Q: I'm negotiating to buy 14 acres now zoned as agricultural land in Loudon County. I think it will be rezoned as residential or commercial land within 10 years and will go way up in value. I've proposed paying 2 percent down on the purchase price, with the seller taking back a purchase money mortgage to be paid in equal installments of principal and interest over 15 years at an interest rate of 8 1/2 percent. The seller agrees.
But he indicates that he'll only give me a land contract. Should I buy the land this way?
A: If you buy this land on the basis of a land contract (also called a contract for deed), the seller retains title. He conveys title to you only after you've paid the full purchase price (including interest) and complied with all other provisions of the land conract. Chances are if you default in your payments or breach any provisions of the land contract, the seller can keep all payments you've made, and you lose your right to receive a deed to the property. (Such a provision will almost certainly be included in the land contract unless you can negotiate differently.)
Moreover, if you don't record the land contract, an unscrupulous seller can mortgage or deed the property to an innocent third party. If the deed or mortgage is recorded, your rights are extinguished if the property is deeded. If it is mortgaged, your rights become subject to the mortgage. Of course, you have an action against the seller for breach of contract. But recovery against such an unscrupulous person is doubtful.
Nonetheless some people do buy land this way. You should know the integrity of your seller, record the land contract, assess your risks and decide whether you want to take them.
Q: An earlier column told of an administrator's deed when there is no will. What happens when there is a will, and property is left? My mother's house in Maine was left with my sister and myself as joint tenants with right of survivorship. My other sister was the executor and all was settled. We never received any deed to the property.
A: Normally the property would be conveyed to you and your sister during probate of your mother's estate by an executor's deed. This would be executed by the executor under supervision of the court probating your mother's estate. Probate of real estate is governed by the law of the situs (location) of the real estate. In your case, this in Maine. I suggest you consult an attorney experienced in probate matters. You can consult such an attorney in Maryland, if you wish. That attorney would undoubtedly handle your problem in conjuction with a qualified attorney in Maine.
Q: My house was built by a contractor 10 years ago. What I at first thought were hairline settlement cracks have developed into a series of 1/8th-to-1/4-inch cracks at several olaces around the brick walls along one side, the front and the rear of my house. This over a crawl space. I engaged a registered architectural engineer to examine the situation.
At his request I dug up an area of the foundation on the inside of the crawl space against the corner of the foundation. He examined this area and the outside area of the brick walls and determined that the cracking was due to poor quality foundation work in general. He also pointed out that the foundation footers had been placed on a compressible layer of topsoil.
Is there a statute of limitations that would void an attempt to bring suit against the builder? Could a suit be instigated, not for damage to the house as such perhaps, but for poor quality and unprofessional workmanship? Is there not an implied warranty for good workmanship that would protect my investment regardless of time? I had a more or less standard contract with the builder that stated he would perform the construction in a "good and workmanlike" manner.
A: For all practical purposes your only cause of action is for money damages. Generally, the statute of limitations in Maryland is three years from the date a cause of action accrues. (There are hard-to-prove exceptions in certain circumstances. They don't appear applicable in your case.) Although it would be a close decision, one that might be decided against you ultimately, you could argue that the cause of action didn't accrue until the cracks appeared. If that is within three years from the date you file your action, the statute of limitations wouln't apply. As you can see, your question is a rather complicated, technical one. Confer with your achitectural engineer and your attorney. The latter should then be able to determine whether you have a reasonable chance for a judgment in your favor.
Q: Would you please explain what is meant by purchasing a property "subject to" an existing mortgage loan? Who really owns the property after settlement?
A: Generally, "subject to" means that the purchaser does not become personally liable for the mortgage loan. The purchaser who "assumes" a mortgage loan does become personally liable. But in some states (Maryland and the District of Columbia among them, but not Virginia, apparently) there is some authority for the position that the purchaser does become personally liable when real estate is bought "subject to" a mortgage loan. This is a gray area of law.
If you're involved in a controversy or litigation on this issue, you'll need to seek competent legal counsel. Who owns the property after settlement when there is a mortgage loan varies from state to state and also depends on whether the security document is a mortgage or a deed of trust. If the document is a deed of trust, legal title normally vests in the named trustees, by the terms of the deed of trust.
The purchaser has equitable title with right of possession and use. If the security document is a mortgage, in those states adhering to the "title theory" with respect to a jortgage, legal title vests in the lender. The purchaser has equitable title with right of possession and use. In those states adhering to the "lien theory" with respect to a mortgage, legal title (with right of possession and use) vests in the purchaser. The lender has a lien on the real estate. In any given jurisdicdiction, competent legal counsel can tell you which theory applies.
Q: I've always understood that depreciation deductions are allowed by the Internal Revenue Service even when a property appreciates in value. But an attorney friend tells me there is a recent case in a United States court that disallowed depreciation taken by an owner when the lease provided that the lessee would maintain the property in first-class condition and replace it if necessary. Do you know anything about this?
A: Yes. The court held that the lease provision prevented the owner from suffering loss through "fair wear and tear." Depreciation norally covers this. Since no depreciation could be suffered, the court held that no deduction should be allowed. (The case is Royal St. Louis Inc. and Chateau Louisiane Inc. v. United States. It was decided by the Fifth United States Circuit Court of Appeals in New Orleans. Aug. 23.) But take heart. This decision must be followed only by U.S. District Court in the Fifth Circuit (Florida, Georgia, Alabama, Missisippi, Louisianz, Texas, and the Panama Canal Georgia, Alabama, Mississippi, Louisiana, other U.S. courts in the rest of the United States. And it is not known at this time whether the internal Revenue Service will follow it in interpreting depreciation provisions of the Internal Revenue Code. If you're faced with this issue, consult a tax counsel.
Earl A. Snyder, a realtor, appraiser and attorney who specializes in investment real estate appraising and counseling, answers questions only in the column. His address: 14909 Kalmia Dr., Laurel, Md. 20810.