Eliminating real estate like-kind exchanges would drive down transactions and property values

Any effort by Congress to repeal like-kind property exchanges, would have negative impacts on the real estate industry, according to a survey, “Like-Kind Exchanges: Real Estate Market Perspectives 2015,” from the National Association of REALTORS® (NAR).

Like-kind exchanges under Internal Revenue Code Section 1031, allows individuals and businesses to defer capital gains taxes when one property is sold and the proceeds are reinvested in a similar property. Such exchanges benefit not just the economy but also spur job creation, according to the survey.

More highlights from the NAR survey:

  • 63 percent of REALTORS® participated in a like-kind exchange transaction between 2011-14;
  • 40 percent of those transactions would not have occurred if like-kind exchanges were not allowed;
  • 96 percent of respondents indicated a decrease in real estate values if like-kind exchanges are repealed;
  • 94 percent said a repeal would lead to decreased demand for core assets, business and services.

Click here to read the NAR survey. To learn more about the impact curbing 1031, or like-kind, real estate exchanges could have on the market, read more from NAR and watch a short video.

DR Legal News: Commercial brokerage loses ‘slander of title’ countersuit

In the July edition of D.R. Legal News, a commercial real estate brokerage firm lost a case in Michigan and more than $20,000 in litigation costs after refusing to release a broker’s lien.

It’s just one of six case studies summarized by Lisa Harms Harzler of Sorling Northrup Attorneys, in this issue of D.R. Legal News. Get the details now.

This situation began with Anton, Sowerby & Associates getting an exclusive listing agreement to sell or lease a commercial property owned by GAM Properties. The brokerage introduced a potential buyer (Mr. C’s Lake Orion, L.L.C.) to GAM. But after GAM defaulted on its mortgage, an appointed receiver negotiated a sale to Mr. C’s for $1.2 million and offered to settle the brokerage firm’s claim for a commission.

The parties could not reach an agreement on the commission, so the brokerage firm recorded a broker’s lien for $60,000. In order to close the sale, the receiver and Mr. C’s funded an escrow account for $75,000 to cover the brokerage firm’s claim and asked for a release of the lien.

Anton, Sowerby & Associates refused to release the lien, and Mr. C’s filed a counterclaim accusing the brokerage firm of “slandering its title.”

Slander of title, writes Hartzler, is a remedy for malicious publication of false statements that disparage an owner’s right in property. The Michigan Appelate Court decided that the brokerage firm properly recorded its broker’s lien prior to the sale of the property, but was obligated under Michigan’s state law to release the lien when the escrow was created. The persistent failure to release what was then a false lien demonstrated sufficient malice to constitute slander of title. The court affirmed an award to Mr. C’s for all of its litigation costs, which totaled more than $20,000.

Cook County ‘Bed & Breakfasts’ reclassified for 2015 assessments

Photo courtesy of Bigstock

The IAR Government Affairs team is working with the Cook County Assessor’s Office to find out what a policy change means for the property tax assessment classification for current and future “Bed & Breakfast” owners.

Although previously considered commercial properties by the assessor’s office, Deputy Assessor of Valuation and Appeals Thomas A. Jaconetty says all of the 40-plus B&Bs in Cook County are now classified as “5-97s” or “special commercial improvements,” though owners can appeal.

Mike Scobey

In a conference call with IAR Assistant Director Mike Scobey, Jaconetty said the decision to change policy was made so future assessments would be more uniform and equitable.

Each appeal will be decided individually, Jaconetty says, based on business and financial information submitted by owners through the appeals process.  A list of information needed on all appeals includes:

  • documentation to show if any portion of the property is owner occupied;
  • a full narrative appraisal or appraisals indicating fair cash value on Jan. 1, 2015;
  • square footage;
  • audited income and expense statements for 2012, 2013 and 2014;
  • income for 2012, 2013, 2014 and 2015 (to date); and
  • a detailed narrative brief discussing all relevant factual and legal issues.

The policy change was posted on a “Bed & Breakfast” page on the site of the Cook County Assessor’s Office. But Jaconetty says all of the affected Bed & Breakfast owners have been identified and individually contacted by the assessor’s office.

The fact that Cook County bed & breakfasts had been previously classified as commercial properties came to Jaconetty’s attention several years ago, but he put the idea to change classifications on hold until recently. He says members of the assessor’s office are working in a cooperative spirit with Bed & Breakfast owners.

He noted that because the assessor’s office is recommending the policy change, Illinois law limits what can be collected in property taxes from B&Bs. The reclassification is only for assessments in 2015 and beyond (property taxes payable in 2016), and it will not be applied retroactively.

If a B&B is the owner’s primary residence, it is likely that it will be classified as residential property, says Jaconetty. However, an appeal to the assessor is necessary. Commercial properties are assessed at 25 percent, while residential properties with fewer than six units are assessed at 10 percent.

Morning Minute: Federal Reserve finds improving economic growth in early 2015

There was continuing moderate economic growth in January and February as consumer spending, manufacturing production and business spending improved, according to the latest Federal Reserve Beige Book. The Seventh District in Chicago, reported modest gains in construction and real estate activity as home prices and rents increased and sales held steady. The commercial real estate sector saw even greater gains as rents rose, vacancies declined and leasing activity increased. Read the report for the Seventh District.

In other headlines:

Mortgage Rates Move Lower – Freddie Mac reports today that fixed mortgage rates declined this week for the first time in four weeks.

Housing Market Gets Stronger in 2015 - Kiplinger reports that 2015 is expected to be a solid year for the housing market as a stronger economy combines with pent-up buyer demand.

Could Chicago’s Willis Tower get a new name (again)? – The Willis Tower (formerly the Sears Tower) could soon have a new owner, and potentially a new name. The Belleville News-Democrat has the Chicago Tribune story. Read more.

Get answers to questions about commercial broker liens

A great new RVOICE brochure, “What You Should Know About Commercial Real Estate Broker Liens,” (form #649) is highlighted for Managing Brokers in the January issue of IAR’s D.R. Legal News.

Mike Scobey, IAR Assistant Director of Advocacy and Local Issues, says the brochure is based on a 1992 state law that gives real estate brokers the right to a lien on commercial real estate to secure fees and commissions due to them. The law is designed to help brokers collect what’s owed to them without expensive legal battles.

While the brochure provides answers to 10 questions, Scobey’s article gives five examples:

  • What is a commercial real estate broker lien?
  • How is commercial property defined?
  • Who is a broker under the lien statute?
  • How does a broker create the right to a lien on real estate?
  • When does a lien become effective?

Get a free download of the brochure or order a printed brochure by viewing the January D.R. Legal News.