Ask Realty Times - April 29, 2005 - 4/29/2005 - Real Estate Home House Condo

Ask Realty Times - April 29, 2005
by Peter G. Miller

Answer: The idea of a deposit is to assure that a buyer goes through with a transaction. In the event the deal falls through because of the purchaser, you should be entitled to some compensation because you have not been able to sell to anyone else as long as the property has been entangled in the contract, thus you may have lost a buyer and maybe a better deal.

As to whether you get the deposit, you have to look at the purchase offer with care. Does the offer have a reservation or contingency which might apply to the ex-wife? Is there another way the buyer might be able to wriggle out of the agreement? Does the broker have any claim against the deposit? Do you also have a right to sue the purchaser? Have an attorney or legal clinic review the sale agreement -- absent any language to the contrary you have a strong claim to the cash.

Question: I purchased a townhouse for $170,000 last April. I don't like the area and I now want to sell, which means I've lived here for only one year. If I sell it now, will I be penalized because I haven't lived there for two years? Also, if I sell it for $175,000 is that considered a gain? Aren't you able to write off the closing costs, commissions, etc., from the sale price?

Answer: You bought for $170,000 and you may be able to sell for $175,000. However, when you bought you also paid an array of closing costs. When you sell, you'll again face closing and marketing expenses. Thus you are likely to have a loss. Get out the HUD-1 settlement sheet from your purchase to see your true cost.

Question: My husband and I are building a house. We signed the contract July 2004 for $157,000. Right now (April 2005) the house is appraised and would currently sell for $225,000. Since the mortgage is less that 80 pecent the value of the home, will I be required to pay private mortgage insurance (MI)?

Answer: Yes. When you bought the property you put down less than 20 percent of the purchase price. You can typically cancel MI once the original loan amount has been paid down 20 percent. Coverage must be canceled when the original balance has been reduced by 22 percent. In your situation, the lender might agree to cancel coverage after several years of good payments -- after the loan has "seasoned" a bit.

Question: Some friends of ours are considering the purchase a house which is off a busy two-lane town road, with speeds up to 45 mph. This is the first house to be completed in a new subdivision. The side of the house faces the road. This house is priced lower than others in its area, perhaps because of its proximity to the road. So, on the one hand, our friends are getting much more house and yard for the money, and it is a very nice house. On the other hand, they're concerned about the eventual resale years from now. Is this a reasonable concern?

Answer: Yes. Homes represent compromises, we all try to get the best we can within the limits of our finances and preferences. Plainly a home near a busy road will be less attractive to some potential buyers merely because of it's location.

That said... is noise a problem? If the home is far enough off the road noise may not be an issue. Is traffic volume a problem? You have to think about how the road will be used in the future, if more area construction will result in more volume. Will the road be widened? This could be a real problem in terms of noise and pollution as well as the visual impact on the property.

On the plus side, a home on a busy street can be a great location for garage sales.

The bottom line is that your friends are paying less for a home, at least in part because of its location. That's not a choice everyone would make, but in the future they only need one buyer.

Question: I was deployed overseas in the military and my husband was to sell our Colorado house. I left him a special power of attorney for that transaction to take place. He sold to a friend of his.

The house was purchased through my VA loan. When the property was sold, the loan was not assumed.

I have talked to the new title holders numerous times and they don't want to assume the loan and or sign the title back to me. I was told that they can sell the house. Is that correct? The people who have the title have been living in the house since November of 2003. They make the payments to the mortgage company, but they are late every month. The mortgage company sends me to collections almost every 60 days. Until this house thing, I had very good credit and now it is spoiled. What can I do?

Answer: Go immediately to your base legal officer. It may be that the power-of-attorney enabled your husband to sell the home. However, having sold the property, why was the loan not repaid from the sale proceeds or assumed? Also, if someone has good, marketable and insurable title then, yes, they can sell.

The VA may be able to help. Please have your base legal officer get in touch the VA regional loan center in Denver. They can be reached at 303-914-5600. Also, the base attorney may want to contact the director of the VA Loan Guarantee Service in Washington, D.C. at 202-273-7330.

If continuing liability for the loan is a problem, ask about obtaining relief from the VA in the form of an "exception."

Question: What are the pros and cons of having a real estate license when buying investment property?

Answer: Typically when you buy or sell you need to disclose your status as a licensee. You may be able to locate properties faster and discount the commission because you are licensed. If real estate is your profession, you may be entitled to treat your activities as a business under Schedule C. Speak with a tax professional for details.

Question: My husband and I own three rental properties and have plans to continue buying more homes as it becomes possible. Would it make sense, now the portfolio is beginning to grow into a more substantial financial undertaking, to form a corporation and move the houses under it instead of us personally owning them? If so, we would obviously buy future homes under the corporation. What about the homes we already own?

Answer: It may well make sense to have a corporate structure to limit liability. However, you need to ask some core questions:

 

• What type of corporation is best for your situation?

   

• What will happen to the financing on your current properties if the titles are changed?

   

• What are the tax implications of a corporate structure?

   

• What is the annual cost to operate a corporation?

A real estate attorney in your jurisdiction can review your needs and provide detailed answers.

Question: We are considering purchasing a home (our first), but the high prices of houses worry us. We will likely have to move in a couple of years and now seems to be the height of the market. If prices fall, would we be responsible for paying the entire mortgage?

Answer: Generally, when you sell you are responsible for the total repayment of the mortgage. One exception, however, concerns California where a lender who provides a "purchase money" mortgage to buy a home can't go after you for more than the value of the property when it's sold. Of course, if you refinance you no longer have a "purchase money" loan.

All choices have risk. It is a risk to buy a home because prices might fall -- but it is also a risk not to buy and miss the possibility of appreciation.

Question: How do the rules differ when buying a fixer-upper versus an average home?

Answer: All homes have a given value. If you can buy a property for $500,000 and a similar property requires $40,000 in extra repairs, the second property will sell for less -- otherwise the buyer is paying a premium price in the context of the current market.

What often happens is that the second property simply does not sell with any speed. Buyers see it as over-priced and in time the offering price declines or the seller accepts a reduced offer.

A fixer-upper should be seen as a two-part purchase: First you acquire the property and then you repair it. To the extent that the repairs take time, the property cannot be rented, used or readily re-sold -- in effect, there is an additional layer of costs.

When considering a fixed-upper it's prudent to make the sale contingent on a home inspection satisfactory to you. Go through the property with the inspector and make a list of problems and also likely repair costs for the next five years. In this way you won't overpay.

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.