Sunday, November 8, 2020

The Tax Sale Certificate - Real Estate Tax Liens in New Jersey

Some basics of Tax Sales and Tax Sale Certificates in New Jersey

New Jersey homeowners should know this about their real estate taxes.

All owners of real property are required to pay both property taxes and any other municipal charges. In New Jersey, property taxes are a continuous lien on the real estate in the full annual amount as of the 1st of the year.  But taxes are payable in four installments on February 1, May 1, August 1, and November 1.  Municipal liens for real estate taxes and other assessments are paramount to all prior and subsequent liens, except for subsequent municipal liens.

When taxes remain unpaid, the municipality has a right to “sell” the unpaid taxes.  When that happens, the municipality issues a Tax Sale Certificate.

Why Tax Sale Certificates?

Real estate taxes are the key part of every municipal budget.  When taxes go unpaid, the municipality – that includes you, the property owner – lose that money. The budget suffers and municipal services are at risk. In order for municipalities to collect missing tax money, they are allowed by state law to sell or assign the unpaid taxes.  This is done through a “tax sale” and the issuance of a tax sale certificate.

 New Jersey law requires all 565 municipalities to hold at least one tax sale per year. How does it work?

Prior to actually conducting the sale, the tax collector mails notices of delinquent taxes to the property owner.  The collector also publishes the list of unpaid taxes in local newspapers several times.  If the taxes are not paid, the tax sale is conducted by the tax collector.  It’s a public process.

Third parties bid on the tax sale certificate (let’s call it the “TSC”). At the auction, bidders bid DOWN the interest rate that will be paid by the owner for continuing interest on the certificate amount. If the interest is bid down to 0%, a “premium” is bid up until the bidding stops, to obtain the tax sale certificate.

At the conclusion of the sale, the highest bidder pays the outstanding taxes and becomes the holder of the lien which is represented by a TSC issued by the municipality. The TSC will then be recorded with the County Clerk to establish the lien against the real estate.

If no one bids on the tax lien, the municipality becomes the owner of the TSC.

Typical form of Tax Sale Certificate

Despite the language of the TSC, the holder of a TSC does not own the property. Rather, the TSC holder owns a lien against the property in the amount paid for the TSC plus interest which continues to accrue.

As owner, you have the right to redeem the TSC.  It is strictly governed by statute.  In addition to the owner,  only certain enumerated persons or parties with interests in a property may redeem the TSC. They include the owners, trustees for the owners, heirs of the owners, holder of any prior tax sale certificates, mortgagees and any legal occupant.

The amount required to redeem must be requested from the tax collector who relies on a certification of the TSC holder as to all amounts due and owing. Once the amount is paid, the Certificate should be cancelled of record.

Note, the foregoing is not intended to be an exhaustive treatment of real estate tax liens and tax sale certificates.  Always seek competent legal advice when you are dealing with a tax sale certificate,

 We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!

For your real estate purchase or mortgage refinance or
if you have questions about what you see here, contact
Stephen M. Flatow, Esq.
Vested Land Services LLC
165 Passaic Avenue, Suite 101
Fairfield, NJ 07004
Tel 973-808-6130 - Fax 973-227-0645
E-mail sflatow@vested.com
@vestedland
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Thursday, October 1, 2020

Construction Liens in New Jersey

While New Jersey’s Construction Lien Law applies to residential and commercial property, this post will take a quick look at construction liens as they affect commercial real estate.

Construction liens provide a method for contractors, subcontractors and vendors who have not been paid for work they have performed. However, the procedural and time requirements of New Jersey’s Construction Lien Law are complex and strictly enforced and a contractor who does not follow them runs the risk of not getting paid for the work.

A construction lien is an interest in property given to a contractor, subcontractor which did work, or a vendor which supplied goods, services or equipment that was used in construction on the property.  The lien is powerful because, if the owner attempts to sell the property or apply for a loan, the lien will have to be paid.  It’s a true incentive to pay the contractor!

Among the kinds of work performed that can give rise to a construction lien are electrical and plumbing work, carpentry, roofing and the like.

The law and procedures for commercial property differ in some ways from residential property.

1.  A construction lien must be filed within 90 days from the date the last work was performed, or from the last date on which materials, services or equipment was provided. The construction lien is filed with the county clerk for the county where the real estate is located.  A Notice of Unpaid Balance need not be filed.

2.      A written contract is required.

3.      The claimed lien cannot exceed the amount unpaid by the owner under the contract. This amount is called the “lien fund.”  Think of the lien fund as the amount still owed by the owner to the contractor.

4.      The party wishing to file a construction lien must file a lawsuit within one year of the date of the last work it performed. That time can be shortened by the owner who gives notice to the contractor demanding he file his lawsuit.

Construction liens are just one of the hazards facing the  buyers of commercial and residential real estate in New Jersey.  It’s something that  Vested Land Services LLC checks for during the course of its examination of the title to the real estate.

(This brief summary is not intended as legal advice for which an attorney at law should always be contacted.)

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!


For your real estate purchase or mortgage refinance or
if you have questions about what you see here, contact
Stephen M. Flatow, Esq.
Vested Land Services LLC
165 Passaic Avenue, Suite 101
Fairfield, NJ 07004
Tel 973-808-6130 - Fax 973-227-0645
E-mail sflatow@vested.com
@vestedland
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Sunday, September 13, 2020

What is a title search?

You may ask:

What is a title search? 

We're here to tell you with the help of Bankrate.com!

Title search definition

A title search is the process in which a title company or attorney examines public records and other documentation about a property to ensure it is able to be sold and its title is free of any claims, liens or other issues that could jeopardize your ability to legally own the property.


“This search is conducted to ensure that marketable title to the property can be obtained and that no encumbrances affect the property rights of the purchasing party,” explains Sarah Stitgen, closing attorney at Cook & James, a firm in Roswell, Georgia.


Stitgen notes that a title search is mandatory for any real estate transaction that requires title insurance. This includes homes purchased with financing, as mortgage lenders require a title search in order to provide funds for the loan.

“Think of title searches on a house like an employer’s background check on a job applicant,” says Landy Liu, New York City-based general manager of Better Settlement Services. “This protects the lender as well.”

Who completes the title search?

An attorney or title company usually performs the title search, which is most often initiated after the seller and buyer execute a contract. The steps involved can vary depending on location, however.

“In New York City, the search is done by independent title companies,” says Greg Maybaum, a real estate attorney in New York City. “Once the contract is signed, the purchaser’s attorney typically orders the title search, and either that attorney or the title company provide the completed report to the seller’s attorney. It’s the seller’s attorney’s job to then manage and address title issues with the title company.”

The company or attorney generally does the sleuthing at the office of the county or municipal clerk where the property is located. Many of the necessary records are now available online, so the searcher often does not need to physically visit an office to conduct the search.

“This person reviews many sources of information related to the property,” explains Suzanne Hollander, an attorney and real estate professor at Florida International University in Miami, such as:

  • Deeds
  • County land records
  • Property plats
  • Tax liens (federal or state)
  • Divorce cases
  • Bankruptcy court records
  • Probate cases
  • Construction liens
  • Judgments

A thorough title search will also likely include details about mortgages attached to the property, street and sewer assessments, taxes and any other title problems present, Hollander says.

“The search may go back as far as 50 years, or as far back as needed to identify the root deed and review each subsequent transfer of the property,” says Stitgen. “This ensures there is proper chain of title moving from grantee to grantee, all the way through the current owner.”

Once all the information is gathered, the title company or attorney will create an abstract report that reveals what has been found regarding the title.

What happens if issues surface during the title search?

A title search may uncover one or more problems with the title. Here are some common issues, along with corresponding strategies to resolve them:

  • Break in the chain of title – This issue can appear when there is a missing deed in the chain. “If party A conveys property to party B, and then party C conveys the same property to party D, we are missing the link between parties B to C,” says Stitgen. “This can be resolved by obtaining a deed from party B to party C, or a deed from party B to party D.”
  • Improper or missing legal description on the deed – Depending on the nature of the error, this typically requires getting a corrected deed from the same parties to fix the error. “In some cases, an affidavit from a scrivener, preferably the party who drafted the document or recorded the document, someone with knowledge of the transaction, may suffice to solve the problem, but only if the mistake is non-material and doesn’t change the nature of the legal description,” Stitgen says.
  • Potential missing interests – When the title chain includes a transfer via an estate, it’s essential to make sure any heirs have properly relinquished their interests in the property. “If this has not been done, it will be necessary to obtain deeds from these parties releasing their interests,” says Stitgen.
  • Open security deeds – The title search may uncover an open security deed from the current or prior owner that was never released. “If so, some research needs to be conducted to determine if this is left open in error. If it was, you’ll need to obtain a release from the holder of the security deed,” advises Stitgen.
  • Liens – A lien is a legal right or claim on a property that is commonly used as collateral to fulfill a debt. A title search will often identify potential liens on a property. These will require extra research to learn if the lien has expired, if the lien is possibly not actually for a party in the chain of title, or if it is a valid lien that needs to be paid.
  • Unpaid property taxes – Any outstanding property or “ad valorem” taxes, which are based on the assessed value of the home, will need to be paid before transferring the title to the new owner.

If one of these issues or another is found, homebuyers generally have three options, depending on what’s allowed in their purchase contract, according to Hollander:

  1. Ask the seller to the resolve the issue before closing
  2. Ask the seller to compensate the buyer for the cost to fix the issue
  3. Walk away from the deal and receive a refund of their deposit

Cost of title services

There are two main costs for title services provided by a title company or attorney:

  1. Settlement service fees – These include expenses incurred to close the loan, such as the cost of wire fees, escrow and underwriting the title insurance policy. The latter includes the title search fee and cost to resolve issues discovered, according to Liu. The price to conduct the title search alone often ranges between $75 and $100, and can be paid for by the buyer or seller if the parties agree.
  2. Title insurance premium – “Title insurance ensures the person who is buying or refinancing the house as the rightful owner of the property,” explains Liu. “The premium is a one-time cost paid at closing that can range from 0.5 percent to 1 percent of the purchase amount. Because it’s a percentage of the purchase amount, your premium can increase if your loan amount goes up.”

Can I do my own title search?

Anyone can search property records through their county clerk’s office, and no law says you can’t conduct a title search yourself. But the experts strongly recommend against it.

“Conducting a title search requires knowledge of real estate requirements and lien periods and the ability to navigate various courthouse records. It’s not advisable to do this without experience, due to the complexity of records and indexing,” says Patti DeGennaro, senior operations manager with Title Alliance, Ltd., in Media, Pennsylvania.

Also, “if you wish to purchase title insurance for your property, conducting the title search yourself will not suffice because the title insurer will require that a professional conduct, review and advise on the search prior to issuing a policy,” adds Stitgen.

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!

For your real estate purchase or mortgage refinance or
if you have questions about what you see here, contact
Stephen M. Flatow, Esq.
Vested Land Services LLC
165 Passaic Avenue, Suite 101
Fairfield, NJ 07004
Tel 973-808-6130 - Fax 973-227-0645
E-mail sflatow@vested.com
@vestedland
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Tuesday, September 8, 2020

If you read it on the Internet, it must be true. Well, not always

New Jersey's "exit tax;" who does it affect?

A recent consumer help column intended to answer a reader's question about the so-called "exit task," but missed the mark.

The question headline was:

I sold a vacation home. Do I owe the exit tax?



Q. I am a partner in an LLC that owned a vacation home for 15 years. The property was sold in 2020 and sale proceeds were split according to share ownership. I am now purchasing another property in the same New Jersey town. Will I still need to pay the exit tax?

The answer, with my corrections in [ ] was:

A. We’re going to assume you are a New Jersey resident for the answer to this question.

We get lots of questions about the “exit tax” when you sell a home and then move out of the state.

This “exit tax” is actually a withholding or estimated tax that is paid in advance if you are moving out of state. The cost is the greater of 8.97% of the profit on the sale of the home or 2% of the selling price, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

He said the state requires all real property owners to execute a special tax form that must be attached to all deeds upon sale of the property. Otherwise, or the deed would be rejected by the recording office, he said. [The most commonly used form is the GIT/REP-3]

Form GIT/REP3 – Seller’s Residency Certification/Exemption” is for New Jersey resident taxpayers [and non-residents claiming an exemption] and contains 14 [16] exemption choices, actually called “seller’s assurances,” that allow for any taxes on the gain to be paid when filing your NJ Resident NJ-1040 Gross Income Tax return, he said.

“Exemption No. 1 applies to New Jersey residents and states that all applicable taxes on the gain from the sale will be reported on a NJ Resident Gross Income Tax Return,” he said. “Exemptions No. 2 through No. 14 apply to non-residents [and residents claiming an exemption] and will not apply to you.”

Papetti said a New Jersey resident that sells real estate in the state, and then moves out of the state, is considered a non-resident on or after the day of transfer.

Part-year residents are considered non-residents.

The forms must be completed at the time of closing and given to the buyer/buyer’s attorney, he said. The buyer’s attorney must submit the original Seller’s Residency Certification/Exemption Form GIT/REP-3 or Non-Resident Form GIT/REP-1 to the county clerk at the time of recording the deed. Failure to do so will result in the deed not being recorded, he said.

“While some may feel the 2% minimum realty transfer tax is an exit tax, it applies to any non-New Jersey resident selling real property in New Jersey regardless of if they were a New Jersey resident prior to the sale,” Papetti said. “Assuming you are a New Jersey resident and will file a New Jersey resident tax return and qualify for Exemption No. 1, there will be no 2% ‘exit tax’ at the time of closing.”

Email your questions to Ask@NJMoneyHelp.com.

[In the question posed by the writer, it states the seller is an LLC.  No "exit tax" is collected because the withholding requirement only applies to individuals, estates, and trusts.  An LLC is not one of those and is entitled to claim an exemption by checking off box 5 on the GIT/REP-3.]

Here's a link to see the form and its instructions: 

https://www.state.nj.us/treasury/taxation/pdf/other_forms/tgi-ee/gitrep3.pdf

If you have any questions about what is written here, please contact me.

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!


For your real estate purchase or mortgage refinance or
if you have questions about what you see here, contact
Stephen M. Flatow, Esq.
Vested Land Services LLC
165 Passaic Avenue, Suite 101
Fairfield, NJ 07004
Tel 973-808-6130 - Fax 973-227-0645
E-mail sflatow@vested.com
@vestedland
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Monday, August 10, 2020

The Tax Breaks for Homes That Help You Now

Homeowners need to know these income tax facts

Home office and second homes deductions

A column in the Wall Street Journal answers some timely questions about income taxes and your home.  

As this article appears behind a paywall at wsj.com/articles/the-tax-breaks-for-homes-that-help-you-now-11596792602, the full text is below.

August 7, 2020

By Laura Saunders

 The coronavirus pandemic has had profound effects on real estate, and the sudden shifts make it a good time to delve into tax breaks available to home buyers and homeowners.

 Many people are scrambling to get mortgages now that interest rates are under 3%, either to buy a home in a red-hot market or refinance debt on an existing one. Others, who are working from home far longer than expected, are itching to renovate their nest or add workspace.

 And then there are those who have moved to vacation homes for the long haul. Some are even social-distancing in motor homes or boats.

 The tax landscape for homeowners changed with the 2017 tax overhaul, which made the long-cherished mortgage-interest deduction irrelevant for many. For 2018, 13 million filers claimed this write-off, down about 60% from 2017’s total of 33 million filers. The overhaul also limited interest deductions on home-equity loans and repealed a benefit for some home offices.

 

But other tax breaks for homes remain, such as one allowing mortgage-interest write-offs for motor homes and boats. Loosened rules on withdrawals from retirement accounts could provide a source of funds for home buyers who need cash this year. A spokeswoman for TD Bank said it’s allowing such withdrawals to be used for down payments

 Whether you’re part of a backlog of buyers or mulling changes to your current home, here are answers to key questions—plus examples to show how the rules apply in different situations.

 Will I get a mortgage-interest deduction if I buy a home?

 Yes, but it might not lower your taxes, if your “standard deduction” is higher than your total itemized deductions listed on Schedule A.

 The 2017 overhaul nearly doubled the standard deduction, and now it’s $24,800 for most married couples filing jointly and $12,400 for most single filers. So millions fewer homeowners are itemizing.

 Typical itemized deductions are for mortgage interest, charitable donations, medical expenses and state and local taxes (SALT), such as property and income or sales taxes. SALT deductions are limited to $10,000 per tax return.

 Here are examples provided by Evan Liddiard, a CPA who directs federal tax policy at the National Association of Realtors. Say that a married couple buys a $400,000 home with a 20% down payment, a 3% interest rate and a 30-year fixed rate mortgage. The first-year interest deduction would be about $9,500.

 If the couple deducts that amount, along with the limit of $10,000 for SALT, they’d still need more than $5,300 in charitable or other write-offs to get above the $24,800 threshold.

 Many single filers will find it easier to get a benefit. If a single person buys a $250,000 home with 20% down and a 3% interest rate, the first-year interest is about $5,950. If this buyer lives in a higher-tax area and has $10,000 of SALT write-offs, then his total itemized deductions are more than $3,500 above the $12,400 threshold, even without other write-offs.

 How much mortgage interest can I deduct?

 For new mortgages issued after Dec. 15, 2017, taxpayers can deduct interest on up to $750,000 of mortgage debt on up to two homes.

 For mortgages issued before that date, a “grandfather” provision allows interest deductions on up to $1 million of mortgage debt on up to two homes.

 Here’s how these two rules can interact. If a homeowner has a grandfathered $800,000 mortgage on a first home and wants to borrow $100,000 to buy a second home in 2020, then the interest on the $100,000 wouldn’t be deductible. For more information, see IRS Publication 936.

 Note that the $750,000 limit applies per tax return, so unmarried couples who buy homes together can deduct interest on up to $1.5 million of mortgage debt. Some couples in high-cost housing markets have refrained from marrying in order to double their deduction.

 I’m refinancing my mortgage at a lower rate. Can I still deduct the interest?

 Yes, in many cases. But current law disallows deductions on the “cash-out” portion of a refinancing unless it’s used to improve a home.

 Say that a borrower with a $400,000 mortgage balance refinances at a lower interest rate but raises the balance to $450,000 in order to have $50,000 for college tuition. In that case, only the interest on $400,000 would be deductible. But if she uses the $50,000 to add a room, then interest on the $50,000 would be deductible, says Mr. Liddiard.

 Are “points” paid to get a mortgage deductible?

 Yes. Points are upfront interest payments that typically reduce the rate. Points paid for a first mortgage are usually deductible the year it’s taken out, while points paid on a refinancing typically must be deducted over the loan’s term.

 I want to borrow to buy a boat or RV. Can I count that as a home and deduct mortgage interest?

 Maybe! Mortgage interest on debt used to buy a motor home or boat can be deductible if it has cooking, sleeping and toilet facilities. The write-off is also subject to the other requirements, such as no deductions for more than two homes.

 Mortgage interest on these homes may not be deductible for the alternative minimum tax—but far fewer people owe this levy than before the 2017 overhaul.

 Can I still deduct interest on a home-equity loan?

 It depends. Until the 2017 overhaul, interest on up to $100,000 of home-equity debt used for any purpose was deductible.

 Now, such interest is deductible if it’s used to make substantial improvements to a home. The debt must be secured by the property it’s used for, and the $750,000 and $1 million total debt limits apply.

 Now that I’m working from home, can I take a home-office deduction?

 Not if you are an employee, because the 2017 overhaul repealed that write-off. But your company can likely reimburse you for your work expenses during the pandemic and get a deduction. The payment won’t be taxable to you, says Gerard Schreiber, a CPA who specializes in tax issues involving disasters.

 Workers who are self-employed, either full-time or part-time, can often deduct home-office expenses on Schedule C for a space that’s used regularly and exclusively for the business. (That means no watching sports on a couch in the office during off-hours.) For more information, see IRS Publication 587.

 I’m spending more time at home, and I want to remodel my house and add office space. Are there tax breaks for remodeling?

 Yes, in some cases. A business owner who builds or upgrades office space at home may be able to take deductions for costs. For example, a photographer’s expenses for adding a studio and darkroom to her home could be deductible over time on Schedule C, as could the interest on a borrowing to finance it.

 For homeowners without businesses, the cost of improvements such as an addition can raise the “cost-basis” of the house and reduce taxable profit when it’s sold. So if a house was bought for $250,000 and the owner made $150,000 of improvements, then the starting point for measuring the gain after a sale would be $400,000. The interest on a home-improvement loan can also be deductible.

 This year many people can withdraw more from such savings plans than in the past, and on better terms, because Congress loosened rules for people affected by the pandemic. These savers can withdraw up to $100,000 from IRAs and many 401(k)s without owing the 10% penalty that would often apply. Then they can spread the tax over three years or pay all or part of the withdrawal back, according to IRA specialist Ed Slott.

 I have a city home and a vacation home, and until the pandemic I lived in the city. If I make my vacation home my primary residence, can I avoid owing city taxes?

 Maybe—but rules vary widely, so seek professional advice tailored to your area. For example, people with jobs based in New York often owe taxes to New York even if they’re residents of other states.

 To switch your vacation home to your primary home, you may need to count days spent in each place. You may also need to make moves showing you’ve truly changed your residence, such as switching doctors, children’s schools, your place of worship, and where you vote.

 Write to Laura Saunders at laura.saunders@wsj.com

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!


For your real estate purchase or mortgage refinance or
if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC
165 Passaic Avenue, Suite 101
Fairfield, NJ 07004
Tel 973-808-6130 - Fax 973-227-0645
E-mail sflatow@vested.com
@vestedland
Sphere: Related Content