Commercial Real Estate Blog by Madison

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Real Estate Trends

Potential Pitfalls in DIY Deals in Real Estate

By Elliot Zaks, Principal, Madison Commercial Real Estate Services

Do-it-yourself projects may be a worthy endeavor for a handy homeowner refinishing a deck or a green thumbed gardener installing a herbaceous border. However, in the complex world of real estate transactions, DIY measures may backfire. Buyers seeking to cut costs with DIY methods can miss out on some vital resources.

The residential home market is experiencing a shift in attitudes. Rising interest rates and stiff credit requirements are causing a slow down in residential mortgage lending, as buyers struggle to get home loans. Rather than submit to the strict rules of the banks and creditors, many home buyers are turning to all cash deals. While cash buyers have the advantage of evading lender’s regulations, they should be careful not to forego essential industry safeguards. Continue reading

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The Effect of Mineral Rights on Title, Part 2

By: Eliezer Shaffren, Esq., Counsel, Madison Title Agency

Oil and gas leases can help to increase property value as well as the value of the surrounding area properties. The landowners receive an initial signing bonus, along with royalties from extracted gas. The lease also has the ability to generate revenue for the state, which benefits the local economy. The last post’s discussion on mineral rights outlined the various ways in which drilling companies can obtain access to mineral rights.

Landowners should be aware, however, that granting mineral rights can adversely affect title to the property.
Continue reading

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The Sale and Leasing of Mineral Rights, Part 1

By: Eliezer Shaffren, Esq., Counsel, Madison Title Agency

In a typical real estate transaction between a buyer and a seller, when title to real property is transferred, all corresponding rights are transferred as well. In such a scenario, the property transferred is a ‘fee simple’ estate. The owner of a fee simple estate owns all corresponding rights to the land, including land, sky, water, and minerals. However, some states allow for the owner to stipulate severance of these rights, leading to a “split estate” system. The “split estate” system allows one parcel to be owned by separate and distinct entities. There is also a system called “fractional ownership” where the surface owner splits the ownership of the mineral rights with others, such as other family members, a corporation, or the government. Lastly, there is a “severed ownership” system, where the government owns all oil and gas resources below non-federally owned surface property.

Mineral rights, or subsurface rights, are a significant aspect of the gas and drilling industry. A drilling company will purchase the mineral rights to various adjoining properties in a certain region and then drill down and horizontally across the properties to extract the underground gasses. This could be beneficial to the landowner because he is selling or leasing rights to a valuable resource that he would be unable to access on his own. However, there are risks inherent in deeding or leasing subsurface rights to a drilling company.

There are three ways in which a drilling company can obtain rights to drill underneath privately-owned real estate. Continue reading

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My BFF – the CFPB

By Eli Young, Madison Title Agency

Are we still only in the beginning of the second quarter of 2014? Those of us living in the Banking and Insurance industries are tightly focused on August 2015, thanks to our new BFF – the Consumer Financial Protection Bureau (CFPB). Like any BFF, we want to stay as close as possible. With the CFPB’s rollout of their final integrated mortgage disclosure forms; we are closer than ever. A search through my emails for the term “mortgage disclosure” yielded an average of six or seven publications or organizations within our industry offering seminars, webinars or some sort of training to prepare ourselves for the big day in August 2015 when these new forms will be mandatory.

For those not familiar with the CFPB, let me introduce you to your new BFF. This acronym is not just for texting teenagers. It is essential for any professional in the financial industry. Continue reading

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New Private Letter Ruling Suggests a Method for Handling Certain Construction Exchanges

By Lee David Medinets, Esq., CES®, Chief Counsel, Madison Exchange, LLC

A “Construction Exchange” is a special type of tax-deferred IRC § 1031 like-kind exchange that allows a taxpayer to defer recognizing income by sheltering proceeds from the sale of relinquished property into improvements made to replacement property, not just in the cost of buying the replacement property (as in an ordinary “forward exchange”). In order for a construction exchange to work, the taxpayer cannot own the property at the time the im-provements are made. In a typical safe-harbor construction exchange [Rev. Proc. 2000-37], the replacement property is purchased from a third-party seller on behalf of the tax-payer by an exchange accommodation titleholder (“EAT”). The EAT is essentially acting as the taxpayer’s agent under a contract that allows the taxpayer to use and improve the re-placement property during the taxpayer’s 180-day exchange period. By the end of the ex-change period, the EAT transfers legal ownership of the replacement property to the tax-payer, which completes the exchange.

One common problem is that a safe-harbor construction exchange will not work if the tax-payer owned the replacement property within 180 days of the start of the exchange. [Rev. Proc. 2004-51.] What if the replacement property is owned by a related party, such as a multi-member LLC that the taxpayer controls? There has been some concern that such an exchange might fail to qualify as a safe-harbor construction exchange because ownership of the replacement property by the related party would be viewed by the IRS as the equivalent of ownership by the taxpayer himself/herself. IRS Private Letter Ruling 201408019, issued February 21, 2014, addressed this precise issue. Continue reading

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Five Things Every Real Estate Investor Should Know About Crowd Funding

By: Danny Wechsler

The market place for real estate investments is moving to your PC or tablet. Developments in crowd funding platforms are changing the way commercial real estate deals are financed. In the past, crowd funding has been utilized to secure funds for schools and social services, political campaigns, financing start up companies, and other ventures.

Crowd funding is now being used as a market place for accredited investors to pool money online and buy shares of pre-screened real estate investments. Keeping up with the developing trend, here are five things every real estate investor should know about crowd funding. Continue reading

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Appeals Court Addresses Insurer’s Duty to Defend

By: Debra Smith, Esq., Associate General Counsel, MCRES

In a recent case, K2 Investment Group, LLC, et al. v., American Guarantee & Liability Insurance Company, 21 N.Y. 3d 384, 993 N.E. 2d 1249, 917 N.Y.S. 2d 229 (N.Y. Ct. App. 2013), the New York Court of Appeals addressed the duty of an insurer to defend its insured. Even though this case did not involve title insurance, it will likely be cited in title and other insurance litigation involving the duty an insurance company has to its insured.
In this case, the plaintiffs made loans to be secured by mortgages. Following default, the plaintiffs commenced an action against various parties, including Jeffrey Daniels, a lawyer, for legal malpractice. The insured tendered the claim to his malpractice carrier, American Guarantee & Liability Insurance Company. The complaint contained allegations that the insured was a principal of the borrower. The plaintiffs alleged that the insured failed to record the mortgages and obtain title insurance. American Guarantee denied the claim and did not tender a defense based on a policy exclusion for claims arising out of an insured’s actions undertaken in his capacity as a member or owner of a business enterprise.
Here is the Court’s decision. Continue reading

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Title Guys in Cars talking Hockey… and Prescriptive Easements

By Samuel M. Shiel, Esq., Director of National Title Services and Senior Underwriting Counsel for Madison Title Agency

As a young boy, there were three things I enjoyed most… hockey, cars and title insurance. Even to this day, I keep myself busy with these same interests. In the spirit of Jerry Seinfeld’s melding his interests into a web-only show, “Comedians in Cars Getting Coffee”, I thought I would take a shot at blogging about these three loves of mine.

I was about eight years old when hockey became my passion. It started with collecting hockey cards, playing road hockey and becoming a fan of the three-time Avco Cup champion Winnipeg Jets. (That’s right. Google it!) All the while I was studying the intricacies of title insurance while obsessing over my very first love, the automobile.

One day in the fall of 1977, my buddies and I were playing a game of street hockey in a nearby public park we frequented quite often. As was the norm, an angry neighbor came to protest for the umpteenth time that our puck (read tennis ball) landed on his property. Needless to say, I could think of only one thing: the recent decision in the matter of MacDonald Properties, Inc. v. Bel-Air Country Club , 72 Cal.App.3d 693 [Civ. No. 49715. Court of Appeals of California, Second Appellate District, Division Two. August 15, 1977.] The case involved prescriptive easements… Continue reading

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Right on the Money: It's in the Landlord and Tenant's Best Interests for CAM Calculations to be 100% Accurate.

By David I. Tesler, Esq., CEO, LeaseProbe / Real Diligence

The landlord/tenant relationship can be fraught with difficulties. As in any business relationship, it is important for both the tenant and the landlord to set clear expectations and guidelines. While real estate leases are intended to establish the rights and obligations of each side, they are often lengthy and complex documents, with unique and individual provisions as well as numerous addendums which can override previous lease language. Such complexity can lead to mistakes and misunderstandings.

One area that is fraught with errors is Common Area Maintenance (CAM) charges. Errors and mistakes between the obligations spelled out in the lease agreements and the CAM amounts billed are typical. But ultimately it is in every both the landlord and tenant’s best interests to ensure that CAM bills are 100% accurate. Here’s why. Continue reading

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Mortgage Fraud: Beware of Illegal Schemes

By: Elliot Zaks, Principal, Madison Commercial Real Estate Services

Mortgage fraud is a growing threat to the real estate industry. Although most people involved are honest, there are some borrowers, loan officers, title agents and attorneys engaging in criminal activity in order to make a quick buck. The real estate market is still suffering from the aftermath of the industry meltdown. Suspicious activity reports for mortgage-related fraud is climbing steadily each year, reaching 93,508 in 2011, versus the 46,717 reported in 2007.* While reporting suspicious activity is up, new technology has also made fraud easier than ever. Computer systems leave a window open for enterprising and technology-savvy criminals. All it takes is an Internet connection and a copy machine to produce a false Satisfaction of Mortgage document.

In a recent seminar hosted by the Madison Learning Center, the Vice President and Claims Director at one of the nation’s major title insurance underwriters discussed the various ramifications of mortgage fraud. Here are some of the most common scams now and some of the warning signs to spot potential fraud. Continue reading

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