DEAR BOB: When I purchased a new condominium last year, I was told it would be an owner-occupied building and investor-speculators would not be allowed. But I later learned friends, family and acquaintances of the builder were allowed to invest and buy all the best units at the lowest prices. Now my building is mostly renters rather than owner-occupied units. This hurts the value of my condo, which I must now sell due to job relocation. Do I have any legal recourse against the builder for misrepresentation or fraud since he lied to me? –Michele C.
DEAR MICHELE: You were very wise to inquire if any condos would be sold to non-resident investor-speculators. But unless you can prove the builder’s misrepresentation with a written statement to comply with the Statute of Frauds, you don’t have any legal recourse against that builder.
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If non-residents own a large percentage of units, the maintenance quality usually declines and problems develop. Many mortgage lenders refuse to lend — or charge higher interest rates — if the percentage of renters increases above 25 percent.
Your situation shows the importance for any house or condo buyer to obtain all representations by the builder, developer, or salespersons in writing just in case the statement was a lie, as in your situation. Without written documentation, you have no reliable proof. For full details, please consult a local real estate attorney.
HOW TO OBTAIN A RETROSPECTIVE APPRAISAL
DEAR BOB: In a recent article you advised a reader to obtain a retrospective appraisal for an inherited property. You gave the admonition to keep market value records for inherited real estate. What type of information should I keep? –Claudia B.
DEAR CLAUDIA: If you inherited real estate title from a deceased owner, you need to establish your “stepped-up basis” to market value on the date of the decedent’s death.
Your first stop should be the local property tax assessor’s office to learn the assessed value on the date of death. If this amount is acceptable to you, obtain written evidence and keep it to establish your new stepped-up basis as of the date of inheritance.
However, in many property tax jurisdictions, the assessed value is far below the fair market value. In that situation, you should hire a professional appraiser to establish your market value stepped-up basis as of the date of the decedent’s death. The appraisal expense will be very worthwhile when you eventually decide to sell the inherited property. For more details, please consult your tax adviser.
INCOME PROPERTY TAX-DEFERRED EXCHANGES
DEAR BOB: Name the Internal Revenue Service program that lets you exchange income property tax-free? –Chet S.
DEAR CHET: What prize do I win if I successfully answer your challenge? That’s too easy. Don’t you have a more difficult quiz question?
Internal Revenue Code 1031 allows you to make a tax-deferred exchange of your real estate held for investment or use in a trade or business for another such property. To qualify for tax deferral, you must trade equal or up in both market value and equity.
In other words, you can’t take out any cash or net mortgage relief. If you do, that’s “taxable boot.” For more details, please consult your tax adviser or read my special report, “How the New Tax-Deferred Real Estate Exchange Rules can Make You Very Wealthy,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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