DEAR BOB: My husband and I have a huge problem with our new home we bought about two months ago. On the very first night in our home, the sewer backed up and flooded the basement with raw sewage. We checked the seller’s written disclosure form and it did not reveal any sewer problems. Then we talked with the neighbors and they told us the former owner had frequent sewer problems and they remember seeing the Roto-Rooter truck in the driveway frequently. The company we called charged us $750 to get the sewer working. But after running a camera down the pipe, they found the sewer pipe was completely broken. Our front yard had to be dug up and the pipe replaced at a cost of $4,000. Complicating matters is our 4-year-old daughter had just been diagnosed with leukemia. She has virtually no immune system and needs to be in a germ-free environment. My husband presented the $750 sewer bill to the seller. He laughed at us. The real estate brokerage, representing both seller and buyer, was of no help. I called 12 different real estate lawyers and none would take our case. They all said, “Disclosure forms are worthless.” We talked with two different professional home inspectors and they said they probably wouldn’t have discovered the problem because they don’t inspect the sewer pipes. We earned only $38,000 together last year and spent every penny to buy this new house so our daughter would have a clean place to live. Is there anything we can do? –Mary and Pawel D.
DEAR MARY AND PAWEL: Your shocking letter reminds us there are dishonest home sellers out there. In fairness, unless you have evidence the realty agents knew about the sewer problem and failed to disclose it, they probably have no liability to you. However, to gain extremely favorable publicity the brokerage could volunteer to pay the $4,750 to help in your time of distress.
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Unfortunately, most homeowner insurance policies will not pay for sewer backup or repair costs. Even the world’s greatest professional home inspector wouldn’t discover the problem unless there was evidence of prior sewer backups in the basement.
Because you are “cash challenged,” I suggest you call the county bar association to see if they have a legal aid or “pro bono” program. Or a nearby law school might have a low- or no-cost student program that can help you.
Proving the seller’s misrepresentation that he knew of the defect, which he failed to disclose, shouldn’t be difficult, based on the evidence from the neighbors. The Roto-Rooter records can be obtained, if necessary.
Unfortunately, the amount at stake isn’t large enough to interest most lawyers, as you discovered. You might consider suing the seller in Small Claims Court if you think you can prove the seller’s misrepresentation by failing to disclose this serious defect.
CAN HOUSE TENANT CLAIM TITLE BY ADVERSE POSSESSION?
DEAR BOB: My neighbor, who is renting, says the landlord forces her to pay the property taxes although there is no such agreement in her lease. Can she claim some type of ownership after paying the property taxes for several years? –Steve S.
DEAR STEVE: No. Although payment of property taxes is one of the requirements for obtaining title to a property by adverse possession, your neighbor cannot qualify since she occupies the house with the landlord’s permission.
Permissive use doesn’t meet the “open, notorious, hostile, and continuous” adverse possession requirements. Your neighbor should consult a local real estate attorney for more details.
RENTAL PROPERTY “EXCESS MORTGAGE” TAX PROBLEM
DEAR BOB: In early 2005 we sold a rental house we had owned about 15 years. During that time, we refinanced the mortgage two or three times to take out tax-free cash. Thanks to market value appreciation, we sold for much more than our purchase price. However, when we talked with our CPA she advised us we have an “excess mortgage” tax problem. Although we netted only about $47,000 cash from our equity, she says we owe capital gain tax on about $120,000, plus depreciation recapture tax, because our mortgage balance exceeded our depreciated book value. How can this be? –Randy R.
DEAR RANDY: Your CPA is probably correct. However, your mortgage balance has nothing to do with your capital gains and depreciation recapture tax upon sale of the rental property.
Although you thought you only had $47,000 equity, due to your refinancings the mortgage balance substantially exceeded your depreciated cost basis.
In other words, by refinancing you took out tax-free cash from your equity. But when you sold, that “excess mortgage” amount exceeding your basis became taxable.
SHOULD PRISONER GET A REAL ESTATE SALES LICENSE?
DEAR BOB: As you can see from my letter and envelope, I am a state prisoner. As a teenager, I got into trouble and ended up in prison. But I will be going home within one year. While in prison, I have been working on my degree in Business Management and have become very interested in real estate. I have read several excellent real estate books by Jay DeCima. How long do I need to go to college to get a real estate sales license? –Delfino B.
DEAR DELFINO: Congratulations on using your prison time to improve yourself and plan for a future career. For some unexplained reason, I frequently receive letters like yours asking how a released prisoner can obtain a real estate sales license.
Yes, it can be done. Several of my college real estate students, who were former prisoners, obtained their sales licenses. But it wasn’t easy.
Of course, you must disclose your criminal background on your realty license application. Depending on the facts, the real estate commissioner may hold a hearing to determine if you qualify for a conditional or restricted real estate sales license.
Instead, I suggest you become a real estate investor. No license is required. Most investors earn far greater profits than even the best realty sales people earn in sales commissions. Just follow the formulas you learned in Jay DeCima’s great books, “Start Small, Profit Big in Real Estate,” and “Investing in Fixer-Uppers.”
YOUNG WIFE HURTS SENIOR CITIZEN HOMEOWNER
DEAR BOB: I am 78. My wife is 64. We own our home with a value of $550,000. No mortgage and no debts. We recently inquired about a senior citizen reverse mortgage and were told the best we can do is receive just $680 per month. The up-front fees would be about $13,000. The mortgage manager suggests we obtain a home equity loan instead. We have income of only about $60,000 per year. But we are cash poor and want to do some traveling. I know you recommend reverse mortgages. This doesn’t seem like a good deal. Are we missing something? –Harry H.
DEAR HARRY: The problem is you married a much younger lady. You could qualify for a very generous reverse mortgage based on your age alone and the home’s market value.
But your young wife has a far longer life expectancy. Reverse mortgage lenders base eligibility on the age of the younger spouse who holds title. That’s why the offered monthly lifetime $680 payment seems so low.
The simple solution is for your wife to quit claim her interest in the house to you. Then the reverse mortgage eligibility will be much higher, based on your age rather than hers. More details are in my special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com.
CONDO DIRECTOR LOVES HIS JOB
DEAR BOB: I find your columns very informative and useful. But I resent your comments about being on the board of directors of a condominium association as “thankless.” Yes, there are headaches. I’ve been on the board of directors of our condo association for many years and thoroughly enjoy it. Our association has been proudly self-managed for 32 years. Please stop saying it’s a thankless job because we need volunteers for fulfilling and challenging positions as directors and committee members –Robert Z.
DEAR ROBERT: Thank you for your valuable letter sharing another viewpoint. I’m glad you enjoy your position on the board of directors of a condominium association. I find it amazing your association has been self-managed for 32 years without outside professional condo management. Congratulations. You have an exceptional situation.
The new Robert Bruss special report, “How to Earn Your First Profit When Buying Your Home or Investment Property Right,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery 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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