DEAR BOB: My son and his wife, along with their two very young children, are about to sell their house and rent another house. They purchased their house in April 2003 and refinanced it in March 2004. Their real estate taxes and adjustable-rate mortgage have gone up. They are in debt and have very poor credit. As a result, they are unable to refinance. Rather than lose their house, they feel their only option is to sell, pay off their debts, improve their credit, and use any money left to put as a down payment on another house in approximately a year. Are there any other options available to them? – Pat R.
DEAR PAT: Rather than selling their home, their obvious solution is to increase their income if at all possible. Taking a temporary part-time job to pay off those debts makes far more sense.
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I hate to see people sell their home if it is appreciating in market value unless the mortgage payments are far greater than their monthly income. Renting an equivalent house or apartment probably won’t be much less expensive than continuing to stay in the current house.
Selling the house loses any equity that has been built up. Sales costs typically eat up 6 percent to 10 percent of the sales price.
If they sell, and if they have any net capital gain after paying all the sales expenses, since they owned and occupied their principal residence at least 24 of the 60 months before its sale, then up to $250,000 capital gain is tax-free under Internal Revenue Code 121 (up to $500,000 for a married couple filing jointly). More details on the tax aspects are available from their personal tax adviser.
90-DAY LISTINGS ARE IDEAL FOR HOME SELLERS AND AGENTS
DEAR BOB: We plan to sell our home and have taken your advice to interview three real estate agents who sell homes in our area. So far, we have interviewed two agents who both have sold homes in our neighborhood. But they insist on 90-day listings. I seem to remember you said a 90-day listing is too long and a 60-day listing is better. Should we try to get a 60-day listing? – Jean S.
DEAR JEAN: A 90-day listing is ideal. It gives your listing agent plenty of time to fully implement the marketing program. Yet it doesn’t tie you up as the seller for a long time just in case you selected a “bad agent.”
Perhaps you recalled that I don’t recommend 180-day listings, which are far too long (unless you have a multimillion-dollar home that will take a long time to sell because there are only a limited number of buyers for such expensive homes).
Just between us friends, a super-sharp realty agent will get your home sold in 60 days or less. However, a 90-day listing works well in most markets so don’t argue over that issue.
WHAT IF EX-SPOUSE REFUSES TO REFINANCE MORTGAGE?
DEAR BOB: My wife and I divorced about a year ago. She got the house and was supposed to refinance the mortgage so I would have no further obligation. But she failed to do so. She has remarried and says she and her new husband plan to buy another home together. Meanwhile, she is ruining my credit by making late payments on our mortgage. What can I do to force her to either refinance the mortgage or sell the house? – Mervin W.
DEAR MERVIN: Unfortunately, after your divorce became final, there isn’t much you can do to force your ex-wife to live up to her part of the divorce settlement agreement by refinancing the mortgage or selling the house.
Your divorce attorney should have made certain there was a penalty for failure to comply with the divorce settlement. At this point, all you can do is beg your ex-wife to refinance, sell or at least make the mortgage payments on time. For more details, please consult your divorce attorney.
The new Robert Bruss special report, “The 10 Key Questions Condo Sellers Hope Their Buyers Don’t Ask,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736. Instant Internet PDF delivery is available at www.bobbruss.com. Questions for this column are welcome at either address.
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