Pay dues, but mind your p's and q's

DEAR BENNY: I am currently the president of the board of our homeowners association (HOA), which has 11 houses. There is an ongoing conflict that seems unsolvable. There is a large common area behind seven of the houses that is approximately 300 feet long and 60 feet wide that has beautifully maintained trees, bushes, small plants and an artificial stream that "runs" the length of the common area. The problem is the other four houses do not have access to the large common area, but the high maintenance cost is taken out of the HOA reserves that all 11 homeowners pay into.

As you can imagine, owners of the inaccessible homes are continuously complaining about paying for something they do not have access to, causing an "us against you" mentality in our otherwise-wonderful cul-de-sac. --Greg

DEAR GREG: First, my condolences on your being president of an HOA; it's a thankless but important task.

You have raised a question that too often is asked by homeowners whether in a condo or an HOA: "I live on the first floor, so why should I pay for the elevator?" or "I never use the swimming pool so why are you assessing me for its upkeep?"

The answer is simple: When you live in a community association, you have to pay for the maintenance and repair of all of the common elements -- whether you use them or not. These common elements -- such as a tot lot, swimming pool or, in your case, a beautiful park -- enhance the value of your property. I suspect that when these four owners go to sell their houses, they will include that landscaped area in their sales brochures.

Bottom line: All community association owners must pay the assessment -- whether or not they use or enjoy everything that is part of the community.

DEAR BENNY: My wife and I want to sell our home to our three grown children. Each would give us a third of its market value. The advantage for doing this would be that we would take the home out of our estate and ease their legal burden when both of us are gone. We would then return the money to them in time by the allowed gifting of $12,000 for each of their family members.

We would pay them the market rental rate and they would then have to pay the real estate taxes, any required repairs and other owner responsibilities. Is there a time limit in our being able to rent the house? We would like to do this without the involvement of a lawyer. --Frank

DEAR FRANK: First, to clarify, the annual exclusion as of this year is $13,000. So you can legally -- and without tax consequences to anyone -- gift this amount to each of your children, plus the same amount to any member of their family.

I like the idea, and assume that you either own the house free and clear of any mortgage or are prepared to pay off any mortgage before you deed the property to your three children.

You plan to sell the house, which means that you have to consider any applicable capital gains tax. If you have lived in the house for two out of five years before the property is sold, since you are married (and presumably file a joint income tax return), you can exclude up to $500,000 of your profit. Depending on the sales price -- and the amount of the profit you will make -- it might be a good idea to run the numbers by a certified public accountant. You don't want to make any mistakes when dealing with the IRS.

There is no time limit on how long you can rent out the house. That's a private and personal decision between you and your children.

You say that you would prefer not to use an attorney for this transaction. I must respectfully disagree. Someone has to prepare and record the deed to the property, and it must be done correctly. The last thing you want is to learn that somehow a mistake was made, and your children will have to go to court to clear up any such errors.

A lawyer should assist you, and the cost should not be too much. More importantly, cost should not be a consideration -- doing it right is more important.

DEAR BENNY: I am an executor for an estate currently in probate. One of my duties has been to pay the mortgage on the deceased's residence. The lender has sent me a payoff notice. Once the mortgage is paid off, what documentation should I get to confirm that it was paid off and what other actions do I have to take in this situation? --Joe

DEAR JOE: It does not make a difference if you pay off a mortgage in your capacity as the personal representative (also called executor) of an estate or you are paying off a mortgage on your own home. The process is the same. ...CONTINUED

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