A newly built residence now is a million-dollar nightmare

Special to The Times

Question: In June 2001 we bought a new million-dollar home, but it wasn’t long before we began experiencing problems with the septic system. Sewage leaked to the surface. The county and the home builder tried to fix it. But they failed. They are still trying to fix it. In the meantime, we have to pump the septic system every 10 days. What is the best way to force our home builder to buy back our defective house so we can move on?

Answer: Please consult a local real estate attorney. From your description, it appears there is no local sewer connection and you have a septic system with inadequate ground drainage. A building permit never should have been issued for your new house if the lot was not suitable for a septic system, which drains into the ground. The terminology is the lot won’t “perk.”

You could sue the home builder for breach of warranty. But at this late date, that might be unproductive. If I were in your situation, unless there are facts you didn’t reveal, I would sue the home builder for rescission of the sale and refund of your money due to misrepresentation and fraud.


Condo assessment tax deductible?

Question: I own a unit in a high-rise condominium. In 2003, the board and co-owners approved a special assessment for needed repairs to all the concrete balconies. I paid my share in 2003. The building manager told me she thinks the special assessment is tax-deductible on my 2003 federal income tax return. Is this true?

Answer: If the condo is your personal residence, the special assessment is not tax deductible. It is similar to a non-deductible repair cost on a single-family house.

However, if you own a rental condo, because the special assessment was for repairs, then you can deduct it as a repair and maintenance expense on Schedule E where you also report the rental income and deductible expenses. For more details, please consult your tax advisor.

Long-term plans can change

Question: My husband wants to buy a vacant lot where we would build our retirement home in about seven years when he retires. Although the community is nice, I’m not sure we should buy a vacant lot in a subdivision where there are now only a few houses. To me, it looks like a ghost town. What do you advise?

Answer: Unless you and your husband have lots of cash that you will never need again, I suggest you don’t buy that vacant lot for possible future use in seven years when your husband retires. Many things can happen in the meantime to change your retirement plans. In the meantime, your money will be tied up in a vacant lot, which might be difficult or impossible to resell. As I’ve said here many times, if you won’t use your property purchase within six months, don’t buy.

Home warranties: Buyer be aware

Question: I am buying a fixer-upper house. It was advertised that way. I know what I’m getting into. The real estate agent recommends I pay for a one-year home warranty policy (the seller refuses to pay). The realty agent says I can then file claims with the warranty company when things go wrong with the house, as they surely will. The policy costs $375. Should I buy it?

Answer: Home warranty insurance companies often deny claims, arguing the item was a “pre-existing condition.” For example, suppose the run-down house you buy has a water heater that is leaking. That’s a pre-existing condition, which is not covered by the warranty policy.

Instead, suppose the furnace won’t heat the house. If you buy during warm weather, how can you know if the furnace malfunction was pre-existing or if it occurred after your purchase? However, many home warranty companies would deny your claims, arguing the bad furnace was a pre-existing condition.

If I were buying a fix-up house as you are doing, I would pay for the $375 one-year home warranty policy. But don’t be surprised if the warranty company denies your claims as a pre-existing condition. Then you can sue the insurer in local Small Claims Court if you strongly feel they are obligated to pay your claim.

No title insurance on foreclosure sale

Question: I am considering bidding at a forthcoming foreclosure auction sale. I checked the title and it appears there are no liens other than the first mortgage, which is being foreclosed by the lender. However, when I consulted a title insurance company, I was told I cannot buy a title insurance policy if I am the successful high bidder at the auction. Is this true?

Answer: Yes, and there is a very good reason. A title insurance company is unable to check how the foreclosing mortgage lender or the court conducted the foreclosure sale and if there were any irregularities. However, most title insurers will usually insure the title for a subsequent buyer, called a “bona-fide purchaser,” who may have better title than the foreclosure sale buyer. For more details, please check with your local title insurance company.

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 visit Bruss suggests consulting an attorney or tax advisor before making important real estate decisions.