DEAR BENNY: I live in a condominium. My neighbor’s washing machine drain hose became loose, and the leaking water caused damage to my unit. There are conflicting clauses in our legal documents. One says that a unit that causes damage to another unit or to a common area is responsible for fixing it. Another clause says that subrogation shall be waived if both units have insurance.
Because of the second clause, my neighbor’s insurance will not accept liability. It looks like I will have to sue my neighbor for the deductible and other out-of-pocket costs. I am assuming breach of duty. The hose could have been secured. Do I have a good small claims case? –John
DEAR JOHN: First, I cannot provide specific legal advice in this column; you should discuss your situation with your own lawyer. Second, whenever I get involved with insurance matters — especially relating to community association — I always seek advice from insurance professionals.
Was the master insurance policy for the entire association advised of the damage? It seems to me that the master should be responsible, specifically to reimburse you for the damage to your unit. Typically, the master policy will cover damage to walls and floors, but will not cover what is known as "betterments" — new things added to the original unit, such as a new kitchen or parquet flooring. And typically also, the deductible will be a common expense, paid for by all owners.
I assume from your question that your insurance policy paid for your damage, and it is your deductible that you want your neighbor to pay. I do know that the law in some states does not allow the insured to sue for the deductible, but this is something your attorney can tell you.
However, there’s a good lesson here: Every condominium owner should have insurance coverage for problems that occur inside the unit. The insurance industry calls it an HO-6 policy, and the relatively nominal cost may be well worth it in the long run.
One more suggestion: Washing machine hoses are notorious for causing leaks. Many associations require their owners to install heavy-duty, stainless-steel braided hoses, often called "burst proof." If the unit owner cannot prove that these hoses have been installed, the condo board is authorized to fine the owner on a daily basis until the installation is made. Suggest this to your board of directors.
DEAR BENNY: Five years ago I purchased a house when the market was up. My plan was to sell it to my daughter after one year. I paid $320,000 for the house and it is now worth $170,000. My daughter couldn’t get a loan now for $320,000 because the house is worth only $170,000.
A friend of a friend wrote up the loan papers and arranged the loan and HELOC. It was about six months after everything closed that I got a letter from the loan company and realized I had an interest-only loan. I had never heard of that type loan and the man that arranged the loans never once told me what type loan it was.
I am 62 years old and a two-time cancer survivor. I would really like to figure out some way of getting out from under the stress of this house. I know there are millions of people in similar situations. I have paid the loans, never been late, but can’t continue this way.
I have a renter who would like to buy the house but she can’t afford $320,000 either. What can I do? –Sue
DEAR SUE: I suggest you immediately get an attorney in your area to review all of the loan documents that you obtained when you bought the house. If you cannot afford an attorney, local bar associations have programs where lawyers will volunteer their time to assist on such matters. Also, your local AARP may have a legal services program.
It may be that your lender has violated some lending requirements. You indicate that you were not aware of the terms and conditions of the loan; this may be a Truth in Lending (called TILA) violation or a Real Estate Settlement Procedures Act (known as RESPA) violation, or both. Lenders are required to provide you with a Good Faith Estimate of closing costs, as well as a TILA statement before closing the loan. This would have disclosed the interest-only feature of your loan.
Additionally, there are federal and state programs now in place to assist homeowners who are underwater. You should contact your state and federal legislative representatives for more information.
Finally, you should contact your lender to explain the situation. Tell them that you cannot continue to make payments on the loan, and unless they agree to modify it to a fixed 30-year loan at the current low interest rates, you may have to go into default.
I would talk with your lender immediately, as interest rates are starting to creep up.
I hope this has taught you (and my readers) a valuable lesson. You relied on a friend to assist you — some friend! Before you sign any documents relating to real estate — whether that be a real estate sales contract or any loan documents — please make sure that you read them carefully. If you don’t understand anything, get advice from professionals.
DEAR BENNY: I am paying cash for a condominium that my daughter will live in, and I am going to settlement shortly. I was planning to have the title in my name only and have the property willed to her. Would this be better than having her name included on the title (joint ownership with rights of survivorship)? The will would convey the condo 100 percent to her and other assets split between her and the grandchildren. There are no other contestants to the inheritance. –David
DEAR DAVID: That’s an excellent question and I am glad you have given thought to this issue. All too often, people make rash and hasty decisions, and then later regret their actions.
Let’s look at both options: (1) taking title with your daughter as joint tenants with rights of survivorship. On your death, the house will automatically be hers. This is known as a "transfer by operation of law." Perhaps the main advantage is that your daughter would be able to avoid having to probate your estate. But since there are other assets, unless you set up a trust, probate will still be necessary. You should consult an attorney to guide you through the process of creating a trust and weigh the pros and cons of this approach.
However, I see two potential disadvantages here.
First, it may become necessary in the future for you to need money, and you may need to sell the house. Although you may have a great relationship now with your daughter, she may balk at selling if she has an ownership interest in the property. Second, you may be subjecting her to potential tax obligations when she ultimately wants to sell.
Congress recently reinstated the stepped-up basis. That means that when you die, if she inherits the property, her tax basis will the market value of the house on the day you die. Thus, if she sells the house for that value, she will not have to pay any capital gains tax. But if she is on title with you, as joint tenants, she will be a one-half owner, and thus her basis will be 50 percent of the purchase price. On your death, while she will get a stepped-up basis, the bottom line is that the numbers will not be as high as if she inherited the entire property.
Or if she inherits the property, the analysis is the reverse: She will have to probate your estate, but her basis for tax purposes will most likely be higher than if she was on title with you.
It’s a close call, although my preference has always been to let your children inherit the house. Discuss your situation with your own tax advisers.