Handling Home Titles and Divorce

By Robert J. Bruss
Saturday, July 7, 2007

DEAR BOB: I divorced more than 25 years ago. My ex-husband and I held title to our home together. Because he didn't show up in court, the judge ordered my husband to quitclaim our property to me. But he never signed the quitclaim deed. My attorney said it wasn't necessary because of the judge's ruling in the divorce decree. My adult daughter is concerned that after my death, my ex-husband could claim half of the property. Should I take action now? -- Barbara V.

DEAR BARBARA: It would be best to clear the title of your ex-husband's name now. After you die, he might show up to claim half of the property. Your daughter would then have to bring a quiet-title lawsuit to clear his name off the title, using the divorce decree as evidence. Presuming your ex-husband can be found, you could bring a quiet title lawsuit against him to clear up the title now. When faced with a lawsuit, he might gladly sign a quitclaim deed to you, solving your problem at minimum expense.

DEAR BOB: I was shocked to learn from your recent column that I should deed my residence and rental property into my revocable living trust. I have a living trust that specifies how my assets are to be distributed after I die. Do I have to sign a notarized quitclaim deed in recordable form from myself to myself as trustee of my living trust? -- Hugo T.

DEAR HUGO: Yes. Until you transfer title to your real estate into your living trust, you have an "empty trust."

If you die tomorrow, your named successor trustee (such as an adult child or a bank trust department) would have no authority to distribute assets that are not part of your living trust. They would have to be distributed through the local probate court, a process that often takes a year or longer.

It is simple to execute and record a quitclaim deed to yourself as trustee of your living trust. Be sure to record that deed. Then, when you die, your successor trustee can distribute the living-trust assets as you directed, usually within a few months after your estate bills are paid.

DEAR BOB: My husband and I are able to pay more than 20 percent for a down payment when we buy our next home. However, the mortgage lenders we consulted seem to be against our making such a large down payment. Is there a valid reason for a 20 percent down payment, or should we search for better mortgage lenders? -- Prastavna M.

DEAR PRASTAVNA: Most mortgage lenders love to approve home loans in which the borrower pays 20 percent or more for the down payment. The larger the down payment, the safer the mortgage for the lender, so you will probably get the lowest interest rate if you have good income and good credit. So shop around. You contacted the wrong lenders, ones who want to maximize the loan amount and their fees.

I suggest making up to 30 percent cash down payment. Then you won't have an excessive amount of cash tied up, just in case you buy a bad house.

DEAR BOB: We listed our empty condominium unit for sale with a real estate agent until October. She is unable to do an open house every weekend, so my husband and I went over and held an open house. We think we have a buyer. The listing contract says we owe the agent a sales commission whether we find a buyer or she does. This was our second open house, and the agent wants us to hold another one next weekend.

She did not return our phone calls, so my husband went out and bought some "for sale" signs. We are willing to pay a sales commission, but we want to be paid for our time. When I finally talked to her on the phone, she said to tell the buyer to phone her. Can I just take the buyer to the title company? Or can I sell to the same buyer after the listing expires? Any tips on firing a lazy agent and getting paid for our services? -- Patty H.

DEAR PATTY: Why did you sign such a long exclusive-right-to-sell listing? No wonder your listing agent is so lazy.

She has little deadline incentive to get your condo sold fast. As regular readers know, I recommend 90-day listings, with extensions if the agent is doing a good job.

Forget about getting paid or reducing the sales commission for the time you spent holding the open houses.

When a buyer wants to make a written purchase offer, it's up to you to accept, counteroffer or reject. If you make a sale behind the listing agent's back, such as by going directly to a title company or having a real estate attorney handle the closing, the listing agent can sue you for the full sales commission.

If you wait to sell until after the listing expires, you will have more months of lost rental income, and, if you have a mortgage, more mortgage payments. And the agent still might sue you for the sales commission.

DEAR BOB: How much overlap in interest payments between the old and new loans on a mortgage refinance is appropriate? We just closed a refinance. The final closing was dated June 14, with the old loan interest paid through June 16. The title company says we are entitled to a two-day interest refund. The new mortgage funded on June 11, and we started paying interest that day. The old loan was $250,000, and the new loan is $340,000. The title company blames the delay on "recording at the county" because it didn't get confirmation of the recording until June 13. This does not seem right. The title company says this is standard. Are we getting ripped off? -- Rick R.

DEAR RICK: A one- or two-day interest overlap is normal when refinancing. But every county records deeds on the day they are received at the county recorder's office.

The date your title company received a confirmation of the recording is irrelevant. You are being misled by the title company.

I suggest that you write a polite letter to the manager at the title company demanding an interest refund check within 10 business days. If you don't receive a refund for the amount of overcharged interest, you can decide whether it is worth your time to sue the title company in small-claims court.

DEAR BOB: My significant other wants to buy a half interest in my house. I am willing to sell a half interest. We live together but, for several important reasons, are not married. The house is worth at least $400,000. How can he get financing to buy a half interest in my house? -- Kelly F.

DEAR KELLY: I don't know of any mortgage lenders willing to make loans secured by a 50 percent interest in a house.

Legally, it is possible for your buyer to pledge his half interest as security for a loan. But the interest rate will be high, and the lender is likely to be a loan shark.

DEAR BOB: Eight years ago, we hired a handyman to finish our basement. He didn't mention the need for a building permit, and we didn't realize we needed one. Now we want to sell our home. Will the lack of a permit pose a problem? -- Marie C.

DEAR MARIE: Be sure to disclose in writing that the basement renovation was done without a building permit. Depending on the facts, many buyers may go ahead with the purchase, but some won't or will insist on a price discount.

DEAR BOB: I heard that if a previous homeowner did work that required a building permit but none was obtained, the current owner can be held liable if the work was not up to code. Please elaborate on this. -- Ginger T.

DEAR GINGER: Your information is correct. For this reason, always disclose if any work was done without a required building permit.

If the work is minor, such as installing a new water heater, probably nobody will bother you or a subsequent owner.

However, if the work completed without a permit is significant, such as adding a family room or a major renovation, the local building department could learn of the work when you or a future owner later do work that requires a permit.

Many cities have provisions for inspecting work done without a permit without having to rip out the drywall for the building inspector. Without giving your name or address, you can pay a visit to the building permit department to learn the exact local procedure for remediation of nonpermitted improvements.

DEAR BOB: Because of my husband's job location change, we had to sell our house in Michigan, where the home-sales market is very slow. His employer offered no relocation benefits, but at least my husband still has a job. After listing our home on the market for six months with no purchase offers, we were unable to keep up the mortgage payments and defaulted.

The real estate agent suggested a "short sale" for less than the mortgage balance. Rather than foreclose, the mortgage lender agreed to accept a purchase offer for about $16,000 less than the mortgage balance. We were happy to get rid of the house and its mortgage. But then we received an IRS 1099 form showing $16,000 taxable income to us. Is this a mistake? -- Helga H.

DEAR HELGA: It's no mistake. When a mortgage lender agrees to a sale for less than the mortgage balance, the IRS considers the amount received by the lender, which was less than the amount owed, to be taxable debt-relief income to you as the borrower.

The IRS reasons that because you won't have to repay that $16,000 loss the lender incurred, it is as if you received $16,000 in income. While we may not agree with the IRS's viewpoint, debt relief in the form of a mortgage short sale is taxable to borrowers. For details, consult a tax adviser.

Readers with questions should write Robert J. Bruss at 251 Park Road, Burlingame, Calif. 94010, or contact him via his Web page,http://www.bobbruss.com.

© 2007 Inman News Service