DEAR BOB: My daughter and her family purchased a 1970s ranch-style home after the professional inspector she hired gave it and the finished basement a clean bill of health. The seller even signed a “no water problems” statement in the closing papers. Within days, her sister noticed her fingers could go through the drywall in the cellar. The brand-new bathroom shower was not connected to the septic system, and also flooded the floor. Mold and water remediation followed, costing more than $12,000. The lawyer who handled the closing settlement won’t help. What recourse does she have against the seller and inspector? –Sara C.
DEAR SARA: Obviously, your daughter bought the house from a dishonest seller who signed a fraudulent defect disclosure statement. If the bathroom shower was new, she should have inquired if a building permit was obtained and if the local building inspector approved the work.
The so-called professional home inspector hired by your daughter before the sale closing should have noticed the basement drywall moistness, which was easily spotted by the sister. Was he a member of a professional home inspection society, such as the American Society of Home Inspectors? If so, he probably carries errors-and-omissions insurance.
Purchase Bob Bruss reports online.
Your daughter should consult a local real estate attorney to discuss her legal alternatives against the dishonest seller, the so-called professional inspector, and possibly the real estate sales agent if that person knew of the water problems.
WHY USE A QUITCLAIM DEED TO RESOLVE TITLE PROBLEMS?
DEAR BOB: I am a retired real estate lawyer so your articles are a highlight in the newspaper for me. I commend you for the good advice. But I am puzzled why you often recommend a quitclaim deed to resolve real estate problems. Where I live we use warranty deeds. –Jeffrey B.
DEAR JEFFREY: Anyone who signs a warranty deed, grant deed or any deed other than a quitclaim deed must be very careful. As you know, such deeds include specific and implied warranties, such as the grantor owns the property and has disclosed all existing encumbrances or liens.
The reason quitclaim deeds are widely used to convey questionable titles is such deeds do not include any representations. That is a key reason why quitclaim deeds are often used in divorce situations where neither ex-spouse wants to make any guarantee of marketable title.
Quitclaim deeds are also used to convey questionable titles. For example, in my college real estate law class I had a woman who inherited a 1/129th share of some rural land in Arkansas. There was probable litigation and she didn’t want any part of it. I suggested she sign a quitclaim deed to her sister, who was involved in the lawsuit and was willing to accept a quitclaim deed without any warranties or representations.
HOW MUCH LIABILITY INSURANCE SHOULD LANDLORD CARRY?
DEAR BOB: I am a “small landlord” and wonder how much liability insurance I should carry? If someone gets hurt at one of my rentals, can I be sued if negligence isn’t involved? Should I be incorporated to protect my personal assets in the event of a lawsuit? –Doug A.
DEAR DOUG: Anyone can sue anyone. Of course, there are malicious-prosecution penalties for bringing a frivolous lawsuit.
My best advice is to consult your insurance agent as to how much insurance you need. The answer depends on your net worth.
To keep liability insurance costs affordable, years ago my insurance agent advised me to carry $300,000 on each property and an “umbrella liability” insurance policy for several million dollars. In the event of an insured loss, the individual property policy pays first and the umbrella policy pays the excess up to its limit. This is far cheaper and better coverage than carrying liability coverage of several million dollars on each property.
The reason you probably should not incorporate is corporate tax losses cannot be passed through to an individual stockholder, except with Subchapter S corporations, which have several drawbacks. Most real estate attorneys now advise holding rental property titles in a limited liability company (LLC).
HOME EQUITY LOAN IS SOURCE OF QUICK BUY-OUT CASH
DEAR BOB: My wife and I are in the process of getting a divorce. She moved out. But I want to keep the house and buy out her interest in it. To do this, I need more cash than I have available. We currently have a 13-year-old, 7.75 percent interest-rate first mortgage, never refinanced. Should I refinance or get a home equity loan? –Kirt K.
DEAR KIRT: That 7.75 percent interest rate is very high. If you have sufficient income and a good FICO (Fair Isaac Corp.) credit score, I suggest refinancing at around 6.25 percent fixed interest in today’s market.
However, if there is some reason you can’t qualify for a refinanced mortgage now, a home equity credit line loan is usually easy to obtain. But the interest rate will be higher, probably at the prime rate (8.25 percent as I write this) unless you can negotiate a below-prime reduction, as I recently did.
If you take a home equity loan, be sure it doesn’t contain a prepayment penalty. After you buy out your ex-wife, then you can start shopping around to refinance both the first and home equity loans.
WILL HOME SELLERS DISCLOSE WHY THEY ARE REALLY SELLING?
DEAR BOB: My husband and I got a rare laugh from your column a few weeks ago. You said smart home buyers ask why the seller is selling. Do you think they will really tell the truth? When we recently moved, we tried asking that question. The sellers all replied “someone in the family is very ill and we are moving to take care of them.” Do you think they would really tell us if there were three barking dogs next door or “this section of town has the highest crime rate in the area?” –Enid C.
DEAR ENID: Maybe I’ve been very fortunate with all the personal residences and rental houses I’ve bought. Whenever I asked the question, “Why is the seller selling?” I received honest answers. Only once did a Realtor tell me, “It’s none of your business.”
Later, I discovered I should have bought that house despite the obnoxious listing agent because the seller’s real reason for selling was retirement. He probably would have carried back a below-market-interest-rate mortgage for me. But it doesn’t hurt to ask why the seller is selling.
ACT QUICKLY TO ABATE NUISANCE
DEAR BOB: We have been inundated with noise from a poorly constructed and badly operated dog kennel next to our house. Being outdoors in our yard is no longer pleasant. How can we determine the diminished value of our property? We built our home in 1993 and the dog kennel was established in 2004. What should we do? –Paul D.
DEAR PAUL: You must be a very patient man. I would have been yelling and screaming when that dog kennel was approved for your residential area. I presume you are not referring to just one or two barking dogs.
If the situation affects many neighbors, you have a public nuisance, which should be prosecuted and abated by a city official, such as the city attorney. However, if the dog barking noise just affects you and one or two neighbors, that is a private nuisance, which can be abated by a nuisance lawsuit.
However, I am concerned about your delay in not acting sooner. Fortunately, most state laws now say each new occurrence of a nuisance starts the statute of limitations running again. For details, please consult a local real estate attorney.
ARE REVERSE MORTGAGES AVAILABLE IN FLORIDA?
DEAR BOB: My elderly mother (age 71) owns her home in Florida. But with the rising insurance costs and property taxes, she is having a tough time financially. I am not able to help her because I have to support my son and myself on a schoolteacher’s salary. She read in your article about senior citizen reverse-mortgage monthly income. But when she went to her bank branch to get a reverse mortgage, they acted as if she was crazy. Are reverse mortgages available in Florida? –Bryan H.
DEAR BRYAN: Yes. They are available in every state. Thousands of reverse mortgages for senior citizens are originated in Florida each year.
However, most traditional mortgage lenders do not offer reverse mortgages because such mortgages are entirely different from regular mortgages.
You and your mother can find dozens of reputable Florida reverse-mortgage originators on the Internet at www.reversemortgage.org. More details are in my new special report, “Everything You Need to Know About Reverse Mortgage Pros and Cons for Senior Citizen Homeowners,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 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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