DEAR BENNY: We bought a second home a year ago where we’ve spent very little time (a few days here and there) until recently. We recently discovered a number of problems including an inadequate radiant floor heating system — we can’t get heat past 60 when its 30 or below outside (this alone may cost $25,000 to fix (seller says he never had a problem); the cooktop vent exhausts indoors in violation of manufacturer specs; the window wall is bowing, and window cracking indicates a load-bearing structural issue; and leaks are visible at almost every rafter-to-wall seam … we can see outside! What are our rights in this situation? We paid $1.5 million for this 2,200-square-foot home. –Vikki
DEAR VIKKI: You paid a lot of money and noted that you had an inspection. Did you see the house yourself before you bought it? Have you discussed the situation with your home inspector? He may have some culpability if he missed all of those things.
The seller claims that he never had any of the problems you described. Most sellers say that; sometimes it’s true, and sometimes it’s not. But proving the truth in a court of law is not easy. Furthermore, the fact that you discovered the problems a year after you took title will be a defense that the seller’s attorney will raise if you file suit. The seller will take the position that if there are problems in the house, they occurred after the seller sold the house.
You have to do a lot of investigation. Talk to neighbors — did they hear your seller complain about various things in the house? Check with local repair companies to see if they remember working on the house before you bought it.
If your state has a "seller disclosure" law, read the disclosure carefully. If you believe that you can prove that the seller misrepresented the condition of the house, you may have a stronger case based on the erroneous statement.
I tell all of my clients that litigation is expensive, time-consuming and uncertain. Sometimes the better course is to accept the fact that you bought a lemon and pay the moneys to fix it up.
DEAR BENNY: We sold a rental condo in 2001 via a tax-deferred 1031 exchange replacing it for another rental. We moved into the home in December 2006, making it our primary residence. How long do we have to live in the home in order to qualify for the Internal Revenue Code 121 exemption? –Mike
DEAR MIKE: Because you obtained the replacement property as part of a 1031 (Starker) exchange, you are not eligible for the up-to-$500,000 exclusion of gain until five full years have passed. If, for example you acquired the property on Aug. 1, 2001, you could not claim the exclusion until Aug. 2, 2006.
Clearly, you meet the five-year test. However, you also have to meet the use test. In order to claim the exemption, you have to use the property for two years out of the five before sale. Since you moved into the house in December 2006, if you want to take advantage of the gain exclusion, you must wait until December of this year (2008) before you sell.
DEAR BENNY: I presently own my home in a homeowners association. The association has rules that require their approval for most changes a homeowner wishes to make to the exterior of the residence. They also prohibit some things such as awnings, storage sheds and basketball hoops affixed to the building.
In 2001, I added a canvas, remote retractable awning over my deck. No one from the association contacted me about it until one month ago when I received a letter advising me the awning must be removed. The letter said they allow alternatives to awnings such as umbrellas, canopies, trees, arbor or a permanent roof. None of these appeal to me.
Can an association enforce such prohibition rules? If I refuse to remove the awning, what action can the association take against me? Their demand can be appealed, but I feel that would be useless. Is it worthwhile for me to obtain legal counsel in this matter? –Jack
DEAR JACK: Many community associations (homeowner associations or condominiums) have architectural control rules and regulations. It is quite common to require that homeowners obtain approval before making any additions to the outside of the property.
Whether this is right or not — fair or not — is unfortunately irrelevant. If these rules are valid, every homeowner including you must abide by them.
However, there are many defenses that you can raise, which means that you must appeal their decision. I also recommend that you retain local counsel who understands — and practices — community association law.
Perhaps your best defense is the passage of time. There is a concept in law called "laches"; this means that since the association waited such a long time before it sent you the infraction notice, they are barred, or estopped, from trying to enforce their rules at this late date. There may also be a statute-of-limitation defense.
But it is important to fight the association. If you do nothing, they can file a lien against your property. Worse yet, they can go to court and ask a judge to force you to take your awning down.
These control committees have often been called the "local KGB." They have a lot of power, but must use it properly.
DEAR BENNY: I am a 43-year-old teacher who bought a home with my mother 12 years ago. Recently my mother has developed health problems, which caused her to lose her part-time job. Her pension does not allow her to live on her own. Due to the loss of income she has decided to declare bankruptcy. She owes more than $30,000 on credit cards. I do not want her credit to affect mine or to lose my home. Selling at this time is not an option. Would the best course of action be to have her sign the house over to me? If so, what do we need to do? If not, what do you suggest? –Rebecca
DEAR REBECCA: My first suggestion is that you immediately retain a local attorney who understands bankruptcy. I am not a bankruptcy attorney, but do know that some transactions may be set aside by a bankruptcy trustee if they are made within a certain period of time. For transactions between relatives, the trustee can look back one full year. This is known as a "preference in bankruptcy."
Furthermore, there are tax consequences if the house is transferred to you.
Is there any way that you can assist your mother with her credit-card debt? Have you or your mother talked with the credit-card company? They may be willing to arrange a payment plan, so that your mother will not have to file for bankruptcy protection.
DEAR BENNY: We are going to build a house for my mother on a separate lot next to our house. It will be in my husband’s and my name. What is the best way to handle this: treat it as rental property or form a limited liability company (LLC) and put the house under the LLC’s name? –Allana
DEAR ALLANA: I can’t provide you specific legal advice, but I like the idea of taking title to the house in the name of an LLC. You asked if it should be a rental property or an LLC? It can be both. You title the property in the name of an LLC, and rent it out to your mother. If you want to take some tax benefits, you should have a standard lease, whereby your mother agrees to pay you rent. The rental should be based on the fair market rental value, but because it is your mother and you will not need a real estate agent, you can reduce this by approximately 15 percent. If your mother cannot afford the rent, you can gift her tax-free up to $12,000 per year from you and the same amount from your husband.
Talk to a local attorney about setting up the LLC.
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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