The Securities and Exchange Commission ("SEC") issued a response earlier this month to a 'no action' request that further supports its view that tenant-in-common ("TIC") interests are securities as opposed to real estate. In a TIC ownership structure, two or more parties can co-own a parcel of real estate without rights of survivorship. This type of co-ownership allows each co-owner to choose who will inherit his/her ownership interest upon death.
To treat the TIC interests as securities affects how a sponsor packages, markets and sells the TICs, as the SEC regulates such actions when it involves the sale of securities. It also would prohibit compensating licensed real estate agents that assist in the sale of TICs, due to only licensed broker-dealers being permitted to sell securities.
The TIC ownership structure has gained in popularity due to the ability of a property owner to leverage funds into a larger commercial project and to use the purchase or sale of TIC interests in a 1031 tax-free exchange. Each TIC interests is individually deeded, allowing an owner to transfer the it by deed, as one would with any parcel of real estate.
Many TIC sponsors are syndicating TIC offerings based on a real estate model, which is less cumbersome due to fewer regulations and restrictions. Since the SEC response was issued based upon specific fact patterns provided in the 'no action' request, it remains to be seen whether or not sponsors following a real estate model will change their business model based on the recent SEC statement.
However, based on this latest SEC response and litigation just filed by the Idaho Department of Finance against a bankrupt Idaho-based TIC sponsor, DBSI, Inc., large TIC sponsors may want to reconsider their approach with respect to TICs.
For more details see "SEC Confirms TICs as Securities" published by Beth Mattson-Teig in National Real Estate Investor.
Surprising Ways Your Building May Be Wasting Energy
Buildings Magazine has an informative article published for February 2008 by Leah B. Garris titled "11 Surprising Ways that Your Building Wastes Energy." The point of Ms. Garris' article is that many building owners address the obvious energy issues, i.e., the ones having to do with the efficient operation of building systems, but may not realize that there are other ways to stem energy waste that can make a dent into their energy management program.
Click here to read the article.
Click here to read the article.
Dot Your I's, Cross Your T’s and Now, Use the Right Font, Margins, Paper Size and Ink Color
.PNG)
(Ohio HB 525 Sets Standards for Documents to be Filed with Ohio County Recorders)While over 20 states (and counting) have joined the “e-real estate filing” trend (and adopted the Uniform Real Property Electronic Recording Act), Ohio is apparently content with making original filed documents look a little better by virtue of HB 525. Effective July 1, 2009, HB 525 is the new standardization act pertaining to documents filed with Ohio county recorders.
HB 525 creates a revised Section 317.114 of the Ohio Revised Code, with the following guidelines for recorded real estate documents.
1) Computer font size of at least ten point;
2) Maximum paper size: 8 ½ x 14; Minimum paper size: 8 ½ x 11;
3) Margins of 1 inch on each side of the page and on bottom;
4) 3 inch margin on the top of the first page, reserved for recorder, auditor and engineer;
1 ½ margin on the top of each of the remaining pages;
5) Black or blue ink only.
If a document does not conform to these guidelines, an additional recording fee of $20 will be due.
HB 525 does NOT apply to: (i) any document from any court or taxing authority; (ii) Plats;
(iii) DD214’s; (iv) any state or federal document; and (v) any document executed before July 1, 2009.
Builder Offers 3.99% Rate on Mortgages
Toll Brothers, a builder based in Pennsylvania, wants to jolt buyers into action. To that end, it is offering a 3.99% fixed mortgage rate for 30 years. The deal is for loans of $417,000 or less and carries no points for the buyer. The lending source that the builder is using has not been revealed in any news story that I've seen. The builder has indicated that a buyer needs a credit score of 720 or higher and at lease 20% down (with no PMI) in order to qualify for the special rate.
Toll Brothers builds in quite a few states, although to date, Ohio has not been one of them. Does anyone know of comparable builders in Ohio offering these kinds of deals?
Toll Brothers builds in quite a few states, although to date, Ohio has not been one of them. Does anyone know of comparable builders in Ohio offering these kinds of deals?
Energy Conservation Projects Are In Demand
The latest issue of Builders Exchange Magazine published an article by Craig Miller titled, "Energy conservation projects are in demand." As Craig states in the opening sentence of his article:
Key issues in the decision making process are the availability of funding and its budget impact. For example, if a company wants to retrofit one of its existing buildings with more energy efficient lighting and upgrade its HVAC using renewable energy technologies, financing would be a good option for making these capital expenditures, particularly if the savings to the company's operating budget will be equal or greater than the annual debt service payments or capital lease or bond payments. In that scenario, the project has become self-funding.
In addition, the Energy Policy Act of 2005 provides for income tax deductions for investments in energy efficient commercial building property.
For more information, read Craig's article at BXMagazine.com.
Craig Miller, CPA, is client manager at Duffy+Duffy Cost Segregation Services in Westlake, Ohio.
"With so much current and future focus on sustainability, and with all of the unknowns in the rising cost of electric and natural gas utilities, many commercial building owners are designing high efficiency into new buildings or retrofitting their existing buildings."
Key issues in the decision making process are the availability of funding and its budget impact. For example, if a company wants to retrofit one of its existing buildings with more energy efficient lighting and upgrade its HVAC using renewable energy technologies, financing would be a good option for making these capital expenditures, particularly if the savings to the company's operating budget will be equal or greater than the annual debt service payments or capital lease or bond payments. In that scenario, the project has become self-funding.
In addition, the Energy Policy Act of 2005 provides for income tax deductions for investments in energy efficient commercial building property.
For more information, read Craig's article at BXMagazine.com.
Craig Miller, CPA, is client manager at Duffy+Duffy Cost Segregation Services in Westlake, Ohio.
Sell the "Rock", Take Back "Paper", Sell the Paper (new options for a new era)
According to Kenneth R. Harvey, in his 1/09/09 article for “Realty Times”, (reprinted on the Ohio Association of Realtors website), “the credit crunch and tough times in the mortgage market are creating new profit opportunities in a highly-specialized real estate investment niche: Buying seller "carryback" mortgage notes”.
A “carryback”, or "seller takeback” can provide an important alternative to standard mortgage financing issued by a bank (which is not so “standard” anymore). The seller simply loans the buyer money to make the purchase, and “takes back a mortgage” from the buyer. After the deal is accomplished, the seller has two basic options: 1) the seller can hold onto the note as an investment for itself; or 2) the seller can offer it for sale to private investors who will buy it at a discount below the full face amount.
While there are not a lot of conventional lenders buying mortgages these days, Mr. Harney reports that there are now dozens of private note brokers you can locate online, and that one popular site is NoteGiant.com, where hundreds of notes are posted for sale or auction bids.
John Collins, one of the owners of NoteGiant was quoted in Mr. Harney’s article as saying that ”current market conditions are producing a bumper crop of private notes that can provide investors excellent returns -- provided they take sensible precautions”. Many of private note brokers’ clients are small pension fund investors, Realtors, and even hedge funds.
Mr. Harney relayed the following basic advice offered by Mr. Collins when considering buying notes:
1) “If you are new to note buying, limit yourself to properties close to where you live or work. That way, you can check out the underlying real estate, and drive by to see what the collateral looks like.”
2) “Stick with first lien notes that have substantial equity cushions so you can't lose your shirt if you've got to pull the plug and go to foreclosure. Avoid second lien notes.”
3) “If you don't feel confident doing the necessary "due diligence" research to check out title, appraisal, credit scores and other note features, turn to pros who'll do it for you.“
For sellers, know that seller financing has been a legitimate and long-standing real estate tool to help sell property, especially in credit crunch times. Credit reports and other proper financial investigations of the buyer, together with a large cash down payment and attorney to draft or review the documents are essential to help minimize the risk. Re: note buying, I personally prefer to “own a piece of the rock” vs. a piece of paper when it comes to real estate investments. However, with note buying, there is some comfort in being able to “foreclose on the paper, and eventually get the rock”. Still, it is essential to perform due diligence not only on the note, but on the property as well, and retain counsel and financial advisors so you know what you are buying and the possible risks as well as returns involved. We know all too well what buying bad notes or “good notes on bad property” can do.
A “carryback”, or "seller takeback” can provide an important alternative to standard mortgage financing issued by a bank (which is not so “standard” anymore). The seller simply loans the buyer money to make the purchase, and “takes back a mortgage” from the buyer. After the deal is accomplished, the seller has two basic options: 1) the seller can hold onto the note as an investment for itself; or 2) the seller can offer it for sale to private investors who will buy it at a discount below the full face amount.
While there are not a lot of conventional lenders buying mortgages these days, Mr. Harney reports that there are now dozens of private note brokers you can locate online, and that one popular site is NoteGiant.com, where hundreds of notes are posted for sale or auction bids.
John Collins, one of the owners of NoteGiant was quoted in Mr. Harney’s article as saying that ”current market conditions are producing a bumper crop of private notes that can provide investors excellent returns -- provided they take sensible precautions”. Many of private note brokers’ clients are small pension fund investors, Realtors, and even hedge funds.
Mr. Harney relayed the following basic advice offered by Mr. Collins when considering buying notes:
1) “If you are new to note buying, limit yourself to properties close to where you live or work. That way, you can check out the underlying real estate, and drive by to see what the collateral looks like.”
2) “Stick with first lien notes that have substantial equity cushions so you can't lose your shirt if you've got to pull the plug and go to foreclosure. Avoid second lien notes.”
3) “If you don't feel confident doing the necessary "due diligence" research to check out title, appraisal, credit scores and other note features, turn to pros who'll do it for you.“
For sellers, know that seller financing has been a legitimate and long-standing real estate tool to help sell property, especially in credit crunch times. Credit reports and other proper financial investigations of the buyer, together with a large cash down payment and attorney to draft or review the documents are essential to help minimize the risk. Re: note buying, I personally prefer to “own a piece of the rock” vs. a piece of paper when it comes to real estate investments. However, with note buying, there is some comfort in being able to “foreclose on the paper, and eventually get the rock”. Still, it is essential to perform due diligence not only on the note, but on the property as well, and retain counsel and financial advisors so you know what you are buying and the possible risks as well as returns involved. We know all too well what buying bad notes or “good notes on bad property” can do.
Mortgage Rates Continue to Fall
Freddie Mac released on Friday, January 10, 2009, the results of its Primary Mortgage Market Survey (PMMS). According to the Survey, the 30-year fixed-rate mortgage (FRM) averaged 5.01 percent for the week ending January 8, 2009, down from last week when it averaged 5.10 percent. Last year at this time, the 30-year FRM averaged 5.87 percent. The 30-year FRM has not been lower since Freddie Mac started the Primary Mortgage Market Survey in 1971.
U.S. Lawmakers Set New Mortgage Bankruptcy Bill
Lawmakers in Congress introduced a bankruptcy reform bill Tuesday that would allow bankruptcy judges to modify home loans (dubbed as "mortgage cram-down") in the same whey that they currently may modify other unsettled obligations, such as credit card debt. The bill, titled "Helping Families Save Their Homes in Bankruptcy Act", was introduced in the Senate by Sen. Durbin and in the House by Rep. Conyers.
While the housing market downswing continues, some in the housing industry have warned that it is the wrong time to write long-lasting mortgage rules. Credit markets swing like a pendulum, so if you accept that credit was way too easy a few years ago, there is probably too little credit today as the credit market overreacts. A top lobbyist for the Mortgage Bankers Association, Francis Creighton, stated in an article by Patrick Rucker posted on reuters.com, that "Cram-down would lock the pendulum at an overly restrictive point." Foes of the plan argue that it would wrongly invalidate mortgage contracts and raise future costs of borrowing. The lending industry has said that allowing bankruptcy judges to modify mortgage obligations would change how lenders weigh risk (i.e, you either won't get the loan or the lender will charge you a whole lot more for it).
Consumer advocates, though, argue that the plan to give homeowners protection in bankruptcy is a natural extension of current law and urgently needed to stem foreclosures.
While no one has a crystal ball to foretell the future, there may be some truth to concerns stated by opponents to the plan. One of the reasons credit card rates are significantly higher than the interests rates one pays for a mortgage is the fact that credit card debt is unsecured and can be modified by the bankruptcy court. If mortgage debt is treated no differently than unsecured debt, borrowers' ability to qualify for a mortgage will likely remain more difficult and the cost of the mortgages will be higher.
However, with the mortgage crisis becoming more severe, every possible solution will likely be on the table and I would not be surprised if opposition to cram-down or other solutions wilts. According to an article posted today on the News Daily web site, the National Association of Home Builders has dropped its opposition to the plan and the National Association of Realtors is debating whether to end its opposition.
We can only hope that the law of unintended consequences doesn't apply.
While the housing market downswing continues, some in the housing industry have warned that it is the wrong time to write long-lasting mortgage rules. Credit markets swing like a pendulum, so if you accept that credit was way too easy a few years ago, there is probably too little credit today as the credit market overreacts. A top lobbyist for the Mortgage Bankers Association, Francis Creighton, stated in an article by Patrick Rucker posted on reuters.com, that "Cram-down would lock the pendulum at an overly restrictive point." Foes of the plan argue that it would wrongly invalidate mortgage contracts and raise future costs of borrowing. The lending industry has said that allowing bankruptcy judges to modify mortgage obligations would change how lenders weigh risk (i.e, you either won't get the loan or the lender will charge you a whole lot more for it).
Consumer advocates, though, argue that the plan to give homeowners protection in bankruptcy is a natural extension of current law and urgently needed to stem foreclosures.
While no one has a crystal ball to foretell the future, there may be some truth to concerns stated by opponents to the plan. One of the reasons credit card rates are significantly higher than the interests rates one pays for a mortgage is the fact that credit card debt is unsecured and can be modified by the bankruptcy court. If mortgage debt is treated no differently than unsecured debt, borrowers' ability to qualify for a mortgage will likely remain more difficult and the cost of the mortgages will be higher.
However, with the mortgage crisis becoming more severe, every possible solution will likely be on the table and I would not be surprised if opposition to cram-down or other solutions wilts. According to an article posted today on the News Daily web site, the National Association of Home Builders has dropped its opposition to the plan and the National Association of Realtors is debating whether to end its opposition.
We can only hope that the law of unintended consequences doesn't apply.
Webinar: Energ Policy Act
The CPA Leadership Institute and Ernst & Morris are presenting a Webinar on the Energy Policy Act (EPAct) and Section 179D Tax Incentives on January 13, 2009 from noon to 2:00 pm. The EPAct created a new tax incentive for constructing energy efficient commercial buildings. Section 1331, the commercial building tax deduction, establishes a tax deduction for expenses related to the design and installation of energy efficient commercial building systems.
Discussions in the Webinar will cover the EPAct, eligibility by property type, benefits for commercial property owners, benefits for architects, engineers and lighting designers, Leed certification and energy codes and compliance. For a more detailed outline of the Webinar, click here.
The Webinar is most suitable for those with a tax and/or architectural background.
Click here for the registration page.
Discussions in the Webinar will cover the EPAct, eligibility by property type, benefits for commercial property owners, benefits for architects, engineers and lighting designers, Leed certification and energy codes and compliance. For a more detailed outline of the Webinar, click here.
The Webinar is most suitable for those with a tax and/or architectural background.
Click here for the registration page.
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