DEAR BENNY: I purchased a condo in Florida in 1990. I lived there for 17 years, and then moved with the assumption that I would be able to rent it, as was the case all the time. After Hurricane Charlie, the board said that the insurance company was going to charge too much of a premium if we had rental units. Only if your unit was rented at the time of this ruling could you rent it, and when the leases ran out, it could be rented for only four months in a calendar year. Is this allowed for original owners?

DEAR BENNY: I purchased a condo in Florida in 1990. I lived there for 17 years, and then moved with the assumption that I would be able to rent it, as was the case all the time. After Hurricane Charlie, the board said that the insurance company was going to charge too much of a premium if we had rental units. Only if your unit was rented at the time of this ruling could you rent it, and when the leases ran out, it could be rented for only four months in a calendar year. Is this allowed for original owners? We knew circumstances might change in our life, and that is why we bought it. Your opinion is greatly appreciated. –Kathleen

DEAR KATHLEEN: Generally, I do not like to identify the state in which the question came from, since my column is general in nature. In this case, however, I have to reference the state of Florida, because of the hurricane. My response is applicable to any situation where the insurance company tries to dictate policies and procedures to the association board of directors.

If your legal documents permit renting, the board can impose some restrictions. For example, the board can require that a tenant give a copy of the lease to management, and can require that the tenant be required to adhere to the legal requirements of the association. However, if the bylaws allow renting for not less than one year, the board cannot impose a requirement that leasing must be for not more than four months.

That’s my legal interpretation. But I understand the board’s position — if they ignore the requirements of the insurance carrier, they may lose coverage. What is the board to do? My suggestion is that the board should hold an open meeting for all owners and explain the situation. Tell the unit owners that although the bylaws allow renting, the board does not want to lose its insurance coverage, and accordingly will have to go along with that requirement.

Of course, the ideal approach is to try to amend the bylaws, but that always takes a super-majority vote. And such a vote does not come easy in most community associations.

This is a difficult issue, but transparency — full disclosure — to all members is the key to resolving this problem.

DEAR BENNY: We recently refinanced our 30-year loan. However, when the lender completed the initial escrow account disclosure statement for our closing, it miscalculated the annual amount for county property taxes at $398, rather than the correct amount of $2,788.

Needless to say, no one at closing noticed the error and our monthly escrow account payment has been short by $197 each month. Now, after the first year with the new mortgage, we have received the first annual escrow account disclosure statement from the lender and learned that our escrow account has a $1,839 negative balance. The lender now wants us to either pay the entire negative balance or make an additional monthly escrow payment of $496.

Since the negative escrow account was not our error, do we have any legal recourse or options against the lender or the title agency? –Terry

DEAR TERRY: I am afraid you are out of luck. When you went to settlement (escrow in some parts of the country) you signed a large number of papers. One of them was an agreement that should there be clerical errors, you agree to allow those errors to be corrected by the lender.

I suspect that you signed a similar document in favor of the title or escrow company.

You state that this was not your error. While you are correct, there is a valuable lesson to be learned from your experience: When you go to closing, don’t sign any documents until you have fully reviewed — and understand — them. To some extent, you were just as much at fault.

But, although you will have to repay the escrow, perhaps you can use the error as leverage in order to negotiate a more comfortable payment schedule — say two years instead of one.

DEAR BENNY: I live in a 16-unit condominium, of which around half of the owners rent out their units. The absentee owners are never involved, resulting in a few owners doing all of the board work, etc. Can the association vote and elect to charge the absentee owners — as a class — higher monthly dues to help cover the true cost of properly running things? Or on the other hand, do we all have to pay equally more dues and hire a management company to do everything? It seems like involved owners are penalized either way. –John

DEAR JOHN: The general rule of law in community associations is that you cannot treat one owner different from another. All owners have to pay assessments based on the percentage interest of their unit. This percentage interest is generally found in your legal documents at the end of the declaration. …CONTINUED

Do you have a legal board? Has it been properly elected? Did all owners — including the eight absentees — have an opportunity to vote for the current board of directors?

If the answer to these questions is positive, then the elected board should give serious thought to hiring a management company. This would, unfortunately, raise all of your monthly assessments, but would relieve the eight of you from having to do all of the work.

DEAR BENNY: I am having trouble figuring out what constitutes an improvement and what is ordinary maintenance. Thinking ahead to selling my house in a few years when the market rebounds, I have been keeping accurate records so that I can deduct these costs to lower the capital gains. Recently, I remodeled a bathroom, replaced a deck, replaced and upgraded the spa filter and motor, replaced the front door with a fiberglass model guaranteed to last more than my lifetime, and replaced a roof and rain gutters. Which of these can I safely regard as improvements, and which are just maintenance? –Deanne

DEAR DEANNE: If memory serves me correctly, I believe I have already answered this question, but it is both timely and important, so I will respond again.

The best reference in this area can be found in IRS Publication 523, entitled "Selling your Home."

According to the IRS, improvements will increase your tax basis — which means that your profit will be lower. Thus, if you have to pay any capital gains tax, that tax will also be lower. The IRS definition of a capital improvement is that which "adds to the value of your home, prolongs its useful life, or adapts it to new uses."

Examples of improvements provides by the IRS include "putting an addition on your home, replacing an entire roof, paving your driveway, installing air conditioning, or rewiring your home."

The court cases are all over the place in this area. My definition is that if the work that you do has a useful life of more than one year, it probably will be considered an improvement. However, just fixing a toilet is maintenance, not an improvement.

I also suggest that all taxpayers obtain from the IRS a free copy of Publication 17, entitled "Your Federal Income Tax — for use in preparing 2008 tax returns." You can download this document (it is 296 pages long) or get a free paper copy from the IRS.

DEAR BENNY: If I have real estate and have it in my son’s name and my step-daughter’s name, do I have to list this property in my will? –Judy

DEAR JUDY: I am a little confused about your question. If only your son and step-daughter are on title to the property, then you don’t own it and it does not have to be included in your will.

But if you have any interest in the property, then it depends on how title is held. This answer must be general in nature, as different states have different rules and you should consult your own attorney for specific advice.

If you and the other two own the property as joint tenants with rights of survivorship, then on your death, the property will automatically go to the survivors. No probate is needed and you do not have to list the property in your will. On the other hand, if title is held as tenants in common, that means that you have a separate interest in the property. That also means that your interest must be probated. And that also means that you must have a will; otherwise, a judge will have to rely on the intestacy laws in your state — and that may not be your desire.

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 benny@inman.com.

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