DEAR BENNY: I am recently divorced. In our divorce decree, it states that I give my ex-husband the house. He is currently living there. He was to have my name removed from the mortgage and get a new loan in his name alone.
Just recently, I found out through my attorney that the mortgage holder refuses to remove me from that loan. However, when I call to inquire about the mortgage, I am told that my name is not on the mortgage. Please help. My name is on the deed and I cannot remove my name from the deed until I show proof that I am no longer on the mortgage. I cannot get another mortgage until I get my name off of that house. What am I to do? –Hoop
DEAR HOOP: You are in the classical "Catch-22." Your attorney should be able to quickly determine if you are on the mortgage document (typically called a deed of trust in most states). She can do a title search to get a copy of the existing mortgage document that was recorded among the land records in the county where your property is located. In fact, in many parts of the country, this information can be found online from the local recorder of deeds office.
If you are not on the mortgage, a copy of the existing document should be adequate proof. But if you are on the mortgage, then you have a potential problem. Mortgage lenders will generally not allow a divorced spouse to be removed from the loan, and the only way to accomplish this is either (1) have your husband refinance or (2) sell the house.
Before you ask your ex to take one of these two steps, I suggest you talk with your new potential lender. My experience is that if you can show that for the past 12 months you have not been making any payments on the old loan (your ex will have to cooperate and provide copies of his canceled checks), you should be able to get a new loan.
However, I am afraid that you may have to wait a full year in order to convince the new lender to make a loan to you.
Do you have a friend or a relative that can co-sign for you? That may solve your concerns. I know that this is a good time to buy in many areas, especially because interest rates (and home prices) are low, so perhaps you can also convince your ex to cooperate and refinance the property immediately.
DEAR BENNY: In 2007, we built a home in an upscale development inside the city limits of our town. With two lots remaining to sell and in the middle of the housing boom at the time, the homeowners in the development verbally agreed to allow the developer — who also is a resident in the development — to delay paving the entrance to the neighborhood and installing the top coat of the road surface to our street.
However, as the housing market softened, it became evident that the remaining lots would not be sold quickly. For the last year, the rest of the homeowners have repeatedly asked the developer to complete the paving, but have received no response. The city sold the land to the developer for $6, with the understanding that he would build affordable housing — but the homes he built were in the range of $500,000 and higher.
The city takes the position that its contract with the developer does not include a time frame for completing the paving work. And now, the developer has stopped paying the power bill and the water bill for the common areas.
We have retained an attorney, but the developer remains nonresponsive. Other than filing a lawsuit against the developer, what can we do? –Ron
DEAR RON: You have advised me that you reside in a community association comprised of four homes, plus the unsold lots. You have further advised me that the developer controls the association.
You should file a lawsuit against the developer, but against him in his capacity as a board member. What developers often do not understand is that while they are in control of the association they created, they wear two hats: (1) developer but also (2) board member. And in the latter capacity, they have a fiduciary duty to the association and must act in the best interests of that association.
So, not paying common-element utilities is, in my opinion, a breach of fiduciary duty, and a judge should rule in your favor.
DEAR BENNY: I am an elderly widow with serious health problems and I wish to put my home in my four children’s names; I wish to remove my name completely. I realize I will need to have a lawyer, but will all of my children need to be here? Some live out of state.
Will one deed be issued with all of their names on it or will they all get a deed? Will there be closing costs to do this? How can they handle homeowners insurance? I would still pay this and the real estate taxes for them, as I will still be living in the house. There is no mortgage on my house; it has been paid in full for many years. –Elizabeth
DEAR ELIZABETH: I understand your concerns, but there may be significant tax consequences if you put your children on title now. Let’s assume that you bought your home for $50,000 many years ago and did not make any improvements. For tax purposes, your basis is $50,000. Now, the property is worth $500,000. If you give your children the house, their collective basis will be the same as yours (i.e., $50,000), since the tax basis of the gift giver becomes the basis of the gift receiver.
However, if you own the house on your death, your children will be entitled to what is known as the stepped-up basis — namely, the value of the property on the date of your death.
I assume that your children will want to sell the property on your death. If they owned the property before you died and then sell it after your death for $500,000, they would have to pay capital gains tax on $450,000, which at current rates of 15 percent means a tax of $67,500. They would also have to pay any applicable state or local tax.
However, if they inherited the property, their basis would be $500,000, and, accordingly, they would not have to pay any capital gains tax because there was no profit. (Note: I am purposely ignoring any improvements made to the property, which would increase the basis, or any other deductions that would reduce the tax obligation).
Julian Block has written a number of tax publications and is a recognized tax attorney. I asked him your question and here’s his response: "Internal Revenue Code Section 1014 specifies that their basis generally is their fair market value on the date of death of the previous owner. But the step-up system is mired in a legislative limbo.
"Beginning in 2010 (in conjunction with the scheduled elimination of the estate tax), the tax code clamps a ceiling on the amount of property eligible for a step-up in basis. This restriction allows a step-up only for the first $1,300,000 of assets, increasing to $3,000,000 for assets received by a surviving spouse."
You can get more information at www.julianblocktaxexpert.com. …CONTINUED
Assuming your estate is not worth more than $1.3 million, you really are better off writing a last will and testament, and making sure that all of your children are listed to get your house.
This is general information regarding federal tax law, but may not be applicable in your state. Discuss your personal situation with your tax advisors and attorneys.
DEAR BENNY: My wife and I own a condo in Colorado where she works. I live in Iowa, which is our permanent address. In the future, when my wife decides to retire, she will move back to Iowa and we will sell the Colorado condo. Of course, we all want to think that we will sell real estate for a profit, but that is not always the case.
My accountant tells me that any improvements we make on the Colorado property can be added to the cost basis of the property to determine whether we have taxes due on any gain, as it is not our primary residence. Of the condominium dues that I pay each month, how much can be used to increase the cost basis on our unit, as not all of the dues are used for day-to-day upkeep but are kept back for any major improvements that might be done in the future? –Jake
DEAR JAKE: I checked with my accountant on your question and here is his response: "The part that was designated for reserves is the part that is added to basis. If no part is designated for reserves, then no part would be added to basis no matter what the funds were used for."
So, ask your property manager for a copy of the annual budget. Take the amount allocated to reserves, and divide that number by the percentage of your ownership. That number will be found at the end of your condominium declaration.
Confirm this information and your calculations with your own accountant.
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.
