Q DEAR BOB: We sold our home in July. Now, just a few months later, we received a letter from a lawyer representing the buyers. He says there were problems with the house that we didn't disclose involving the water and sewer pipes as well as the roof. We were not aware of any such problems and we truthfully disclosed everything we knew. The buyers had their own independent professional inspection. The house was built in the 1920s. What do you advise?
-- Elisabeth O.
A DEAR ELISABETH: You honestly disclosed any defects of which you were aware and the buyers had their own professional inspection. You or your lawyer should remind the lawyer representing the buyers that you didn't know of any undisclosed defects and the buyers even had their own professional inspection.
If the buyers decide to sue you, it's then up to them to prove you knew of the alleged defects and failed to disclose them. This is usually a difficult task for home buyers, unless the defects were obvious. Just because the pipes and the roof were old doesn't mean they were defective. The buyers might just be trying to get some settlement money out of you to pay for renovating the house.
DEAR BOB: My wife and I are in our late sixties. We have lived in our house for 33 years, but it still has a mortgage because we refinanced over the years to pay for remodeling and upgrades. We lost most of our IRAs to the falling stock market in 2000. Our biggest asset is our home equity, so we are thinking of selling our house and buying in a senior mobile home community. We could buy a mobile home and still have enough money to meet our expenses. Is this a good thing to do? -- Robert E.
DEAR ROBERT: If you have at least 60 percent equity in your house, you might consider obtaining a reverse mortgage to pay off your existing home loan in a lump sum so you can afford to stay in your current house. Then you would have no monthly payments. That would be much better than downsizing and giving up your home, which is an appreciating asset. Mobile homes usually depreciate in market value, just like your car, rather than appreciating in market value.
Before deciding to sell your house to buy a mobile home and make a major change in your lifestyle, I suggest renting for a few months in a mobile home park to see if that's where you want to spend your future.
DEAR BOB: I am getting my paperwork together to do a living trust. How do I transfer my property title into my living trust? I presume it gets recorded with someone, maybe the registrar of deeds?
-- Nancy S.
DEAR NANCY: After your living trust is written the way you want, specifying who is to receive your assets after you die, and whom you want to be your successor trustee, then you must "fund" your living trust by transferring your assets into it.
This is usually done by a quit claim deed. For example, you could transfer your real estate title from Nancy to Nancy as trustee of your living trust. An excellent book with sample living trust forms is "Make Your Own Living Trust, 7th Edition," written by lawyer Denis Clifford.
DEAR BOB: We bought our home about six months ago. Before buying, we noticed the back yard had a chain link fence dividing our property from a street. We ordered a survey, but it wasn't ready on time so we closed our purchase without it. The survey arrived about a month later. It shows the fence is outside our lot boundary, leaving our back yard much smaller. We are frustrated. What should we do?
-- Gabriela P.
DEAR GABRIELA: Fences are not always on lot boundaries. For example, about 10 years ago I wanted to build a fence to keep the deer out of my garden. After consulting my neighbor, we agreed where we thought our boundary was and that's where the fence is now. But lacking a survey, that fence might be in the wrong location.
If your property's previous owner used the area up to the chain link fence for many years, you might be entitled to a prescriptive easement to continue using that space. Consult a lawyer to determine if you should take legal action.
DEAR BOB: My grandmother owns her home and three farms in joint tenancy with her twin sons. She and one son want to force the sale of the property because the other son doesn't want to sell. He is estranged from the family. Can these two owners force the property sale, especially since grandmother really needs the money such a sale will bring? -- Brenda M.
DEAR BRENDA: In most states, one or more co-owners can bring a partition lawsuit to force the sale of a property. Your grandmother and "the good son" should consult a local real estate lawyer about bringing a partition lawsuit to get a court order to sell the property. The sales proceeds will then be divided among the three co-owners.
DEAR BOB: I inherited my mother's small home, which I have been renting out for many years. My current tenant wants to buy the house. Can I sell it to him in such a way that I will receive the mortgage payments? I am thinking of retiring and would like to have a guaranteed income and also be able to have the money go to my daughters after I am gone. -- Kathy B.
DEAR KATHY: An installment sale mortgage would be ideal for your situation. With a modest down payment from your buyer, you can carry the mortgage. Seller financing is a great way to obtain a quick easy sale for top dollar while also providing for your future retirement income.
Although it is highly unlikely that your buyer will default, if that happens you can foreclose on the house and either be paid in full at the foreclosure sale or get the house back to sell for a second profit. Another advantage of seller financing is spreading out your capital gains tax over the life of the installment sale mortgage.
DEAR BOB: We sold our rental house as an Internal Revenue Code 1031 tax-deferred exchange. As you know, we had 45 days to designate a qualifying replacement property so we could defer our capital gains tax. We designated three possible rental properties, but they all sold to other buyers for more money. Our 45 days are now gone. Is there any way we can get a time extension from the IRS? -- Max and Alexandra M.
DEAR MAX AND ALEXANDRA: No. There is no provision in IRC 1031(a)(3) for any time extension of the 45 days allowed for designating your qualifying replacement property. This problem could have been avoided if you had given the buyer of your rental property an option, or a lease with option to purchase, which could only be exercised after you found a suitable replacement investment property. It appears you will owe capital gains tax on your sale profit. Consult a tax adviser for details.
DEAR BOB: Two years ago, I paid the deposit on a house being bought by my sister and her husband, who put my name on the deed. Last July, the husband decided to sell the house, but my sister and her husband still have not repaid the down payment I paid for them. They will soon be retiring and leaving the country. A real estate agent listed the home for sale without my signature. Can I complain about this agent and get her de-licensed? -- Nathalie M.
DEAR NATHALIE: No. It is not illegal to list a property for sale without the signatures of all the co-owners. However, that real estate agent might be wasting his or her time if you don't agree to sell the home when a purchase offer is obtained.
When a purchase offer is obtained that is acceptable to your sister and her husband, if you don't agree to sign the deed, they could bring a partition lawsuit to force the sale of the property. Since your name is on the property title, the house can't be sold without your signature on the deed, unless the court orders a partition sale. Consult a lawyer or tax adviser for details.
DEAR BOB: I recently attended a real estate seminar conducted by a lawyer. She said that even vacation-home owners who have never rented their second homes can qualify for an Internal Revenue Code 1031 tax-deferred exchange of such property because they held it as an investment property in expectation of an increase in market value. Do you agree? How can I substantiate this position?
-- Joe P.
DEAR JOE: I don't agree with the fellow lawyer. Ask if she has any tax court decisions or other basis to support her opinion. I would be surprised if she has any credible support for her position.
Rental property and even vacant land can qualify for IRC 1031 tax-deferred exchanges. The reason is they are clearly held for investment or use in a trade or business. But a personal use vacation or second home doesn't fit into that tax category.
DEAR BOB: I own four vacant, unimproved residential lots, which I purchased as an investment about a year ago. I will be moving and buying a home within the next two months. Can I roll the capital gains from the sale of my lots into the purchase of a new home without paying capital gains tax on my profit? -- Lance M.
DEAR LANCE: Yes, but the house acquired must be used as a rental property. After a year or so of rental use, you can then convert it to your personal residence without owing any tax.
DEAR BOB: I want to sell my apartment building. But I don't know how to write an attractive ad or what publications I should use. Any suggestions? -- Henry S.
DEAR HENRY: Writing a newspaper classified ad to sell your apartment building is just the first of many problems to anticipate in selling your building alone.
Suppose you obtain an interested buyer. How will you prepare a binding purchase contract? How will you know the fair market value of your building?
My best suggestion is you list your apartment building with a professional real estate agent who specializes in selling property like yours. The sales commission will be worth the expense to have the property properly marketed with all the details correctly handled so you receive top dollar for your property. Selling an apartment building is definitely not a do-it-yourself job.
DEAR BOB: Five years ago, my husband and I bought our home. After moving in, we immediately noticed the significant sloping floors. For example, there is a one-inch drop that extends from one bedroom wall to 2.5 feet from the wall. We had to put one-inch wood blocks under our dressers so they are level. Our refrigerator slopes more than one inch from front to back. We discovered the washing machine drain pipe was not connected, and it drained under the house into the crawl space. We had to use lots of plumber's goop to get the pipes to stay connected. I feel sure the sellers knew about these problems. As my child, who weighs 90 pounds, skips through the house, things fall off the walls. Once, all my china fell out of the china cabinet. Our neighbor just told us our house had been moved onto the foundation, as it was not built on site. If we had known about these problems, we would not have bought. I now realize the importance of getting a professional inspection before home purchase. If we decide to sell, we don't think we can realize any profit. Do we have any recourse?
-- Kimberly R.
DEAR KIMBERLY: You and your husband must be the world's most patient home buyers. You should have been yelling and screaming when you discovered all the defects, unless you bought the home "as is" and the seller disclosed all known defects. But the fact that you bought a house that had been moved to the site, whether it was relocated or was a new modular house at the time, is not a defect that must be disclosed to home buyers.
In most states, the statute of limitations for suing your home sellers for misrepresentation has expired. Your only possible legal recourse against the sellers is for fraud, which would be difficult to prove in court unless there was clear misrepresentation.
The statute of limitations for fraud begins to run in most states when the misrepresentation is discovered. If you discovered all the problems described several years ago, you should have sought legal recourse against the sellers years ago.
DEAR BOB: I recently looked at a "fixer-upper house" that will require at least $10,000 for repairs. I am a building materials salesman and know a "fixer" house when I see it. After the house is fixed up, I estimate it will be worth at least $40,000 more than its market value today. If you were in my situation, with limited financial resources, would you buy it if the seller will carry back the mortgage for just 12 months? -- Steve R.
DEAR STEVE: Yes. That sounds like a great investment. But the short 12-month seller-financed mortgage puts big pressure on you to get the house fixed up fast and either sold or refinanced. I'll bet you can do that, especially considering your experience with building materials.
DEAR BOB: Almost a year ago, I co-invested in a four-unit apartment building with a partner I met at the local real estate investor's club. After several months of seeing each other at the monthly meetings, plus attending several weekend seminars, we decided to co-invest together as partners. I found the property, arranged the mortgage, and hired the fix-up contractors. My co-owner provided the $26,000 cash down payment. As a busy dentist, he doesn't have time or desire to get involved in the fix-up work. We co-signed a $20,000 home improvement loan to upgrade the property. It turned out beautifully and is now fully rented at top rents. The problem is I want to sell. But he wants to keep the property for five years while it appreciates in market value. How can I get my equity of about $60,000 out? -- Kathy R.
DEAR KATHY: Now you know you and your co-owner should have had a written partnership agreement to provide for a situation like the one you describe.
Your obvious first step is to ask your dentist co-owner to buy out your $60,000 equity. Even if you take a discount, that might be your best alternative. If the dentist refuses to buy you out, your legal recourse is to bring a partition lawsuit to force the sale of the property with an equal division of the net proceeds.
In the future, consult a local real estate lawyer to prepare a partnership or limited liability company agreement to prevent a situation like this.
DEAR BOB: When I moved some distance away, I hired a local real estate agent to supervise my rental house. She charged me 10 percent of the gross monthly rent. Several months after my tenant vacated without notice and left the house a mess, she finally phoned me to say, "We have a problem." At that point, I reluctantly sent her a $2,000 check to pay for fix-up work. Then she re-rented the house, but the next tenant was a deadbeat. It turns out my professional property manager never ran a credit report on the new tenant. When I recently fired the property manager, after she got the deadbeat out of my house, she said I breached her property management contract. What should I do?
-- Ben R.
DEAR BEN: Either decide to sell your rental house or try to find a better so-called professional property manager. Your situation shows why it is often so difficult owning a rental house from a long distance.
You could sue that incompetent property manager for breach of contract, but it's probably not worth your time or trouble to show up for the trial in small claims court.
Now you know why I do not recommend owning long-distance rental property unless you have a trusted friend or relative to manage it. For example, I have a good friend who owns rental houses in Fayetteville, N.C., but lives in Oakland, Calif. Fortunately, he has local relatives, including his 84-year-old mother, who manage his distant properties, which are appreciating handsomely in market value.
Unless you plan to return to live in your rental house, my best advice is sell it to get rid of your management headache.
DEAR BOB: I have read many of the books you recommend about investing in real estate, but my problem is I don't have much cash to get started. I am a homeowner with about $100,000 home equity. My wife won't agree to refinance to get a "cash out" mortgage to begin investing. Any ideas? -- Rick R.
DEAR RICK: Yes. If you have a good first mortgage at a decent interest rate, leave it alone and forget about refinancing.
If your wife will agree, obtain a home equity credit line to provide funds to begin investing in rental properties. Of course, your wife's signature will be necessary. But a home equity credit line might be more acceptable than refinancing your home mortgage.
DEAR BOB We want to refinance our home loan, but the mortgage broker we met at church wants a $500 application fee to "start the paperwork." This sounds like a high fee. However, she says she has a high success rate. Should we pay such a high fee? -- Mattie V.
DEAR MATTIE: No. Reputable mortgage lenders do not charge high up-front loan application fees. That mortgage broker is trying to tie you up so you won't go to another lender. I suggest you shop among the many other reputable mortgage lenders who do not charge high up-front loan fees.
Readers with questions should write Robert J. Bruss at 251 Park Rd., Burlingame, Calif. 94010, or contact him via his Web page, www.bobbruss.com.
(c) 2005, Inman News Service