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What is a 1031 exchange?

Under section 1031 of the U.S. Internal Revenue Code, a real property owner can sell a property and then reinvest the proceeds in the purchase of a like-kind property and defer capital gains tax. To qualify as a like-kind exchange, the 1031 must be done in accordance with the rules set forth in the tax code and it is best to work with an experienced attorney and a Qualified Intermediary to accomplish the exchange. The 1031 exchange can offer significant tax advantages to real estate investors. There are proposals to eliminate this tax deferred exchange being discussed so NOW may be a great time to invest in a 1031 exchange. Reach out with any questions!

1031 Rules to note:

• The real property you sell and the real property you exchange it for (buy) must both be used for productive use in a trade or business or for investment purposes and must be like-kind. For ex: you cannot exchange a ranch for an airplane.  
• The proceeds from the sale must go through the hands of a qualified intermediary and not through the exchangor’s hands or else all the proceeds will become taxable.
• All the cash proceeds from the original sale must be reinvested in the replacement property – any cash proceeds that are retained will be taxable. The replacement property must be subject to an equal level or greater level of debt than the relinquished property or the buyer will either have to pay taxes on the amount of the decrease or have to put in additional cash funds to offset the lower level of debt in the replacement property. The difference in value between a property and the one being exchanged is called boot. If a replacement property is of lesser value than the property sold, the difference (cash boot) is taxable.

Who should consider a 1031 exchange?

If you have real property that will net you a gain upon sale (property that has depreciated for tax purposes and/or has appreciated in fair market value), then you should consider a 1031 exchange.
Section 1031 applies to the property held for productive use in trade or business or an investment property. As an investor, if you want to diversify or expand your assets, invest in a new market, or reset the depreciation clock this is an excellent way of taking advantage of deferred capital gains.

1031 timing

Identification Period: Within 45 days of selling the relinquished property you must identify replacement properties (up to 3 but must close on one of these). This 45 day rule is very strict and is not extended should the 45th day fall on weekend or holiday.

Exchange Period: The replacement property must be received by the taxpayer within the “exchange period,” which ends within the earlier of: 180 days after the date on which the taxpayer transfers the property relinquished, or . . . the due date for the taxpayer tax return for the taxable year in which the transfer of the relinquished property occurs. This 180-day rule is very strict and is not extended if the 180th day should fall on weekend or holiday.

Reverse Exchange: If you acquire the replacement property before selling the property to be exchanged, it is called a reverse exchange. The property must be transferred to a qualified intermediary or similar party and a qualified exchange accommodation agreement must be signed. Within 45 days of acquiring the replacement property, a property for exchange must be identified, and the transaction must be completed within 180 days at which time the property will then be transferred to the exchangor – hence the reverse exchange.

If you are interested in a 1031 exchange or if you are interested in buying, selling, or refinancing please reach out and I would be happy to answer any questions you may have and help you get started!  Please contact Katherine Kokkosis at E: kkokkosis@friedmanvartolo.com / T: (212) 471-5100

In DEUTSCHE BANK NATIONAL TRUST COMPANY, AS TRUSTEE FOR HOME EQUITY MORTGAGE LOAN ASSET-BACKED TRUST SERIES INABS 2007-A, HOME EQUITY MORTGAGE LOAN ASSET-BACKED CERTIFICATES SERIES INABS 2007-A v. Keith Etling, Superior Court of New Jersey, Appellate Division decided April 22, 2021, 2021 WL 1569376,  the Court answered the appeal question whether the trial court erred and abused its discretion by granting the plaintiff’s motion for summary judgment and denying defendant’s motion for reconsideration to vacate the summary judgment and dismiss because the record contained  no evidence of mailing of the NOI to defendant.

In this case, MERS assigned the mortgage to IndyMac Bank, FSB, which recorded the mortgage assignment on August 4, 2008 and thereafter there were five separate loan modification agreements between 2008 and 2016. The defendant default on the last loan modification and on April 3, 2017, a notice of intent (NOI) to foreclose was mailed, return receipt requested, in accordance with the Fair Foreclosure Act.  The record contained a copy of the NOI, which included the certified mail tracking number.

The mortgage was further assigned, and the plaintiff possessed the original note and mortgage at the time the complaint was filed.  Defendant filed answer deny all allegations and raising various defenses, including lack of standing. 

In the appeal, defendant did not dispute the plaintiff produced sufficient evidence to establish prima facie case of the right to foreclose.  He contended that plaintiff failed to produce sufficient evidence of property service of an NOI, specifically that there was failure to produce any envelope certified mail receipt or tracking history for the NOI. 

Under the FFA, a mortgagee must serve an NOI, “in writing, sent to the debtor by registered or certified mail, return receipt requested, at the debtor’s last known address, and, if different, to the address of the Property which is the subject of the residential mortgage” at least thirty days prior to commencing any foreclosure proceeding. N.J.S.A. 2A:50-56(a),(b). 

 On summary judgment, plaintiff provided (1) a photocopy of the NOI with the certified mail tracking number and (2) Hollis’ certification. Hollis certified that “[o]n April 3, 2017, [plaintiff’s loan servicer] mailed copies of the NOI to [defendant], at the mortgaged property … [in] JACKSON, NJ 08527-2427 via certified mail return receipt requested and regular mail.”  The Court deemed this evidence is sufficient, particularly given defendant’s failure to oppose plaintiff’s summary judgement motion and defendant failed to identify any genuine issue of material fact to preclude summary judgment.  Additionally, the denial for reconsideration was found to be within the sound discretion of the trial Court.  Thus, the Appellate Court affirmed the decision.

For any questions please contact Deborah Gallo, Esq, Director of Operations, at dgallo@friedmanvartolo.com.

A CEMA, Consolidation, Extension, & Modification Agreement is an agreement between your existing Lender and your New Lender to combine two or more loans into a new, consolidated loan to save money on Mortgage Tax in New York State. A CEMA can only be completed on a first loan covering one to three family houses, including individual condominium units but not on coops since they are not real property (and there is no mortgage tax on a coop loan).

If the borrower is refinancing their current first mortgage and has already paid the New York State mortgage tax, doing a CEMA will allow the borrower to pay the NYS mortgage tax only on the additional loan amount exceeding what was originally borrowed. Therefore, rather than paying the full mortgage tax on your entire loan amount again, instead you are only paying the tax on the difference between your new loan amount and your original loan amount which may amount to huge savings. Note there may be some additional fees and timing considerations when requesting a CEMA that you should discuss with your attorney and lender.

Example: If you have a $300,000.00 mortgage and refinance with a $450,000.00 mortgage in Brooklyn, you would normally have to pay a tax of $8,100.00, but with a CEMA you only pay mortgage tax on the new money of $150,000.00 in the amount of $2,700.00.

If you are selling your home, and your buyer is getting financing then your loan may be able to be assigned to your buyer for a significant mortgage tax savings that the seller and buyer can split after the fees are paid for a win-win for all!

If you are interested in buying, selling, or refinancing please reach out and I would be happy to answer any questions you may have and help you get started! Please contact, Katherine Kokkosis, Esq.  at kkokkosis@friedmanvartolo.com or call 212-471-5150.

Today Governor Cuomo signed into law a bill amending both the “COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020” and the “COVID-19 Emergency Protect Our Small Businesses Act of 2021.”  This amendment extends their applicability through August 31, 2021.  As a result the hardship declarations required under the acts will still be required to be sent and honored on any files between now and August 31, 2021.  This new date will now apply to foreclosures and evictions in both residential and commercial actions.

Specifically, the bill changes the “sunset date” of the statute, extending it through August 31, 2021.  Effectively any party which has filed a hardship declaration will enjoy the benefit of the extended stay.  Parties will also have additional time to submit the declaration, provided that the Court has not already been advised of their intent to proceed with the action at a conference held pursuant to the bill.  Finally, newly commenced actions will still require clients to attest to compliance with the statute.

Additionally, as you may recall from our prior updates, the Consumer Financial Protection Bureau (CFPB) currently has out for comment a series of rule changes which, if enacted, could result in a stay in commencement of some or all foreclosures nationwide to prevent a flood of new foreclosures upon the end of COVID forbearance programs.  The CFPB anticipates that such rule, if enacted, would go into effect in August or September of this year and would expire on January 1, 2022.  It is very likely that the pending New York legislation is intended to bridge the gap to the eventual CFPB relief.

Today Governor Cuomo signed into law a bill amending both the “COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020” and the “COVID-19 Emergency Protect Our Small Businesses Act of 2021.”  This amendment extends their applicability through August 31, 2021.  As a result the hardship declarations required under the acts will still be required to be sent and honored on any files between now and August 31, 2021.  This new date will now apply to foreclosures and evictions in both residential and commercial actions.

Specifically, the bill changes the “sunset date” of the statute, extending it through August 31, 2021.  Effectively any party which has filed a hardship declaration will enjoy the benefit of the extended stay.  Parties will also have additional time to submit the declaration, provided that the Court has not already been advised of their intent to proceed with the action at a conference held pursuant to the bill.  Finally, newly commenced actions will still require clients to attest to compliance with the statute.

Additionally, as you may recall from our prior updates, the Consumer Financial Protection Bureau (CFPB) currently has out for comment a series of rule changes which, if enacted, could result in a stay in commencement of some or all foreclosures nationwide to prevent a flood of new foreclosures upon the end of COVID forbearance programs.  The CFPB anticipates that such rule, if enacted, would go into effect in August or September of this year and would expire on January 1, 2022.  It is very likely that the pending New York legislation is intended to bridge the gap to the eventual CFPB relief.    For any questions regarding this legislation, please contact Richard O’Brien, Esq. at robrien@friedmanvartolo.com or Deborah Gallo, Esq, Director of Operations at dgallo@friedmanvartolo.com.

In a decision issued on April 21, 2021, a unanimous panel of the U.S. Court of Appeals for the Eleventh Circuit has ruled that a debt collector’s transmittal of the plaintiff’s personal information to the vendor it used to generate and send collection letters “constituted a communication ‘in connection with the collection of any debt’ within the meaning of [FDCPA Section 1692c(b)]”.  This section of the FDCPA prohibits a debt collector from communicating with anyone other than the debtor and certain specified third-parties “in connection with the collection of any debt” without the debtor’s consent, court permission, or to effectuate a post judgment judicial remedy.

In Hunstein v. Preferred Collection and Management Services, Inc., the debt collector electronically transmitted information about the plaintiff, including his status as a debtor, the amount of the debt, and the entity to whom the debt was owed, to a vendor that used the information to generate and send a collection letter to the plaintiff.  Hunstein filed a complaint, alleging violations of both the FDCPA, see 15 U.S.C. §§ 1692c(b) and 1692f, and the Florida Consumer Collection Practices Act, see Fla. Stat. § 559.72(5).

The district court dismissed the complaint for failing to state a claim, concluding that the plaintiff had not sufficiently alleged that the debt collector’s transmittal of information to the vendor violated Section 1692c(b) of the FDCPA because the transmittal did not qualify as a “communication in connection with the collection of any debt.”  (The district court did not accept supplemental jurisdiction of the state law claim.)

The Court first addressed whether there was standing to sue and found that because (1) § 1692c(b) bears a close relationship to a harm that American courts have long recognized as cognizable and (2) Congress’s judgment indicates that violations of § 1692c(b) constitute a concrete injury, the Court concluded that Hunstein had standing to sue.

The Court explained that § 1692e contains none of the specific exceptions that § 1692c(b) does; accordingly, there was no risk in Reese or Caceres that, by reading a “demand for payment” gloss into § 1692e, we would render other portions of that statute redundant or meaningless. And as an operational matter, § 1692e—which prohibits “false, deceptive, or misleading representation or means in connection with the collection of any debt”—covers the sorts of claims that are brought by recipients of debt collectors’ communications—i.e., debtors. 

The Eleventh Circuit rejected what it termed the debt collector’s “industry practice” argument that there is widespread use of mail vendors by debt collectors and a scarcity of FDCPA cases against them.  It commented that none of the cases cited by the debt collector involved Section 1692c(b) claims, the courts in those cases had no obligation to sua sponte determine whether there was a Section 1692c(b) violation, and the fact that this case “is (or may be) the first case in which a debtor has sued a debt collector for disclosing his personal information to a mail vendor hardly proves such disclosures are lawful.”

Having found that the plaintiff had stated a claim for a violation of Section 1692c(b), the Eleventh Circuit reversed the district court and remanded the case.  Anticipating the reaction its decision may create, the Court concluded its opinion:

It’s not lost on us that our interpretation of § 1692c(b) runs the risk of upsetting the status quo in the debt-collection industry.  We presume that, in the ordinary course of business, debt collectors share information about consumers not only with dunning vendors like [the defendant’s vendor], but also with other third-party entities.  Our reading of § 1692c(b) may well require debt collectors (at least in the short term) to in-source many of the services that they had previously outsourced, potentially at great cost.  We recognize, as well, that those costs may not purchase much in the way of “real” consumer privacy, as we doubt that the [letter vendors] of the world routinely read, care about, or abuse the information that debt collectors transmit to them. Even so, our obligation is to interpret the law as written, whether or not we think the resulting consequences are particularly sensible or desirable.  Needless to say, if Congress thinks that we’ve misread § 1692c(b)—or even that we’ve properly read it but that it should be amended—it can say so.

In review of this opinion, it is an initial reaction that there may be far reaching consequences.  What vendors are used by debt collectors to expedite the process – what are the risks of disclosure, and whether the process can be altered to remove the sharing of information.   No doubt, this case will result in more litigation.  For any questions regarding this case, please contact Deborah Gallo, Director Of Operations, at dgallo@friedmanvartolo.com.