Make sure you’re covered in the right places
Question: I recently purchased my first home, a condominium. One of my neighbors, who rents her unit, has a renter’s insurance policy. Since I am an owner, do I also need a renter’s insurance policy?
Answer: No. You need a condominium owner’s insurance policy. It will protect you against negligence liability, for example, if somebody is injured in your condo. The policy also provides coverage for fire or other damage to your furnishings, theft, accidents and interior damage.
The homeowners association carries a master insurance policy on the buildings and common areas. This policy provides liability coverage and for structural loss such as that due to fire, wind, water damage (but not flooding) and other coverage.
If you buy your condo owner’s policy from your automobile insurer, you may be entitled to a multi-policy discount. Also, ask the insurance agent if you need an umbrella liability insurance policy to protect against large losses due to your negligence.
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Relocation offer wasn’t set in stone
Question: My employer is closing my office and I am being relocated to another city. As part of the relocation package, my employer offered to buy our house. Before accepting, we tried listing the home for sale with a local realty agent but got no offers. By the time we accepted my employer’s offer, they dropped the price they would pay. We were told the market for homes in our area had slowed down, so the relocation company had to lower its purchase offer price. Is this legal?
Answer: Because you did not accept your employer’s relocation company’s initial offer, there was no obligation to keep that offer open. The firm was within its rights to reduce the purchase offer price for your home.
Don’t forget that your employer’s relocation company will incur considerable costs selling your home, such as a real estate sales commission and possible fix-up expenses.
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Different ways to divvy up tenancy
Question: Please expand on the pros and cons of tenants-in-common ownership as it relates to holding title. How does it differ from joint tenancy with right of survivorship?
Answer: Tenants in common refers to two or more real estate co-owners. Each TIC can pass their share by will, but a joint tenant with right of survivorship cannot.
TICs can own unequal shares whereas joint tenants, by definition, always own equal shares. When one joint tenant dies, the surviving joint tenant(s) automatically owns the property without probate. For more details, consult an attorney.
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‘Recast’ mortgage has owner reeling
Question: When my adjustable-rate mortgage was recently “recast” to current interest rates, the unpaid interest was added to the mortgage principal balance. I now owe about 110% of my home’s market value. I recently lost my job. Do I have any recourse to convince the mortgage lender to do the right thing?
Answer: You enjoyed the low monthly mortgage payments for a year or two after obtaining that mortgage. When the mortgage terms provided for a “recast” to a higher interest rate and larger monthly payment, the lender added the unpaid interest to your mortgage balance. This is called “negative amortization” because you owe more than you borrowed.
If you are unable to make the higher mortgage payments, ask your lender if you can sell the house for its current market value as payment in full on the mortgage. This is called a “short sale.”
Most lenders will approve a short sale only if you are behind in monthly mortgage payments with little hope for catching up.
You should be aware if the lender approves a “short sale,” after the house sells you will receive an IRS Form 1099 from the lender showing the amount of unpaid, forgiven mortgage debt. This debt relief is taxable income to you.
Talk to your lender about what other options might be available.
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Improvements lead to savings
Question: If I keep receipts of my home-improvement costs, can I use them to increase the cost basis of my house and then take the $250,000 tax exemption on top of that?
Answer: Yes. The adjusted cost basis for your home is its original purchase price, plus most closing costs, which were not tax deductible in the year of purchase, plus the cost of capital improvements added during your ownership, minus any depreciation you deducted for business use of the residence, such as for a home office.
You will still be entitled to use the Internal Revenue Code 121 principal-residence-sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple) if you own and occupy the home at least 24 of the last 60 months before its sale. For full details, please consult your tax advisor.
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Letters and comments to Robert J. Bruss may be sent to 251 Park Road, Burlingame, CA 94010, or e-mail robertjbruss@aol.com. Bruss suggests consulting an attorney or tax advisor before making important real estate decisions.
