DEAR BENNY: Recently my condominium unit was foreclosed upon, but the association has now sued me for unpaid condominium assessments. Am I still responsible for this debt? –William
DEAR WILLIAM: Unfortunately you are, but only until the foreclosure sale took place.
Once a new owner took title to your unit — whether it was a successful bidder at the foreclosure auction or the bank itself — that new owner is obligated to start paying the association dues.
But unless you have other assets, in my opinion, the association is wasting its time — and its members’ money — going after you.
DEAR BENNY: Can the money we deposited with the builder be returned to us if we back out, even though we signed the purchase contract? –Shirley
DEAR SHIRLEY: To my knowledge, there is no "cooling off" period in real estate. Once you sign a contract to buy property, it is legally binding on you — and on the seller.
Why do you want out of the contract? Have you just changed your mind? If so, I seriously doubt that the seller will give you back your deposit.
Several years ago, when real estate sales were active, builders were willing to cancel sales contracts, knowing that they could resell quickly — and possibly at a higher price. But in today’s market where sales are sluggish, sellers are unwilling to allow the buyer to cancel the contract.
You should consult a local real estate attorney. Perhaps there are provisions in your sales contract that will allow you to cancel. For example, did you have a contingency for financing? If so, and if you applied for a mortgage loan and were turned down, that may be grounds to cancel the contract.
Perhaps the sales contract does not comply with local or state law. A good attorney should be able to assist you.
But the bottom line is that you signed a contract and are bound to honor its terms and conditions. People should give serious thought as to whether they really want the house in question before they sign a sales contract.
A reader recently wrote me as follows. He said: "I … take issue … where you stated that ‘If I am representing a seller, I want the seller to give my real estate agent (or the settlement agent) a minimum of 5 percent of the purchase price.’ I understand that this number is just that, merely a number and can change with each given situation. But your article reaches a lot of different communities via the Internet and this number is not only excessively high, it’s very unrealistic to believe that the typical purchaser has that kind of money to tie up for 4-6 weeks."
I respectfully disagree and stand by my statement, especially in today’s market situation where the 100 percent, interest-only loan is hard to obtain. If the buyer is getting a 95 percent loan, he will need the 5 percent at settlement. If he does not have it when the contract is entered into, what guarantee does the seller have that the moneys will be available at settlement?
More importantly, when the buyer makes application for a loan, the lender will want to make absolutely sure that the buyer has this 5 percent. It is acceptable to advise the lender that this amount is being held by the real estate broker (or settlement attorney) as the earnest money deposit.
And finally, as you just read in my response to Shirley, more and more buyers are getting cold feet — we call it "buyer’s remorse." If the buyer defaults, the deposit can be retained by the seller — and often a portion will go to the real estate agents. If the deposit is very low, that does not give sellers any real comfort, and I am as concerned about the rights of home sellers as I am about home buyers.
DEAR BENNY: My neighbor claims that I have a dead tree, and he fears it will damage his property. His attorney and insurance company notified me of his concern for possible damage to his property. I have checked my trees and do not see anything to merit his claim. What are the legalities within these parameters? –Marilynn
DEAR MARILYNN: A letter from an attorney and from an insurance company is not proof that your tree is dead. You have been put on notice, and you should immediately contact an arborist in your area to get a formal, written report as to the condition of your tree.
If the report indicates that the tree is healthy, send a copy to the attorney and to the insurance company, and that should be the end of the matter.
On the other hand, if the tree is dead — or diseased — ask the arborist for advice as to what you have to do, and follow that advice. While tree law differs in the various States, the general rule is that if your tree is a danger to a neighbor, and you aware of this — or have been put on notice — should the tree fall and cause damage or injury to person or property, you will be responsible.
DEAR BENNY: We just sold our rental (single residential unit) house using the 1031 exchange (Starker) to buy a condo in another state. We did this, as you know, to defer tax on the capital gains on the house we sold. We are now in the process of closing escrow on the condo we are buying. We intended to make this condo as our second residence (not primary) in the future. How many years minimum must this condo be used as an investment property (such as being a rental) before we can we use it as our second home without having to pay tax on the capital gains or any tax penalty?
Also, if we decide to not rent the condo after closing of escrow and use it as our second home instead, how can we opt out of the 1031 exchange that we have availed of? Is it enough to just pay the tax on the capital gain in 2009 when we file our 2008 income tax? –J.M.
DEAR J.M.: This has been a confusing area of law for a long time, but just recently the IRS clarified the area of vacation and second homes. On March 10, 2008, the IRS issued Revenue Procedure 2008-16, which makes it clear that in order for your 1031 exchange to be valid, you have to rent out the property for at least two full years, and at a fair rental rate.
In answer to your question about how you go about cancelling the exchange, the IRS explained as follows:
If a taxpayer files a federal income tax return and reports a transaction as an exchange under §1031, based on the expectation that a dwelling unit will meet the qualifying use standards … and subsequently determines that the dwelling unit does not meet (those) standards, the taxpayer, if necessary, should file an amended return and not report the transaction as an exchange.
In your case, since you did not yet file a tax return for 2008 (the year in which you sold the first property), next year when you file your return, just treat the sale as a capital gain and pay the applicable tax.
DEAR BENNY: We have owned a cabin in New York state since 1979. We are residents of Florida. We want to sell the cabin and build a new cabin on another lot. We have never rented the cabin; we have never lived there. We use it for vacation purposes only.
Is the capital gains tax break this coming year good for this type of long-term capital gains? If so, this would be the year to sell? If not, do you have any advice? Will that capital gains break be good only for this coming year? Our gain on the cabin (after subtracting the basis) will be about $70,000. –Janis
DEAR JANIS: If you sell, you will have to pay the full capital gains tax. Unless you are in a low-income tax rate, the current federal tax is 15 percent of your gain — plus whatever tax the state of New York may impose.
There is a very significant tax break for homeowners who sell their house. If you are married and file a joint tax return, you can exclude up to $500,000 of your profit. (If you are single or file a separate tax return, the exclusion is limited to $250,000).
But in order to qualify, you have to have owned and lived in the house for two out of the five years before the property is sold. In your case, while you have owned the cabin for more than two years, you did not actually live there, and thus I suspect that you will have to pay the tax.
Is this a good time to sell? Sorry, I really can’t answer that question. Every location — and every house — is different, and you have to ask professionals in your area that question.
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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