Texas-Housing-Insight-Graphic

Texas Housing Insight – October 2020

by Real Estate ArticlesResourcesTitle Information

Total Texas housing sales increased for the second consecutive month, rising 5.1 percent to exceed 38,600 seasonally adjusted transactions. Historically low mortgage interest rates contributed to robust demand, pulling the state’s average days on market to a record low of 48 days. Building permits and housing starts suggested construction activity will pick up in the coming months, but current inventory is extremely depleted, and bank loan data indicated residential investment slowed during the third quarter. With homes flying off the shelf at the present rate, the housing supply would last just 2.1 months if no additional listings entered the market. Constrained inventory contributed to double-digit growth in the median home price as the composition of sales shifted toward higher-priced houses. The Real Estate Center’s Repeat Sales Home Price Index also accelerated, albeit at a more moderate pace, threatening recent improvements in affordability. The pandemic and the associated economic uncertainty remain the greatest headwinds to the Texas housing market, and survey data indicated the proportion of Texas mortgagees at risk of foreclosure in the coming months increased relative to the prior month. Moreover, the Real Estate Center projects a step back in single-family sales during November.

Supply1

The Texas Residential Construction Cycle (Coincident) Index, which measures current construction levels, flattened as industry wages and construction values moderated, offsetting a modest uptick in employment. The Residential Construction Leading Index rose for the sixth straight month amid increased housing starts and a decrease in the real ten-year Treasury bill, although multifamily building permits stumbled. At the metropolitan level, the leading indexes also trended upward.

Recently released third-quarter private bank loan data revealed a slowdown from last year’s rapid clip as lending standards continued to tighten during the pandemic and an uncertain economic outlook. Loan values for multifamily properties flattened in 3Q2020 while one- to-four-unit investment declined for the second straight quarter, sinking 6 percent quarter over quarter.

On the bright side, single-family construction permits accelerated 6 percent in October, marking the sixth straight monthly increase after the previous month’s reading was revised upward. Houston topped the list, issuing 4,492 nonseasonally adjusted permits, followed by Dallas-Fort Worth with 4,243 permits. The metric in Central Texas reached 2,019 and 1,064 in Austin and San Antonio, respectively, pushing monthly growth to nearly 10 percent after adjusting for seasonality. On the other hand, Texas’ multifamily permits fell 6.3 percent year-to-date (YTD) compared with the same period last year due to a considerable step back in the volatile apartment sector. Issuance for two-to-four-unit buildings, however, posted an all-time high of 1,083 nonseasonally permits, largely due to new duplex developments in North Texas.

Total Texas housing starts extended an upward trajectory, although the rate of increase slowed to 2.3 percent as lumber prices were one-and-a-half times greater than year-ago levels. The Department of Commerce recently lowered lumber tariffs from 20 to 9 percent, however, which should help reduce homebuilder costs in the new year. Meanwhile, single-family private construction values continued to normalize from record-breaking activity in August, but the trend also remained positive. More than half of the monthly decrease was attributed to DFW, where values sank 14.1 percent following three consecutive improvements. The other major metros posted more moderate declines, falling about 4 percent in both Austin and Houston and 2.9 percent in San Antonio.

Record sales chipped away at the state’s supply of active listings, pulling Texas’ months of inventory (MOI) down to an all-time low of 2.1 months. A total MOI around six months is considered a balanced housing market. Inventory for homes priced less than $300,000 was even more constrained, sliding below 1.6 months. The MOI for luxury homes (homes priced more than $500,000), although elevated at 5.2 months, decreased for the fifth straight month as the influx of new listings slowed.

Inventory dropped to unprecedented levels in the major metros as well, with the metric in San Antonio matching the statewide average. The MOI dipped to 1.7 and 1.5 months in Dallas and Fort Worth, respectively, and sank to one month in Austin. Houston’s MOI fell below 2.5 months, although inventory increased for homes priced between $400,000 and $500,000, the only segment in the state’s major metropolitan areas where supply expanded.

Demand

Total housing sales rose 5.1 percent, pushing activity to an all-time high of more than 38,600 transactions during this period of historically low mortgage interest rates. The increase was concentrated in homes priced more than $200,000, which comprised nearly four-fifths of the market, the greatest share yet. Cumulative sales this year exceeded last year’s ten-month sum by 7.5 percent compared with 4.9 percent nationwide. The current rate of sales, however, is likely unsustainable given Texas’ depleted inventory.

Sales volumes in the major metros also expanded, led by Houston, where the metric surged 6.5 percent with growth across the price spectrum. Austin sales climbed 5.8 percent as YTD activity in the luxury home market accounted for 23 percent of total transactions compared with just over 18 percent last year. In North Texas, the metric improved 4.5 and 4.2 percent in Dallas and Fort Worth, respectively. San Antonio’s sales ticked up by a more modest 2.9 percent as the $400,000-$500,000 price cohort stumbled on the month.

Texas’ average days on market (DOM) slid to an all-time low of 48 days, corroborating robust demand despite the pandemic. Houston and San Antonio also posted unprecedented readings, with the metric dropping to 45 and 51 days, respectively. Austin’s DOM reached a post-Great Recession low of 35 days, while the average home sold after 36 days in Fort Worth and 39 days in Dallas.

Expansionary monetary measures by the Federal Reserve and better-than-expected economic data instilled confidence in the bond market, however modest. The ten-year U.S. Treasury bond yield inched up for the third straight month to 0.8 percent2. On the other hand, persistent uncertainty surrounding the pandemic, due to a dubious timeline for a second round of fiscal stimulus and a resurgence in positive COVID-19 cases, kept interest rates hovering at historically low levels. The Federal Home Loan Mortgage Corporation’s 30-year fixed-rate fell to an unprecedented reading below 2.8 percent (series starting in 1971). Mortgage rates also slid to decades-low levels within Texas during September, sinking to 2.92 and 2.86 percent for non-GSE and GSE loans3, respectively. The drop in rates pushed home-purchase applications up 17.5 percent YTD in October, while refinance activity advanced 73 percent. (For more information, see Finding a Representative Interest Rate for the Typical Texas Mortgagee.)

In September, the median loan-to-value ratio (LTV) and debt-to-income ratio (DTI) for the “typical” Texas conventional-loan mortgage decreased from 87.4 to 86.9 and 36.8 to 36.4, respectively. Meanwhile, the median credit score stabilized at 743 after reaching a three-decade high of 751 in June when average consumer credit scores rose during the pandemic due to early relief actions taken by the federal government and lenders, which helped some households pay off debt and save money. The median LTV of the typical Texas borrower who obtained a loan from a government-sponsored enterprise (GSE) declined from 84.8 to 83.7. The overall trend of improved credit profiles may reflect tightening lending standards as economic uncertainty prevails.

Prices

The Texas median home price accelerated 12 percent year over year (YOY) in October to a record-breaking $273,300. A shift in the composition of sales toward higher-priced homes due to constrained inventories at the lower end of the price spectrum contributed to the increase in prices. Annual price growth tipped into the double-digits at the metropolitan level as well. The median price in Austin and Dallas rose almost 13 percent each to $366,600 and $330,500, respectively. San Antonio’s metric ($259,500) jumped 10.7 percent, while Houston’s median price ($269,300) elevated 10.3 percent. Fort Worth had the smallest home price appreciation, growing  9.1 percent to $272,600. 

The Texas Repeat Sales Home Price Index accounts for compositional price effects and provides a better measure of changes in single-family home values. The index suggested more moderate home-price appreciation than the change in the median price, although it still shot up 6.9 percent annually. Out of the major metros, Austin’s metric rose at a pace closest to its home-price growth, soaring 11.6 percent YOY. The index in San Antonio and Fort Worth climbed 7.4 and 7.0 percent, respectively. The Dallas and Houston indexes grew at a more moderate but still impressive clip, increasing 6.6 percent in the former and 4.8 percent in the latter.

Single-Family Forecast

The Real Estate Center projected single-family housing sales using monthly pending listings from the preceding period (Table 1). Only one month in advance was projected due to the uncertainty surrounding the COVID-19 pandemic and the availability of reliable and timely data. Texas sales are expected to decline 2.3 percent in November from October, but the YOY comparisons for the first ten months of the year are significantly positive. On a monthly basis, the metric in DFW may decrease 4 percent, while possibly falling 2.1 and 1.6 percent in Houston and Austin, respectively. San Antonio sales are predicted to post a monthly increase of 2.5 percent.

Household Pulse Survey

According to the U.S. Census Bureau’s Household Pulse Survey, 8 percent of Texas homeowners were behind on their mortgage payments during October, greater than the national rate of 6 percent (Table 2). Although the proportion of homes owned free and clear in DFW and Houston was greater than the state average, the percentage of households delinquent was also higher than the statewide rate. Twenty-nine percent of the respondents in Texas who were not current expected foreclosure to be either very likely or somewhat likely in the next two months compared with just 19 percent nationwide (Table 3). That same metric was also higher in the state’s largest metro areas, a reversal from the prior month. Currently, the Center for Disease Control’s federal foreclosure moratoriums are in place until Dec. 31, 2020. However, the Federal Housing Finance Agency has extended the foreclosure moratorium for properties owned by Fannie Mae and Freddie Mac (the Enterprises) until Jan. 31, 2021. Continued stability in the housing market is essential to Texas’ economic recovery.

________________

1 All measurements are calculated using seasonally adjusted data, and percentage changes are calculated month over month, unless stated otherwise.

2 Bond and mortgage interest rates are nonseasonally adjusted. Loan-to-value ratios, debt-to-income ratios, and the credit score component are also nonseasonally adjusted. Texas data typically lags the Texas Housing Insight by one month.

3 GSE loans originated during September 2020 are unrestricted based on debt-to-income ratio.

Source – James P. Gaines, Luis B. Torres, Wesley Miller, Paige Silva, and Griffin Carter (December 14, 2020)

https://www.recenter.tamu.edu/articles/technical-report/Texas-Housing-Insight

Closing-Time-6-Steps-Every-Homeowner-Should-Expect

Closing Time: 6 Steps Every Homeowner Should Expect

by Real Estate ArticlesResourcesTitle Information

Get owner’s title insurance and buy your home with confidence

Your long home-buying journey is almost over. You found the home you love, the seller agreed to your offer and now it’s time for closing. Of course, there’s a lot to think about right now, and the last thing you want is something­ to go wrong. So make sure you work with an experienced closing agent to help ensure the details come together and everything runs smoothly.

As soon as the seller accepts your offer, the behind-the-scenes work begins. You can expect closing to happen within 30 to 90 days.

 1.    Select a Closing Agent

If you are working with a real estate agent, with your permission, he or she may place an order with a closing agent/title company as soon as your sales contract is accepted.

Most homebuyers rely on their real estate agent to select a closing agent—someone they work with regularly and know to be professional, reliable and efficient. However, you can choose your own closing agent if you wish. The closing agent will oversee the closing process and make sure everything happens in the right order and on time, without unnecessary delays or glitches.

2.    Contract + Earnest Money Delivery

Once your contract has been signed by all parties it is then delivered to the closing agent/title company of your choice.  The closing agent reviews the contract for completeness.   The agent will also deposit your earnest money into an escrow account, where the funds will remain until closing.

3.    Title Search is Conducted

Once the title company receives your contract, the title company conducts a search of the public records. This should identify any issues with the title such as liens against the property, utility easements, and so on.  After the title search is complete, the title company will provide you with a title commitment.

4.    Title Insurance

There are two kinds of title insurance coverage: a Lender’s policy, which covers the lender for the amount of the mortgage loan; and an Owner’s policy, which covers the homebuyer for the amount of the purchase price. If you are obtaining a loan, the bank or lender will typically require that you purchase a Lender’s policy. However, it only protects the lender.

It is always recommended that you obtain an Owner’s policy to insure your investment. The Seller generally pays for the Owner’s policy and the Buyer generally pays for the lender’s title policy.

5.    Obtain a Closing Disclosure

Your lender or the closing agent will provide a Closing Disclosure to you at least three days prior to closing that will show all of the charges and credits and what amount you have to bring to closing.  Please note that any amount over $1,499.99 must be sent to the closing agent by wire transfer or cashiers check.

If you or your lender makes certain significant changes between the time the Closing Disclosure form is given to you and the closing, you must be provided a new form and an additional three-business-day waiting period after receipt of the new form. This applies if the creditor:

  • Makes changes to the APR above ⅛ of a percent for most loans (and ¼ of a percent for loans with irregular payments or periods)
  • Changes the loan product
  • Adds a prepayment penalty to the loan

If the changes are less significant, they can be disclosed on a revised Closing Disclosure form provided to you at or before closing, without delaying the closing.

6.    The Finish Line: Prepare for Closing

As closing day approaches, the closing agent orders any updated information that may be required. Once the closing agent confirms with the lender and the seller, he or she will set a final date, time and location of the closing.

On closing day, all of the behind-the-scenes work is complete. While you’ve been busy packing, ordering utilities and coordinating the movers, your closing agent has been managing the closing process so that you can rest assured, knowing all the paperwork is in order.

 

This is a brief description of insurance coverages, products and services and is meant for informational purposes only. Actual coverages may vary by state, company or locality. You may not be eligible for all of the insurance products, coverages or services described in this advertising. For exact terms, conditions, exclusions, and limitations, please contact a title insurance company authorized to do business in your location.

What Every REALTOR® Should Know About Owner’s Title Insurance

by Real Estate ArticlesResourcesTitle Information

Make sure all of your clients are protected

You’re a real estate agent, so you know that buying a home can be overwhelming for many of your clients. Homebuyers can easily feel confused and frustrated by the mounds of paperwork they have to sign. Plus, all the fees associated with closing can sometimes be a surprise even to an experienced buyer.

Owner’s title insurance is one of those items often misunderstood by homebuyers at closing, yet its value is tremendous. As an important advisor to your clients, you are in the position to help them understand the value of owner’s title insurance and the dangers that can be incurred without it. 

What is title insurance?

Owner’s title insurance is a policy that protects homebuyers’ property rights. For the same reasons that the bank requires a lender’s insurance policy, a homebuyer obtains owner’s title insurance to protect their legal claims to the property. 

How it protects your clients

Say, for example, your client recently purchased a new home from a builder, but the builder failed to pay the roofer. Wanting to be paid, the roofer filed a lien against the property. Without owner’s title insurance, your client would be responsible for paying this existing debt—meaning they’d be paying the roofer out of pocket instead of purchasing something nice for their new home, like new living room furniture. This is just one example of how owner’s title insurance protects homebuyers’ from various significant risks. With owner’s title insurance, your client would be protected from certain legal or financial responsibilities.

Enduring value

The good news is that owner’s title insurance protects homebuyers, as long as they or their heirs* own the home. For a low, one-time fee, homebuyers can know they are protected from inheriting existing debts or claims to their property.

State regulations and CFPB

In Texas, title insurance is regulated by the Texas Department of Insurance. In addition, the Consumer Financial Protection Bureau (CFPB) regulates closing and settlement practices which can impact title insurance. Keep in mind that title insurance industry practices vary due to differences in state laws and local real estate customs.

Free resources for Realtors®

Together, real estate agents, land title insurance professionals and other stakeholders involved in real estate transactions can provide homebuyers with the protection they deserve during the home closing process.  For more resources relating to title insurance and the homebuying process, visit: www.republictitle.com/residential-resources

*This advertising offers a brief description of insurance coverages, products and services and is meant for informational purposes only. Actual coverages may vary by state, company or locality. You may not be eligible for all of the insurance products, coverages or services described in this advertising. For exact terms, conditions, exclusions, and limitations, please contact a title insurance company authorized to do business in your location.

eClosing 101: Hybrid, In-Person and Remote Online

by Digital SettlementResourcesTitle Information

Broadly speaking, eClosings fall along a continuum that include three basic types – hybrid, in-person, and remote online. These methods incorporate varying amounts of the eClosing elements. In today’s blog, Dennis Pospisil, Senior Vice President/Digital Settlement and Signing Services, breaks down the different types of eClosings.

Hybrid eClosing “Hybrid” (“procedural” documents only closing) – At the low-end of the spectrum is the Hybrid or procedural documents only eClosing. This “entry-level” eClosing only involves electronic documents that do not need to be notarized or recorded, such as loan disclosures and settlement statements. The remainder of the closing takes place in a traditional manner.

All parties appear in person at the closing table, but some documents are signed electronically and some, typically collateral, notarized, and witnessed loan documents are wet signed. For documents that are electronically signed, generally one electronic signature is applied across all documents. Hybrid eClosings are the most popular and most widely used type of eClosing.

In-Person eClosing In-person – The middle-tier approach to eClosing involves electronically recording electronic documents with electronic signatures and electronic notarizations.  The closing takes place in-person utilizing a shared computer or tablet.

All parties appear in person either at the settlement agent’s office or in the presence of a mobile notary, and all documents are both signed and notarized electronically. Very few closings are full eClosings because a large percentage of lenders are not ready to have the note electronically signed.

Remote Online eClosing Remote Online eClosing (“RON”) is a new, technology-driven notarial process that allows the signer to appear before the notary over a live audio-video feed when executing digital documents.

Click here if you would like more information on our digital settlement services.

The FAQs of Title Insurance for Homebuyers

by Real Estate ArticlesResourcesTitle Information

For most of us, a home is the largest investment we’ll make in our lives. To buy with confidence, get owner’s title insurance. It’s the smart way to protect your property from legal claims. To help you understand how owner’s title insurance works, here are answers to common questions.

What is title?

Title is your right to own or use your property. Title also establishes any limitations on those rights.

What is a title search?

A title search is an early step in the homebuying process to uncover issues that could limit your rights to the property. After the title search is complete, the title company can provide a title insurance commitment and then, after any requirements are met and closing occurs, a title policy.

What is title insurance?

If you’re buying a home, title insurance is a policy that protects your investment and property rights.

There are two different types of title insurance: an owner’s policy and a lender’s policy.

  1. An owner’s policy is the best way to protect your property rights. Either the buyer or seller may pay for this policy. Ask your title professional how it’s handled in your area.
  2. A lender’s policy is usually required by the lender and only protects the lender’s financial interests. The buyer typically pays for this policy, but that varies depending on geography. Ask your title professional how it’s handled in your area.

Why should I purchase owner’s title insurance?

Owner’s title insurance protects your investment in your property from certain future legal claims regarding ownership of, or liens on, your property. For a one-time fee, you and your heirs* receive coverage for as long as you own your home. The owner’s policy also covers potential legal fees and court costs for settling claims covered by your policy.

What does owner’s title insurance cover?

Sometimes undiscoverable defects can come up after the title search. Under an owner’s title insurance policy, you are protected against certain undiscovered errors in the title.

Title issues include unknown:

  • Outstanding mortgages and judgments, or a lien against the property because the seller has not paid his taxes
  • Pending legal action against the property that could affect you
  • Unknown heir of a previous owner who is claiming ownership of the property

Unforeseeable title claims include:

  • Forgery: making a false document
    • For example, the seller misrepresents the identity of the person who sold the property.
  • Fraud: deception to achieve unfair gain
    • For example, someone steals your identity and either sells your house without your knowledge or consent, or takes out a second mortgage on the property and walks away with the money.
  • Clerical error: inconsistent paperwork and historical records
    • For example, an unforeseeable discrepancy in the property or fence line can cause confusion in ownership rights.

What does owner’s title insurance cost?

The one-time payment for owner’s title insurance is low relative to the value of your home. In Texas, rates are based on the sales price of the property and are set by the Texas Department of Insurance. You can calculate title insurance premium rates using the insurance calculator found on our website.

How long am I covered?

Your owner’s insurance policy lasts for as long as you or your heirs* own your property. Your life will change over time, but your protection never will.

What happens at closing?

Closing is the final step in executing the homebuying transaction and involves signing the documents that allows the creation of your new loan (if applicable), and transfer of ownership to occur. Upon completion of the closing and funding process, you get the keys to your home!

 

*This offers a brief description of insurance coverages, products and services and is meant for informational purposes only. Actual coverages may vary by state, company or locality. You may not be eligible for all of the insurance products, coverages or services described in this advertising. For exact terms, conditions, exclusions, and limitations, please contact a title insurance company authorized to do business in your location.

Helpful Terms for Buying/Selling Your Home

by Real Estate ArticlesTitle Information

Buying or selling a home is one of the most important undertakings of a lifetime. When buying or selling a home, there are many real estate terms that may be unfamiliar to you. Check out this list of commonly used terms that you may find helpful during the process.

AIR:  Adjustable Interest Rate

AMORTIZATION SCHEDULE: A schedule showing the principal and interest payments throughout the life of the loan.

APPRAISED VALUE: An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc. of the property and surroundings.

CD/CLOSING DISCLOSURE: This form is a statement of final loan terms and closing costs. Sometimes referred to as ICD or Integrated Closing Disclosure.

COMMITMENT:  The document by which a title insurer discloses to all parties connected with  a particular real estate transaction all the liens, defects, and burdens and obligations that affect the subject property.

CREDIT REPORT: A report on the past ability of a loan applicant to pay installment payments.

DOCUMENT PREPARATION FEE: A charge by an attorney for preparing legal documents for transaction.

ESCROW FEE: A fee charged by the title company to service the transaction, to escrow monies, and cover documents. Usually split between buyer and seller.

ESCROW ACCOUNT: Funds held by the lender for payment of taxes and insurance when due. Usually does not include maintenance fees.

HOA ASSESSMENT FEES: Charged by the homeowner’s association as set out in subdivision restrictions.

HOMEOWNER’S INSURANCE:  Protects the property and contents in case of loss; must be for at least the loan amount or for 80% of the value of the improvements, whichever is greater.

INSPECTIONS: An examination of property for various reasons such as termite inspections; to see if required repairs need to be made before funds are received, etc.

INTEREST: Money paid regularly at a particular rate for the use of money lent.

LOAN TITLE POLICY: Required by the lender to insure that the lender has a valid lien; does not protect the buyer.

ORIGINATION FEE:  A fee the buyer pays the lender to originate a new loan.

OWNER’S TITLE POLICY: Insures that the buyer has title to the property, that there are no other claims as to ownership. Among other matters, it also insures access to the property, the right to occupy the property, good and indefeasible title, and that there are not other types of specific liens against the property. 

POINT:  1% of the loan amount.

PREPAIDS: Items to be paid by the buyer in advance of the first scheduled payment of the loan (Homeowner’s Insurance Premium, Mortgage Insurance Premium, Prepaid Interest, Property Taxes and a maximum of three additional items).

PREPAYMENT PENALTY:  Charged by the lender for premature payment of a loan balance.

PRIVATE MORTGAGE INSURANCE: Insurance against a loss by a lender (mortgagee) in the event of default by a borrower (mortgagor).

REALTOR FEES:  An amount paid to the REALTOR® as compensation for their services. RECORDING FEES: Charged by the County Clerk to record documents in the public records. RESPA:  Real Estate Settlement Procedures Act.

RESTRICTIONS: Certain limitations or conditions related to the future use of the property put on the property by a prior owner. These restrictions stay with the property until they expire or are amended as per certain procedures set forth in the restrictions.

SURVEY:  Confirms lot size and any encroachments or restriction violations.

TAX CERTIFICATES: Certificates issued by taxing authorities showing the current year’s taxes, the last year the taxes were paid, and any delinquencies to be collected at closing.

TAX PRORATION: Means that the payment of the taxes for the year of sale are divided between the Buyer and Seller, usually based on the amount of time the Seller owned the property during that year. Prorations, and how they are calculated, are typically addressed in the Contract of Sale.

TIL:  Truth in Lending.

TIP: Total Interest Percentage; the total amount of interest the borrower will pay over the loan term as a percentage of the loan amount.

TOTAL OF PAYMENTS: Total amount paid after all payments of principal, interest, mortgage insurance and loan costs are scheduled. 

To download our Helpful Terms for Buying/Selling Your Home flyer,  visit Helpful Terms for Buying and Selling Your Home.

Definitions and Rules of a Deferred 1031 Exchange

by Inside Republic TitleResourcesTitle Information

1031 Exchange
An event where a taxpayer exchanges or trades real property held for investment or used in a trade or business for other real property and defers the capital gains tax on the transaction.

Tax Deferred
The capital gains tax which would have been paid on the sale of the real property is not paid but is deferred to be paid at a later time when the property traded for is sold in a non-exchange sale.

Property Held for use in a Trade or Business
Any real property used by a taxpayer in its business. This could be an office building, warehouse, ranch, shop, garage, farm, etc.

Investment Property
This is real estate purchased to produce an investment income or an investment gain on resale. It can include, but is not limited to apartments, a rent house or raw land.

Like-Kind Property
In the exchange world, “like-kind” does NOT mean you must exchange an apartment project (investment property) for another apartment project, or raw land for raw land, it means that you must exchange real estate for real estate. This permits, within the categories of “held for investment” or “used in your trade or business”, the exchange of apartments for land, or office buildings for apartments, etc., as long as the old properties sold and the new properties acquired are either held for investment or used in a trade of business. The property sold and the property acquired do not have to be exactly alike, they just have to be real estate and fall in the category of “held for investment” or “used in your trade or business”.

Relinquished Property
Relinquished Property is the real estate held for investment or use in your trade or business which is sold or “relinquished”. Think of the Relinquished Property as the property being sold and the Replacement Property as the real property being acquired.

Replacement Property
Replacement Property is the real estate acquired by the taxpayer/seller in a 1031 exchange as replacement for the relinquished property.

Exchange Proceeds
The cash received by the Qualified Intermediary through the sale by the taxpayer of the Relinquished Property and any debt paid on the property sold. In order to defer all of the tax on a sale you must spend all of the cash proceeds received or more if you want to and you must borrow the same amount of money or more if you need or want to that was used to pay off any loan or loans on the property sold. You will pay the tax on any cash proceeds not used to buy Replacement Property or any loan paid off in your sale that was not replaced with same or greater payoff amount of loan on the Replacement property.

The 45-Day Rule
You must identify by written notice (signed by you) to your Qualified Intermediary the Replacement Property or Properties (you can identify more than one possible Replacement Property) you want to buy within 45 days after you close the Relinquished Property. Do not count the date of closing; count 45 days after the closing date and that is the end of the “Designation or Identification Period” – the true end, whether it’s a Saturday, Sunday or any legal holiday. Better get this part completed on that date as a minimum. Before that date is better. After that date, your exchange may be disqualified.

The 180 Day Rule
You must close, fund, and acquire (do it all) the Replacement Properties within 180 days after you close the Relinquished Property. Do not count the date of closing; count 180 days after the closing and that’s the “drop-dead” date to completely acquire the Replacement Property – the true end, whether it’s a Saturday, Sunday or any legal holiday. Better complete this part on this day as a minimum. Before that date is better. After that date, your exchange may be disqualified.

Three Property Rule
Try to designate three Replacement Properties or less to purchase, generally, because if you stay with three or less, you don’t have to worry with anything other than being sure it is like-kind property. If you designate four or more, then you must deal with the “200% Rule”.

The 200% Rule
This rule only comes into play if you designate more than three properties as possible Replacement Properties. If you do, add up the “fair market values” of all the properties designated and be sure that this aggregate number is not more than the gross sales price of the Relinquished Properties times 2. If it is more and you don’t fall within the “95% Rule”, your exchange is outside the safe harbor and may fail.

 The 95% Rule
This is an exception to the consequences of violating the 200% Rule, which applies if you violate the “Three Property Rule”. If your sum of the fair market values of more than three Replacement Properties is greater than two times your sales price of the Relinquished Property, you are still “safe” if you acquire 95% in value of these designated properties, which means that you really need to buy all of the Replacement Properties you designated.

Exception to the 180 Day Rule
You don’t get 180 days to complete the exchange if you have to file your Federal income tax return for the year in which your relinquished property sold before the 180th day. If your tax return for the year in which your relinquished property sold is due on April 15th and your 180th day falls in May, you have to complete your acquisition of the replacement property before April 15th even if there are more days left in the 180 day time frame. BUT, if you file an extension to your tax return, then this exception doesn’t apply. Remember to file the extension if you are in this situation.

Direct Deeding
1031 Exchange allow Direct Deeding, making it all much simpler. In previous years, the exchange taxpayer deeded the property to be sold to the Qualified Intermediary who would then deed to the buyer of the Relinquished Property, and the seller of the Replacement Property would deed to the Qualified Intermediary who would deed to the exchange taxpayer. You don’t have to do this anymore. You can deed the Relinquished Property directly to your buyer, and receive the Replacement Property deed direct from the seller.

For more information on 1031 Exchange, please reach out to our Texas Escrow Company team:

Bill Kramer
Executive Chairman
214.855.8850
[email protected]

Helen Wooten
Exchange Assistant
214.855.8879
[email protected]

Disclaimer: This information is a summary of some of the common terms involved with 1031 deferred tax exchanges. Do not rely on this summary alone to make an exchange decision, or think that there isn’t much more involved than what is described in these simple definitions. Exchange decisions should be based on conversations with a tax advisor, an accountant, a Qualified Intermediary, and a tax attorney.

Top 5 Reasons to Refinance Your Home Right Now

by Real Estate ArticlesResourcesTitle Information

With interest rates at all-time lows, now is the time to consider refinancing.  Did you know there are title policy discounts available to some homeowners when refinancing?  There is! Here are the top 5 reasons to refi now.

LOW RATES

Mortgage interest rates are at an all time low and are currently averaging at 3.25% but can be as low as 2.5% for some!

SAVE MONEY

Securing a rate 1-2% lower than your current mortgage can save you hundreds of dollars a month.

PAY DOWN / PAY OUT

Alleviate the burden of high interest debt by refinancing your loan with a new, lower rate or shorter term loan to potentially save thousands of dollars over the course of your loan.

AVAILABLE TITLE POLICY CREDITS

If the loan you will be refinancing is a previously insured loan that is less than 4 years old you may be entitled to a 50% credit on the cost of the new title policy. If the loan being paid off is between 4 and 8 years old you may be entitled to a 25% credit on the cost of the new title policy.

REMODEL OR MAJOR ONE-TIME PURCHASE

Take advantage of the equity you have in your home to
take out a home equity loan for that remodel you’ve been
thinking about for years or for a major one-time purchase.

For more information on refinancing, or to discuss your options contact your local lender.  If you have questions about title insurance and fees contact your local Republic Title Office.

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Spotlight On: Texas Escrow Company

by Inside Republic TitleResourcesTitle Information

If you have real property for sale, which is used in your trade or business, or is held for investment, you may be eligible to defer the capital gains tax when the property is sold by utilizing a deferred 1031 Exchange. In order to receive this tax treatment, you should contact a Qualified Intermediary, like Texas Escrow Company, a subsidiary of Republic Title of Texas, Inc., and complete the documentation necessary to create your exchange before you close the sale of your property.

The property sold needs to be real estate that you have held for investment or used in your trade or business, such as an office building or rent house. Vacation homes for your personal use, or your personal residence, do not qualify for this tax treatment. You should consult your accountant or attorney for advice on the utilization of a 1031 Exchange, especially if your accountant files your income tax return. It is important that the person filing your income tax return agrees that the exchange achieves the tax deferral you want. Your accountant can also estimate the tax payable on your sale so you can evaluate whether you want to do a 1031 Exchange. The 1031 Exchange only defers the capital gains tax (long or short term) on the sale of real property by purchasing replacement real property of an equal or greater value than the property sold.

Using exchange funds to purchase like-kind replacement real property for an investment, or use in your trade or business, and then later selling that replacement property in another 1031 Exchange to purchase other replacement property, will continue to defer the capital gains tax, plus any additional gain that might accrue by virtue of an increased value of the replacement property. In many cases, once you start exchanging real property, you need to continue using 1031 Exchanges to purchase real property if you wish to continue deferring the capital gains tax. When you sell the replacement property without using a 1031 Exchange, capital gains taxes will be due.

We suggest that you review the supplemental Definitions and Rules of a Deferred 1031 Exchange which is written in easy to understand language to familiarize yourself with some of the terms and rules, that are involved in a 1031 Exchange. All the definitions and rules of a deferred 1031 Exchange should be discussed with your tax advisor, accountant, attorney and a Qualified Intermediary before you do any exchange transaction. The rules encompass all kinds of situations and we repeat that it is imperative to consult with your tax advisors and a Qualified Intermediary about the transaction you have in mind before you sell and, in some cases, before you even contract to sell.

For more information on 1031 Exchange, please reach out to our Texas Escrow Company team:

Bill Kramer
Executive Chairman
214.855.8850
[email protected]

Helen Wooten
Exchange Assistant
214.855.8879
[email protected]

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Republic Title completes their 100th RON in 2020

by Digital SettlementResourcesTitle Information

Republic Title is proud to announce that we have completed 100 Remote Online eClosings in 2020.

What is a Remote Online eClosing and how does it work? 

Remote Online eClosing takes place…wait for it…online! The signer and the notary need not be in the same room, or even in the same state!

This type of eClosing allows all parties to be remote and perform the closing through videoconference via a webcam. All documents are signed and notarized electronically during the videoconference. This is the most highly regulated type of eClosing, and special commissions are required to electronically notarize documents. Remote online eClosings are very popular and useful for the seller side of the transaction since, in most cases, there are no loan documents involved for the seller.

Republic Title has completed these 100 Remote Online eClosing through eVolve, our newest digital settlement and signing services division, which provides an alternative closing experience for sellers, buyers and real estate agents.  eVolve’s approach is to provide a completely digital real estate closing process from start to finish, through the delivery of title and escrow services by way of secure collaboration and Remote Online eClosings.

eVolve has been operating in the Dallas/Fort Worth, Texas market for the past 12 months and will allow Republic Title to handle digital transactions in every major market in Texas (including Austin, San Antonio and Houston).