DEAR BOB: My wife and I are considering selling our large home and buying a smaller residence, perhaps a condo. Our house will sell for at least $175,000 and we might pay around $100,000 for a condo. As we only paid $32,500 for our house years ago, you can see we have a big tax problem. We are not 55 so we can't use the $125,000 tax exemption. How much tax will we owe? -- Rich T.
DEAR RICH: As you probably know, when a home seller buys a replacement principal residence costing at least as much as the old home's adjusted "net" sales price, tax on the entire sale profit is deferred. That's the "rollover residence replacement rule" of Internal Revenue Code Section 1034.
However, if a home seller buys a less expensive replacement home within two years before or after selling the old home, tax is due on the sale profit up to the difference in the two home prices.
Presuming your home sells for $175,000 adjusted "net" sales price, since your adjusted cost basis is $32,500, your profit is $142,500. However, if you buy a replacement principal residence within two years for $100,000, then $75,000 of your profit ($175,000 minus $100,000) is taxable. Tax on the remaining $67,500 of your profit is deferred. At the new 28 percent tax rate, your tax on the $75,000 profit will be about $21,000. Consult your tax adviser for details.
DEAR BOB: Several weeks ago you said a borrower who pays off an Federal Housing Administration home loan is entitled to a refund of part of the mutual mortgage insurance premium. If I pay off my Veterans Administration mortgage, will I get a refund too? -- George L.
DEAR GEORGE: Sorry, but VA home loan borrowers aren't entitled to any mortgage insurance refund as are FHA borrowers who pay off their mortgage.
DEAR BOB: We foolishly signed a 12-month listing with a real estate agent to sell our land. He is doing virtually nothing to advertise the land. His only reply to my letters is, "These things take time." It has been five months and he has brought us no offers. Can I revoke this listing to list with a better agent? -- Patrick W.
DEAR PATRICK: Consult a real estate attorney. The primary legal reason for an owner canceling a listing is "lack of due diligence" by the real estate agent to get the property sold. If the agent is advertising the listing and is promoting it, then your revocation of the listing might entitle the agent to a full sales commission even though the land has not been sold. Be very cautious about revoking your listing unless you can prove the agent has not used due diligence.
DEAR BOB: Recently you mentioned 90 percent mortgages for home buyers. Where can I obtain such a mortgage? -- Alan V.
DEAR ALAN: Virtually every S&L and bank offers 90 percent and even 95 percent mortgages. These loans are called PMI (private mortgage insurance) loans. FHA home loans for about 95 percent of the sales price are offered by many lenders and VA home loans to qualified veterans require no cash down payment. Consult at least two local S&Ls, banks and mortgage brokers to learn the details of their available mortgages.
DEAR BOB: I am a mortgage broker who is very upset at your remarks in recent weeks about "bait and switch" tactics. I've been in this business for 14 years and it's only the reputable mortgage brokers who survive. We quote interest rates and terms available as of the day the borrower applies for a mortgage. There is no way we can guarantee the same rates will still be there after two or three weeks when the appraisal, income verification and credit report are completed. However, if the borrower pays us a one point "lock-in fee" we can get lenders to guarantee the quoted rate for 45 or 60 days. We're just middlemen between the borrower and the lender. My firm has loans available from more than 40 S&Ls, banks, pension trusts and insurance company lenders so we can place just about any loan request with a lender. To say we "bait and switch" to get loan applications is not true. -- John M.
DEAR JOHN: Thank you for sharing your viewpoint. I agree that mortgage brokers can often obtain mortgages for properties that are unusual or difficult to finance. What irritates thousands of borrowers, including me, is that some mortgage brokers quote terms to get loan applications, knowing the loan processing will take so long the promised terms won't be available.
That's why Sen. William Proxmire and the Senate Banking Committee are investigating what can be done to stop lender abuses of loan applicants. I realize many of the problems are beyond the mortgage broker's control but the borrower should be told the quoted terms are likely to change before the loan is ready to close. Also, mortgage brokers and lenders should promptly process loan applications and not delay them as many have done when mortgage rates are rising.
Sorry, but I have little sympathy for the shady tactics of some mortgage brokers. There are no easy answers but I hope the reputable mortgage brokers will clean things up so the advertised mortgages will get delivered to borrowers.
DEAR BOB: We bought our home in 1973. The seller carried back a second mortgage of $12,000 that was to be paid off over 10 years. We faithfully made our payments on time and the loan was paid off in 1983. Now we are selling our home. The title insurance company searched our title and reports that in addition to our first mortgage the title records show the second mortgage remains unpaid. We have tried to locate our sellers but the bank that was collecting our mortgage payments says they closed their accounts. The title insurance company wants to hold back $20,000 of our home sale proceeds until we can find the seller to clear the mortgage off our title. How can we get this mess cleared up? -- Sylvia S.
DEAR SYLVIA: Consult your attorney. Your situation is not uncommon. Borrowers who pay off their mortgages should be certain the lender promptly records a mortgage satisfaction, deed of reconveyance, or other appropriate legal document to remove the mortgage or deed of trust from the property title.
As you discovered four years after paying off your mortgage, some lenders forget to remove the mortgage from the title records and this can cause trouble many years later when the property owner wants to sell or get a new mortgage.
If your title insurance company is cooperative it may accept your affidavit that you paid off the mortgage in 1983. You may need to submit copies of your canceled checks as well as evidence that you tried to locate the lenders but they can't be found.
If necessary, your attorney may recommend a quiet title lawsuit against the missing lender. You would then submit your evidence in court and the judge can order the mortgage removed from the title to your property. Such a lawsuit can take considerable time so the title insurance company's offer to hold back $20,000 but allow your sale to close immediately seems very fair.
DEAR BOB: We bought an old estate that the real estate agent said contained 11.5 acres. Our plan was to live in the mansion and subdivide the land into one and two-acre homesites. After we bought the property and had it surveyed we discovered there are about 9.75 acres. When we confronted the seller and real estate agent about the missing 1.75 acres they showed us the listing sheet that says 11.5 acres MOL. They say MOL means "more or less." Since we figure each homesite will sell for at least $40,000, do you think we should sue the seller and agent? -- Josephine R.
DEAR JOSEPHINE: I'm shocked that you didn't have a survey made before you purchased the property. The abbreviation MOL is very commonly used in sales of vacant land where the seller isn't certain of the exact acreage. You should have asked the agent what the term meant. Consult your attorney.