DEAR BENNY: I have a question regarding a refinance. We had several unsuccessful attempts with two mortgage brokers because our house is located in a risky ZIP code and the appraiser said he was unable to get two comparables to complete the deal. Finally, we went with another bank, and it said "no problem" right off the bat.
Well, it’s been almost three months now and we’ve turned in all necessary papers and have an 800-plus credit rating — and we’re still waiting.
But that’s not the problem. Here is my concern: When we applied, we paid a $400 appraisal charge. That would be fair if an appraiser were actually doing something. There was no walkthrough inspection; according to the bank, there was only a drive-by inspection, and the home value was done electronically.
All the calculations seemed to be acceptable by the bank for the refinance to go through but why are we being charged $400 for this? There was no outside appraiser. Is this practice kosher?
I asked for a copy of our appraisal and was told there is none; only the value amount could be told. Shouldn’t the bank just say, "It will cost $400 for a refi: Take it or leave it"? Do we have any recourse? –Christine
DEAR CHRISTINE: Under federal law, you have the right to obtain a copy of the appraisal. You paid $400 and have the right to see the bank’s report. Furthermore, under current lender rules, the bank should have used an outside, or independent, appraiser.
I suggest that you demand to get either (1) a copy of the report or (2) a refund of your $400. If the bank balks, I suggest you file a formal complaint with your state’s attorney general as well as the Office of the Comptroller.
True, it’s only $400. But if the bank is doing this to others, it is a practice that should stop.
DEAR BENNY: My wife and I are elderly and thought we would sell our home, which we own free and clear, to our grown children (in an all-cash transaction), and we would continue to live in our home till our death. We would pay them a market rental rate and they would be responsible for paying the taxes, repairs, etc.
But we are concerned that in selling to our children we might lose our maximum $500,000 capital gains exclusion. We have been living in our home for more than 45 years and it is worth approximately 10 times more than what we paid for it.
According to IRS Publication 523 (2008 edition), a seller "cannot exclude gain from the sale of a remainder interest in (his or her) home to a related person." It indicates that a "related person" includes lineal descendants such as children. What does this mean? –Frank
DEAR FRANK: I cannot provide legal information in my column. In general, however, you will not be selling a remainder interest. That is a legal term often used for tax purposes. It also refers to life estates. It is defined as a future interest; the remainder interest holder has an interest in the property, but possession will not come until a later date.
For example, you would sign legal documents, which reserves for you and your spouse a life estate, with the property going to someone else (called the remainderman) when the last life estate holder dies.
In your situation, however, there is no issue involving remainder interests so you need not be concerned about that issue.
However, there are other issues involved.
I consulted Julian Block, a tax attorney in Larchmont, N.Y. His advice: "In advance of the sale, the parents should meet with a qualified tax professional (someone who does not also represent the children) to discuss the tax consequences of the transaction."
Block raised some significant issues that you (and your tax advisers) should consider.
"Suppose the sale is in 2010 and their gain exceeds their exclusion of $500,000. The parents also have some unrealized losses on stocks," he said. "They can offset those losses against the portion of the home-sale profit above $500,000, thereby reducing or eliminating taxes on the gain from the sale of their dwelling.
"Or suppose the home-sale profit puts them into a higher tax bracket for 2010 and they plan to make significant charitable contributions in 2011, when they expect to be in a lower bracket. It can pay to accelerate the payment of the contributions into 2010."
So, it’s not just a simple task of selling your property to your children. Careful consideration of all tax issues — yours and your kids’ — must be reviewed before you take the plunge.
DEAR BENNY: I have owned a condo townhome for more than 30 years that is being used a rental. Last year, after extensive remodeling ($25,000), a leak was noticed in the dining room ceiling. After it was determined it was not due to internal plumbing, the management company was notified, the spot on the ceiling was spray-painted over, and the roof supposedly repaired.
A few months later, the leak re-appeared; a plumber once again determined that it was not an internal leak. Once again, the management company was notified and it sent out a roofer to examine, and he said it could not find any evidence of a leak. I was charged $75, which is now being tacked onto to my monthly condominium fees.
My real estate agent, who helps manages the property for me, sent letters and e-mails to the management company citing the legal documents, which puts the burden on the association regarding external repairs. We have not received any response.
I have refused to pay and the management company is now charging a late fee of $20 per month for nonpayment of the roofer invoice. The complex has a long history of roof leaks and repairs, including at least one new roof and many repairs.
Some of it is due to design flaws, which I know, because I was on the original board of directors and we successfully sued the builder who corrected some of the issues but not all, as it was not practical. Some of it was due to poor maintenance and upkeep by the various management companies over the years.
Where do I go from here? Because the "leak" has not been identified or repaired, I am now concerned that during the upcoming winter/rainy season the leak will "re-appear" and cause damage internally. This is too small a claim for my insurance policy. I own several other rental townhomes and have never encountered this type of issue. –Ferdie
DEAR FERDIE: I recommend you hire an independent structural engineer to determine where the leak is coming from. If that expert confirms your position that this is not coming from inside your unit, I am afraid that your only remedy is to file suit for declaratory judgment, asking the court to determine that the condo association is responsible.
And perhaps this is a naive question on my part, but what kind of "internal plumbing" is over a dining room ceiling? It seems to me that this is a common-element problem, which is the responsibility of the association to correct.
DEAR BENNY: My husband passed away about 20 years ago. In his will he left me "life estate" rights to the home we shared, with the remainder interest going to his family upon my death. Since his death, I have paid for maintenance and property taxes on the house.
In 2007, a basement wall collapsed, causing significant damage totaling almost $20,000. At that time I contacted my late husband’s family, requesting they share in the cost of the repairs. They initially refused, claiming that all the upkeep and taxes on the property were my responsibility.
I contacted a lawyer who advised me that my late husband’s family, who have the remainder interest in the house, were indeed responsible for all of the upkeep and taxes. After much debate, my late husband’s family agreed to share the cost of this major repair but reiterated their position that it was really my responsibility and they would not pay any future costs.
This issue remains a bone of contention. The fundamental question is: Under the rules of "life estate" rights, who is responsible for upkeep and taxes on the property if these issues are not specifically addressed in the will? –M.S.
DEAR M.S.: Since the answer to your question depends on state law in the jurisdiction where the house is located, I will have to defer to your attorney. Generally, however, the general rule is that a life tenant makes ordinary repairs necessary to preserve the property, but unusual or extraordinary repairs are the responsibility of the remaindermen.
Real estate taxes are generally considered the responsibility of the life tenant. The remaindermen in your situation are your husband’s family.
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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