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Do-it-yourself deeds offer traps for the unwary
It has become common to use form legal documents found on the internet. There is a real incentive to do so for personal matters, given the high cost of legal services. These include matters like selling or gifting real estate to a family member.
How safe is it to do it yourself? Here is a list of issues to consider for the do-it-yourself preparer of a deed transferring real estate, including issues that won’t be apparent on the face of the deed form you use, even if you have a valid form of Michigan deed from which to start.
Get the names right. Title won’t transfer if the name of the grantor listed on a deed transferring the property doesn’t match the name in which that grantor received title. Look at the most recent deed. Match the spelling and middle names or initials of the grantee. Consider and explain name changes due to divorce and reference deaths of spouses or joint tenants that occurred since title was received. Record such death certificates with the deed.
Use the proper legal description. An address, tax parcel number or abbreviated land description from a tax bill aren’t sufficient descriptions for a deed. Again, look at and match the legal description on the deed received by the grantor. If the grantor already transferred parts of the land described in its deed, then the descriptions of those prior transferred parcels must be excepted from the description on the new deed.
Put the deed in recordable form. Your deed is worthless if the register of deeds refuses to record it. Michigan law has many requirements — including size of type and margins, addresses and describing who prepared the deed — that must be met before a deed may be recorded. Often, the website of the county register of deeds lists these requirements. Check it before preparing your deed. Record the deed in the county where the property is located.
Claim exemptions from transfer taxes. Michigan levies steep transfer taxes totaling $8.60 per thousand dollars of a property’s fair market value stated on the deed. These taxes are payable when you record the deed. However, there are many possible exemptions you may claim for all or part of these taxes for sales to family members or gifts. You must claim these exemptions on the face of your deed. Check the transfer tax laws for lists of exemptions.
Claim exemption from property tax reassessment. Any transfer of Michigan real estate automatically results in property tax reassessment to reflect its current fair market value, as well as a possible significant increase in property taxes. Many possible exemptions from reassessment are available, such as for transfers to spouses or trusts, of residential property to family members or of agricultural property. These must be claimed by filing a property transfer affidavit with your municipal tax assessor.
Consider other tax implications. Keep in mind that any gift or bargain sale of real estate may require filing of a federal gift tax return and/or payment of gift tax. Some exemptions may apply, as for annual gifts by a giver to a recipient of no more than $15,000 or gifts to charity. And if the property is to be used as a principal residence, you must prepare and file an affidavit for principal residence exemption. Failing to do so will subject the residence to 18 mils of additional property tax.
Consider land division. If you are subdividing land not described by reference to a plat, e.g., not as “Lot 1 of Jones Plat,” then you must comply with Michigan’s Land Division Act. Even if you aren’t subdividing land, Michigan law requires you to include certain language in a deed of unplatted land and state how many division rights you are transferring. Failure to state how many rights are transferred means zero are transferred, destroying rights that may be valuable for a future subdivision.
Preparing a deed of real estate is not as easy as you might think — or the internet might suggest. A good form is only a good starting point. It must be customized to fit your precise transaction. And you must be wary of potential costly traps posed by transfer taxes, property tax reassessment and other tax implications.
Bill Hall is a partner with the law firm of Warner Norcross + Judd LLP, where he often assists in the planning, acquisition and development of commercial and residential properties. He can be reached at email@example.com.