DEAR BOB: Have you ever heard of a tenant’s security deposit being put into a one-year bank certificate of deposit (CD)? As a landlord, I want to be sure I have the tenant’s security deposit available at the time the lease expires. I do not want the extra interest income and would give it to the tenant upon move-out. — Betty B.
DEAR BETTY: I have not heard of placing a tenant’s refundable security deposits in one-year bank CD. But some states and cities have laws requiring tenant security deposits to be placed in bank accounts that are separate from the landlord’s funds.
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There could be potential problems placing tenant security deposits into a 12-month bank CD. For example, suppose you allow the tenant to move out early. Most banks charge a penalty for early withdrawal of CD funds.
Or, if you put the CD in the tenant’s name, then you have no control over it and could not deduct damages or unpaid rent from it. If the CD is in your name, then the interest would be taxable to you.
In summary, I don’t see any advantages to placing tenant security deposits into a 12-month bank CD. Instead, most banks offer special trust accounts for security deposits; they usually pay a modest rate of interest.
LOW ASKING PRICE FOR HOME MIGHT BE “BAIT AND SWITCH”
DEAR BOB: I am a Realtor with an ethics question. The seller of a home that had been on the market for 65 days dropped his asking price $65,000. My buyer offered the new full asking price. The seller counter-offered at $18,000 above his reduced asking price. When I informed the listing agent his seller might be obligated to pay me a real estate commission and he was using “bait and switch” tactics, which I believe is an ethics violation, his seller chose to accept my buyer’s offer. Do you think this was a bait and switch situation? — Barb A.
DEAR BARB: As you probably know, some listing agents suggest to their home sellers the asking price be set abnormally low with the intent to create a “buyer frenzy” of bids exceeding the low asking price.
I think such a strategy is dishonest and misleading to buyers. However, it is legal and doesn’t violate the Realtor’s so-called code of ethics.
As I’ve said here before, a home seller has no legal obligation to the buyer to accept an all-cash, no contingency purchase offer at the full listing price. The legal reason is the listing contract is between the home seller and the listing agent so the buyer is not a party to that contract and has no legal right to enforce it.
I question whether you, as the buyer’s agent, had any legal right to demand part of the sales commission for producing a purchase offer at the new reduced asking price. The rules of the local MLS (multiple listing service) might provide the answer. In any event, your negotiation tactic worked to intimidate the seller into accepting your buyer’s offer.
WHY CAN’T HOMEOWNER IN CHAPTER 11BANKRUPTCY REFINANCE?
DEAR BOB: About a year ago, my husband filed Chapter 11 bankruptcy reorganization for his sole proprietorship business. He is paying all his creditors as agreed in the reorganization plan. We want to refinance our home mortgage that is at 7.75 percent interest, but we can’t find any lender willing to refinance until he is discharged from bankruptcy in a few more years. Refinancing would solve our financial problems. Why can’t we refinance? — Ginger S.
DEAR GINGER: There is no law prohibiting you and your husband from refinancing your home mortgage. However, most mortgage lenders don’t want to mess with your situation.
The primary reason is refinancing would require the bankruptcy court approval. Most mortgage lenders require borrowers to be discharged from bankruptcy for at least 12 to 24 months.
The new Robert Bruss special report, “How to Earn Up to $250,000 (or more) Tax-Free Profits Every 24 Months Buying and Selling Houses,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
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