Posts

Do you know you can you freeze you property tax assessment?

As property values rise freezing your assessment is one of the smartest financial moves you can make.

Here is how it works. JohnMenszer_4686Homeowners who become 65 can permanently freeze their assessments if they have an adjusted gross income below the scheduled amount. For tax year 2015, the amount is $71,563.00.

It is simple to apply. You must go in person to your assessor’s office with a copy of your latest tax return and your driver’s license. You only need apply once, as you do not have to reapply every year.

The special assessment is permanent as long as you continue to qualify:  That means you continue to own and reside in your home.  Your adjusted gross income does not exceed the scheduled amount for that year. The value of your house does not increase more than 25% due to construction.

If the owner dies the special assessment passes to the surviving spouse who has minor children or who is 55 or older and meets the other qualifications. Veterans who are at least 50% permanently disabled also qualify to for the special assessment freeze. 

In Louisiana, property is reassessed every 4 years, so don’t wait to freeze your tax assessment.

For more information contact an attorney or the following websites:

The Louisiana Tax Commission

http://www.latax.state.la.us/Menu_FAQ/FAQ.aspx

Orleans Parish Assessor’s Office

http://nolaassessor.com/faq.html

Jefferson Parish Sheriff’s Office

http://nolaassessor.com/faq.html

St. Tammany Parish Assessor’s Office

http://www.stassessor.org/frequently-asked-questions

 

Essential Information About Tax Sales.

JohnMenszer2-Exposure-1000931Lately, I am getting a lot of calls about tax sales. It is no coincidence that CivicSource recently conducted a property tax auction in Orleans Parish. Tax sales involve a lot of moving parts and unfortunately they don’t all work together. Let’s look further into this.

After the tax sale while you are waiting for the three year redemption period to run you are going to have to protect your investment by paying each subsequent year’s taxes.

However, if the property has housing violations you as the tax sale purchaser may receive notices from New Orleans Code Enforcement about a hearing.  If you do not remediate these issues the property may be burdened with fines and penalties.  Even worse, the City will not accept your payment of subsequent year’s taxes without payment of the Code Enforcement lien. This is horribly unfair – to expect a non-owner to fix up a property – but it is how the City operates.

There are two roads to reward with a tax sale.  If the owners redeem the property within the three year redemption period you make a nice return.  Your investment back, plus 5% penalty and 1% per month interest.  Twelve (12%) interest is not bad in this economy.

If they do not redeem, what next? The law provides that you can quiet the title to your tax sale purchase. This is the lure for many people – to get property inexpensively. But there are problems here too. The due process clauses in our Federal and State Constitutions work against the tax sale purchaser. As currently interpreted by our courts due process requires that reasonable attempts be made to notify every stake holder in the property prior to the tax sale.  Often, this doesn’t happen.  Most title companies just assume that tax titles are flawed and will not write title insurance on it.

I find that the people who invest in multiple tax sale certificates do best at these auctions. They win on some and lose on others. The purchasers of sole tax sale certificates sometimes lose their entire investments.

What’s Wrong With Reverse Mortgages?

It sounds like a great idea! Tap the equity in your home when you are older and on a fixed income. Pay down your bills. Use the money to travel. What could go wrong?JohnMenszer-1050158

A lot.

1) “You can stay in your home as long as you live.” If you live with another person who is not listed on the reverse mortgage, when you die they will not be allowed to remain in the home. This is true even if they are on the deed. Why would they not be listed on the reverse mortgage? The amount of equity you can take out of your home depends on the age and credit worthiness of the borrowers. It may have made financial sense to leave the younger, less creditworthy person off of the reverse mortgage.

2) “Your up front costs are minimal.” Actually, the fees, commissions and costs of a reverse mortgage are high. But because they are deducted from the loan proceeds at closing and financed by the mortgage, you may not be aware of them. And note, the interest rates on most reverse mortgages are variable.

3) “Everything is taken care of.” Some reverse mortgages provide for the payment of taxes and insurance. If not, this will be your responsibility. If you don’t pay them, you will be in default of your contract. Also, you home has to be maintained properly. You will be responsible for repairs and upkeep. You can be placed in default if you fail to maintain your property.

4) “After you die your heirs can make arrangements to keep the property.” Your heirs will have six months to payout the loan or turnover the property. This is not much time. Let’s say the value of your home increased and exceeds the payoff of the reverse mortgage. This is wealth that should benefit your heirs. But to profit by it they will have to either find financing to payoff the reverse mortgage or sell the property to someone else. Do you want to leave your heirs with this problem? (Note: The six months can be extended by up to two 90-day extensions.)

Consider this real life example.  Mr. X (the names have been concealed to protect the innocent and the guilty) took out a reverse mortgage on his home on October 18, 2010.  He could use the $5,000.00 in ready money and established a line of credit he could draw upon to do improvements to his home.  At the closing the Bank got a fee of $3,510.00, HUD got $3,430.00 for mortgage insurance, there were other costs for a total loan amount of $17,859.26.

Mr. X died 8 days later.  His sole heir was a minor.  His heir should have paid off the loan at that point which would have cost $17,859.26, plus interest.  But, where to get the money?  There was only the $5,000.00 left from the loan closing.  Nothing was done.  Of course, the line of credit could not be drawn upon.

Fast forward to 2015.  The property was vandalized and stood vacant.  The lender finally was foreclosing.  The amount owed, due to interest and costs, was now $57,311.00.  The home is not worth much more than that now.  What a waste!

 

 

Should I be afraid of Zombie Real Estate?

JohnMenszer-0690It happens so often. I ask clients if they own a home and they say, “No, but I am buying one from the bank.” There is a popular misconception that when you are paying a mortgage, you don’t own the property until it is fully paid for. In fact, when you buy a piece of real estate on credit you are owner from the time the ink dries on the paper.

The three essential documents involved in a credit purchase of real estate are: the Act of Transfer, the Note and the Mortgage. The Transfer, also known as the Deed, transfers ownership from the seller to the purchaser. The Note is a statement of the amount the purchaser owes and the terms of repayment. The Mortgage is a security agreement that ties the note to the real estate, giving the lender certain rights over the property. Among those rights is the option to foreclose if the Note becomes delinquent.

Notice, I said “option to foreclose” because here is where the Zombie Real Estate comes in. There are unknown numbers of these foreclosure horrors where it is the bank’s refusal to foreclose which sets the owner down the path to perdition. Zombie Real Estate is property that nobody wants which keeps racking up costs for the owner.

I read of a property owner in Ohio who fell behind to JP Morgan Chase due to ill health. He received a foreclosure suit and proactively moved out before the date of the sheriff sale to live with his daughter. Then the bank quietly dropped the suit. Two years later he started getting bills for taxes, waste removal, weed control, and was threatened with demolition costs.

In depressed markets banks are walking away from properties. If they foreclose they have the legal costs and the expense of keeping up the real estate owned (known in the trade as “REO’s). In not foreclosing the bank can reap accounting and tax benefits from the government and sell the debt at a deep discount to debt collectors, who then hound the owners.

In my practice I once had a case of Zombie Real Estate in a bankruptcy. A client had a piece of investment real estate that he wanted to give back to the lender, as well as a lot of hospital bills and other debts that justified filing a Chapter 7. We filed his case and listed his intention to surrender this property to the bank. Unfortunately, before the lender could foreclose the property was damaged and the lender decided not to foreclose after all. The wrecked property sat for years with the City racking up liens and charges. The Note on the property was discharged in the bankruptcy, but since the City’s liens and charges dated from after the bankruptcy they were fresh obligations to the debtor.

You can’t force a bank to foreclose if it doesn’t want to and you can’t make them accept a donation, a dation or a quitclaim, unless they sign the document. What you own may not be so easy to get rid of.

 

What you don’t know about homeowners insurance can hurt you.

If you are like me you pay your insurance and forget about it. This article is about how to avoid that sinking feeling when your insurance agent says your loss is not covered under JohnMenszer-1090932your homeowners policy. What you may not realize is that insurance companies exclude, or partially exclude, entire classes of losses. These fall into two main categories : correlated risk and moral hazard.

What insurance companies are afraid of paying for is really big catastrophes. If my house burns down that is catastrophic for me, but it is unlikely to affect the whole city. Since it hard to actuarially adjust the premiums for really big losses that happen infrequently, the companies tend to exclude them.

War is one example. Hurricanes are another. My homeowners policy states that flood damage is an exclusion “regardless of how caused” and goes on to state that flood includes “but is not limited to storm surge, waves, tidal water, overflow of a body of water, whether driven by wind or not.” Whew! If you want protection from flood loss get a flood insurance policy which is a government program.

Another factor to consider is that most policies in costal areas of the country now include enhanced deductibles for “Named Storm Damage” (Hats off to the storm-naming National Weather Service). Unlike a standard deductible which is a fixed dollar amount, the hurricane deductible is based on a percentage of the total insured dwelling value

So far we have been discussing correlated risk – multiple losses that can happen together. Another type of loss that insurance companies try to steer away from is moral hazard. Moral hazard is when the insured’s behavior changes in such ways as to raise the costs for the insurer.

But you might say, “all insurance affects behavior.” That is almost the point of insurance. If my camera is insured, you bet I’ll be more likely to take it on a canoe trip over the rapids. What the companies are concerned about are the hidden moral hazards, where having the insurance will be encouraging indifference. “Yes,” the company says we insure against loss, “but we don’t want to be ridiculous about it.”

Infestations of vermin are not covered. You really should wash the dishes in the sink and keep your house tidy. Mold is not covered. Fix that roof leak. If a bowling ball falls off your shelf and breaks your TV, shame on you.

To learn more about these questions check this National Public Radio Planet Money report.

 

Boundary Issues in Real Estate – Use It or Lose It

Ownership of real estate in Louisiana may be acquired by 30 years possession.  A 2005 case illustrates how a good deed came back to hurt a former owner.   House and Fence

In the case both parties owned property adjacent to each other in the City of New Orleans on Metairie Road.  In 1951, Lee the defendant, built a building near his property line with the plaintiff, from which he operated a dry cleaning business.  His customers and employees used a triangular shaped piece of land as a parking area.  All parties agreed the triangular parking area was not on Lee’s land, but on land that originally belonged to the plaintiff.

At trial various customers testified to having parked on the lot.  The plaintiffs agreed that they knew the parking area was being used by the Lees, but did not complain because they were trying to be neighborly.  There is a saying about good deeds coming back to hurt you.

The Court ruled that the Lee’s possession of the parking area was continuous, uninterrupted, public, unequivocal and within visible bounds.  Since it continued for more than 30 years the Court held that Lee acquired ownership of the triangular area by acquisitive prescription.

The Court concluded that although the plaintiffs were aware of the Lees use of the land, they made no formal attempt to stop the use by the Lees until filing suit, some 47 years later.    903 So.2d 661

 

How do I dispute my real estate property tax assessment? There are 4 levels of appeal.

_1140656Many of us think that our taxes are too high, but when it comes to property taxes you can actually do something about it.  You have to pay attention to timing, as the assessor’s rolls are only open for a short period.  In Orleans Parish the books are open from July 15 through August 15. In the other parishes the rolls are open from August 1 through September 15.

You can go to your assessor’s office when the books are open and make your case why your taxes are too high.  Unless there is an obvious error, a gut feeling is not going to get you very far with the bureaucrats.  It is essential that you bring documents to make your point.

Your property is assessed at a percentage of its fair market value.  Fair Market Value is defined as the price a property would bring on the open market between a willing and informed buyer and seller, if exposed for sale for a reasonable amount of time.  Helpful documents would be a recent appraisal, a builder’s contract for necessary repairs, copies of recent sales of comparable properties and always, bring photographs of your property.  If you and the assessor come to an agreement, then you have won and the process is over.

If you cannot come to an agreement at the meeting with the assessor’s customer service representative then you can submit you can submit an appeal to the Board of Review of the assessor’s office.  This is usually done by mail or online, so you wil  make your case entirely by the written word.  The watchword is to be concise and marshal your facts, as you want to make it easy for them to agree with you.  Get to the point and avoid extraneous justifications.  The Board of Review will send you their written decision by certified mail.  Either you or the assessor can appeal the Board of Review’s decision to the Louisiana Tax Commission in Baton Rouge.  In some Parishes the assessor appeals as many of 50% of the Board of Review’s decisions to the Louisiana Tax Commission.

If you cannot come to an agreement at the meeting with the assessor’s customer service representative then you can submit you can submit an appeal to the Board of Review of the assessor’s office.  This is usually done by mail or online, so you wil  make your case entirely by the written word.  The watchword is to be concise and marshal your facts, as you want to make it easy for them to agree with you.  Get to the point and avoid extraneous justifications.  The Board of Review will send you their written decision by certified mail.  Either you or the assessor can appeal the Board of Review’s decision to the Louisiana Tax Commission in Baton Rouge.  In some Parishes the assessor appeals as many of 50% of the Board of Review’s decisions to the Louisiana Tax Commission.

Your signature on the certified mail initiates the 10 day period you have file your appeal with the Louisiana Tax Commission, but this 10 day period may be waived for cause.  A taxpayer’s appeal to the Louisiana Tax Commission should be filed on their Form 3103 A.  The Louisiana Tax Commission holds public hearings.  You can call them for the schedule.  If you receive an unfavorable decision from the Louisiana Tax Commission you have 30 days to file a judicial appeal in the District Court.

The following are some useful websites:

Orleans Parish Assessor’s Property Owners Guide

http://www.qpublic.net/la/orleans/docs/10steps.pdf

Orleans Parish Assessor’s Website

http://nolaassessor.com

Jefferson Parish Assessor’s Website

http://www.jpassessor.com

Louisiana Tax Commission’s Website

http://www.latax.state.la.us

How to take control of Real Estate in a Succession

When real estate is inherited by more than one heir it can get tied up– a stalemate can occur.  Typically, a parent will leave the family home to all their children, but they may not be situated equally.  Consequently, one heir wants to sell and the other does not.  Should the heir who doesn’t want to sell have “veto” power over the property?  Putting the property under  administration and selling it out of the succession is one solution.


Woman Handing Over the House Keys To A New Home Inside Empty Tan Colored Room.

Consider  the following example: One sibling has been living in the family house for years, rent free, while the other sibling
has been financially responsible and lives out of state. If the attorney put both the heirs into possession, each would each get their percentage of ownership, but both would have to agree in order to sell the house and distribute the proceeds.  The sibling who is living in the house rent free has an incentive not to sell, because as part owner he would have the right to continue to live there. The out of state sibling would get no tangible benefit from being a co-owner.  This produces the stalemate I was talking about.  One wants to sell, one does not – as a consequence the house cannot be sold.*

As attorney for the estate I have advised putting the succession under administration and selling the house out of the open succession.  With this scenario, each heir benefits equally.  The heir who opens the succession applies to the court to be named as administrator of the estate. Any interested party can object on the basis that they are unfit for the office.  But if there are no objections, and it is rare to have an objection, the administrator is empowered to make decisions for the succession, including selling assets to pay off the heirs.

There are two ways that estates can be put under administration in Louisiana.  The standard mode requires court approval for each administrator’s decision. The other way is called an independent administration, and gives wide latitude to the administrator.  Either way, with or without court approval, the administrator can list the house for sale with a real estate agent and at the closing sign for the succession. The sales proceeds are deposited in the succession’s bank account and ultimately divided among the heirs.

 

* The asterisk refers to the type of lawsuit called a partition by licitation. A co-owner can sue to have a property legally sold at auction, whether or not the co-owners agree. This is an expensive option and a sale at a public auction does not fetch the highest price.

 

Does a Succession Containing Real Estate Have to be Judicially Opened?

If the estate is valued at $75,000.00, or less, you don’t have to open a judicial succession. Even if it contains immovable property. Seventy-five thousand dollars doesn’t buy much of a house, but consider this. If the person was married and in community, the value of the decedent’s interest in the jointly owned property is half the market value. Surely, there are many properties in New Orleans, Metairie and Covington worth $150,000.00, or less.

JohnMenszer2-Crop_-2510Instead of opening a succession judicially the heirs merely execute an affidavit. The affidavit must contain the date of death, the marital status of the decedent, the names and addresses of the heirs, a description of the property of the estate with its value at the date of death and a statement that the person died without a will.

To transfer the real estate the affidavit is filed in the public conveyance records. There is no filing of a succession lawsuit, no filing fees to pay, no drafting of all the required documents and no judgment of possession to be signed by a judge. There is just a simple affidavit of nine points that can be executed in the lawyers office.

The main requirements are these. The deceased must have died without a will. The aggregate estate of all the property must be $75,000.00, or less. At least two heirs must sign the affidavit and if there is a surviving spouse one of the two heirs must include the spouse. Nothing could be simpler.

Tax Sales – How do they work?

JohnMenszer-1060877In New Orleans Tax Sales are conducted by online auctions. The price is set at the amount of taxes owed, plus costs. The bidder who offers the least percentage of ownership wins. The city issues the winning bidder a tax sale certificate who becomes the tax sale purchaser and holds a tax sale title.

Tip: Never bid less than 100% ownership, just to get the property. I know you want the winning bid. However, if you decide to quiet the title later, owning less than 100% can be a nightmare. It won’t be worth it. Don’t do it.

Keep in mind that what you bid is just your initial investment. You will have to pay subsequent years property taxes to maintain your interest in the property. And you may have additional costs to keep the grass cut and avoid environmental liens.

The owners have up to three years from the day the tax sale is filed in the public records to redeem the property. In order to redeem the owners must pay tax sale purchaser the amount of taxes paid, plus a 5% penalty and 1% interest per month (12% per year).

After the redemption period is over (if the owners have not redeemed) the tax sale purchaser becomes the owner and can file suit to quiet the title. The goal of a suit to quiet title is to have the courts recognize the rights of the tax sale purchaser.