- January 07, 1999
- All Issuing Offices
- Federal Update: Federal Estate Taxes; Multiple HUD-1s; Truth in Lending; Bankruptcy; Federal Tax Liens; IRS Reporting on Attorneys [Revised 9-18-09]
There have been several recent changes in federal law that may affect your business. Those changes include:
Increase in Size of Estate Exempt from Federal Estate Taxes
There is a special estate tax lien effective against property of a decedent for 10 years from the date of death without recording any notice of estate tax lien. The value of the estate includes property previously transferred by the decedent (such as a transfer to a trust) if the decedent retained a life estate or interest that did not end before the decedent's death. If the estate does not exceed the following net amounts, no federal estate taxes are owed:
|Decedent Dying||Size of Estate
|1987 through 1997||$600,000|
|2002 & 2003||$1,000,000|
|2004 & 2005||$1,500,000|
|2006, 2007 & 2008||$2,000,000|
Taxes Due To Be Reinstated
You should also determine whether state inheritance, death or estate taxes are owed on estates of decedents. Many states provide that no taxes are owed if no federal estate taxes are owed.
Lender Requirements for Multiple HUD-1s
Some lenders now request a separate HUD-1 for each loan if there are multiple loans or lenders (and liens) in one transaction, such as a sale or refinance with two new mortgages. We believe that it is appropriate to provide separate settlement statements if requested by the lender. RESPA allows a settlement agent to make a separate HUD-1 for each lender if multiple lenders fund at the same closing. If you produce a separate HUD-1 for each lender in a closing with a first and second lien, you could produce a third HUD-1 for the seller (if there is a seller). The Subordinate Lien Final Rule issued by HUD in 1994 says, "there are certain circumstances when a first and a subordinate lien may be created at the same settlement". If the subordinate lien meets the definition of a federally related mortgage loan, the related charges for settlement services must be documented on a HUD-1 or HUD-1A, as appropriate, but a single HUD-1 can be used"."
Truth in Lending
Commencing October 1, 1998, Truth in Lending regulations require fees charged by the closing agent to be included in the finance charge if the creditor requires use of the particular service, requires the charge or retains part of the charge (such as a closing or escrow fee).
The Truth in Lending commentary apparently continues to exempt a charge that would be paid in a comparable cash transaction, but cautious lenders may address this issue in closing instructions.
For example, some lenders will call the closing agent to confirm the escrow or closing fee, and then include it in the finance charge for disclosure to the borrower. The lender's closing instructions will then prohibit the closing agent from charging a different (higher or lower fee). Truth in Lending does not prohibit (or require) closing or escrow fees (where otherwise lawful).
The Omnibus Appropriations Spending Bill extended Chapter 12 (family farmer) bankruptcies until April 1, 1999. Chapter 12 bankruptcies may continue to be filed until that time.
Federal Tax Liens
Public Law 105-226 amended the Internal Revenue Code, effective July 22, 1998 in many respects. The IRS may not levy on land used as a residence of the owner or other person (and not rented) if the levy does not exceed $5,000. The IRS may not levy on land used as a trade or business of an individual without approval in writing of the levy by the district director or assistant director or a finding of the Secretary that the collection of tax is in jeopardy. The principal residence is exempt from levy unless a judge or magistrate approves in writing the levy.
Do not insure based on an IRS sale of land in the chain, unless (1) the taxpayer is no longer in possession, (2) only the taxpayer had an ownership interest in the land (or you require a deed from the other owners), (3) the IRS sale occurred more than 2 years prior to your examination, and (4) all other liens on the land are released or excepted. Otherwise call our underwriting personnel.
Reporting on Payments to Attorneys: Effective 1998
A title company making payment in the course of its business to an attorney (including a P.C., individual lawyer, law firm, partnership, or other entity) or attorney's escrow account for legal services must file a 1099-MISC return (showing the amount paid and "A" to evidence payment to a lawyer in box 13 of that form). The title company must make the return if it pays the attorney for services (such as examining title, closing a transaction, or handling a claim) rendered to the title company or to handle or settle a claim with the title company. If the attorney is paid a gross amount with a third party (such as the attorney' client or payment to the attorney's escrow account in a claim settlement), then the total amount must be reported. If the attorney does not provide a TIN, the title company must withhold 31% of the amount.
The title company is not required to make the return if it disburses funds as a paying agent and pays attorney's fees on behalf of a seller, buyer, borrower or other principal.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF DEVELOPMENTS RELATING TO FEDERAL LAW. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.
- Bulletins Replaced:
- Related Bulletins:
- Underwriting Manual:
- 2.04 Bankruptcy
- 5.20 Estate Taxes
- 5.20.2 Steps Involved In The Determination Of The Federal Estate Tax
- 5.20.3 Computation Of The Federal Estate Tax (Applicable To Estates Of Decedents After 1981)
- 6.08 Federal Tax Liens
- 19.48 Truth-In-Lending
- Exceptions Manual: