Don’t Let Friend Get in the Way of Inspection
Question: We have the opportunity to buy a house at a good price from a friend. She will carry the difference between our down payment and the sales price in a first mortgage.
As first-time buyers, we are intimidated by the process. Is it a good move to buy from a friend, considering the house is in a good location and school district? Are there pitfalls?
Answer: In your superb situation, don’t give the seller time to change her mind.
You are fortunate to have a friend who will sell to you at a fair price, without competition from other eager buyers. She saves the realty agent’s sales commission, so she benefits too.
But one condition you should insist upon is a home inspection. Politely ask your friend if it’s all right to have a professional inspection. Be sure to accompany your inspector to discuss any serious defects in the residence.
Presuming all goes well with the inspection, get your home purchase closed as quickly as possible before the seller changes her mind.
Selling Below Market Value Carries No Penalty
Q: If I sell my house to a good friend for less than its market value, is there a tax penalty for me?
A: No. No law requires you to sell your home for its full market value. If your net profit from your principal residence sale is below $250,000 ($500,000 if you’re married and filing a joint tax return), your entire profit is tax-free. For details, consult your tax advisor.
Stealing Property Is Not as Easy as It Sounds
Q: I bought my home last April. My new neighbor claims he has a prescriptive easement for his landscaping, garden and lawn over part of my property. He is suing me, but the burden of proof is on him. What evidence will I need to fight? He has paid no taxes on my property. I had my property resurveyed. What should I do?
A: Stealing part of a neighbor’s property with a prescriptive easement isn’t as easy as it sounds.
For your neighbor to prove his entitlement to part of your property, he must show his occupancy was open, notorious and hostile (meaning, without permission) against the previous owner. Property tax payment is not required (though such possession of an entire property requires tax payment, but that’s not your problem).
Hire an experienced local real estate attorney to defend your case. Chances are your neighbor won’t be able to prove in court all the required prescriptive easement elements for the minimum number of years (as few as five years in California or as many as 30 in Texas).
Children Worry About Their Home Inheritance
Q: My elderly parents are selling their home because they plan to buy a condo. This is their only major asset. Their will states that my sister and I will receive their assets upon their death.
Does it make sense that their condo will be titled as “joint tenants with right of survivorship” without mention of our names? If my parents need to take out a small mortgage to buy the condo, and my sister and I have to co-sign to help them qualify, does this make us part-owners of the condo? I presume we would not want to be on the title because, as you often say, it is better to inherit property than to receive it as a gift before death.
A: Although you are named as heirs in your parents’ wills, that has no effect on how they take title to the condo they’re purchasing.
Joint tenancy with right of survivorship means the surviving joint tenant owns the property in his or her name alone. When that surviving joint tenant dies, title to the condo passes according to his or her will. By then, the surviving joint tenant might have willed the condo to someone other than you and your sister.
If your parents need help qualifying for a mortgage to buy the condo, and you help them by co-signing on the mortgage, most lenders also will require you to be on the title as a co-owner. This is usually not considered a gift, although it could be if an IRS auditor should challenge the situation.
To learn more, consult your tax advisor.
Everyone Needs a Will That Covers Property
Q: I have owned my house for eight years. My ex-husband and I bought it together, and I bought him out when we divorced. I recently remarried, but I would not allow my new husband’s name to be put on the deed. Together we took out a new mortgage and are making a major addition to the home.
If something happens to me, will he automatically become the owner of my home? I have no will and no children. However, my husband has a 19-year-old son. If we both die, does his son automatically inherit the house?
A: Everyone needs a will to distribute assets after death. Without a will, state law determines who receives your assets. Better yet, you need a living trust to avoid probate court costs and delays for your major assets, such as your home, when you pass on.
I’m surprised you could obtain a new home mortgage without adding your new husband to the home’s title. If he signed the mortgage papers, I’ll bet the lender required that he add his name to the title.
As for your husband’s 19-year-old son, if you both die at the same time, such as in a plane crash, and if you don’t have a will or any other relatives, your assets could go to that son, depending on specific details. The solution is for you and your husband to have wills, plus a living trust to avoid probate.
Time Has Expired for Tax-Deferred Exchange
Q: Fourteen months ago, we sold a single-family rental house and carried back the mortgage for our buyer. Now our buyer plans to sell the house. Is it too late to use a Starker tax-deferred exchange to avoid tax on the sale of this rental property? We would use the proceeds from our mortgage payoff to buy another rental property.
A: It’s too late to “undo” the sale of your rental property to create a Starker tax-deferred exchange.
When you sold the rental house, you should have had the sales proceeds held by a third party, such as a bank trust department. You then would have had 45 days to designate a “like kind” rental property, such as another rental house, to avoid profit tax.
Since you received the cash proceeds from the rental house sale, it’s too late to make a tax-deferred exchange.
Seller Should Hire Firm to Contain Radon
Q: We recently put our home on the market. The house is only 2 years old and in mint condition. But the buyer’s radon inspection showed a high radon level. The buyer rescinded the sale because the house didn’t pass inspection. How can a new home have a high radon level, and what can we do about it?
A: Depending on your home’s construction, there are several ways to contain radon, which is a naturally occurring environmental hazard in many parts of the nation.
When you purchased your fairly new house, you probably didn’t think to have it checked for radon. If the builder knew, he obviously didn’t disclose it and might not have had a legal obligation to do so.
Radon is thought to possibly cause cancer in home occupants, but the evidence is questionable. To make your home salable, your best alternative is to ask the radon inspector for referrals to firms that specialize in containing radon.
Consult Broker to Find Best Homeowners Policy
Q: My father recently passed away, and I inherited his house. There is no mortgage. What is the best way to obtain a homeowners insurance policy? The house is vacant. My current homeowners insurer (State Farm) is not issuing new homeowners policies in my area. What is the best way for me to handle this second home situation?
A: Many homeowners insurance companies are refusing to renew policies for customers who have had recent claims, and they are refusing to issue new homeowners insurance policies, as well. State Farm is in this group.
Many insurance companies are still issuing new policies, though not at bargain rates. You should contact an experienced, independent insurance broker who can probably obtain competitive rates for the policy you need.
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Letters and comments to Robert J. Bruss, a San Francisco-area lawyer, author and real estate broker, may be sent to 251 Park Road, Burlingame, CA 94010, or e-mail robertj bruss@aol.com. Bruss suggests consulting an attorney or tax advisor before making important real estate decisions.
