DEAR BOB: We just had a major house fire with approximately $165,000 paid by our homeowners insurance company for repairs. Before the fire, the house was worth about $250,000. The house was completely redone with new wiring, plumbing, heat, air conditioning, drywall, carpeting and a new kitchen. It was basically gutted inside and out. What effect will this insurance claim have on my resale value? If I were a buyer, I wouldn’t be interested in this home. However, as the owner I know the house is actually like new. I am discussing this with the insurance company, comparing it to buying a rebuilt car. I feel I should be somehow compensated for the decrease in my home’s market value. When I sell, will my buyers have trouble getting homeowners insurance because of this major claim? –Ernie M.

DEAR ERNIE: You are worried about nothing. “Why worry? Your worst troubles will never happen,” as the old saying goes.

Purchase Bob Bruss reports online.

Yes, you must disclose to the buyer there was a major fire and the damage was repaired when the house was virtually rebuilt. Many buyers will consider that to be an advantage because the house had to be upgraded to current building codes.

After the fire repairs were completed, the market value probably increased rather than declined. This is not a “stigma” situation, such as if there had been 10 murders in the house.

The fact there was a fire damage claim on your homeowners insurance policy should not prevent obtaining a new policy when the house is sold. Since the house is now upgraded, most homeowners insurance companies give discounts for improvements such as new wiring, hard-wired smoke detectors and new heating/cooling.


DEAR BOB: My rental property is more than 80 years old. It is worth about $190,000. I paid $35,000 for it and have been renting to the same tenants for 17 years. I feel they have more than paid for it and I want to sign the title over to them because they have no money and deserve a break. Can this be done without cost? –Bobby L.

DEAR BOBBY: Yes. You can sign a quitclaim deed transferring the title to your donee tenant. The reason for using a quitclaim deed is so you have no liability if the title proves to be defective.

You should have an attorney prepare a short agreement stating you are giving the property in its current “as is” condition and will not pay for any repairs.

The only disadvantage is for your donee who will take over your very low $35,000 adjusted cost basis (minus the depreciation you deducted), rather than today’s higher market value. But your tenants should be thrilled with your generous gift.

Because the gift exceeds the $12,000 annual federal gift tax exemption per donee, you will have to fill out a federal gift tax return. But no gift tax will be due unless you have given away more than $1 million in lifetime nonexempt gifts such as this. For full details, please consult your tax adviser.


DEAR BOB: Next spring I plan to sell my home. With jumbo mortgages (over $417,000) so hard to get, I am thinking seller financing would make my home sell faster and for top dollar. To protect me, a decent cash down payment would be mandatory. What pitfalls do you see? –Chesley R.

DEAR CHESLEY: Presuming you own the house free and clear with no mortgage, easy seller financing is a great way to make your listing stand out from the competition. Also, you will be creating a safe investment for yourself, secured by a mortgage or deed of trust recorded against the home’s title.

However, for your safety you should insist on a cash down payment of 20 percent or more. But don’t make it too high or you will discourage buyers.

When a buyer makes an acceptable purchase offer, be sure to insist that the buyer present a 3-in-1 credit report, including FICO (Fair Isaac Corp.) credit score, from the three major credit bureaus. The buyer can easily obtain this at If the buyer has a FICO score below 660, or with any serious unexplained problem such as a foreclosure or bankruptcy, maybe you won’t want to sell to that person.


DEAR BOB: I just finished reading your article about foreclosures. I wanted to make sure I understand correctly that in a property-tax sale, the first mortgage and any junior liens disappear. Is that correct? Can you direct me to where I can find funding for foreclosure property investments? I was told by a mortgage lender I must have 25 percent down plus fees. How do people buy foreclosures without lots of cash? –Debbe H.

DEAR DEBBE: To answer your first question, when you buy at a property-tax deed sale, or a judicial or nonjudicial foreclosure sale, any junior liens such as a second mortgage, judgment lien and mechanics’ lien are “wiped out.” But you buy “subject to” any senior liens, such as a first mortgage at a second-mortgage foreclosure sale.

As for the second question, traditional mortgage lenders, such as banks and mortgage bankers, are the worst places to finance the purchase of foreclosure and distress properties. An excellent new book on this topic, explaining how to finance these properties with little or no cash, is “Making Big Money Investing in Foreclosures Without Cash or Credit, Second Edition” by Peter Conti. It is available in stock or by special order at local bookstores, public libraries and


DEAR BOB: Several years ago, my mother (now 72) hired an attorney and transferred title to her home to her five adult children. She has now downsized, moved to an apartment, and the house in north-central Nebraska is now for sale. She purchased the house for about $30,000 and expects it to sell for more than $40,000. For tax purposes, can she deduct her basis and the cost of improvements she made even though the five children hold the deed? –Greg K.

DEAR GREG: Your situation shows why mom’s property gift was a major mistake. Although your mother presumably lived in the house until recently for at least 24 of the last 60 months before its sale, and would have been eligible for the Internal Revenue Code 121 principal-residence-sale exemption up to $250,000, the five children don’t qualify because they don’t live there so the sale is taxable.

Their adjusted cost basis for the gift property is the same as the donor’s basis, presumably $30,000. To that amount, they can add the cost of any capital improvements they paid for during ownership. If the house sells for $40,000 net, the approximate $10,000 long-term capital gain is taxable one-fifth to each co-owner sibling. For more details, please consult your tax adviser.


DEAR BOB: Can a mortgage borrower sign a deed to the lender so the lender can’t foreclose and ruin the borrower’s credit? The home was bought and financed when the borrower didn’t qualify. She is in the Air Force and had to leave for Iraq. The house is financed for more than it is worth and cannot be rented for enough to satisfy the mortgage payment. –Elizabeth S.

DEAR ELIZABETH: A mortgage lender cannot foreclose if the borrower is on active military duty. The homeowner should consult her unit’s legal officer for assistance.

Most mortgage lenders will not accept a deed in lieu of foreclosure. The reason is that when a lender does so, the lender incurs liability for any liens, such as unpaid mechanics’ liens, judgments, income-tax liens and unpaid property taxes.


DEAR BOB: My fiancé and I want to buy a condominium, but we are concerned about the resale value. We have heard condos are harder to resell than houses. However, the few houses we can afford aren’t what we want. If we buy a condo, we will save for a house down payment over the next five years by not having to rent. What should we know about this before buying? –Lisa D.

DEAR LISA: Every house and condo buyer is concerned about future resale value. Plan to own the condo (or a house) at least five years and you will probably come out just fine.

An alternative is to “rent to own” (also called lease-option) a house or condo. The option locks in the purchase price at today’s market value. Each month you will earn a rent credit toward the purchase price.

For example, suppose a house or condo rents for $1,500 per month and you negotiate a $500 monthly rent credit with the landlord. That’s $6,000 at the end of 12 months. Try to get as long a lease-option as possible, such as two to five years.

Then, if the market value goes up, you can exercise your purchase option at the price agreed in your contract. If market values drop, or you don’t like the house or condo, don’t exercise your purchase option. More details are in my brand-new special report, “How to Profit from Lease-Options (Rent to Own) If You are a Property Buyer, Seller or Realty Agent,” 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 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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