Must-do’s after mortgage is paid off

How to handle deed-of-trust release, automatic payments

DEAR BENNY: Because savings interest rates are so low, I’ve decided to accelerate paying off my home mortgage. But after I pay off the mortgage, then what? What else do I need to do, or make sure is done by the bank/mortgage company? For instance, changing the home insurance beneficiary from the bank to me. Are there any other things I need to do? –Nelson

DEAR NELSON: That’s an excellent question. My standard and perhaps somewhat glib response is: "Don’t burn the mortgage."

When you first obtained your mortgage loan, you signed two documents: a promissory note and a mortgage document (usually called a deed of trust). The trust was recorded among the land records in the county where your property is located. You must make sure that the deed of trust is formally released from land records. This is accomplished by filing a release — often called a "certificate of satisfaction" — on those same land records.

Lenders treat this in different ways. Some actually will arrange to have the release recorded, and will charge you a nominal fee for this service. Other lenders, however, will just send you the promissory note, marked "paid and canceled" and you have to record the release. If your lender is a private individual, make sure that you get the note back simultaneously when you make the final payment.

You should also (1) advise your insurance carrier in writing that you no longer have a mortgage; (2) advise the real estate taxing authorities in your jurisdiction to start sending you the original tax bills, assuming that you have been escrowing for taxes and insurance; and (3) don’t forget to stop any automatic payments that you have with your bank.

Then — and only then — enjoy your free-and-clear house.

DEAR BENNY: I purchased a new home from a large developer nine months ago. Prior to the purchase, I had the home inspected and the inspector noted in one corner of the unfinished basement some moisture around the metal tabs that connect the poured concrete forms. The inspector said it was probably the downspout, but I should confirm that with the builder.

The builder adjusted the downspout, ran some water at that corner for 20 minutes, and showed no water had seeped through. I closed on the house a few days later.

Every time it rains, moisture has come through that area and new areas are popping up each month. During this past winter, it did not happen; however, in two upper corners there was frost. The builder came out, used some kind of monitor, which showed heat was being lost there, and sprayed some additional foam insulation, which corrected that problem.

This weekend I had a basement waterproofing company come out to tell me why my basement continues to leak through these tabs that the builder had caulked and painted over. The technician said the builder used too little waterproofing material on the outside walls.

I sent an e-mail to the builder asking what will they do about it. I haven’t heard back from them. What do you suggest I do at this point? –Denise

DEAR DENISE: What kind of warranty did the builder give you? Review all of the various documents you received from the builder, including any promotional information about the house. Also, ask a lawyer if there are any laws in your state regarding new-home warranties.

You may also find this information on the Internet, by searching "builder warranties in (state name)." Additionally, your state attorney general’s office may have relevant information that may assist you.

I also suggest that you hire a structural engineer to give you a written report as to the cause of the problem and any proposed solutions.

Once you are armed with all this ammunition, I would send a strong letter to the builder, with a copy to your state’s attorney general. That should get the attention of your builder. Give him two weeks to respond.

If he does not answer or is otherwise unresponsive, you have to decide whether it makes sense to hire a lawyer and possibly file a lawsuit. This is always a difficult decision, and the amount to fix the problem should assist you in making that decision. Clearly, you do not want to spend more money on legal fees than it will cost to fix the problem.

I often tell my clients with similar situations that they should just "bite the bullet" and pay for the corrections. Keep in mind that litigation is time consuming, expensive and always uncertain.

DEAR BENNY: I would like to know if it is possible to add my name to the title on my mother’s house. She is 89 and I am 69, and we want the house to go to my grandson when we both pass away. Meanwhile, she wants my name on the house. Can this be done without complications? –Maria

DEAR MARIA: It’s very easy to add your name on title with your mother, but there may be tax complications. In order to determine capital gains tax, we use the concept of "tax basis," which means the original price of the property. If you have made major improvements over the years, that is called the "adjusted tax basis."

Let me give you this example. Your mother and father bought the house many years ago for $50,000. Assume for this discussion that no improvements were made. Your parents’ tax basis was $25,000 each. Let’s say your father died when the house was worth $100,000. Your mother received a "step-up" in basis on your father’s half of the property, which means that her basis is now $75,000 (i.e., $25,000 for her half and now $50,000 for her husband’s half).

If your mother puts you on title to the house, that is considered a gift. And the basis of the person giving a gift becomes the basis of the gift receiver. So if she gives you half of the house, your basis will now be $37,500.

Let’s further assume that the house will be worth $500,000 on your mother’s death. Once again, you get the stepped-up basis, or $250,000 on her half of the property. Add that to your basis and your tax basis is now $287,500.

If you decide to sell — and have not owned and lived in the property for two years out of the five years before the sale, you will have to pay capital gains tax. Even if you sell it for $500,000, ignoring selling costs such as real estate commissions, you will have made a profit of $212,500 ($500,000 minus $287,500). The current federal tax rate for capital gains is 15 percent, so you will have to pay $31,875.

But if you inherited the property on your mother’s death, and sold it for the value at the time she died, you would not have to pay any tax at all. In other words, your tax basis is increased by the "step-up" concept — i.e., the value of the property on the date of death.

In your case, because you want the property to go to your grandson, why not just have a last will and testament drawn up for your mother, whereby she specifically designates him to inherit the property?

I see no value in adding your name to title; it merely complicates matters. Talk with an attorney to get specific information relating to your own state laws.

DEAR BENNY: If a person owns a duplex titled in his and his wife’s name and two other duplexes titled in a corporation’s name, would he come under the fair housing rules on the duplex titled in husband and wife’s name? –Jean

DEAR JEAN: To try to find an answer to your question, I went to the Department of Housing and Urban Development’s website, as that agency is the primary enforcer of the act. But typical of government agencies, they did not give a direct response. Here’s what it says:

"The Fair Housing Act covers most housing. In some circumstances, the act exempts owner-occupied buildings with no more than four units, single-family housing sold or rented without the use of a broker, and housing operated by organizations and private clubs that limit occupancy to members."

Oversimplified, that act requires property owners to make reasonable accommodations for consumers who have special needs, such as having a guide dog when the house rules permit no pets, or (in one case I had) having a hot tub for medicinal purposes when the bylaws specifically prohibited that.

Although I have been involved in a number of Fair Housing Act issues, they generally involved condominium associations, which clearly are covered under the act.

As I don’t have a clear answer to offer, I welcome input from readers on this matter.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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