Settling Probate

DEAR CHANDRA: Of course, you can't be "forced" to buy a house you don't want.

However, if you signed a valid purchase contract that was accepted by the home builder, you can be held liable to the builder for monetary damages due to your breach of contract.

Surely, before you signed a purchase contract with the builder you knew what your monthly mortgage payments would be.

If you got cold feet while waiting for your new home to be completed and changed your mind about the purchase, you can be held liable to the builder for damages due to your cancellation of the purchase contract. Before defaulting, I suggest you consult a real estate lawyer to discuss your choices.

DEAR BOB: How do I know if my deed was recorded? Doesn't that get taken care of after signing the closing papers? I bought my condominium on Sept. 28, 2005. But I haven't received any proof that I own it. Shouldn't I have received the deed or something in the mail showing my deed was recorded?

-- Gay N.

DEAR GAY: The procedures vary by locality. In most states, the local recorder of deeds now makes a digital record of the deed as it is recorded. Then the original is usually mailed to the owner or to the mortgage lender whose name and address appear on the deed.

My experience has been that this can take several weeks or even months, depending on how busy the recorder of deeds is. But you should have received proof of the recording long ago.

If you ordered an owner's title insurance policy at the time of purchase, as you should have, then you would have received that title policy, which shows you now own the condominium. In addition, you should have a copy of the closing settlement papers.

I suggest you contact the firm that handled your title transfer. Maybe it has the deed from the recorder's office.

However, in "title theory" states, the mortgage lender often holds the deed until the mortgage or deed of trust obligation is paid in full. But it won't hurt to follow up now to learn where your deed is and to be sure it was properly recorded.

DEAR BOB: I have lived in my house 27 years and never thought a co-joined driveway was detrimental, but this all came to an end when a new owner moved in next door. He immediately converted his garage to a live-in unit and rented it out. Then he installed a swimming pool. Now he invites 25 guests at a time when the weather is good. They fill his driveway to capacity and spill out into the street. He rents out other bedrooms. Now the house has no garage. There are always four or more cars parked in our co-joined driveway. Is this detrimental to my home's value? -- Colin W.

DEAR COLIN: I am not sure what you mean by "co-joined driveways." If you own half of the shared driveway, and the neighbor owns the other half, with the lot boundary line down the middle, what would stop you from erecting a chain link fence down the middle of the wide driveway?

Of course, before doing that, be sure to check your title to be certain you and the neighbor don't have mutual easements to use each other's half of the driveway.

Have you had a polite conversation with the new neighbor to discuss your concerns? Maybe he is not aware of the problems he is creating for you. In the conversation, don't threaten but just point out the problems all the cars parked in the driveway are causing.

Before you take any action, such as contacting the city about the conversion of the garage to a residential unit without a building permit or erecting a fence down the middle of the shared driveway along the lot boundary, please consult a real estate lawyer to determine your rights.

DEAR BOB: What would be the process to trade two homes for one? The two homes are valued at $1.5 million total. The home for sale is valued at $1.2 million. The seller will trade. What is the first step to take? -- Phyllis S.

DEAR PHYLLIS: If I understand your question correctly, you want to trade two rental houses worth a total of $1.5 million for one rental house worth $1.2 million. That would be a partially taxable trade down because the two rental houses are worth $300,000 more than the one rental house being acquired.

This could get a bit complicated because there is the 25 percent depreciation recapture tax to consider in such a down trade.

If the owner of the $1.2 million rental house is willing to take your two rental houses and pay you the $300,000 cash difference, that would be the easiest way to go.

However, if he is not willing to pay you $300,000 cash, you should then consider selling the two rental houses in a Starker delayed tax-deferred exchange using Internal Revenue Code 1031(a)(3).

That means you sell your two rental houses for cash, have the sales proceeds held by a qualified third-party intermediary accommodator beyond your constructive receipt, and then within 45 days after the first sale closes designate the property to be acquired. You then have up to 180 days to complete the acquisition.

After the purchase is completed, then you will receive the $300,000 cash "boot," which is taxable to you. For details, please consult a tax adviser experienced with IRC 1031 tax-deferred exchanges.

DEAR BOB: I have owned a rental property for a year. If I sell it in the next few months, what is the capital gains tax I will pay? I read an answer you gave someone that the government wants a 25 percent tax back on the depreciation. Does that mean the government gets a total tax of 40 percent? -- Steve B.

DEAR STEVE: No. If you owned your rental property at least 365 days, you qualify for the federal long-term capital gains tax rate, which is a maximum of 15 percent.

However, a portion of your capital gain that is due to the depreciation you have deducted will be "recaptured" (that means taxed) at the special federal depreciation recapture tax rate of 25 percent (instead of 15 percent tax on the balance of your capital gain).

In addition, don't forget the state tax, unless the property is in one of the lucky states without income tax. For full details, please consult a tax adviser.

DEAR BOB: I understand the rule for stepped-up basis to market value on the date of death for inherited property. Does that same rule apply to my house that is held in my living trust? -- Andrew G.

DEAR ANDREW: Yes. Holding title to your house and other major assets in your revocable living trust does not deprive your heirs of the benefits of stepped-up basis on inherited property. They will thank you for leaving your assets to them via your living trust, thereby avoiding probate court costs and delays.

But they will still get the same stepped-up basis to market value on the date of your death as if your property went through probate.

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.

© 2006 Inman News Service