VA Loans- A Small Token of our Appreciation

As many of you know, Memorial Day is a federal holiday in the United States, established to formally remember the men and women who died while serving in our country’s armed forces. The holiday was originally known as Decoration Day, originating after the Civil War to honor the soldiers who died in that war.

While some members of my family have served in the past, fortunately, none of them (to my knowledge) have “made the ultimate sacrifice”. Nonetheless, I resolved a number of years ago to do away with the celebratory barbeque on Memorial Day, and instead, help place flags on veteran graves, attend Memorial Day tribute parades, and just thank those I know and/or see in uniform for serving our Country and helping preserve the peace and prosperity we are fortunate to have at home.

This year, I thought of one more, “better than barbeque idea” for Memorial Day. I would write to remind veterans and those on active duty of the advantages of VA Loans.

VA loans are home loans for the purchase of a primary residence available to those who qualify, who have served or are presently serving in the U.S. armed forces, to reservists and to some surviving spouses. The VA loan was made possible by the Servicemen’s Readjustment Act (GI Bill of Rights) on June 22, 1944. The Department of Veterans Affairs (“VA”) guaranties loans made by private lenders to veterans/those currently serving who qualify. With the government backing these loans, lenders can afford to offer advantages not available under other loan programs.

To qualify for a VA Loan, there are four basic requirements:

1. Service Requirements/Discharges- To obtain a “Certificate of Eligibility”, you must not have been dishonorably discharged, and (i) be currently serving in the armed forces for a minimum of 90 days, (ii) have served six years in the Selected Reserve or National Guard (and meet discharge requirements), (iii) be a veteran and meet certain minimum service requirements; or (iv) be a surviving spouse of a Veteran, MIA or POW and meet certain conditions. Log on to: http://benefits.va.gov/HOMELOANS/purchaseco_eligibility.asp to determine the specific requirements.

2. Specified Properties- single-family homes, certain condos, townhouses and multi-family homes (not exceeding 4 units) are eligible properties.

3. Owner Occupied-Borrowers must occupy the homes they are financing as their primary residence, within 60 days after closing (subject to extension of up to 12 mos. for those deployed away from home).

4. Income/Credit-Eligible VA borrowers, like other borrowers need a steady income and adequate credit. VA lenders, however, have more flexibility to determine who is a good credit risk. There is no minimum credit score, but the VA recommends borrowers have no more than a 41% debt-to income ratio. In other words, if your income is $3,000/mo., your debt should not be more than $1,230/mo.

  

There are a number of definite advantages over conventional financing:

• A VA lender will not deny a loan solely based on a low credit score, and most VA lenders will not change the interest rate based upon the credit score.

• There is no down payment required.

• Borrowers can often refinance at a lower rate, within the VA program, without having to re-qualify.

• Closing Costs are lower. In fact, there are a number of costs/fees that VA borrowers are not permitted to pay, including:

1.      Attorneys fees (beyond title related fees);

2.      Escrow/Closing Fees;

3.      Closing Protection Coverage Fee;

4.      Document Preparation Fees;

5.      Lender Underwriting Fees;

6.      Loan Application Fees;

7.      Messenger Fees/Postage/Notary Fees;

8.      Mortgage Broker Fees;

9.      Interest Rate Lock Fees; and

10.  Tax Service Fees

VA Borrowers must still pay for appraisals, credit reports, title insurance, recording fees, origination fees and survey fees, but clearly there are distinct advantages to VA loans, most translating to saving a lot of money up front, as well as throughout the term of the loan.

If you are currently serving, or have served, and are looking to buy a house, ask your lender about their VA loans. Call it a small token of our Country’s appreciation for your service.

Call this article, and my heartfelt and bolded THANK YOU! as a small token of my appreciation for your service.

Recent Court Decisions Affecting Ohio Real Property Tax Appraisals

The Ohio Supreme Court has issued a couple of decisions in recent weeks that affect how reappraisals of property are handled.

 

1. Akron City School Dist. Bd. of Edn. v.Summit Cty. Bd. Of Revision,Slip Opinion No. 2014-Ohio-1588 (Decided April 16, 2014).

 

At issue was the tax value assigned by the Summit County fiscal officer to an Akron-area Arby’s restaurant during the  reappraisal that occurs every 6 years.  When the real property upon which the restaurant was located sold in 2005, the purchase price was $1,407,000. When the property was valued by the county’s fiscal officer in 2008, the value was determined to be $902,230.  The Akron City School District Board of Education (the “Akron school board”) filed a complaint asserting the the 2005 sale price was within a reasonable period of time and should be adopted as the value of the real property. The Akron school board did not provide any other evidence to support its assertion that the sale price was recent to the tax-lien date of January 1, 2008. The Summit County Board of Revision declined to use the sale price and retained the fiscal officer’s value. On appeal, the Board of Tax Appeals (“BTA”) reversed.  The property owners appealed and the Ohio Supreme Court reversed the BTA and remanded the case back to the BTA for further proceedings. The Ohio Supreme Court held that when a sale occurs more than 24 months before the tax-lien date and is reflected in the property records, and the tax assessor decides not to base the reappraisal on it, the sale should not be presumed to be recent. The party arguing for the use of the sale price will have the burden of providing evidence to show that nothing about the market conditions or property character has changed between the sale date and the tax-lien date. The case was remanded to allow the Akron school board the opportunity to provide that evidence.

 

The significance of this decision was to remove the presumption that a sale price older than 24 months is ‘recent’ and it therefore cannot be conclusive of a property’s current value without further evidence to support the continued validity of that value.

 

1. Dublin City Schools Bd. of Edn. v.Franklin Cty. Bd. Of Revision,Slip Opinion No. 2014-Ohio-1940 (Decided May 15, 2014).
    
   At issue in this case was the bulk evaluation of condominium units. 21 units of a 28-unit condominium complex in Dublin, Ohio were under construction. The Franklin County Auditor valued each unit under construction as a separate parcel and the aggregate value totaled $8,139,300. However, the property records did not indicate whether the county auditor properly took into consideration the unfinished state of the condo units when determining each unit’s value as required by Ohio. Adm. Code 5703-25-06(G).  The property owner appealed to the board of revision providing a valuation prepared by an appraiser. The appraiser deducted the cost for completion, valued the 21 units in bulk as if the units were one economic unit and further discounted the amount to what he believed a single investor would pay for all 21 units. The board of revision adopted the valuation prepared by the appraiser.  The local school board appealed to the BTA who reinstated the county auditor’s valuation. The Ohio Supreme Court revised the BTA due to the fact that the local school board failed to meet its own burden of proof by not offering any evidence to support the higher valuation. It had merely attacked the validity of the appraisal report.  The school board asked the court to reconsider. The court granted reconsideration on the issue of the bulk-sale valuation was accurate and held that the appraisal violated R.C. 5311.11 which requires that each unit of a condominium property…is deemed a separate parcel for all purposes of taxation and assessment of real property.” The court also faulted the appraisal for using a discounted net present value for the units  as if they would be sold to a single investor when in fact the highest and best use for the units would be as owner-occupied residential units and the complex was in fact selling the units for individual residential use. Further, county auditors are required by law to assess the “true value” of real property (See R.C. 5713.01(B)), which is the amount the property recent sold for on the open market or the amount of an appraisal predicting what the sale price would be. The appraisal based its conclusions on a net present investment value, which is contrary to the real market value required by law.
    
   Upon reconsideration, the court upheld the BTA’s finding that a bulk-value-appraisal methodology contradicted Ohio statutory requires but remanded the matter back to the BTA to independently determine the value of the condominium units instead of reinstating the county auditor’s valuations.
    

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In summary, during a reappraisal of property for tax value purposes, (i) a sale price in the record that is more than 24 months old may be considered but is not binding on a tax assessor when  determining the property’s value, and  (ii) bulk-value-appraisals of condominium units are contrary to Ohio law.

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Those Who “Host” Lose the Most-A Primer on Social Host-Premises Liability in Ohio

Spring has finally sprung, Ohio snow is gone and success and pride is in the air as graduation             season is upon us. Unfortunately, the smell of alcohol, death and destruction is also upon us as inevitably, social hosts will serve “minors” (persons under 18 years of age) and “underage persons” (persons under 21 years of age) alcohol, from real estate they control, with g-d-awful consequences.

Home parties have repeatedly been identified as the primary source by which youth obtain alcohol.  29% of teens in a recent survey indicated that they know of parents who host teen alcohol parties, and 25% of those teens indicated that, in the past two months, they had attended a house party where alcohol was present. Consumption of alcoholic beverages by minors and underage persons at parties (and elsewhere) presents a myriad of problems for the minor/underage person, the “host”, the community and law enforcement.  For youth, the statistics are grim. Alcohol is still the drug of choice for youth, and a major factor in the four leading causes of death among persons ages 10-24; motor vehicle crashes, unintentional injuries, homicide and suicide.   Underage drinking is a factor in nearly half of all teen automobile crashes and 60% of all youth suicides.   Teen alcohol abuse is also linked to as many as 2/3 of all sexual assaults and date rapes (of teens and college students) and is a major factor in unprotected sex among youth.

While many believe that underage drinking is an inevitable “right of passage” that adolescents can easily recover from because their bodies are more resilient, exactly the opposite is true.  The brain changes dramatically during adolescence, and this growth can be seriously inhibited by alcohol consumption. Studies reveal that alcohol consumption by adolescents results in brain damage, possibly permanent, and impairs intellectual development.   According to the National Institute of Health, youth who begin drinking alcohol before age 16 are four times more likely to become dependent on alcohol than those who wait to begin drinking until age 21.

If for some reason, the above statistics don’t scare those who furnish youth alcohol, or those who knowingly allow underage drinking at a property they own or control, the law should.

Pursuant to Ohio Revised Code §4301.69(B); Ohio’s “Social Host Law”: “No person who is the owner or occupant of any public or private place shall knowingly allow any underage person to remain in or on the premises while possessing or consuming beer or intoxicating liquor, unless the intoxicating liquor or beer is given to the person possessing or consuming it by that person’s parent, spouse who is not an underage person, or legal guardian, unless the parent, spouse who is not an underage person, or legal guardian is present at the time of the person’s possession or consumption of the beer or intoxicating liquor.”

Further, Ohio Revised Code Section §4301.69 (A) provides that:

“No person…shall furnish {beer or intoxicating liquor} to an underage person…unless the underage person is accompanied by a parent, spouse who is not an underage person or legal guardian.”          

In other words, parents who give alcohol to their teen’s friends (or knowingly allow it), even in their own homes, are breaking the law. While often thought to only apply to parents, the above-cited law in Ohio provides that no person shall furnish or knowingly allow underage drinking on the premises. Accordingly, the statute applies to bar owners as well as homeowners, lessors and others who control real estate.

Violators who knowingly allow a person under 21 to remain in their home or on their property while consuming or possessing alcoholic beverages can be held criminally liable and prosecuted (for up to 6 months in jail and/or a $1,000 fine) and everything associated with the violation can be confiscated, including personal property.

If morbid statistics and criminal liability don’t worry you, how about the prospect of being sued in civil court for all you are worth?

As a result of Ohio Supreme Court decisions (Mitseff v. Wheeler and Huston v. Konieczny) Ohio social hosts can be held civilly liable for death or injuries to:  (1) intoxicated minors [under 18 years of age] who were furnished alcohol by a social host or at a party a social host consented to, and (2) to a third-party who suffered death or injury by an intoxicated minor that was furnished alcohol by a social host or at a party a social host consented to. Ohio law denies recovery where a social host served an adult who becomes intoxicated and then kills or injures a third party. (Note, Ohio also has a number of laws regulating the sale of alcohol, most notably the "Dram Shop" laws (O.R.C. 4399.02 et. seq.), which may hold a bar owner liable for injuries to a third person caused by an intoxicated bar customer, in certain circumstances).

The bottom line, to coin a phrase, which is also the title of the nationally heralded program of Drug Free Action Alliance: “Parents Who Host, Lose The Most: Don’t be a party to teenage drinking”TM (See www.DrugFreeActionAlliance.org).  

During this spring season, Prom and graduation are important milestones in young people’s lives and certainly cause for celebration. Please do your part to make this season safe for everybody. You can protect yourselves, your property and our youth by following these guidelines when hosting parties:

·    Host safe, alcohol-free activities and events for youth during prom and graduation season

·    Refuse to supply alcohol to children or allow drinking in your home or on your property

·    Be at home when your teenager has a party

·    Make sure your teenager’s friends do not bring alcohol into your home

·    Talk to others about not providing alcohol at youth events

·    Report underage drinking to your local Police Department

In other words, “With great power comes great responsibility”- Spiderman (and Stan Lee, Franklin Roosevelt, and a number of others credited with these words). So, if you own or control real property, be responsible. If not, Ohio’s laws, courts and jails will be waiting with a much more painful way to learn about social host/premises responsibility.

Positioning Commercial Property for Sale or Refinancing

While networking at various events, I meet a lot of real estate agents. Every one of them tells me that home inventory is low and homes are flying off the market.  Some have also told me that the home is often sold before an open house can be scheduled. That is good news for Northern Ohio homeowners.

I wish I could say the same for commercial real property. However, whether the property is on the market for sale or being refinanced, the process often moves at a snail’s pace.  Much of that has to do with the extra due diligence that has to be conducted by a buyer and/or a lender before closing.

An owner of commercial real property needs to make the diligence review by a prospective buyer or lender as painless and easy as possible, by keeping good financial record, having a fairly report of an environmental Phase I review and ALTA survey on hand, and possibly even a recent appraisal. 

No one likes unpleasant surprises. Conducting this review ahead of time allows an owner to better prepare for the sale or refinancing process. Significant issues can be resolved before the property goes on the market and armed with the knowledge of the remaining issues allows a seller or his or her agent to approach the right buyers and prepare answers for any lender. 

The speed of any sale or refinancing can also depend on which lender is chosen. Smaller regional lenders and community banks or S&L’s, can typically, but not always, move more quickly.  One lender of a regional bank recently informed me that they were able to close on a commercial real estate mortgage loan in two weeks because the borrower was so organized and had all the diligence and financial information ready that they needed to take to their approval committee for review. 

While no property owner can ultimately control the speed with which a buyer or lender can act, the odds of a timely, painless closing are substantially increased when the owner is organized and prepared.

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