SBM Real Property Law Section eNewsletter

October 2009

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By Jerome P. Pesick of Steinhardt Pesick & Cohen PC, Chair

Membership statements were recently mailed out by the State Bar of Michigan. This is a reminder to all current members to confirm that the Real Property Law Section is checked off on your dues statement, so that you can maintain your current membership. I encourage all of you to help us grow our Section by recommending membership to your friends and colleagues. Introduce new and younger attorneys to the benefits of belonging to the Section—excellent educational programming, our quarterly journal the Michigan Real Property Review, and networking opportunities. These are just a few of the benefits of belonging to the Section. Please feel free to contact me or any other section leader with ideas you may have regarding membership activities or programming.


The Danger of the Unintended Uncapping
By David E. Nykanen of Steinhardt Pesick & Cohen PC

Despite the depressed economic environment, the SEVs of many parcels still exceed their taxable values. My upcoming article in the Real Property Review discusses structuring transactions to insure the cap on taxable value is not lifted.

Recent decisions confirm that using a pre-dated deed to convey property to heirs may unexpectedly uncap the taxable value. In Nelson v. Village of Leroy (MTT Docket No. 311866, Feb 28, 2006), the Michigan Tax Tribunal determined that a deed signed and dated prior to death was a valid transfer of the property as of the date of the deed, even though the deed was not recorded until after death.

Uncapping can occur even if a deed has not been executed. In Reid v. Williamstown Township (Michigan Court of Appeals Docket No. 271284, Nov. 27, 2007), the Court of Appeals affirmed a Tax Tribunal ruling that a recorded Memorandum of Land Contract was sufficient to demonstrate a transfer of property and lift the property tax cap.

Issues also arise in financing transactions. In Lakewood Cottages, LLC v. Township of Sanilac (MTT Docket No. 302715, Jan 6, 2005), the Tax Tribunal found that conveyances of property into and out of an entity for purposes of refinancing a loan were non-exempt transfers. This result should surprise those who believe a contribution of property into a limited liability company is exempt from uncapping.

For these and other reasons, particular attention must be paid to structuring even seemingly simple transactions to avoid an unintended uncapping of the taxable value.


Sea Change in Residential Finance

By Howard A. Lax of Lipson Neilson Cole Seltzer & Garin PC

For better or worse, the subprime mortgage crisis changed residential finance. The age of easy credit approvals and mortgage industry wealth is over. Some highlights:

  • Starting 7/31/10, Michigan will require testing and registration of all loan originators pursuant to the federal SAFE Act.
  • The Federal Reserve Board (FRB) adopted new consumer protections for higher priced mortgage loans and advertisements. The rules effectively limit annual percentage rates for mortgage loans to 1.5% above the average Freddie Mac rate. FRB also proposed wholesale changes to mortgage loan disclosures. FRB now buys most mortgage securities, for lack of a ready market.
  • HUD completely changed mortgage closing fee disclosures effective January 1, 2010. Unintended effect: more limited seller, broker, and lender down payment contributions.
  • FRB proposed to restrict loan originator compensation based on the loan amount, interest rate, or other loan terms. HUD will mandate new limits on aggregate broker and lender compensation for FHA loans.
  • The Financial Crimes Enforcement Network will propose that mortgage companies file Suspicious Activity Reports, and may require mortgage companies to comply with Anti-Money Laundering (AML) requirements of the federal Bank Secrecy Act. AML compliance is the most expensive of all bank regulations.
  • Fannie Mae and Freddie Mac continue to raise minimum credit score requirements (now 620 to 680). Both require 10% down for conventional loans. Borrowers can still find FHA insured loans with down payments as low as 3.5%, but increasing FHA loan defaults may change this.

"We live in interesting times." (Ancient Chinese curse)

At a Glance

Thursday, October 8, 2009, 7:30–9:30 a.m.
Townsend Hotel, Birmingham
Foreclosure and Beyond

March 11-13, 2009
2010 Winter Conference
Being an Agent of Change
The Westin Kierland Resort and Spa, Scottsdale, Arizona