DEAR BOB: Recently I saw a newspaper article about work done on a house without a building permit. I have had much work done to my home without permits. When I sell the house, is this a case of “buyer beware”? Or could there be a problem with the building inspectors if the buyer wants to make a stink? My house now has more square footage than shown on the official county records. Would I be taking a risk if I mention my home’s square footage? –Steve M.
DEAR STEVE: Shame on you for renovating and expanding your home without building permits. When you decide to sell your home, you will regret not following the permit rules.
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You ask if this is a case of “buyer beware.” Today’s rule has become “Home seller beware of the buyer.” To protect yourself from after-sale lawsuits, you must disclose all known defects with the house, including the lack of building permits.
A buyer who purchases your house should demand a large discount for the risk he or she is taking. If the buyer decides to make improvements requiring a building permit, the building inspector could insist the illegal improvements be “legalized.” The building inspector might demand opening up the walls to inspect the wiring and plumbing.
Because your house now has more square footage than shown on the official tax-assessment records, if the assessor discovers this you might be assessed for back taxes, called “escaped taxes.”
When the buyer’s mortgage appraiser evaluates your home and checks the official records, the appraiser will deduct market value for the illegal space you added. In summary, you made a serious mistake by not obtaining building permits for the work performed on your home.
OFFER MONEY TO GET STEPMOTHER OFF THE DEED
DEAR BOB: In 1980 my father set up the title to his condominium with his wife … as joint tenants with right of survivorship, a life use … with the remainder to me, his son. In 1981, his wife divorced him. But the divorce attorney failed to remove her life use from the condo title. My father died in 1986, and I have been living in the condo and paying all the taxes and maintenance ever since. How do I get my stepmother’s name off the title? –Robert P.
DEAR ROBERT: The easiest solution is to offer your stepmother money for her quitclaim deed to you. Be sure it is properly prepared by a local real estate attorney so it clearly gives up all her rights to the condominium. Whoever drew up that deed to the condo did a very poor job. The issue of a “life use” should have been resolved at the time of the divorce.
Depending on state law where the condo is located, you might be able to claim title to the condo by adverse possession if you occupy it without your stepmother’s permission. But adverse possession is a “stretch,” and I would use that legal argument only as a last effort.
If your stepmother refuses to cooperate with you, your best alternative is to bring a quiet title lawsuit against her in the county where the condo is located, asking the court to determine her rights after the divorce, if any. You will need a real estate attorney because this is not a do-it-yourself project.
$20,000 PREPAYMENT PENALTY WAS BORROWER’S FAULT
DEAR BOB: Several years ago I refinanced my home through a mortgage broker recommended by a friend. He repeatedly assured me there would be no prepayment penalty. When I sold my home in March 2007, I was charged a $20,000 prepayment penalty. I contacted the mortgage broker who said it was done in error and there was to be no prepayment penalty. Washington Mutual said if my buyers had financed through them the prepayment penalty would have been waived. In the meantime, I am out $20,000. When I signed the loan papers I failed to notice the prepayment penalty, as I was in a hurry to get to another meeting. Do I have any recourse? –Lyn T.
DEAR LYN: No. You have only yourself to blame. You should not have signed in haste the loan papers, which clearly stated there was a prepayment penalty.
Oral promises mean nothing in real estate. Everything must be in writing to be enforceable. That was a very expensive lesson for you to learn. In the future, read before you sign.
WHY VACATION HOME DOES NOT QUALIFY FOR TAX-DEFERRED EXCHANGE
DEAR BOB: My husband and I are in the process of selling our vacation home. We plan to do an Internal Revenue Code 1031 tax-deferred exchange to buy a house with our daughter. She does not own any property now. I just read in your column that in an IRC 1031 exchange the names on the titles to the old relinquished property and the new acquired property must be exactly the same. As our daughter will be on the new title and she will live in the house, does this mean we cannot do an IRC 1031 exchange? –Kay R.
DEAR KAY: A vacation home does not qualify for an IRC 1031 tax-deferred exchange unless it has been a 100 percent rental property for at least 12 months. All properties in an IRC 1031 trade must be held for investment or use in a trade or business. Obviously, your vacation home doesn’t qualify.
Another reason the situation you describe doesn’t qualify for an IRC 1031 exchange is your daughter will be occupying the acquired house as her personal residence. That is another disqualifying reason. For full details, please consult a tax adviser who is experienced with tax-deferred exchanges.
HOW TWO CO-OWNERS CAN FORCE SALE OF A HOUSE
DEAR BOB: Three of us own a house together. Two of us want to sell, but one co-owner doesn’t want to sell. The one who opposes a sale can’t afford to buy out the other two of us. He refuses to sign a listing to sell. Is there any way we can get this house sold although the third co-owner says he won’t sign any sales papers? –Richard D.
DEAR RICHARD: Yes. The two co-owners who want to sell should bring a partition lawsuit to force a sale of the property.
After the judge orders the sale, the uncooperative co-owner then must cooperate or he will be in contempt of court. For details, please consult a local real estate attorney in the county where the house is located.
$250,000 TAX BREAK DOES NOT REQUIRE HOUSE TO BE YOUR HOME AT THE TIME OF SALE
DEAR BOB: My Florida house has been on the market for sale for one year. I am anxious to move to be nearer my relatives. I have lived in the house for three years and there is no mortgage. When I move out of state and change my address to secure a job there, living with my daughter until I sell my house, will I forfeit the $250,000 tax break? I can’t afford to lose that exemption even if I have to stay in the house until it sells. –Ellie G.
DEAR ELLIE: If your home is unsold after a year on the market, it is obviously overpriced. You may have a bad real estate agent marketing it. Unless you change your sales strategy, you’ll never get that house sold.
To qualify for the Internal Revenue Code 121 principal-residence-sale capital gains tax exemption up to $250,000 (up to $500,000 for a qualified married couple), you must have owned and occupied the home as your primary residence at least 24 of the last 60 months before its sale.
That means you can rent the house, or leave it vacant, for up to 36 months after moving out without losing the exemption (presuming you occupied it the previous 24 months). For full details, please consult your tax adviser.
FOR-SALE-BY-OWNER BUYER NEEDS AN OWNER’S TITLE POLICY
DEAR BOB: We are negotiating a FSBO (for sale by owner) sale of our home to a neighbor who loves our property. We refinanced about two years ago and had the title checked. We know the title is clear. However, the title insurance company will charge thousands of dollars for a new title policy for the buyer. Is there a way to make a sale without expensive title insurance, such as insuring the title personally? –Dan W.
DEAR DAN: Your buyer needs an owner’s title insurance policy from a reliable title company. He or she would be a fool not to obtain one. For example, you might have incurred a judgment lien, mechanics’ lien or IRS tax lien, which the buyer would become obligated to pay.
Your self-insuring the title for the buyer is not feasible. However, if you go back to the title insurer that issued the lender’s title policy two years ago, it may be possible to obtain a discounted “bring down” title rate.
The new Robert Bruss special report, “Foreclosure, Short Sale and Distress Property Profit Secrets,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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