Title must record before closing escrow

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Michael Kayem is a Realtor with Re/max Estate Properties Culver City and the Westside since 2001. You can contact Michael with your questions at 310-390-3337 or e-mail them to him at: homes@agentmichael.com.

Dear Michael: My wife passed away and I am now looking at selling our home. We have lived in this home for 40 years; will there be tax implications when I sell?

Answer: First, let me say that I am sorry for your loss. In California, many married couples will hold title to their homes in joint tenancy. However, holding title in joint tenancy escapes probate only after the first spouse’s death and can create tax liabilities if the property is sold by the surviving spouse. The bottom line is that in joint tenancy, there is only a 50 percent or half stepped up in cost basis.  Let’s look at an example. John and Marry, a married couple, bought a home in California for $100,000 in 1980 and in 2015 it is worth $ 1 million dollars. John dies in 2015. Marry sells the property for $1 million dollars following his death. When John died, Marry received John’s 50 percent share of the house and his stepped up cost basis as well. Marry is receiving John’s stepped up cost basis, which includes half of all the appreciation in the value of the house over 35 years. When John died, the house was worth $1 million dollars; therefore, John’s 50 percent cost basis would be stepped up to $500,000. When Marry sells the property for $1 million dollars minus her cost basis of $50,000 and John’s stepped up basis of $500,000, her taxable proceeds would now be $450,000. Therefore the most effective method to minimize capital gains tax for your surviving spouse is to hold title as Community Property with Right of Survivorship. After the death of the first spouse, the surviving spouse can sell the house and not pay taxes on the appreciated value of the home. Here is an example: When John dies the house is worth $1 million dollars. Marry sells the house for $1 million. How much tax does Marry now need to pay? The answer is zero tax liability! Why? Because, when Marry sells the house for $1 million dollars, her cost basis is also $1 million dollars. This is because Marry received a 100 percent or full stepped up cost basis since the home was vested as Community Property. For more details please contact a tax advisor.

Dear Michael: I have an interested buyer who submitted an offer on my property. I did not have a good impression or perhaps I did not like the way she degraded my home when she was previewing it during the open house. I would rather not sell my home to her. Do you have any suggestion to what I should do?

Answer: This is one of the many reasons why a seller should not be home during open house or when a prospective buyer previews a home. This incident is not common but when it happens it can sour a deal and leave everyone wondering “What Happened”?  Stay away from the buyer for the duration of the escrow. There is no need for you to communicate with the buyer. Let the Realtors take it from here, negotiate and resolve any kind of mishaps, be it minor or major. To lose a qualified buyer would be a mistake on your behalf. Emotions can, and will sometime get the best of us. Put them aside and you’ll be satisfied when escrow closes and you have moved on with a nice paycheck.

Dear Michael: We are purchasing a home. The escrow officer tells me that as part of the closing steps we need to record title before we can claim ownership. What is recording Title all about?

Answer: When you purchase real property, you receive a notarized written document called a “Grant Deed.” The Deed transfers ownership (title) of the property to you the purchaser. The conveyance of real property is not complete until the deed is delivered to you or your authorized agent. The deed needs to be recorded at the county recorder where the property is located. The purpose of recording the deed is to give notice that you now have an ownership interest in that particular piece of real property. Recording also tracks the chronological chain of title. Before you purchase real property, you can follow the chain of sales and transfers of the property, from the original grant of the land, all the way to the current owner. When title insurance is purchased, the title insurer checks the change of title to determine whether any past defects occurred in prior conveyances and transfers. Defects may then be pointed out and may be excluded from coverage. As a purchaser of any real property, you always want to make sure that during the previous years the property was transferred, the grantor kept clear title to the property.

Michael Kayem is a Realtor with Re/max Estate Properties serving Culver City and the Westside since 2001. You can contact Michael with your questions at 310-390-3337 or e-mail them to him at: homes@agentmichael.com.