Everybody has a right to be defended, and every lawyer has a duty to defend people accused. And my office is to defend him, to discuss the accusation point by point, as I think this is a normal step in a democracy.

- Mario Puzo

Understanding 1031 Exchanges

In this section, we explain the ins and outs of the 1031 Exchange and how it works.

Still, “Section 1031” is slowly making its way into daily conversation, bandied about by realtors, title companies, investors and soccer moms. Some people even insist on making it into a verb, à la FedEx, as in: “Let’s 1031 that building for another.”

So, what is 1031? Broadly stated, a 1031 exchange (also called a like-kind exchange or a Starker) is a swap of one investment property for another. Although most swaps are taxable as sales, if yours meets the requirements of 1031, you’ll either have no tax or limited tax due at the time of the exchange. (For background reading, see Avoid Capital Gains Tax on Your Home Sale.)

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Municipal Lien Searches

o you are thinking about purchasing a property. How do you know if there will be additional hidden charges? Won’t the title search reveal any liens on the property? Did the previous owner have any unresolved violations or building permits?

To be sure, a title search will uncover any recorded liens on a property. However, few people are aware that there can be many other unrecorded charges on a property that can eventually result in a lien. These charges will no longer be the responsibility of the former property owner but if they go unpaid, they can become the responsibility of the current property owner. The same follows for unresolved violations, building permits which have not been closed properly or unpermitted structures. The new owner can become liable for an overlooked utility bill as well in some cases.

Who would report this information if it is not found in a title search?

A Municipal Lien Search will thoroughly investigate any violations, permits, unrecorded liens, taxes and utilities that are associated with the property. Even with the increasing sales of foreclosures in this current market, the bank’s title insurance agents are not conducting Municipal Lien Searches on properties. There is no one party that bears the responsibility of ordering such a report so it often gets overlooked. The assumption would be that the closing agent is informed enough to advise on such matters but this is not always the case. Nevertheless, it is ultimately the buyer’s responsibility to obtain this information.

When purchasing a foreclosed home, a prudent buyer will ask to see if a Municipal Lien Search has been ordered. It is well worth the small price tag to research this vital information that can possibly save thousands of dollars and many headaches in the future.

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