DEAR BOB: I recently sold my home. The buyer assumed by VA mortgage. I got a release of liability from the VA because I followed their instructions and your advice. But the mortgage company claims I am still liable if the new buyer, who was accepted by the VA and the mortgage company, defaults and the mortgage companay loses money on the foreclosure. Is this true? John W., Columbia.
DEAR JOHN W.: It appears you did everything correctly. Your buyer assumed the mortgage obligation and you obtained a release of liability. This means that in the rare event of a foreclosure loss, the lender's recourse is against the defaulting buyer and not against you.
But as a practical matter, even that possibility is remote. When a foreclosure occurs, the VA usually steps in and pays the lender the amount owed. The VA then handles the foreclosure and resale of the house. Since such foreclosures are rare in a rising, inflationary market, don't worry. Lenders love to threaten but they aren't always legally right.
DEAR BOB: I have several questions about that $100,000 home sale tax break you often mention. As I have owned by condominium just over three years, can I qualify? I am 56 and have previously deferred tax on my profits from sales of two homes. Can I use the $100,000 exemption on these profits, too? I am getting married soon (first for me, second time for my fiance). Does my use of this $100,000 tax break affect the sale of his home? May T., Washington.
DEAR MAY: Yes to all your questions. The "over 55 rule" $100,000 home sale tax exemption rule election can apply to the sale of your principle residence (single-family house, condominium, cooperative apartment, mobile home, or houseboat) if you are 55 or older on the day of title transfer, if you have owned and lived in the residence at least three of the five years before sale, and if you have never used this tax break before.
Since you have owned and lived in your principal residence the past three years before sale, you can qualify. The three-out-of-five-year requirement allows sellers to rent their residences and live elsewhere up to two out of the five years before sale.
This tax exemption applies not only to profits from the sale of your current residence but also to deferred profits from sales of previous principal residences.
In other words, while you are under 55 you can use the "residence replacement rule" (available to taxpayers of any age) to defer profit taxes when you sell one home and buy a more expensive one. After you become 55, you can use the $100,000 exemption for both these deferred profits and sale profit on your current home.
If you use your once-in-a-lifetime, $100,000 exemption, and then get married, your new spouse will be disqualified from using this tax break, too.
Use of the rule by either spouse bars later use of the rule by the other spouse. Since your future husband is planning on selling his home, he should do so before the marriage to use up his $100,000 tax exemption. For details, see your tax advisor.
DEAR BOB: I own a small piece of downtown property that I'm told is valuable. It is occupied by a coffee shop that barely pays enough rent to cover the upkeep and taxes. I'm unsure whether to sell this property, fix, it up, or just leave it alone. In today's market situation what do you recommend? Mrs. O.K., Bethesda.
DEAR MRS. O.K.: I can't give specific advice on a situation like yours since I am not familiar with the particular property and your personal circumstances. You should consult a certified real estate counselor. For a modest fee, a counselor will find out the relevant facts, make recommendations, and help you implement them if you agree.
Real estate counselors are not paid the customary real estate sales commission. These people, usually with many years of successful real estate experience, advise clients on the best action to take to solve specific realty problems like yours. To get a list of local real estate counselors, consult the Montgomery County Board of Realtors.
Dear bob: wE want to buy a small house, perhaps a condominium town house. What is the best way to start searching? We don't know any real estate agents here to help us. Simon V., Washington.
DEAR SIMON: The best place to start your home search is the newspaper want ads. Go to the weekend open houses of the advertized homes that interest you. Also, phone agents advertising homes that aren't being held open. If you don't find a home you like, ask the agents about their unadvertised houses, which are often the best bargains.
DEAR BOB: I see home mortgage interest rates are dropping. With FHA and VA home loans at 11.5 percent, and other mortgages slightly higher, will it pay to wait to buy a home until interest rates come down more? As a real estate broker and a potential home buyer I have a double interest in this question. Mildred S., Arlington.
DEAR MILDRED: You asked a difficult, but frequently asked, question. Mortgage interest rates may drop a little more, but when that happens more potential buyers can qualify for loans. That will drive up home sale prices. I expect this to happen within a few months.
Today is an excellent time to buy a home while we're still in a buyer's market with fewer buyers than there are homes for sale. In this present market situation, I keep hearing of fantastic home sale bargains. Most involve seller financing which I don't think will be available in a few months when buyer demand picks up as mortgage money becomes readily available again.
The supply of new homes under construction has plummeted in most areas. This will contribute to the shortage of homes for sale when buyer demand picks up. As buyer demand grows, if the supply of homes for sale doesn't keep pace, we'll have a "seller's market" with rapidly rising home sale prices. A seller's market is the time to sell but now, in a buyer's market, is the time to buy.
As a real estate agent, I hope that you realize the best and cheapest finanacing source, today or anytime, is the property seller.
When you find a home you want to own, provide in your purchase offer for seller financing so you can save the costs of getting a new "hard money" mortgage from a bank or S&L. You'll be surprised how often sellers say "yes" to such offers which give them interest income and installment sale advantages.
DEAR BOB: We own a farm in North Dakota that we lease to a farmer. If we go to inspect this property can we take a tax deduction for our trip? Sylvia D., Springfield.
DEAR SYLVIA: Yes. Reasonable travel expenses to inspect investment property or property used in a trade or business are tax deductible. But if your trip is part of a vacation to other areas, only the expenses directly related to the inspection are deductible. This is a "gray areas" of tax law, so consult your tax advisor for details.
DEAR BOB: Some friends borrowed $12,000 from the wife's parents for the down payment on a condominium townhouse. My wife thinks we should do the same thing as it seems we'll never be able to save up a down payment. Do you think we should borrow in this way? If so, do we have to show this loan on our mortgage application. Edward G., Bethesda. w
DEAR EDWARD: It's hard to believe but parents love to loan their children money to help them buy a home. Many young couples or singles borrow their down payment from their parents or other relatives.
However, this finance source can be either your cheapest or most expensive money source. So it's best to put the loan on a business-like basis. Sign a promissory note to the parents which provides for interest and periodic payments. Then your interest payments will be tax deductible (but taxable as ordinary income to the parents).
If you don't put the obligation in writing, the IRS can deny the tax deduction for the interest on the grounds the money was a gift. Your tax advisor can give you more details on the tax angles.
If the money is a gift, you don't have to show it on your mortgage application as a loan. But if it is a loan, although some applicants don't do so, if you are being totally honest with the mortgage lender you should list it as a liabilitly.
DEAR BOB: Irecall when I first started reading your columns years ago in The Washington Post, you said mobile homes are nice places to live but not great investments. I recently visited Florida where a friend told me she brought her mobile home for $26,000 about a year ago and recently sold it for $32,000. Does this mean mobile homes have become good investment properties? Mrs. G. T., Falls Church.
DEAR MRS. G. T.: Not necessarily. The quality of mobile homes has greatly improved in the last few years as builders upgraded the industry. Unitl recently mobile homes depreciated in value, much like your car loses value each year.
But in recent years, many mobile home sellers have found their dwellings have increased in value. There are several reasons. One is the improved quality. Another is the increased buyer demand from people who have been priced out of the traditional single-family and condiminium home markets. Still another reason is the enlightened attitude of some cities in zoning mobile home parks in desirable areas instead of just in industrial or other undesirable areas.
While I can't say mobile homes have become great investments, they have become smart purchases for buyers who (1) locate in a good mobile home park, (2) maintain their mobile home well, and (3) have a recently constructed well-built mobile home.