DEAR BENNY: I am currently the president of the board of our homeowners association (HOA), which has 11 houses. There is an ongoing conflict that seems unsolvable. There is a large common area behind seven of the houses that is approximately 300 feet long and 60 feet wide that has beautifully maintained trees, bushes, small plants and an artificial stream that "runs" the length of the common area. The problem is the other four houses do not have access to the large common area, but the high maintenance cost is taken out of the HOA reserves that all 11 homeowners pay into.
As you can imagine, owners of the inaccessible homes are continuously complaining about paying for something they do not have access to, causing an "us against you" mentality in our otherwise-wonderful cul-de-sac. –Greg
DEAR GREG: First, my condolences on your being president of an HOA; it’s a thankless but important task.
You have raised a question that too often is asked by homeowners whether in a condo or an HOA: "I live on the first floor, so why should I pay for the elevator?" or "I never use the swimming pool so why are you assessing me for its upkeep?"
The answer is simple: When you live in a community association, you have to pay for the maintenance and repair of all of the common elements — whether you use them or not. These common elements — such as a tot lot, swimming pool or, in your case, a beautiful park — enhance the value of your property. I suspect that when these four owners go to sell their houses, they will include that landscaped area in their sales brochures.
Bottom line: All community association owners must pay the assessment — whether or not they use or enjoy everything that is part of the community.
DEAR BENNY: My wife and I want to sell our home to our three grown children. Each would give us a third of its market value. The advantage for doing this would be that we would take the home out of our estate and ease their legal burden when both of us are gone. We would then return the money to them in time by the allowed gifting of $12,000 for each of their family members.
We would pay them the market rental rate and they would then have to pay the real estate taxes, any required repairs and other owner responsibilities. Is there a time limit in our being able to rent the house? We would like to do this without the involvement of a lawyer. –Frank
DEAR FRANK: First, to clarify, the annual exclusion as of this year is $13,000. So you can legally — and without tax consequences to anyone — gift this amount to each of your children, plus the same amount to any member of their family.
I like the idea, and assume that you either own the house free and clear of any mortgage or are prepared to pay off any mortgage before you deed the property to your three children.
You plan to sell the house, which means that you have to consider any applicable capital gains tax. If you have lived in the house for two out of five years before the property is sold, since you are married (and presumably file a joint income tax return), you can exclude up to $500,000 of your profit. Depending on the sales price — and the amount of the profit you will make — it might be a good idea to run the numbers by a certified public accountant. You don’t want to make any mistakes when dealing with the IRS.
There is no time limit on how long you can rent out the house. That’s a private and personal decision between you and your children.
You say that you would prefer not to use an attorney for this transaction. I must respectfully disagree. Someone has to prepare and record the deed to the property, and it must be done correctly. The last thing you want is to learn that somehow a mistake was made, and your children will have to go to court to clear up any such errors.
A lawyer should assist you, and the cost should not be too much. More importantly, cost should not be a consideration — doing it right is more important.
DEAR BENNY: I am an executor for an estate currently in probate. One of my duties has been to pay the mortgage on the deceased’s residence. The lender has sent me a payoff notice. Once the mortgage is paid off, what documentation should I get to confirm that it was paid off and what other actions do I have to take in this situation? –Joe
DEAR JOE: It does not make a difference if you pay off a mortgage in your capacity as the personal representative (also called executor) of an estate or you are paying off a mortgage on your own home. The process is the same. …CONTINUED
The mortgage (also called a deed of trust in most states) was originally recorded among the land records in the jurisdiction where the property is located. When it is paid off, there has to be some notice on those same land records, putting the world on notice that there no longer is a mortgage outstanding.
Some states use a certificate of satisfaction, while others use a release. But call it what you will, some form of release must be recorded. Typically, commercial mortgage lenders will handle the release on their own, but that’s not always the case.
If you are paying off a mortgage that was given by a private party — say the seller took back financing and recorded the mortgage — you want to make absolutely sure that before you provide the final payment check, that lender gives you back the original loan documents, marked "paid and cancelled." I have encountered too many situations where there is no question the loan has long been satisfied, but it was never released from land records. The lender is either deceased or cannot be located, so you still have a cloud on your title. The only way to resolve this if you cannot file a release is to file a quiet-title lawsuit, which is time consuming and an unnecessary expense.
My strong suggestion is to not "burn that mortgage" until you are absolutely sure that it has been released from your local land records.
DEAR BENNY: I have a question about joint ownership. I’m the sole owner of a property, and my girlfriend wants to have her name added to the deed. First of all, can this be done? And if so, what are the legal and financial ramifications of such an action? Any thoughts as to if this is a good idea or not? –Henry
DEAR HENRY: The answer to your first question is very easy: You can add anyone to your deed. But the real question is: "Should you?"
As you surmised, there are both legal and financial ramifications to this. When you add your friend to title, you are giving her a gift. Since I assume the property is worth more than $26,000, there are gift tax complications, and you must consult with your financial advisor on this. (I picked $26,000 because you can gift up to $13,000 on a yearly basis to anyone.)
There are also legal ramifications. What if you split up? Your girlfriend is now a part owner of your property, and she will not give it back without a legal fight.
You could, of course, enter into a partnership agreement with her, spelling out the terms and conditions under which she will become a part owner. Each of you should have separate legal counsel to advise and assist you should you really want to go this route.
I am not a marriage counselor, but perhaps the best approach is to get married.
DEAR BENNY: We lost our house in Hurricane Charley in 2004. The deed was in my husband’s name. When we contracted with the builder for the new house to be built on the same property, the paperwork was put in both of our names.
The tax bill from the county lists my husband’s name only. Who is/are the legal owner(s)? Is it just a matter of going to the county with our paperwork so they can change their records? –Mary
DEAR MARY: If I understand your question, only your husband is on title to your house. Your contractor wanted both of you on the paperwork so that he could go after both of you should you default on your payments.
I don’t know the laws in your state, but generally, there is no transfer or recordation tax when a spouse is added to title; usually there is just a nominal filing fee.
You may be able to get assistance from the local county recorder of deeds. However, it might be best if you consult a local real estate attorney. His or her fee should also be nominal.
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 firstname.lastname@example.org.
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