DEAR BENNY: I offered full price — $168,000 — for a home in foreclosure. The bank came back with a refusal and a new sales price of $240,000. That is $72,000 over the asking price. Is this legal? –Marie
DEAR MARIE: Yours is an interesting question. I need more facts, such as (1) how and where was the price advertised at $168,000? and (2) did you have any contingencies in the sales contract that you presented to the bank?
In order to have a legal and binding real estate contract, three things are needed: (1) offer — typically, the buyer makes an offer to the seller, which can be accepted, rejected or countered; (2) acceptance — the seller accepts the offer; and (3) valuable consideration — usually, this means money, such as the earnest money deposit that accompanies the sales contract.
However, consideration does not always require money. For example, if one party refrained from looking for any other house or put their own house on the market based on the fact they believed they had a contract to buy another house, that can also be considered "consideration."
In a real estate transaction, the seller will list the property with a broker for an agreed upon price. If a buyer presents an offer at that price — with no contingencies — the broker may be entitled to a commission under the terms and conditions of the listing agreement.
But the seller is not obligated to sell at that price, even if that’s the listed price. The listing agreement is a contract between the seller and the broker but is not considered an offer that can be accepted by a buyer.
The best example: If a large department store advertises a TV set and the price accidentally is shown at $1, the courts have consistently held that this is request for an offer but is not an offer that can be accepted by the public, and therefore not binding on the department store.
By analogy, the bank did not make you an offer for $168,000 but simply requested that you make an offer. Since the bank did not accept your offer, there is no contract and the bank does not have to sell to you at that price.
I think it is reprehensible conduct on the part of the bank, but, in my opinion, not necessarily illegal.
DEAR BENNY: What are your thoughts on placing residential rental properties into a charitable remainder trust (CRT) to be able to collect the rents and have the income offset by the charitable donation write-offs over the years allowed and sell the properties at a later date to avoid capital gains? Would you know what the requirements are as to how much must be retained in this type trust for the charity? Are there pitfalls to be aware of placing property into a CRT? –Jame
DEAR JAME: Thanks for your kind comments; I try to provide information on a wide area of real estate, and always welcome reader questions and comments.
The biggest downside to these trusts is that they are irrevocable. Taxpayers put property into trust out of their control and receive an income stream at a fixed percent. The donor gets a current deduction for the value of the charitable remainder gift going to the charity, which is calculated based on the age of the donor.
Any income to the property would be reportable by the trust (and I believe not taxed since it is a 501(c)(3) with a few exceptions). When the property is sold, there is no tax to the charity. So low-basis properties are good for donating to CRTs.
So CRTs are good when someone has charitable intentions, has low-basis property, wants an income stream and can use the charitable deduction.
The downside is you cannot revoke the trust and get at the principal. Although there are brokers out there willing to buy the income stream, it is at a great discount. There are also complicated rules and regulations that need to be followed to prevent the CRT from being disqualified.
There are several types of CRTs including CRUTs (unitrusts), CRATs (annuity trusts) and others.
This just scratches the surface. You really should consult an estate lawyer and a tax accountant for specific information relating to your specific situation. Additionally, I am writing this column before the end of the year, and the so-called "fiscal cliff" is still very much on the minds of all of us. So, the laws may change as of the beginning of 2013.
In any event, it is clear that Congress is going to do something with the tax code, so don’t do anything drastic yet.
DEAR BENNY: We are refinancing my house with a new first trust. We have a HELOC and the new lender wants me to pay that off. Why is this necessary? We really want to keep the HELOC on the books just in case we ever need the money. –Tonee
DEAR TONEE: A HELOC (home equity line of credit) is a second trust. (In some states, they are called mortgages.) If the first trust is paid off, the second automatically falls into first place. The new lender must be in first place, and that’s why you are being asked to pay it off.
However, many new lenders (depending on the amount of equity in your house) will allow you to keep the HELOC. You will have to sign what is known as a "subordination agreement," whereby the HELOC will be subordinated (put in a lower position) to the new first trust.
I suggest you ask your new lender if it will allow you to arrange to subordinate your HELOC to the new loan. If not, you either have to find a new lender who will be willing to allow the subordination, or you will have to pay off the HELOC and after closing on the refinance find another bank to make you that HELOC loan.
DEAR READERS: There is good news for members of the military. On Aug. 6, 2012, President Obama signed into law the Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012. This is a comprehensive act that covers a number of issues, ranging from bringing immediate Department of Veterans Affairs health care to Camp Lejeune veterans and their families who have been diagnosed with a water contamination disease to dealing with a traumatic brain injury.
It also extended the time that banks and other mortgage lenders are prohibited from foreclosing or evicting service members due to late payments from nine to 12 months after military service.
Originally, when Congress enacted the Servicemembers Civil Relief Act (SCRA), it provided protection to military personnel against the entry of default judgments and gave the courts the ability to stay proceedings against military debtors. But because in the past few years, thousands of service members and their families have been evicted from their homes or foreclosed upon, Congress extended the protection time to give returning servicemen an opportunity to bring themselves current on their loans and/or to challenge improper foreclosures and evictions.
For more information, type in "Honoring American Veterans Act of 2012" into your favorite Internet search engine.