News
01-12-2007, 09:12 PM
Cautious?Owners Should Inspect Home Before Sale
By Robert J. Bruss
Saturday, January 13, 2007; F17
Q: DEAR BOB: I plan to sell my home in the next few months. Is it wise to have a professional home inspector prepare a report before I list my house for sale so I can use his findings to help establish the sale price? One real estate agent tells me I should not have the report done because if buyers rely on that report only, then I am liable if the inspector misses something. The agent says home buyers in my area usually will not have their own inspection done if I have one available and therefore I am taking on more liability. What is your opinion? -- Mary B.
A: DEAR MARY: I strongly disagree with that agent. Every home seller should have a pre-listing professional inspection, as well as other customary local inspections such as for termites, dry rot, energy efficiency, building-code compliance, etc.
Then you will know the condition of your home. If there are any serious defects, you should repair them before listing the house for sale. Savvy buyers always have their own professional inspections. Unless asked, you don't have to show your own inspection reports.
After you have obtained the inspections and decided either to repair defects or disclose them to prospective buyers, interview at least three successful real estate agents who sell houses in your vicinity.
Each agent interviewed should prepare a written comparative market analysis. It will show recent sale prices of nearby houses like yours, asking prices of similar neighborhood homes (your competition) and even recently expired competitive listings (usually overpriced).
The comparative market analysis also shows each agent's recommended asking price and probable sales price for your home. Only after you have at least three such analyses are you ready to select the best agent to sell your home.
DEAR BOB: I have seen endless mentions in your articles about living in your principal residence at least two of the last five years before its sale to qualify for that $250,000 tax exemption (up to $500,000 for a qualified married couple). But what proof does the IRS require if they question eligibility? How does the seller prove it was the primary residence? -- Susan C.
DEAR SUSAN: Unless the home seller is audited, the IRS does not require any proof the Internal Revenue Code 121 principal-residence-sale requirements were met. If you qualify for the full exemption, up to $250,000 for a single principal-residence seller, or up to $500,000 for a qualified married couple filing a joint tax return, you don't even report your principal-residence sale on your income tax returns.
If the IRS should question your eligibility, you will need proof the home was your principal residence. Evidence could include utility bills, voter registration, driver's license, bank accounts, nearby employment and income tax forms filed before the house was sold.
DEAR BOB: Two sisters, both over 72, inherit a house. Their dad purchased it in 1964 for $30,000. It is now worth $750,000. If they sell it before they die, what is the rate of capital gains tax? -- Gregory D.
DEAR GREGORY: The adjusted cost basis of the house for the two sisters (their ages are irrelevant) was its "stepped-up basis" fair market value on the date of dad's death. If they made any capital improvements during ownership, the improvement cost is added to this stepped-up basis.
When they sell the house for more than their basis, the excess is their taxable capital gain.
For example, suppose the house was worth $300,000 a few years ago when dad died and they added $100,000 of capital improvements during their ownership. Their basis would be $400,000. If they sell it for $750,000 net, presuming it is not their principal residence, they have a $350,000 taxable capital gain.
They will owe the current maximum long-term capital gain tax rate of 15 percent on their gain, plus applicable state tax where the house is located. They should consult a tax adviser for details.
DEAR BOB: Unexpected mortgage junk fees seem to be a cruel surprise at the closing settlement, imposed after all the emotional investment in a new house has been made by the borrowers. Sitting at the closing table, with the prospect of losing your new house, makes it almost impossible to walk away and not pay the lender's junk fees. It seems the mortgage lender's "good faith estimate" given to the borrower earlier is worthless and unenforceable. But what about another approach? Could the borrower pay the junk fees and then sue the lender in small claims court for a refund? Has this approach been used successfully? -- Walter L.
DEAR WALTER: For readers not familiar with mortgage junk fees, they are charges imposed on borrowers by the lender for services that do not provide a specific borrower benefit.
Junk fee examples include underwriting fee, administration fee, warehouse fee, documentation fee, loan review fee, preparation fee and other names dreamed up by lenders. Examples of legitimate non-junk mortgage fees for specific services include appraisal fee, title insurance fee, attorney or escrow fee, and credit report fee.
Small claims court decisions don't get publicly reported so there is no way to know your chance of success. It's worth a try, but be sure to make clear in writing at the closing that you are paying the lender's previously undisclosed last-minute junk fees under duress.
DEAR BOB: We rented a house on a one-year lease based on the rental property manager's promise to landscape the back yard. But we failed to put it in writing. The manager promised to have it installed by Oct. 1. It is now January and we still have just dirt in the back yard. He says he's a man of his word "where a handshake still means something." But the owner can't afford to put in the landscaping now. We're tired of dirt and rocks in our back yard. Can we break our lease? -- Ron F.
DEAR RON: In real estate, oral agreements mean nothing. You should have obtained that landscaping promise in writing, signed by the owner (not just the property manager).
If you break the lease, due to failure of consideration, and the landlord takes you to court, it is up to the judge to decide if you were justified.
However, when a tenant breaks a lease, the owner has a duty to mitigate damages by attempting to re-rent. At worst, you probably would only be liable for a few months of rent while the house is vacant. Consult a lawyer for details.
DEAR BOB: For the last six years, I have lived in my mother's house to take care of her, as she is senile. I have been making the mortgage payments and paying the property taxes. However, when I had my income taxes prepared last year, I was told I am not entitled to these deductions because my name is not on the title and my mother's name and Social Security number are on the mortgage. Is this true? -- Michele M.
DEAR MICHELE: Yes. The reason you are not entitled to claim those itemized deductions on your personal income tax return is you have no legal obligation to make those payments. You may have a moral obligation to help your mother, but that doesn't count with the IRS.
However, this problem is easily solved. If your mother is capable of signing a quitclaim deed, she can add your name to her title, perhaps by holding title in joint tenancy with right of survivorship. Her name still remains on the title but now you will be legally obligated for those payments you have been making and can claim them as itemized deductions on your personal income tax returns.
But there is no need to add your name to the mortgage obligation. Millions of U.S. homeowners make payments on mortgages that are not in their names. All that matters to the IRS is you must be legally obligated to pay the expenses, as you will be after your mother adds your name to the house title. For details, consult a tax adviser or local real estate lawyer.
DEAR BOB: I am a joint remainderman with my husband on a farm and house where my mother lives as the life tenant. I am divorcing my husband and want to know what value my remainder interest has at this time, if any. The property and farmhouse were appraised at $122,000. -- Mary L.
DEAR MARY: Until your life-estate tenant mother dies, your remainder interest has little market value. The reason is, unless your mother is at death's door with a terminal disease, there is no resale market for remainders.
Maybe you can trade your soon-to-be ex-husband something of little value if he will sign a quitclaim deed to you for his remainder interest in the property.
DEAR BOB: Why did my adjustable-rate mortgage go from 6.5 percent to 8.5 percent interest in November? It is tied to the 11th District Cost of Funds Index. I will soon be 76 and owe only $74,500 on a house worth about $700,000. At my age, my life expectancy isn't too long. I doubt I can qualify to refinance because my income is Social Security benefits, plus some rental income. What should I do? -- Diana C.
DEAR DIANA: You definitely should refinance. The reason your adjustable-rate mortgage adjusted last November, I suspect, is your locked-in interest-rate period expired and now your ARM interest rate is a combination of the cost of funds index (4.35 percent as I write this) plus the margin.
It appears you have a high margin above the index. Get rid of your bad ARM.
If you have any problem qualifying to refinance with a fixed-rate mortgage around 6 percent interest, ask the lender for a "no doc" mortgage. That means the lender won't check your income. Sometimes these are called "stated income" mortgages.
If you need cash, perhaps for a new roof, you can borrow more than the $74,500 on a "cash-out mortgage" to pay off your old mortgage.
Another alternative is to get a home equity line of credit at your bank to pay off the old mortgage. The best rate I've seen is the prime rate minus 1 percent, which would be about 7.25 percent. Get the biggest line of credit you can obtain to be prepared for emergencies.
Still another alternative, if the property is your principal residence and you plan to stay in it at least five years, is a reverse mortgage. You can use a lump sum to pay off your $74,500 existing mortgage and then either take a credit line (except in Texas) or lifetime monthly income for the balance of your entitlement.
DEAR BOB: We got ripped off when we bought our first home in November. Our first mistake was letting the listing agent act as a "dual agent" to represent both the seller and buyer. Our second mistake was trusting her, as she turned out to be a real crook. Imagine our surprise, after the closing, when we got the keys to our new home and discovered the sellers had removed all the light fixtures (leaving bare wires in the ceiling). They even took the built-in dishwasher, cook-top range and built-in oven. We understand they were entitled to remove the refrigerator, washer and dryer, which were free-standing. The realty agent says there was nothing said in the sales contract so the sellers presumed we didn't want the nice light fixtures, especially the dining-room chandelier. What recourse do we have? The sellers moved out of state. -- Brett R.
DEAR BRETT: That was a bad contract if it didn't specify that the fixtures are included in the sales price. It's not necessary to itemize fixtures because they are personal property that by means of permanent attachment became part of the real property.
Didn't you have a walk-through inspection the day before the sale closed? Every good real estate agent encourages such an inspection to be certain the seller has left the home in the agreed-upon condition. Shame on that agent for not arranging such a walk-through inspection, which would have prevented your problem.
At this point, I suggest you contact the agent's office manager, politely explain the problem, and ask for compensation for the estimated replacement cost of the fixtures, including the built-in appliances.
Because the sellers moved out of state, it will be extremely difficult to sue them. Your best leverage is over the realty agent who allowed this problem to occur. If necessary, your recourse is a lawsuit against the agent and the sellers.
DEAR BOB: I plan to sell my home in the next few months. I have owned and lived in it about 10 years. The sales price should be around $325,000. I paid about $100,000 and I have added some improvements. My mortgage is around $62,500. A friend told me I will owe tax on the amount exceeding $250,000. Is this true? -- Marcia C.
DEAR MARCIA: No. Internal Revenue Code 121 provides up to $250,000 tax-free principal-residence-sale capital gains profits for a single home seller (up to $500,000 for a married couple filing jointly where both spouses qualify).
To qualify, you must have owned and occupied your principal residence at least 24 of the 60 months before its sale. It appears you qualify.
Your adjusted cost basis for your home is its $100,000 purchase price, plus the cost of capital improvements you added. The mortgage balance doesn't matter. Subtracting $100,000 from the estimated $325,000 sales price is a $225,000 capital gain. That is below the $250,000 exemption so it appears your entire principal-residence sale profit will be tax-free.
DEAR BOB: My mother-in-law lives in a zero-lot-line single-family house where the windowless left side of her home sits on the property line with her neighbor on that side. This neighbor refuses to properly landscape her back yard. The result, when it rains, is water stands against my mother-in-law's exterior house wall. This water seeps into her home and is causing interior damage. What can she do? -- Rick T.
DEAR RICK: That is an unusual situation. It appears the neighbor is maintaining a "private nuisance" that affects your mother-in-law's house. I presume she has tried to work out a friendly solution with the neighbor.
At this point, legal action is probably necessary to abate this private nuisance. She should consult a local lawyer for more information.
DEAR BOB: In 2004 my mother bought a condo as her home. In early 2005 she listed it for sale at $350,000 and received a $360,000 purchase offer. But the bank appraisal came in at only $325,000. Rather than give it away, she decided to rent the condo and take out a home equity line of credit. A year later, the tenant moved out and now we have a hard time finding and keeping tenants. If we can't sell the condo or find a new tenant, foreclosure will likely occur. There is about $40,000 left on the line of credit. If she gives up the condo with a deed in lieu of foreclosure to the lender, is she required to pay off the home equity line of credit? -- Jill U.
DEAR JILL: Defaulting on either the condo mortgage or the home equity line of credit will ruin your mother's credit. Don't even think of that.
Because there is a line of credit on the condo (which is really a second mortgage), I doubt the first mortgage lender will accept a deed in lieu of foreclosure. If your mother stops paying on the condo's first mortgage and the condo is foreclosed, that will wipe out the home credit line. However, the equity-credit lender probably will sue your mother for its loss.
Your mother should do everything possible to either rent the condo or sell it for at least enough to pay off its first mortgage plus the line of credit.
DEAR BOB: I inherited a house and a two-family duplex from my uncle, who died in 2004. The properties are out of state. I have been in contact with the estate attorney who, I think, is milking this simple probate to get as much in fees as he can. It has now been more than two years since my uncle died. He left some stocks and bonds, plus a few bank accounts and the two properties. But that's about it. The stocks and bonds, as well as the bank accounts, went to other heirs. There are no complications as far as I know. Do probates usually take two years? -- Mavis R.
DEAR MAVIS: If your late uncle left a written will, unless there are contested debts to be paid or other complications, a two-year probate is far too long to distribute the assets to the heirs. Because you live out of state, the probate lawyer probably figures you are in no hurry so there is no urgency to close the probate proceeding.
I suggest you write a polite letter to the probate lawyer asking when you will receive title to the two properties. (I presume somebody is managing them so they don't deteriorate and the rent is being collected.) If you aren't satisfied with the reply, a few phone calls might be necessary.
DEAR BOB: What is the minimum holding time for a rental property acquired in an Internal Revenue Code 1031 tax-deferred trade? In July, I acquired a six-unit rental property in such an exchange. Now I have an opportunity to trade it for a commercial property that would require less management. But my tax adviser says I must hold title to my rental property at least 12 months before trading again. I can't find this in the tax code. What is the minimum holding time? -- Julia L.
DEAR JULIA: There is no minimum holding time for a property acquired in an IRC 1031 tax-deferred exchange. I suggest you consult another tax adviser for a second opinion.
Readers with questions should write Robert J. Bruss at 251 Park Road, Burlingame, Calif. 94010, or contact him via his Web page, http://www.bobbruss.com.
By Robert J. Bruss
Saturday, January 13, 2007; F17
Q: DEAR BOB: I plan to sell my home in the next few months. Is it wise to have a professional home inspector prepare a report before I list my house for sale so I can use his findings to help establish the sale price? One real estate agent tells me I should not have the report done because if buyers rely on that report only, then I am liable if the inspector misses something. The agent says home buyers in my area usually will not have their own inspection done if I have one available and therefore I am taking on more liability. What is your opinion? -- Mary B.
A: DEAR MARY: I strongly disagree with that agent. Every home seller should have a pre-listing professional inspection, as well as other customary local inspections such as for termites, dry rot, energy efficiency, building-code compliance, etc.
Then you will know the condition of your home. If there are any serious defects, you should repair them before listing the house for sale. Savvy buyers always have their own professional inspections. Unless asked, you don't have to show your own inspection reports.
After you have obtained the inspections and decided either to repair defects or disclose them to prospective buyers, interview at least three successful real estate agents who sell houses in your vicinity.
Each agent interviewed should prepare a written comparative market analysis. It will show recent sale prices of nearby houses like yours, asking prices of similar neighborhood homes (your competition) and even recently expired competitive listings (usually overpriced).
The comparative market analysis also shows each agent's recommended asking price and probable sales price for your home. Only after you have at least three such analyses are you ready to select the best agent to sell your home.
DEAR BOB: I have seen endless mentions in your articles about living in your principal residence at least two of the last five years before its sale to qualify for that $250,000 tax exemption (up to $500,000 for a qualified married couple). But what proof does the IRS require if they question eligibility? How does the seller prove it was the primary residence? -- Susan C.
DEAR SUSAN: Unless the home seller is audited, the IRS does not require any proof the Internal Revenue Code 121 principal-residence-sale requirements were met. If you qualify for the full exemption, up to $250,000 for a single principal-residence seller, or up to $500,000 for a qualified married couple filing a joint tax return, you don't even report your principal-residence sale on your income tax returns.
If the IRS should question your eligibility, you will need proof the home was your principal residence. Evidence could include utility bills, voter registration, driver's license, bank accounts, nearby employment and income tax forms filed before the house was sold.
DEAR BOB: Two sisters, both over 72, inherit a house. Their dad purchased it in 1964 for $30,000. It is now worth $750,000. If they sell it before they die, what is the rate of capital gains tax? -- Gregory D.
DEAR GREGORY: The adjusted cost basis of the house for the two sisters (their ages are irrelevant) was its "stepped-up basis" fair market value on the date of dad's death. If they made any capital improvements during ownership, the improvement cost is added to this stepped-up basis.
When they sell the house for more than their basis, the excess is their taxable capital gain.
For example, suppose the house was worth $300,000 a few years ago when dad died and they added $100,000 of capital improvements during their ownership. Their basis would be $400,000. If they sell it for $750,000 net, presuming it is not their principal residence, they have a $350,000 taxable capital gain.
They will owe the current maximum long-term capital gain tax rate of 15 percent on their gain, plus applicable state tax where the house is located. They should consult a tax adviser for details.
DEAR BOB: Unexpected mortgage junk fees seem to be a cruel surprise at the closing settlement, imposed after all the emotional investment in a new house has been made by the borrowers. Sitting at the closing table, with the prospect of losing your new house, makes it almost impossible to walk away and not pay the lender's junk fees. It seems the mortgage lender's "good faith estimate" given to the borrower earlier is worthless and unenforceable. But what about another approach? Could the borrower pay the junk fees and then sue the lender in small claims court for a refund? Has this approach been used successfully? -- Walter L.
DEAR WALTER: For readers not familiar with mortgage junk fees, they are charges imposed on borrowers by the lender for services that do not provide a specific borrower benefit.
Junk fee examples include underwriting fee, administration fee, warehouse fee, documentation fee, loan review fee, preparation fee and other names dreamed up by lenders. Examples of legitimate non-junk mortgage fees for specific services include appraisal fee, title insurance fee, attorney or escrow fee, and credit report fee.
Small claims court decisions don't get publicly reported so there is no way to know your chance of success. It's worth a try, but be sure to make clear in writing at the closing that you are paying the lender's previously undisclosed last-minute junk fees under duress.
DEAR BOB: We rented a house on a one-year lease based on the rental property manager's promise to landscape the back yard. But we failed to put it in writing. The manager promised to have it installed by Oct. 1. It is now January and we still have just dirt in the back yard. He says he's a man of his word "where a handshake still means something." But the owner can't afford to put in the landscaping now. We're tired of dirt and rocks in our back yard. Can we break our lease? -- Ron F.
DEAR RON: In real estate, oral agreements mean nothing. You should have obtained that landscaping promise in writing, signed by the owner (not just the property manager).
If you break the lease, due to failure of consideration, and the landlord takes you to court, it is up to the judge to decide if you were justified.
However, when a tenant breaks a lease, the owner has a duty to mitigate damages by attempting to re-rent. At worst, you probably would only be liable for a few months of rent while the house is vacant. Consult a lawyer for details.
DEAR BOB: For the last six years, I have lived in my mother's house to take care of her, as she is senile. I have been making the mortgage payments and paying the property taxes. However, when I had my income taxes prepared last year, I was told I am not entitled to these deductions because my name is not on the title and my mother's name and Social Security number are on the mortgage. Is this true? -- Michele M.
DEAR MICHELE: Yes. The reason you are not entitled to claim those itemized deductions on your personal income tax return is you have no legal obligation to make those payments. You may have a moral obligation to help your mother, but that doesn't count with the IRS.
However, this problem is easily solved. If your mother is capable of signing a quitclaim deed, she can add your name to her title, perhaps by holding title in joint tenancy with right of survivorship. Her name still remains on the title but now you will be legally obligated for those payments you have been making and can claim them as itemized deductions on your personal income tax returns.
But there is no need to add your name to the mortgage obligation. Millions of U.S. homeowners make payments on mortgages that are not in their names. All that matters to the IRS is you must be legally obligated to pay the expenses, as you will be after your mother adds your name to the house title. For details, consult a tax adviser or local real estate lawyer.
DEAR BOB: I am a joint remainderman with my husband on a farm and house where my mother lives as the life tenant. I am divorcing my husband and want to know what value my remainder interest has at this time, if any. The property and farmhouse were appraised at $122,000. -- Mary L.
DEAR MARY: Until your life-estate tenant mother dies, your remainder interest has little market value. The reason is, unless your mother is at death's door with a terminal disease, there is no resale market for remainders.
Maybe you can trade your soon-to-be ex-husband something of little value if he will sign a quitclaim deed to you for his remainder interest in the property.
DEAR BOB: Why did my adjustable-rate mortgage go from 6.5 percent to 8.5 percent interest in November? It is tied to the 11th District Cost of Funds Index. I will soon be 76 and owe only $74,500 on a house worth about $700,000. At my age, my life expectancy isn't too long. I doubt I can qualify to refinance because my income is Social Security benefits, plus some rental income. What should I do? -- Diana C.
DEAR DIANA: You definitely should refinance. The reason your adjustable-rate mortgage adjusted last November, I suspect, is your locked-in interest-rate period expired and now your ARM interest rate is a combination of the cost of funds index (4.35 percent as I write this) plus the margin.
It appears you have a high margin above the index. Get rid of your bad ARM.
If you have any problem qualifying to refinance with a fixed-rate mortgage around 6 percent interest, ask the lender for a "no doc" mortgage. That means the lender won't check your income. Sometimes these are called "stated income" mortgages.
If you need cash, perhaps for a new roof, you can borrow more than the $74,500 on a "cash-out mortgage" to pay off your old mortgage.
Another alternative is to get a home equity line of credit at your bank to pay off the old mortgage. The best rate I've seen is the prime rate minus 1 percent, which would be about 7.25 percent. Get the biggest line of credit you can obtain to be prepared for emergencies.
Still another alternative, if the property is your principal residence and you plan to stay in it at least five years, is a reverse mortgage. You can use a lump sum to pay off your $74,500 existing mortgage and then either take a credit line (except in Texas) or lifetime monthly income for the balance of your entitlement.
DEAR BOB: We got ripped off when we bought our first home in November. Our first mistake was letting the listing agent act as a "dual agent" to represent both the seller and buyer. Our second mistake was trusting her, as she turned out to be a real crook. Imagine our surprise, after the closing, when we got the keys to our new home and discovered the sellers had removed all the light fixtures (leaving bare wires in the ceiling). They even took the built-in dishwasher, cook-top range and built-in oven. We understand they were entitled to remove the refrigerator, washer and dryer, which were free-standing. The realty agent says there was nothing said in the sales contract so the sellers presumed we didn't want the nice light fixtures, especially the dining-room chandelier. What recourse do we have? The sellers moved out of state. -- Brett R.
DEAR BRETT: That was a bad contract if it didn't specify that the fixtures are included in the sales price. It's not necessary to itemize fixtures because they are personal property that by means of permanent attachment became part of the real property.
Didn't you have a walk-through inspection the day before the sale closed? Every good real estate agent encourages such an inspection to be certain the seller has left the home in the agreed-upon condition. Shame on that agent for not arranging such a walk-through inspection, which would have prevented your problem.
At this point, I suggest you contact the agent's office manager, politely explain the problem, and ask for compensation for the estimated replacement cost of the fixtures, including the built-in appliances.
Because the sellers moved out of state, it will be extremely difficult to sue them. Your best leverage is over the realty agent who allowed this problem to occur. If necessary, your recourse is a lawsuit against the agent and the sellers.
DEAR BOB: I plan to sell my home in the next few months. I have owned and lived in it about 10 years. The sales price should be around $325,000. I paid about $100,000 and I have added some improvements. My mortgage is around $62,500. A friend told me I will owe tax on the amount exceeding $250,000. Is this true? -- Marcia C.
DEAR MARCIA: No. Internal Revenue Code 121 provides up to $250,000 tax-free principal-residence-sale capital gains profits for a single home seller (up to $500,000 for a married couple filing jointly where both spouses qualify).
To qualify, you must have owned and occupied your principal residence at least 24 of the 60 months before its sale. It appears you qualify.
Your adjusted cost basis for your home is its $100,000 purchase price, plus the cost of capital improvements you added. The mortgage balance doesn't matter. Subtracting $100,000 from the estimated $325,000 sales price is a $225,000 capital gain. That is below the $250,000 exemption so it appears your entire principal-residence sale profit will be tax-free.
DEAR BOB: My mother-in-law lives in a zero-lot-line single-family house where the windowless left side of her home sits on the property line with her neighbor on that side. This neighbor refuses to properly landscape her back yard. The result, when it rains, is water stands against my mother-in-law's exterior house wall. This water seeps into her home and is causing interior damage. What can she do? -- Rick T.
DEAR RICK: That is an unusual situation. It appears the neighbor is maintaining a "private nuisance" that affects your mother-in-law's house. I presume she has tried to work out a friendly solution with the neighbor.
At this point, legal action is probably necessary to abate this private nuisance. She should consult a local lawyer for more information.
DEAR BOB: In 2004 my mother bought a condo as her home. In early 2005 she listed it for sale at $350,000 and received a $360,000 purchase offer. But the bank appraisal came in at only $325,000. Rather than give it away, she decided to rent the condo and take out a home equity line of credit. A year later, the tenant moved out and now we have a hard time finding and keeping tenants. If we can't sell the condo or find a new tenant, foreclosure will likely occur. There is about $40,000 left on the line of credit. If she gives up the condo with a deed in lieu of foreclosure to the lender, is she required to pay off the home equity line of credit? -- Jill U.
DEAR JILL: Defaulting on either the condo mortgage or the home equity line of credit will ruin your mother's credit. Don't even think of that.
Because there is a line of credit on the condo (which is really a second mortgage), I doubt the first mortgage lender will accept a deed in lieu of foreclosure. If your mother stops paying on the condo's first mortgage and the condo is foreclosed, that will wipe out the home credit line. However, the equity-credit lender probably will sue your mother for its loss.
Your mother should do everything possible to either rent the condo or sell it for at least enough to pay off its first mortgage plus the line of credit.
DEAR BOB: I inherited a house and a two-family duplex from my uncle, who died in 2004. The properties are out of state. I have been in contact with the estate attorney who, I think, is milking this simple probate to get as much in fees as he can. It has now been more than two years since my uncle died. He left some stocks and bonds, plus a few bank accounts and the two properties. But that's about it. The stocks and bonds, as well as the bank accounts, went to other heirs. There are no complications as far as I know. Do probates usually take two years? -- Mavis R.
DEAR MAVIS: If your late uncle left a written will, unless there are contested debts to be paid or other complications, a two-year probate is far too long to distribute the assets to the heirs. Because you live out of state, the probate lawyer probably figures you are in no hurry so there is no urgency to close the probate proceeding.
I suggest you write a polite letter to the probate lawyer asking when you will receive title to the two properties. (I presume somebody is managing them so they don't deteriorate and the rent is being collected.) If you aren't satisfied with the reply, a few phone calls might be necessary.
DEAR BOB: What is the minimum holding time for a rental property acquired in an Internal Revenue Code 1031 tax-deferred trade? In July, I acquired a six-unit rental property in such an exchange. Now I have an opportunity to trade it for a commercial property that would require less management. But my tax adviser says I must hold title to my rental property at least 12 months before trading again. I can't find this in the tax code. What is the minimum holding time? -- Julia L.
DEAR JULIA: There is no minimum holding time for a property acquired in an IRC 1031 tax-deferred exchange. I suggest you consult another tax adviser for a second opinion.
Readers with questions should write Robert J. Bruss at 251 Park Road, Burlingame, Calif. 94010, or contact him via his Web page, http://www.bobbruss.com.