Inman

4-plex owners eye partner buyout

DEAR BENNY: I purchased one unit in a four-unit condominium in Florida, and all four owners share equally in the common expenses. The whole building cost $220,000, but the property value has now fallen to under $200,000.

One of the owners would like to quitclaim her share of the property. The other owners have decided to buy her share or take over payments. Since the market value of the property is less than the original purchase price, how do we go about buying her share?

We do not have a written contract regarding quitclaim. Is there a law or penalty that can be imposed on the party who wants to quit? –Syd

DEAR SYD: Either I don’t understand your question or you are confused about the concept of a quitclaim, and I believe it is the latter. So, permit me to lecture Real Estate 101.

Oversimplified, there are three kinds of deeds that can transfer property (although different states may use different terminology):

(1) General warranty deed — this means that the seller (the grantor) is telling the buyer, "I have good, clean title, and basically my chain of title goes all the way back to when King George gave the land to this country";

(2) Special warranty deed — again, the grantor warrants good title to the property, but going back only to the time that the grantor took title; and

(3) Quitclaim deed — here, the grantor says, "I guarantee nothing; whatever interest I have in the property I give to you."

For example, I will be happy to provide a quitclaim deed to all my readers for the Brooklyn Bridge: since I have no interest in that property, you get no interest either. Typically, a quitclaim deed is used when one party to a divorce transfers the family home to the other spouse.

So, let’s get back to your question. Each of the four unit owners owns a unit in fee simple; that means that you each have good title to the property. One of your owners wants to sell her unit to the remaining three owners. That’s not a problem, and the three of you have to decide (a) how to divide up the purchase price and (b) more importantly, how to take title to that fourth unit.

You live in a condominium, not a cooperative. In the latter, ownership is reflected by shares. In a condo, ownership is reflected by title.

I cannot recommend that you all take title by way of a quitclaim deed. If the fourth owner really wants to sell, she should convey the property in the normal way that it is done in your state, which probably is by way of a special warranty deed.

You will have to arrange for a loan, unless you all can pay all cash or arrange with the current lender to take over the existing mortgage. …CONTINUED

Finally, you need a real estate contract, and I strongly suggest you consult with an experienced real estate attorney in your area. It may be that each of you will have to retain separate counsel, since there could be a conflict of interest if one attorney represents all three of you.

DEAR BENNY: This is in response to your recent column, where you said that everyone has to share in the cost for upkeep of common areas. The writer indicated that the area in question is "inaccessible" to four of the homes, not making it common to all residents. It seems that people shouldn’t pay if they don’t have access. If you live in a community and only some residents are allowed access to a swimming pool or tennis court, the excluded residents should not be obligated to pay for their upkeep.

I can understand if these four homes do not front the desirable green space, but the residents are allowed access (to play croquet or badminton, perhaps). The writer used the word "inaccessible," as if the area is the private backyard for the other homes. Use is one thing; access is another, yes? –Holly

DEAR HOLLY: I completely understand your logic, but unfortunately that is not the law involving community associations. Generally, the state condominium law and an association’s legal documents require that all owners must pay their fair share (normally based on their percentage interest in the association) for the maintenance, repair and replacement of all common elements.

It’s true that associations can and do often charge a user fee for such things as the swimming pool or the health club. But that fee is to help defray certain costs associated with that amenity — such as life guards, or the towels and soap at the health club. But maintenance, repair and replacement is the obligation of everyone — regardless of whether you have access to the area or not.

That is a fact of community association living. I often give the example of the owner who claims, "I live on the first floor so I don’t want to pay for the costs involving the elevator." Sorry, fellow, that’s your legal obligation!

One fact of community-association living that people often misunderstand (or want to ignore): Right or wrong, when you buy into an association you are legally bound by the legal documents (including rules and regulations) as they currently exist or as they may be legally and properly amended from time to time.

DEAR BENNY: We carried a $200,000 mortgage note on our daughter and son-in-law’s house. Recently, though a title search, we discovered that our son-in-law forged our names to a notarized "Satisfaction of Mortgage" note and obtained a new $260,000 loan on the property, which is worth about $300,000. He did this over a year ago. Our daughter had no knowledge of what he had done.

Our question: Can we somehow reclaim this property? They have three children and only his income, so we don’t want to send him to jail. Are there alternatives? –Joan

DEAR JOAN: Nice guy, that son-in-law of yours. A forged document generally has no validity and can be challenged. The burden will be on you to prove the forgery, and it will require your daughter to assist you — since her signature may also have been forged. This will clearly create a family problem for her.

The lender that made the new loan will obviously take the position that it relied on the various documents and thus its lien is valid. The lender will argue that it is bona fide, without knowledge of the forgery.

You could consult legal counsel in your area about filing suit.

DEAR BENNY: I am a condo owner in a 200-unit building. Recently, our board of directors imposed a special assessment, which is to be paid in four equal installments. There are many people who have not paid. Do I, as an owner, have the right to know who these people are? The president of our association will not discuss this. –Richard

DEAR RICHARD: You have raised the classic legal and ethical question of how to balance privacy with public information, which we now call "transparency." …CONTINUED

On the one hand, if you were delinquent on your assessment (or your condo dues) you would not want the world — especially your neighbors — to know this. But as a unit owner, I believe you have the right to this information.

However, various state laws — with the support and encouragement from many community association attorneys — have been enacting restrictions on what information owners are entitled to receive.

It is not illegal — nor libelous — if a board disseminates delinquency information, but there are two caveats: (1) the information must be circulated only to other owners and not to the world at large, and (2) the information must be absolutely accurate.

For example, if the board announces that John Smith owes $250 in delinquent assessments but John pays the money before the announcement is circulated, that information is false and could subject the board to a lawsuit.

Accordingly, most boards — and often supported by law — will refuse to release delinquency information. However, while you may not be getting specific information, in my opinion you do have the right to know if the board is pursuing a legal, collection action against the delinquent owners.

DEAR BENNY: My daughter just married a year ago. Her husband bought his first house five years ago. If she purchases a house in her name (loan in her name), can she receive the federal tax credit? –V.M.

DEAR V.M.: You really should ask a tax professional for a formal opinion, since this is, in my opinion, a gray area. First, visit the IRS Web site.

The Internal Revenue Service has a number of questions and answers regarding different scenarios, but none that directly fits your question. However, for several questions, the IRS stated: "While individuals do not have to be married to get the credit, marriage (and legal separation) imputes ownership of a previous home upon the other spouse. The taxpayer may not take the credit even if filed on a separate return."

So as I read the position of the IRS, since your daughter has an "ownership interest" in her husband’s house, the credit would not be available. Furthermore, there is a three-year look-back period. If, within three years before the time the new property is owned, the parties own property, they are not eligible for the credit.

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.

***

What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.