| Real Estate Law
Hosted by Benny L. Kass
Washington Post Columnist
Friday, April 26, 2002; Noon EDT Only after entering into the process of buying real estate do many consumers realize just how little they know about real estate law. What are the legal obligations of both the buyer and the seller? Are there different legal ramifications for buying a home or a condominum, and what are they? What are the buyer's and seller's legal obligations to condo and homeowner's associations? Benny L. Kass writes the "Housing Counsel" column in The Washington Post, navigating the legal issues and responsibilities of both buying and selling real estate. How do you plan for capital gains, or what can you do if you're faced with a buyer who's dragging his or her feet? Kass has the answers. He was online Monday, Sept. 24. Kass is a Washington, D.C., attorney with the law firm of Kass & Skalet, PLLC. Prior to his private practice, he worked as counsel to both Senate (1965-69) and House (1962-65) subcommittees, and was an attorney with the U.S. Maritime Administration (1969-71). Kass holds a Bachelor of Science degree in journalism from Northwestern University in Evanston, Ill., a law degree from the University of Michigan Law School and a Master of Laws degree from George Washington University Law School. In addition, he has also served on various legal and consumer-related counsels and commissions in the District of Columbia. The transcript follows. Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. Baltimore: Hi!
Three days after we settled on our house, the main waterline leading into our house broke- causing us to spend $1800 to replace the entire pipe. The home warranty and the home insurance won't cover the fix. Do we have any recourse against anyone or anything? The home inspector identified there may be a problem with the pipe in years to come- but not three days!! We hadn't even moved into the house yet. Any thoughts? or should we just eat the $1800. thanks. Benny Kass: this is, unfortunately, a common problem, and there is no real answer. oversimplified, problems which occur before settlement are the seller's responsibility and problems after settlement are the buyer's responsibility. In my career, I have had 8 clients who discovered a faulty hot water heater the morning of settlement. Since it was prior to settlement, the seller's had to bear the cost of repair/replacement.
You have a tough case -- especially since your inspector warned you of a problem. however, don't give up on the home warranty program or your insurance carrier. Why are they refusing coverage? review carefully the policy and get your lawyer to review them also. you may have some coverage if you press the insurance carriers.
Annapolis, Md: Good afternoon. I have elderly relatives (both in their mid 70s) who sold a property and realized about $30K before selling expenses. Of this amount, is any of it taxable? If any or all of it is, what is deductible relating to the selling of this property. They paid a mortgage, performed various upgrades and even obtained loans to buy and make renovations to the property before it was sold. I was told that all of the aforementioned can be subtracted from the realized gain and whatever is left needs to be reported, regardless of the owner's age. On the IRS website, I've noticed that are some exclusions from the 2 yr rule, which at least one of the relatives could invoke to claim exemption. They are under the assumption that whatever they make, at their age, is not taxable given that they just earn Social Security. Thanks for your help. Benny Kass: I don't have enough facts to answer you specifically, but here is the general approach to tax issues. If you own a property and live in it for two years within a five year period before it is sold, the home owner can deduct up to $250,000 of gain if single or up to $500,000 if married and filing jointly. Thus, if this fits your situation, the profit they made is totally tax free. If this was investment property, there are different rules, which I will not go into here.
Silver Spring: We've owned our home for about a year and a half but plan to sell it this summer to go back to school. Trouble is, by the time we need to sell it we'll be about a month shy of the two years necessary to avoid capital gains tax. Is there anything that we can do? We've thought of just delaying closing and flying back for it, but is there any other way? Having the buyer rent from us for a month before closing or something like that? (Or would that be a legal nightmare?) Benny Kass: I assume you have made(or will make) a lot of profit, and that's why you are concerned about capital gains tax. Perhaps the best way to accomplish your objective is to defer the settlement and let your buyer's sign a pre-occupancy agreement, with settlement to take place one or two days after the end of the two year period. Your broker or your attorney should have a standard form "preoccupancy agreement" which spells out such things as how much rent the buyer will pay, how much deposit they will make, etc. and there is no need for you to fly back to settlement; the settlement attorney can fed ex (at a lot cheaper cost than airfare) all of the documents which you can sign, notarize and return.
Bethesda, Md.: I'm hiring a contractor to do a job in my home & I'm wondering about the basics of the contractor's liability for damage done during the job. The job will involve making some unavoidable holes in the wall and some poking around, & I'll have to prepare to some extent in order to avoid damage to the contents of rooms, but I'm unclear about the boundary between what's my responsibility and what's the contractor's as well as what is unavoidable damage and what's too much. Are there any 'rules of thumb' a home owner can follow on these matters? Benny Kass: the basic rule of thumb is to have a good, strong contract (usually on a form American Institute of Architects -- AIA) since that will give you some protection. Don't just sign a one or two page contract prepared by the contractor -- or you may end up having to seek legal assistance later on. Two other important points: (l) make sure that the contractor is licensed in your jurisdiction; don't just rely on the contractors say-so; get the license number and confirm it with the county where the license is issued; (2) I usually try to hold in reserve 15 percent of the total contract price, but if I can't get away with this, no less than 10 percent. When the job is finished, and you are completely satisfied and the contractor gives you a warranty and a release of mechanics liens, then you will release the balance of the contract price.
one more thing: do not, under any circumstances, agree to a verbal change order. If you or the contractor want to change something, have it reduced to writing and spell out any additional costs.
Arlington Va.: Thanks for answering questions! I bought a condo recently and received the condo document. Frankly with so many legal terms it's a hard read for me...what do you think is important in a condo document that I should spend the most time read over? Benny Kass: yes, buying a condo is not always easy. I have coined what I call the "list of Ps of condo problems -- pets, parking, patios, pools, presidents, psychologists, prostitutes, portals, pianos, etc".
You must read your condo documents, and if you can not understand everything, ask your lawyer for assistance. you do not want to find out later that you cannot rent (for example) for less than one year.
Perhaps the most important aspect of the re-sale package (that's what you should get when you sign the contract) are the financials. Make sure they are up to date, and make sure that there are adequate reserves in the association's funds. A recent accountant's financial report should be included in your package and you should read any "notes" from that CPA, since often they telegraph items of concern. good luck.
Fairfax, Va: Dear Mr. Kass, This is a high priority question. Perhaps you can clear this up for us. We rent a house that has just been listed. This very morning at 7.10AM, an unannounced realtor and her client came into the house without knocking, calling ahead, or getting permission from the owner (I've checked, owner and listing agent appalled also). They were quite put out that I wasn't going to let them just walk around while we were sipping coffee in our bathrobes. Frankly, I'm enraged, the pair was lucky not to have been chased out of the house and off the property with a pitchfork-wielding weirdo. My questions are: what are my rights? Are there 'legal viewing hours, and other hours by appointment'? How do I stake my claim? Benny Kass: why, oh why, do people do such things? I don't know that it is illegal, but certainly is in bad taste. However, read your lease. does it allow the landlord/seller to have access during the last 30-60 days of the lease term to show the property? And even if it does contain such language, I suspect that it says "on reasonable request and at reasonable hours".
Just tell the owner (not the agent) that you will certainly comply, but only if you get advance notice during reasonable hours.
If you lease is silent on such access, however, if you want to be a stickler, you do not have to let the agents in.
Fairfax, Va.: I'm in a disagreement with my father in law regarding the sale of our home last fall where my wife and I realized an after costs gain of about 100k (capital gains tax free since we owned it for about 2.5 years). We decided to invest the proceeds and purchased a new home with zero down with a VA loan. My father in law, being the old fashioned, frugal man that he is, feels that we should put as much money down as possible to minimize total debt, however, I feel that, considering tax benefits and the low interest rate of the loan (6.5%) that we'd could realize better gains by investing the extra cash elsewhere rather than tying it up into our house. What are your thoughts on this? Benny Kass: good question: no real answer. Some people (especially those who lived through the great depression) want to have their house free and clear.
I side with you for a number of reasons:
1. hopefully, your house will appreciate in value at least 3-5% per year. It will appreciate whether you have no mortgage or a large mortgage. Thus, if you have no mortgage, (or have a lot of equity) in my opinion, that equity is dead equity. the house will continue to appreciate regardless of the amount of equity, and I would prefer to have that extra money for a rainy day -- or for a good investment. But be careful how you invest. the market -- as we all know -- is unpredictable.
2. I don't know your financial situation, but I have had a lot of clients who at age 65-70 are "house rich and cash poor". They own the house free and clear, but have no savings to pay the real estate tax, fix up the house, etc.
Thus, so long as you know you can comfortably afford a higher mortgage, I would go for it.
McLean Va: I am a landlord residing in Virginia, but with a rental property in Maryland. Though I think it's decent in any case to do so, am I compelled to pay a departing tenant interest on his security deposit? It was one month's rent plus $500. Benny Kass: doesn't matter where you live, it's where the property is located that counts. Maryland law specifically requires a landlord to return the security deposit within 45 days after the end of the tenancy and to pay the tenant simple interest at the rate of 4% (simple, accruing at six month intervals. If the deposit is less than $50 (which is not your case) no interest is owed.
Vienna, Va: Mr. Kass, My parents have 3 children, one of whom is estranged from the family (his choice). My parents don't want to change their wills, so in the event of my parents' deaths, the family home (of 2 generations) would be shared equally by their 3 children. What are some problems that may arise from such a situation? Could our brother force us to sell the home? Do inheritance issues tend to end family feuds or increase them? Thank you. Benny Kass: there is an old expression that "when there is a will, there are relatives". Yes, I foresee problems in the future. The law is very clear throughout this country that if two or more people own a piece of real estate, and one wants out, that person can file a lawsuit demanding that the property be sold and the proceeds divided among all owners. This is known as a partition action. I have personally represented a number of clients in such actions and -- unfortunately -- they all involved brothers and sisters, not strangers.
My advice to everyone considering such a partition suit: the only ones who win are the lawyers, the trustees who sell the property and the buyer who gets (often) a steal, unless you can convince the court to allow a private sale and not a public sale.
Obviously, it is your parents who have to make the decision as to how they want their property to be divided. If they want to "spend their kid's inheritance" -- or give the property to strangers -- or to an estranged member of the family, so long as they are of sound mind, that's absolutely their right even though you may not be happy about the situation.
don't raise any issues now; it doesn't look good. And hopefully your parents will live for many more years and this issue will be currently academic.
Washington DC: I'm planning to sublet my furnished condo for a month this summer. Anything special that we should do differently since it will be rented furnished? Benny Kass: you state that you plan to sublet your condo? I assume that you are a tenant. First, you must get permission from your landlord. Second, check the bylaws of the condo. do they permit leasing for a short period of time.
If everything says go, then you should make a careful inventory of the furnishings, have your subtenant review and sign it, and you may want to make sure that you get a months' security deposit. Also, make sure that you have a good lease.
North Bethesda, Md.: I want to sell my house without using a real estate agent. What legal paperwork would I need for contracts and the settlement? Do I hire a real estate attorney to do all of this for me? If so, how do I choose one? Benny Kass: ah, the real estate brokers will hate me for this, but yes -- I do recommend that if you have the time and the patience you should try to sell your house yourself. You will kick yourself for a very long time if the first weekend that a real estate agent has the listing, the house sells. You should talk to an experienced real estate attorney who can guide you through the process, from start to finish, and who will give you a brief "course" on real estate 101.
the most important thing, in my opinion, is that you show some knowledge of the process should your potential buyer ask you questions.
You certainly can agree to cooperate (coop) with brokers, and this way if a broker brings in a potential buyer, you may only have to pay 2 or 3 percent, and not the full 6 percent that is currently the norm.
It does take time and some preparation, but it ain't rocket science.
Wheaton, Md: Hi. I'm selling my home, and recently while pulling into my driveway, I saw a car pull off. After walking through my home, I realized that the man that drove off, probably a realtor or investor, was actually in my house looking around. I deduced he came in through an unlocked back door. Nothing was taken, and I didn't get his license plate number, but how dare he! I don't know what to think! Is this what I should expect? Lowdown realtors that break and enter? Benny Kass: have you listed the house or are you trying to sell it yourself? If you have it listed, you may want to discuss the situation with your broker, and you may also want to stop any lockbox arrangement you may have.
unfortunately, you can't prove who entered your house. It may have been another broker, may have been a burglar or it may have been a friend to whom you gave a key.
I wouldn't jump yet to the conclusion that this was a broker who did this.
Harrisburg, Pa.: There is property held by several owners. A bank holds the property in trust for the various owners. Someone wishes to purchase the property. Who decides which price the sellers will accept for a sale? Benny Kass: you must first look to the trust agreement with the bank. does that document give the bank sole authority to decide the price? If so, the bank clearly has a fiduciary duty to get you the best possible price, and they should have obtained at least one appraisal before agreeing to sell.
if the bank does not have sole authority, the trust agreement may also give you guidance on this issue. Perhaps it will say that a majority of the owners can make the decision. Otherwise, all of the owners will have to agree, and if this is not possible, unfortunately, a court will have to make a decision. Compromise must be the name of the game, since a judge -- who is a stranger to the facts and wants to move on to the next case -- will merely obtain an appraisal or two, hear some testimony and make a decision. And this will cost all of you a lot of time and money.
Chantilly, Va.: A question about condominiums: Who owns the land underneath them? The condo association? All of the owners? Thanks. Benny Kass: good question, easy answer. Generally speaking, a condo association owns nothing. Each owner owns his/her percentage interest in the common elements. You should look at the condo documents, however, to make sure that you are not in a ground lease situation, whereby the original owner only gave a lease -- and not fee simple title -- to the developer of the condo.
Washington, D.C.: Hi Attorney Kass, Do I have a legal cause of action to sue the sellers (an LLC) of a renovated, flipped four-unit rental property that had a major fire within two weeks after I purchased it, as a result of an improperly installed furnace? My homeowner's insurance paid the claim for the property damage and the property is in the process of being restored. In the interim, I had to incur additional expenses and loss of rent for going on five months, as a result of the fire. Therefore, I would like to propose a settlement with the sellers and the seller's contractor for consequential damages, negligence, loss of rents, the cost of obtaining new insurance (the original comp. cancelled me after I filed the claim), and a lack of duty and care that has prevented me from the enjoyment of my personal property. In addition, as a result of the property being gutted and repaired, D.C. government inspectors have identified bad wiring and possible illegal electrical wiring that was done in the previous renovation. I will have to personally incur the cost to cure this because it was not covered in the initial Homeowner's claim. Do I have a legal cause of action? If so, what is the basis of my claim? Should I propose a settlement prior to filing a lawsuit? Thank you for your insight. Benny Kass: as I discussed earlier on a similar question, much depends on the contractual terms you have with the seller. Once again, oversimplified, problems which occur before settlement are the seller's responsibility and problems after settlement are the buyer's responsibility. On the other hand, if you can prove that your seller (the LLC) improperly installed the furnace, you may have a case. investigate the facts first. who did the installation? did the seller's use licensed contractors? are there warranties involved? will your insurance company assist you -- or take on the case on its own (called subrogation).
You really should discuss this with your attorney. Litigation is time consuming and expensive, and much depends on the amount of your actual damages -- which you can prove.
Falls Church, Va.: My husband and I are 51 and 47 respectively with 16-year-old twins. We purchased our home in 1983 for $165,000; it is currently worth approximately $400,000. We owe only $25,000 on our first mortgage which was a 10-year, 6.875 percent loan which is due to be paid off in June 2003. In addition, we presently owe about $54,000 on a variable rate (currently 4.75 percent) home equity loan. Our original plan was to pay for the children's college with the money obtained from a new, smaller mortgage once our original loan was paid off. However, we are no longer sure this is the best course of action. We would like your advice how we can maximize our position and minimize our tax liability. For example, should we take out a new loan, paying down the home equity with additional funds for tuition costs? Should it be a fixed rate or variable rate and for how long? We would greatly value your opinion! Benny Kass: I can only give you some general thoughts in the short time I have left. Rates are currently low now; assuming that you do not have a prepayment penalty if you pay off your first trust (mortgage), I recommend that you refinance and take a new mortgage of approximately $175,000- 200,000 (assuming of course that you can afford the monthly payments). This will pay off your home equity mortgage, but still give you some cash to "play with". Talk to your home equity lender, and see if they will subordinate their trust to a new lender. This means that although you will pay down the trust, you will keep it on the books, for when you need the money. You should also be able to get a line of credit (that's really what it is) for up to $100,000. I like a home equity loan; you have a checkbook in your desk to use if and when you need the money, but don't have to pay interest until you borrow money -- and then only on the money you actually borrow.
Also, there are some excellent student loan programs around the country which will allow you to pay the tuition on a monthly basis over the time your children are in college. You may want to start exploring these programs now.
Upper Marlboro, Md.: Please help! Thank you! I put a deposit ($2500) on a new townhouse with the builder, but subsequently was not able to get approved for financing by a mortgage co. for the amount of the house. (I got approved for about $170K and the mortgage I needed for the house was over 200K). I went to three different mortgage companies who either refused to take me or would not go up to the amount I need. Now the builder refuses to return my deposit. What recourse do I have? Any? Benny Kass: read your contract very carefully. does it contain a clause that makes the contract contingent upon financing? If so, you should be able to get your deposit back.
I am very troubled with the form contracts which new home builders use. My explanation of these contracts: "if there is anything in the contract that protects the consumer, it is because the builder's attorney forgot to take it out."
do you have written rejections from your three lenders?
If you cannot get your deposit back, you should contact the Maryland attorney general's office (office of consumer affairs, I believe is the branch there) and they may be able to assist.
however, for future reference, read the new home sales contract very carefully and make sure that it contains a clear, concise contingency on financing.
Herndon, Va.: Mr. Kass: with all due respect, I must disagree with your advice to the couple leaving their home must before two years were up. If they let the buyers in to stay before the sale is closed, believe me, the buyers will find something they don't like and want to renegotiate the sale price!! Benny Kass: appreciate your disagreement. Yes, a pre-occupancy settlement can be a problem, but the standard form states that the buyers/tenants accept the property in it's as condition as of the date of occupancy -- not settlement.
my preference of course is not to this route. however, if it a choice between selling early and having to pay a lot of capital gains tax for just one month, I would have to weigh the pros and cons.
thanks for your comments.
Seller:: I would never try to sell my house myself. It's way too labor intensive. I've lived in and sold two houses, and had friends who sold themselves, and it's an enormous pain in the butt. Plus, your house sells better if you get out of the way and aren't there during showings. Benny Kass: I respect your position and if you don't want to try to sell by yourself, that's fine. but there are many people who would like to save a lot of commission money and have been successful.
washingtonpost.com: Sorry we're out of time. Thanks to everyone who participated and have a great weekend!
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