Why do I need title insurance when I purchase my home in New York?

Even first time home buyers have a general awareness that they will need to pay for something called “title insurance” when they close on the purchase of their home. However, few buyers, I would guess, have an understanding of exactly what they are paying for.

Unlike when you purchase a car, there is no certificate of title issued by a government agency, which serves as proof of your ownership rights. You will receive a deed from the seller at the closing, but this, in and of itself, does not give you what real estate attorneys call “marketable title.” Simply put, marketable title establishes you as the owner of the property with all the rights that such ownership entails.

Obtaining marketable title is an involved process. First, the seller, who signs the deed, must themselves have marketable title. To determine that your seller has marketable title, your title company will search the public records and have their attorneys interpret the results. Second, the deed from the seller must be recorded with the City Register. See my blog post for a discussion of why a deed is recorded.


As you can see, obtaining title to a home is much more complex then acquiring title to a car. Your attorney will employ a title company which will do this work, for a premium of course. They will determine that your seller has marketable title and insure that your deed is recorded. Your title insurance company will then issue a proposed policy of title insurance, called a “title report” that insures that you have marketable title. Lastly, your attorney will review the title report to make sure the coverage complies with the terms of your contract of sale.

When you purchase your home, be sure you retain an attorney who has experience with title insurance so you can have peace of mind that you have marketable title.

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What taxes will I have to pay when I sell my New York City home?

Clients often ask me about the tax consequences they will face when they sell their New York City  home.  Whether you’re selling  a one or two family house, a cooperative apartment or a condominium unit, you will be subject to several taxes.

First, there are transfer taxes that must be paid at the closing of the sale.  New York State imposes a transfer tax of four dollars per thousand or .4% of the sales price of the home.  New York City imposes its own transfer tax, starting at 1% of the sales price for sales under $500,000.00 and increasing to  1.425% for sales above $500,000.00.

Second, there may be capital gains taxes that may be due when you file your Federal and New York State income taxes for the tax year in which your home was sold.  If your home was your principal residence for two of the five years prior to the sale, you are entitled to a credit of $250,000.00 ($500,000.00 if a married couple are joint owners of the home) against any capital gains.

Capital gain is determined by subtracting your cost basis (generally your original purchase price as adjusted, i.e., by adding cost of capital improvements and closing costs) from your sale price.  If you have inherited your home, you will be entitled to a “step up” in cost basis equal to the fair market value of the home at the time of the death of the prior owner from whom you received the home.

There is an exception as to when income taxes (based on any gain from the sale of your home) are due if you are a non-resident of New York State selling a New York home.  In that case you must file a Non-Resident Real Property Estimated Income Tax Payment Form (Form IT-2663) and pay any estimated New York State income tax at the time of closing.

Finally, if your home ceased being your principal residence for 2 of the past 5 years prior to closing, you can defer the payment of gains tax if you purchase replacement property through the use of a 1031 exchange.

Tax laws are complex.  When you sell your home, be sure to employ professionals familiar with the sale of New York City property to avoid being surprised by an unexpected tax bill.

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Do I need to pay to obtain a copy of the deed to my home in New York City?

A client of mine recently received a letter from a company offering to obtain for her, for a fee, a copy of the newly recorded deed to her house.  My client had previously asked me to add her son as a joint owner of her home which involved my preparing and recording the deed in question with the City Register of Queens County.

Mailings from companies offering to obtain copies of documents for a fee are not uncommon.  Companies, such as the one soliciting my client, routinely check local property recording offices and offer their document retrieval services to homeowners who have had recently recorded deeds. Apparently the recording of my client’s deed resulted in her receiving  this offer.

My client called me upon receiving the letter and asked me whether she needed to pay this company to obtain a copy of her recorded deed. I explained to my client that once a deed is recorded, that is, incorporated into the public land records, it can be viewed by the public, without charge.  A copy of the recorded deed can be viewed on-line using New York City’s Automated City Registers Information System, commonly referred to as ACRIS. http://a836-acris.nyc.gov/CP/ The deed can be downloaded as a PDF file and then printed.

As I discussed in an earlier post, http://www.dippellaw.com/wordpress/i-lost-the-orginal-deed-to-my-home-will-i-have-a-problem-selling-my-home/once a deed is recorded, you do not need the original deed or even a copy of the deed in order to sell or mortgage your home. If you do want a copy of your deed, there is no reason to pay someone to obtain it.

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How do I add someone to the deed of my New York home?

There are many reasons you may want to add someone to the title of your home.  You may have just gotten married or re-married and now wish to add your new spouse as a joint owner.  Or you may want to add an adult child to your title for estate planning purposes.

Whatever the reason,  you will need to retain an attorney, experienced in real estate, to draft  a new deed conveying  (i.e., transferring) your home  to yourself and the person you wish to add to your title. In addition to the deed, your attorney will also need to prepare transfer tax returns. While there is no transfer tax due  on conveyances which are considered gifts, (i.e. no money given for the conveyance) the returns must still be prepared and filed with the county clerk, or in the case of New York City property, the City Register, when the deed is recorded.

How your new deed is drafted will determine your type of joint ownership. Depending on the language used in your deed, you and the person you have added to your title can own the home as either joint tenants with rights of survivorship, tenants in common or tenants by the entirety. Your attorney can advise you as to which type of joint ownership is appropriate in your case.

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Can I apply for a larger mortgage than in my contract to buy my NY home?

Most people will obtain financing when purchasing their home, whether it’s a co-op, condominium or a one or two-family home.  In such a case the contract of sale will contain a provision making the sale contingent on the purchaser obtaining a loan in a certain amount.  If the purchaser is turned down by the lending institution they can cancel the contract and receive the return of their down payment.

In order to obtain the protection afforded by this clause the buyer must strictly adhere to it’s provisions, i.e., they must only apply for a loan in the amount stated in the clause (or a lesser amount); they must make a “good faith” application to a lending institution and they must abide by the time frame given to obtain such a loan.

In answer to the question I pose, if a buyer applies for a loan greater than the amount set forth in the clause and is then denied a loan, they will have forfeited the protection afforded by the clause and will not be able to cancel the contract.  If they have no alternative source of funds to consummate the purchase they will be in default under the terms of the contract and more than likely lose their down payment.

Of course, if the buyer is approved for a loan greater than set forth in the contract, no harm, no foul.  I, however, would never advise a client to take such a risk as there may be reasons beyond their control that may result in a loan denial.  For instance, when determining whether to approve a loan to purchase a cooperative apartment or condominium unit, the lender will review the condo and co-op project as well as the buyer’s creditworthiness. While the buyer may have sufficient income and sterling credit, they may still be denied a loan based on the condominium’s or cooperative apartment corporation’s financial situation.

The loan contingency in a contract to purchase your home affords protection against your being denied a loan.  Make sure you retain an experienced real estate attorney who will make sure you comply with its provisions so as not to jeopardize your substantial down payment.

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Do I need to close on the closing date in my contract to purchase a home in New York City?

I am often asked this question by my clients who are either buying or selling a home, cooperative apartment or condominium unit.  The standard residential contract of sale used by attorneys in the New York Metropolitan area will state that the closing will take place, for example, “on or about October 1, 2016.”  The phrase “on or about” has been interpreted by the New York courts to mean that either side has a reasonable period beyond the “on or about” date in which to close.  While the courts are silent as to what constitutes a “reasonable” time, almost all real estate attorneys practicing in the New York Metropolitan area have come to a consensus that reasonable is 30 days.

If a party is unwilling to close within that 30 day period the attorney for the party wishing to close can send what is referred to as a “time is of the essence” letter to the other party.  That letter will set forth a new closing date, usually 10 days after the expiration of the 30 day period, stating that “Time is of the Essence.” If the party receiving the letter does not close by that date they can be declared in default under the terms of the contract of sale.

When signing a contract as a seller or buyer, be sure you communicate to your attorney your desired time frame so as to not run up against deadlines in the contract which could cause you to default.


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Should I make a Subchapter S election for my New York Corporation?

If you have formed a New York corporation through which you intend to conduct your new business, you should consider making a Subchapter S election.  If you timely make such an election under Subchapter S of the Internal Revenue Code you will avoid the double taxation which would otherwise occur with an ordinary or C corporation.  In the case of a C corporation, you pay tax at the corporate level and then again at the individual level when you receive distributions or dividends from the corporation. A Subchapter S corporation pays no tax at the corporate level; instead tax is only paid by the individual shareholder upon receipt of corporate dividends.

In order to qualify as a subchapter S corporation, the corporation must have fewer than 100 shareholders, all shareholders must be natural persons and US citizens or legal residents and there can be only one class of stock. The Subchapter S election is made by filing form 2553 with the IRS and form CT-6 with the New York State Department of Taxation and Finance.

Failure to properly elect Subchapter S treatment can expose your corporation and yourself to double taxation at the Federal and State level so consult with a knowledgeable professional when starting your New York business.

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Should I agree to be the executor of my friend’s New York will?

At some point you may be asked if you would be willing to be named an executor in a friend or family member’s last will and testament.  The first thought that may pop into your mind is “If I say yes, what am I getting myself into?”  While you may be flattered by being offered this honor, keep in mind that you are being asked to undertake a serious responsibility so if you have any misgivings it may be wise to politely refuse.  In fact, even after the death of the person in whose will you were named executor (this person is called the Testator), you can always renounce your appointment.

If you do accept, you will be responsible for petitioning the Surrogate’s Court to admit the will to probate after the Testator’s death.  Most executors will retain an experienced attorney to prepare the petition and related documents which will be filed with the Court.  Assuming there are no objections to probate, the Surrogate Judge will sign a decree admitting the will to probate and appointing you the executor.  The Court will also issue to you  a document called Letters Testamentary as evidence of your appointment.

Once you have been appointed, you must open an estate account and transfer assets (cash, securities, etc.) into that account.  You are also responsible for paying all valid debts of the estate out of the estate account.  If the estate is liable for estate taxes, estate tax returns must be filed and the taxes paid.

Once all debts, including taxes, have been paid, the executor typically provides each beneficiary with an accounting; showing assets collected, sums paid out, the balance of estate funds on hand and the proposed distribution to the beneficiaries.  The beneficiaries will be asked to sign receipt and releases before they are paid their bequests.

The above summary is only a broad outline of an executor’s basic responsibilities.  There may be other duties an executor may be called on to perform depending on the nature of the estate’s assets and whether or not all parties involved with the estate are in agreement on all matters.

Since failure to properly carry out your duties as an executor could lead to your being liable for any losses to the estate, it is important to retain experienced professionals to assist you in this important job.


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Do I need to file income tax returns as the Executor of a New York Estate?

Understandably I am often asked this question as April 15th approaches.  If a decedent’s estate has earned more than $600 in income during the tax year, the executor or administrator needs to file both Federal and New York State fiduciary income tax returns and pay any tax by April 15th.  The form for the Federal return is form 1041 and the New York State return is form IT-205. If an estate is open for more than one year, estimated New York State and Federal income tax  is due quarterly.

If the decedent died during the tax year, income from the commencement of the tax year until the date of death should be reported on the decedent’s final personal returns with the balance reported on the fiduciary returns.

These filing requirements are also applicable to irrevocable and testamentary trusts.  The filing threshold for trusts is $100 in income.  The same forms are used for trusts as are used for estates and estimated tax rules also apply.

Decedent’s estates and irrevocable trusts should have Federal ID numbers which should be used on the fiduciary returns.

There are no fiduciary filing requirements for revocable trusts, also known as “living trusts” as income is reported on the grantor/trustee’s personal income tax returns. Once the grantor/trustee dies, the living trust becomes irrevocable and a Federal ID number should be applied for.  Any income earned after the death of the grantor/trustee will then be subject to fiduciary income tax and reported on the fiduciary returns.

Failure to timely file and pay fiduciary income taxes can subject an estate or trust to interest and penalties.  An experienced attorney can help you comply with the various tax filing requirements.

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How does an Executor or Administrator settle a New York Estate?

One of the first questions I hear from clients who have been appointed an executor or administrator is “How do I finalize or settle this estate?”  After the fiduciary, (i.e., an executor or administrator) of a New York estate has fulfilled their various responsibilities (see my blog post “What are the Duties of an Executor of a New York Will”) they should prepare to make final distributions of estate assets to the beneficiaries.  The fiduciary should not make such final distributions prior to seven months from the date of their appointment or they run the risk of being held personally liable for any unpaid debts of the estate that may arise after making said distributions.  Surrogates Court Procedure Act Section 1802 allows creditors this seven month period to present claims to the fiduciary.

After seven months have elapsed, the fiduciary should have their attorney prepare an  accounting which should set forth all assets received by the fiduciary, expenses paid and the proposed distribution of assets to the beneficiaries.  The accounting should be sent to the beneficiaries together with a document typically called a “Release, Receipt and Waiver” which they will be asked to sign if they agree with the accounting.  As its name implies, by signing this document the beneficiary acknowledges the amount of their distribution, releases the fiduciary from further liability and waives a formal judicial accounting. After receipt of all the releases, the fiduciary should send checks to the beneficiaries closing out the estate account(s). The signed releases are typically retained in the fiduciary’s  attorney’s file but they can be filed with the Surrogate’s Court.

If any beneficiary doesn’t approve the accounting and refuses to sign a receipt , release and waiver, the fiduciary will have to resort to a judicial accounting in which he/she petitions the Surrogates Court to approve their account. Such judicial accounting proceedings are quite complex and costly so if a beneficiary raises a minor objection to the accounting the fiduciary and beneficiary should attempt to resolve it without court involvement.

If the estate is liable for fiduciary income taxes for the tax year in which the final distributions are made, the final tax returns will include the distributions to the beneficiaries as a deduction. Due to this distribution deduction, no tax is payable by the estate but rather each beneficiary will receive a form K-1 setting forth their share of the estate’s income for the final year, which they will need to declare on their personal income tax returns and pay the appropriate tax.

As  you can see from the above, the assistance of experienced professionals is essential in properly settling an estate if the fiduciary wishes to be absolved from any future liability.


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