DEAR BENNY: I plan to sell my house and have already found a buyer and believe we can come to agreeable terms. Do I need a real estate agent or should I just retain an attorney? –Katherine
DEAR KATHERINE: I know that the real estate industry will send me letters objecting to my response, but because you have already found a buyer, I see no reason to spend 6 percent, 4 percent or even 3 percent of the sales price on a real estate commission. Any real estate attorney can assist you with the negotiations with your potential buyer, and can easily — and clearly at a much lower cost — prepare the purchase and sales contract. The attorney can also give you guidance throughout the entire process.
If you did not already have a potential buyer, my answer would be different. There, a real estate agent will be able to help you market and hopefully sell your house.
Talk with a couple of attorneys, and find out exactly what their fee will be. Some lawyers charge on an hourly basis and should be able to provide you with a ballpark estimate of the fee — assuming of course that no major problems arise. Other attorneys will charge you a fixed fee for the entire process.
DEAR BENNY: I have been considering a 1031 exchange for some time, and I have wondered what happens if the intermediary holding the escrowed funds goes bankrupt. Is the intermediary allowed to commingle my funds with funds of the company? Is my money protected during this bankruptcy, or would I become just another creditor in a bankruptcy action, and have to get in line? How can one ensure one’s funds are not lost? Can one buy insurance to guarantee protection against such a risk? I know the intermediary must be bonded, but that won’t cover all eventualities. –Bob
DEAR BOB: A portion of your question was recently answered by the Internal Revenue Service. In a letter to Congressman William Delahunt, dated June 6, 2008, the IRS stated that if you cannot complete the exchange transaction within the 180 days that are mandated by Congress, the exchange fails and you will have to pay income tax for the sale of the relinquished property. (IRS Info 2008-0021). Although technically this is not a formal ruling by the IRS, it certainly does reflect their current thinking.
The memo went on to suggest that "if the taxpayer has sustained a loss during the taxable year that insurance does not cover, he or she can deduct the loss from gross income." You have to discuss this with your own financial advisors.
I do not believe that intermediaries have any legal obligation to keep these funds in a separate account. You certainly can require this when you are discussing using the intermediary.
As for insurance, that’s a good question, the answer to which I don’t know. Ask your insurance agent, and let me have the answer.
DEAR BENNY: I want to buy a home in Nevada and rent it to my sister and one other tenant until I retire in 10 years. Because one of the tenants will be a relative, will the IRS consider this a legitimate rental property with rental property deductions, as long as I have a lease and provide the proof of monthly rent if necessary? Also, is there any reason the IRS needs to know that one of my tenants is a relative? –Bonnie
DEAR BONNIE: I never want to hide anything from the IRS, but I see no reason to tell them that this is your relative. So long as you have a real lease, the tenants are paying a fair market rental, and you report the income and expenses of this venture every year when you file your income tax return, I believe you will be alright.
DEAR BENNY: My father-in-law passed away a couple of years ago. Because of various emotional and financial reasons, my husband and I are just taking or trying to take over the house. It needs a lot of work but we can’t apply for any assistance until the house is in our name. How should we go about getting that done? My husband and I also live there now. –A.D.
DEAR A.D.: I assume from your question that neither you nor your husband was on title with your father-in-law. If that’s the case, then unless the house was in some kind of trust, your husband will have to file a petition to probate his father’s estate. This has to be done in the jurisdiction where your father was domiciled at the time of his death. You should consult an attorney who understands probate law in your state.
DEAR BENNY: I am considering paying off the second trust for my daughter on her house. Is there any tax consequence for either of us? –Anita
DEAR ANITA: If you are not on title with your daughter, the moneys you use to pay off the mortgage will be considered a gift. You have the right to gift your daughter — tax free to both of you — up to $12,000 a year, and if you are married, you and your husband can give her up to $24,000 a year.
Any amount above this may impact on your estate, and you should discuss your specific situation with a financial advisor.
If your daughter is currently deducting the interest she pays on that second trust, she obviously will lose that deduction.
Why do you want to pay off the mortgage? Why not give her $12,000 a year and let her use it or start saving for her own retirement?
DEAR BENNY: We own 10 rental properties in South Florida that all require additional cash with the rent to make the payment. Two of the properties are condominium units, and the rest are very nice single-family homes. All are in good condition and in good locations. It is not a good time to sell, but we can no longer keep up the $9,500-per-month deficit. Should we dump them and lose all of our equity, or should we borrow and hang on? –Kathy
DEAR KATHY: While I obviously cannot predict the future, real estate historically is like a roller coaster. There are years when property values and sales slump, while in other years (such as we saw a few years ago) real estate was booming.
Obviously, you can’t wait until the market rebounds. But why sell everything? Do you have any equity in any of the properties? If so, why not try selling and use the equity to help make your monthly mortgage payments on the other properties.
You have to "do the numbers" to see if selling only one property will do the trick. You may have to sell a couple so that you will be financially comfortable.
But before you consider selling, can you refinance some or all of the properties and get lower interest rates? In today’s economy, lenders are understandably nervous about lending to investors, but it’s worth exploring.
I would hate to see you lose all that you have worked for.
DEAR BENNY: I bought a home with my mother as joint tenants in common with right of survivorship several years ago. I have been paying the mortgage. Recently she gave my brother a quitclaim deed for her portion because he has been living with her. Is this legal? The home is in South Carolina. –James
DEAR JAMES: I don’t practice law in your state so I can provide you with only a general response.
When property is held as joint tenants with rights of survivorship, either joint tenant has the right to unilaterally sever (break) that tenancy. And this does not have to be approved by the other joint tenant. In fact, the other party does not even have to be given any notice of this.
Now, you and your brother own the property as tenants in common. This means that on the death of one of you, your half of the house will be given pursuant to the terms of your last will and testament — and probate will most likely be required.
You must make sure that you have a will and that it is current.
DEAR BENNY: In a number of columns over the past few years, people have written in about condo associations implementing monthly renter fees. Recently my condo association has been thinking of doing the same. (I am currently a landlord offsite) Can the board of directors implement such a fee? –Bob
DEAR BOB: The answer will be found in your legal documents — specifically the condominium declaration and bylaws.
A condominium board of directors has fairly broad power to enact regulations, so long as they are not specifically prohibited in the legal documents. Generally, however, the board has to assess all owners equally, based on their percentage interest in the association.
So I do not believe that your board has the authority to impose such a renter fee. They can, however, charge owners a move-in and move-out fee, so long as it is applied equally across the board to resident and investor owners alike.
If, on the other hand, your association properly amends its legal documents to allow such a surcharge and gets the requisite super-majority vote, then it would be legal.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.
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