Exclusion from Reassessment of Property Taxes Can Save You Money

Did you know that in several counties in California, Propositions 58 and 193 can save homeowners money in the transfer of property between parents and children and even grandchildren? These propositions are geared towards keeping property “in the family” and both propositions help avoid a forced sale if the home is reappraised and the taxes go up exponentially making it too difficult for the family member to make the payments on the home.

Proposition 58 provides property tax relief by preventing an increase in property taxes when real property is transferred between parents and their children.

Proposition 193 broadens the tax relief to include transfers between grandparent and grandchildren, or from grandchildren to grandparents. This transfer is only exempt in cases where both parents of the grandchild are deceased.

The Parent-Child Exclusion applies to any real property purchases or transfers between parents and children, which occurred on or after November 6, 1986.

The exclusion applies to natural children, children adopted before the age of 18, stepchildren (as long as the parents are still married), and sons- and daughters-in-law are considered children under this exclusion program.

What most homeowners do not know is that the claim must be filed within three years after the date of the purchase/transfer or prior to the transfer of the property to a third party, whichever is earlier or within six months after mailing of the notice of supplemental assessment.

What type of property can be transferred without a tax increase?

A parent may transfer their principal residence and any other property valued up to $1,000,000 to their children. The properties will not be reappraised providing that the proper Claim for Exclusion from Reappraisal form is filed and approved by the Assessor’s Office.

An inheritance or transfer to children within a trust may qualify for this exclusion. The trust documents must be provided with the claim.

You may request a Parent-Child or Grandparent-Grandchild Exclusion claim form by contacting your local County Assessor/Recorder/Clerk office. You may ask your Escrow Officer for the contact information for your local Assessor’s office, too.

The Los Angeles County Office of the Assessor did a great writeup on this topic, as well, and included links to the forms that are used in exclusion claims. Their summary can be found here.

The points presented here are meant as an informational summary and are not inclusive of all of the nuances of the propositions. For full definitions of Prop. 58 & 193, please view Revenue and Taxation (R & T) Code Section 63.1 online at www.leginfo.ca.gov and consult with your tax or legal professional.

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The Importance of Wiring Funds to Escrow for Foreign Investors

Do you have a foreign investor or buyer looking to purchase a home in California? If the client writes a personal check drawn on a foreign bank, it may take several weeks to be able to verify that the check has actually cleared. On the other hand, deposit checks we take from a customer drawn on a U.S. bank typically clear within 3-4 days.

Wire Transfers Expedite Process

There are steps you can take to ensure the escrow closes on time by working with your buyer to understand the need for a wire transfer to expedite the closing process. When you write an offer and are presented with a check drawn on a foreign bank, write on the first page of the purchase agreement that the buyer will arrange to wire transfer the deposit to the escrow company upon acceptance of the offer.  Sometimes Realtors will go so far as to actually take the check to present with the offer, but state that the check will be replaced with a wire transfer upon acceptance.  Either way works.  Please keep in mind, that some escrow companies may require a wire from a foreign buyer (and not accept a check at all) due to the possibilities of delay. Contact the escrow company directly to inquire what the required procedures are.

There are problems that could arise if a check drawn on a foreign bank IS deposited into escrow:

1. Buyer could call his bank to put a stop-payment order on the check and escrow may not even be notified of this for 6 to 8 weeks.  Our escrow officers have experienced buyers who decided against the purchase of the property and placed a stop payment on the check and then were unaware the stop-payment had been done.
2. Costs are being incurred on the strength of the buyers’ earnest money deposit.  If the Sellers are holding their property off the market, they deserve to be assured that the buyer has “good funds” in escrow to back up the offer they have made to purchase
3. If the escrow is scheduled to close rather quickly, for example 14 days, and the initial deposit check drawn on a foreign bank is deposited into escrow, the escrow company may not be able to verify clearance of the check as a way of guaranteeing that there are “good funds” in the escrow and allowing the escrow to close.

Generally there is little resistance from the buyer to following these suggestions when the implications are explained. When a buyer is told up-front by the Realtor that any funds coming into escrow must be made by wire transfer, it conveys to the client that we are all on the same page and have the same goal: closing the escrow successfully.

Here is an example of a wire transfer request form.

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Patience Is Key for a Successful REO Escrow

In a previous post, the nuts-and-bolts differences between REO (Real Estate Owned) escrows and standard escrows were discussed. This post is designed to highlight a significant psychological difference that can help you and your clients successfully navigate the REO terrain: patience.

For a number of reasons, the process for an REO escrow can take longer than a standard escrow:

• The Seller of an REO is a Bank or Lending Institution who may have many properties in escrow at once. This means that what may seem like a simple response to a question can take days to be considered, much less answered.

• An accepted offer or contract may take several days to be uploaded onto the Seller’s online system where it will only then be listed as a “task” to open escrow.

• Banks must follow specific, strict procedures that can take longer than a standard escrow.

• Finally, the HUD process takes approximately five days after the Buyer has signed the loan.

Realtors: Realizing these differences and delays can help you keep your Buyer calm and confident while working through an REO escrow.

Buyers: Knowing it can take longer to work through an REO escrow can help make the process much less stressful.

When all parties understand how these differences add time to the process, they can sit tight and allow the escrow officers to focus their time on processing the transaction. Ultimately, your patience can lead to a successful (and less stressful) transaction for everyone.

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Per Diem: Two Little Words that Can Impact a Buyer in an REO Sale

Buyer’s of a “bank owned” property, or REO sale as they are often referred to, may come across some verbiage in the Banks Addendum to the Real Estate Purchase Contract that catches their eye: Per Diem Penalty. Escrow Officers are often asked, what does this mean?

Latin for “per day”, per diem has many uses. What per diem is referring to in this instance is in the event escrow does not close by the date set forth in the contract, the Seller can impose a daily penalty to the Buyer for each day beyond the initial agreed upon closing date until the day the escrow officially closes.

The amount of this penalty differs depending on terms of the contract. It can be a percentage of the purchase price or a set daily amount (ie $100 per day). It is important to note, agreements can be made between the Buyer and Seller to waive the penalty when applicable.

One way a Buyer can strive to close escrow on time and avoid penalties is to complete escrow and mortgage paperwork and provide requested documents in a timely manner. However, circumstances may still arise that are beyond the Buyer’s control. In this event, a Buyer should ask their agent to renegotiate the terms of the contract to extend the closing date or to waive the penalty with the Seller and Seller’s agent.

In REO transactions, as with any real estate transaction, it is very important to be sensitive to all time frames in order to alleviate unnecessary charges.

If you have further questions about the Per Diem Penalty, do not hesitate to contact your escrow officer for further clarification or leave us a note in the comments.

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