Property Transfer

Conveyance of a life estate and the fee remainder triggers reassessment, unless exempt

Reported by: Alex Gomory


Upon the death of a property owner, a life estate was conveyed to the deceased owner’s sister and the remainder of the fee estate to members of the sister’s family, none of who qualified for exemptions from reassessment.  Due to these transfers of ownership, the county reassessed the life estate’s value, resulting in a higher property tax. The sister paid the increased tax and then sought reimbursement, claiming a change in ownership had not occurred to trigger a reassessment since the sister inherited only the right to use the property in her lifetime. The county claimed the reassessment was proper since the entire ownership of the property had been transferred at the time of death, part to the life estate and the remainder to other beneficiaries, with no interest retained by the deceased. The California Supreme Court held the sister was not entitled to a refund of property taxes paid due to the reassessment upon the transfer since the deceased owner, on death, had transferred all of his interest in the property to assorted individuals who were not exempt from reassessment. [Steinhart v. County of Los Angeles (2010) 47 C4th 1298]

Editor’s Note — Intra-family transfers that bypass property tax reassessments are limited only to spouses, parent-child, and, in some cases, grandparent-grandchild transfers. Sibling transfers do not qualify.

Underwriting Fee

Fee amount for mortgage lender’s underwriting is not controlled by RESPA limitations

Reported by: Alex Gomory

A borrower refinanced a home mortgage loan with a lender and was charged an underwriting fee he thought to be excessive for the service involved. The borrower sought to reduce the fee to a reasonable amount for the actual underwriting service, claiming the fee was prohibited by the Real Estate Settlement Procedure Act (RESPA) since the amount of the fee was not related to the value of the underwriting services provided. The lender claimed the fee was permitted by RESPA as the charge was for a service actually provided for the borrower and the amount could not be questioned since RESPA only requires a service to have been rendered to collect a fee and does not restrict the amount a lender may charge for services provided. A U.S. court of appeals held the lender’s charge collected for the service was valid and the amount could not be contested since RESPA only requires a service to actually be performed for the fee and does not restrict the amount of the fee for the services provided. [Martinez v. Wells Fargo Home Mortgage Inc. (March 9, 2010) _F4th_]

Tax Exemption

No transfer of assessment on a sale and replacement of a principal residence vested in corporation

Reported by: Alex Gomory

A homeowner transferred title of his principle residence to a corporation which he solely owned. The county erroneously granted the corporation a homeowner’s exemption on the transfer of title. The homeowner later sold the residence and bought a replacement residence of lesser price than the price received for the residence sold. The homeowner applied to the county for a transfer of his assessed value on the prior residence to the new replacement residence. The county refused, and assessed his replacement residence at the price he paid for it which resulted in increased property taxes. The owner sought a refund for overpayment of his property tax, claiming the county’s granting of an exemption on a previous transfer to the corporation set a precedent for the vesting of his principal residence. The county claimed the transfer of the assessed value on the prior residence to the replacement residence was not permitted since the corporation, not the homeowner, held title to the properties. A California court of appeals held the owner was not eligible to transfer his assessed value of the prior residence he sold to the replacement residence he acquired since the owner held title vested in his corporation, and a corporation is ineligible to receive a homeowner’s exemption – regardless of the county’s failure to disallow a homeowner’s exemption for the property on the previous transfer of vesting to the corporation. [Grotenhuis v. County of Santa Barbara (2010) 182 CA4th 1158]


Active participant in an LLC held a general partner for purpose of filing losses

Reported by: Alex Gomory

A limited liability company (LLC) member participated in the management and business operations of an LLC. The member sought to write off his share of the LLC operating losses as an adjustment to his gross income for income tax reporting, which the IRS disallowed. The member challenged the disallowance of the loss deduction, claiming they were categorized as trade or business losses since his participation in the LLC was significant, and he put in the required amount of time and work to be considered, for income tax purposes, a general partner in the LLC and a material participant in the business. The IRS claimed the member held a limited partnership interest in the LLC and thus his losses were properly categorized as passive activity losses since his liability for the business activities of the LLC was limited by his membership in the LLC, regardless of the amount of time or type of work he engaged in. A United States Tax Court held the tax deduction was to be allowed since the LLC member was not a limited partner for tax purposes but was to be treated as a general partner due to his active participation in the operation of the LLC. [Newell v. Commissioner of Internal Revenue (2010) 2010 USTC 2003]