This is a quick reference Guide to Legal issues and is meant as a resource for Buyers sellers and investors. This page has not been written by an attorney but has many links to the Department of State and 1031 exchange companies for your reference .

New Disclosure laws take effect at the Westchester board of Realtors[MLS]

The New York state disclosure form  will change and there will a few new choices for a client or customer to check.. Any agent should explain Agency and disclose what capacity they are working as. Some times real estate agency is difficult for potential buyers & sellers to understand so here are some helpfull links for you to educate your self.

NYS Department of State Counsel's Office Legal Memorandum LI12
BE WARY OF DUAL AGENCY

With the growing number of very large and widespread brokerages, the issue of dual agency arises more frequently than ever before. Any purchaser, seller, lessor or lessee confronted with a dual agency issue by their real estate agent should not take the issue lightly. Parties to a real estate transaction, including real estate brokers and salespersons themselves, seldom realize the inherent problems of a real estate agent acting as a dual agent.

Dual agency arises when a real estate broker or salesperson represents adverse parties (e.g., a buyer and seller) in the same transaction.

Dual agency typically arises in the following way: a real estate broker employs two salespeople, one who works for the buyer as a buyer's agent and the other who works for the seller as a seller's agent. The real estate broker and his salespeople are "one and the same" entity when analyzing whether dual agency exists. As soon as the buyer's agent introduces the buyer to property in which the seller is represented by the seller's agent, dual agency arises.

Dual agency can also arise in a more subtle way: A real estate broker who represents the seller procures a prospective purchaser who needs to sell her property before she is able to buy the seller's property. The prospective purchaser then signs a listing agreement with the real estate broker to sell her property so that she can purchase the seller's property. The real estate broker is now a dual agent representing both parties in a mutually dependent transaction.

When you employ a real estate broker or salesperson as your agent, you are the principal. "The relationship of agent and principal is fiduciary in nature, ‘...founded on trust or confidence reposed by one person in the integrity and fidelity of another.' (citation omitted) Included in the fundamental duties of such a fiduciary are good faith and undivided loyalty, and full and fair disclosure. Such duties are imposed upon real estate licensees by license law, rules and regulations, contract law, the principals of the law of agency, and tort law. (citation omitted) The object of these rigorous standards of performance is to secure fidelity from the agent to the principal and to insure the transaction of the business of the agency to the best advantage of the principal. (citations omitted)." (Emphasis added) DOS v. Moore, 2 DOS 99, p. 7 (1999)

"A real estate broker is strictly limited in his or her ability to act as a dual agent: As a fiduciary, a real estate broker is prohibited from serving as a dual agent representing parties with conflicting interests in the same transaction without the informed consent of the principals. (citations omitted) ‘If dual interests are to be served, the disclosure to be effective must lay bare the truth, without ambiguity or reservation, in all its stark significance.' (citation omitted) ‘Therefore, a real estate agent must prove that prior to undertaking to act either as a dual agent or for an adverse interest, the agent made full and complete disclosure to all parties as a predicate for obtaining the consent of the principals to proceed in the undertaking. Both the rule and the affirmative [defense] of full disclosure are well settled in law.' (citation omitted)" Id. at pp. 9-10.

In a purchaser/seller transaction in which dual agency arises, the agent must not only clearly explain the existence of the dual agency issue and its implications to the parties, the agent must also obtain a written acknowledgment from the prospective purchaser and seller to dual agency. That acknowledgment requires each principal signing the form to confirm that they understand that the dual agent will be working for both the seller and buyer, that they understand that they may engage their own agent to act solely for them, that they understand that they are giving up their right to the agent's undivided loyalty, and that they have carefully considered the possible consequences of a dual agency relationship.

The fiduciary duty of loyalty that your real estate agent owes to you prohibits your agent from advancing any interests adverse to yours or conducting your business to benefit the agent or others.

Significantly, by consenting to dual agency, you are giving up your right to have your agent be loyal to you, since your agent is now also representing your adversary. Once you give up that duty of loyalty, the agent can advance interests adverse to yours. For example, once you agree to dual agency, you may need to be careful about what you say to your agent because, although your agent still cannot breach any confidences, your agent may not use the information you give him or her in a way that advances your interests.

As a principal in a real estate transaction, you should always know that you have the right to be represented by an agent who is loyal only to you throughout the entire transaction. Your agent's fiduciary duties to you need never be compromised.

 Tax Deferment and the Legalities behind the 1031.

Real estate owners have had the option of deferring the recognition of a capital gains tax by exchanging real estate, rather than engaging in a sale and subsequent purchase, since 1921. And although much has changed since then, the basic concept remains: A properly structured tax deferred exchange under section 1031 of the Internal Revenue Code allows an owner of real estate to defer the recognition of a capital gains tax normally recognized on the sale of real estate, if the real estate owner buys a like kind property of equal or greater value and uses all of its cash equity in the subsequent purchase.

Simply put, taxpayers are selling their management and cost intensive properties, buying low or no management properties, and utilizing an exchange so as to not realize any capital gains tax. Many real estate owners mistakenly believe that the “like kind” requirement means that if they are selling an apartment building they must also buy an apartment building. Nothing could be further from the truth.
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Like kind refers to any property held for business or investment purposes. What that means is that a real estate investor may sell an apartment building and buy, for example, a strip mall, office building, or a net leased restaurant. As long as the property being sold and the property being purchased are real estate, they can be exchanged, no matter what the property use is. Of course there are some limitations for this general rule. For example, you may not sell your primary residence and structure it as an exchange.

An exchange is also an important part of retirement and estate planning. For example, an owner of an apartment building may choose to structure the sale of that building as an exchange and purchase a single family home on a golf course, and a net leased pharmacy. To satisfy the requirement that all properties sold and purchased in an exchange are business or investment properties the single family home is leased to a tenant through a management agent for a period of several years. Thereafter, the intent of the real estate owner changes from an investment use to a personal use, and the property is used as a primary residence or vacation home. The net effect is that the investor has sold a high maintenance and cost building and exchanged it for a management free net leased investment, as well as a potential retirement or vacation home, all without incurring any capital gains tax.

Although the rules to obtain a full deferral of a gain require that you use 100% of your equity to purchase the replacement property, there are several options for obtaining the use of those funds. First and foremost, there is always the option of only structuring an exchange with a portion of the funds received from a sale, in which case an investor is taxed on the amount that was not reinvested. A much better approach is to use 100% of the funds received from the sale property to purchase a replacement property structured as an exchange, and thereafter refinance the replacement property to gain the use of those funds. The income from the replacement property will take care of the debt service on the financing, and the investor is able to use these refinance funds tax free.

There are a myriad of ways in which an IRC §1301 exchange can help a real estate investor. In order to obtain the maximum benefit it is always useful to obtain information from a trusted qualified intermediary and review it with your tax and/or legal counsel..

Information for attorneys

Attorneys and CPAs working with clients to structure an IRC §1031 tax deferred exchange have a very different and separate role from the qualified intermediary. Attorneys and CPAs may represent their clients, and more importantly, give tax or legal advice. A qualified intermediary is limited to structuring the exchange paperwork and acting as the independent third party to hold the exchange proceeds. In addition a qualified intermediary may never give a client tax or legal advice. Accordingly, a qualified intermediary is an “add on” to the real estate transaction and does not replace any of the traditional roles occupied by an attorney or CPA. Nor can an attorney or CPA act as a qualified intermediary for their clients.

In many areas of the country the attorney will prepare the contract or purchase and sale agreement and attend the closing. A qualified intermediary will normally assist the attorney by providing the exchange cooperation clause language to be added to the contracts, as well as preparation of the actual exchange documents.

For the most part, a CPA’s role is to advise their clients as to tax consequences of their proposed sale and the benefits of structuring the transaction as an IRC §1031 tax deferred exchange. In addition, it will be necessary for the CPA to prepare the tax form 8824 to be included with the client’s federal tax return. The 8824 is the form that lets the IRS know that you have structured your transaction as a 1031 exchange, as opposed to a sale and subsequent purchase.

Both the attorney and CPA should view the qualified intermediary as a resource for information on IRC §1031 exchanges. Security 1031 Services, LLC, as well as our sister company, Atlantic Exchange Company, LLC, have a vast library of articles and other research material to help provide clear answers to common and not so common questions. It is, however, up to the attorney and CPA to review this information and give the tax and legal advice to the client.  Information on this page has been furnished by www.sos1031.com It is believe to be accurate but not warranted.

 

Timothy C. Stephens, Esq.
Security 1031 Services, LLC
TEL:     (914) 949-6222
FAX:     (877) 767-3295
CELL:   (866) 767-1144
Website:  www.sos1031.com

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