Deeds, Deeds, Deeds

Deeds, Deeds, Deeds

by | Sep 6, 2022 | Article, Real Estate

Often when individuals purchase real estate, their understanding of the transaction is that the Seller will convey the real estate by executing and recording a deed. However, there are actually various types of deeds, each with their own set of warranties or guarantees regarding the title being conveyed. Because of the differences between the various types of deeds, it is important to understand which type of deed is being used to convey the real estate in your transaction. Three of the most common types of deeds are the following: General Warranty Deed, Special Warranty Deed, and the Quitclaim Deed

The most commonly used deed is the General Warranty Deed. This type of deed provides the Buyer with the most protection by the Seller. Under a General Warranty Deed, the Seller is warranting or guaranteeing that they have lawful title to the property, the right to convey the property, and that title is clear aside from standard exceptions, such as municipal and zoning ordinances, recorded utility and municipal services easements, building restrictions and covenants, and taxes levied in the year of closing. Since the Seller is warranting that there are no issues with the title, even dating back to prior property owners, it offers the best protection to the Buyer. If the Seller conveyed the real estate to you using a General Warranty Deed and later a defect in title is discovered, the Buyers are able to sue the Seller, as they are legally responsible for the breach of the warranty.

Another type of deed used is the Special Warranty Deed. This type of deed is similar to the General Warranty Deed, except the main difference is that it limits the timeframe of the warranties that the Seller is providing. With a General Warranty Deed the Seller is warranting there are no defects of title all the way back to previous owners of the property. However, with the Special Warranty Deed the Seller is only warranting that no title defects have occurred during their time as owners of the property. Thus, the Sellers are not warranting or guaranteeing against any defects in title that existed before they became owners of the property.

Lastly, the Quitclaim Deed is another commonly used deed. This type of deed affords the least amount of protection to the Buyer.  With a Quitclaim Deed the Seller is not warranting or guaranteeing any ownership rights in the property. Instead, the Seller is simply conveying any title or rights that they have in the property. Pursuant to the statutes, a Quitclaim deed will pass all of the interest the Seller can lawfully convey, but does not warrant or imply the existence, quantity, or quality of such interest in the property. Therefore, if a title defect is discovered after the deed has been signed and recorded, the Buyer has no recourse against the Seller.

These were just three of the types of deeds that are utilized in real estate transactions in Wisconsin. As a result of the varying levels of warranties and guarantees provided by each type of deed, it can be helpful to seek the advice of a real estate attorney before purchasing or selling a property. A real estate attorney will be able to explain the differences between the types of deeds used for the conveyance, if a particular deed type is more favorable in certain transactions, as well as what your legal recourse or responsibility is based on the type of deed used. If you have any questions about types of deeds and what type of deed to use in certain transactions, do not hesitate to reach out to one of our experienced real estate attorneys.

What is a Real Estate 1031 Excange?

What is a Real Estate 1031 Excange?

by | Jun 27, 2022 | Article, Business, Real Estate

In the field of real estate, a commonly used term is a 1031 Exchange. But what exactly is that? A 1031 Exchange is aptly named after Section 1031 of the U.S. Internal Revenue Code, which permits the deferral of capital gains tax in certain real estate transactions. Capital gains taxes are owed on the profits from the sale of most investments if they are held for at least one year. Due to the possibility of deferring the tax, there are many requirements in place that must be followed in order to receive the benefit of deferring the capital gains tax.

The first requirements is that a 1031 Exchange can only be used in certain real estate transactions. A 1031 Exchange is only applicable to the sale of real property that is held for productive use in a trade, business or for investment. Furthermore, the replacement property that is purchased also has to be held for productive use in a trade, business or for investment. Therefore, a 1031 Exchange would not be allowed in real estate transactions with property that is used for personal reasons, such as your residence.

The second requirement of a 1031 Exchange is that a qualified intermediary is required to facilitate the transaction by handling the funds. As part of the regulations, you (the owner) are unable to receive or control the funds from the sale of the property in a 1031 Exchange. A qualified intermediary can be a person or a company, however, they cannot be a disqualified person as defined in the Treasury Regulations. The qualified intermediary will take possession of the funds from the sale of your property and hold those funds until they can be transferred to the seller of the replacement property you are purchasing.

The next requirement is that there are certain time periods that must be met to complete the 1031 Exchange. Firstly, you have 45 days from the sale of the property to identify a replacement property. Secondly, you need to conclude the 1031 exchange within 180 days. If you miss any of these deadlines, then the 1031 Exchange will not be complete and you will not receive the tax benefit of deferring the capital gains tax.

Although these are three important requirements of a 1031 Exchange there are still other requirements and technicalities involved with completing a 1031 Exchange. For that reason, if you are considering utilizing a 1031 Exchange it will be helpful to seek the advice of a real estate attorney before selling your property. A real estate attorney will be able to help you navigate through the requirements and technicalities of a 1031 Exchange so that you may benefit from the deferral of capital gains tax. If you have any questions about completing a 1031 Exchange, do not hesitate to reach out to one of our experienced real estate attorneys.

What is the Foreign Investment in Real Property Tax Act?

What is the Foreign Investment in Real Property Tax Act?

by | Feb 4, 2022 | Article, Real Estate

When you are buying real estate there are many different documents that need to be executed at closing. One of those documents is the FIRPTA Affidavit. Although this document is only executed by the Seller, it is still important that the Buyer understands the implications of FIRPTA in real estate transactions and the execution of the FIRPTA Affidavit.

FIRPTA is the abbreviation for the Foreign Investment in Real Property Tax Act and was created to ensure any foreign person or entity pays the necessary taxes when they sell property in the United States. This law was enacted because the U.S. Internal Revenue Service (IRS) was concerned that foreign persons would sell their real estate and then leave the country without paying the tax due on the sale. Therefore, the IRS determined the best solution was to have the Buyer be responsible for making sure the tax is collected. The reasoning for this is, the Buyer will still be in the country after the sale and they have an identifiable asset, the purchased property, that the IRS could attach a lien to if necessary.

Therefore, under FIRPTA, the Buyer of the real estate must either pay, or withhold as a tax, up to 15% of the total amount realized in the sale if the Seller is considered a foreign person. If it is determined that the Seller is a foreign person and the Buyer has not paid or withheld the tax amount, then the Buyer could be held liable by the IRS for the unpaid tax. Furthermore, if the Buyer has not paid the tax or withheld the appropriate amount, a tax lien could be placed on the property.

Considering the potential liability to the Buyer, it is important that the parties execute the appropriate documents at closing to comply with FIRPTA. If the Seller is a non-foreign person, then he or she will often execute the FIRPTA Affidavit at closing. This affidavit is a sworn statement by the Seller, under penalties of perjury, that states the Seller is a non-foreign person in accordance with FIRPTA. In the event the Seller is a foreign person, the Buyer will need to withhold the required amount in compliance with FIRPTA.

Although FIRPTA was enacted to prevent foreign Sellers from leaving the country without paying the taxes from the sale, it has resulted in an increase in potential liability for the Buyers of real estate from foreign Sellers. Therefore, it is beneficial for the Buyer to understand the implications of FIRPTA and seek the advice and assistance from a real estate attorney in real estate transactions that involve a foreign Seller.

If you have any questions on this act please contact one of our experienced real estate attorneys, they would be happy to assist you.

Joint Tenancy vs. Tenants in Common, What is the Difference?

Joint Tenancy vs. Tenants in Common, What is the Difference?

by | Nov 15, 2021 | Article Archive

When buying real estate in Wisconsin, one of the items you will need to consider is how you would like to take title of the property. If you are buying the property as an individual, then this is usually not an issue; however, this item will play an important role if you buy the property with one or more co-owners. You will need to consider whether you will be joint tenants or tenants in common. Both ownership types have different aspects and characteristics, so it will be important to consider the facts and circumstances pertaining to your situation.

In the case of joint tenants, each will have an equal interest in the whole property for the duration of the joint tenancy period, regardless of different or unequal contributions at the start of the joint tenancy. Additionally, joint tenants have a right of survivorship, therefore, upon the death of one of the joint tenants, the survivor becomes the sole owner of the property.

In contrast, tenants in common each have an undivided interest in the whole property for the duration of the tenancy. Tenants in common do not need to have equal interests in the whole property. Therefore, if there is a difference in the contribution amounts, then you may take that into consideration to determine the ownership interest each tenant in common receives. Additionally, there is no right of survivorship for tenants in common. Therefore, upon the death of a tenant in common, their ownership interest will be passed to their heirs at law under Wisconsin law and/or pass via their instructions within their estate planning documents.

Because there are differences between these types of ownerships, it will be important to consider how you want to take title. You should determine if you want your ownership interests to be equal or unequal, considering any differences in the amounts contributed by each co-owner. You may also want to consider how you would want the title to pass upon the death of a co-owner. Do you want the survivor to become the sole owner or would you like your interest in the property to pass to your heirs?

Under Wisconsin Law, it is assumed that co-owners of a property own as tenants in common, unless the intention of creating a joint tenancy is expressed in the document of title, instrument of transfer or bill of sale. Furthermore, under Wisconsin law, it is assumed that tenants in common each own an equal undivided interest in the whole property, unless the intent to have different undivided ownership amounts is expressed in the document of title, instrument of transfer or bill of sale.

As a result of the differences between joint tenants and tenants in common, it may be helpful to seek the advice of a real estate attorney before purchasing the property. An attorney would be able to analyze your situation and your intentions for the property and advise you on the best manner to take title with a co-owner. Moreover, an attorney will be able to assist you in expressing the appropriate language on the document of title, instrument of transfer or bill of sale to honor your intentions and prevent future issues regarding the ownership of the property. If you have questions, do not hesitate to reach out to one of our real estate attorneys.

 

Will You Be My Guarantor?

Will You Be My Guarantor?

by | Aug 31, 2021 | Article Archive

One of the questions you may be asked in your lifetime is to be a guarantor. This request may come from a family member or even a friend that needs someone to be a guarantor for a lease, loan, etc. Your first thought may be to agree right away to help that individual but, there are many things you should consider prior to becoming a guarantor.

It is important to understand that as a guarantor you are making yourself financially responsible for the obligations of the individual if they fail to perform. Often the Landlord or Lender requires a personal guarantor to provide an extra level of protection to ensure they are paid what they are owed. This likely means the individual does not meet their rental or loan criteria and is considered high risk. Therefore, the Lender or Landlord is looking to protect their interests by having a more qualified person guarantee to fulfill the financial obligations of the individual in the event they are unable to satisfy the prescribed conditions.

Since you are making the commitment to be financially responsible for the obligations of another, you should consider some of the following items prior to becoming a guarantor. To begin with, you should consider the individual’s financial situation. Are they reliable and dependable? Are they able to handle their own bills? These are questions you will want to consider, because depending on the individual’s financial situation, you may be putting yourself at a greater risk than you are aware of.

In relation to knowing the individual’s financial situation you should also take a second to consider your own financial situation. It is wise to consider whether you would be financially able to fulfill the obligations of the individual in the event they fail to perform. If you would not be able to handle the financial obligations of the individual, then you should not be their guarantor.

Additionally, you should be attentive to the underlying document that you are being asked to guarantee. If you are asked to be a guarantor on a lease, that is typically only a year-long commitment. However, if you are asked to guarantee on a car loan or mortgage, then you could be taking on this extra financial responsibility for seven, fifteen, or even thirty years. It is important to consider the underlying document for the guarantee so that you understand how long you are committing to taking on this additional financial responsibility. Moreover, you should consider how this extra financial responsibility may impact your own debt to income ratio and thus your own ability to get a loan or mortgage in the future.

Another item you should consider is what type of guarantee the Landlord or Lender is expecting you to provide. Is it a limited or unlimited guarantee? If it is limited, then there is usually a set amount that the Landlord or Lender will be able to collect from you as the guarantor. However, if it is an unlimited guarantee then they would be able to recover the entire amount from you as the guarantor. It is very important to understand the type of guarantee that you would be providing before you become a guarantor.

These are just a few items you should consider before becoming a guarantor. In light of the substantial financial responsibility of becoming a guarantor, it is advisable to seek the advice of a business law attorney before executing any type of personal guarantor. An attorney will be able to analyze your situation and the requirements of the personal guarantee, in order to advise you on the risks and best course of action with regards to becoming a personal guarantor.