DEAR BENNY: My mother-in-law’s mortgage was sold to another lender. The new lender is asking for PMI, which was not required by her previous lender. She has more than 50 percent equity in her home. She really cannot afford the PMI. Does the new lender have this right? What are her options? –Craig
DEAR CRAIG: For the benefit of my readers, PMI stands for private mortgage insurance. Typically, when you buy a house and do not put down at least 20 percent of the purchase price, the lender may require PMI. This is insurance that will insure that the lender will be paid in the event of a foreclosure. The buyer has to pay the annual PMI premiums. (To get around this, in the past few years, lenders would make two loans to home buyers: a first trust (mortgage) in the amount of 80 percent of the purchase price and a second trust in the amount of some — or even all — of the difference. Of course, nowadays, those kinds of loans — called "piggyback" — are getting harder and harder to obtain.)
But once your mother-in-law signed the mortgage papers, neither the original lender nor any new lender that has bought the loan documents can change the terms of the loan.
The specific answer: Unless there was some language in the loan documents allowing such a change, the new lender cannot ask her to pay the PMI premiums. And even if there is some language allowing changes, if the equity in the house is at least 50 percent, there is no way that this payment can be required.
Suggest that your mother-in-law advise the lender that she will not pay any PMI premiums. If the lender persists, complain to the Federal Reserve Board here in Washington, D.C., as well as to your state’s attorney general.
DEAR BENNY: Four years ago my wife and I sold our home of 45 years and purchased a new condominium. We have enjoyed downsizing and had grown comfortable in our new home until about six months ago when the unit above us changed hands. Our new neighbors are not as quiet as the original owners. They walk around their condo and seem to be trying to leave footprints in the floor. They have had a few parties that have continued quite late. We have complained and they have responded with apologies but continue to be noisy.
In view of this problem we are considering selling and moving. If we put our condo on the market is it necessary to disclose our reason for selling? If we must reduce our sale price because of the neighbor’s noise, can we take legal action against them to recover our loss? Your response will be greatly appreciated. –William
DEAR WILLIAM: Join the wonderful world of community association living. You have to take the good and the bad.
First, before you consider selling — especially in today’s slow market — you should complain formally to your condominium board of directors. I am sure that there is a provision in your legal bylaws that prohibits excessive noise. There may also be a rule that a large percentage of each unit must be carpeted.
Your association should be able to resolve the problem. However, as I often tell my clients, "noise is subjective. My definition of noise is my son’s definition of music."
So, you may want to take a few steps before complaining to the board. Try to get a witness (preferably a board member) when there are noisy parties upstairs. Don’t be reluctant to call the board president late at night to complain. You also have the right to call the police if the noise is unbearable.
Several years ago, I had a client who had a similar problem. We arranged to have an acoustical engineer stay in the unit below, while my client, a board member and the upstairs neighbor walked around upstairs. We discovered that the floorboards were not properly connected and the board arranged to have the problem fixed.
Do you have to disclose the problems to a potential buyer? Legally, that depends on what your state seller-disclosure law requires. But practically, put yourself in the shoes of a buyer. How would you feel if you discovered immediately after taking title that there are noise problems in the unit? I am sure that you would retain legal counsel and consider filing a lawsuit against your seller.
Can you sue the upstairs neighbor for any loss in value? I seriously doubt it. Even if you have a legal case, it will be difficult — if not impossible — to prove that the noise, instead of market conditions, created your loss.
DEAR BENNY: I own a rental property with my brother. Ownership is as tenants in common.
We plan to sell the property for a significant gain. He wishes to just take his gain and pay the capital gains. I would like to reinvest my share in another rental property. Am I eligible for a 1031 exchange on my half of the sale proceeds? Thanks for the guidance. I enjoy your column. –Jack
DEAR JACK: Thanks for the kind words. Since you and your brother own the property as tenants in common, you can do a 1031 (Starker) exchange on your half of the property, while your brother can take his profit and pay the capital gains tax.
If the property were held in a partnership, however, you would either have to dissolve the partnership in the tax year before the property was sold or the partnership would have to buy the replacement property.
If you do sell, make sure that you follow the strict rules regarding a 1031 exchange.
DEAR BENNY: I have a house for sale for $198,000. I’ve had an offer to trade my house in exchange for another house valued at $95,000. This home is owned by another Realtor. I plan to use this house as rental property. Is my Realtor fee of 6 percent negotiable because I changed my selling criteria (agreeing to a trade)? Will my Realtor split his fee with the buyer (Realtor)? Are there any questions I need to ask about their commissions since the client is a Realtor? I think I’m missing something since it appears that the two real estate agents are working together. –Leah
DEAR LEAH: Everything in real estate — including commissions — is negotiable. First, you (or your attorney) should carefully review the listing agreement that you signed with your real estate agent. Does it include a "trade"? It may be that you will not be obligated to pay any commission under these circumstances.
However, that probably is not fair to your agent. I suggest that you sit down with both agents, and work out an acceptable solution — before you sign any more documents.
But the transaction confuses me. Are you just going to trade a $198,000 house for another that is worth only $95,000? I certainly hope that you will get cash for the difference.
DEAR BENNY: I read your article regarding a one-time tax exclusion on the profit for the sale of a house. My son recently sold his home in Massachusetts that he lived in for seven years. He was fortunate to sell at a considerable amount over what he paid. Can he claim a one-time exemption for the profit on his taxes? –Edith
DEAR EDITH: You should be proud of your son for making a good investment. Because he owned and lived in the house for two out of the five years before it was sold, he can exclude up to $250,000 of the profit — or if he is married and files a joint income tax return with his wife, the exclusion is up to $500,000.
If he has any questions about how to file his tax return, he may want to consult an accountant.
DEAR BENNY: Recently, you answered a question about putting title of a house in your children’s name. Once that is done, is there a way to remove their name and have it revert to the original owner? Would there be any tax consequences? –Ann
DEAR ANN: Once your children own the property, they must agree to deed it back to you. If this was your intention when you first deeded the property to them, there should have been a written agreement memorializing this agreement.
When you gifted the property to your children, their basis for tax purposes was your tax basis. If they gift it back to you, the basis remains the same. The tax basis of a person receiving a gift is the basis of the giver of the gift.
However, if the value of each of your children’s "gift" back to each parent exceeds the annual exclusion (which currently is $12,000 per person per gift), this would have to be reported to the IRS. However, unless the total annual gifts exceed $1 million, no tax will be owed.
For more information, and to get the correct forms, I suggest that you read Publication 950 entitled "Introduction to Estate and Gift Tax" on the IRS Web site.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to email@example.com.
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