If you are Selling your House, do this First

I take this opportunity to send holiday greetings and this year to offer information about real estate law and practice. The most important asset in a person’s family balance sheet is often their residence. What makes real estate a valuable asset depends on a several factors. Most real estate brokers would probably cite the location of the residence—is it situated in a sought-after town? Another factor is one universal to most assets: whether the home can be bought and sold relatively easily. Anything that interferes with the process should be eliminated wherever possible.

One such issue is the subject of this article: the problem of improperly or un-discharged mortgages which this author estimates are discovered in as many of a quarter of all pending sales. Over the past few years, this problem of paid-off but un-discharged mortgages creating a cloud on the title has grown. It has caused hardship to both buyers and sellers alike, delaying or sometimes derailing closings. The problem has been amplified by the number of lending institutions entering, exiting or merging in the market each year. The sheer numbers of refinance and sale transactions have skyrocketed. In addition, the same loan might be sold or transferred to different lenders three, four or five times before being paid off. The same property that might have been refinanced multiple times is then offered for sale. Sellers are to often greeted with a nasty last minute surprise before their closing—that one or another of their past mortgages were never discharged or were improperly discharged. “Improperly” usually means that the lender, who actually signed the recorded discharge, is not the lender which the chain of title indicates is the owner of the loan. How can this be?

What happens is that, in many cases, the lender who actually receives a mortgage payment check is only the “servicing” lender, not the lender who “owns” the mortgage according to the Registry of Deeds. The servicing lender is also only too happy to receive a payoff check to pay the mortgage in full at some prior purchase or refinance closing, but then fails to have the proper entity sign the discharge document. Other lenders just flat-out fail to file any discharge whatsoever. On occasion, the borrower may receive the discharge document themselves, but fail to understand that THEY are then responsible to record that document in the Registry of Deeds. As of 2006, statutory revisions in Massachusetts tried to address the problem by amending G.L. c.183 § 55. That law now requires a lender to discharge a paid-off mortgage within 45 days. Failure to do so makes the lender “liable in damages …of $2,500 or the actual damages sustained” by the homeowner plus “reasonable attorneys fees and costs”.

That has not solved the problem. Lenders blatantly ignore this law, and Sellers, even though frustrated by the infuriating delays in filing discharges, most often opt not to litigate to seek damages. They mostly just want to sell their house and move on. The law does offer an option to file supporting “documentation” as defined in the statute along with an affidavit signed by an attorney involved in the transaction, but sellers do not often have all the required “documentation” that is required.

When discharge documents are inaccurate, one of two things happen at the Registry of Deeds. The discharge is recorded, but because the information is inaccurate, a title search will never reveal the filing. Computers are not, sadly, trained to look for documents that are “close”, but not quite correct. Second, a Registry of Deeds may simply return the faulty discharge document to the lender for correction. The Middlesex South Registered Land section returns as many as 30% of the discharges they receive. More often than not, the offending lender places the returned discharge in a file and forgets about them.

I recently represented a Seller who faced the task of needing to track down and record nine (9) discharges that were returned by the Registry to lenders as being inaccurate (and no further action had been taken by the lenders). It took over three (3) months to completely clean up this legal mess, and cost the seller in fees they were forced to pay to me that could not be recouped from the various lenders, as it was not cost effective to sue them.

How can a seller protect itself from such a last minute disaster? There are several recommended steps a seller should take regarding mortgage loans that are paid off:

1) Retain for future retrieval, copies of any settlement statement (often referred to as a “HUD”) confirming that a loan was paid off. A HUD is most often requested by a lender to prove to them that their loan was paid-off. Unfortunately, lenders often purge their computer system of records after a year or two, leaving their “research dept.” to chase down evidence of payment of paid-off loans. Such “research” takes time.
2) Request and retain copies of payoff statements, payoff checks and transmittal letters sent by a closing attorney in charge of paying off the old mortgage loan. Next to the HUD, this documentation is the best evidence that the loan was paid, and which lender that received the money.
3) If a loan was paid off in a purchase transaction, be sure to purchase owner’s title insurance. A title insurance company will then take on the cost and the task of retrieving the proper discharge, if that need arises.
4) Retain any letter received from the lender that may simply say something like “congratulations; your loan has been paid in full”. If photocopies of discharge papers are included with the letter, keep that also.
5) Before putting property on the market for sale, a Seller should engage their attorney to conduct a title rundown. This will reveal whether the seller has a discharge problem. Then request counsel to begin the task of tracking down the discharge so that the document will be available for an anticipated closing. As indicates above, it can sometimes take months to nudge a lender to perform their legal obligations. Start this job early, to avoid closing delays.

Taking these simple steps may avoid more expensive and stressful surprises shortly before any home sale closing.

My law practice continues to grow in the areas of estate administration and settlement, estate planning, taxation, and estate litigation. I also represent clients in all types of real estate transactions, mortgage financing and contract matters, as well as criminal, personal injury, and business litigation. My office at
5 Militia Drive in Lexington is a bright, first floor location with plenty of free parking. I invite you to visit my firm’s updated web site at http://www.georgefootepc.com; you can also contact me electronically at georgefoote@rcn.com. If you know someone in need of legal services, I hope you will recommend me to them. This letter is one of the few “advertisements” I use, as I rely primarily upon recommendations from clients. Thank you for the referrals you have provided in 2014 and I wish you and yours good health, good times, and peace in 2015.

—— George E. Foote, J.D., L.L.M. in Taxation

Posted in Uncategorized | Leave a comment

Durable Powers of Attorney: Traps for the Unwary

Much of my practice involves assisting clients in settling the estate of a deceased loved one. I am sometimes hired to handle lawsuits involving estates, trusts, and claims of self-dealing by those in charge of a person=s estate assets. Even more of my time is spent advising clients in the planning of their estates and deciding who will receive their estate and equally as important, who they will choose to manage their affairs in their declining years. This is embodied in the decision by the elder granting someone, often an adult child, a power of attorney. As a holder of the elder=s power of attorney, that adult child of the elder becomes the elder’s agent (or, as I have referred to in this article, an agent-holder).

Powers of attorney are “durable” if the document states that it will not be affected by the future mental disability of the grantor. This means that the authority granted under the document a survives@ even if the grantor loses his or her mental faculties. Powers of attorney can take effect immediately, or can be a springing i.e. “spring” into effect upon the happening of a certain event. The “event” is often stated as the written opinion of one or more than one physician giving an opinion that the elder is no longer capable of handling their own financial affairs. Springing powers of attorney might seem more attractive in concept, since they lie dormant until needed, although there can be practical problems faced by an agent-holder when they seek to use such a document. This is because a bank or investment house might require varying degrees of additional documentation to prove that the “trigger” which allows the power of attorney to “spring” into effect, making the document useable.

Much has been written about the extent of the powers granted under a power of attorney. In a few states, holders of powers of attorney granted by elders are deemed automatically to grant certain “powers”, such as the authority of the agent to create a trust, make gifts and to pay themselves compensation. The general rule, however, in Massachusetts and most states is to the contrary. Unless specifically authorized in the document, the agent-holder of a power of attorney cannot assume they have implied authority or “power” to perform certain acts unless specifically stated in that document.

This was the case in Treat v. Executive Office of Health and Human Services, 76 Mass App 1121 (2010), where the Mass Appeals Court examined the use of a power of attorney to pay the agent-holder of a power of attorney for services claimed to be performed by the agent. The Court held that since the power of attorney document did not authorize compensation for the holder, then none could have been lawfully paid. The rule set out in Treat was consistent the long standing rule of law in Massachusetts that a power of attorney must be strictly construed and interpreted Wood v. Goodridge, 60 Mass. 117, 6 Cush. 117 (1850), Hoyt v. Jaques, 129 Mass. 286 (1880), and Williams v. Dugan, 217 Mass. 526 (1914). There is also a long-standing tax case ruling that a holder-agent of a power of attorney has no implied authority to make gifts of the grantor=s money to others (including himself) Estate of Casey v. Commissioner, 948 F.2d 895 (4th Cir. 1991). Similarly, in Goldstein v. Page, 78 Mass App 1113 (2010), the Appeals Court ruled that there was no language in the POA in that case expressly authorizing the making of gifts, and held the gifts made there were illegal transfers. Making gifts can often be a useful estate planning tool to reduce the size of an elder=s estate, which in turn reduces potential estate taxes when the elder dies. A properly drawn POA usually includes that power.

This long-standing legal principle puts the agent-holder of a power of attorney in a delicate and seemingly contradictory position. I have found that some clients over the years have the impression that the granting of a power of attorney to a relative, gives that relative expansive sometimes absolute rights and powers over the elder=s assets, while legally, the opposite may be the case.

The lesson, of course, is that it all depends upon how your power of attorney is worded. In most cases of course, the elder signing a power of attorney will want to give his/her holder-agent as much authority as possible in case the elder becomes seriously ill or loses their mental faculties.

Sadly, an inadvertent omission in a power of attorney document cannot be corrected if the elder becomes mentally incompetent. A legally incompetent person cannot create any legally binding documents, so from that point of view, it might be more prudent to make a power of attorney document as expansive as possible. Having said that, what about concerns that a power of attorney document may be too broad and the agent-holder may misuse their power?

The answer is that an agent holding an elder=s power of attorney has “fiduciary” responsibilities. Fiduciaries, for example, cannot legally perform any act in that role that would favor themselves at the expense of the elder. In fact, if a fiduciary is accused of undue influence or self-dealing, they have a heightened legal burden of proving the absence of wrongdoing. They must thus “prove a negative”, which is a difficult, even if not an impossible task. In the cases I have litigated, this legal principle has been a formidable legal weapon against a dishonest fiduciary.

In all cases, the best way to avoid inter-family conflict and litigation involving a power of attorney is, of course, full disclosure of information by the agent-holder and periodic consultation among all interested parties, even if this is technically not legally required. Thoughtful estate planning can also curtail potential disputes before they boil over into a formal dispute. Of course, if hostilities are open, raging, and beyond healing by simple discussion, then it is time to seek the shelter of competent legal advice.

My law practice continues to grow in the areas of estate administration & settlement, estate planning, tax planning, and estate and “fiduciary” litigation. I also represent clients in all types of real estate transactions and contract matters, as well as criminal, personal injury, and business litigation. My office at 5 Militia Drive in Lexington is a bright, attractive, first floor location with plenty of free parking. I invite you to visit my firm’s updated web site at http://www.georgefootepc.com/; you can also contact me electronically at georgefoote@rcn.com. You might also enjoy reading my Law Information Blog at http://www.georgefootepcblog.com/. If you know someone in need of legal services, I hope you will recommend me to them. This letter is one of the few “advertisements” I use, as I rely primarily upon recommendations from clients. Thank you for the referrals you have provided in 2013 and I wish you and yours good health, good times, and peace in 2014.
—— George E. Foote, J.D., L.L.M. in Taxation

Posted in Uncategorized | Comments Off on Durable Powers of Attorney: Traps for the Unwary

Year-End Gift-Giving Considerations

I frequently recommend to clients that they can always reduce the size of their taxable estate by making gifts, as long as this would not reduce their family balance sheet to a point which makes paying for day-to-day living uncomfortable. The main advantage to this is that there is a current Federal gift tax exemption that exceeds the size of most estimated estates of citizens in this country. In addition, because there is no Massachusetts gift tax, every gift made will reduce the size of your potential Massachusetts estate, without any Federal consequences, if you fall into the majority of families whose combined estate is below the Federal lifetime exemption as set below.

The increase in the Federal lifetime gift and estate tax exemption was made possible by the American Taxpayer Relief Act of 2012 (“ATRA 2012”). For the first time in approximately 11 years, clients do not have to plan with imminent change on the horizon. Until as of about a year ago, for more than a decade clients and estate planners had to live with the uncertainty of whether the estate tax would ultimately be repealed. After the 2012 legislation, most commentators now believe that full repeal of the Federal Estate Tax is no longer anticipated.

Here is an outline of the new status quo with regard to estate and gift taxes:

• The estate and gift applicable exclusion amounts and the generation skipping transfer (GST) exemption amount (the “applicable exclusion amounts”) remains at $5,000,000, indexed for inflation.
• The applicable exclusion amount for 2013 is $5,250,000.
• The “portability” of a deceased spouse’s unused applicable exclusion amount for estate and gift tax purposes has also been made permanent. Note that portability does not apply to the applicable exclusion amount from GST tax.
• The maximum rate for estate, gift and GST taxes increased from 35% to 40%.
• Though unrelated to ATRA 2012, the amount of the annual gift tax exclusion increased from $13,000 per donee in 2012 to $14,000 per donee in 2013. Thus, a husband and wife together is able to gift $28,000 to each donee in 2013 (without filing a gift tax return). This is true even though the gift originates only from one spouse.

There is still several weeks left in 2013, so clients who are intending gifts should waste no time in completing gifts for New Years day.

There is no change in the Massachusetts estate tax. That is still triggered at a lower threshold ($1,000,000.00 starting in 2006 and beyond). This is why every gift made will reduce the size of a potential Massachusetts estate, without any Federal consequences. Happy holidays and enjoy the pleasure of making your year-end gifts.

Posted in Uncategorized | Leave a comment

Difficult Year-End Tax Decisions for 2012

I again take this opportunity to send holiday greetings and to offer estate planning information. These days everyone is discussing the “fiscal cliff” and the apparent inability of the U.S. Congress to prevent a wholesale slew of budget cuts and tax increases that some experts say could jolt the economy into another recession. In Congressional history, very few logjams have actually created the disaster feared. Congress has almost always found a way to reach a compromise, however uninspiring, which saves us from potential economic disaster.
Some of the concern surrounds the Federal Estate Tax and its scheduled reversion to a $1 million taxable threshold on January 1, 2013, if Congress fails to act. Many estate planners believe, me included, that Congress will save us from a jarring increase in the Federal Estate Tax. Even the President’s plan recommends no less than a $3.5 million taxable threshold. His willingness to negotiate the threshold is seen in the last major estate tax legislation on December 17, 2010, when the threshold rose from $3.5 million to $5 million. The Federal estate tax simply does not produce that much revenue, having been gutted by more than thirty years of successive changes which weakened its tax bite. It is possible that Congress may wait beyond the January 1, 2013 date to enact new changes, if only so that the new Congress can boast to its constituents that they have been effective in “lowering taxes” (a boast made possible solely by their inaction in 2012). Since any Federal Estate tax return would be due only as of nine (9) months following the date of death, it is entirely possible that Congress could wait as long as until August 31, 2013 to make any final changes to this!
Apart from possible tax increases arising out of the eventual resolution of the “fiscal cliff”, taxpayers earning more than $200,000 (i.e. adjusted gross income –“MAGI”), and married couples filing jointly with more than $250,000 will be subject to the Obama Care surtax, effective as of 2013. The 3.8 percent tax applies investment income (dividends and capital gains), but only to the extent it would exceed the $200,000 ($250,000) MAGI level.
Conventional end-of-year tax wisdom has always been to offset any gains by selling investments that would produce a capital loss. This way, net gains are reduced, and capital gains taxes would be lower. Second, consider gifting investments that gone up in value to charity, including your religious congregation, if you have one. You get a deduction for the full amount of the stock, even though you have never “cashed-in” by selling the stock first.
But do the Obama Care surtax and the possibility of “fiscal cliff” tax increases turn that strategy on its head? In other words, might it be better to “save” your tax-savings strategies for use in 2013, when tax rates will be higher and there will be a surtax to contend with (if you earn over the threshold)? If you are a pessimist and “save” your strategies for 2013, you may wish you hadn’t, if Congress sets a higher rate threshold at a point lower than what you will make in 2013. I regret to say my crystal ball does not say which way the tax winds will blow.

My law practice continues to grow in the areas of estate administration and settlement, estate planning, taxation, and estate litigation. I also represent clients in all types of real estate transactions, mortgage financing and contract matters, as well as criminal, personal injury, and business litigation. My 5 Militia Drive office in Lexington is a bright, 1st floor location with plenty of free parking. Please visit my firm’s web site at http://www.georgefootepc.com; you will find useful information there, such as my “Estate Information Check List” which I recommend all clients use to inventory their investments to get a better picture of what their estate is worth. You can also contact me at georgefoote@rcn.com. This is one of the few “advertisements” I use, as I rely primarily upon recommendations from clients. Thank you for the referrals you have provided in 2012 and I wish you good health, good times, and peace in 2013.

Posted in Uncategorized | Leave a comment

January 2, 2012 the new Massachusetts Uniform Probate Code (MUPC) takes effect

Season’s Greetings from the Law Office of George E. Foote, P.C.

I again take this opportunity to send holiday greetings and to offer estate planning information. Most estate planners adhere to the prevailing wisdom that it is generally a good idea to “avoid probate”, and trusts are often the tool utilized to accomplish this goal. Despite this advice, this goal cannot always be accomplished. Assets are often forgotten or omitted from trusts and left in a person’s sole name. Clients with modest estates often hold their property in joint names because the survivor receives full control of joint property when the first joint owner dies. But jointly held property is subject to probate upon the death of the last joint owner. Heavy reliance upon joint ownership for an estate plan will thus make it more likely that probating an estate through the Probate & Family Court will be required.

January 2, 2012 will usher in significant changes in the procedures required to probate an estate in Massachusetts. This is the date the new Massachusetts Uniform Probate Code (MUPC) takes effect. The new system notably makes it easier to close an estate. Thus, a formal “Final Account” is required to exempt the executor from future liability. Under current law, without a “Final Account”, an executor is vulnerable to allegations from heirs that his/her estate obligations have been handled improperly or are incomplete. Under the MUPC, an estate can now be closed “informally”, which does not require a detailed specification of all assets, income and expenses. Sometimes requiring an executor to provide such detail might be a good idea, but with many estates, families are in complete cooperation and there is no controversy. For these estates, the option to close an estate informally will be welcome.

Of course, even though many of these new rules are designed to streamline the probate process, some experts are already disagreeing how the new rules will be applied. In addition, estates commenced under the old system, if not closed prior to June 30, 2012, must be re-filed in some fashion using the new MUPC forms. The resulting confusion, at least during the first several years of the new MUPC should cause clients to at least consider holding all their property in Trust, if only to avoid this confusion. Creating a trust was once thought of a process only sought by “rich people”. In the 21st century, however, even people of modest means would benefit from using a trust as the foundation of their estate plan. For example, whether under the new MUPC system or the former system, having a will, but no trust, requires probating an estate. This makes a client’s private assets public. Holding a whole estate in trust can ensure that a family’s net worth will be kept private and not put on public display. In addition to being open to public inspection, the probate process requires formal notice to all next of kin, whether or not they are named beneficiaries under a Will. When an excluded heir is notified about the probate of an estate, a forum is provided to relatives to air their grievances. A democratic society, of course, benefits from such “sunshine”. On the other hand, disgruntled heirs do not always have something productive or helpful to say, and the probate system, whether under existing law or new MUPC, can be manipulated to frustrate the wishes of the decedent.

Creating a trust, drafted with thoughtful statements concerning a decedent’s intentions, can address anticipated objections of obstreperous heirs, but not require a legal forum where the administration of an estate can be brought to a gridlock. Legal remedies always exist to prevent abuses, but the forum is not automatic, as it is when a Will is submitted to probate. Avoiding probate by using a trust is a preferable option.

My law practice continues to grow in the areas of estate administration and settlement, estate planning, taxation, and estate litigation. I also represent clients in all types of real estate transactions, mortgage financing and contract matters, as well as criminal, personal injury, and business litigation. My 5 Militia Drive office in Lexington is a bright, 1st floor location with plenty of free parking. Please visit my firm’s web site at http://www.georgefootepc.com; you can also contact me at georgefoote@rcn.com. This is one of the few “advertisements” I use, as I rely primarily upon recommendations from clients. Thank you for the referrals you have provided in 2011 and I wish you good health, good times, and peace in 2012.
—— George E. Foote, J.D., L.L.M. in Taxation

Posted in Uncategorized | Tagged | Leave a comment