DEAR BOB: Recently a home seller wrote to complain about a professional home inspection report that cast doubt on the home although nothing was seriously wrong with it. We had a similar problem when we sold our home about two years ago. Instead of allowing the buyer to make the sale contingent upon a satisfactory inspection report we sold the house "as is" but gave the buyers five days to cancel the purchase without reason. During the five days they had a termite inspection, a roof inspection and a plumbing inspection. Although these inspectors found a few flaws the buyers didn't cancel and the sale closed. I think this approach is better than making the sale contingent upon a satisfactory inspection report. -- Harold S.
DEAR HAROLD: By selling the home "as is," which means without warranties or representations, you had no further liability for any defects that materialized after the sale. Of course, you still had the obligation to disclose any known defects at the time of the sale.
DEAR BOB: We sold our home in November 1986 and the buyer assumed our FHA mortgage. The real estate agent who closed the sale informed us that the buyer would get our FHA mutual mortgage insurance if he refinanced and paid off our FHA mortgage. So we didn't apply for any FHA refund. But after reading your recent article about FHA insurance refunds, I'm wondering what we may be entitled to. -- Mr. J.S.
DEAR MR. J.S.: The refund for FHA mutual mortgage insurance goes to the homeowner at the time the FHA mortgage is paid in full. Since your mortgage was assumed by your buyer, your FHA loan was not paid off and there was no insurance refund while you owned the home. If your buyer later paid off the FHA mortgage, he is entitled to any refund. You get nothing.
Borrowers who fully paid off their FHA mortgage and did not receive a partial refund of their mutual mortgage insurance premium should write to the U.S. Department of Housing and Urban Development, 451 Seventh St. SW, Room 2239, Attention Distributive Service Shares Branch, Washington, D.C. 20410. Ask for HUD form 2042. You will need to supply your FHA case number and proof of ownership, such as a copy of the deed, as well as your mailing address.
DEAR BOB: In 1960 I bought a lot in a recreational development. I cannot use the land and the real estate company hasn't brought me any offer in the two years I've had the property listed for sale. If I stop paying the real estate taxes on it, will my credit rating be affected? -- Emma B.
DEAR EMMA: No. The credit reporting agencies do not check real estate tax payments so failure to pay the property tax will not adversely affect you. If you have a mortgage on the land, though, the lender will insist you pay the taxes. Otherwise, the lender can foreclose and that probably will reflect adversely on your credit report. Of course, after the taxes are unpaid for the required time then the county or state tax collector will sell your land at a tax auction to the highest bidder.
DEAR BOB: I can sell my home for $160,000. It was a gift to me. I spent about $25,000 on improvements. Since we already used our $125,000 "over 55 rule" home sale tax exclusion on another house, to avoid paying a big capital gain tax, can I sell and buy a home of equal value? Do I have two years to do this? If I can buy another house of equal value, can I keep it a year, sell it and avoid paying tax? Also, at age 70 with limited income, who will give me a mortgage? Another question: When we sell our home should we carry back a mortgage for the buyer? -- Joseph J.
DEAR JOSEPH: Your letter presents an opportunity to review the home sale tax deferral rule of Internal Revenue Code section 1034, which is available to home sellers of any age. It requires tax deferral when you profitably sell your principal residence and buy a replacement home of equal or greater cost within 24 months before or after the sale. If your income tax return becomes due before you purchase the replacement residence, report the sale on IRS form 2119 but indicate that you plan to buy a qualifying replacement to defer the profit tax. However, if your plans change and you don't acquire the replacement home, you owe the tax plus interest.
You can use this "rollover residence replacement rule" as many times as you wish, but not more often than every two years. However, it can be used more frequently if the sale involves a job location change that qualifies for the moving expense tax deduction. If you sell the replacement home in a year, you will owe tax on the deferred gain and on any profit from the sale of the replacement home. Consult your tax adviser.
As for obtaining a mortgage on the home you are buying, you won't be able to qualify for a new loan if your income is inadequate. Your age is irrelevant.
However, in today's market it is usually not difficult to sell a home for cash that you can use to buy your new home. Or you might be able to find a seller who will finance your home purchase so you can keep the cash from the sale.
DEAR BOB: For the last two years we have rented a duplex. Our lease expires in March. We've made some improvements and hope to convince our landlord to agree to a two-year lease-option. Several months ago you recommended a lease-option form you like. Where can we get such a form? -- Janis and William P.
DEAR JANIS AND WILLIAM: I like the lease-option forms from Professional Publishing Co., 122 Paul Dr., San Rafael, Calif. 94903, phone (415) 472-1964. They cost $7.57 for a pad of 50, including shipping.
DEAR BOB: When the stock market crashed on Black Monday, Oct. 19, the sale of our vacation home was in escrow and scheduled to close the following Friday. The buyers had put up a $1,000 earnest money deposit and were arranging a new mortgage. But on Wednesday they phoned our realty agent to tell us they wouldn't be closing the purchase because they suffered heavy stock losses on Monday.
I asked for proof, which they refused to supply. They said we could keep the $1,000. Our realty agent has put our vacation home back on the market but she says there are few, if any, buyers. Do you think we should sue these defaulting buyers? -- Nada R.
DEAR NADA: Consult your lawyer.
In some areas, especially the Northeast, the market for vacation homes has been hit hard by the stock market crash as prospective buyers change their minds about buying. But, except in winter resort areas, the market for vacation homes is always slow at this time of year, so don't get depressed.
As for suing your buyers, first read the sales contract to see what it says about defaults. If it has a liquidated damages clause, the forfeited $1,000 earnest money deposit may be all you are entitled to receive.
However, if your lawyer advises suing be aware you will have to prove any damages due to the default. This might be very difficult.
DEAR BOB: I bought a condo from a real estate agent who said the sale had to close quickly as the condo was in foreclosure. So I borrowed the money at my bank, secured by my certificate of deposit. Can I deduct the interest I pay the bank as a residence deduction on my income tax? -- Benjamin C.
DEAR BENJAMIN: No. If the loan is not secured by your home, it is not qualified residence interest. Instead, it is consumer interest, which is only partially tax deductible until 1990 when no consumer interest is deductible on federal tax returns. To make the interest deductible, get a mortgage secured by your condo. This was recently make crystal clear by IRS Letter Rulings 8742025 and 8743063. Ask your tax adviser to explain.
DEAR BOB: We are planning to move soon and want to buy a new house.
We have found builders won't negotiate on home prices as will sellers of previously owned homes. Is this true for all builders? -- Tony Y.
DEAR TONY: Home builders hate to cut asking prices because it affects the appraisals on all the homes they plan to build in the subdivision.
However, if the homes are not selling well builders will often add features, such as carpeting and appliances, without raising the price. Only as a last resort will most home builders cut their asking prices.
Readers with questions should write Bruss directly at P.O. Box 6710, San Francisco, Calif., 94101.