Proposed Tax Overhaul Could Have Significant Impacts on Real Estate

The new tax bill introduced to Congress last Thursday, and being pushed by the Trump administration, includes some important provisions that could impact how people buy and sell homes in the future.

Currently, homeowners can deduct interest paid on their home mortgage from their annual income tax calculations, and many homeowners depend on this deduction to help make homeownership more affordable. Interest can be deducted for mortgages that are up to $1,000,000 (on two residences), and interest can also be deducted for home equity lines of credit that are up to $100,000. The proposed law will make three important changes: (1) interest will only be able to be deducted for mortgages that are up to $500,000; (2) interest will only be able to be deducted for one residence, not two; and (3) interest will no longer be able to be deducted for home equity lines of credit.

While many of our clients in Western Massachusetts won’t be affected by the first change (because the price of residential real estate is relatively lower than it is in many metropolitan areas), the second change will make it much harder for people to afford a second vacation home. Additionally, many of our clients utilize home equity lines of credit as a way to help pay for their children’s college education, and no longer being able to deduct the interest for those loans will make them that much more costly.

Another important change relates to the way capital gains are calculated and taxed on your primary residence when it’s sold. Currently, a single individual is able to exclude up to $250,000 in gain on their primary residence and a married couple is able to exclude up to $500,000. This exclusion ensures that you won’t be penalized and taxed when you sell your primary residence just because your home has increased in value over time, and can save long-term homeowners tens of thousands of dollars in taxes. There are certain requirements for the seller to qualify for the exemption, however — the most important of these requirements is that the seller must have owned and used the property as their primary residence for 2 out of the last 5 years. Further, the exclusion can only be used once every 2 years.

The newly proposed law will change these requirements so that a homeowner will only qualify if they’ve owned and used the home as their primary residence for 5 out of the previous 8 years (so that someone who had only lived in the property for 4 years would not qualify), and so that a homeowner can only claim the exclusion once every 5 years (penalizing someone who moves in less than 5 years). Considering that the American Housing Survey shows only about 25% of homeowners continue owning their property for more than 5 years, and other studies show that the median length of homeownership is only 5.9 years, these changes to the capital gains exclusion could have a significant impact on many more people than realized.

If you’re purchasing property and concerned about the mortgage interest deduction, or if you’re thinking about selling your property, contact Michael Gove at mgove@govelawoffice.com or413-583-5196 to talk about these potential changes.

For further reading about the Senate’s proposed mortgage interest tax deduction changes, check out this piece from Forbes.

Condominium Associations Granted More Authority in Collecting Delinquent Fees

In Drummer Boy Homes Association Inc. v. Britton, the Massachusetts Supreme Judicial Court recently ruled that condominium associations can impose consecutive, rolling super-liens against units that are delinquent in paying the common or special charges owed to the association. Condominium law in Massachusetts has always included the ability to impose regular monthly charges and irregular special assessments against units – since 1992, the law has also authorized a “super priority lien” to be filed against any units that failed to pay those charges.

The so-called super-lien takes priority over any mortgages that are also on the condominium unit, meaning that the condominium association charges are paid before the loan is paid if the unit is foreclosed on. This provides the association a very important tool in collecting its fees, because lenders require that borrowers pay the fees, and will often pay the condominium fees on behalf of the borrower in order to maintain their priority in the chain of title. (The borrower doesn’t avoid the fees when that happens – the lender simply tacks the amount paid on behalf of the borrower onto the borrower’s loan with the lender.)

The super-lien used by condominium associations can only be created and perfected when the condominium association takes specific steps to provide notice to the borrower and the lender, and the condominium law only allows for these notices to cover a six month period of unpaid condominium charges.

The importance of the Drummer Boy case was the court’s approval of the practice by which a condominium association could create and perfect a super-lien for a six month period, and then create and perfect a super-lien for the following six month period. Previously, it was argued by lenders that the super-lien was limited to a total of six months, but that argument was rejected by the SJC.

As a result of this decision, a condominium association is even better equipped to impose common charges and special assessments necessary for the successful continued operation of the association. Nevertheless, specific steps and timelines still have to be met to perfect and enforce these liens. If you’re a member of a condominium association, or a property manager working with a condominium association, contact Michael Gove at mgove@govelawoffice.com or 413-583-5196 to discuss how to make sure these steps are being taken.

Reverse Mortgages Simplified – Common Uses of Reverse Mortgages

Part 2 of a guest series about reverse mortgages by Tony Lopes, Branch Manager/Reverse Mortgage Specialist, Reverse Mortgage Funding LLC (RMF). Be sure to read Part 1, Reverse Mortgages Simplified – Closing the Financial Gap for a New Generation of Retirees.

In our last blog post, we covered the basic concepts of reverse mortgages and how they can help some seniors live a safer and more secure retirement. Over the years the government has added many safeguards to the reverse mortgage program to make it more consumer friendly. In our third post, we’ll discuss those changes and safety measures that have made the program more approachable for a wider range of seniors. For this post, we’re going to discuss the four common uses that borrowers and their advisors utilize to improve financial sustainability through retirement:

1. Cash flow – One of the common uses of a reverse mortgage is to receive monthly payments from the proceeds generated by the reverse mortgage. Borrowers who struggle to make their monthly obligations can convert the equity in their property into tax-free* income, where they will receive a set amount of money per month for as long as they live in the property.** Converting equity into monthly cash flow can allow them to live a more financially secure retirement and in almost every case will increase their probability of financial success in retirement.

2. Standby Line of Credit – In recent years many prominent financial planning researchers have published studies on the advantages of setting up a reverse mortgage line of credit. They specifically looked at coordinating spending of home equity throughout retirement along with other cash assets. When a senior has no mortgage or a small mortgage on a property, they can utilize a reverse mortgage in the same way they would use a home equity line of credit. But in many cases the Reverse Mortgage Line of Credit has advantages over the standard HELOC:

a. Flexible Payment Feature – No monthly principle or interest payments are required, and there is no predefined loan maturity date. A borrower can choose to pay down the loan at any time or defer repayment.

b. Credit Line Growth – The unused credit line will grow over time, giving borrowers access to additional funds if needed.

c. The line of credit cannot be reduced or revoked by the lender, as long as the borrower meets their loan obligations (i.e. timely payment of taxes and insurance and maintaining the home).

d. Government Insured – 99% of the reverse mortgages originated today are insured by the Federal Housing Administration (FHA).

e. Non-recourse feature – A borrower can never owe more than the home is worth when the loan is repaid.

A reverse mortgage line of credit can be an excellent way to plan for unexpected expenses such as healthcare costs, home maintenance, and upgrades, or can just be a safety net for any of the unexpected expenses life throws at us.

3. Paying off an existing mortgage – Reverse mortgages can be utilized to pay off an existing traditional “forward” mortgage. If a person is over the age of 62, has a mortgage, and plans to age in place, a reverse mortgage can be a great way to pay off their existing mortgage. Using a reverse mortgage in this manner helps by freeing up the cash that the senior was paying on their monthly mortgage payment. Depending on the home value and balance on the existing mortgage, there may be additional funds available that can be utilized as a line of credit or can be disbursed monthly to the borrower.

A real example: A couple from Peabody was drawing money from their IRA to make a $1,500 mortgage payment. They used a reverse mortgage to refinance their existing mortgage to lose that $1,500 monthly payment, PLUS they can also draw $1,500 a month in tax-free* cash; which means they have a $3,000 per month positive cash flow swing by using this one strategy.

4. Rightsizing – A reverse mortgage can be used to purchase a home by combining a one-time investment of cash (down payment) with the loan proceeds from a reverse mortgage to complete the transaction. As with a traditional mortgage, the home being purchased secures the loan. However, unlike a traditional mortgage, there are no monthly mortgage payments, which can help increase cash flow. The borrower owns the home as long as they live in it. The loan does not have to be repaid until the home is sold or the borrower is no longer living in the property as their primary residence. For the loan to remain in good standing, the borrower needs to maintain the property and keep current with property related tax and insurance payments.

Through my years as an HUD-approved reverse mortgage counselor and as a loan originator I have seen many creative and helpful ways a reverse mortgage has improved someone’s quality of life in retirement. I’ve listed the common uses, but the less common uses are the ones that have can have the greatest benefit for seniors. Take Mary, who I counseled many years ago: She loved her home in Ocean City, NJ, where she and her deceased husband had lived for over 50 years. She was able to get by month to month but was unable to see her two sons and their families in Florida as often as she would like. Mary was cash poor and house rich, and she decided to see if a reverse mortgage may be able to help her. She was able to get a reverse mortgage line of credit on her property for over $300,000. Having access to this money has allowed Mary to travel to see her grandchildren at least once every six months, and her quality of life is better because of it.

Reverse mortgages aren’t right for everyone. But if someone is concerned about running out of money in retirement, they are doing themselves a disservice if they don’t research whether a reverse mortgage would help them.

* Not tax advice. Consult a tax professional.

**Must maintain the property and stay current with property related tax and insurance payments.

Tony Lopes is an experienced HECM Loan Specialist with Reverse Mortgage Funding, prior to originating loans he spent seven years as a HUD Approved Reverse Mortgage Counselor. Tony is available at alopes@reversefunding.com or 413-478-2013 to help educate borrowers and their families. Branch Address: 1325 Springfield St, Feeding Hills, MA 01030. NMLS # 1408098

Gove Law Office, LLC is a general practice law firm with offices in Northampton and Ludlow, MA. The firm handles  a wide variety of legal needs, including residential real estate matters. For more information, please contact Attorney Michael Gove at mgove@govelawoffice.com.

Buying Real Estate: Title Insurance

When purchasing a home, obtaining clear title (or ownership) is your ultimate goal. Clear title ensures there are no delinquent taxes, unpaid liens, undisclosed heirs, unknown property line conflicts, or surprise easements on your new property.

To ensure you’re getting clear title from the seller, you attorney will conduct a title examination by searching public records back a number of years (sometimes decades). Almost one-third of all title examinations find an unusual title problem according to the American Land Title Association. Some issues can be resolved easily, but some require the seller to contact past owners (or their attorneys) before they can be addressed.

If you’re getting a loan for your home, the lender will require you to get a “lender’s title insurance” policy. This type of title insurance policy, however, only protects the lender and not the owner, and the policy coverage decreases over time as the loan is paid off.

In contrast, an “owner’s title insurance” policy is the best way to protect your interest as the new owner of your home. This type of title insurance policy, which is paid for with a one-time fee at the purchase, covers you and your heirs for as long as you own the property. It will also pay potential legal fees for defending and settling claims related to your ownership.

Rates for title insurance policies are based on the purchase price for the property but are regulated in all states, so prices are usually similar among reputable insurers. A typical lender’s title insurance policy will cost $2.75 per $1,000 (or $618.75 for a $225,000 loan), and an owner’s title insurance policy will add another $2.225 per $1,000 (or $556.25 for a $250,000 purchase price) if purchased at the same time.

As a full service law firm with a focus on real estate transactions, Gove Law Office is a title insurance agent for a number of reliable title insurance companies. Call or email us today to discuss your options.

Michael S. Gove, Esq. is the founding partner of Gove Law Office, LLC, a general practice law firm with offices in Northampton and Ludlow, MA. The firm handles a wide variety of legal needs, including all residential and commercial real estate transactions and leasing. For more information, please contact the office by calling 413-583-5196 or emailing mgove@govelawoffice.com.

Radon Mitigation

This is the third and final post in a guest series about radon gas in the home by Rick Galarneau, owner of MassRADON. Be sure to read Part 1, Radon Gas and How It Gets Into Your Home, and Part 2, Testing for Radon in Your Home.

Radon mitigation is the process of removing radon gas from the home to a level that is considered safe.

Removing airborne radon usually begins by first sealing entry points for radon. This is accomplished by caulking any cracks and holes in the basement floor and sealing sumps. Crawl spaces with open earth floors should be sealed in a thick plastic sheet. Depending on the initial test results, these steps can often reduce radon levels on their own.

If a mitigation system is still needed after the above steps are completed, then one or two (rarely more) 4″ holes are drilled in the concrete floor. The “plug” of concrete is removed and then some of the underlying material — dirt, sand, gravel, stones, etc. — is removed to create a pit. PVC piping is inserted into the hole and sealed. The pipe is directed to the exterior of the house or into an attached garage, where a radon suction fan is attached. The exhaust side of the fan is also piped, and it’s directed to a point above the roofline of the home. Radon gas must be discharged above the roof so that it can be carried away by the wind.

This is a standard mitigation system and costs typically fall in the $1,100 to $1,500 price range, depending on the extent of work and amount of materials needed. These systems work well in most houses, but not all. Very old homes and homes with dirt floor basements may require other work or a fresh air ventilation system to dilute the radon to a safe level. There are many variables that will determine how well a system will work and what type of system may be needed in a given home. A site visit should be completed before a quote is offered.

Radon in your well water is removed in a different way. This type of mitigation requires a system that strips radon from well water by aeration. A unit is installed that takes well water from your storage tank in the basement and directs it in the radon system. Thousands of air bubbles are introduced into the water, which strips the radon gas molecules and vents them to a point above the roofline. These systems are usually about 98% effective in their reduction capabilities and cost around $4,500. Again, a site visit is required to determine several things, including the size and material of the water main coming from the well tank and a viable route for the vent pipe, and to ensure that the electrical system is capable of accepting an additional circuit.

Allow plenty of time for the radon mitigation process to be completed, especially when you are selling your home. Mitigation is generally a fairly quick process, and most systems can be installed in a few hours, but occasionally repeat visits may be required to install additional suction pits or make other modifications to the system in order to obtain acceptable results. This may require testing in between the visits to determine the effectiveness of the modifications. Allowing plenty of time for the mitigation process will help you reach acceptable reading levels without interfering with your closing date.

Rick Galarneau has been the owner-operator of Aaron Associates, MassRADON, for the last 14 years.  He is a member of the American Association of Radon Scientists and Technologists and the National Radon Proficiency Program. He is a National Environmental Health Association Certified radon mitigator and has successfully mitigated over 1,000 homes in Western Massachusetts.

Gove Law Office, LLC is a general practice law firm with offices in Northampton and Ludlow, MA. The firm handles  a wide variety of legal needs, including residential real estate matters. For more information, please contact Attorney Michael Gove at mgove@govelawoffice.com.

Testing for Radon in Your Home

Part 2 of a guest series about radon gas in the home by Rick Galarneau, owner of MassRADON. Be sure to read Part 1, Radon Gas and How It Gets Into Your Home.

Let’s talk about airborne radon testing, since it’s the first step in determining if there is in fact a radon problem in your home. Let’s preface this by stating that radon gas is everywhere — it’s in the air we breathe, even in our backyard. And it is definitely in every house on the planet, even ones with a radon system. Since radon is everywhere, the real question becomes, how much radon is there?

Radon testing is the only way to know the radon levels in your house. It doesn’t matter what level your neighbor has, or anyone else on your street, for that matter; every house is different. It’s possible for unsafe levels of radon to be found in only one house on a given street, while all the other homes test as safe. Or the opposite could be true: they may all test as unsafe except for one house.

Testing comes in several forms. The EPA recommends what is known as long-term testing. Long-term testing should be done whenever possible because it will give the most accurate results regarding your average indoor radon levels. Long-term testing can last three months to a year, and it should be done across two or more seasons. Nothing special needs to be done to the house and normal living conditions should be maintained. There is no need to close up the house or worry about the weather, since this testing is designed to determine levels of radon under everyday living conditions. This is the type of test you would want to use in a house that is not for sale at the time of testing.

Short-term testing was designed to get a quick idea if a home might have an elevated radon level when there isn’t enough time for long-term testing. Short-term testing is typically conducted for 48 to 72 hours. Any method of testing should always be done for a minimum of 48 hours and under normal weather conditions, which are just what you would think: 2-3 inches of rain in a 24 hour period and high wind conditions are not normal, and such weather will greatly impact your short term testing results in a negative way. Severe weather will raise indoor radon levels substantially during the weather event. They will return to their more regular readings as that weather passes.

The EPA states that radon testing should be conducted in the lowest level of a home that is suitable to be used as a living space without major renovations. That means that most basements that have intact concrete or block walls, a concrete floor, and are mostly dry and could be used as an exercise space, family room, workshop, etc., would be the right place to test. A basement in an old house with crumbling stone walls, a dirt floor, missing concrete floor sections, or low ceilings and very damp conditions would not be the preferred location for testing because its condition makes it unsuitable to be used for much of anything. In this case the first floor living space would be the preferred testing location.

Please test your home, test your families’ homes, test every home.

Rick Galarneau has been the owner-operator of Aaron Associates, MassRADON, for the last 14 years.  He is a member of the American Association of Radon Scientists and Technologists and the National Radon Proficiency Program. He is a National Environmental Health Association Certified radon mitigator and has successfully mitigated over 1,000 homes in Western Massachusetts. Part 3 of this series addresses mitigating radon gas in your home.

Gove Law Office, LLC is a general practice law firm with offices in Northampton and Ludlow, MA. The firm handles  a wide variety of legal needs, including residential real estate matters. For more information, please contact Attorney Michael Gove at mgove@govelawoffice.com.

Reverse Mortgages Simplified – Closing the Financial Gap for a New Generation of Retirees

By Tony Lopes, Reverse Mortgage Specialist, Reverse Mortgage Funding LLC (RMF)

Retirement has become a bit more complicated in recent years. Retirees can no longer rely on just Social Security, employer-sponsored retirement plans, and personal savings – what’s known as the “three-legged stool” of retirement planning. Many of today’s retirees simply do not have the employer-sponsored plans their parents did, and therefore need to rely more closely on personal savings and other assets to close the gap and meet their financial needs. Additionally, with increased longevity and medical expenses, planning for the unknown is difficult. That’s why Home Equity Conversion Mortgages (HECMs) are growing in popularity.

If you’re 62 or older, an HECM can help you tap into the equity of your existing home and turn it into cash that can be used today or a line of credit that will be there when you need it. It also can help to persevere invested assets, leaving them intact to continue earning for you.

In short, an HECM can give you more power to live better. Do you want to make some needed or desired home improvements? Get additional funds to help cover unexpected medical costs or supplement your income? An HECM can help by eliminating your existing mortgage payment and freeing up cash to use for those purposes and others. (As the homeowner, you’d remain responsible for property taxes, homeowner’s insurance, and property maintenance. An HECM is a home-secured debt payable upon default or a maturity event.)

You can receive your loan funds as a lump sum, a line of credit, a monthly payment, or any combination of these. (If you elect a fixed-rate loan, you will receive a single disbursement lump sum payment. Other payment options are available only for adjustable rate mortgages.)

The HECM loan program was created by the Federal Housing Administration specifically for homeowners age 62 and older, and has been growing in popularity. Today, many consumers and their financial advisors view HECMs, in the right circumstances, as a smart solution to help qualified homeowners achieve their retirement goals.

Over the coming weeks we will discuss recent changes to the HECM program that have made the program safer and less costly for seniors. We will also discuss common misconceptions and uses for HECM’s that seniors and financial advisors implement to improve quality of life in retirement.

Tony Lopes is an experienced HECM Loan Specialist with Reverse Mortgage Funding. Prior to originating loans, he spent 7 years as a HUD Approved Reverse Mortgage counselor. Tony is available at alopes@reversefunding.com or 413-478-2013 to help educate borrowers and their families. Branch Address: 1325 Springfield St, Feeding Hills, MA 01030. NMLS # 1408098

Gove Law Office, LLC is a general practice law firm with offices in Northampton and Ludlow, MA. The firm handles  a wide variety of legal needs, including residential real estate matters. For more information, please contact Attorney Michael Gove at mgove@govelawoffice.com.

Radon Gas and How it Gets Into Your Home

Part 1 of a guest series about radon gas in the home by Rick Galarheau, owner of MassRADON.

Radon gas is a decay product of uranium. Uranium is a naturally occurring element found on planet Earth. Typically it is found deep underground in the bedrock and can run in “veins.” Uranium, like most radioactive elements, goes through a decay process in which it breaks down over time and gives off, or becomes, something else that is also radioactive. In the case of uranium, it decays into another element called radium. Radium also decays and it breaks down into radon gas. Because it is a gas, radon moves easily through cracks in the earth and can travel underground with other soil gases. It can also find its way into underground water supplies. That’s how it gets into your well water. As it moves underground it works its way to the surface of the earth and naturally vents itself into the atmosphere, or into your basement and the rest of your home

Once it’s in the house, radon gas attaches itself to dust particles and travels around your house, where you breathe it in. Once it is in your lungs, radon, like the other radioactive elements, breaks down again and gives off what is known as radon daughters. These radon daughters give off a small burst of energy when they are created and that energy can damage cells in the lungs, which can in turn become a cancerous cell.

Radon in the well water creates the same problems as radon in the air. Waterborne radon is released into the air at its point of use, which is usually on the living floor. Once it’s released into the air and you breathe it in, the results are the same as airborne radon. Municipal water supplies treat the water for radon, so it has been removed before it is delivered to your home.

All houses should be tested for radon gas in the air and, if the airborne levels are elevated, in the well water. Radon is also present in the outside air at a reduced concentration, so while you cannot find a house that does not have some radon, you can test your home and it can be reduced to less toxic levels.

Rick Galarneau has been the owner-operator of Aaron Associates, MassRADON, for the last 14 years.  He is a member of the American Association of Radon Scientists and Technologists and the National Radon Proficiency Program. He is a National Environmental Health Association Certified radon mitigator and has successfully mitigated over 1,000 homes in Western Massachusetts. Parts 2 & 3 of this series cover testing for and mitigating radon in the home.

Gove Law Office, LLC is a general practice law firm with offices in Northampton and Ludlow, MA. The firm handles a wide variety of legal needs, including residential real estate matters. For more information, please contact Attorney Michael Gove at mgove@govelawoffice.com.

Ensuring (and Insuring) Proper Title to Your Real Property

When you purchase real estate, you have an expectation that you can occupy and use the property as you wish, that the property will not be subject to debts or liens you haven’t agreed to, and that you’ll be able to mortgage or sell the property in the future. To ensure this is the case, you (and your lender) will want to make sure no third party has any claims against the property. This is done by having an attorney examine a number of things, including public records held by the local registry of deeds and the local probate and family court, the payment of taxes and utility services at the municipal and state level, and information from the seller about the prior use of the property. The attorney’s investigation should identify whether a third party has any potential claims of ownership, or has any potential liens for work done on the property.

Once this investigation is complete, and all potential issues have been identified and cleared up, your attorney will contact a title insurance company to issue a title insurance policy. The title insurance company will review the attorney’s investigation of the property, confirm all issues have been cleared up, and authorize the issuance of the title insurance policy. This policy insures your ownership of the property, and sets out the title insurance company’s agreement to defend your ownership if a claim arises and to pay out the value of the policy if any claim is successful.

There are two types of title insurance policies issued by a title insurance company: a lender’s policy and an owner’s policy. A lender’s policy is given to the lender and only insures the value of the loan issued. In contrast, an owner’s policy is given to you as the owner and insures the full value of the property, including any equity you may have. When you first purchase property, the additional cost of an owner’s policy is usually minimal, and is almost always worth the investment.

If you have questions about purchasing property, the process of obtaining title insurance, or any real estate matter, contact me at mgove@govelawoffice.com or 413-570-3170.

Protecting Your Home: The Massachusetts Homestead Act

Your home is not only one of your single largest financial investments, it’s also the place where your family lives and makes memories. The Massachusetts Homestead Act, revised in 2011, helps protect your home from business creditors, lienhodlers, and personal debts.

Under the revised Homestead Act, your principal residence automatically receives a homestead protection of one-hundred and twenty-five thousand dollars ($125,000). However, by recording a Declaration of Homestead in the Registry of Deeds, you can protect up to five-hundred thousand dollars ($500,000) of equity in your home. If you are older than sixty-two or are disabled, you are eligible for even more protection.

If you decide to file a Declaration of Homestead, you should make sure all the owners sign the declaration. Owners eligible to file a declaration include anyone with a legal interest in the property who also uses the property as their primary residence (non-owner spouses and family members are automatically protected as long as they are using the home as their primary residence). Even if you have granted the property to children but hold a life estate in the home, or even if the property has been transferred to a trust but you are one of the beneficiaries of the trust, then a homestead can still be filed. (If the property is in trust, the trustee would file the declaration and name the trust beneficiaries in the declaration.)

Your homestead protects your primary residence from attachment, execution, or seizure for the payment of many types of debt. A homestead does not protect you from all obligations, and some exceptions include claims arising in connection with your mortgages, government taxes and assessments, or court orders regarding payment of alimony or child support. The protections afforded by the Homestead Act are not effective against liens or claims recorded before your Declaration of Homestead is recorded, so consider preparing and recording a homestead now.

If you have any questions about the Homestead Act, or other ways to protect your property, contact me at mgove@govelawoffice.com or 413-570-3170.