Residential Real Estate
For most individuals, the purchase of a home represents the largest investment they will ever make. Whether it is a “starter” home in Ely, a country home in Duluth, or a cabin on Lake Vermilion, protecting your investment is our primary concern.
Each lawyer at Klun Law Firm strives to take the worry and anxiety out of buying or selling a home.
Typical Real Estate Transaction with Lender
A real estate lending transaction often begins with a mortgage application. The loan application is usually prepared by the lender for the borrower’s signature. Upon receipt of the application, the lender completes its underwriting process and decides whether or not to offer to make a mortgage loan to the borrower.
If the lender decides to make the mortgage loan, it usually prepares a written offer—called a mortgage loan commitment—to make a mortgage loan. Mortgage loan commitments are frequently prepared by loan officers or in-house lawyers. In complicated or unusual transactions, however, a lender might ask its outside counsel to prepare the commitment. Upon receipt of the mortgage loan commitment, if the borrower decides to proceed with the transaction, the borrower accepts the commitment by signing and returning it to the lender, often accompanied with a fee paid to the lender.
Upon the borrower’s acceptance of the commitment, the lender will usually obtain an appraisal of the real estate serving as collateral for the loan, and an environmental study of the real estate, called a Phase I. The lender will also order title work in the form of a title insurance commitment from a title insurance company and sometimes obtain an engineering or other professional analysis of the real property and its operating systems.
At some point in this process, the lender will also direct its lawyer to prepare the documents. When the lender’s lawyer has completed the documents, the documents will be forwarded to the borrower and the borrower’s lawyer for review. After negotiations, the lender’s lawyer will place the documents in final form.
If the appraisal of the property, environmental reports, title insurance commitment, engineering or other professional reports, and documents are satisfactory, the parties will close the loan transaction. This process often (but not always) involves a face-to-face meeting between the lender and borrower, called a “closing.”
At the closing, the borrower will execute the loan documents, and the lender will provide the loan proceeds to the borrower. It is not uncommon, however, for the loan to be made without a formal closing. In this situation, without meeting face-to-face, the borrower will make arrangements to execute the closing documents, often through the services of a closer at a title insurance company, and the lender will make arrangements to make the loan upon the borrower’s execution of the documents.
Twenty-five percent of homes have a septic system. To protect home buyers from costly and frustrating septic issues, St. Louis County created an ordinance often called a point of sale requirement, states that a home cannot be sold unless one of the following requirements is met:
- The seller discloses to the buyer that there is not a sewage treatment system on the property
- The property has a sewage treatment system with a vaild certificate of compliance or notice of non-conformity
- The seller and buyer file a transfer agreement with the St. Louis County Environmental Services Center
If you are a home owner, it is in your best interest to get a septic inspection often. A valid certificate of compliance lasts three years, so having the system inspected in a timely manner can save the property owner, a potential property buyer, and other parties a vast amount of time and money.
At the time of sale a home owner must disclose the status of all wells on the property along with a valid sketch of the location of each well. In St. Louis County and Lake County a well is not required to be tested or inspected at the time of sale, but often the lending institution may require a well test and inspection in order to protect the buyer. Often water contaminants are found leaving the seller distraught and unable to close on a home. Having well testing and inspections done regularly along with the above mentioned septic testing can truly save a land transaction.
At Klun Law, we have experience working with businesses to support commercial and business development. In order to complete a mutually agreeable transaction we regularly draft agreements involving retail buildings, office buildings, manufacturing facilities, land with developmental potential and the construction of commercial buildings. We can provide advice regarding joint ventures, construction planning, development funding, loan and grant assistance and environmental issues.
Commercial development typically includes the coordination of land developers, surveyors, building contracts, real estate agents and small businesses. Working with all these entities, we help facilitate property purchases, sale and leasing contracts. We can help facilitate contracts to build business parks, office buildings, ports and water fronts, retail parks, shopping malls and centers, shopping streets and districts and warehouses.
At Klun Law, we also want your business to grow. We provide business development assistance to your business to support marketing, sales, attracting new customers and penetrating markets. We want to help you boost your business and maximize profitability. We do this by assisting you in fostering relationships with your customers and clients. Sometimes this may mean you need our sharp negotiation skills. Sometimes you might need us to review a contract for you. Either way, it is our objective to help you implement strategies for development to satisfy your clients.
We understand the businesses want to identify new business opportunities. At Klun Law, we are here to support your business, whether you are identifying new markets, new partnerships with other businesses, new ways to reach existing markets or new products/.services to better meet the needs of existing markets, our job is to support your business. We can help you bring new opportunities you have identified to fruition. We can assist you in closing deals with organizations you want to develop business with.
We can help you by:
- Reviewing sales development strategies
- Negotiate new sales relationships to increase business volume
- Creating sales contracts
- Negotiating and closing real estate purchases and business deals
Buying, Selling & Transferring Property
Conveying title to property in the correct manner is important.
Real estate is most family’s most valuable asset. Sometimes a deed needs to be transferred to a family member after a will is probated.
There are many types of deeds that can be used in the transfer of property in Minnesota. These include warranty deeds, where some guarantee of the condition of the property is made and quitclaim deeds, where no warranty of the property is made. Quitclaim deeds are typically used when no warranty is needed, such as transfer of title to family member or to a former spouse as part of divorce proceedings.
At Klun Law Firm we can make sure your deed, the document through which you transfer property, is put together correctly. Our Minnesota Real Estate Attorneys at Klun Law can also make sure that the deed gets filed in the correct recorder’s office after the sale of a piece of property. Because boundaries and easements are typically laid out in the deed to the property, it is important to make sure it is accurate and precise.
Passing the Cabin on to Family
The Lake is truly a magical place. For years or perhaps decades, family, friends and loved ones have gathered at the family cabin to build and share memories that span generations. The fun-filled campfire conversations are priceless. Of equal importance, are the conversations spent discussing the future of the family cabin.
If your goal is to pass on the family cabin to the next generation, planning ahead is crucial. Together you can determine how the cabin will best fit into the family’s future. For example, perhaps not all family members are interested in continuing to own the cabin or perhaps not all family members have the financial resources to maintain the cabin. Inevitably, part of the communication process involves the preparation of an estate plan. The plan must be tailored to fit your family’s needs. A cabin trust just one estate planning tool that can be utilized to help maintain and pass on the family hideaway. For example, specific trust provisions could provide future instruction to your family on important issues such as taxes, maintenance, insurance, ownership and a potential sale.
Through open, honest communication and with the right planning, you and your family can ensure the family cabin remains a source of joy and respite for your family. The preparation of an estate plan should be thought of as a priceless preventative tool. Talk with your family today and take that next step of developing an estate plan that protects both your family and your private hideaway.
Setting the Stage for Future Generations to Keep the Cabin
Problems frequently arise when the “do nothing” plan results in equal undivided interests in the adult children as tenants in common, whether they acquired title in that fashion as a result of lifetime gift, or inheritance by Will, Trust, or intestate succession. The Attorneys at Klun Law Firm will help you navigate the estate planning waters. For over 30 years, we help helped thousand of families pass on the family cabin.
The Usual Problem: Unequal Use, Maintenance, and Payment of Costs
The common situation is where three adult children, for example, inherit the cabin. One pays the majority of the costs, and the other two will justify that to themselves and to each other by referring to the fact that this adult child has the best ability to pay. A second adult child is a handyman, and is constantly at the lake fixing things and keeping the place maintained. The other two children may justify that by stating that this adult child is the best at doing this. A third adult child is an avid fisherman, and doesn’t chip in much at paying the expenses (he’s put too much money into his expensive boat) or helping out with maintenance (it takes time away from being out on the water, and that’s what it’s all about, anyway). Layered on top of this is that the cabin can’t accommodate all three of them with their families at once. They need some sort of lottery system to address the use. Add to the facts that child one lives out of state, loves the place dearly, and really wants exclusive use of it during July 4th week, and we have the formula for disaster. Unfortunately, cabins have been sold in many of these situations.
There are a number of other issues that also arise if this is considered in a long-term perspective:
- What if one of the adult children dies?
- Is the one-third interest an available asset if one child goes to a nursing home?
- What if one of the one of the adult children has a financial problem: bankruptcy, judgment, tax lien, or child support arrearage?
- How to handle major repairs or improvements to the property?
One answer to the problem, probably from an estate planning attorney, is to use a trust agreement. They may include a life estate to an aging parent or parents, and leave ownership in the trust itself until the last of the adult children dies. At that point, the trust can distribute to the grandchildren of the settlor. To avoid a violation of the rule against perpetuities, the trust probably shouldn’t continue beyond the generation of the adult children.
Advantages of Cabin Trusts
- Familiarity. Trusts are entities that estate planners use all the time. Existing trust forms can be modified to work.
- Superior device for distribution. Trusts are true estate planning entities, and probably work best at the distribution to the right people whenever they terminate.
Drawbacks of Cabin Trusts
- No perpetual existence. They don’t have perpetual existence, because the rule against perpetuities applies.
- They aren’t easy to amend. They are either irrevocable in the first place if they are intended to shelter from nursing home costs, or else they become irrevocable once the aging parent/settlor dies.
- Shares can’t be changed. The shares can’t be changed over time to reflect the unequal contribution of labor or money or the unequal use of the property.
- Distribution can’t be changed. The ultimate payout provisions are probably cast in stone. About the only flexibility that can be easily built in is a general or special power of appointment.
- Who is the trustee? This can be a true dilemma. Are all three adult children named as co-trustees, and a majority vote sufficient to bind the trust? Is one child chosen? Is there any power of removal?
- Difficulty in fulfilling fiduciary duties owed to remainder beneficiaries. The adult children are essentially lifetime beneficiaries of the trust. If they also serve as trustee(s) and make certain decisions benefitting them individually and negatively affecting the remainder beneficiaries, their fiduciary duty may have been breached.
Using a Business Entity
Using a business entity seems to make some sense to eliminate some of the above problems.
Advantages of Using a Business Entity
- Perpetual existence. An entity with perpetual existence solves a number of the problems.
- Ability to amend controlling documents. The ability to amend the controlling documents over time is very appealing.
- Ability to alter the shareholders and number of shares. The ability to alter the number of shares is probably something that the family will want or need as time goes by.
- Transfer restrictions. Just as any other small business entity, one established for ownership of the cabin can contain transfer restrictions intended to accomplish several goals: preventing sale to an outside party without agreement; valuation and payment provisions in case of a bona fide sale; and valuation at lowest justifiable level and payout provisions at the slowest possible rate in case of divorce, bankruptcy, or other involuntary transfer.
Disadvantages of Using a Business Entity
- Legal and Accounting Fees. The costs of establishing the entity and maintaining it are new expenses the family hasn’t had in the past.
- A corporation or LLC will need corporate minutes and will need to generally comply with the formalities of any small incorporated business to maintain its integrity as a separate legal entity. If a business entity is used to make the cabin an unavailable asset for Medical Assistance purposes, this should be taken seriously by both the attorney and the family.
- If any income is recognized, there will be additional tax returns. The entity will need an employer’s identification number from the IRS. From a tax perspective, it is probably cleanest to recommend an entity that is a pass through entity, reporting its income, deductions, and credits to the shareholders on K-1 schedules without any change in character.
- Need for a “Business Purpose.” Minnesota’s business entity statutes require a business purpose. If an entity is scrutinized by the IRS in a tax audit, it will need a business purpose. Query whether this is met by owning real estate for future appreciation in value. Payment of rent by family members should fulfill the requirement.
- Loss of Potential to Exclude Capital Gains on Sale. Had the cabin been kept in mom and dad’s names individually, they could have potentially made it their principal residence within the tax code definition to exclude gain on sale. The 1997 amendment to the tax code permits exclusion of up to $250,000 of gain by an individual or $500,000 by a married couple on the sale of their principal residence. The property must have been their principal residence for two out of the last five years. IRC §121.
- Many Minnesota snowbirds have sold their lifelong family home (excluding the gain on the sale under §121) and used the proceeds for “fixing up” the cabin and purchasing or renting a place in the sunbelt for the winter months. If the cabin is later sold, the gains on its sale can also be excluded under §121 if the “two of the last five years” test is met. The exclusion is available to the taxpayer as often as every two years §121(b)(3). Short absences, such as two-month vacations, don’t interrupt the period of use, even if the property is rented out during those times. Reg. 1.121-1(d). Considering that most cabins have considerable gains against them, this can be the loss of a significant tax advantage.
- Loss of Potential to Receive Minnesota Homestead Real Estate Tax Exemption. If mom and dad sell their house, move to the cabin as their primary residence, and hold title individually, the cabin should qualify for the Minnesota homestead real estate tax exemption. Minn. Stat. §273.13, Subd. 22. Changing ownership to a business entity will result in loss of the exemption because businesses don’t qualify. Given the difference in rates, this can be a big drawback that should be discussed with clients and memorialized in a letter to avoid finger pointing later.
Zoning, Land Use, Platting, Subdivision, Septic, Subdivision and Well Issues
Private development often includes zoning, land use, platting, and subdivision issues. Our diversified background provides us with the unique ability to resolve even the most complicated issues. We are prepared to represent individual and business clients’ interests before governmental bodies, including city councils, planning commissions, and economic development authorities.
Twenty-five percent of homes have a septic system. To protect homebuyers from costly and frustrating septic issues, St. Louis County created an ordinance often called a point of sale requirement, states that a home cannot be sold unless one of the following requirements is met:
- The seller discloses to the buyer that there is not a sewage treatment system on the property
- The property has a sewage treatment system with a valid certificate of compliance or notice of non-conformity
- The seller and buyer file a transfer agreement with the St. Louis County Environmental Services Center
If you are a homeowner, it is in your best interest to get a septic inspection often. A valid certificate of compliance lasts three years, so having the system inspected in a timely manner can save the property owner, a potential property buyer, and other parties a vast amount of time and money.
At the time of sale, a homeowner must disclose the status of all wells on the property along with a valid sketch of the location of each well. In St. Louis County and Lake County a well is not required to be tested or inspected at the time of sale, but often the lending institution may require a well test and inspection in order to protect the buyer. Often water contaminants are found, leaving the seller distraught and unable to close on a home. Having well testing and inspections done regularly along with the above mentioned septic testing can truly save a land transaction.
Surveys in Real Estate Transactions
The survey is used to confirm that the real estate described in legal documents is the same real estate that is contemplated by the parties to a transaction. It is used to describe how other real estate interests impact the subject property and to understand their significance The survey is a visual tool used to understand complex real estate interests and that may serve as the basis for a legal claim if the survey is inaccurate, either against the surveyor or a title company.
Does the law supply a right of access to every landlocked parcel?
Not necessarily. While Minnesota law has established the cartway as a statutory mechanism to provide access where none is otherwise available, this mechanism does not guarantee access in every situation.
The proper body to establish a cartway is the town board or, if the township is unorganized, the board of county commissioners for the county in which the tract to be accessed by the cartway is located.
Two statutes are relevant. Minn. Stat. § 164.08, subd. 1 provides that a cartway may be established in extremely limited circumstances: the cartway cannot be more than one-half mile in length, must be sought by a petition signed by at least five voters who are “freeholders of the town,” must be established on a section line, and must serve a tract of land consisting of at least 150 acres, of which at least 100 are tillable. By contrast, § 164.08, subd. 2 provides that a cartway shall be established upon petition by the owner of a tract containing at least five acres, and who has no access except over the lands of others, or whose access is less than two rods (33 feet) in width. Subd. 2 also provides that a cartway shall be established upon petition of an owner of a tract that, as of January 1, 1998, was of record as a separate parcel, contains at least two but less than five acres, and otherwise has no access.