All Forum Posts by: Marcus Welson

Hello everyone.

Newbie investor getting ready to sell first property. It appears I'll need a 1031 exchange to offset substantial capital gains. 

The Qualified Intermediaries I am vetting have provided their exchange agreements. I see a few red flags and just want to know if these are typical provisions and I'll be facing a "take it or leave it" scenario with ny intermediary I hire.

Please give me your thoughts, my gut says the QI wants overly broad protection from everything and that shouldn't include things like not verifying instructions are from me or for negligence or misconduct.

Sample Terms

1. Interpleader term that requires the QI to deposit funds with the court in case of disputes or 3rd party claims. I get this but the provision also requires the LLC that holds the property to submit to the local jurisdiction wherever the Qi files. LLC is a WY corp, so this would require waiving WY protections.

2. Exculpation/Limitation on Damages Clause. Again, this would be reasonable if limited to damages by third party, etc. However, it reads as a broad release, even for misconduct or negligence, especially if they were to make a mistake on a wire. "In no event shall Qualified Intermediary be liable or responsible to any person or entity with respect to any action taken or omitted to be taken by it under this Agreement or at the direction of Exchanger. Exchanger and not Qualified Intermediary shall bear any risk of loss while funds are being wired or transmitted to or from the Exchange Account. In any event, Qualified Intermediary's total liability to Exchanger shall be limited to proven direct damages in an amount not greater than the fee payable by Exchanger to Qualified Intermediary."

3. Indemnification clause indemnifies for everything except "material breach of this Agreement or its willful misconduct." This seems overtly narrow. What about sending a wire to the wrong place. Getting hacked and so on. 

4. "Right to Rely on Instructions; Exceptions.
Qualified Intermediary may act in reliance upon any instruction, instrument or signature it reasonably believes to be genuine from Exchanger, its officers, attorneys and other representatives, and Qualified Intermediary may assume that the person giving the instruction, instrument or signature is authorized to do so. To facilitate the flow of information, Qualified Intermediary may also provide information and documentation to third parties whom the Qualified Intermediary reasonably believes to be authorized by Exchanger to receive such matter. Qualified Intermediary shall have no obligation to inquire into the truth or evaluate the merits of any statement or representation contained in any notice, document or other communication reasonably believed to be from Exchanger, its officer, attorneys and other representatives. In connection with its duties, Qualified Intermediary shall be protected for acting or refraining from acting upon any written notice, request, consent, certificate, order, affidavit, letter, facsimile, email or other communication or document furnished to it under this Agreement and to have been signed or sent by Exchanger or any of its officers, attorneys, or other representatives, provided, however, that any instructions relating to disbursements of funds shall be subject to the provisions of Section 3.4 above and the Disbursement Instructions shall be signed by the taxpayer or submitted by the taxpayer online via the Software." This sounds like they have no duty whatsoever to verify information or instructions

Hello everyone. 

I'm trying to confirm my understanding of a less straight forward capital gains scenario than the one-time purchase and sale most deals involve.

Essentially 100% interest in a condo was acquired over time, as each joint tenant passed away, leaving 1 sole tenant who gained full ownership by rights of survivorship.

I've gotten differing opinions from different professionals and am trying to understand the calculation of the basis and the final capital gains  tax that would be due myself so I can spot bad advice and understand deals.

Assumptions:

A condominium
No depreciation has ever been taken by any owner.
No 1031 exchange.
No expenses or improvements. (to keep things simple)
Property was primary residence for Person A from original purchase until 01/2020. The property was then rented from 01/2020 through today's date.

• A condominium was purchased by Person A on 11/1986 for a property value of $52,700.

• On 11/2015, the condo real property was quit claim deeded by Person A to Person B as a joint tenant with rights of survivorship and Person C as a joint tenant with rights of survivorship. The property value on this date was $80,000.

• On 11/17/2020 person A died. The property value on this date was $180,000.

• On 01/2023 person B died. The property value on this date was $240,000.

• Person C is still alive and will be selling the real property today for $290,000 with an expected net profit of $235,000.

Overview of Ownership and Basis Calculation

1. Initial Purchase by Person A (11/1986):
• Purchase Price: $52,700

2. Transfer of Ownership (11/2015):
• Value at Transfer: $80,000
• Ownership Structure:
• Person A: 33.33% (approx. basis $26,667)
• Person B: 33.33%
• Person C: 33.33%

3. Death of Person A (11/2020):
• Fair Market Value at Death: $180,000
• Step-up in Basis for Person C upon death of Person A:
• 33.33% of $180,000 = $60,000
• New Basis for Person C: $26,667 (original basis) + $60,000 (step-up) = $86,667 for 66.66% ownership.

4. Death of Person B (01/2023):
• Fair Market Value at Death: $240,000
• Step-up in Basis for Person C upon death of Person B:
• 33.33% of $240,000 = $80,000
• New Basis for Person C: $86,667 (previous basis) + $80,000 (step-up) = $166,667 for 100% ownership.

5. Sale of Property (10/2024):
• Sale Price: $290,000
• Net Profit: $220,000

Capital Gains Calculation

1. Calculate Total Basis for Person C at Sale:
• Basis: $166,667

2. Calculate Capital Gains:
• Selling Price: $290,000
• Basis: $166,667
• Capital Gain = Selling Price - Basis = $290,000 - $166,667 = $123,333

Depreciation Recapture

• Since no depreciation has ever been taken by any owner, there will be no depreciation recapture to consider in this case.

Final Capital Gains Tax Calculation

• The total capital gains that Person C will be liable for upon selling the property will be $123,333.

Summary

• Capital Gains for Person C: $123,333
• Depreciation Recapture: $0 (since no depreciation was taken)

My Questions

Is the above estimated capital gains tax correct? If not, please indicate any errors you see. 

Does the use of the property as a personal residence by person A and the limited rental period affect the capital gains in any way?

Thank you for your thoughts:

@John Clark : This is a Florida Condo where I am not under special assessments currently and the market has moved, creating a $50k to $70k shift in price and appraisal value if I move on to a new buyer. Buyer has ability to close, so it's a smaller loss to have the complete the purchase before the market gets worse. 

@Chris Seveney: As a first time seller I didn't know if the fees were reasonable. I compared the ALTA to a family member's sale last year and saw about a $1400 difference. Mainly, the one I compared to split the settlement fee between buyer and seller and the title and lien search were $250 cheaper. I was told by my realtor I could use my own title agent so I didn't know if that would help me reduce costs. Is the settlement fee something I have to pay since it wasn't a line item listed in the contract for seller's title expenses?

Quick review of Marc's case on the clerk's website. Looks like that attorney likely said they mailed it and didn't. It is my personal opinion that under the applicable rules, service on pro se parties representing themselves is deemed completed when e-filed by the attorney certifying they mailed you. No proof they actually mailed you is necessary. 

In reviewing what happened to Marc, here's how I plan to mitigate it in my rentals:

1. Lease addendum 1: Landlord and Tenant agree all notices of a change of address under this agreement shall only be made by certified mail. Landlord and Tenant hereby waive all objections and causes of action arising out of or related to any change of address made by means other than certified mail. 

2. Lease addendum 2: No part of this agreement, or any deposits made to or held by the Landlord may be assigned to any third party. The tenant specifically agrees they shall not assign any deposits under this agreement.

3. If I decide to represent myself in court (pro se), I will always register with the Florida Court's e-filing system and add myself to the service list with the first papers filed. I may also ask the court to enter an order that I be served via email. This would prevent any party or attorney from certifying mail service, not mailing and the trying to hold me accountable. 

The foregoing is not legal advice and is shared for informational purposes only on what I see as a practical approach of how I will address such issues. 

Background:

Miami-Dade Condo property.
I am a first-time seller.
No mortgages or loans on my property.
Standard Florida Realtors Association / Florida Bar AS IS Purchase Contract.
Buyer in default on various provisions and must proceed to purchase as a cash purchase, per contract, so there should be no financing related title charge son my end.

I am looking for a flat fee or low-cost title company to assist me with the seller side of the closing and coordinate with the buyer's title company. From my understanding, I will need to have the complete the title and municipal lien searches, correct my title to reflect me as a single owner based on rights of survivorship acquisition and complete all other seller side obligations a title company would handle. 

Does anyone know a flat fee or low-cost title company that can help in Florida? I have come across Beycom, but there is little info available about them and it's not clear if they provide title services unless listing and transacting the sale through them. 

Thank you for your recommendations. 

Background:

Miami-Dade Condo property.
I am a first-time seller.
No mortgages or loans on my property.
Standard Florida Realtors Association / Florida Bar AS IS Purchase Contract.
Buyer in default on various provisions and must proceed to purchase as a cash purchase, per contract, so there should be no financing related title charge son my end.

Contract only lists the following seller/closing/title fees:

A.Documentary stamp taxes and surtax on deed, if any
B. Title search charges
C. Municipal lien search
D. HOA/Condominium Association estoppel fees
E. Recording and other fees needed to cure title
F. Seller's attorneys' fees
G. Other: Not applicable. 

Additional relevant provisions in the contracts:
"Title Evidence and Insurance: a title insurance commitment issued by a Florida licensed title insurer, with legible copies of instruments listed as exceptions attached thereto ("Title Commitment") and, after Closing, an owner's policy of title insurance (see STANDARD A for terms) shall be obtained by the Buyer. If Seller has an owner's policy of title insurance covering the Real Property, Seller shall furnish a copy to Buyer and Closing Agent within 5 days after Effective Date. The owner's title policy premium, title search and closing services (collectively, "Owner's Policy and Charges") shall be paid, as set forth below. The title insurance premium charges for the owner's policy and any lender's policy will be calculated and allocated in accordance with Florida law, but may be reported differently on certain federally mandated closing disclosures and other closing documents. For purposes of this Contract "municipal lien search" means a search of records necessary for the owner's policy of title insurance to be issued without exception for unrecorded
liens imposed pursuant to Chapters 153, 159 or 170, F.S., in favor of any governmental body, authority or agency.

[MIAMI-DADE/BROWARD REGIONAL PROVISION]: Buyer shall designate Closing Agent. Seller shall furnish a copy of a prior owner's policy of title insurance or other evidence of title and pay fees for: (A) a continuation or update of such title evidence, which is acceptable to Buyer's title insurance underwriter for reissue of coverage; (B) tax search; and (C) municipal lien search. Buyer shall obtain and pay for post-Closing
continuation and premium for Buyer's owner's policy, and if applicable, Buyer's lender's policy. Seller shall not be obligated to pay more than $_____________ (if left blank, then $200.00) for abstract continuation or title search ordered or performed by Closing Agent."

I asked for a sample estimate ahead of time to make sure I can check everything.

ALTA Seller's Settlement Statement provided by the buyer's title company lists:

H. Prorated county taxes [lists the amounts for January of this year through closing date]. Even though this isn't anywhere I can see in the contract, I presume to clear the title I have to pay this off.

I. Documentary tax stamp deed to the Clerk of Court [ I verified this as correct for our area]

J. Commissions for the agents: [I verified this as correct]

K. "Consumer Electronic File Storage": $25 [this seems like a bs addon]

L. Wire/Fedex/Courier Fee: $100

M. Municipal Lien Search $400

N. Settlement Fee to Title Company: $895 [I think this is high and seems like they are putting the entire settlement fee on my side and its not listed under my contract costs above]

O. Title Search: $200

P. E-Recording: $18

Q. Recording affidavits and death certificates: $100 [ I gained the property by rights of survivorship and the past owner died but we need to update the title]

My Questions:

1. My understanding is that I do not need to use the Buyer's title company and can choose my own to prepare my seller papers. Is this correct?

2. Do the above fees H through Q look reasonable based on what is typical?

4. Do the fees listed above appear to match what I am required to pay per the contract terms above? For example, I don't see Consumer File Storage or Settlement fee listed in my contract obligations.

3. Are there any fees listed that generally would be paid by the Buyer?

Any responses, advice or suggestions will be greatly appreciated. 

Hello fellow posters. I have an unplanned capital gain over several decades due to a property interest I inherited. I also have the opportunity to be assigned a debt owed to a professional services company. It is likely the debt may not be collectable as the deadbeat clients are keeping everything on an under the table cash basis. Rather than take a complete loss on the uncollectable debt, can I take the assigned debt, make collection efforts and upon failure to collect declare the loss to offset the capital gains? I believe in practice it does not actually offset the capital gains but reduces my taxable income dollar for dollar with the loss, as long as my Modified Adjusted Gross Income (MAGI) is under $150K. Tis dollar for dollar reduction should equate to getting me down to the same amount as if I did not have the capital gains. 

Can someone who has seen this before please confirm if the above is correct and am I missing anything or need to consider anything else. 

Thank you for your help. 

If this is happening to anyone else. It may pay to vet the lease details as I posted above. In Florida your attorney can provide the other side with a Florida Statute 57.105 notice of sanctions. If they do not have a valid legal basis and maintain their filing, both the party and their attorney get sanctioned and have to pay. The attorney's portion of the sanction comes out of their own pocket. That's the fastest way to get attorneys who are filing frivolous suits to back off. Again, only if legally unfounded, which depending on your lease terms it may be. 

Sorry. I posted quickly while at work. I own the unit and the buyer's lender had a low appraisal. The Buyer is standing on the appraisal price and asking to go through with the sale but only at the $50k lower than the contracted sale price the appraisal came in at. 

The following is information for consideration and not legal advice. Check with an attorney for legal advice specific to your situation. I would start at the beginning. What does my lease say regarding the notice requirement. Most leases typically have two terms: (1) defining how notice will be given and (2) defining where notice will be given to each contracting party. For example, certified mail to Tenant at 123 street. Did I comply with that? My tenant's attorney is filing a notice with the court which obligates the parties to use that address for court service purposes. It doesn't supersede the written contract, especially if the lease spells out how the notice must be given and how it can be updated. At worst my tenant could argue I had knowledge of a new address (I'll be checking the certificate of service on the notice they filed with the court and make sure it lists me or my attorney). If my attorney was served and didn't notify me, that's a malpractice issue for them and a good point of leverage that they better deal with this at their expense because the only other recourse is against them. Assuming my lease had the right notice language on method and address, I'd be directing my attorney to challenge anything the tenant does in court because the court must enforce the lease as written and it can't be modified without a written modification (I have lease clauses for this and that the lease is an integrated contract so they also can't testify on facts outside the contract terms or that something else was verbally agreed to, etc.). Statute 83.49 requires notice by certified mail to the tenant’s last known mailing address. Was my tenant's court notice filed after I had already sent notice out to the last known address. Also, I might argue that the tenant waived the statutory right and contracted to be notified as spelled out by the lease.