By Robert J. Bruss
Saturday, June 17, 2006
Q: DEAR BOB: How can I find out the details of a quitclaim deed I signed in a lawyer's office in 1990? I learned recently that it was not recorded. The lawyer at whose office I signed the quitclaim has since retired and the quitclaim was for a property that belonged to a bank, which has since gone out of business. The property title is now held by the city. What should I do next? -- Andrea F.
A: DEAR ANDREA: A quitclaim deed conveys whatever title the grantor owned in that property, but it provides no warranties or guarantees. Quitclaim deeds are often used in divorces where neither party wants to incur any liability or make any representations.
A quitclaim deed can convey full fee-simple absolute title. Or it can convey nothing at all.
For example, suppose you pay me $1,000 for my quitclaim deed to the Empire State Building. You record that deed in New York, but you were swindled because I don't own any interest in that property or have any potential contingent conflict.
Instead, suppose I give you a quitclaim deed to my home and you record that deed. Now you own my home, because I owned it in fee-simple absolute title, subject to the mortgage and any unpaid property taxes or recorded liens.
That quitclaim deed you signed in 1990 conveyed whatever interest you owned in the property. Presuming it was properly signed and notarized, it transferred all your interest to the grantee, even if that person never recorded it. Only a few states require recording of a deed for it to be effective.
Your unasked question seems to be, "Do I still own any interest in the property since my quitclaim deed was never recorded?"
The best way to determine the answer is to pay a reputable title insurance company or title attorney to research the property title to see whether you ever owned an interest in the property and whether it was validly conveyed by that unrecorded quitclaim deed to a subsequent owner.
DEAR BOB: I own a condominium where the smelly tobacco smoke from the residents of the downstairs condo enters my upstairs unit. It is so bad I have to sleep in my car at night. What recourse do I have? -- Connie C.
DEAR CONNIE: I have received similar questions from apartment and condo dwellers. You must be unusually sensitive to tobacco smell.
In the absence of conditions, covenants and restrictions prohibiting smoking inside condo units, find out for sure where the tobacco smoke originates and how it reaches your unit. It is possible, if your building has a central heating and air-conditioning system, that the smoke comes through the air ducts from a distant condo unit. A similar problem arises when a condo building has a common exhaust system for kitchen or bathroom exhaust odors.
If the tobacco smoke comes into your unit in such ways, then the condo homeowners association is responsible for modifying its common-area system so you don't have to suffer odor from your neighbor's unit.
After you have ruled out such sources of odor intrusion and are 100 percent certain the problem doesn't involve common-area air transfer, then it is up to you to plug any air leaks between your unit and the downstairs condo. If you decide to file a lawsuit against the offenders, be sure you can prove the facts and your actual damages.
DEAR BOB: We recently bought our first home. It was handled by a local real estate agent who represented the sellers. Shortly after we moved in, we discovered the roof leaks around the skylights. We also learned from the neighbors the sellers had tried many times to fix those leaks. A reputable renovation contractor says that there is extensive damage and that the only way to correct the problem is to remove the four skylights, repair the rotted lumber and install new flashing. His cost estimate is $4,850. The written defect disclosure provided to us by the seller before the closing said nothing about the prior problems with the skylights and the seller's apparent failures to fix the leaks. After our lawyer contacted the listing agent and the seller, we were told any dispute about the sale must go to binding arbitration. However, we did not sign the arbitration clause in the sales contract. Can arbitration be forced on us without consent? -- Beth W.
DEAR BETH: No. Unless you signed a written contract that provides for binding arbitration, you can sue the home seller and listing agent, if you can prove that person knew of the alleged non-disclosed defect, for damages, presumably the $4,850 cost of repairs.
I do not recommend signing a binding arbitration clause in a home-purchase contract. That is no time to give up your legal rights to a jury trial, court procedures and rules of evidence and the right to appeal. If a dispute arises after the sale, as in your situation, the parties can then agree to binding arbitration to save time and money if they both agree to give up their rights.
DEAR BOB: We want to buy a home in a specific school district, but few four-bedroom homes come up for sale in this area. When our buyer's agent phoned us about a new listing, we immediately inspected it and made an offer. The house is in terrible condition, but the asking price is based on recent sales prices of similar nearby homes in top condition. The owner won't make a counteroffer on a lower price. The listing agent said, "Bring a full price offer if you want to buy this house." As we are African Americans trying to buy a home in a mostly Caucasian area, do you think this is illegal racial discrimination? -- Mark H.
DEAR MARK: No. Without more information, you simply encountered an unreasonable home seller. Sellers don't have to, and often don't, make counteroffers. If you really want to buy that house, it's up to you to make another purchase offer.
DEAR BOB: You often explain the Starker exchange rule for rental property owners who can avoid capital gains tax by trading up. But I want to trade down to sell my 10-unit apartment building for a less-expensive, luxury two-unit duplex where I will live in one unit as my residence. Will such a down trade be taxable? -- Eugene C.
DEAR EUGENE: To qualify for a tax-deferred exchange of business or investment property for another such property, Internal Revenue Code 1031 requires trading equal or up in both price and equity. In other words, you can't take out any cash or net mortgage relief without paying capital gain tax.
The number of rental units is immaterial. To illustrate, you could trade from a $500,000 10-unit apartment building to a $1 million luxury two-unit duplex building and not owe any capital gain tax. However, all the units must be rentals. Your personal residence unit cannot be involved without owing tax. Consult a tax adviser for details.
DEAR BOB: Shortly before my grandmother died, she deeded her condo to me because she was at an assisted-living center and had no plans to return to her condo. She died about three weeks later. I didn't record the deed before her death. Her will left the condo to her son, who is my uncle, and he is now claiming it under the will. It is worth about $450,000 although grandmother paid $76,000 many years ago. Do I have a valid claim to the condo title? -- Nancy R.
DEAR NANCY: If you had promptly recorded the deed, you would clearly own the condo today. Instead, your uncle can argue that because you failed to record the deed before your grandmother's death, it was not delivered unconditionally and thus he inherits it under the will.
Because your grandmother deeded her condo to you before death, if your deed is determined by the probate court to prevail over the will provision, your adjusted cost basis will be grandmother's low $76,000 adjusted cost basis rather than today's $450,000 market value. My best advice is hire a sharp probate lawyer.
DEAR BOB: My son and his wife live in a free-and-clear house I own. He pays utilities and maintains the property. He proposes I add both their names to the title so that in 24 months we can sell the property and he would then purchase in his name a more expensive home. My son says that no tax will be due on such a sale under that $500,000 tax exemption rule you often discuss and that the sale isn't even reportable to the Internal Revenue Service. I realize I would be passing on the value of the home to him but I am not confident of the tax situation. Is he correct? -- James S.
DEAR JAMES: When you give the house to your son and his wife, that event requires you to file a federal gift tax return. However, no gift tax will be due if your total lifetime gifts exceeding the annual $12,000 per gift per recipient exemption are not more than $1 million.
When you pass on, the value of your gift will be subtracted from your federal estate tax exemption, which is currently $2 million if you die in 2006.
Your son and his wife will take over your presumably low adjusted cost basis for the house. If they own and live in the home as their principal residence at least 24 of the 60 months before its sale, Internal Revenue Code 121 allows them to exclude up to $500,000 capital gains (up to $250,000 for a single homeowner) from tax upon sale.
Your son seems to be sharp about the tax benefits of acquiring ownership in the house. Consult a tax adviser for details.
DEAR BOB: In late April we listed our home for sale. Because two good friends are real estate brokers, we signed a joint listing with both of them. Little did we know they hate each other's guts and speak to each other only when absolutely necessary. It is a six-month listing. Although we were assured we listed at the correct asking price, we haven't received any purchase offers or serious buyer interest so far. Because these agents work at different brokerages, neither one will hold a Sunday open house or even advertise our listing in the newspapers. What should we do? We have already lost two good friends -- Brooke W.
DEAR BROOKE: Joint listings with two competitive real estate agents rarely are successful, especially when the agents work at competing brokerages. Those co-listing agents weren't really your friends if they can't get along to get your home sold for top dollar.
I am not surprised they refuse to cooperate on joint advertising or to hold weekend open houses. Each co-listing agent is probably worried the other listing agent will find an acceptable buyer and earn most of the sales commission.
It's too bad you signed that long six-month listing. A 90-day listing is the maximum term I suggest. That keeps your listing agent highly motivated to find a buyer.
At this point, I suggest you ask the co-listing agents, your former friends, to terminate their listing so you can re-list with another agent. Be sure to emphasize to each agent that if he has a buyer for your home, he can still earn half of the sales commission. In the future, never sign a listing exceeding 90 days, especially with friends.
DEAR BOB: We bought our home in February 2005. At that time, my husband had just accepted a new job, and we expected to stay at least five years. However, his employer filed Chapter 11 bankruptcy reorganization a few months ago and, although he still has a job, things look dicey. Meanwhile, word got around his industry and he recently received a superb unsolicited job offer at a much higher guaranteed salary for five years, plus moving benefits, bonus, etc. Our only problem is if we sell after less than 24 months of homeownership, we will owe capital gains tax on the tremendous increase in market value of our home. I recall you wrote about "unforeseen circumstances" as a reason the IRS grants partial principal residence sale tax exemptions. Would this qualify? -- Jeanie T.
DEAR JEANIE: Yes. Your circumstance probably qualifies under the Internal Revenue Code 121 principal residence sale partial exemption for both job transfer and unforeseen circumstances. Using this exemption, when selling a principal residence after less than 24 months of ownership and occupancy, the sellers are entitled to a partial exemption based on the number of occupancy months.
For example, suppose you owned your principal residence and you qualify for one of the partial exemption rules for home sale (health reasons, employment change or unforeseen circumstances). Then your exemption is based on the number of ownership months and occupancy.
If you sell after 20 months, that means you qualify for 20/24ths, or about 83 percent, of the $250,000 exemption ($500,000 for a married couple filing jointly). Consult a tax adviser for details.
DEAR BOB: Recently you had an item about how husband and wife should hold title to their home and other real estate. It motivated me to go to check our home title deed. It says we own our home as "Mark or Victoria Lastname." No method of holding title, such as joint tenancy or tenancy in common, is specified. Do we have a problem? -- Victoria W.
DEAR VICTORIA: As a real estate lawyer, I can see many potential problems with the way you hold title to your home. The word is "or." Also, the deed fails to specify how you hold title, such as tenants in common, joint tenancy with right of survivorship, or another method. Whoever prepared that deed wasn't looking out for your best interests. While your marriage is going well, consult a lawyer to discuss your title choices. Then, you can execute a joint quitclaim deed to hold title with the method you select.
DEAR BOB: For the past 22 years we have owned and enjoyed our home in a subdivision where all the homes were built by the same builder with the same materials. In the past few years, several homes have encountered basement wall leaks. However, our home has no such problem. We enjoy our basement family room, laundry room and storage area with no evidence of water leaks. When we sell in the next few months so we can move to a retirement community, do we have to disclose to our buyer that a few other houses in our subdivision have encountered basement water leaks? -- Steve Y.
DEAR STEVE: Home sale disclosure laws apply to only the residence being sold at the time of the sale. They do not require disclosure that nearby homes down the street built by the same builder have encountered construction defect problems.
DEAR BOB: Three years ago, we sold the vacant lot adjacent to our home. The buyer told us he planned to build a house there. That was fine with us. But when he recently applied for a city building permit, he discovered there is a city storm sewer pipe easement beneath the property, which will bar him from building anything but a small house. We had no idea there was such a pipe easement. However, his title insurance report clearly revealed that easement. Do we have any liability to him as he threatens to sue us for damages? -- Helene P.
DEAR HELENE: From your description of the situation, it appears you have no liability because you didn't know about the underground city storm sewer pipe easement and it was fully disclosed to the buyer in his owner's title insurance policy. I find it amazing how many property owners and their real estate agents fail to read and understand their title insurance reports.
The lot buyer has nobody to blame but himself for failure to read his owner's title insurance policy, which described that storm sewer pipe easement. If the buyer sues you, you should hire a lawyer to answer the complaint.
Your lawyer should politely remind the buyer's lawyer that you didn't know about the easement and that the buyer had written evidence of it in his title insurance policy, which he failed to read. After you win such a no-brainer lawsuit, you can then sue the buyer for damages, primarily your legal fees, for malicious prosecution.
DEAR BOB: I own a two-acre lot in an area of mostly one-acre lots. A neighbor wants to buy a half-acre from me so he can build what I call a McMansion. He needs a larger lot to accommodate a house as big as the one he wants. We don't mind because it won't be close to our house and having a highly valued house next to ours should enhance our home's market value. However, we don't know how to value a half-acre lot where there are no lots for sale. Also, what legal steps must be followed to deed a half acre? -- Walter H.
DEAR WALTER: I suggest you retain an appraiser and a real estate lawyer. If you proceed with the half-acre lot sale, be sure to add your appraisal and legal costs to the sale price of the property.
As you will discover, subdividing a lot in an urban area usually is not simple. Although you have no objection, the neighbors might protest.
The appraiser can inform you of the market value of a half-acre lot in your neighborhood. But the real estate lawyer will be needed to handle the legal details of obtaining subdivision approval from the appropriate local authorities. As you and your neighbor will soon discover, selling half a lot is not easy.
DEAR BOB: I am a relatively new real estate agent. I have heard the term Starker exchange and am not familiar with it. What does that mean? -- Beth W.
DEAR BETH: Internal Revenue Code 1031 authorizes owners of investment and business property, such as apartments, rental houses, warehouses, office buildings and commercial properties, to trade their property for "like kind" properties of equal or greater cost and equity so they can defer the capital gain tax that would be due upon an ordinary sale.
A Starker exchange is authorized under IRC 1031(a)(3), which permits the sale of qualifying property, with the sales proceeds held by a third-party accommodator or intermediary beyond the seller's "constructive receipt."
The seller then has up to 45 days after the sale closes to designate a qualifying replacement property of equal or greater cost and equity, plus 180 days to complete the acquisition.
DEAR BOB: My 81-year-old mother recently took out a lifetime reverse mortgage. I was totally unaware she was doing this. The reverse mortgage lender sent a "HUD counselor" to her house to spend an hour explaining reverse mortgages. About three months after this, I learned my mother paid almost $6,000 in various upfront loan fees. Considering she is in declining health and will soon have to move to an assisted-living home, I find this outrageous conduct by the reverse mortgage company. Are the HUD counselors sent by a reverse mortgage company truly independent? -- Sarah S.
DEAR SARAH: The three nationwide senior-citizen reverse mortgage lenders all require counseling by certified Department of Housing and Urban Development counselors who are supposed to explain to the prospective borrowers the pros and cons of such mortgages.
Of course, nobody can vouch for such counselors being truly independent of the actual reverse mortgage lender. If a counselor discourages prospective borrowers from obtaining reverse mortgages, I'm sure that person won't be recommended by a reverse mortgage lender again.
If your elderly mother plans to stay in her home at least five years, that $6,000 for various fees is not excessive. Reverse mortgages pay money to the senior-citizen homeowner, without any repayment required until the homeowner either sells the home, vacates for more than 12 months or dies.
Readers with questions should write Robert J. Bruss at 251 Park Rd., Burlingame, Calif. 94010, or contact him via his Web page, http://www.bobbruss.com.
2006Inman News Service