DEAR BOB: Thank you for the article on your Web site about getting rid of PMI (private mortgage insurance). Upon my request, my mortgage lender sent me the paperwork to cancel my PMI payments of $72.56 per month. I have owned my home about eight years. However, I am concerned the lender’s appraisal will cause my property taxes to go up. Or should I leave everything alone and continue paying PMI? –Geri S.
DEAR GERI: You are worrying about nothing. A mortgage lender’s professional appraisal of your home has absolutely nothing to do with your property tax assessment. Go ahead and get your home appraised by the lender’s appraiser.
Purchase Bob Bruss reports online.
Only the local tax assessor — not a licensed appraiser hired by your mortgage lender — can reassess your property. If you have been paying PMI on your mortgage for eight years, you probably have at least the required 20 percent equity to get rid of that nasty and expensive PMI premium.
AFTER DAD DIES WITHOUT A WILL, PROBATE COURT DISTRIBUTES ASSETS
DEAR BOB: Our father passed away without a will. Among his assets, he left 18.56 acres in his name free and clear. My brother and I agreed that I should buy him out. With whom do I speak to get this done? –Jeanna F.
DEAR JEANNA: To transfer title to a property when there was no will left by the deceased owner, the estate must be probated by the local Probate Court where your father was a resident.
The agreement with your brother is irrelevant. Only the probate judge can order the 18.56 acres and other assets distributed according to the state law of intestate succession. For details, please consult a local probate attorney.
DOES NEW-HOME BUYER NEED A BUYER’S REAL ESTATE AGENT?
DEAR BOB: I know you recommend home buyers have their own buyer’s agents, but when buying a brand-new house in a new subdivision that has model homes and a sales staff, should the buyer still have a buyer’s agent? My father said he typically just deals direct with their sales staff. I presume the on-site sales people get the full 6 percent commission and if I have a buyer’s agent, the commission would be split. Is this correct? –Dave D.
DEAR DAVE: No. Some home builders refuse to cooperate with a buyer’s agent. But in today’s “buyer’s market” for homes in most cities, smart home builders are thrilled to pay buyer’s agents a sales commission, which is typically 2 percent or 3 percent of the sales price.
You definitely need a buyer’s agent when buying a brand-new home. A savvy buyer’s agent can advise you the pros and cons of a subdivision and the specific homes, including the builder’s reputation. That’s something you won’t hear from the builder’s salespeople who represent the builder.
DON’T BLAME INSPECTOR IF FURNACE BREAKS 16 MONTHS LATER
DEAR BOB: My husband and I bought our first home 16 months ago. But our furnace just went out. We purchased a 12-month warranty and it expired after a year. Then we bought from a different company the same insurance for all our major appliances. But this insurance company refuses to help us because they say the furnace is rusted and has been “meddled with.” Should our professional home inspector we hired at the time of purchase have told us the furnace was rusted? Should I inquire about why our inspector didn’t tell us the furnace was in disrepair and rusted? Or should we forget it and try to come up with the large cost of a new furnace? –Susan P.
DEAR SUSAN: A professional home inspector usually checks a furnace for obvious problems such as a cracked heat exchanger and other major components. If the furnace operated well for 16 months, you can’t say the inspector didn’t do his job.
Although the 12-month home warranty obviously expired and doesn’t apply, perhaps that major appliance policy you later purchased includes the furnace if specifically mentioned. That second company wouldn’t have sent an inspector out unless there is possible coverage.
The fact the furnace is rusted is irrelevant if it worked on the day you bought that second policy. Home-warranty companies are notorious for refusing to pay for replacements by saying it is a “pre-existing condition.”
I suggest you send a written demand to the second insurer (if your policy includes coverage for the furnace) demanding the company replace the furnace within 10 days. But don’t threaten because that’s extortion!
If the company doesn’t replace the furnace within 10 days, then it’s up to you to replace the furnace and later sue the second insurer in local Small Claims Court (presuming the furnace costs less than the court’s maximum jurisdiction amount). For more details, please consult a local attorney.
DEFERRED PROFIT FROM HOME SALE MIGHT NOT BE A TAX PROBLEM
DEAR BOB: We bought our third and current home in 1987. I understand the present law about the $500,000 principal-residence-sale tax exemption for a married couple selling their home. However, my question is about our two previous home sales. I thought I read somewhere, because of the new tax law, I didn’t need to keep records from our previous two homes so I destroyed them. Do they pertain to the basis for our current home? –Roger S.
DEAR ROGER: You obviously know now you should always save all records from previous home-sale transactions. Under the previous tax law (Internal Revenue Code 1034 which was replaced in 1997 by Internal Revenue Code 121), you “rolled over” your capital gain tax by purchasing a replacement principal residence of equal or greater cost.
The adjusted cost basis of your third home is not its purchase price. It is your purchase price, minus the deferred gains on the sales of your two previous homes, plus any capital improvements you added during ownership.
If your capital gain on the sale of your current home will exceed $500,000, I suggest consulting your tax adviser now to reconstruct your deferred gain to establish your adjusted cost basis. However, if your gain (including the deferred gain) is less than $500,000, then you won’t have any principal-residence-sale tax to worry about. Of course, this presumes you and your wife both meet the 24-out-of-last-60-month occupancy test.
WHO IS “MOST GUILTY SUSPECT” FOR DEFECTIVE INSPECTION?
DEAR BOB: We bought our house in May 2006. Before we bought, a professional home inspector noted a crack in our block wall but he didn’t mention anything about the foundation or the slope. After moving in, we realized the house slopes 5 inches from the front door to the back door. Now we understand the foundation is actively sinking in the back. A structural engineer we hired before purchase said whatever happened to the foundation was done and there was nothing to worry about. Now we are facing $30,000 in repairs. The engineer admits he was wrong. But he blames the real estate agent who only showed him one part of the house. The realty agent says to blame the engineer. Do we have recourse with anyone to help pay for this? –Kelvin G.
DEAR KELVIN: Congratulations on doing your best to have the house thoroughly inspected before purchase. The “most guilty suspect” looks like the structural engineer. I hope you kept his written report to prove he said there was nothing to worry about.
The professional home inspector noted the crack in the block wall. Perhaps the slope wasn’t noticeable. I suggest you consult a local real estate attorney about suing the structural engineer for professional negligence. Chances are he carries E&O (errors and omissions) insurance so the loss won’t come out of his pocket.
WHEN YOU SELL YOUR HOME, VACANT-LOT SALE MIGHT BE TAX-FREE
DEAR BOB: I enjoy your weekly articles and I have a question about having two vacant lots adjoining my house. Where can I find information on selling one lot tax-free? My accountant and attorney can’t seem to find this tax law. –Robert R.
DEAR ROBERT: If you sell a vacant lot within 24 months before or after the sale of your adjoining principal residence, then you can include the lot’s capital gain along with the home sale as if it were one sale.
When your total principal-residence-sale capital gain is below $250,000 ($500,000 for a qualified married couple filing a joint tax return), and you meet the other Internal Revenue Code 121 ownership and occupancy tests, then your lot-sale profit won’t be taxable. However, this provision applies only to one adjoining lot sale, not two. For details, please consult your tax adviser.
The new Robert Bruss special report, “The 10 Key Questions Smart Home Buyers Ask to Avoid Getting Ripped Off,” 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 delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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