The Counselor

Major Revision to Maryland Power of Attorney Act

June 29, 2010

Major Revision to Maryland Power of Attorney Act Effective October 1, 2010 will have substantial Impact on Real Estate Transactions Using a Power of Attorney

The Maryland Legislature has made a major revision to its Power of Attorney statute which could have a significant impact upon real estate transactions wherein a Power of Attorney is being used. The new Maryland General and Limited Power of Attorney Act (Annotated Code of Maryland, Estate and Trusts Article, Sections 17-101 through 204), which applies to every power of attorney executed on or after October 1, 2010, will require that, in addition to being signed before a Notary Public, every Power of Attorney be “attested and signed by two or more adult witnesses who signed in the presence of the principal and in the presence of each other.” This will essentially require the same (or arguably greater) formality for a Power of Attorney as is presently required for execution of a Last Will and Testament. The Notary Public may serve as one of the required adult witnesses. Interestingly, the Real Property Article was not revised and still requires only that Powers of Attorney have the same formality as a Deed. In spite of this, we believe that compliance with the new law is required to have a valid Power of Attorney.

The bill does provide that a power of attorney executed in a foreign state or a military power of attorney will remain valid and enforceable in Maryland provided that, at the time it was executed, it complied with the law of the jurisdiction in which it was signed (for out of state Powers of Attorney) or federal law (for military Powers of Attorney).

The new statute also provides two optional statutory power of attorney forms, stating that “a person may not require an additional or different form of a power of attorney for any authority granted in a statutory form power of attorney” and providing penalties for a refusal to accept one of these forms. However, the statute does not preclude the use of other Power of Attorney forms provided that they are properly executed. These forms do contain specific provisions for real estate transactions, but are not as comprehensive as those prepared by real estate professionals. To read more about the Act and see the forms, you may visit http://mlis.state.md.us/2010rs/chapters_noln/Ch_689_hb0659E.pdf.

Lastly, the bill provides that a photocopy or electronically transmitted copy of an original power of attorney is as valid and binding as the original but permits a clerk of the court to refuse to record a copy. In light of this language, it is our opinion that it is highly questionable that clerks will accept copies.

Accordingly, Real estate practitioners should ensure that any Powers of Attorney executed after October 1, 2010 be properly witnessed and notarized. It is also highly recommended as a best practice that, in spite of the availability of the statutory forms, parties to a real estate transaction continue to obtain approved real estate specific Limited Power of Attorney forms from the title company to ensure compliance with all legal and lender requirements and title insurance underwriting guidelines in the transaction.

First Time Homebuyer Tax Credit

December 2, 2009

FIRST-TIME HOMEBUYER TAX CREDIT

2nd Modification of the American Recovery and Reinvestment Act effective November 6, 2009

	*Jan 1 – Nov 30, 2009 CREDIT*	*Dec 1, 2009 – Apr 30, 2010 CREDIT***
Amount of Credit	Lesser of 10 percent of cost of home or $8000 ($4000 married filing separate)	Lesser of 10 percent of cost of home or $8000 ($4000 married filing separate)
Eligible Property	Any single family residence (including condos, co-ops, townhouses) used as a principal residence.	No change All principal residences eligible.
Refundable	Yes. Reduces (or can eliminate) income tax liability for the year of purchase. Any unused amount of tax credit refunded to purchaser.	No change Purchasers will continue to receive refund for unused amount when tax return is filed.
Income Limit	Yes. Full amount of credit available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return). Phases out above those caps ($95,000 and $170,000).	Yes. Full amount of credit available for individuals with adjusted gross income of no more than $125,000 ($225,000 on a joint return). Phases out above those caps ($125,000 and $225,000). *
First-time Homebuyer Only	Yes. Purchaser (and purchaser’s spouse) may not have owned a principal residence in 3 years previous to purchase.	No change as to 1^st time homebuyers* Current Homeowner (PR 5 of past 8 yrs) eligible for up to a $6500 credit ($3250 married filing separately)
Repayment	No repayment for purchases on or after January 1, 2009 and before December 1, 2009	No repayment for purchases on or after December 1, 2009 and before July 1, 2010 (must have contract before April 30, 2010)
Recapture	If home is sold within three years of purchase, entire amount of credit is recaptured on sale. Applies only to homes purchased in 2009.	No change If home is sold within three years of purchase, entire amount of credit is recaptured on sale.
DC Tax Credit	Homeowners are NOT eligible for both credits.	No Change
Termination	December 1, 2009 (But note program changes for 2009)	April 30, 2010 to contract July 1, 2010 to close
Effective Date	All revisions are effective as of January 1, 2009	All revisions (except as indicated) effective as of December 1, 2009
Limitation on Cost of Home	No limit	$800,000 adjusted basis effective November 6, 2009
Purchase by Dependent	No Provision	Ineligible effective November 6, 2009
Anti-Fraud Rule	None	Must attach documentation of purchase to tax return

* Note - DC First-Time Homebuyer Credit Eligibility:

1. Buy a home in the District of Columbia (one must not have owned a home in D.C. within one year of the qualified purchase);

2. Occupy the property as their principal residence; and

3. Meet the following income Requirements:

Single Filers – with up to $70,000 in modified Adjusted Gross Income (AGI) receive the benefit of the entire $5,000 credit. People with a modified AGI of between $70,000 and $90,000 are entitled to a partial credit. For those with a modified AGI between $70,000 and $90,000 the credit is reduced by $250 for every one thousand dollars over $70,000.

Joint Filers - with up to $110,000 in modified AGI receive the benefit of the entire $5,000 credit. Couples with a modified AGI of between $110,000 and $130,000 are entitled to a partial credit. For those with a modified AGI between $110,000 and $130,000 the credit is reduced by $250 for every one thousand dollars over $110,000.

** Note - Parties have up until July 1, 2010 to close on contract ratified before April 30, 2010

NEW RULE FOR BROKERS REGARDING HOLDING DEPOSIT CHECKS IN MARYLAND

September 1, 2009

Holding Deposit Checks in Maryland

(MD.CODE.ANN. B&O Sec. 17-502 et. seq.)

There has been a great deal of confusion regarding the Maryland Real Estate Commission’s statement from its most recent meeting regarding dealing with deposit checks in Maryland. Maryland law regarding the depositing of trust money by brokers is as follows (emphasis added):

§ 17-502. Handling of trust money.

(a) Submission to brokers by associate brokers and salespersons.- An associate real estate broker or a real estate salesperson who obtains trust money while providing real estate brokerage services promptly shall submit the trust money to the real estate broker on whose behalf the associate real estate broker or the real estate salesperson provided the real estate brokerage services.

(b) Deposits by brokers; restricted use.-

(1) Except as otherwise provided in subsection (c) of this section, a real estate broker promptly, but not more than 7 business days after the acceptance of a contract of sale by both parties, shall depsoit trust money in an account that is maintained by the real estate broker;

(i) separately from the real estate broker's own accounts; and

(ii) solely for trust money.

(2) A real estate broker may not use trust money for any purpose other than that for which it is entrusted to the real estate broker.

(c) Exception.-Subsection (b)(1) of this section does not apply if the real estate broker receives written directions to the contrary as authorized under § 17-505(d) of this subtitle.

At its most recent meeting, the Maryland Real Estate Commission stated that, in spite of the provisions of §17-502(c) above, “for the sake of simplicity, control, insurance of compliance and to protect our membership from penalties associated with noncompliance”, that Brokers MUST deposit earnest money checks within the 7 business day time period identified in §17-502(b)(1) regardless of any written directions to the contrary by the clients. This ruling DOES NOT apply to an entity other than a broker, such as a Title Company.

Therefore, in the event that the parties direct that the deposit check be held beyond seven (7) days from contract ratification, the Escrow Agent identified in the Contract to hold the deposit must be an entity other than a broker, such as a Title Company.

DC Recordation Tax Rate Increase Does NOT Apply to Most Transfers

September 30, 2008

D.C. Recordation Tax Rate Increase effective October 1, 2008
ONLY applies to Economic Interest Deeds, NOT to most transfers

On September 17, 2008, the D.C. Office of Tax and Revenue issued a Notice of an increase in the Recordation Tax rate for Economic Interest Deeds from 2.2% to 2.9% effective October 1, 2008. This increase is applicable ONLY to deeds that evidence a transfer of an economic interest in real property, NOT to most deed transfers.

A transfer of an economic interest in real property "occurs upon the conveyance, vesting, granting, bargaining, sale, or assignment, directly or indirectly, of a controlling interest by 1 or more persons or by 1 or more transactions, within any 12-month period, in any corporations, partnership, association, trust, or other entity that, during the 12 month period immediately preceding the transfer of an economic interest in real property: (1) Derives more than 50% of its gross receipts from the ownership or disposition of real property in the District; or 2) Holds real property in the District that has a value comprising 80% or more of the value of its entire tangible asset holdings." (See D.C. Code Annotated, Section 42-1102.02). Accordingly, this increase will only apply in very limited circumstances and will NOT apply to most residential or commercial real estate sales. In fact, according to Larry Todd, D.C. Recorder of Deeds, this will affect only 10-15 recordings per year.

The Transfer and Recordation Tax rates for all other real property transfers in the District remain the same, namely 1.1% of the sales price for all residential purchases below $400,000.00 and 1.45% for all non-residential purchases and residential purchases of $400,000.00 and above. Typically, the Seller pays the Transfer Tax (1.1% or 1.45%) and the Purchaser pays the Recordation Tax (1.1% or 1.45%).

The foregoing was prepared by the Law Firm of Darby, Nalls, Smyth & Muldoon, LLC, General Counsel to Counselors Title, LLC for general informational purposes. It is not intended as legal advice. Any additional detailed questions should be directed to an accountant or a tax attorney.