DEAR BENNY: We just bought a house in a community association and the title company handled all the fees and the settlement charges. We have been in the house for three months and we just got a $200 bill for an initiation fee for our association. The property manager told me that the title company should have called and asked about fees. Although we paid three months of fees in the settlement charges for the association, the title company never inquired about an initiation fee. The property manager said if they had called for all the fees they would have been told about this fee. I called the title company and they admitted they screwed up. But they said I would have had to pay for it anyway. I feel they should pay. Am I right? –Vito
DEAR VITO: If you look carefully at all of the documents you signed at settlement, I suspect you’ll find that you agreed to be responsible for any mistakes made by the lender as well as the title company.
The title company made a mistake, and for the small amount of money they should be gracious and pay the $200. But if they are unwilling to do so, I would pay the fee and cross that company off your list for any future business.
DEAR BENNY: My mother died and left a 55 percent share of her house to me and a 45 percent share to my brother. She named me executor of her estate. My brother and I want to keep the house and rent it out. What is the best way to handle the title, and the division of costs and proceeds from the rental of the house? –Thomas
DEAR THOMAS: You are from Texas and because I don’t practice law there, I can provide you only general advice. You really should consult a local attorney for specific answers.
You are the executor (called personal representative in many states) of your mother’s estate. Typically, the executor — once appointed by the probate court — becomes the legal title owner.
You should convey the property to you and your brother. You will be the grantor in your capacity as executor, and you and your brother will be the grantee. Since you will each own a different percentage interest in the house, you probably will want to take title as "tenants in common" — 55 percent to you and 45 percent to your brother. That means that each of you should have separate wills so that on your deaths your portions of the house can be distributed as you each desire.
It should be noted that in a few states, two people can take an undivided interest as joint tenants.
Even though he is your brother, I recommend that you enter into a partnership agreement, spelling out such matters as who will handle the funds, what happens if one of you wants out of the deal (or dies), and whether there should be a time established in the future when you will want to sell the property.
You can also consider taking the title in a limited liability company. This should be discussed with your attorney and your financial advisors.
DEAR BENNY: Our 30-year-old home has quadrupled in value. My husband just passed away, but I don’t intend to sell this year. How do I find out the current "investment-value basis," or whatever it is called, which I understand is higher on his date of death than when we purchased it? Who do I call? As a future single seller, I know I will have the $250,000 tax exemption on gain, but how will I know what basis to use? Do I simply pay for a private appraisal now, and keep it in my file? I don’t think I want a "reappraisal," which would raise my yearly property tax. Would putting the home in my own name also bring higher property taxes? I need information about all this. Who can help me? –Joyce
DEAR JOYCE: The "investment value basis" is referred to as the "tax basis." You have raised a number of questions, many of which I cannot answer because I do not know all of the facts. For example, if you and your husband owned the property together (such as in tenants by the entirety — where permitted by law — or joint tenants), then you do not have to file probate regarding the house.
I also need to know if you are in a community property state, such as California. The "stepped-up basis" laws are different there. If you are not in a community property state, you have to go back to the original purchase price. For example, you and your husband bought the property for $40,000 many years ago and made $20,000 worth of improvements. The basis for tax purposes in this example is $60,000. You and your husband each had a basis of $30,000. On his death, the property is worth $200,000. Half of this value is added to your basis, so for tax purposes your basis is now $130,000 (your $30,000 plus $100,000).
As you will see from the answer to the next question, you now have two years from the date of death in which to sell the house and take the full up-to-$500,000 exclusion of gain. If you do not sell within the two years, you can claim only up to $250,000 of tax-free profits. Clearly, if your gain is less than $250,000 you need not sell quickly. But if your gain is much greater than that, you might want to consider selling so that you can pocket your gain instead of paying money to Uncle Sam. Currently the federal capital gains tax rate is 15 percent. There is no guarantee that it will be the same when a new administration takes over in Washington.
So, I would seriously consider whether it makes sense for you to sell before those two years are up.
You have to hire a private appraiser who will work with you and your tax accountant in preparing the tax return, which is needed as a result of your husband’s death. Your legal and financial advisors should be consulted for specific information.
DEAR BENNY: My wife died in April of this year. I need to sell this big house and downsize. Since we have been here for 22-plus years, if the capital gains is over the single-person limit for exclusion, could I use her share? Would that be only for this tax year? –Martin
DEAR MARTIN: My condolences to you and your family. There is, however, some good news. Last December, a new law was enacted that will allow you to take the up-to-$500,000 exclusion of gain if you sell the house within two years from the date that your wife died.
Let’s review the law. If you file a joint tax return, and you and your spouse have owned and lived in the house for two years out of the five years before it is sold, you can exclude up to $500,000 of the profit you make when you sell your house. If you a not married, or file a separate tax return, the exclusion is limited to $250,000.
Up until last December, you could get the full $500,000 exclusion only if you sold your house in the tax year in which your wife died. Thus, in your case, you would have had to sell it by December of this year.
Now, so long as you and your wife owned and lived in the house for more than two years, you have until December of 2010 in which to claim the full "up-to-$500,000" exclusion.
DEAR BENNY: My wife and I are considering buying a condominium unit here in Virginia. How do we check the financials of a condominium association? We want to be sure the association is on a sound financial footing. Any guidance you can provide would be appreciated. –George
DEAR GEORGE: In the Commonwealth of Virginia, potential condominium purchasers are entitled to receive — and review — what is known as the "resale package." Many states have such a legal requirement. This package should include the legal documents (declaration, bylaws, rules and regulations), the most recent budget, and a statement of the amount of reserves that the association has available for future repairs, maintenance or improvements.
You should carefully review this package, but watch your deadline. Generally you have only three days from the date you receive this package in which to cancel your sales contract — although I strongly recommend that the contract require that you get at least seven days in which to opt out.
You should insist on reviewing the most recent financial audit prepared by an independent auditor — usually a CPA. You should talk with the property manager to determine the number of delinquent owners in the complex. You are not entitled to learn their names, but with all the foreclosures that are occurring throughout the country, it is critical that you obtain this information.
I am assuming that you are buying a "resale" condominium and are not looking to buy from a developer. The developer must provide you with a document entitled "Public Offering Statement," which will contain the proposed budget. Unfortunately, my experience is that many such budgets are lowballed by developers so that the condominium fees will be low. Once control of the association is turned over to the owners, all too often the newly elected board of directors is faced with a political dilemma. They know they have to increase the condominium fees, but don’t want to antagonize those members who voted them into office.
You are smart to be concerned about the financial condition of a condominium association in which you will be an owner. Unfortunately, too many people do not take the time to review the legal documents or the financials before they take title to their unit.
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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