DEAR BENNY: I am president of a condo association board in a 10-unit building. One of the unit owners has not paid assessments for nine months. He was renting out his unit, which is now unoccupied. His telephone has been disconnected and attempts to reach him by mail are returned indicating there is no forwarding address. The unit has been listed on the (multiple listing service) for months. Also, he has a primary and secondary loan on the unit.
We are considering the unit abandoned at this point. Do you have any recommendations on how the association can put a lien on the unit to collect past-due assessments, as well as our right to enter the unit for emergency maintenance? –Mike
DEAR MIKE: Whenever I meet a person who is the president of a condominium association, I always greet him or her by saying, "My condolences." Serving on the board of directors of any community association is a thankless job, with long hours and no pay. But, you are serving to protect your investment, and you should get thanked daily from your fellow owners.
I cannot provide specific legal advice, as every state has different collection and lien procedures. You really have to talk with an attorney who is familiar with community association law. You can find attorneys, as well as a lot more information, from the Community Associations Institute at www.caionline.org.
In a condominium, your legal documents consist of (1) a declaration, (2) bylaws, and (3) any rules and regulations adopted by the board. Additionally, every state has some form of condominium act.
Your bylaws should answer your question about accessing a unit in an emergency. If the board truly believes that access is important — for example, to inspect a vacant unit to make sure that all utilities are functioning properly — the board has the right to enter the unit. In fact, if you do not have a key to the unit, you can arrange for a locksmith to give you access.
I firmly believe in the concept of "zero tolerance" for condominium fees. You should not allow a unit owner to be more than one month behind before taking the appropriate collection action. And again, your bylaws should provide you guidance on what actions you can take.
Filing a lien against the unit on your local land records is important. It puts the world on notice that the condominium association is owed money. If someone goes to buy that unit, in order to get good, free and clear title, the lien must be paid off and released from land records.
But a lien may not be helpful if a lender forecloses. To my knowledge, only 12 states in the country have "super-priority" liens; this means that all or a portion of the delinquent fee has to be paid by the bank when it forecloses.
Here’s one suggestion for the future: Your board should adopt a rule requiring owners who lease their units to sign a lease addendum.
Such an addendum — signed by a board member, the unit owner and the tenant — contains the following provisions: (1) tenant has been provided with all condominium documents; (2) tenant agrees to be bound by those documents; (3) tenant gives the association the right to take legal action against the tenant for any violations; and (4) if tenant is advised by the board that its landlord is delinquent in paying the condo fees, tenant will pay the monthly rent to the association and not to the landlord.
Because this is a legal document, signed by both landlord and tenant, the landlord cannot object if he/she does not get the monthly rent.
Finally, discuss with your lawyer whether the association has the legal authority to foreclose on the unit.
DEAR BENNY: I am 72 and would like to know how to transfer my home to my son after my death. If I transfer my home to him using my will, it will go to probate. What are some other options I have to transfer my home to him without cost or at best minimal cost to me or my son? –Harry
DEAR HARRY: I can provide you with only general information; there are different laws in different states, and you really should consult with a local attorney who understands real estate and probate law.
If you leave your home to your son in your last will and testament, you are correct that it will have to go to probate. Actually, that’s not a major problem, especially in those states that have enacted the Uniform Probate Code. And if you have other assets that will require probate, your son would still have to file with your local probate court anyway.
You could give your son the house outright, but that might trigger taxable consequences. Any gift over $13,000 in any one year will use up your lifetime gift tax applicable credit. This is somewhat complicated, and your tax advisers can assist you in understanding this.
Furthermore, the tax basis of the gift-giver’s property becomes the basis of the receiver of the gift. For example, if you bought your home many years ago for $50,000, and it is now worth $650,000, when you give the house to your son, his basis will be only $50,000.
Should he decide to sell, unless he has owned and lived in the property for two out of the five years before the sale, he will have to pay capital gains tax on the difference between the tax basis and the selling price. If he is married, and does meet the ownership and use test referenced above, he can exclude up to $500,000 of any profit (or if he is single, up to $250,000 of gain).
This is a rough example for simplification purposes. There are many things that one can do to increase the tax basis, such as making improvements to the house.
On the other hand, if he inherits the house, he can avoid paying any capital gains tax so long as the value of the property does not exceed $1.3 million. Up until this year, there was in the tax law the concept of the "stepped-up" basis. That meant that on the death of a property owner, the heir was able to "step up" the basis to the market value of the property on the date of the prior owner’s death.
However, for this year (2010) only, and barring any congressional tax legislation, the stepped-up basis was repealed. Instead, your son can claim what is known as a "carryover" basis; he can, in effect, increase his basis up to the market value on the date of death, but only up to $1.3 million.
The true stepped-up basis will resume in January 2011.
Your son can also buy your house, and rent it back to you. If he does not have enough money, you can take back financing, and charge him interest for your loan. You can offset his payments to you by the rent you will have to pay him. Be careful, however, if you currently have a mortgage. While you have the legal right to sell your house to your son and have him assume your mortgage, you should advise your lender of this fact.
And since you have owned and lived in the house for more than the requisite two out of five years before sale, you can exclude up to $500,000 of any profit (or up to $250,000 if you are single or file a separate income tax return.)
There is also a concept called "SCIN" — self-canceling installment note. If done properly, on your death the balance of your son’s legal obligation to you on the promissory note can be canceled and he will owe the estate nothing. This, too, is extremely complicated, and your legal and tax advisers should assist you in understanding the pros and cons of this.
DEAR BENNY: What’s the website for all those Internal Revenue Service publications you often suggest readers to read? –Carrie
DEAR CARRIE: Go to www.irs.gov, and click on Publications. You will find a wealth of information that will be helpful to you as you complete your income tax return.
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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