DEAR BOB: I rent an apartment in a large complex. About six months ago, I accidentally let my dinner cooking on the stove get overheated. It caused a fire that resulted in about $15,000 damage to my apartment. Fortunately, nobody was injured. The landlord’s insurance company paid to have my apartment restored. Now the insurer is suing me for the $15,000. I don’t have renter’s insurance. Do I have to pay? –Sarah T.
DEAR SARAH: It sounds like you were negligent in allowing your cooking to overheat, causing a fire, which resulted in the $15,000 damage.
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The landlord could have sued you for negligence damages. Instead, the insurer paid the $15,000 repair costs. By doing so, the insurer became subrogated to the landlord’s right to sue you for damages due to your negligence.
Your situation is a classic example why apartment tenants always need a renter’s insurance policy. If you had such insurance, your insurer would have paid this claim. Renter’s insurance pays for loss due to fire, theft and other accidental losses.
REALTOR SAYS TO DISCLOSE PAST REPAIRS
DEAR BOB: As the manager of a large real estate brokerage office, I usually agree with you. But I must take issue with your recent advice. While it may not be legally required for a home seller to disclose past home repairs, at our firm we take the position that our sellers can never “over disclose,” and we probe for disclosure information. Any and all inspection reports, which have been done on a property and are in the seller’s possession, are presented to buyers in our disclosure packages. Great care is taken so a buyer can be fully informed before making a purchase offer on our listings –Rick LeD.
DEAR RICK: Although your policy is commendable, please be very careful you don’t harm your home sellers. Home sales disclosure laws require sellers to reveal current defects and problems, which have a material effect on the market value or desirability of a residence.
If a past problem with a house has been repaired, and there is no need for additional repairs, why bring it up and possibly kill a sale?
For example, shortly after I bought my current home my new neighbor came over to get acquainted. As we were chatting, he said, “I suppose the seller told you about when the hill in back of your house slid a few years ago and there was about 3 feet of mud against the house.” When I said I was not aware of that problem, he quickly pointed out the drains, which the seller installed to prevent future problems.
That was 28 years ago. The hill has been stable ever since. If I had known about that event, I might not have bought my home. Would I have to disclose that neighbor’s comment about a past problem if I sold my house today? I think not.
CAN LANDLORD MAKE TAX-DEFERRED TRADE FOR REIT STOCK?
DEAR BOB: Can I make a Starker tax-deferred exchange of my rental property and reinvest in a REIT (real estate investment trust) instead of another rental property? –Thomas C.
DEAR THOMAS: No. The reason is you would be selling real property held for investment or use in a trade or business and acquiring REIT stock, which is personal property. That is clearly not an Internal Revenue Code 1031 tax-deferred “like kind” exchange. For details, please consult your tax adviser.
DON’T LET HOME BUYERS MOVE IN BEFORE TITLE TRANSFERS
DEAR BOB: We are selling our house, which has been vacant since we moved out about two months ago. The buyers are obtaining a Veterans Affairs (VA) mortgage. But it will take another 30 days until the closing. Meanwhile, they are living in a motel nearby. They offered to pay us rent if they can move into the house now. Our listing agent says “no.” What do you advise? –Loren H.
DEAR LOREN: Listen to your smart real estate agent. Never let a home buyer move into the property before the sale closes, the title transfer is recorded, and you have your money.
The reason is if you let the buyer move in now and pay you rent, that buyer will surely discover real or imagined defects and refuse to close the sale until you repair the problems discovered. Although I know you want that rent income, it’s not worth the risk of letting your buyer move in early. Don’t do it.
ORAL PROMISES MEAN NOTHING IN REAL ESTATE
DEAR BOB: I have been living with my boyfriend about three years in his house. He has been very kind to me and I deeply love him. However, he is 78 and I am 54. He says that when he dies, his house will become mine. But he refuses to let me see his will, and his two children would be sure to contest his will if he leaves the house to me. What can I do to protect my best interests? –Nadine R.
DEAR NADINE: Oral promises mean nothing in real estate. Even if your boyfriend leaves the house to you in his will, and shows you that will today, he can revoke that will tomorrow.
One possibility is to get him to add your name to the house title as a joint tenant with right of survivorship. If you outlive him, then you would own the house by survivorship without probate. His will would have no effect on joint tenancy property.
However, a joint tenancy can be easily dissolved if he should later decide to convey his joint-tenancy interest to himself as a tenant in common. Then his half of the house becomes subject to his will. But you would still own half of the house as a tenant in common. For details, please consult a local real estate attorney.
MUST NEW OWNER HONOR TERMS OF EXISTING LEASES
DEAR BOB: For many years I have owned a small professional office building where I have my office. There are six tenants. We are all friends and get along very well. The “new kid” tenant has been here only six years. The other tenants have been here much longer, about 15 years average. As I plan to retire in 2007, I will then sell my office building to help fund my retirement. A few of the tenants have leases extending as long as four years at quite low rents. Would a new owner be able to raise the rents? –Ted N.
DEAR TED: No. The new owner must honor the terms of the existing leases. The rents can be raised only when those leases expire.
REMAINDERMAN SHOULD BE NAMED ON HOMEOWNER’S INSURANCE POLICY
DEAR BOB: I am the “remainderman” title holder on a house, subject to a life estate for my mother to occupy the house during her lifetime. She pays all the expenses, including the property taxes and homeowner’s insurance.
But I am concerned if there should be an accident on the property, such as someone tripping on the steps. Could I be held liable since my name is on the title? –Virginia G.
DEAR VIRGINIA: Yes. If someone is injured on the property, you can be sure you would be named as a defendant because your name is on the title. For your protection, you should ask your mother’s insurance agent to add your name as an “additional insured” on your mother’s homeowner’s insurance policy.
NOT MANY BUYERS FOR HALF OF A VACATION HOME
DEAR BOB: I own a lovely lakeside vacation home, which I rarely use. But I don’t want to sell it because it keeps going up in market value. Also, I might want to winterize it and retire there someday. However, the property taxes and upkeep are quite expensive. Several of my neighbors have ownership share arrangements. Would this be a good alternative to sell off half of the property? –Corbin Y.
DEAR CORBIN: There aren’t many prospective buyers for half of a vacation home. If you have a trusted friend or relative with whom you get along, that could work out. If you do sell a half interest, however, then you probably couldn’t later make it a full-time retirement home.
A major problem with co-ownership is one co-owner might force a partition sale of the property. If you do find a compatible co-owner, be sure an attorney prepares a partnership agreement, which prohibits a partition sale.
The new Robert Bruss special report, “How to Buy Fixer-Upper Houses with Little or No Cash for Fun and Fortune,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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