DEAR BENNY: I sold a home in 2006 by way of a land contract. The buyers were making payments to me in order to pay down the purchase price. Recently, the buyers quitclaimed (in lieu of foreclosure) the property back to me. They said they lost their jobs. I received a letter from a mortgage company this week. They are applying for a new home. Any recourse I can take? The property has lost a lot of value in the past year. –Nancy
DEAR NANCY: As I understand your question, you entered into a land contract — also known as a "contract for deed" or a "land installment sales contract." Under this kind of arrangement, you kept title to the property and your buyers made monthly payments. When they were able to pay off the balance owed you — either by way of getting a new loan or winning a lottery — you would then give them the deed to the property, which would then be recorded in their name.
I am not sure what you mean by quitclaim, because in the land sales contract deals that I do for clients, the deed is not recorded at the beginning of the transaction. In any event, when they gave the property back to you, did you sign a release?
I suspect that unless you have other documents indicating that they still owe you money, a court of law would consider the monthly payments they made to you as rent, and they would owe you nothing. You now have the house. Would you be complaining if the market value had increased? You made your decision to take a risk with the land contract, and unfortunately you lost.
When a person enters into a land sales contract arrangement, the IRS treats that as a sale for tax purposes. You should consult your financial advisors to determine how to treat this transaction.
DEAR BENNY: I have an offer to trade my $900,000 residence for a $600,000 residence plus $300,000 cash. We each have a real estate agent, and so far they have not been able to tell us how to handle the commission. Can you advise me how the commission is typically handled and what the options are? –Steve
DEAR STEVE: Real estate commissions are negotiable, as is everything else in real estate. If the real estate agents actually were involved in finding the exchange property, then they are entitled to a commission.
I am surprised that they are unable to give you advice. But since that’s the case, I suggest that you and the other person with whom you are exchanging the property sit down and reach an agreement among yourselves.
Your agent is entitled to a commission based on the $900,000 sales price, and it would appear to me that the other agent is entitled to a commission based on a $600,000 purchase price.
I suggest that you give your agent 2 percent of $900,000 and the other person give his/her agent 2 percent of $600,000.
DEAR BENNY: In October of last year, I made an offer for a "short sale" house. The seller had accepted my offer, which is now under the lender’s review. There are two mortgage lenders that are currently in negotiation. According to our real estate agents, the banks can’t seem to agree on the amount that the second lender should get. It’s been a long time since my offer was accepted. During this time, I estimate the house has lost about $40,000 in value. What are my options? I still like this house but don’t really want to pay the extra money. –David
DEAR DAVID: Join the wonderful world of banking. I just don’t understand how banks work. One would think they would be happy to get the house sold as quickly as possible, so that they would not have yet another bad loan on their books. Clearly, they could have allowed the short sale months ago, and then the two banks could have argued over how the sales proceeds would be distributed.
My suggestion: Read your contract. Do you have the right to back out of the deal? If you are uncertain, check this out with an attorney.
Tell the seller (or the real estate agent) that you no longer want to pay the sales price, and if they don’t accept a lower price (pick your number) you will walk away from the deal. …CONTINUED
I know you like the house, but you obviously don’t want to buy into a losing proposition. Keep in mind, however, that one day the market will rebound, and hopefully that house will increase in value — even if you have to buy it at the original contract price.
DEAR BENNY: We purchased a new home in December of 2007. We submitted our one-year punch list to the homebuilder via written letter and phone calls, but have received no response. What should our next step be to have our home warranty honored? –Alex
DEAR ALEX: The first thing you should do is read your sales contract and any warranty documents carefully. Some items — such as the air conditioning system, the refrigerator or the dishwasher — should be covered under the manufacturer’s warranty program, and you should contact them directly.
The next thing to do is make sure that your builder is still in business. Unfortunately, many homebuilders have filed for bankruptcy protection, and if that’s the case you may have to file a "proof of claim" in the appropriate bankruptcy court. For more information on this, search the Web for "bankruptcy, proof of claim."
Have you talked with other neighbors in your complex? Perhaps they have similar problems. In numbers there is strength. You all may want to go to your local county consumer office (or attorney general’s office) and seek governmental assistance. Homebuilders need approvals from government for permits, zoning, etc., and don’t want to have dissatisfied customers complaining. I have seen some governments take the position: "Fix up those problems or we will not grant your new permits."
DEAR BENNY: I bought a house in 2002 with a friend. I have the original warranty deed and am a joint tenant on it. The friendship turned sour in 2006 and we both moved out. She moved back into the property in 2007. In November of 2008 I checked on the taxes and was told at the assessor’s office that I no longer own the property and was given a copy of a quitclaim deed, which had been forged with my signature and notarized. I informed the police but got no help. I wrote to the secretary of state, the attorney general, the district attorney, the governor and the prosecutor’s office. I have had no response from any of these agencies. Having done some research on quitclaim forgery, I have found that this is becoming a more prevalent crime with people preying especially on the elderly. If this happened to you, how would you handle this? –Lin
DEAR LIN: It’s unfortunate that those government agencies have not been helpful. You need immediate assistance and I suggest that you retain a local attorney. In general, a forged deed is invalid. However, if a bona fide purchaser obtained title to the property, and got a mortgage loan, you may have trouble getting the property back. A bona fide purchaser (we lawyers refer to this as a BFP) is one who takes title without any knowledge that it was a forged deed.
Different states have different rules, so your lawyer will have to sort this out.
DEAR BENNY: I am in the process of completing my 2008 income tax return. I need some guidance on a number of real estate-related questions. Where can I get assistance, hopefully for free? –Jason
DEAR JASON: If your financial situation is complex, then you really need to seek professional assistance. There are some computer software programs that assist taxpayers in preparing their tax return, but you will have to decide (1) if you want to use one of those programs, and (2) if so, which one. You should be able to find a lot of helpful information on the Internet.
Of course, the best source for real estate-related tax questions is the Internal Revenue Service at www.irs.gov. Perhaps the most comprehensive publication is Publication 17, entitled "Your Federal Income Tax for Individuals." It contains 296 pages of helpful information, as well as links to many of the other IRS publications.
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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