reo properties, property tax appeal and md withholding tax
DESCRIPTION
31 slides. Three-part presentation originally given April 2010 discussing how to make a successful REO offer, how to take advantage of property tax appeal and a run-down of the Maryland Withholding Tax.TRANSCRIPT
Make an REO offer the Make an REO offer the bank can’t refusebank can’t refuse
Presented by Todd Ewing
Evolution of an REOEvolution of an REO
Prior owner defaulted on a loanLender instituted a foreclosure proceedingUnsuccessful foreclosure auctionProperty reverted back to lender (bank)
Tips for REO offersTips for REO offers
Set expectations for yourself and your buyerMake your offer successfulProtect your client
Set expectationsSet expectations
Remember, you’re dealing with a bank◦Don’t expect an answer for several days◦Most banks outsource REO properties to asset
managers who work 9 to 5◦Process could take at least 45 days
Benefit of the bargain is RISK◦Risk is transferred to your buyer when negotiating an
REO property
Set expectations (cont.)Set expectations (cont.)
Obtain “Instructions for writing an offer” from the listing agent if available◦Make sure information is complete
Make the listing agent’s job easy
Make a successful offerMake a successful offer
Demonstrate your buyer has a funds◦Pre-approval letter from mortgage lender◦“Proof/verification of funds” to clearly demonstrate you
have the minimum 10% liquid (i.e. “in the bank”)
The bank wants to see 1% to 3% for a good faith deposit
Make a successful offer (cont.)Make a successful offer (cont.)
If it appears competitive, take preemptive action◦Write the contract “AS-IS”◦Bank will usually counter with “as-is” anyway
Try to avoid FHA financing in your offer◦You can always change your financing option later
Try to avoid asking for closing cost credits◦Bank is interested in net pricing
Make a successful offer (cont.)Make a successful offer (cont.)
AS-IS means “as-is” on a REO property◦You can write a general inspection contingency◦Only option to void the contract◦Bank will rarely agree to make repairs
Request confirmation of receipt from the REO listing agent when submitting an offer
Make the listing agent’s job easy
Protect your clientProtect your client
AS-IS means “as-is” on a REO property◦Water & utilities could be shut off, and your buyer may
not be able to conduct a thorough home inspection
Write in a home warranty to be paid by the seller◦Bank will probably counter, but sometimes they agree
Protect your client (cont.)Protect your client (cont.)
Write in that seller will pay ALL outstanding & delinquent condo/HOA fees (not just those allowed by law)◦Bank will probably counter; sometimes they’ll accept
Write in 100% of all transfer/recordation taxes to be paid by seller◦Bank will probably counter; sometimes they’ll accept
Protect your client (cont.)Protect your client (cont.)Order title work as soon as the offer is accepted◦Many REO properties have serious title issues
Don’t let the REO asset manager force you into using their preferred title provider◦May insure over unreleased trusts or other title defects
to move the asset along on behalf of the bank
Allow at least 45 days to close in the current market
Take advantage ofTake advantage ofproperty tax appealproperty tax appeal
Presented by Joe Gentile
Tax appeal could save thousandsTax appeal could save thousands
Despite a real estate implosion, property tax revenue collected by states and localities actually rose 2.7% last year to $421.8 billion, according to the U.S. Bureau of Economic Analysis.
Appeal property taxes in 4 stepsAppeal property taxes in 4 steps
Track down all the paperworkUnderstand the processCollect your evidenceFollow up on the appeal
Track down all the paperworkTrack down all the paperwork
Obtain a petition (application) from your assessor’s office
Understand the processUnderstand the process
Initial appeal typically informal, sometimes face-to-face, in writing or by telephone◦Most appeals are resolved at this level
If disputed assessment is not resolved, the appeal goes to a board-level review
If still not resolved, a final appeal can be made in a court of law
Collect evidenceCollect evidence
Prove the property assessment is too high◦HUD-1 Settlement Statement◦Appraisal
Focus on points that specifically affect values
Every property owner is entitled to obtain a free copy of their property worksheet and a sales list for the area where the property is located
Follow up on the appealFollow up on the appeal
Maryland◦For property purchase between Jan. 1 and June 30,
new owner has 60 days from settlement to appeal◦Any homeowner may file within 45 days of receiving
assessment notice (typically every 3 years)◦File “Petition for Review” by Jan. 1 of any year
District of Columbia◦Appeal within 30 days of annual assessment and no
later than April 1
Maryland Withholding TaxMaryland Withholding TaxPresented by Catherine Schmitt
What is the Maryland Withholding Tax?What is the Maryland Withholding Tax?
Income tax withholding that affects:◦Maryland non-residents◦Maryland non-resident entities
Often a major surprise to the seller
Avoidable if the seller is able to acquire a Certificate of Full or Partial Exemption
How does it work?How does it work?
Since 2003, Maryland law has required settlement officers to withhold sufficient funds from proceeds of sale for tax.◦7.5% for Maryland non-resident◦8.25% for Maryland non-resident entities
Tax is paid to the recording office at the time the deed is submitted for recordation◦Will not record until tax is paid.
How does it work?How does it work?
“Total payment” for withholding tax equals the total sales price minus debts & expenses◦Debts of the seller securing the property◦Expenses arising out of sale of the property
When is your client affected?When is your client affected?
Non-resident means the seller:◦Is not a Maryland resident◦Has not lived in the property as a principal residence
for 2 of the last 5 years
Non-resident entity (next slide)
What are Non-resident Entities?What are Non-resident Entities?
Not formed under the laws of Maryland more than 90 days before property’s date of sale
Not qualified by or registered with the Department of Assessments and Taxation to do business in Maryland more than 90 days prior to date of sale
Examples of EntitiesExamples of Entities
A Trust that was not formed under Maryland law
An Estate where the descendent was not a Maryland resident
Certificate of Full or Partial ExemptionCertificate of Full or Partial Exemption
A non-resident can walk away with all the proceeds of sale by acquiring an exemption◦Apply for the certificate no later than 21 days before
closing
*Best to apply once the sales contract is executed.
What are the exemptions?What are the exemptions?
1. Seller is a resident of Maryland
2. Property is the seller’s primary residence
3. Property is transferred pursuant to foreclosure or a deed in lieu of foreclosure
What are the exemptions? (cont.)What are the exemptions? (cont.)
4. Property is transferred to the government
5. Statement indicating the consideration paid for the property is zero
6. Certificate issued by the Comptroller stating no tax or a reduced tax amount is due (see next slide)
Comptroller will issue a certificate if:Comptroller will issue a certificate if:
1. Transfer is made on an installment sales basis2. Seller is tax-exempt entity3. Transfer is to a partnership in exchange for a
partnership interest, no gain or loss4. Like-kind exchange5. Transfer is between spouses or incident to a
divorce
Who files the requisite forms?Who files the requisite forms?
Settlement agent or attorney
If the seller is paying as part of settlement, the agent/attorney will file the forms and pay the money directly to Maryland
If seller wishes to file for exemption, then the agent/attorney will file ASAP, no later than 21 days prior to closing
Thanks for your attentionThanks for your attention
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