DEAR BOB: We are buying an out-of-state house. The closing is scheduled for about two weeks from now. It is a “for sale by owner,” and the sellers aren’t too knowledgeable about the sales process. We just received a document from the title company listing the recorded liens against the sellers. The list includes a lien from the state’s Bureau of Child Support for more than $12,000 and deferred property taxes for about $2,000. None of these liens were previously disclosed to us. If the sellers are unable to pay these liens at or before the closing, what are our options? We don’t want to be homeless when we arrive in our new city if something goes wrong with the closing. –Rebecca L.
DEAR REBECCA: If the sellers will be receiving sufficient cash from the sale to pay off the child support and property tax liens, then they will be able to deliver marketable title to you.
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I suggest you phone the firm that will be handling the closing settlement and go over the exact numbers to be certain there will be sufficient cash to pay off the current mortgage balance, the child support lien, unpaid property taxes, and any other seller obligations.
Be sure you receive an owner’s title insurance policy. That is your best assurance you have received marketable title.
NAMES ON TAX-DEFERRED-EXCHANGE PROPERTIES MUST BE THE SAME
DEAR BOB: My wife is a co-owner of real estate in a partnership. The members wish to dissolve the partnership by selling the property. One of the co-owners wants to cash out. Can the other co-owners, either separately or collectively, proceed with their own separate investment goals through an Internal Revenue Code 1031 exchange? –Theodore C.
DEAR THEODORE: No. In an IRC 1031 tax-deferred exchange of an investment or business property for other such property of equal or greater cost and equity, the names on the title to both the old relinquished and the new acquired properties must be exactly the same.
The situation you describe does not appear to qualify for such an exchange because the old property is owned by a partnership whereas the acquired property(s) would be owned by individual co-owners. For details, please consult your tax adviser.
NO TIME LIMIT FOR SELLING INHERITED PROPERTY
DEAR BOB: My siblings and I inherited a four-family home after our mother’s demise in July 2005. She lived in one of the apartments. The remainder of the property has been vacant for several years. Is there a time limit within which we must sell the property without incurring extra tax implications? –Fran A.
DEAR FRAN: I am not aware of such a time limit. When you and your siblings inherited the property, you received it with a new “stepped-up basis” to its market value on the date of your mother’s death. At the time you sell the building, your taxable capital gain will be the net amount you receive above that stepped-up basis. Ask your tax adviser for provide further details.
PRISONER SHOULD FORGET ABOUT GETTING A REAL ESTATE LICENSE
DEAR BOB: As you can see from the return address on my letter, I am in state prison. My scheduled release date is November 2007. While in prison I have been reading books about real estate investing and sales. As I was a very successful salesman before I became incarcerated, I would like to become a real estate salesman after I am released. What is the procedure to obtain a real estate sales license? –Howard W.
DEAR HOWARD: To learn the exact procedure to obtain a real estate sales license in the state that interests you, write or phone the state real estate commissioner’s office. You will have to take pre-license real estate courses and pass an exam.
However, your chances of obtaining a real estate sales license are not good. At the very least, the real estate commissioner will hold a hearing to see if you are qualified for a license after serving your prison term.
Instead of obtaining a real estate sales license, I suggest you become a real estate investor. No license is required. Most successful realty investors earn far more than real estate sales agents.
HOME-SALE TAX BREAK DOES NOT APPLY TO INHERITANCES
DEAR BOB: My wife and I, ages 85 and 70, bought our home about 29 years ago. Is there a provision in Internal Revenue Code 121 by which we can receive that $500,000 tax-free write-off and still leave the house to our children by will or living trust without their having to pay any taxes? –Robert N.
DEAR ROBERT: The Internal Revenue Code 121 principal-residence-sale tax exemption up to $250,000 (up to $500,000 for a qualified husband and wife) applies to home sales, not to inheritances. If you decide to sell the house, because you have owned and lived in it at least 24 of the last 60 months before its sale, you appear to qualify for the $500,000 exemption.
But this exemption is not needed if you leave the house to your children after the death of you and your spouse. The net market value of the house will be included in the estate of the last co-owner to die. For deaths in 2007 and 2008, the federal estate tax exemption is $2 million per decedent. Your children who inherit the house will receive it with a new stepped-up basis to market value on the date of death. For details, please consult your tax adviser.
AFTER YOU GIVE AWAY PROPERTY, YOU CAN’T EASILY GET IT BACK
DEAR BOB: My mother gave her brother a quitclaim deed to a 380-acre property for certain reasons at the time. Later, she realized she had made a mistake. Now she wants to put herself and her five daughters on the title. She feels this is what she should have done instead of giving the property to her brother. Mother still lives on the property and a sister holds a 99-year lease. Can mother get the property back? –Toris J.
DEAR TORIS: After a property is given away, the donor can’t change her mind and easily get the property back. However, if there is strong evidence of fraud or duress, then a quiet title lawsuit in the local court would be appropriate to undo the transaction.
Because the deed was a voluntary gift, chances of successfully rescinding it are not great. Your mother should consult a local real estate attorney for details.
INSURER CANCELS INSURANCE ON A VACANT HOUSE
DEAR BOB: We just received notice that our homeowner’s insurance policy with AARP Hartford Insurance has been canceled because the house is empty. Yes, we are selling our home and have moved to a condo, but our many years of loyalty and our car insurance with the same insurer did not mean anything. Maybe you can make other people aware not to move out until after the house is sold. –William R.
DEAR WILLIAM: Most homeowner’s insurance policies contain vacancy clauses allowing the insurer to cancel some coverages if the home is vacant for more than 30 or 60 days. The reason is a vacant house is more likely to sustain water damage and vandalism.
Your situation will be a warning to homeowners to read their insurance policies and not leave their homes vacant for more than 30 or 60 days, according to the policy terms.
QUIET TITLE LAWSUIT CAN RESOLVE OWNERSHIP
DEAR BOB: I am co-owner of land in Texas. Over the last decade, my co-owner has suffered several personal setbacks, including a prison term. About seven years ago, he dropped out of sight and my attempts to find him have been unsuccessful. I don’t even know if he is alive or dead. I have been paying the property taxes and annual dues to the property owners association. I would like to get out of this burden but cannot sell without my co-owner’s knowledge and permission. What should I do? –Ross S.
DEAR ROSS: One alternative is to bring a quiet title lawsuit in the Texas county where the land is located, requesting a declaratory judgment.
Depending on the facts, the court could order a partition sale of the property, with your co-owner’s share of the proceeds held in trust until he either can be located or is declared dead. For details, please consult a Texas real estate attorney in the county where the land is located.
The new Robert Bruss special report, “Pros and Cons of Living Trusts to Avoid Conservatorship, Probate Costs, and Delays for Your Heirs,” is now 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.
(For more information on Bob Bruss publications, visit his
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