Don't ditch the second home yet

DEAR BENNY: My husband and I purchased a second home for $300,000 in November 2008. We were planning to move into that house and sell our current residence. We put $15,000 into repairs on the house. Our children do not want to move and we came to realize after the purchase that we are happier where we are. What should we do: sell and cut our losses since the market value has decreased, or rent? --Jackie

DEAR JACKIE: The first question is whether you can afford to carry two houses for a couple of years. Even if you decide to rent, you have to understand that being a landlord is not always lucrative -- and clearly never fun. You may have two to three months when the property remains vacant, and you still have to pay the mortgage, insurance and real estate taxes. Additionally, there are always minor (and sometimes major) repairs that will be necessary. And when there are tenants, they often find problems with the house -- real or imagined -- that you will have to correct.

Is the house in a neighborhood that is conducive to rentals? What about shopping, schools and transportation? Are they accessible? This may not have been important to you when you were considering buying the house, but it may be critical for potential tenants.

Have you checked your local landlord-tenant laws? Are they favorable to landlords or -- as we have here in the District of Columbia -- extremely favorable to tenants?

Once you have answered all of these questions, you should be in a better position to make your decision. Sometimes, it is better to take the loss and move on. And your loss will probably not be tax deductible, as I would not consider it an investment unless it was actually rented. However, you should confirm this with your own tax advisors.

DEAR BENNY: I am in the process of refinancing my current mortgage, and happened upon your advice in today's paper. You wrote: "Don't sign any documents until you have fully reviewed and understand them."

I have heard this before, of course, and always wonder about the sincerity of the writer. I know you're not joking or telling a lie, so what are you (and everybody else) saying?

How many years did you go to specialized school in order to be able to "review and understand" the half-inch stack of documents that I am soon to sign?

Or, what would be the cost of hiring a real estate lawyer to read each page for me?

I am guessing it's an issue that no one cares to look at, until something goes wrong, and then they can lay responsibility on the dummy who signed something they shouldn't have. --Bev

DEAR BEV: No, this is not a joke. The law is universal that you are legally obligated for what you sign. While one may have some valid defenses to this (such as your signature was forged, or new pages were included in the document after signature), it clearly is not a defense to say, "Sorry, judge, I did not understand what I was signing."

You are correct that the loan documents are lengthy and legalistic. I often represent lawyers on real estate transactions who may be great corporation or patent attorneys, but have absolutely no knowledge or understanding of the documents they are asked to sign.

A real estate attorney who has familiarity with mortgage loan documents does not have to read each page, word for word. We understand the impact of the documents, and usually can review them in less than one hour.

I appreciate that the cost of legal fees is always a concern to everyone. However, the documents you will sign relate to your house -- an important investment for you and your family -- and you can lose that investment based on the terms and conditions spelled out in those documents. Don't take a chance; have an attorney review and explain exactly what you are signing.

DEAR BENNY: Our homeowners association pays a man cash to perform basic cleaning of the common areas in our building every month. Is he considered our employee and therefore do we have tax reporting or withholding requirements? --Scott

DEAR SCOTT: Your question is whether the man is an employee or an independent contractor. Oversimplified, if you supply the cleaning equipment and give specific directions to the man, he is an employee. Your accountant should be able to assist you with the answer to your specific situation. Additionally, if you go to the IRS Web site and search "independent contractors," you will find a lot of information. However, the line between independent contractor and employee is rather fuzzy; the facts determine which is which.

DEAR BENNY: My daughter purchased a duplex in July 2006. There is a small bathroom off the kitchen. It had new wallpaper when she bought the property. A few months ago she decided she wanted to take the wallpaper down and paint the bathroom. There was old water damage in one corner of the bathroom, and when she pulled the wallpaper off above the mirror some of the wallboard came off. There was a lot of mold.

She called her real estate company and they said there was nothing they would do. They suggested she call a "mold specialist." She had a company come out, and they said there was mold and in their opinion the water damage was old and the previous owner probably wallpapered to cover it up. Their estimated cost was $2,200. ...CONTINUED

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