Archives for Real Estate

modern fsbo

How To Sell Your Home FSBO

What's a Fizbo Anyway?

FSBO stands for "For Sale By Owner" and it's very popular right now.  When selling their home, most people usually think they need to list it with a Realtor.  While Realtors can provide a great service, you simply may not need all the services they provide - and you may not want to pay their 6-7% fee either.  For a $250,000 house, a 7% commission is $17,500! That fee can be well deserved by a Realtor who finds a buyer in a tough market, but in a Seller's Market, home sellers may not need the marketing services of a Realtor.  They commonly find their own buyer -- pretty quickly too, sometimes!

Help!  I Found a Buyer, But I Don't Know What To Do Next.

This is where a real estate attorney comes in.  It may feel like the hard work is done once you find a buyer, but it's actually just beginning!  After finding a buyer, someone needs to draw up the Purchase Agreement (also called the "Offer" or "Purchase and Sale Contract").  If neither side has a Realtor, an attorney can draft one for you.  In fact, having a legal professional draft your Purchase Agreement will ensure it's done correctly and in your best interest. After that Purchase Agreement is signed, there is still a lot to do to get ready for the closing.  In Iowa, that list can include the following:
  • The Seller Disclosure Statement (should be signed with or before the Purchase Agreement)
  • Lead Based Paint Disclosure Form (if house is built before 1978)
  • Home Inspection
  • Radon Inspection
  • Wood Destroying Pest Inspection
  • Surveys
  • Abstract Update and Delivery to Buyer's Attorney
  • Title Opinion or Title Commitment
  • Form 1099-S
  • CMA
  • Time of Transfer Inspection for Septic Systems
  • Preparing the signing the Tax Proration Agreement
  • Preparing and signing Deed, Declaration of Value and Groundwater Hazard Statement
  • Holding and delivering earnest money
  • Delivering all documents to the closer
  • Reviewing and correcting any errors on the HUD/Closing Disclosure
That's a lot! And for the average person who might sell their house once every 5-7 years, it's likely not fresh on your mind from the last time you did it.  Or if it is, things many things have probably changed from that last time you sold. But your local real estate attorney is well versed in the process.  At Hubbard Law Firm, we typically have anywhere from 20-50 sales open at any given time where we are assisting the Seller with the items in the list above.

Real Estate Attorneys Ensure You Are Protected

You might also have noticed the list above looks different than what you might expect if you're from a state other than Iowa.  Iowa maintains a unique system, relying on abstracts and title work, while other states simply issue title insurance.  If you've sold property in a different state, you might find the typical things you're used to -- Escrow Companies and Title Insurance -- are very different in Iowa. An Iowa real estate attorney will make sure everything is done correctly and on time.  Nothing's worse than having a delayed or missed closing because the Seller missed one or multiple items in the list above. And we make sure your transaction meets the latest requirements and changing laws - like the new changes to the Declaration of Value Form, set to go into effect July 2016.  We watch out for these details so you don't have to.

Do You Need Help With Your FSBO?

If you're selling your home FSBO and could use some assistance, I'd love to help you out.  It's a fun part of my job to successfully get people to the closing table, whether they are buying or selling.  I would be happy to help you out and take the worry of a FSBO sale off your plate. And we are paid only at closing right out of the closing proceeds.  When else can you say you hired an attorney and never had to write them a check! If you need help with your sale, you can contact me through this website here or at my law firm's website here.  I look forward to helping you out!  
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Earnest_Money

What Is “Earnest Money”?

So what is "Earnest Money" anyway?

If you're buying or selling a house, you're bound to come across the term "Earnest Money".  What is it?  How does it work? First of all, it's not this guy: ernest moniz That is Ernest Moniz, former Secretary of Energy. In addition to being confused with "Earnest Money", Ernest Moniz is also frequently confused with being a Founding Father: https://twitter.com/iSmashFizzle/status/557731934487736322?ref_src=twsrc%5Etfw&ref_url=https%3A%2F%2Fwww.technologyreview.com%2Fs%2F608223%2Fobamas-energy-secretary-addresses-trumps-attacks-on-his-legacy%2F But I digress! Let's get serious for a moment.  Earnest Money is money paid by the Buyer to show they are serious about their offer to purchase the property. Earnest Money is typically paid at the time the Buyer's offer is accepted by the Seller, and it's typically paid to the Seller's attorney or real estate agent.  The money is typically held in trust by the attorney or agent and then applied at closing. Since the buyer has already paid the earnest money, it reduces the amount the buyer needs to bring to closing.

What is common?

There is no requirement on how much Earnest Money is required.  In the Des Moines real estate market, it's common to see Earnest Money in the range of $500-1,500, for the average sized homes.  For larger homes, larger Earnest Money is often seen.

Is It Required?

There's a misconception out there that Earnest Money is required.  It is not.  Some people will claim Earnest Money is required in order to form a binding contract.  They're referring to the legal concept that a contract must have "consideration" from both sides to be valid.  While that's true, payment of Earnest Money is not needed to establish consideration.  The basic promise to purchase from the Buyer, and promise to sell from the Seller, form sufficient consideration to establish a binding contract, without the need to add Earnest Money on top. That said, while it's not required, it is commonly included and from a Seller's perspective is a good idea.  It establishes the Buyer is a serious buyer, and in the event the Buyer were to breach the agreement and refuse to close, the Seller may be entitled to retain the Earnest Money.  Each situation is different and you should consult with your attorney if you find yourself in that situation.

Purchase Agreement / FSBO

If you're in the process of buying or selling and need assistance with drafting a Purchase Agreement or with selling your home For Sale By Owner, we'd be happy to help!  Please contact us at the red button above. chris langpaul cjl
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appraisal too low

HELP! My Appraisal Came in Too Low!

Today we're going to cover a topic that can throw a real wrench in your home sale process!

This hasn't been an issue too frequently in recent years given the strong market, but it does pop up from time to time. Let's say you listed your house For Sale By Owner.  You received more interest than you expected, and ended up in a multiple offer situation.  You had those buyers submit their best and final offer and you ended up with a sale higher than your list price.  Awesome, right? It is, but this can sometimes become a double-edged sword.  In a strong market like this (frequently called a "Seller's Market") the sellers are in control.  That means buyers compete for the few homes that pop up for sale.  In a seller's market, homes typically only stay on the market for a day or two before being snatched up.  Often times, buyers will miss out on a couple homes and finally become very aggressive, submitting high offers in the hopes of not losing yet another home to another buyer. This is a great situation for sellers, but sometimes the inflated prices can have one downfall:  sales typically need to be supported by an appraisal.  Unless you are lucky enough to get a cash buyer who does not make their offer subject to appraisal, most buyers will submit offers that are subject to financing and/or subject to appraisal.  This means the buyer's lender will be ordering an appraisal to justify to their underwriters that the loan is a "good risk" and supported by sufficient collateral. For example, let's say the sales price is $275,000 but the appraisal only comes in at $250,000.  A lender will only view that collateral (the mortgage on the home) as being worth $250,000 so they will typically not loan up to $275,000.  That's a problem if you're a buyer that needs a loan up to the $275,000 sales price. And this is the snag that will sometimes surprise an unwitting seller. We typically see appraisal issues arise in two types of markets.  The first is a weak market, where prices are depressed and there is a glut of inventory on the market.  Homes are not selling.  Prices have tanked.  It's not hard to understand why a low appraisal could be a problem in this type of market. The second type is a little more unexpected.  Sometimes in a very strong market, we will start to see appraisal issues arise because of the scenario outlined above.  Sale prices can get so competitive and so inflated that they just aren't supported by other market comps and appraisers have a hard time justifying the inflated price as a true value of the property.  In other words, emotions may have led to a sky high offer, but the  reality of the market comp data does not support that price.  Also at play, the market is moving upward so quickly that it's not giving enough time for comps to be established in this new rarified air.

Ok, But What Do I DO About It?

If you're ready this post, I might have just described your situation.  And the only thing you want to know is "What do we do now?"  How can we fix the situation and still close without losing all that money I thought I had banked? The good news is there are a handful of things we can try: #1 - Review the appraisal and look for any obvious errors of false assumptions Appraisers are not infallible.  They make mistakes.  They rush.  Especially when the market is strong and they are overworked.  So double check their work.  This is not always an easy task, as appraisals can be very long and detailed.  But it's worth the time and effort.  Jot down any notes you find on things the appraiser has wrong, or things they overlooked.  If you find some material issues to report, work with your buyer to report this information to their lender, who can then relay it on to the appraiser and ask for them to review their work and possibly issue a corrected opinion. #2 - Get a second opinion If the appraiser is unwilling to review your notes or change their opinion of value, you may need to get a new appraisal.  A second opinion.  If I hired 10 different appraisers and asked them all to value a property, and I didn't give them any guidance or tell them what the purchase price was, I'm willing to bet I would get 10 different valuations.  Some may be very close but some may differ by significant amounts. The point is, appraising real estate is an inexact science.  It is not a rigid formula.  There are dozens and dozens of factors that go into the final analysis and adjusting even just one or two different inputs can have a big effect on the outcome.  It's like the Butterfly Effect applied to real estate. Not all lenders will allow a buyer to get a second appraisal in these situations, but some will.  It's worth asking.  As a seller, you could even offer to pay for the second appraisal if the lender would permit that.  It might make a big difference. #3 - Get a second opinion....from a different lender If the buyer's lender won't allow you to get a second appraisal, sometimes the buyer will need to switch lenders and start the process over somewhere else.  By switching lenders, the buyer will get a second bite at the apple with a new appraiser.  I've seen this have a positive result many times. The key to #2 and #3 are a buyer who loves the house and wants to do everything they can to make the closing happen, because these require buyer cooperation.  It's the buyer who is the liaison to to the mortgage company, so they have to make the effort on these two. #4 - Split the difference, or find another source of funds If you've struck out on numbers 1-3 above, we enter the negotiation phase.  At this point, perhaps an offer to "split the difference" with the buyer could work.  The buyer's lender will still be limited on what they can lend based on the appraisal, but perhaps the buyer can make a bigger down payment, either with their own funds or with some gift funds from a family member or another source.  A creative (legally creative, that is) buyer and lender can often come up with several options here to bridge the difference. #5 - Negotiate downward If you have a buyer that is not willing to make any concessions, that often leads to a situation where the Seller has to make a tough choice:  adjust the purchase price down to the new appraised value or allow the buyer to walk away. If you have a buyer that's in love with the property and they are afraid they won't find another home as good as this one (because the market is strong and inventory is low) or they just happen to love your unique home, chances are we've had some success somewhere above in this list of options.  But if you have a buyer that is not totally in love with the home or they are getting cold feet or they just haven't had any luck with the options above, then they'll be asking you to lower the purchase price. Your options typically are to lower the price and proceed to closing or..... #6 - Move on to a new buyer It might be time to release this buyer to a new property and search for a new buyer.  If you're confident the home is worth the sales price and you just had a bad appraisal, this may be a viable option for you -- assuming you have time to put the house back on the market and look for a new buyer.  This again gives you a "second bite at the apple" where you'll end up with a new buyer, a new purchase price, and most importantly a new appraiser.

Other Tips and Tricks

After the regulatory changes arising from the 2008 market crash, mortgage companies can no longer hand pick the appraiser they want.  They have to randomly select from an approved list.  But they still have discretion on which appraisers they add to their list of approved appraisers.  In my experience, I've found that smaller banks, regional banks, or local credit unions all tend to have connections to appraisers that, on average, have a much better understanding of the local market and are more successful in getting a good appraised value.  Larger banks, in contrast, tend to be much more out of touch with what is going on locally.  This can make a huge difference. Also, when you let the appraiser into the property to do their inspection, use that opportunity to educate them on the property.  Point out any unique features, any upgrades, any selling points about the location, etc. Tell them anything they might not otherwise know or discover on their own.  Remember, no one knows this property better than you do.  Educate them so they can make the most informed decision when writing up their report.  Was it a multiple offer situation?  Did it sell over list price?  These are all critical factors your appraiser should know.

Can We Help?

If you need lender recommendations in the greater Des Moines area or assistance with your For Sale By Owner, we can help!  Please contact us at the red button above.  
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Tax Protest

Did Your Real Estate Taxes JUMP? Might Be Time to Protest!

A protest doesn't always have to mean an angry mob with pitchforks and signs airing their grievances.

In fact, when it comes to real estate taxes, the County expects people to protest each year and has set an entire procedure for it.  Are you taking advantage of it? This year, home value assessments in Polk County jumped about 8%.  That means some homeowners have seen their assessment go up 10% or higher!  We have many clients in that boat that have contacted us. So what can you do? We can assist with reviewing your situation to see if there are legitimate grounds to protest the assessment and get your value lowered.  There are several things we can look at which could form the basis for a successful protest. It's estimated that 8,000-9,000 residents just in Polk County will protest their valuations this year and somewhere between 50-60% will be successful in getting their value lowered by some amount.  So I suppose the glass is either half full or half empty depending on how you choose to look at things! If you want to file a protest, don't delay.  The deadline to file the written protest is May 1, and we recommend getting them in sooner.  The earlier it is filed, the earlier you are set for hearing.  And sometimes, we can even reach a successful resolution without a formal filing by speaking directly with the Assessor.  
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screen-shot-2016-04-12-at-8

How To Sell Your Home FSBO

What's a Fizbo Anyway?
FSBO stands for "For Sale By Owner" and it's very popular right now.  When selling their home, most people usually think they need to list it with a Realtor.  While Realtors can provide a great service, you simply may not need all the services they provide - and you may not want to pay their 6-7% fee either.  For a $250,000 house, a 7% commission is $17,500! That fee can be well deserved by a Realtor who finds a buyer in a tough market, but in a Seller's Market, home sellers may not need the marketing services of a Realtor.  They commonly find their own buyer -- pretty quickly too, sometimes!
Help!  I Found a Buyer, But I Don't Know What To Do Next.
This is where a real estate attorney comes in.  It may feel like the hard work is done once you find a buyer, but it's actually just beginning!  After finding a buyer, someone needs to draw up the Purchase Agreement (also called the "Offer" or "Purchase and Sale Contract").  If neither side has a Realtor, an attorney can draft one for you.  In fact, having a legal professional draft your Purchase Agreement will ensure it's done correctly and in your best interest. After that Purchase Agreement is signed, there is still a lot to do to get ready for the closing.  In Iowa, that list can include the following:
  • The Seller Disclosure Statement (should be signed with or before the Purchase Agreement)
  • Lead Based Paint Disclosure Form (if house is built before 1978)
  • Home Inspection
  • Radon Inspection
  • Wood Destroying Pest Inspection
  • Surveys
  • Abstract Update and Delivery to Buyer's Attorney
  • Title Opinion or Title Commitment
  • Form 1099-S
  • CMA
  • Time of Transfer Inspection for Septic Systems
  • Preparing the signing the Tax Proration Agreement
  • Preparing and signing Deed, Declaration of Value and Groundwater Hazard Statement
  • Holding and delivering earnest money
  • Delivering all documents to the closer
  • Reviewing and correcting any errors on the HUD/Closing Disclosure
That's a lot! And for the average person who might sell their house once every 5-7 years, it's likely not fresh on your mind from the last time you did it.  Or if it is, things many things have probably changed from that last time you sold. But your local real estate attorney is well versed in the process.  At Hubbard Law Firm, we typically have anywhere from 20-50 sales open at any given time where we are assisting the Seller with the items in the list above.
Real Estate Attorneys Ensure You Are Protected
You might also have noticed the list above looks different than what you might expect if you're from a state other than Iowa.  Iowa maintains a unique system, relying on abstracts and title work, while other states simply issue title insurance.  If you've sold property in a different state, you might find the typical things you're used to -- Escrow Companies and Title Insurance -- are very different in Iowa. An Iowa real estate attorney will make sure everything is done correctly and on time.  Nothing's worse than having a delayed or missed closing because the Seller missed one or multiple items in the list above. And we make sure your transaction meets the latest requirements and changing laws - like the new changes to the Declaration of Value Form, set to go into effect July 2016.  We watch out for these details so you don't have to.
Do You Need Help With Your FSBO?
If you're selling your home FSBO and could use some assistance, I'd love to help you out.  It's a fun part of my job to successfully get people to the closing table, whether they are buying or selling.  I would be happy to help you out and take the worry of a FSBO sale off your plate. And we are paid only at closing right out of the closing proceeds.  When else can you say you hired an attorney and never had to write them a check! If you need help with your sale, you can contact me through this website here or at my law firm's website here.  I look forward to helping you out!  
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dov-794x1024

New Declaration of Value Form

New Declaration of Value Released
If you haven't yet heard, the Iowa Department of Revenue has released a new Declaration of Value form, and it looks like this (click to enlarge): Declaration of Value The old Declaration of Value forms will continue to be accepted until July 1, 2016, but you can switch anytime now - the new form is already being accepted.
What Is a Declaration of Value Anyway?
You need to fill out and file a Declaration of Value any time you sell real estate in Iowa - with some exceptions.  This form tells the County Assessor and Treasurer's offices the sales price of the real estate.  That is used for several purposes at the county, including a factor in the assessed value and calculating transfer tax.
More Information
You can find more information from the Iowa Department of Revenue here. Learn more about selling property and the different kinds of deeds here and here. And learn more about the dangers of just "using a form" you don't understand here.
Can We Help?
This is just one requirement of items that need to be drafted, signed and recorded when you sell real estate in Iowa.  If you need assistance, give us a call and we'd be happy to help you through the process.
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legaldocuments

I Need a Legal Document, Will You Send Me A Form?

Legal FormNo. I'm tempted to just leave it at that, and claim the award for shortest blog post ever published at one word.  No, period.  But I suppose that wouldn't be very informative or exciting, so let's explore the rationale behind the answer.
Why Can't You Just Send Me Your Form?
There are many reasons, the first of which is that we don't just have a bank of forms sitting around that we pull up for each new legal situation.  Sure, in some cases we may start with a standard document for each situation.  If you need a Purchase Agreement, yes I have a standard document I maintain that I have drafted, enhanced and continued to modify over the years, designed to best protect your interest and incorporate new and changing laws and legal standards.  But it's not really a "form".  It's a document with multiple different provisions designed to apply to different situations.  I use some, I delete others.  I modify and amend some to custom fit your situation.  In the end, it looks very different from what you might call my "form".
We Provide a Service That is Much More Than Just Filling Blanks
When we draft documents for you, we're not just figuring out what information to put in each blank.  Sometimes, the blank shouldn't even be there.  Sometimes the language surrounding it needs re-written.  Sometimes, entirely new language needs to be added in.  Whatever attorney you hire to draft a document for you is constantly asking themselves these questions to make sure the document drafted meets your legal needs and best protects your interest.
Caution!
In each post, I like to add a section of cautionary warnings and things to watch out for.  This post is a caution in itself.  In addition to not providing forms ourselves, we strongly caution you against finding a form online.  If you're looking to just find some legal forms online and try to fill them out yourself, you are walking on dangerous ground.  I cannot tell you the number of times someone has called me to fix a situation that has gone bad, only to find out it was due to using a bad form, the wrong form, or a form filled out incorrectly -- and with no legal oversight.  Forms also don't evaluate the whole situation.  They don't tell you whether you also need other documents or need to take other steps or make other filings. And most of the time, you are not aware of the problems until it's too late.  The Will you drafted from an online form cannot be "fixed" after the person has died.  The Purchase Agreement you drafted from an online form can cause significant delays or loss of money at closing if it contains errors or thing you didn't understand.  The LLC document that you found online, may have state law specific to other states, or you may find it doesn't contain any of the protections needed to deal with disputes between owners.  By the time all owners are fighting and looking to dissolve the company, the language you needed isn't there and it's too late to add it in. The old adage is very true:  an ounce of prevention is worth a pound of cure.  Especially when it comes to important legal documents.
Some Things Are Not Meant for DIY
When you're sick, you don't write your own prescription.  When your hair needs cut, you probably don't try to do it yourself, unless of course you are the proud owner of one of these: Flowbee Legal documents are more important than your hair.  Making sure your Will is drafted correctly and properly witnessed and notarized is worth doing right.  Making sure the Purchase Agreement for the purchase or sale of your home (the largest transaction most people will do in their lifetimes) is worth having done professionally.
How Can We Help?
I usually end most posts by asking how I can help.  In this post, that's the entire message.  If you need legal documents, I'm happy to meet with you to find out exactly what you need and then draft the documents custom-fit to your situation.  You can contact me here.
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0d218d047c9c4306086acdf9f0a36d2a6b0ce82a

I Need a “Quick Claim” Deed, But What Is It?

DeedNot a "Quick Claim" Deed
We might as well get this out of the way right upfront.  Don't feel bad if you thought otherwise, but it's actually called a "Quit Claim" Deed not a "Quick Claim" Deed.  While that may sound funny, the name comes from the idea that the person transferring the property is "quitting" any rights they have to it.
Basics of a Deed
Let's back up even one more step.  What is a deed in the first place?  A deed is the legal instrument that actually transfers title of real estate (land/buildings) to a new owner.  In the State of Iowa, there are three main types of deeds:
  1.  General Warranty Deed
  2. Special Warranty Deed
  3. Quit Claim Deed
This post will focus mostly on the third category - the Quit Claim Deed. Unlike when you buy or sell a car, there is no physical "title" to real property.  With your car, someone (usually you or your lender) holds the physical "title" to the car.  With real estate, there is no physical title to hold. Instead, a Deed is recorded with the County Recorder's Office to make public record of the transfer of title in the real estate. The person transferring property is sometimes called the "Grantor" or "Vendor" and the person receiving the property would be the "Grantee" or "Vendee".  While it's important to know what those terms mean, when I draft documents I prefer to use common terms like "Seller" and "Buyer".  There no legal requirement to use archaic language, and I believe using common terms help improve all parties' understanding of legal documents.  But enough on that, we'll do a separate post on that topic in the future.
Differences in Deeds
The main differences in the three types of deeds listed above is whether they come with "warranties" of title.  As the names may imply, General Warranty Deeds and Special Warranty Deeds come with certain warranties of title - meaning the Seller is not only transferring the property they own, but warranting that they are transferring good and legal title, free and clear of certain liens and encumbrances.  General Warranty Deeds carry more and different warranties than a Special Warranty Deed. In contrast, a Quit Claim Deed contains no warranties of title at all - the Seller is merely transferring any interest in the property that he/she might have at the time of transfer.  That could be a full and valid title, or it could be nothing at all!
So Why Ever Use a Quit Claim Deed?
You might be wondering why anyone would ever want to use a Quit Claim Deed.  It might seem like an inferior product.  Indeed, in an arms-length sale between a Buyer and Seller, the final transfer of title should almost always be done with a Warranty Deed.  There are exceptions, but a Buyer would be well served to request a Warranty Deed and not a Quit Claim Deed at the time the property is transferred. But Quit Claim Deeds do serve many valid purposes.  They are often used in the following situations:
  1. To clear up title defects.  Sometimes, there are irregularities in the recorded title history of the property.  If wouldn't be appropriate to fix those with a Warranty Deed, but a Quit Claim Deed where someone declares to the world that they "quit" and transfer whatever interest they have in the property can  be a great way to clear up a nagging title problem.
  2. To change title in family situations.  Often, people will want to add or remove a spouse or other family member to title.  While a Warranty Deed could work, the commonly-preferred method is to use a Quit Claim Deed to change title without really changing ownership or possession.
  3. Retitling to an LLC.  Similar to #2 above, people will often want to transfer property into a separate LLC they have created.  A Quit Claim Deed is a quick and easy way to retitle the property.
Caution!
Remember one thing - a Quit Claim Deed will transfer whatever ownership interest you have in the property, but it does not affect any mortgages on the property.  In other words, say a husband and wife are on title to their home.  They get the bright idea to "Quit Claim" the wife off the property, thinking she will no longer be responsible for the mortgage payments to the bank.  The Quit Claim Deed will have no effect on the lending documents you signed with your lender.  If both spouses signed for the loan, removing one from title will not relieve them of making payments to the lender.  There are certain unique circumstances that can change that basic rule, but they are beyond the scope of this post. And perhaps even more importantly, using a Quit Claim Deed to add or remove people to title while there is a mortgage on the property could trigger a "Due on Sale Clause" in your mortgage.  Virtually every modern mortgage has a provision called a "Due on Sale" clause.  In essence, the provision states that if you "sell" or "transfer" the property, the lender can "call the loan" due and payable in full.  Of course, that would be a major problem for most people.  If you have a $250,000 loan balance on the property, most people could not write a check for that full unpaid balance if it were suddenly called due! While we caution all clients to be aware of this possibility, we have rarely (if ever) seen a Due on Sale clause enforced due to a the filing of a Quit Claim Deed.  There may also be additional legal arguments to make about whether that would be legal, equitable or truly enforceable by the bank in that type of situation.  That said, we always recommend out of an abundance of caution that if you wish you Quit Claim someone onto or off title to the property, that you notify your lender and receive their written consent first.
How Can We Help?
My posts on this blog are designed to introduce you to concepts and hopefully pull back the curtain a little bit on topics that can at first seem daunting.  But remember, each legal situation is different, and different facts can cause very different outcomes.  This blog is for informational purposes only, and we are not representing you or providing any person legal advice by this blog. If you need specific legal help, or want to add or remove someone from title, please Contact Me and I'd love to help you out.
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joint-tenancy

What is Joint Tenancy? Why Does It Matter?

Joint TenancyIf you've ever bought a house or looked into doing some estate planning, you may have heard the phrase "joint tenancy".  In this post, I'll cover what it means, why it matters and how it may affect you legally.
What is Joint Tenancy?
To begin, let's clear up some confusion with the phrase itself.  Although it refers to "tenancy", it's not talking about renting property.  To the contrary, it actually refers to a way of owning property.  In Iowa, there are two main ways for co-owners to take title to property:  (1) Tenancy in Common, or (2) Joint Tenancy.  Unless you take special action and use special language when you acquire property, the default form of ownership is Tenancy in Common. Let's start with Joint Tenancy so we can see what makes it special.  The main distinguishing feature is that Joint Tenancy has a "Right of Survivorship", meaning that when one Joint Tenant dies, the ownership of the property immediately passes to the surviving Joint Tenants - and NOT into the deceased person's estate.  This can be very helpful in some cases but perhaps the opposite of what is desired in others.  Because of this right of survivorship, you will often see Joint Tenancy referred to by its longer name "joint tenancy with right of survivorship" or abbreviated as "JTWROS". In a Joint Tenancy, each owner has an undivided ownership interest in the overall property, and those interests must be the same.   So if there are three owners holding title to a property as joint tenants, each must own an undivided 1/3 interest in the property. What does "undivided interest" mean?  It means that all owners have a fractional share of ownership in the total overall property, and not that John owns the south 1/3, Mary the middle 1/3 and Paul the top 1/3 for example.  As a practical matter, that means if John wants to sell his 1/3 interest, he cannot divide off a parcel of the property and sell it - he must either get his co-owners to sell along with him, or he must sell his undivided 1/3 interest in the overall property.
Ok, so what is Tenancy in Common?
Tenancy in Common, sometimes abbreviated as "TIC", is the other way for two or more people to hold title to property in Iowa.  The first main difference is there is no right of survivorship.  This means that if one co-owner dies, their interest does not go to the surviving owners but instead goes into their estate and is distributed to their heirs by the terms of their will (if they have one). The other main difference is that unlike joint tenancy, the ownership interests do not need to be equal.  In a TIC, John can own 50%, Mary 30% and Paul 20%.  But just like in joint tenancy, those are "undivided ownership interests" in the entire parcel.  So again, John would not own a particular 50% of the property, but instead an undivided 50% across the entire property.  As with our other example, if John wants to sell his ownership interest, he cannot divide off 50% of the property - he must either get his co-owners to sell along with him, or he must sell his undivided 50% interest in the overall property.
Which one do I want?  Which is best?
There is no one size fits all when it comes to selecting JTWROS or TIC ownership.  It depends on your particular facts and your particular goals.  It is good to consult with an attorney to see which best fits your particular situation. For example, take the familiar situation where a husband and wife own their home together.  They very commonly want to own the property as Joint Tenants so that when one dies their ownership interest automatically passes to the other.  That can provide for some probate time and expense savings.  There will still be a few filings you will need to make, and your attorney can assist you with those, but they will be less than if the property passes through probate.  In fact, joint tenancy was so commonly preferred for married couples that in 2014 the Iowa legislature updated the Iowa Code to provide that if the deed indicated the owners were married at the time they took title, then they would by default own as Joint Tenants and not Tenants in Common.  One note however -- the law is forward looking only and only applies to deeds filed on or after January 1, 2015. In a different example, say three college students purchase a house together to live in during college and to keep as a rental property after they graduate.  They would most likely prefer Tenants in Common so that if one were to die, their interest would not go to the other two friends but instead into their estate and then to their heirs.  Tenancy in Common would also work well for them if they each put up different investments and wanted to own different percentages (setting up an LLC would also be a great option, and we will cover that in a future post).  Tenancy in Common typically works well for owners who are unrelated or who may be related but are not necessarily each others natural heirs (brother/sister for example).
Caution!
As you can see from these examples, making the right decision can have a big impact on your assets and the assets passed to your heirs.  For example, say your will provides that your ownership in a piece of property is to be given to your nephew, however, you own that property as Joint Tenants with your spouse.  Even though you expressed your intent in your will to pass that to your nephew, it will not happen because immediately upon your death, the ownership passes to your spouse and it never enters your estate. Also, remember that it takes special language to create a Joint Tenancy.  In Iowa, that language includes "joint tenancy", "as joint tenants", "or their survivor" or an indication that the parties were married when they took title.  I often see people assume they own property in Joint Tenancy and even say as much only to find out later they were missing the magic language.
I've heard of Tenancy by the Entirety too, what's that?
Tenancy by the Entirety is a third form of co-ownership of property, but it is not recognized in Iowa.  In other states where it is recognized, it is very similar to Joint Tenancy and typically applies only to married couples.  In those states, it usually carries special protections for one spouse against creditors of the other spouse.
How do I change my ownership?
After reading this post, you may discover you own property as Tenants in Common and want to switch it to Joint Tenancy -- or vice-versa.  The good news is that as long as all owners are still alive and willing and able to cooperate, it is an easy and relatively inexpensive thing to do.  The process typically involves filing a Quit Claim Deed.
How can we help?
If you're looking for any assistance in this area, you can reach me at 515-222-1700 or email me through the Contact Me form on this Blog or find me at my law firm, Hubbard Law Firm, P.C.  We are happy to review any documents you may have, answer questions and/or assist you with retitling property if needed.
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 I am an attorney with Hubbard Law Firm, P.C. in Urbandale, Iowa.  

You can reach me at:

phone 515-222-1700 

mail chris@amhlawfirm.com

location Our address is 2900 100th St., Suite 209, Urbandale, IA 50322

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