When a Sale 'Liens' on the Seller

Q: DEAR BOB: We are buying an out-of-state house. The closing is scheduled to be in about two weeks. It is a for-sale-by-owner, and the sellers aren't knowledgeable about the sales process. We just received a document from the title company listing the recorded liens against the sellers. The list includes a lien from the state's bureau of child support for more than $12,000 and deferred property taxes for about $2,000. Neither of these liens was previously disclosed to us. If the sellers are unable to pay these liens at or before the closing, what are our options? We don't want to be homeless when we arrive in our new city if something goes wrong with the closing.

-- Rebecca L.

A: DEAR REBECCA: If the sellers will be receiving sufficient cash from the sale to pay off the child support and property tax liens, then they will be able to deliver marketable title to you.

Call the firm that will be handling the closing settlement and go over the exact numbers to be certain there will be sufficient cash to pay off the current mortgage balance, the child-support lien, unpaid property taxes and any other seller obligations.

Also, be sure you receive an owner's title insurance policy. That is your best assurance you have received marketable title.

DEAR BOB: My wife is a co-owner of real estate in a partnership. The members wish to dissolve the partnership by selling the property. One of the co-owners wants to cash out. Can the other co-owners, either separately or collectively, proceed with separate investment goals through an Internal Revenue Code 1031 exchange? -- Theodore C.

DEAR THEODORE: No. In an IRC 1031 tax-deferred exchange of an investment or business property for other such property of equal or greater cost and equity, the names on the title to both the relinquished and newly acquired properties must be the same.

The situation you describe does not appear to qualify for such an exchange because the old property is owned by a partnership and the acquired property or properties would be owned by individual owners or co-owners. For details, consult a tax adviser.

DEAR BOB: My siblings and I inherited a four-family home after our mother's death in July 2005. She lived in one of the apartments. The rest of the property has been vacant for several years. Is there a time limit within for selling the property without incurring extra taxes? -- Fran A.

DEAR FRAN: I am not aware of such a time limit. When you and your siblings inherited the property, you received it with a new "stepped-up basis" to its market value on the date of your mother's death. When you sell the building, your taxable capital gain will be the net amount you receive above that stepped-up basis.

DEAR BOB: I am in state prison. My release is scheduled for November. While in prison, I have been reading books about real estate investing and sales. I was a successful salesman before I became incarcerated, and I would like to become a real estate salesman after I am released. How do I obtain a real estate sales license?

-- Howard W.