It is common for homebuyers to obtain financing from traditional banks when purchasing a new home, but other financing options may be available.  There are two less common financing options to consider when purchasing a home: seller financing and installment land contracts.

Seller financing is when the seller offers financing to the buyer for the sale of the home instead of the buyer obtaining financing from a traditional bank. This option is typically used when the seller has an established relationship with the buyer, such as a parent and child, or if the buyer cannot obtain financing from a traditional bank. Similar to a traditional bank loan, a settlement will occur where the buyer signs a note and mortgage, the mortgage gets recorded, and the buyer thereafter makes monthly payments of interest and principal to the seller. The buyer will take legal and equitable title to the property on the date of settlement. For seller financing to be a viable option, the seller cannot have a mortgage, or the mortgage must be paid off on the date of settlement. The seller’s role in a seller financing purchase is akin to the traditional bank’s role in a traditional bank loan purchase.

An installment land contract transaction is when the buyer and seller enter into an agreement whereby the buyer makes monthly payments of interest and principal to the seller, but the buyer does not take title to the property until the buyer has made the final payment. Similar to seller financing, this option is typically used when the seller has an established relationship with the buyer or if the buyer cannot obtain financing from a traditional bank. There is an initial settlement where the parties sign the installment land contract, the buyer pays a down payment, and taxes, sewer, etc., are prorated if the parties agree the buyer will be responsible for such payments.  The final settlement is then held where the buyer makes the last payment and the title is transferred from the seller to the buyer. It is important to note the Pennsylvania Installment Land Contract Law governs this type of transaction and certain language must be included in all installment land contracts in Pennsylvania.

For both seller financing and installment land contract transactions, other laws may govern, such as the Pennsylvania Loan Interest and Protection Law and the Federal Regulation X of Real Estate Settlement Procedures Act of 1974. As a result, it is recommended to consult an attorney to prepare the documents for either transaction to ensure the parties are complying with all applicable laws. If you have any questions on seller financing or installment land contracts, the attorneys at Walters & Galloway, PLLC are happy to assist!

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In Pennsylvania, there are potential implications to consider prior to transferring the deed of a home for no or nominal consideration to a child. It is common for parents to desire to transfer their home to their child prior to death. Some may want to avoid inheritance taxes. Others may want to avoid probate so their child is not burdened by the process. Parents generally believe transferring their home to their child prior to death is the best solution.  However, that is not always the case. Here are some risks to consider prior to transferring a home for no or nominal consideration to a child:

1. Inheritance Taxes: Inheritance taxes may still be owed.  There is a one-year lookback for inheritance taxes. For example, if a parent transfers title of the home to a child within one year of the parent’s death, then the parent’s estate will pay inheritance taxes on the home.

2. Medicaid: Medicaid benefits may be denied. Medicaid views the transfer of a home for no or nominal consideration as a gift. There is a five-year lookback for Medicaid purposes. For example, if a parent transfers title of the home to a child, and the parent applies for Medicaid benefits within the next five years to assist with long-term care costs, then those Medicaid benefits may be denied.

3. Income Taxes and Capital Gains:  Capital gains tax may be owed by the child. For example, if a parent transfers title of the home to a child and the child never makes the home his or her primary residence, then the child assumes the original basis. Furthering the example, if the parent bought the home for $50,000, transferred title to the child, and the child sells it in the future for $100,000, then the child will report the capital gain of $50,000 on the child’s personal income tax return. On the other hand, if the parent put the home in his or her will and devised it to the child, then, although the estate will pay 4.5% inheritance tax on the entire value of the home, stepped-up basis will be used. Thus, the basis would be the value of the property on the date of the parent’s death.  The capital gains owed by the child outweighs the inheritance taxes owed on the home in many cases.

These risks should also be considered when a parent adds a child to a deed.  Because each circumstance varies, it is best to consult an attorney prior to transferring a deed for no or nominal consideration to a child. The attorneys at Walters & Galloway, PLLC are always here to help!

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By Attorney H. Robert Fischer, III

The recent economic hardship faced during the pandemic has caused the widespread inability of tenants to pay rent or to fulfill other obligations. This has precipitated a recent storm of legal battles between commercial landlords and their business owner tenants. Parties to commercial leases of all kinds have been forced to draw their leases under the microscope like never before. Through this, there has been one hard-learned lesson: the value of commercial property to an investor or a business truly depends on having a solid, well-drafted lease that adequately protects their interests.

Commercial leases can be very long and dizzyingly technical. Because of this, to the untrained eye, it can be hard to decipher what exactly is being agreed to during negotiations. Though these technicalities can most assuredly make you or break you, so to speak, in a lease dispute, there are some important big picture questions that every party to a lease should ask at a minimum:

1. What type of lease are we dealing with? Different types of leases may divide certain financial obligations in different ways. Though there is variation within each, the general types of commercial leases are as follows:

a. Single Net Lease: The tenant will pay rent, and their pro-rata share of the property tax, as well as utilities. Landlord covers costs associated with the building, such as maintenance.

b. Double Net Lease: Identical to a Single Net Lease, except tenant may pay a portion of the property insurance.

c. Triple Net Lease: The tenant will pay rent, and at least their pro-rata share of, and possibly all of the taxes, insurance, and maintenance of common areas.

d. Gross Lease: The tenant will pay a fixed rate that may cover the projected cost of utilities, maintenance of common areas, property taxes and other expenses.

2. Who pays for the buildout? Often, a property does not come perfectly suited to a tenant’s business needs. Instead, the tenant may require extensive certain renovations be completed to retrofit the property. The landlord may agree to cover the cost in full or in part. Further still, the landlord may agree to hire contractors to see that buildout is completed. In either case, who does what and by when needs to be stated with precision to avoid delay and dispute.

3. Who is responsible for repairs and maintenance to the property? The best way to ensure each party is informed of their responsibilities is to have clearly delineated duties. Who is responsible for maintenance and repairs to the interior or exterior? How about structural repairs like a roof or foundation? These questions can be center of many landlord/tenant disputes and are best addressed in the lease before any problems arise.

4. Does the landlord or tenant carry the insurance? Landlords often require business owners to carry commercial rental insurance so that they will not need to pay out for certain accidents or injuries that might arise from the business owner’s conduct. The types of insurance a landlord may require a tenant purchase might include:

a. Commercial general liability insurance: This covers basic risks such as repair or replacement of damaged or stolen property.

b. Business interruption insurance: Provides coverage during certain types of temporary shutdowns so that the business can cover lost revenue and rent payments.

c. Flood Insurance: Some business insurance policies exclude flood coverage, and a landlord may insist that a separate policy be purchased.

Whether you are a landlord with investments in commercial property or are a business owner who has found a potential rental space, the attorneys at Walters & Galloway, PLLC are here to guide you through the drafting and negotiation process, with the goal of effectively negotiating your position while minimizing your risk of unnecessary and costly litigation.

The post Landlords & Business Owners: 4 Commercial Lease Provisions appeared first on Mechanicsburg Settlement Services.

By Attorney Jacquelyn M. Yeakle

One of the most common questions our real estate clients ask us is, “What is the difference between lender’s title insurance and owner’s title insurance?” The short answer is lender’s title insurance, or a loan policy, is insurance that protects the lender if a title issue arises that could affect the mortgage lien on the property, and owner’s title insurance, or an owner’s policy, is insurance that protects the owner and the owner’s equity in the property if a title issue arises after settlement.

A loan policy is required.  A buyer purchases a loan policy when the property is purchased, and a new loan policy must be purchased every time the property is refinanced. A loan policy is issued in the amount of the mortgage and the amount insured will continue to decline as the owner pays towards the mortgage principal. An owner’s policy is optional and is typically insured in the amount of the purchase price. It is a one-time cost when a buyer buys the property, and the policy remains in effect as long as the buyer has an interest in the property.

Although an owner’s policy is optional, it is highly recommended because it can protect the owner of the property from any of these title issues that may arise after settlement:

· A clerical or filing error in the public records is found, such as on a deed or survey.

· A boundary dispute occurs. For example, if a neighbor has a survey showing differing boundaries than what the owner purchased, then the neighbor may try to claim ownership to a portion of the owner’s property.

· An unknown easement is discovered and shows a government agency, business, or other person has access to all or a portion of the owner’s property.

· An unknown lien, such as an unpaid debt from a prior owner, is attached to the property.

· An illegal deed is detected in the chain of title.

If any of these title issues arise and the owner has an owner’s policy, the title company will defend the owner’s title as an insured. However, if any of these title issues arise and the owner does not have an owner’s policy, the owner could potentially lose all equity in the property, or the property itself. If you have any questions on the difference between a loan policy or owner’s policy, feel free to give us a call!

Save money on your title costs. Let us give you a free quote so you can compare and save.

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By Attorney Jacquelyn M. Yeakle

Most of us have debated whether renting or buying a house made the most sense throughout different phases of our lives. An ambitious new graduate may prefer renting an apartment to have more flexibility to chase after that dream job. First-time parents may want to buy a house in their ideal school district and build equity for the next 18+ years. Empty nesters may want to downsize and no longer be responsible for home repairs and property maintenance. Whatever your situation may be, there are pros and cons to consider when you are deciding whether to rent or buy a house:

Renting “Pros”

1.   An easier, quicker and cheaper process. Once you pick your rental residence, you sign a lease. There is no settlement or closing costs. At the end of your lease, you simply move out.

2.  Landlord is responsible for repairs and property maintenance. If, for example, one of your appliances breaks, your landlord will fix it and pay for the expense. Your landlord is also typically responsible for snow removal and lawn cutting services.

3.  Greater flexibility to move. If you need to terminate your lease early, you may need to pay early termination fees, but you will not have to hire a real estate agent, list your house, find a buyer, attend a settlement, pay a commission fee, etc.

Renting “Cons”

1.  No home equity. You do not build any home equity when you rent. Think of home equity as an asset and a strategy to build wealth.

2.  Rules and lack of privacy. You must follow rules established by your landlord. Your landlord may not allow pets, allow you to paint the walls, allow extended visits by guests, etc. Your landlord may also enter your rental residence after reasonable notice.

3.  Yearly increase in rent. If you continue to renew your lease year after year, your rent may increase each year. Instead, you could be paying a fixed monthly mortgage payment and building home equity at a similar monthly payment as your rent.

Buying “Pros”

1.  Home equity. You build home equity when you make your monthly mortgage payments and when the value of your house increases. Home equity is the current value of your house minus your outstanding mortgage balance.

2.  No rules, unless HOA, and more privacy. You may have pets, paint the walls, decorate or renovate your house as you desire, have guests for an extended period of time, etc. You also have more privacy in your house as no one may enter without your permission.

3.  Rate of return. The longer you own your house, typically the larger return you will receive when you sell it. Treat buying a house as an investment, especially if you plan on owning it for several years prior to selling it.

Buying “Cons”

1.  A more tedious, time-consuming and expensive process. You will likely need to find a real estate agent and lender. You will take time and spend money to gather information, attend settlement, pay closing costs, etc.

2.  You are responsible for all home repairs and property maintenance, as well as property taxes, school taxes and homeowners’ insurance. Also, if your house is part of a homeowners’ association (HOA), you must pay those fees and follow its rules, as well as all laws and ordinances.

3.  Foreclosure. If you do not make your monthly mortgage payments, then your lender can force the sale of your home to pay the balance of your mortgage.

A general rule to follow: If you plan on living in the same area for at least five years, buying a house is generally the more advantageous option. After five years, the increase of the home equity will likely allow you to make money on the sale of your house.

Wherever you are in life and whichever option is best for you, we can gladly assist.  If renting is the best option for you, we can draft or review a lease. If buying is the best option, we can guide you through the homebuying process and provide title insurance.

Save money on your title costs. Let us give you a free quote so you can compare and save.

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Are you looking to refinance or buy a house? If so, the time to do either is now! The mortgage interest rates have not been this low since the end of 2012 when the thirty-year fixed-rate was around 3.31%. The current 30-year fixed-rate mortgage is around 3.25%. If you are one of the many people considering refinancing at this time, but you think the rates may get even lower, do not count on it. Act now because it is not guaranteed that the rates will continue to decrease. Additionally, lenders can only process a certain amount of loans at any given time, and lenders may soon hit their max capacity to process such loan applications due to staff sizes. Some lenders may hire additional employees to help process the influx of refinance applications, while others may not since the workload will eventually return to normal and any additional staff will no longer be needed.

It is also a great time to buy a house because of the low mortgage interest rates. There is one caveat, though – there are not a lot of houses on the market. The average number of houses on the market is much lower than typical for this time of year. So, while you may get a low mortgage rate, you will likely face competition while trying to buy a house. Be prepared to bid on several houses before an offer gets accepted. And if you think waiting until summer is a better course of action, there may be even fewer houses available and the mortgage interest rate may increase by then.

Why have the mortgage rates dropped? Likely due to the coronavirus and investors shifting their investments from stocks to bonds. Once the virus is contained and the uncertainty dwindles, the mortgage rates will likely increase and go back to the norm. So, if you are debating about refinancing your house, the time to do it is now, and if you want to buy a house within the next several months, start the bidding process now.

Save money on your title costs. Let us give you a free quote so you can compare and save.

The post It’s Time to Refinance or Buy a House appeared first on Mechanicsburg Settlement Services.

I recently participated in a roundtable discussion involving financial planners and lenders for first-time homebuyers. A common question presented by attendees was identical to a question often asked by clients who have previously purchased homes – do I need a real estate agent to buy a house? The answer is – it depends on where you are in the process.

Finding the right home is a time-consuming and frustrating process. If you have already located the home or vacant lot you want to buy, a real estate agent may not be necessary and having one could be more costly. For client in this scenario, we can assist by preparing a simple sales agreement which we can present to the seller. When negotiations have concluded, we continue to represent the buyer by assisting them in navigating the financing, title and closing processes. Sometimes legal representation continues post-closing if, for example, the seller knowingly failed to disclose a material defect in the property.

For clients that are still in the beginning stages of the homebuying process and looking at a variety of styles of homes in multiple locations, we suggest they contact a local real estate agent. Real estate agents can unlock the door to hundreds of homes for you to tour. Not every real estate agent, however, is a good fit for every homebuyer and not every homebuyer is a good fit for every real estate agent. Therefore, for the success of the relationship, we recommend vetting several agents until the client finds an agent that understands the client’s needs and compliments the client’s personality. For example, if you are a parent that wants a playground nearby or have a special need which requires certain accessibility requirements within the home, your agent should have some understanding of those needs and know the environment surrounding the property he/she is showing you. Additionally, more and more agents are charging a fee to the buyer, often referred to as a broker’s fee; each agent charges something different so ask about the fee during the vetting process. You will be spending a significant amount of time with your agent so if you and your agent have a good rapport, you may be able to efficiently find the home of your dreams.

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