DEAR BOB: We’ve been learning from your real estate articles for many years but haven’t seen our issue discussed before. We own two homes. One is our main home. The other is our weekend townhome, which we have never rented to tenants. We have decided to sell the townhome and replace it with a home in Florida. Can we use that $500,000 home sale exclusion you often discuss? Or can we roll the proceeds of the sale into the Florida purchase to avoid tax liability? – Carl D.
DEAR CARL: Because your townhome is not your principal residence, and you have not owned and occupied it as your primary home at least two of the last five years before its sale, it does not qualify for the $250,000 per seller tax exemption of Internal Revenue Code 121.
Purchase Bob Bruss reports online.
Since it has not been rented to tenants, it also doesn’t qualify for an Internal Revenue Code 1031 tax-deferred exchange.
But you might consider renting it to tenants before selling, perhaps on a lease with option to buy, so it can qualify as investment rental property eligible for an IRC 1031(a)(3) Starker exchange.
If you do that, however, the acquired Florida property will also have to be “like kind” rental property. Most tax advisers suggest renting the acquired property at least a year before converting it to your personal residence. For more details, please consult your tax adviser.
GET A HOME EQUITY CREDIT LINE JUST IN CASE YOU NEED IT
DEAR BOB: Next year I will begin renting my townhouse. It has two floors plus a basement apartment with separate front and back entrances. Would it be wise for me to take out a $30,000 home equity loan to remodel the basement apartment to receive possible $1,000 per month rent and then rent the upstairs for $2,000 or more? Or should I rent the entire townhouse as a single-family unit for around $2,500? My current mortgage monthly payment is about $1,000 – Traci P.
DEAR TRACI: While you are an owner-occupant, I suggest you obtain as large a home equity credit line as possible (whether or not you ever use it). After you move out and the property becomes a rental, it will be more difficult and expensive to obtain a home equity credit line.
Most banks love home equity credit lines because (1) they are so profitable and (2) the default rate is practically zero. They usually charge only about $50 annually for such a credit line, with no up-front fees.
Your home equity credit line interest rate should be at prime rate, or lower. It’s great to have an extra financial cushion in case you decide to fix-up that basement apartment, or for any other use you wish.
As for upgrading that basement apartment, I suggest you consult several local Realtors who are familiar with rentals in your vicinity. They can best advise if your townhouse will easily rent to one family or if it will be easier to rent to two different tenants.
WHAT IS A QUICK CLAIM DEED?
DEAR BOB: We have a buyer interested in purchasing our home with a “quick claim deed.” We never heard of it. Should we go along? – Matt M.
DEAR MATT: A quit (not quick) claim deed conveys whatever title the grantor owns in the property. The buyer should always obtain an owner’s title insurance policy to be certain of receiving marketable title.
Be sure you have a written sales agreement and the quit claim deed title transfer takes place at a title company or real estate attorney’s office so you don’t get swindled by giving the buyer the quit claim deed before you receive the money. For more details, please consult a local real estate attorney.
WHY THERE IS NO LIST OF MORTGAGE JUNK FEES
DEAR BOB: Please give me a list of all the mortgage junk fees I should avoid when I close the purchase of my home in a few days – Rachel K.
DEAR RACHEL: There is no all-inclusive list of mortgage junk or garbage fees. The reason is mortgage lenders are constantly dreaming up new names for these 100 percent pure-profit unnecessary fees, which they charge buyers, often at the last minute just before the transaction is ready to close.
The definition of a mortgage junk or garbage fee is a charge, which is not for a specific service that benefits the borrower, and is paid to a third party. Examples of legitimate mortgage fees paid to a third party include appraisal fee, title fee, escrow or attorney fee, notary fee, and credit report fee.
Examples of negotiable junk or garbage fees, which go to the lender or the mortgage broker, include underwriting, processing, loan review, administration, document preparation, and even (when the lender can’t think of a name) miscellaneous fee.
If the junk fee wasn’t disclosed to you on the lender’s “good faith estimate” provided within three days of your loan application, it can often be negotiated away.
GET TOUGH WITH LENDER WHO REFUSES TO CLEAR TITLE
DEAR BOB: How can I get my former mortgage lender to record the release of my loan, which I paid off almost 15 months ago? But I have not received any evidence the loan was cleared from my title. I hired an attorney to oversee the effort. But all he has done is phone the lender many times, chewing up over $400 in fees so far with no results. Is there a law requiring the lender to provide mortgage borrowers with proof the title has been cleared and return of the promissory note? – Jerome W.
DEAR JEROME: Your attorney should tell you if your state law provides a specific time limit for the lender to record either a mortgage satisfaction or a deed of reconveyance to clear your title.
You are very smart to make certain your title is cleared now rather than waiting until you sell your property in the future. Perhaps you might want to do what I did.
Many years ago I had a similar problem. Because my lender had no financial incentive, I didn’t receive proof of title clearance after I paid off a second mortgage.
Then I sued the mortgage lender in local Small Claims Court for the maximum allowed for breach of contract. Before the case came up for trial, the lender recorded a deed of reconveyance and I dropped the lawsuit.
DO HOME BUYERS NEED THEIR OWN REALTY AGENT?
DEAR BOB: My husband and I have been looking over a year for a townhouse to purchase. It will be our first home. We insist it be in the same school district our son and daughter now attend. Although we had been working with a buyer’s agent for three or four months, she wasn’t very effective. By checking the Internet MLS (multiple listing service) almost daily, my husband found a townhouse meeting our requirements. We e-mailed the listing agent who showed it to us the next day. The listing agent said if we made our purchase offer through her, we could get a bargain price. Since we had no written contract with our buyer’s agent, we made our offer, which was accepted. But now our buyer’s agent threatens to sue us for half the sales commission. Do you think we need a buyer’s agent and do we owe her a commission? – Anita Y.
DEAR ANITA: Yes, it would be desirable for you to have your own buyer’s agent. However, since your buyer’s agent was ineffective, I don’t blame you for searching on your own.
Thankfully, you had no written contract with that buyer’s agent. If she sues you, just reply that the statute of frauds requires a written contract so you have no obligation to her. For more details, please consult a local real estate attorney.
CAN TENANT GIVE MOVE-OUT NOTICE MID-MONTH?
DEAR BOB: If my tenant pays rent on the first of each month, can the tenant then write me on the fifth of the month giving me a 30-day notice of moving out? I am so confused – Beth J.
DEAR BETH: Unless your month-to-month rental agreement says a tenant move-out notice can only be given on the first day of the month (that’s highly unlikely), either the tenant or landlord can give a move-out notice on any day of the month.
State law determines the minimum number of days required before the tenant can move out but the notice can usually be given on any day. For full details, please consult a local landlord-tenant attorney.
The new Robert Bruss special report, “Ten Easy Profit Opportunities for Home and Investment Property Owners,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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