QDEAR BOB: About a year after mom died, 62-year-old dad married a woman who was 34. Three years later, dad died of a heart attack. Under dad's will, he gave his second wife a "life estate" in his house. When she dies or permanently moves out, the house goes to my sister and me. The second wife has remarried and moved her new husband into the house with her. It has been only four years since dad's death, but the house is getting badly run down. The yard is a mess. The property taxes were unpaid until I checked up and told the life tenant she must pay the taxes or forfeit her life estate. (There is no mortgage to pay.) My sister and I are concerned the house will be a run-down wreck by the time she dies. Is there anything we can do about this situation? -- Craig C.
A DEAR CRAIG: One alternative is to buy out the life tenant's interest in the house. Life estates usually are not worth much. The reason is when the life tenant dies, the life estate ends. It has no value, except to remaindermen, such as you and your sister.
The life tenant might see things differently -- she has almost free housing and that's worth a lot. However, if you offer her $10,000 for her to sign a quit claim deed terminating her life estate, she might accept. Even if she declines your offer, tell her your offer remains open.
The day may come when she needs cash and calls you to accept. Every time you talk with her, ask what it would take to buy out her life estate.
Another alternative, if she fails to pay the property taxes or properly maintain the house, is to bring a legal action to terminate the life estate for "waste." But waste is easy to cure by fixing up the house and paying the property taxes. Judges are usually reluctant to terminate life estates for waste.
DEAR BOB: Will adding our adult daughter to a home title cause a property tax reassessment? She is an unmarried school teacher with a low income and little hope of earning much more in the future. We are becoming concerned about her not being able to afford to buy a home if the property taxes go up. -- Jen F.
DEAR JEN: From your letter, it is unclear if you are referring to the residence where you reside or possibly to a rental house in another state. Tax reassessment policies vary by state law and even county or city property tax rules. The best way to get a written authoritative answer in the local jurisdiction where the property is located is to write a short letter to the tax assessor where the property is located asking if adding an adult child to your title will cause a property tax reassessment. In most situations, it will not cause reassessment.
However, I just read an article about the property tax situation in Florida where parents have added their children to their homestead titles, thus triggering reassessment in some counties but not in other counties.
DEAR BOB: We bought a new house in April, which was under construction at the time. The builder's salesman assured us that all five adjoining houses and lots would have the same features. We closed our purchase Aug. 28. We were surprised to find that three adjoining houses got landscaping, but our house didn't. When we complained, the sales agent said the builder decided to landscape those houses. We feel cheated. Do we have any recourse? -- Donna Z.
DEAR DONNA: In real estate, everything must be in writing to be legally binding. Oral statements by the builder's salesman are unenforceable unless included in a written agreement signed by the builder's authorized representative.
There is a good reason real estate agreements must be in writing to be enforceable. Without written proof, it becomes an argument over who said what. It looks as if you have no legal recourse against the builder, but consult a lawyer for more details.
DEAR BOB: About 10 years ago, I bought a mobile home and have been paying the bank 10 percent interest on my loan. I want to refinance to lower my interest rate and payments. The bank will lend me only what I owe and they will lower my interest rate to 8 percent. I thought home loans were about 6 percent or less. Also, shouldn't I be able to borrow what I originally owed? -- Terry W.
DEAR TERRY: Unless you own a manufactured home on a foundation on a lot you own, banks and other lenders are not eager to refinance loans on older mobile homes. There is a good reason. Mobile homes usually depreciate in value, just as your car depreciates. There are a few limited exceptions, such as mobile homes under rent control or in highly desirable mobile home parks.
DEAR BOB: In my leases with my tenants, I have a $10 per day late fee, after a five-day grace period. My tenants tell me there is a maximum $50 late charge per month. My lawyer says there is no such law. What do you say? -- Gust V.
DEAR GUST: Landlord-tenant laws vary by state. Don't be misled by your tenants. Ask them for the state law citation. If your lawyer can't find any such statute, it probably doesn't exist.
However, your real problem is collecting late fees from late-paying tenants. In eviction proceedings, many judges are reluctant to include late fees in addition to unpaid rent judgments awarded to landlords. One alternative is to deduct the late fee from the tenant's security deposit, but that could result in the tenant suing you in local small claims or housing court for refund of the late fees deducted from their security deposits. Consult a lawyer for details.
DEAR BOB: About two weeks ago, we made a written offer to buy a "for sale by owner" house. The sellers had all the forms and filled them out with the price we wanted to offer, which was about $7,500 below the asking price. They said they would think about it. When I called the sellers a few days ago, they said they accepted a better purchase offer that was about $5,000 higher than our offer. Shouldn't they have given us a chance to match that second offer? -- Lance R.
DEAR LANCE: You were a victim of "offer shopping." That can easily happen when a naive buyer such as you makes an open-end purchase offer with no expiration date.
If you had been represented by a buyer's agent, that person would have suggested your offer be valid for not longer than 24 hours. A time limit puts pressure on the seller to promptly accept, reject or counteroffer. Instead, your seller obviously showed your offer to other buyers to shop for a better offer. The home seller had no obligation to ask if you wanted to match or surpass the second offer. Your situation provides a valuable lesson on how to avoid offer shopping by always specifying a short offer expiration time, such as 24 hours.
DEAR BOB: My husband and I bought our home for $11,400 about 52 years ago, when it was new. The house is now too big for me, since my husband has died, and I want to sell so I can buy a smaller house. How much will I have left after paying taxes and the sales commission? -- Maxine M.
DEAR MAXINE: After your husband died, you received a new "stepped-up basis" for your house. Depending on how title was held, you either received a 50 or 100 percent stepped-up basis to market value on the date of his death.
The result is that because of your $250,000 principal residence sale tax exemption of Internal Revenue Code 121, you will owe little or no capital gains tax on your sale. I'm presuming you owned and occupied your home at least 24 of the last 60 months before its sale.
Depending on how shrewd a negotiator you are, the real estate sales agent's commission will be 6 percent or less of the home's gross sales price. According to Real Trends, an industry publication, the average nationwide sales commission today is 5.1 percent.
To determine your home's stepped-up basis on the date of your husband's death, you may need to hire an appraiser who specializes in determining past property values. If you have difficulty finding such a local appraiser, contact the Appraisal Institute in Chicago for names of their local members who can assist you. Web site: www.appraisalinstitute.org.
DEAR BOB: I own a rental house where my tenant's dog occasionally barks at night. The barking annoys a neighbor who knows me and who unfortunately has my phone number. He thinks that I, as the landlord, am responsible for the behavior of my tenant's dog and if he is awake, I should be awake too. What should I do? -- Sherman N.
DEAR SHERMAN: If the neighbor phones again, politely inform him you are not responsible for the tenant's dog barking. Suggest he phone the police, who will probably refer him to the local animal control agency.
If that doesn't work, politely suggest the neighbor sue your tenant to abate a private nuisance. Meanwhile, you should inform your tenant of the disturbances and ask that the dog not be left outdoors at night to bark. Most pet owners are responsible and don't want to cause problems.
DEAR BOB: We are considering the sale of a vacant lot we have owned for 14 years. Its sale will produce a profit of more than $200,000. Title is held in our living trust. I realize that if the lot is inherited through our living trust the heir will receive a new stepped-up basis to market value. However, is there any way we can sell the lot now to reduce or eliminate capital gain taxes? -- Jerry Y.
DEAR JERRY: There are two ways to avoid capital gains tax on the sale of that vacant lot.
The first method applies only if the lot is adjacent to your principal residence. If it is, Internal Revenue Code 121 allows you to sell the lot now and avoid capital gains tax if you sell your adjoining principal residence within 24 months before or after the lot sale.
The second method allows you to defer capital gain tax by making an Internal Revenue Code 1031 Starker tax-deferred exchange for investment or business property of equal or greater cost and equity. To qualify, you must have the sales proceeds held by a qualified third-party intermediary beyond your constructive receipt.
After the lot sale you have 45 days to designate the qualifying replacement property and up to 180 days to complete the acquisition.
DEAR BOB: My wife and I are 94 and we want our only son to have 20 acres of unimproved land that is worth $500,000. To save capital gains taxes, suppose he finds a buyer willing to pay $5,000 for an option to buy plus $2,000 per month to keep the option alive until his father or mother dies. The $2,000 monthly payment would reduce the sales price. Would this be legal? -- Isham L.
DEAR ISHAM: Unless you transfer the property title to your son, he can't sell a purchase option on land he doesn't own.
You can give him the land without any capital gain tax due. However, he takes over your presumably low adjusted cost basis. When he eventually sells the land, then he owes the capital gain tax.
Because the gift will exceed your $11,000 individual annual gift tax exemptions ($22,000 total for you and your wife), you must file a federal gift tax return. But no gift tax will be owed if your total lifetime gifts exceeding the annual $11,000 per year per donee exemption don't total more than $1 million.
Other than making such a gift or a tax-deferred Internal Revenue Code 1031 exchange for other investment or business property, there is no way for you to avoid capital gain tax if you sell that land. Consult a tax adviser for details.
DEAR BOB: You often use the term "stepped-up basis" for inherited real estate. What does that mean? -- Laura R.
DEAR LAURA: Stepped-up basis applies only to inherited property. It means the heir receives the property at its market value on the date of the decedent's death, no matter the decedent's cost basis for that property.
Example: Suppose your mother's adjusted cost basis for her house is $100,000. When she dies, her will or living trust leaves the house to you. At the time of her death, the house is worth $300,000, so your stepped-up basis is $300,000. If you decide to sell it for $300,000, you will owe no capital gains tax.
However, if before her death, your mother deeds her house to you because you are such a wonderful daughter, your adjusted cost basis for the house will be your mother's $100,000 basis. If you then immediately sell the house for $300,000, you will have a $200,000 profit that would be taxable.
Now you can see why I frequently advise that it is much better to inherit real estate than to receive it as a pre-death gift.
DEAR BOB: I own a condo in a well-constructed 40-year-old building with wonderful neighbors. Our old windows leak water and air, and the homeowners association board of directors has proposed replacing the old windows. Most owners agree they need replacement, but the board wants to assess each condo owner according to the number of windows in the unit. My assessment will be $3,600. The association has more than $300,000 in its reserve treasury. Shouldn't the reserves be used to pay for the new windows? -- Breta S.
DEAR BRETA: The answer depends on your condo association's conditions, covenants and restrictions. The CC&Rs normally state the homeowners association is responsible for maintaining the building exterior. That usually includes windows, unless specifically excluded. However, the association might have insufficient reserves to pay the entire cost of replacing the windows. Perhaps some of the reserves should be used for new windows, thus reducing the amount of special assessments for each condo owner.
At the next homeowners association meeting, I recommend you politely suggest the association use some of its reserves to pay part of the new window cost, with the members paying the balance by means of a special assessment.
DEAR BOB: My home is listed for sale and a buyer made a good purchase offer that I accepted. Although the listing and buyer's agents told me what a superb buyer he was, he turned out to be a total flake with bad credit who couldn't get a mortgage. He paid a $10,000 earnest money deposit. After 30 days, I was entitled to cancel the sale and did so. The buyer had the nerve to demand refund of his deposit after I held my house off the market for 30 days. I refused to refund, but now I can't get that $10,000, which is being held in the broker's trust account. What do I have to do to get that $10,000? -- Evan R.
DEAR EVAN: The real estate broker holding that deposit in the broker's trust account is doing the right thing by refusing to either refund the $10,000 deposit to the defaulting buyer or give it to you until both parties agree on its disbursement.
Unless you and the buyer can resolve the dispute, the broker must hold the funds. State law usually requires after a specified period, such as 12 months, if the parties cannot agree what to do with the money, it must be interpleaded into the local court. That means the judge decides who gets the $10,000. Consult a lawyer for details.
DEAR BOB: About 12 years ago, my wife and I created a joint living trust to avoid probate as we own real estate in two states. We recently moved to Florida and now own real estate in three states. Should we revise our living trust or obtain a new one? -- Ron H.
DEAR RON: It's time to revisit your living trust to see if it still provides for your desires after one of you dies or becomes incapacitated.
You will probably want to add your Florida property to your living trust. Also, you need "pour-over wills" to provide for any assets you haven't included in your living trust. Consult a Florida lawyer who specializes in living trusts.
Readers with questions should write Robert J. Bruss at 251 Park Road, Burlingame, Calif. 94010, or contact him via his Web page, www.bobbruss.com.
(c) 2005, Inman News Service