DEAR BOB: My question involves a 200-foot roadway easement leading to two acres of my land. Can such an easement be taken away from us if we don't use it or keep it cleared until we build on our land? There is road access at the opposite end of our property, but the easement is much better. For more than 40 years, we have cut back the trees and bushes every few years to keep the roadway open, but we have not done much lately. What do you recommend? -- Al R.
DEAR AL: Your situation is too typical of property owners who risk losing their easements by non-use. I presume your 200-foot roadway across an adjoining owner's land is properly recorded so there is no question about its validity.
Non-use of an easement will usually not extinguish it. However, the owner of the servient tenement over which your easement traverses could play a dirty trick on you. If he blocks off your roadway for the statutory number of years, and then brings a quiet title lawsuit to cancel your easement for non-use, your neighbor probably would win.
To prevent this from happening, at least once a year you should use your easement by driving your car across it. If that involves clearing brush and weeds, do it. Just to be safe, take photos of you and family or friends using the roadway each year. It is much cheaper to prevent an easement problem than to remedy it.
DEAR BOB: We are trying to sell our home. But there is a dog kennel next to our house. Two weeks ago new neighbors moved in with a large barking dog. When prospective buyers come by to see our house they are greeted by growling and barking. We feel this is a hindrance to the sale of our home. We have talked to the new neighbors, the sheriff and the humane society, to no avail. Is there anything we can do? -- Susan S.
DEAR SUSAN: Yes. I sympathize with you because my neighbor's barking dogs frustrate me, too.
I suggest you complain louder to the police and humane society. There is no excuse for inconsiderate neighbors who allow their dogs outdoors to disturb others. Laws and regulations, as well as their enforcement, are different in each community. Persistent complaints to the police should get results, though, with a citation to the neighbor for disturbing the peace.
If the public authorities refuse to act, consult your lawyer about a suit against the offender for maintaining a private nuisance. If other neighbors are disturbed by the barking, consult the city or county attorney about a public nuisance lawsuit.
DEAR BOB: I am paying mortgage on three acres in Hawaii where I plan to build my home in about three years. Is there any way I can still deduct the interest since I intend to build? -- Donna M.
DEAR DONNA: The 1986 Tax Reform Act allows mortgage interest deductions on your principal residence and a second or vacation home. But the new law says nothing about land purchased for a second home. If you built some temporary dwelling on your land, suitable as a vacation home, then the mortgage interest on your property could probably be deducted.
However, mortgage interest on vacant land held for investment or use in a trade or business is also tax deductible. Consult your tax adviser to work out a plan so your interest will be deductible.
DEAR BOB: For many years I have enjoyed your articles, never thinking I would be able to buy a home on a waitress' salary. But when you suggested home buyers with little cash can lease-option a home, I thought that would be perfect for me and my son. I turned to the newspaper want ads and there, under the "houses for rent" column, was an ad that said: "Why pay rent? Lease me with an option to buy." I phoned the owner and three days later I signed a three-year lease-option on a home. For only $2,000 for a "nonrefundable lease-option consideration," I got to rent a beautiful three-bedroom home with all my rent credited toward the down payment. I was so thrilled I didn't even tell my parents until after my son and I moved in. When I invited them over, they could hardly believe it. My father is a lawyer so he looked over the lease-option carefully. The only thing he could find wrong is I didn't record my option. Do you think this is a serious problem? -- Shirley H.
DEAR SHIRLEY: No. Congratulations on finding a lease-option to meet your needs. I bought my house on a lease-option, and I often sell homes on lease-options, so I know how beneficial they can be for both buyer and seller.
For your protection, you should check the title to be certain the owner has marketable title. For $50 to $100 you can buy a "lot book title report" from most title insurance companies. It will tell you the current title status, but is no guarantee the title will remain marketable.
If the owner agrees, you can record a "memorandum of option" with the owner's notarized signature to establish your option. However, since you occupy the home you shouldn't have to worry since any buyer or lender deals with the property subject to the rights of the occupant. Consult your lawyer for further details.
DEAR BOB: I will soon be putting my home up for sale. I plan to buy a five-acre lot where I will have a prefab home built. Can insurance be purchased to protect a home seller in the event something malfunctions shortly after the sale? Although a Realtor will be selling my home, is it wise to also pay a lawyer to oversee the paperwork? As my five-acre lot is rural, should a survey and title insurance be bought? If so, should the buyer or seller pay? -- Robert A.
DEAR ROBERT: For about $350 you can buy a one-year home warranty policy for your buyer. It will pay for repairs to built-in appliances, heating, plumbing and wiring. But there is a $50 to $100 deductible for each malfunction and the policy excludes many components such as roof, structure, foundation and plumbing outside the home's perimeter.
The best protection for you and your real estate agent is to prepare a seller's written disclosure statement listing all known defects in your home. Post it in the kitchen where all prospective buyers will see it and give a copy to any buyer who makes a written purchase offer. Full disclosure protects you and the agent in case something goes wrong with the house shortly after the sale.
I know I'll get in trouble with my fellow lawyers, but in my opinion in most routine home sales a lawyer is not needed, except if required by state law. However, if you have any questions about the legal aspects of the sale, consult a real estate lawyer.
Always get an owner's title insurance policy when acquiring property. A survey is also highly desirable when purchasing acreage because the boundaries may not be where the fences are. Local custom usually determines whether the buyer or seller pays for title insurance and a survey, but everything is negotiable in real estate. When making your purchase offer, specify that the seller is to pay for a survey and title insurance. The worst that can happen is the seller might say no, but an anxious seller will say yes.
DEAR BOB: My cousin is 54. She had been living more than 20 years with a man who recently died. She received a $30,000 inheritance but owes $17,000 on the house mortgage. As she has no income she will have to get on welfare. Her home mortgage payment is $275 per month. Should she pay the mortgage off? -- Willie J.
DEAR WILLIE: You left out important information such as your cousin's ability to get a job. Welfare usually is not available to people who own a home, have $30,000 available and can work.
Generally I don't recommend making lump-sum mortgage prepayments, because then the money usually can't be easily borrowed for emergencies or other investments.
I presume your cousin holds the title to the house. If she pays off the $17,000 mortgage, she will have $13,000 left to invest very carefully. But the $13,000 will not produce much interest income and won't last long if your cousin has no other income and starts spending it.
By getting a job, she can supplement the meager interest income the $13,000 might produce. Otherwise, perhaps your cousin should sell the house and invest the proceeds, plus the $30,000, so she can rent a nice apartment and live off the interest income.
DEAR BOB: After reading your column on FHA/VA mortgage transfers, I am questioning the status of my former FHA loan. I allowed it to be assumed by a seemingly financially responsible couple. I requested release of my liability for the loan but my request was met by blank stares from my real estate agent. How can I be released from this loan? Can I request this now? If not, how can I ascertain whether the payments have been made? I don't want to find myself owing large sums of money on this home. -- Julie A.
DEAR JULIE: I presume you sold your home some time ago. Unless the buyer is willing to formally assume your FHA loan now (and there is no incentive for the buyer to do so), it's a little late for you to take action.
When you sold, you should have made it a condition of the contract that the buyer would assume your FHA loan and you would be released of further liability. Since you didn't do that, if your buyer should default and the FHA suffers a foreclosure loss, you can be held liable for any deficiency.
Unless and until that happens, there isn't much you can do because the lender has no responsibility to let you know the status of monthly payments. Consult your lawyer for details.
DEAR BOB: The interest rate on our $97,655 home loan is 11 3/4 percent. We can get a new fixed-rate mortgage at 10 1/4 percent or an adjustable mortgage at a 7 1/4 percent "teaser rate" that uses the cost of funds index and will adjust to about 9 percent after six months. Do you think we should refinance? If yes, fixed or adjustable rate mortgage? Should we refinance for more than our current loan balance? -- Harris T.
DEAR HARRIS: Yes, I think you should refinance. Unfortunately you left out the costs of refinancing such as loan fee, appraisal fee, title insurance, and closing costs. If you can repay these costs from savings on your loan payments within two to three years, refinancing is advisable. In most situations this requires an interest rate at least 2 percentage points lower.
To illustrate, your current payment is probably about $1,000. At 10 1/4 percent fixed interest for 30 years, your new payment will be $875.08 and at 9 percent adjustable the payment is $785.75 (with a teaser rate monthly payment for six months of $666.17). Let's presume you will incur a 2 percent loan fee and closing costs of an additional 2 percent. If you take the fixed-rate mortgage, it will take about 32 months to pay back the $3,906 loan costs from monthly payment savings. But the adjustable mortgage payment savings will pay back the loan costs in about 15 months. Either way, you win.
As for refinancing for more than the current loan balance, you should consider whether all your interest payments will be tax deductible.
Under current federal tax law, home mortgage interest is deductible if the loan balance does not exceed the residence's adjusted cost basis unless the loan was financed before Aug. 16, 1986. Adjusted-cost basis usually means purchase price plus capital improvement costs. However, interest on loans exceeding this amount are deductible if incurred for capital improvement, medical or educational costs. Consult your tax adviser for full details.
DEAR BOB: Six years ago a friend and I jointly purchased a cooperative two-bedroom apartment in a high-rise building. A short time later we bought a similar unit in the same building. I live in one unit and my friend-partner lives in the other. We decided to have some legal arrangement so we would not have to get the other person involved if one of us wants to sell the unit we live in. We hired a lawyer and asked for a power of attorney or quit-claim deed to give us some legal status. He said the only way is to change the cooperative share certificate the lender holds. But the bank won't release our shares or allow them to be changed. What can we do to allow us to sell at any time without both of us being involved? -- Ken S.
DEAR KEN: Your situation shows how hard it is to obtain a lender's liability release. When the bank made your loan, they relied upon the income and credit of you and your friend. The lender is reluctant to let either of you escape liability.
The matter is made more difficult by your pledge of shares in the cooperative. The lender controls your shares. There isn't much you can do to force the lender to relieve either of you of liability.
If your building were a condominium, you and your friend could each quit claim to the other. Although the lender might kick and scream, there isn't much it can do about an owner deeding property to a coowner. But in a cooperative apartment building, where ownership is conveyed by stock, the lender controls your pledged stock, so you have virtually no way to get out of coownership.
However, if you give each other a power of attorney to one apartment only, that could give each the legal right to convey that apartment without the other owner's approval. Whether the power of attorney would be acceptable to the cooperative stock transfer agent is another matter. In the meantime, I suggest you keep on the best terms with your friend.
DEAR BOB: We stupidly hired a lawyer to handle the closing of our home sale. Although he claims to be a real estate lawyer, I think we knew more than he did. But the real estate agent and the lender had highest respect for him so we let him handle everything. About three months later he wrote us saying he made a mistake in prorating the property taxes. He says we owe an additional $501.45. As we paid him a $750 fee I think he should eat any mistake he made. What do you suggest? -- Lynda H.
DEAR LYNDA: It makes me very mad when a lawyer, escrow company, bank or S&L that handled a real estate transfer comes back to the buyer or seller after the closing and demands more money. These settlement agents are paid well not to make mistakes. If they make an error, they should pay.
However, chances are that if you don't pay the lawyer will sue you for the $501.45. You will probably lose. Of course, you can tell the judge you paid the lawyer $750 to correctly handle the closing and prorate the property taxes, but I'll bet you'll lose anyway.
DEAR BOB: Some months ago I read your article about the necessity of keeping complete home ownership records in connection with selling the residence and using the $125,000 "over 55 rule" tax exemption. I am 80 years old and soon will sell my house to move to a retirement home. I do not expect to buy another home. I bought my first home in 1931 for $7,500 and sold it in 1944 for $7,000. The same year I paid $8,500 for another home that I sold in 1952 for $23,000. Shortly thereafter I bought a $33,000 home that I sold in 1953 at a $2,000 loss for $31,000. Also in 1953 I bought a house for $18,500 and sold it in 1954 for $23,000. Finally, in 1954 I paid $33,000 for a house that I estimate is now worth $160,000. According to your article I understand I should have filed IRS form 2119 to report each home sale but have never done so as I did not know about it. In what year did the $125,000 tax forgiveness on accumulated gain begin? -- Robert G.
DEAR ROBERT: You had no tax obligation until 1953, when your old home sold for $31,000 and bought a less expensive replacement home for $18,500. At that point your deferred taxes on up to $12,500 ($31,000 minus $18,500) of capital gain should have been paid since you bought a less expensive replacement home. But the income tax statute of limitations is three years, except for fraud, so I doubt the IRS will bother you.
The current "over 55 rule" $125,000 home sale tax exemption became effective for home sales after July 20, 1981. Before then, the exemption was $100,000.
If your home sells for $160,000 after selling expenses, subtracting the $125,000 profit-tax exemption brings you down to $35,000. But I calculate that your adjusted cost basis is less than $35,000, so you will owe profit tax on the difference between $35,000 and your adjusted cost basis.
Your situation shows why home sellers should file IRS form 2119 every time they sell a principal residence, even when no tax is owed. If you had done so back in 1953 when you bought a less expensive replacement home, and paid the tax due then, you wouldn't have any tax due when you sell your current home. Consult your tax adviser for further details.
DEAR BOB: A while back you responded to a reader's inquiry about a 15-day grace period for mortgage payments and whether a payment made between the first and 15th of the month is considered delinquent. I have a similar problem with my mortgage company. Please clarify. -- Charles A.
DEAR CHARLES: Please read your mortgage documents. Most amortized loans state the monthly payment is due on the first of each month but a late charge will be imposed if payment is received after the 10th or 15th of the month. I realize a few nasty lenders feel this means payments received after the first day are late, but most lenders consider payments received before the grace period expires to be on time.
However, if you have a simple interest loan, that's different. These loans have a monthly due date but interest is charged until the day the payment is received. After 10 or 15 days the payment is delinquent. If you have a simple interest mortgage, pay the lender a few days early each month to earn major interest savings.
DEAR BOB: I am a senior at the University of Illinois, married, with a one-year-old son. After watching a TV show by a real estate promoter I became interested, ordered his creative real estate program, and have since enrolled in a real estate finance class at a local community college. I am not some poor unfortunate soul looking to get rich quick but am seriously interested in using real estate for personal investments. In your opinion am I approaching this the right way? -- Dwight S.
DEAR DWIGHT: Yes. I got started in real estate in a similar way back in the dark ages of the 1960s by reading William Nickerson's classic "How I Turned $1,000 into $1 Million in Real Estate in My Spare Time."
If you follow the techniques you've already learned you will soon be earning far more than your university professors. In your spare time, take all the real estate classes you can. But start buying property as quickly as possible. In most communities, well-located, sound but run-down properties offer the best "fix-up" profit potential. Let me know when you make your first $100,000.
Readers with questions should write Bruss directly at P.O. Box 6710, San Francisco, Calif., 94101.