding ownership and occupancy, in order to improve their communities and to reduce the number of investors and renters in favor of family owners who will reside in the home full time.

     The tools adopted by Associations relate to criminal history, credit, employment and past history.  The starting point for any Association is having the actual power to restrict ownership and leasing.  This power must be in the Declaration of Covenants or Declaration of Condominium.  Absent enabling power to regulate sales and leases, the use of simple Board level rules is suspect at best and most likely unenforceable if challenged in court.

     Assuming the power to regulate ownership and leasing is granted in the Declaration, the Board has authority to establish rules regarding such powers (as long as such rules are not unreasonable, discriminatory or exceed the authority granted in the Declaration).

     To enforce these rules, Associations require all applicants for ownership/residency to submit a detailed application about their past living and employment history as well as an applicant’s agreement to submit to a credit and criminal background check. Fees for the application may be charged and are capped by the Condominium Act at $100 per person (husband and wife are considered one person).  Most Associations also charge for the criminal/credit check, which can run $30-$70 per person.

     Many Associations have adopted outright bans on any applicant with a criminal history, regardless of the length of time since the act or the nature and severity of the criminal act.  These restrictions have been challenged successfully based on the grounds that such bans are discriminatory in nature since many felonious applicants are minorities. 

     The US Housing and Urban Development has issued guidelines regarding this issue, after a study showed that the recidivism rate for felons was no greater than non-felons after seven years and the Supreme Court allowed challenges to rental restrictions based on past criminal behavior.  This means that banning someone for a felony more than twenty years ago would, on its face, be deemed discriminatory in most cases.  In addition HUD requires Associations to adopt reasonable rules regarding those with criminal backgrounds, including whether a conviction was obtained, was the criminal conviction for a violent or non-violent crime, how long ago was the crime committed, how old was applicant at the time of the crime and other factors to show that the Association is using the least discriminatory policies possible.

     At least two exceptions exist with regard to the foregoing limitations, a criminal act relating to a felony conviction for drug manufacturing and distribution and a felony conviction as a sexual predator.  It appears that lifetime bans for these actions may be reasonable and enforceable by an Association. 

     In my next post I will address the Associations review relating to credit, employment and life history, and address possible compromises to assist owners and tenants in obtaining approvals.

    

Wednesday, October 31, 2018

Think you are ready to buy a house? Here's 4 signs (Guest Blog)

“Am I ready to buy a house, or should I just keep renting?”
It is one of the questions that we hear most often and something
to which first-time home buyers often spend months, if not years,
trying to figure out the answer.
Below are a list of four tell-tale signs that you are ready to bite
the bullet and take the leap into home ownership:

Sign #1: You are ready to settle down

The first sign that you are in the right mindset to become a
homeowner is that you are ready to stay put -- at least for a little while.
Settle down
Conventional wisdom states that in order for your purchase to
make financial sense, you’ll want to plan on staying put for at
least the next five years. When you sit down to think about house
hunting, you’ll want to use that time frame as your reference point.
Ask yourself the following questions:
Can you see yourself staying at your job for that
long, or will you be looking for new opportunities?
If the right position came along, would you be willing
to move for it?
Do you like the area you are living in, or would you
like to explore other options?
Do you see your living situation changing soon?
Are you planning on moving in with a significant
other or expanding your family?
If these questions make you squirmy, the idea of looking five
years into the future still feels a little too far ahead for you to
grasp, or you still want to see where life life takes you, you may
want to consider renting for a bit longer or thinking about

2. You are done living paycheck-to-paycheck

Let’s face it, becoming a homeowner is expensive.
Home ownership is expensive
Not only is there a monthly mortgage mortgage payment to
consider, which will likely be more than your current rent
check, but prospective home buyers need to be prepared to
come up with a sizable down payment, shoulder a portion
of the closing costs, and have the dough to take care of any
necessary repairs.
Luckily, there is a way that you can prepare for the added
financial pressure before the big day comes and understand
how much house you can afford. Use a mortgage calculator
to estimate what a monthly payment could based on the
type of home you are looking to buy. Then, subtract the
amount you pay in rent each month, and aim to put the
the remainder into savings.
Start by working towards a down payment that could
be worth 3%-10% of a home’s sale price, and then move
onto a separate emergency fund.

3. You are ready for more responsibility

Responsible home owner
Once you find a home and actually buy it, that is really
where all the fun begins.
Yes, owning a home means that you have a lot more
freedom to improve the property as you see fit --
whether that means putting in an entirely new kitchen
or redoing the hardwood floors.
However, in addition to that creative freedom comes
an added layer of responsibility. As the homeowner,
you are the one who is responsible for any necessary
maintenance and upkeep on the property.
Think about what you are like as a tenant now.
Are you willing to roll up your sleeves and help
with small tasks or are you relieved to know that
you have someone to call? If you are less handy,
you may want to take some time to familiarize yourself
with common home maintenance tasks before committing
to buying anything. It always helps to have a fair idea of
what you are getting into.

4. You know what you are looking for

Know your house hunt
Last, but not least, though it may sound self-explanatory,
when you are trying to determine whether or not you are
ready to buy a home, it is useful to have an idea of what
you are looking for.
You don’t have to have every single detail set in stone.
(In fact, it is preferable if you leave some room to flexibility
in your home search.) That said, though, having a basic
set of parameters in mind will make the home buying
process go much easier.
Here, you’ll want to think about the most important
factors that you absolutely must have in a home. These
will be the things that you would not feel comfortable
buying a home without. This may include details like
your preferred location, an ideal number of bedrooms and
bathrooms, a target sale price, or any specific must-have
features like that perfect picture window view.
If you have a strong idea of your must-haves and can't
see that changing in the near future, and the above signs
sound like you, you may just be ready to take the
plunge into home ownership. If not, there is no
shame in the game waiting.
This article originally appeared on OpenListings.

Monday, October 29, 2018

New Home Purchase Scams


     I just purchased my first new home in sixteen years and my family was very excited.  We still have our old house to sell, which gives us the luxury of the slow move, but with the burden of carrying two houses.  Since we moved in we have been inundated with unsolicited mail, many of which are either scams or overpriced rip-offs.

     The most direct scam was a very official looking letter that offered to provide me with a copy of my deed and property appraiser’s report for the small price of only $86.00, with free shipping.  This type of letter preys on people’s fear, by implying in legalese that these are “must have” documents.  This company simply downloads the information, for free from the county, and then passes it off as if it was some valuable, expensive and hard service to justify the price.

     If you do not have a copy or the original of your deed, you can download a copy from oris.co.palm-beach.fl.us/or_web1/or_sch_1.asp.  In the search box, type your name (last first with no comma) and you can restrict the results to deeds, by placing a “D” in Restrict Search by Document Type Code box.  From the list, select the deed you want, then select “get image” to see a copy.  From that screen you can print or save a copy as a pdf (with a big This is Not a Certified Copy watermark).  If you want a certified copy of your deed, you can request a copy by mail to Clerk & Comptroller, Palm Beach County, P.O. Box 4526, West Palm Beach, FL 33402.

     When ordering a deed, you will need to include the Official Records Book and Page and the number of pages of the deed, along with payment.  The charge is usually $1.00 per page plus an extra $2.00 to certify the copy.  So a two page deed will only costs $4.00 plus postage, far cheaper than the scam artists. 

     If you want the information available from the property appraiser, simply navigate to www.pbcgov.org/papa.  Input your name (if you closed recently it will take a while to be updated, I closed September 7 and as of October 20 my property is still shown as owned by my seller), or your street address.  The property appraiser will provide detailed information about size, exemptions, structures and sales of the property searched, and you can easily print a property summary for your records.

     The second scam was letters purporting to be from or on behalf of my mortgage lender suggesting that it is necessary to purchase special mortgage insurance to protect my family if I died.  While the concept is not truly a scam, the sheer quantity of letters (two dozen to date) and the presentation as being “sanctioned” by my lender, makes the requests very suspicious.  These companies simply monitor the public records for new mortgages being recorded and then pounce and are not sanctioned by your lender (though your own lender may also try and sell you the same product).

     Also known as credit life insurance, it is really a protection for the lender, not the borrower.  Mortgage life insurance costs more than regular life insurance for the same type or amount of coverage, the lender is the beneficiary of the policy, not your family, and mortgage life insurance is not required for taking out a loan (though some lenders try to imply that it is as the commissions are very high).

     The policy works by paying off your mortgage loan should the borrower die.  The costs is often rolled into the monthly mortgage payment or paid monthly to a separate insurance company.  State Farm, for example, sells this product at a cost of $258 a year for $100,000 of coverage on a 30 year mortgage.  They age limit this coverage to those under 45 at the time of the policy issuance.  This is a bad deal compared to regular term life insurance.  For example, Geico quotes a healthy 40 year-old male can buy a $500,000 term life policy with a 20 year rate guarantee for just $345 per year.  That much coverage under the State Farm plan would be four times greater.

     The lesson is to be wary of any unsolicited letters selling services that appear to be from an official source, whether from the local government or your home lender.  In most cases these are scams or over priced products.  A simple online search can easily confirm the validity and value of such products.

Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  He specializes in real estate law.  They can be reached at 561.594.1452, or at mjposner@warddamon.com


Monday, October 8, 2018

Contractor Fraud on the Rise: What You Need to Know

Contractors in the construction market make up a large portion of the overall employment statistics for the industry. There are more than six million employees who work in construction industry each year across an estimated 650,000 employers, many of which represent themselves as independent contractors. Without construction contractors, many residential and commercial projects would remain unfinished. However, not all contractors in the construction industry are created equal.

In a recent case brought in Washington, D.C., an individual home improvement contractor was found guilty of defrauding customers and avoiding personal and business creditors through misleading statements in bankruptcy court. The case found that the contractor neither had the skills nor the intention to complete the projects he was paid to do, leaving homeowners with significant financial loss. More and more of these cases are brought to light, even for contractors with the right licensing and bonding requirements in place. As contractor fraud continues to rise, it is important for homeowners to recognize the common types of fraud and warning signs.

Common Types of Fraud

Construction contractor fraud comes in many forms which makes it difficult to spot from the start. However, the most common types of fraud include the following:

Fraudulent billing schemes – some contractors make up payments to suppliers and vendors on paper and pocket the funds, while others charge an excessive amount for materials or equipment.

Theft – contractor theft can be costly and it is fairly common in the industry. Contractors can take materials and supplies paid for by the customer that are difficult to track down or to recoup after the fact.

Equipment use – tools, construction equipment, and vehicles may all be abused or used for personal gain instead of the job at hand, leading to higher costs over time.

Any combination of these common fraud types may be a challenge to see as a project progresses. This makes it difficult for homeowners and small businesses to know that they are being taken advantage of until after the work is completed. The worst types of fraud involve a contractor promising to complete a job but instead, taking the deposit/payment and never looking back. Individuals in need of a construction contractor can look to the possible warning signs below to help protect against fraud.

Warning Signs

Construction contractors who ask for a large upfront payment, in full, should signal a red flag for homeowners and business owners. In many cases, receiving full payment for a new project gives little to no incentive for bad actors to come back and complete the job, and if they do, it may not be up to building standards. In addition to receiving large upfront payments, contractors without the appropriate licensing through the state or county, or the right type of surety bond in place should not be hired for a project. Surety bonds are required for nearly many large construction contracts, and the price paid for having this peace of mind in place is minimal for most. Contractors who are unwilling to provide these details should not be trusted.

Additionally, contractors who do not present the customer with a written contract to sign before starting a new project may require more review. A contract helps protect both the customer and the contractor, and without one, there is no proof that a job was agreed upon or what the project actually entails. Finally, contractors who fail to provide references from satisfied customers or those who have little to no online presence or business location may not be trustworthy.

Protecting Your Investment

Homeowners and business owners can take certain steps to protect their investment in a construction contractor, starting with understanding common fraud types and the warning signs mentioned above. A contractor should be willing and able to provide documentation of licensing, bonding, and insurance, as well as references from past customers or online reviews. If these items are not readily available, check with the state or county’s licensing board to see if a contractor is listed. If he or she is nowhere to be found, or represents they have a license when they do not, may mean there is no intention of completing the work requested.

Take care to select a contractor that checks the right boxes before making any  payment, and keep an eye on the progression of work as agreed upon in the contract. These small actions can make a significant difference in getting a construction job done correctly and in-budget.

Author: Eric Weisbrot is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry under several different roles within the company, he is also a contributing author to the surety bond blog.