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Why do I need a property survey?

Why do I need a property survey?

Anthony Palumbo lawyer litigation expert

Anthony Palumbo, Esq. apalumbo@mvclaw.com

One of the most frequent questions I receive from many of my clients who are purchasing a home is, “Why do I need a survey of my property?” Whether it is a first-time homebuyer or not, this question has become more and more common. The reasons why I hear this question asked frequently are usually the same. The mortgage lender does not require a survey for the closing, the buyer wants to avoid the cost for a new survey, and the cost and delays that might arise waiting for the survey to be completed. Despite these reasons, a homebuyer should get a survey done prior to making any purchase of real estate.

What is a Survey?

The process of surveying real property has been around for thousands of years and has been the cornerstone for identifying who owned what parcel of land. Simply put, a survey is defined as a map or plan of a property with detailed descriptions and measurements of the boundaries and any improvements, and restrictions that are contained within those boundaries.

If you are buying a property, the survey company will research the property and prepare a survey map which will show the boundary lines around your home and parcel of land and any improvements on the property and their dimensions and locations, such as: buildings, patios, pools, garages, and driveways. Because most improvements are required to be located a certain distance from other improvements and property lines and filed plans; permits and certificates of occupancy usually limit the size of the improvements. The information contained in a survey is vital for a buyer to determine the legality of such improvements. A survey will also display whether or not any of your improvements might encroach upon your neighbor’s property that may cause legal disputes, and the existence of any easements over said property. Basically, a survey will reveal if the legal description of the parcel of land correctly matches the outline of your property.

If you are selling a property you may have to provide the buyer with an up-to-date survey of your property. This can help provide the buyer confidence in their purchase, verify the size and expanse of their new property, and help avoid later legal snafus that can arise from an inaccurate property description.

So, the answer to the question “Why do I need a survey?” is a resounding YES. A survey is fundamental to the ownership of property. However, as previously mentioned, a client might claim the following reasons for not needing a survey:

“The mortgage lender does not require a survey.”

About twenty years ago, most lenders required that the borrower/ buyer had a survey that was updated within the last ten years, but since then that requirement has waned. Title insurance companies still insure lender’s mortgage priority and other interests, while accepting or excluding the need for the survey. However, that exception to the policy while protecting the lender’s interest doesn’t protect the homebuyer’s interest. Although the lender might not require a survey before closing on the property, if there are any boundary line disputes or issues with the legality of any improvements on the property, they are the buyer’s responsibility. Regardless, if any of these issues exist your mortgage payment will still be due and you also might have a problem selling the property in the future.

“I do not want to spend the money on a new survey.”

The cost for a survey is relative and the purchase of a home is usually one of the biggest investments of a lifetime. The cost of a survey preparation is relatively low in comparison to the issues that can arise when making the investment without a survey.

The average cost of a new survey for most homes in New York and New Jersey is approximately $800.00 to $1,200.00 in 2018. The cost of a survey varies depending on the lot size, detail of the survey, and other factors.

A homebuyer has the option to price and order his own survey. Most attorneys are not going to have the time to make a cost analysis of local surveyors. Typically, a law firm will have two to three local surveyor companies that they recommend working with, or an attorney might just rely on the title company to choose the surveyor. However, a homebuyer has the ability to easily shop for these services online. Keep in mind, as can be with all professionals, especially when looking for services on the Internet, not all surveyors are the same. The homebuyer should at the very least, consider your attorney’s recommendation for a surveyor.

If a homebuyer decides to order his own survey then they should advise their attorney at the beginning of the process to avoid duplicating the buyer’s costs.

“Getting a survey might delay my closing and that delay might cost me additional money.”

Most attorneys do not order a survey until the buyer has a Mortgage Commitment Letter and the title is “clear”. The reason for this is that the cost of survey preparation is not contingent upon anything but the work performed. So, regardless if the buyer actually closes or not, they are still responsible to pay the surveyor for work performed. In order to prevent buyers paying for surveys on homes they do not purchase, attorneys only order the survey when the closing is imminent, the title is clear, and the lender has committed to finance the purchase. Some attorneys collect the survey cost upfront from the buyer and explain to their clients that the cost of the survey may be forfeited in the event that the transaction does not close for a variety of reasons. Note, this can be the same as appraisal fees and inspection costs, and considered as part of the homebuyer’s “due diligence” cost. Other attorneys completely put the
onus on their client to order and pay for their own survey prior to closing.

So if the attorney is waiting for the title to be clear and the lender to issue a commitment letter before ordering a survey, then logic dictates that the survey preparation might delay a closing date. Such a delay might cause the buyer to incur additional costs (e.g. interest rate lock extension fees). Such a delay should typically take two weeks-time, and as the survey is so important to home ownership, the delay and any costs related to it should be considered; but should not be subordinate to getting a survey.

In conclusion, although mortgage lenders, realtors, and loan officers might be advising that a buyer does not need a survey to proceed to closing, attorneys will always advise that a buyer to get the survey regardless of cost, delay, or mortgage company. It is an important component in a homebuyer’s due diligence and when you make such a sizeable investment, the cost or delay is negligible when compared to the benefits a survey provides a landowner.

If you have any questions for Anthony Palumbo, Esq. or the Menicucci Villa Cilmi PLLC team about the legality of land and home surveys, or purchasing or selling a home in New York, call 718-667-9090 today!

Pitfalls in failing to structure your investment property in an LLC

Investment Properties

Brendan T Lantry Associate

Brendan T. Lantry, Esq. BLantry@mvclaw.com

In commencing a new development project, novice investors will often question the need to place title to their investment property in a corporate entity such as a Limited Liability Corporation (LLC), as opposed to owning the property personally. When advised that corporate ownership could avoid personal liability, the question is often asked: “If I have property insurance, won’t that cover all liability?” Here is a brief discussion as to why investors/developers should protect their investment property by placing it in an LLC or other corporate entity:

One major benefit of corporate ownership of investment property is the avoidance of personal liability. From the moment that a deed transfers legal title, the purchaser may be held legally liable for any claim which occurs thereafter with respect to property – even immediately thereafter. A claim, for example,
for negligence or personal injury, can arise at any time – even hours or minutes after property legally changes hand. These claims, if valid, could subject the new property owner to an indeterminate amount of money in damages. Owning the property in a duly formed, proper corporate entity will shield the individual investor/ owner’s assets from liability or seizure resulting from a successful lawsuit, and instead may effectively limit liability to the value of the property, and protect any other separately owned property or assets. Many investors who own several properties will in fact form a new corporate entity for each property they own, so liability on one property cannot extend to other properties, which could occur if the properties were owned by the same entity.

Further, in advance of a purchase of property, an investor should always take steps to ensure that there are no gaps in insurance coverage – in other words, there is no period of time when the seller’s insurance has been terminated, and the investor’s insurance has not yet begun – leaving the property uninsured against loss and liability. Even once insurance is in place, there are typically numerous exclusions in a standard insurance policy, which will not provide coverage for certain events. Some of these exclusions include gross negligence, flood damage, lack of certain kinds of maintenance (e.g., snow removal). In addition, should the subject property be insured, it’s important to note that any recovery in excess of the insurance cap will be the responsibility of the property owner.

For example, an individual seeks monetary damages for a personal injury accident in the amount of $1,500,000.00. If the property owner’s policy covers damages only up to $1,000,000.00, then the property owner will be open to liability for the additional $500,000.00. If the property was owned by a corporate entity – not an individual – then under most circumstances, the entity – and not the individual investor – would be subject to this liability. Thus, it is also important for an investor to make sure that his or her entity is property insured in a sufficient amount to protect the investment property.

If there is more than one investor in a property, using a corporate entity has the additional advantage of using an Operating Agreement, or other corporate governance document, to set the parameters for how the property will be utilized, protected, and sold. For example, if two individuals own a property together, and one wishes to sell, and the other not, the only remedy is expensive litigation by way of a “partition action”. An operating agreement can provide that a property be sold pursuant to a vote of a certain number of ownership interest, avoiding costly litigation. There may also be tax and financial benefits to purchasing or owning an investment property under a corporate entity.

While there are costs to form an LLC or other corporate entity, for the purpose of purchasing real property, the benefits often far outweigh these costs. Simply stated, it’s important not to be penny wise, pound foolish when engaging in investment property ownership. Ownership in a corporate entity, while having minor upfront costs, can help avoid substantial, and expensive, future headaches.

If you have any questions for Brendan Lantry, Esq. or the Menicucci Villa Cilmi PLLC team about setting up a Limited Liability Company for your real estate investments in New York call 718-667-9090 today!

Tax issues for foreign nationals when purchasing property in New York City.

There are many foreign investors interested in purchasing property in New York City, which is increasingly the engine that drives the real estate industry here. However, before attempting to purchase a real estate property, a purchaser should be aware of some simple rules of thumb before they make an offer. For purchases over $1,000,000, there is a “mansion tax” of 1%. For some properties and new developments, the developers of the property might require a buyer to pay “transfer taxes,” which are charged both at the city and state levels. New York City charges a 1% tax for sales under $500,000 and 1.425% for sales above that price. The state of New York’s transfer tax is a flat 0.4% for all sales. This is not something buyers will be responsible to pay if their property is not a newly developed. Buyers who are securing financing for their purchase will also find that the lender will be responsible for a “mortgage recording tax” of 0.25%. For sales under $500,000, that tax totals 2.05% (1.8% to be paid by the buyer), and for all other sales the tax is 2.175% (so 1.925% to be paid by the buyer).

Estate Tax Consequences

There are some differences to be aware of in the terms of estate tax. If it is a foreigner who is not a US citizen nor a permanent resident, i.e. green card holder, he or she will be subject to hefty federal and state estate taxes, which means the property cannot be sold unless the estate pays off the estate taxes due within nine months after the death of a loved one. It’s a crucial bit of information that is easy to overlook and it’s something that any foreign purchaser should be aware of.

Federal tax deferral program does not apply to foreigners

For any foreign investors purchasing property in New York City, there are no restrictions as to how many properties or what type of property they can buy. However, when foreigners try to sell the property in the future, they are not eligible to utilize the federal tax code (IRC Code Section 1031) that is known as “Section 1031 Exchange”. This tax code is to benefit investors who are selling property for profit. They do not have to pay capital gains right away if they can purchase another real estate investment property and close the title within 180 days. However, this tax benefit rule does not apply to foreigners.

Capital Gain Tax

A foreign seller has to file federal capital gain tax at the closing table, no matter whether the sale results in a profit or a loss. A foreign seller will have to pay a federal capital gain tax of 10% of the selling price to the US Treasury. At the end of the year, when the foreign seller prepares their personal tax return, they will be able to get back any amount overpaid or pay any balance due on the personal capital gain tax. This is quite different from a domestic seller.

There are a lot of benefits for foreigners purchasing property here, especially in the New York City area because the property value is booming, the rental income is pretty stable and with the higher demand for inventory in the future, it is foreseeable for the near future that property values will continue to increase. Each foreign national, however, should thoroughly discuss the pros, the cons, and the tax consequences with their real estate attorney and accountant before they make an offer or sign the contract.

Menicucci Villa Cilmi PLLC is proud to work with the rapidly growing Chinese community in New York City. Call us today if you have any questions about buying property as a foreign national. Jackie Huang speaks Shanghainese, Cantonese, and Mandarin and she can help you cut through the red tape and assist you and your family when buying a home, co-op, or a condo.

外国人如何在纽约州买房产?

 

有很多外国的投资人对在纽约市或附近地区例如长岛买房子有兴趣。这对纽约市的房产市场来说也是一个好事。外国人在购买房产之前要了解一下的以下事情:

第一个,关于遗产税的问题。在本国人和外国人之间买房他遗产税是有区别的。如果一个外国人,既不是美国公民,又不是绿卡持有者,那他们就会支付很高的遗产税。这个房子没有办法出售。必须要在去世的业主过身后九个月之内支付遗产税。这是所有外国购房者必须了解的。

第二个就是联邦的投资人延税计划1031 exchange. 外国人在纽约州买房子,买在哪里,买多少,买什么样的房子都没有任何的限制。但是如果外国人要出售的时候,他们是不能够用享受联邦的1031 exchange 延税计划来延迟支付投资利润增值所得税。也就是说,如果出售的时候房子有利润,国内的业主是不需要马上支付增值所得税,而是通过重新再购买一个投资房,就可以延迟支付这个增值所得税。但是该购入的房子的交易必须在第一个出售的房子过户以后180之内完成。但是这个规定外国人是不享有的。

完成,但是这个规定不过的外国人是不想有的。

 

第三点:增值所得税支付的时间要点。外国的卖家必须在过户的时候就要支付联邦的增值税。不管她是到底是亏了还是赚了。外国的卖家要支付买卖价格的15%(不是盈利的15%),交给联邦税局。可以在过户之后或者年底报税的时候,要求会计师报税时把多付的部分拿回来。或者如果有少付的话那他就要补上。

在纽约市购买投资房产的话,其实也是一个比较受到全世界投资人热衷的投资的方式。房产比较保值,,租金收入相对来说也是比较稳定的,在将来的话也是对这个房子的需求也是比较大的。但是提醒所有的外国投资人必须要跟他们的律师,会计师进行深入的讨论和咨询,关于这个在美国投资的好处,不好的地方以及所有的税务的后果。然后再确定说到底要不要购买,或者是签署合同。这才是一个信息全面的决定informed decision

real estate law and business law of counsel
June 6th, 2018|Uncategorized|