Ask Realty Times - October 22, 2004
by Peter G. Miller
Question: I've been working overseas and next year will probably be my last. I've owned a home in the U.S. for six years and can pay off the mortgage in a few months. I will probably sell the property in the next five years. My mother wants me to sell now. However, the area I live in got hit by Hurricane Ivan and even though my home suffered minor damage I feel that because of the storm I will get lower bids. Should I pay off the loan or sell? Answer: If you sell there will be costs to market the property plus the expense of finding a replacement residence. If you pay off the mortgage you will reduce monthly costs but still have the property for your use. An alternative choice works like this: Do you believe that local property values will rise? If yes, keep the mortgage you now have or refinance to a lower rate so you can hold onto an appreciating asset. Then consider how best to invest your cash -- perhaps another property would be attractive in a market with rising values. Question: My son has a refrigerator in his new apartment that has a terrible smell! No cleaning effort has been able to remove the odor. The owner told us the last tenant left without his knowledge; the electricity was disconnected so there was food rotting in the fridge for days before he knew. He thinks the smell is from a bag of frozen bread that exploded in the freezer when it got too warm. What can we do? Answer: Is the landlord obligated to provide a refrigerator under the lease? If yes, ask for a replacement. Odors from the current unit may suggest an inability to store food safely or the presence of mold. The landlord may want to take the door(s) off the fridge and let it air out for however long it takes to remove the odor. Question: My homeowners insurance policy is being canceled because I have a large dog. What can I do? Answer: If your property is financed, then the mortgage company will require that you maintain property insurance. Thus you must find a replacement policy -- speak with local insurance brokers for suggestions. Does the dog have any history of attacks? Is the breed regarded as dangerous or hard to domesticate? If not, you should contact the state insurance commission and state lawmakers for their input. Question: My daughter and husband purchased a house in October 2003. She has quit her job and gone back to school in a different field and is only working 32-60 hours per month. They are selling the house and purchasing another one for less money. They purchased the original home for $195,000 and are selling for $216,900. How are they going to be affected by capital gains taxes since they have been in the house less than a year? Answer: They may have purchased the home for $195,000, but when they bought they also had various closing costs. The betting here is that their "basis" for the property is more than $195,000. As to selling, they may ask for $216,900 but they may not get it. Whatever price they do get will be reduced by marketing and closing costs. The result is that their taxable profit is likely to be small. The IRS has issued final guidelines which detail circumstances under which some capital gains protection may be allowed even if owners have not lived in a property for at least two of the past five years. One qualifying standard, according to attorney Benny Kass, is "a change in employment or self-employment status that results in the taxpayer's inability to pay housing costs and reasonable basic living expenses." Your daughter needs to speak with a tax professional to see if the new IRS guidelines can work in her favor. She also needs to ask if any state tax obligations will be created by the sale. Question: My husband and I were renting a house when the owner decided to sell. He said he would sell to us with an installment contract and a good-sized downpayment to pay off the existing mortgage. We put $12,000 down and he paid off what he owed. The problem now is that we just found out that the owner then delayed recording the sale and got another loan on the house in June. He now owes more on the house than we owe him. What can be done? Answer: There was no "sale" to record. With an installment contract buyers only receive title after some or all payments have been made. What you have is an "equitable" interest in the property. You need to have an attorney review the lease and the installment agreement. You also should have your interest recorded, if the loan is secured by the property, so that your $12,000 must be re-paid to clear the title if the property is sold to someone else. As to how much financing the owner has on the property, that's his obligation to re-pay. If the property is sold and the debts exceed the value of the home then the owner will need to bring cash to settlement to pay off his debts. Question: If I buy a home from a self-seller should I get a home inspection? Answer: Whether a home is offered for sale by an owner or through a real estate broker, it's prudent to make the transaction dependent on a professional home inspection that must be "satisfactory" to you. However, let's take this further. A home is a huge and complex purchase. Would it not be in your best interest to have professional help? That the seller elects not to use a broker does not mean you, as a purchaser, are condemned to make the same choice. A buyer broker could surely protect your interests, interests which differ entirely from those of the owner. Question: I'm selling my home right now, however I have a closed-rate, fixed mortgage which will require a $2,300 prepayment penalty. Is there any way to avoid this charge? Answer: Does the penalty apply if you sell? Does it apply if the loan is assumed? In some cases pre-penalty fees apply only to refinancing but not to a sale situation or an assumption. Also, will the lender enforce the penalty if you refinance with the same lender? Also, given that this is a "closed rate" loan, does the pre-payment penalty feature expire after three to five years. If yes, would it make sense to wait before selling or refinancing? Speak with your lender -- if the penalty can be waived be sure to get such information in writing.
This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought. | 
