DEAR BENNY: What can be done about dogs that bark all the time? I live in a gated development in a homeowners association. The board says they cannot do anything about it, but I don’t see how that is possible. What is the board for? –Bill
DEAR BILL: Good question about what the purpose of a board of directors is. Legally, they are the equivalent of the executive branch of any government. Their function is to manage, operate and enforce the legal documents of your association.
Unfortunately, there are some board members who seem to serve only so they can be called "Mr. (or Madam) president." It’s an ego trip for them.
Now, before I get hundreds of nasty e-mails complaining about that last statement, I have to say that from my experience the vast majority of board members are honest, hard-working and dedicated to preserving the quality of life in their community.
But community associations can be big business; often, the budget of a condo or an HOA is larger than many commercial establishments. So board members often find themselves not capable of handling the affairs of their association.
I am confident that your legal documents prohibit excessive noise and nuisances. How do you prove that the barking dogs are violating the noise and nuisance requirements of your association?
That’s not easy. But if you have a number of owners who are prepared to complain, that will send a message to the board that the owners who elected them to office want them to enforce the operational documents.
In many states, however, the judges in a lawsuit will not interfere with the actions (or inactions) of a board, even if they are making a mistake. This is known as the "business judgment rule."
The court decisions say that judges will not second-guess what a volunteer board is doing, unless of course there are criminal violations — such as stealing from the association or not disclosing that a board member has an interest in a company doing business with the association.
Some states have rejected the business judgment rule. In the District of Columbia where I practice, the courts have adopted a "reasonableness" test to determine whether the actions of the board are reasonable.
So, if your state has the business judgment rule in place, the board may take the position that we just don’t want to get involved.
If that’s the case, what should you do? Have you talked with the owners of those barking dogs? If they don’t seem to care, I believe you have only three alternatives: (1) File a lawsuit against those owners claiming they are creating a private nuisance; (2) put up with the noise; or (3) move out of the community.
On the other hand, if your state has adopted the reasonableness test, you may also have a cause of action against the board for not enforcing the rules. But in either case, the burden will be on you to prove that there is a nuisance and a noise.
DEAR BENNY: I recently purchased a "firesafe" box to store my family’s important papers (birth certificates, etc.). I thought I should also include the important house papers as well, but that’s when I got confused.
We purchased our home when first married in 1988. Since then we’ve refinanced twice (1998 and 2002) and at some point our original mortgage was transferred to another two lenders. In any case, we carefully saved all the papers for each transaction.
My firesafe box is relatively small and I now find I don’t know which papers I should save. I’ve got two deeds of trust — one from the original and the other from the 1998 refinancing. Our 2002 refinancing was with the current lender at the time, so I’m not sure if they didn’t need to provide another deed of trust (as they already had one) or if I’ve lost it. I’ve also got the original 1988 sales agreement and the 1988 and 1998 settlement agreements — lots of other papers but not sure how important they are.
Finally, I also have papers from the opening of an equity line of credit with our primary bank. I’m hoping you can tell me, if our house were to burn down, what papers do we need to keep? –Nancy
DEAR NANCY: If your house burns down, you will not need any of the loan documents. The important ones — deed of trust (the mortgage documents) and the deed to your property — are all recorded among the land records in the state (or county) where your house is located. You might want to keep a copy of your last promissory note, just in case there is a question about its terms and conditions. You should also keep a copy of your home insurance policy, since there may be issues as to coverage and the policy controls.
But, more importantly, there are many documents that you will need for taxation purposes. Currently, homeowners who sell their house can take advantage of the up-to-$250,000 exclusion of gain (or if you are married and file a joint tax return, up to $500,000.)
If your profit is less than the maximum gain exclusion and if you are audited by the Internal Revenue Service, your original settlement statement showing the purchase price will be good evidence of what you paid for the house.
But if your profit is over that maximum, you want to increase your tax basis so that your profit will be smaller. How do you do this? First, if you have made major improvements to the house — such as remodeling your kitchen or bathroom, or an addition to the house — you will be able to increase your basis. But you will need proof, such as your construction contracts.
Also, your settlement statements over the years may contain other items that can increase basis — such as attorney fees and many closing costs. You should discuss your specific situation with your own tax advisers.
Perhaps it would be a good idea to get a larger firebox, or better yet, get a safe deposit box in a local bank. According to the IRS, "You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. You cannot deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities."
DEAR BENNY: I was reading your article regarding adding money to the monthly mortgage payments. How does this affect taxes if the money paid comes from someone other than the owner of the home? –Annette
DEAR ANNETTE: To assist readers who may not have seen my earlier column, here’s the situation: If you make one additional month’s payment annually on your mortgage, you will reduce a 30-year loan down to 22 years.
Why? Because mortgage interest is calculated monthly on the then-outstanding balance. Obviously, the lower that balance, the less interest you have to pay. So, more of your monthly payment goes to pay down principal.
The best approach is to pay one full extra month at the beginning of each year. However, if this is financially difficult, divide your monthly payment by 12, and add that amount to your payment. But — and this is important — write on your check and on the coupon you send in to your lender that you are making an extra principal payment of X dollars. Otherwise, you lender’s computer will get confused and those extra funds may just end up somewhere with the lender but not credited to you.
Once the loan has been approved and in place, the lender should not care where the funds are coming from. So if a relative or friend wants to give you additional funds to use to pay down your mortgage, that’s OK.
But keep in mind that there are tax complications for the giver of the gift if the amount is more than $13,000 each year. However, if you and your spouse own the property, the gift giver can give you each $13,000 without any tax issues.
DEAR BENNY: Someone in my church may need to go the reverse mortgage route in order to stay in her home due to a divorce. Can you point me to any printed overview of reverse mortgage companies? –Pete
DEAR PETE: Thanks for writing. I make it a practice not to make any recommendations of any private companies. However, I do recommend that you contact AARP, since they have done a lot of work — and research — into reverse mortgages. You can locate them on the Internet: aarp.org, and type in "Reverse Mortgage."