DEAR BENNY: Can you advise me about selling to one of the companies that advertise that they buy houses in "as is" condition, for cash, quickly, and with no closing costs. My mother passed away in March 2007 and as the executor of her estate, I am now preparing to put her home up for sale. Due to the current poor market situation, in order to settle her estate within the next six months, I am considering doing this, but I’d like to know the pros and cons of disposing of her house this way. The mortgage is paid and my sister is currently living in the house but will be moving out when it is sold. –Diana
DEAR DIANA: There are good companies and bad companies. I would be very careful.
You should have a lawyer assist you in this process. First, you should insist that the company present you with a written proposal (an offer), which you will review with your attorney. If the price is acceptable, you will sign the proposal and it then becomes a written contract. The buyer should provide your attorney (or a title company) with a good-faith earnest money deposit that should be at least 10 percent of the purchase price.
The settlement (also called escrow in some states) should not take place in your home, but at the office of a legitimate title company or title attorney. You will sign over the deed to the property in your capacity as personal representative (executor) of your mother’s estate only when you are satisfied that the buyer has put up all of the money, which must be in good funds — i.e. certified or bank check or wire transfer. Do not accept a personal check from the buyer.
To protect yourself completely, and although it may not be required by the probate court, you may want to advise the buyer that you will ask the probate judge for authority to sell the house. This will scare off any buyer who is not legitimate.
DEAR BENNY: Could you tell me if it is legal to raffle one’s home? We are in a bridge loan situation, and unable to sell a 3-year-old waterfront home near Lake Erie that is in a prime community with clubhouse/pool/walking trails and marina. I have a unique idea to create a Web site and sell raffle tickets. –Brenda
DEAR BRENDA: Lots of people are considering unique and creative ways to sell their house, especially in today’s market. To my knowledge, each state has different laws relating to "games of chance" — which is what a raffle is.
Accordingly, you should consult a local attorney to advise you. You might also want to consider an auction, which has been a successful tool for some homeowners.
DEAR BENNY: Why do you and other real estate advisors pretend that the 15 percent capital gains tax is especially onerous? The current capital gains tax rate is only about half the rate at which earned income is taxed.
Since I purchased my house, it has increased in value at least fourfold. (That is a very conservative estimate.) Even my investment condo has at least doubled in value over the last 10 years even considering the downturn in condo prices. While home values in my area may have increased more rapidly than most, I suspect that for most longtime homeowners, the modest capital gains tax is only a minor consideration. –Gilbert
DEAR GILBERT: Supreme Court Justice Oliver Wendell Holmes once wrote (and I paraphrase) that "when it comes to taxes, which is a creature of Congress, anything the taxpayer legally can do to avoid taxes is acceptable."
Yes, the current capital gains rate of 15 percent is very low. Indeed, if your income is low, as of January 2008, you may not even have to pay any such tax. But no one likes to pay any tax, regardless of the amount, and that’s why I (and other columnists) believe that it is important to point out various legal and creative ways to avoid having to pay any money to the IRS.
I try to provide alternatives. Each taxpayer must make up his/her own mind as to how to proceed.
DEAR BENNY: My daughter is fairly recently employed after an absence from the work force for a number of years. She has a reasonable income, a secure position and an excellent credit rating, She has one dependent child. Because of the current market, she is not sure as to whether she can get a loan to buy and, if necessary, would like me to co-sign the loan.
I am retired, on a fixed income, live simply and have ample resources to take care of my needs. I also know next to nothing about real estate and am wondering what the risks of co-signing a loan are. What questions do I need answered if I decide to help her? –Ethel
DEAR ETHEL: Helping your daughter is very important. But making sure that your assets will be protected as you grow older is also important. So you have to balance these two issues as you begin to understand the legal ramifications of co-signing the loan documents.
Oversimplified, when you co-sign, you are telling the lender that if your daughter does not make the monthly mortgage payments, you will be obligated to make them for her. In legal terminology, this is called a "loan guarantee." If you are unable to make the payments, the lender can foreclose on your daughter’s house and (depending on your state law) go after you if there is any deficiency. Let’s take this quick example: Your daughter borrows $100,000, but if the property is foreclosed upon, the lender can get only $75,000. The lender may be able to sue you for the remaining $25,000.
You want to review the terms of the loan and have your attorney advise you more fully as to the potential liability you may be signing up for. If your daughter goes into default, will the lender first try to foreclose or will they look to you for payment? Are you responsible for the entire loan balance or only half (I suspect the former)?
I know this will be an emotional decision for you, because you will be putting your assets at risk.
DEAR BENNY: I foolishly bought two timeshares, one in Florida and one in New Jersey. When I realized that they were not investments, but instead albatrosses that would be hung around my sons’ necks when I died, I tried to give them back. Florida law says the company has to take them back, and after much paperwork I was successful. New Jersey has no such law. My question is how can I work to get a law in New Jersey that will protect other senior citizens who can no long use their timeshares or exchange them but are still paying ever-increasing annual maintenance fees and state real estate taxes? –Elizabeth
DEAR ELIZABETH: I suggest that you get a copy of that law and send it to as many of the New Jersey state legislators as possible. Mount a political campaign. Get consumer organizations and AARP to support you. Try to get some publicity in your local media.
It’s an uphill fight, because the timeshare lobby is powerful, but clearly worth the effort. Good luck.
DEAR BENNY: We are currently building a house, and expect to close in a few months. I suspect the current value is less than the contract price. If the bank’s appraisal comes back less than the contract price, are we still obligated to purchase? Can we get our deposit back if the builder doesn’t lower the price to market value? –George
DEAR GEORGE: If you signed a contract to buy the house, I seriously doubt that the seller will let you out of the contract — especially in today’s real estate market. A couple of years ago, when the seller may have been able to get a higher price, they would have been happy to cancel your contract.
You certainly can ask the seller to reduce the price, but there is no guarantee. Most sellers take the position that if the house increased in value, you would not be willing to pay a higher price, so why should the seller lower the price under those circumstances?
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@sandbox.inman.com.
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