DEAR BENNY: I live in Iowa while my sister and her husband live in Florida. We want to buy a home together in Florida. They will pay for 50 percent of the home and I will pay for 50 percent. We will all be listed on the deed. What is the best way to hold title to the property? It is our intent that should any of the parties involved die, anyone left should have a right to live there for the balance of their life. What is the best way to designate how the property transfers upon the death of the last party involved? –Mickey
DEAR MICKEY: I don’t practice law in Florida, so my answer has to be general in nature. You should consult with an attorney who practices in that state. Oversimplified, I recommend that title be held as follows: sister and her husband as tenants by the entirety as to half of the property and as tenants in common with you as to your half.
This way, if you die first, your last will and testament will provide guidance as to how you want your half to be distributed. You could make your sister and her husband the beneficiaries, or you could decide to give your share to a third party. If either your sister or her husband dies first, the survivor of that marriage will own the entire half.
As for allowing the last surviving party to remain in the house, under my approach that last survivor will still own half of the property, and will thus be allowed to remain in the house until death.
DEAR BENNY: I saw a property advertised as a short sale for $150,000. I submitted a contract to purchase the property at the asking price. My offer was then countered by the seller/lender with an increase of their price to $175,000. When I expressed surprise to the Realtor, the response was that I should consider the short-sale process as more of an auction, with the initial asking price just a means to get the bidding started. This runs contrary to my understanding of contract law. Please shed some light on this please. –Joseph
DEAR JOSEPH: The law is clear that an advertisement is not an offer, but merely an invitation to make a bid.
Contract law requires three elements: an offer, acceptance of the offer, and consideration.
You made the offer of $150,000. The bank/seller had three alternatives: accept, reject or counter your offer. The bank opted for the latter. Now you have the same three choices.
Once there is an offer that is accepted, there must be consideration to make it a binding, legal contract. Usually, the earnest money deposit, regardless of how small, is that consideration. But, for example, if the seller takes the property off the market, that could also be considered "consideration" even if there is no earnest money deposit. …CONTINUED
DEAR BENNY: I thought I would add to your answer regarding the reasons to use a reverse mortgage as a last resort. As you know, the amount of money you can access with a reverse mortgage is determined by the appraised value of your home as well as the age of the youngest person in the household. Obviously, the longer you wait, the older you will be. Since we have gone through a protracted decline in values, I feel that the longer someone waits, the higher the appraised value of the home will be.
Thanks for taking the time to write this column. I may not always agree with you, but I’m always informed. –Bob
DEAR BOB: I’m always glad to hear from readers whether they agree with me or not. Your comments about reverse mortgages are right on point. The appraisal industry is going through difficult times now, and from my experience, appraisals are more conservative than ever. So not only does the depressed market in many parts of the country impact on the amount of money you can tap through a reverse mortgage, but low (conservative) appraisals compound this problem.
I don’t oppose the concept of a reverse mortgage, but maintain that it should be considered only as a last resort — and after you carefully review and study all other alternatives.
DEAR BENNY: After noticing some of the lowest interest rates in years as well as the dearth of foreclosed and available properties, I have encouraged two of my younger friends to become first-time homeowners. Both have prequalified for their loans, made multiple offers and finally found a property (one a single-family home, one a condo).
Unfortunately, both are finding that even though negotiations have begun regarding terms of purchase, the bank that now owns the property is moving at an extremely untimely pace. Weeks of constant calls go by with no moving forward. Their real estate agents tell them it is the bank that is doing the foot-dragging. Why would the bank do this and how can my friends expedite the process? –Michelle
DEAR MICHELLE: I am not a fan of banks, but certainly can understand their position on short sales. First, as you suggested, banks are faced with many, many defaulting loans. I suspect that last year many banks laid off a lot of employees and are now short-handed and cannot handle the volume.
Second, no one — especially banks — wants to lose money. As you know, in a short sale the bank will accept a sale of the property and will not get the outstanding mortgage paid in full.
So many banks are hoping that the market will pick up (which it looks like it is doing in many parts of the country) and thus the bank will not lose as much with a stronger sale.
How do you solve this problem? I can think of only two ways. First, literally bug the bank on a periodic basis — say two or three times a week. Hopefully, you have a direct contact at the bank, since all too often many different bank people get involved in the same transaction. …CONTINUED
Second, put a deadline on your offer to purchase. Spell out that if the contract is not accepted by the bank (give it 30 days) the contract is null and void and you get your earnest money deposit back immediately.
Note for short-sale sellers: When you plan to sell your house by way of a short sale, it has come to my attention that although the bank will allow a sale to proceed where the mortgage is not paid in full, many banks are requiring their borrowers to sign an agreement whereby they agree that they are not relieved from the balance of the loan obligation. In other words, if you owe the bank $200,000 and the bank gets only $170,000 from the short sale, you will continue to owe the bank the difference of $30,000. Before you finalize a short sale, have your lawyer carefully review the banks’ agreement, and have him/her try to negotiate either no payment at all or some compromise amount.
Some banks claim that even though they require their borrowers to sign such an agreement, they really don’t pursue collection efforts. That may be true, but the legal document borrowers are required to sign states otherwise, and gives the bank — or a successor — the legal right to pursue this deficiency.
DEAR BENNY: I own two homes, one of which is my principal residence. The second home can be rented out. I know that I could claim deductions for interest only up to $1 million for the combined principal each year because I never rented either of them out.
If I rent it out, I know that I can deduct this rental as a business expense. Because of the downturn in economy, there is a chance, even if I try, that I will not get a renter for months or ever because the rent is $5,000. Can I still get the deductions as a business property in terms of the interest? It is being advertised by an agent so there is documentation. –Susan
DEAR SUSAN: The $1 million limitation applies only to your principal residence and a second home. Taxpayers can claim interest on those properties only up to the $1 million mark. Any interest paid on mortgages over that cap is nondeductible. And for clarification, the $1 million refers to the amount of the mortgage and not the amount of interest paid.
But, your second property is not a "second home" — i.e., one where you go to relax on weekends. It is investment property and you have the right to deduct all interest you have to pay on that mortgaged property, regardless of the amount. So long as you honestly are trying to rent it out, the deduction is still available, even if it is vacant.
In fact, I can’t provide you with specific tax advice, but you may want to talk with an accountant to determine whether you can go back and amend your previous tax returns so as to take more interest deductions for those years in which you did not do so.
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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