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Three Reasons Why You Should Title a Baltimore Rental Property Into an LLC

January 15, 2019 by heiseheisellp Leave a Comment

Three Benefits of Titling a Baltimore Rental Property Into an LLC

Three Benefits of Titling a Baltimore Rental Property Into an LLC

Are you a rental property owner here in the Baltimore area? Perhaps you’ve wondered what the best approach is for titling your rental property? Let’s take a look at the three main benefits of titling your Baltimore rental property into an LLC.

  • Protect Assets – titling a Baltimore property to a limited liability company (LLC)  and treating it as a business (creating separate bank accounts, maintaining insurance in the name of the LLC, etc.) insulates the business operation from your personal assets and provides you with limited liability personally.
  • Pass Through Taxation – normally businesses are taxed on profits and owners are taxed again when they make income from the business operation. With an LLC, the profits pass through to your personal tax return, which minimizes the amount of money taken out of your income for taxes.
  • Track and Deduct Business Expenses – having the income and expenses flow through your LLC makes it easier to track legitimate business expenses and keep them separate from personal expenses.

When to Title a Baltimore Investment Property Into an LLC 

It is best to title your Baltimore rental or investment property into your LLC when you purchase it. Why? If you take title in your own personal name, your loan, your title insurance policy and your hazard insurance policy will also be in your personal name. A subsequent transfer to an LLC may have certain negative consequences if you are not careful. Three potential negative consequences are detailed covered below.

First, when you transfer your Baltimore rental property to your LLC after taking out a loan in your own name it may trigger the due on sale clause set out in your loan documents. What does this mean? It means that your lender may accelerate the loan and demand immediate payment in full. If you are unable or unwilling to pay the loan off your lender may file a foreclosure to force you to do so and this may result in you losing the property.

Second, in regard to your title insurance policy, it may be necessary to have an additional insured endorsement issued so that the protections afforded by the policy are not terminated. In certain circumstances it may be necessary to place a new title insurance policy.

Finally, the concerns that are raised with title insurance also extend to hazard insurance but are easier to correct. If you fail to change the hazard insurance policy post transfer and someone is injured on your property it is possible that the insurance company will deny coverage and you could be held responsible for a judgment.

These are just a few details to consider when purchasing and titling a Baltimore rental or investment property. Each situation should be evaluated based on the details of that particular transaction so if you have any questions please contact our Baltimore real estate attorneys at Heise & Heise, LLP for a full review.

 

 

 

Filed Under: real estate law, rental property

Legal Considerations of Owning a Rental Property in Baltimore

December 27, 2018 by heiseheisellp Leave a Comment

Legal Considerations of Owning a Rental Property in Baltimore

It has been a year since you and your spouse bought your first rental property in Baltimore, MD, and things are going great! You sat in on real estate seminars specific to the Baltimore market, read all the investment books, joined in on online discussion boards, and now all the hard work is starting to pay off. Each month that rent check comes in like clockwork and you are realizing a profit, a small one, but still, it is a profit. You think “this is easy, why aren’t more people doing this?”

And then you come home from work one day, grab the mail, and head to the house and there it is . . . a letter from a law firm. Turns out that one of the children living in your rental property has elevated lead levels and you are about to be sued.

No worries, this is why you have insurance, right? You give your insurance agent a call and find out you have a lead paint exclusion in your policy. The worst-case scenario has surfaced – no coverage. You are on your own. 

Legal Risks of Owning a Baltimore Rental Property

What does this mean? What happens if the lawyer sues and gets a judgment? Since you and your spouse are both on the title of the Baltimore rental property and also on the title to your primary residence, your home is at risk. It is possible that the lawyer can force a sale of your home to squeeze the equity out to satisfy the judgment. 

If the sale of your home does not return enough funds to satisfy the judgment, the lawyer can also seek to collect by garnishing your wages or seizing your personal assets. This goes for your spouse, too. 

A friend suggests that bankruptcy may stop this terrible slide but then it will be years before you fully recover from your filing and you can see that dream of being a real estate mogul slowly slipping away. 

Take Title of Baltimore Rental Property in LLC

Interested in how to prevent the likelihood of this scenario becoming a reality? Go back in time and take title to the rental property in a limited liability company (“LLC”). Get in touch with Baltimore’s best real estate attorney at Heise & Heise and we will be happy to explain the structure and how to begin the process to protect your future. 

 

 

Filed Under: real estate law, rental property

Top Three Questions to Ask if You Are a FSBO Seller in MD

July 12, 2018 by heiseheisellp Leave a Comment

Three Questions to Ask if You Are a FSBO Seller in MD

Is the Maryland FSBO buyer qualified?

So, you listed your Maryland home for sale by owner on one of the many platforms available and received an offer, now what? You want to make sure that the potential buyer is qualified before entering into a contract. How do you do that? Request that a buyer submits a pre-qualification letter or pre-approval letter (stay posted for a future blog on the differences between the two coming soon) along with the offer. This document will help you determine that the buyer has met with a lender and has a good chance of being approved for a mortgage for the amount that is being offered for the home. There is not much sense in investing energy and resources into a contract from a buyer who will not be able to secure a loan for the purchase.  

Who is paying the realtor?

In a traditional sale involving real estate agents, the seller’s agent negotiates a fee with the seller, usually anywhere from 4%-7% of the sales price, that is shared with the buyer’s agent. In a for sale by owner transaction that fee may be avoided if there are no agents involved in the transaction. However, it may be the case that a potential purchaser is represented by an agent, what then? A seller in this scenario should determine in advance whether they will agree to pay the buyer’s agent a commission or will require the buyer to pay the buyer’s agent themselves. A seller may be able to refuse to pay any type of commission to a buyer’s agent if their house is a particularly desirable property or is in an area where there are high demand and low supply. In Maryland, there is no requirement that a seller pays an agent a commission unless agreed to in a contract.  

Is the Maryland FSBO real estate contract valid?

Even the major service providers in the for sale by owner space advise engaging a real estate attorney when a seller does not have an agent. Why is this? Many states require property disclosures for property condition, radon, lead paint, asbestos, etc. and if the requirements are not fulfilled the buyer may be able to terminate the contract. There is a huge temptation to use a form contract found on the Internet or purchased at a store to save a few dollars but this is a risky proposition. You will already be reducing your expenses by eliminating one or both agents so best to make sure you have taken the steps necessary to ensure that the buyer is obligated to see the purchase through.

HAVE QUESTIONS ABOUT THE FOR SALE BY OWNER PROCESS IN MARYLAND? CONTACT US TODAY FOR A FREE CONSULT.

 

Filed Under: fsbo, real estate law

5 Biggest For Sale By Owner Mistakes in Maryland

April 12, 2018 by heiseheisellp Leave a Comment

for sale by owner home baltimore md 

With real estate commissions on residential property sales running anywhere from 4% to 7% of the sale price of a house, it is only natural that sellers in Maryland try to save those funds by selling their house themselves without an agent. This is called a for sale by owner, or FSBO, sale. Are you among those Maryland homeowners looking to sell your house without an agent? If so, please consider the top five FSBO mistakes we see at our Baltimore real estate law firm.

Top 5 FSBO Mistakes in Baltimore, MD

FSBO MISTAKE NO. 1. SIGNING A CONTRACT WITHOUT HAVING IT REVIEWED. It happens all the time, sellers think that they can change the terms after they sign a contract but once they sign they are likely locked into those terms. Sometimes a buyer, especially investors, will tell a seller that they will allow changes later but unless that agreement is in writing it is not enforceable.

FSBO MISTAKE NO. 2. NOT ATTACHING FORMS REQUIRED BY MARYLAND CODE. Did you know that if a seller does not deliver a Property Disclosure or Disclaimer Statement to a buyer on or before entering into a contract the buyer may rescind the contract and receive an immediate return of the deposit? If you did not know this and you are considering selling your house on your own, you should engage an attorney or realtor as there are many potential pitfalls of this nature. 

FSBO MISTAKE NO. 3. TRUSTING THE BUYER. I know, I know . . . why so cynical? It is because we have seen some shocking things over the years. A buyer wanting to buy a property will oftentimes do whatever is necessary to get the property under contract. Is your buyer saying he wants the house for a family member? Doubtful. Has your Buyer said his offer is fair based on comparable properties? Do not believe it, do your own research. The upshot is that a fair amount of skepticism will serve you well.  

FSBO MISTAKE NO. 4. AGREEING TO PAY ALL TRANSFER AND RECORDATION TAXES. Typically, in Maryland transfer and recordation taxes, which can be 3% or more of the sale price of a property, are split equally between the parties. Some buyers will take advantage of a seller who may not know this and shift the responsibility of payment of all these taxes to the seller. If the seller does not pick up on the shift in obligation it can be a pricey mistake. For example, transfer and recordation taxes on a $250,000.00 sale can run roughly $7,500.00 depending on the county. Each party would pay $3,750.00 in this example but if the buyer shifts the payment obligation to the seller that seller just cost themselves $3,750.00 that should have been paid by the buyer.
 

FSBO MISTAKE NO. 5. ALLOWING A BUYER THE RIGHT TO ASSIGN THE CONTRACT. What does it mean if a contract is assignable? It means that a contract purchaser will have the right to shop the contract around to see if they can obtain a higher offer on the property and pocket the difference. For example, if a contract is assignable and the seller agrees to sell a property for $100,000.00 the buyer can shop the contract and find a third party willing to pay $135,000.00. What happens to the $35,000.00 difference? It goes right in the original buyer’s pocket for acting as the middle man and this is a tough thing for sellers to experience at the settlement table because they basically lost out on receiving an additional $35,000.00. 

HAVE QUESTIONS ABOUT FOR SALE BY OWNER IN MARYLAND? CONTACT US TODAY FOR A FREE CONSULT.

*There are a number of factors and variables that can change the analysis above, it is important that you engage legal counsel to advise you on your transaction. 

Filed Under: for sale by owner, fsbo, real estate attorney, real estate law

Tax Relief for Short Sales in Baltimore

March 8, 2018 by heiseheisellp Leave a Comment

Depending on how closely you follow what is going on in Washington, you may or may not be aware that Congress recently passed the Bipartisan Budget Act of 2018. Even among those of you with your finger on the political pulse, it can be easy to overlook some smaller items rolled up in these types of complex Congressional deals. Among the many provisions included in this bill, the one we want to draw your attention to involves real estate short sales in Baltimore, MD and nationwide.

If you short sold your principal residence in 2017, and the lender forgave the debt, you will not need to include the forgiven debt in your gross income. Additionally, if you entered into a contract in 2017 to sell your principal residence and it does not end up settling until 2018, you will be able to benefit from this provision. Find additional details on the IRS website: http://bit.ly/2HSefC8

This is huge news and will provide tax savings for many hard working people!

Have questions about how this new short sale tax law might impact you? Contact us today for a free consult.

Filed Under: news, real estate law, Short Sales

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"Heise & Heise...a firm you can rely on. Recently, Todd and his staff assisted me in a real estate matter. I cannot thank them enough. Every step of the way I was treated as if I was their only client. I was kept up to date on every aspect of the process. If I had a question or concern, either Todd or one of the staff was there to answer in a way that was easy to understand. I do not know what I would have done if it were not for the top notch representation I got from Todd. If you have a real estate matter that requires legal help, call Heise & Heise...I assure you, you will be thankful you did."— Joel L., Seller, Ocean City, MD
"It's certainly not an easy decision when you realize that you have to short sale your home and like many hard working people that try to make it work, sometimes it simply doesn't. '08 was hard on so many of us and the ramifications were far reaching, overbearing and didn't leave many of us with much hope or solutions. I am writing this review to personally thank Todd Heise and Melissa for all of their handwork in making this stressful process that much easier. I am truly grateful for their help, patience and expertise. I would also like to take this time to HIGHLY recommend them to any individual that is now weighing their options. Just because you feel alone, doesn't mean you have to be. Do yourself a favor and give them a call."— Oscar C., Seller, Baltimore City, MD
"Mr. Heise is absolutely wonderful! We had a short sale negotiation which lasted for a long time. If it was not for Todd, we don't believe that it would have resolved. He is an excellent Attorney with extensive experience and is prompt in his communications. We sincerely thank him for all his help and expertise. We strongly recommend him for any real estate matters."— Thamban V., Buyer, Howard County, MD

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