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Ask Realty Times - July 9, 2004
by Peter G. Miller
Question: I am self-employed and we are about to buy a home for $200,000. We planned to put five percent down, but our mortgage broker said we could finance all of it with a "stated income" mortgage. We have a credit score of 714 and she has run all the numbers and we qualify with a stated income loan. We do not qualify for the loan under traditional lending because of our tax return numbers. Do you recommend using this type of mortgage? Answer: With a "stated income" mortgage you tell the lender how much you earn but the amount is not verified -- unless the application is later audited. Lenders have seen tax-returns from self-employed people before. They know how to "add back" items, such as depreciation, to raise application income for qualification purposes. Lenders also know that "stated income" applications are sometimes, er, exaggerated -- one reason such financing is less popular with lenders each day. With a stated income loan you will likely be asked to sign IRS Form 4506 which gives a lender the right to check your tax returns. And it does happen that such loans are sometimes verified during quality control audits or when mortgages are sold. Why not speak with other lenders to see if better loan options are available in your situation? Also, consider a smaller loan amount. Question: When we purchased our home three years ago, no disclosure was given by the seller regarding the home for the mentally retarded just across the street. Now, we need to sell our home. In the middle of the conversation to our agent (who was our agent at the time of the purchase) about getting our house ready to sell, I asked our agent if she thought the home for the mentally retarded would give us any trouble. And she says no, as long as we disclose the information in the contract. Should the selling agent have told us about the facility across the street when we first bought the house? Answer: The federal Fair Housing Act bans discrimination on the basis of race, color, religion, sex, handicap, familial status and national origin. And, certainly, mental retardation is a handicap -- something which should not be part of a real estate transaction. If a neighborhood child was deaf or blind would anyone expect that fact to be disclosed by a home seller? The Ohio Association of Realtors, as one example, explains that "under the federal and Ohio Fair Housing Laws, you may not discriminate against persons with a handicap. Therefore, just as you wouldn't volunteer information regarding the racial or ethnic composition of the neighborhood, you should not volunteer information regarding mentally handicapped neighbors." As to group homes, in 1995, the Supreme Court ruled in City Of Edmonds V. Oxford House, Inc. that the Fair Housing Act took precedence over local zoning rules. In essence, the court said that zoning laws designed to limit the number of people who can occupy a single residence did not apply in the case of a group home whose occupants are protected by the Fair Housing Act. For details and application to your situation, please speak with a knowledgeable real estate attorney. Question: I am a homeowner who just bought my house a year ago. I see the prices of houses right now are going up so fast, especially our area. I want to purchase another townhouse but don't know the best instrument to use. How can we get money out of our current property to buy another and will we face a capital gains tax? Answer: You only need to worry about a capital gains tax if you sell. Instead of selling, consider renting your current home or refinancing. If rates are down relative to when you bought, and if you will stay at the property, look into a complete refinancing of your current loan and consider mortgages which require no cash costs at closing. If the mortgage you now have is low relative to the marketplace, then keep it. Next, get a home equity loan if you're staying -- in the usual case you can borrow $100,000 above the original financing used to secure the home and still deduct all interest. For details, speak with a tax professional. Question: Can a homeowners association be started for a small development that has only six separate town houses? If yes, what is the procedure to start an HOA? Answer: A homeowners association can be seen as a way to organize multiple units and parcels of real estate under a given set of common rules. In other words, the real estate stays the same but the paperwork changes. For lots of money you can get an attorney to draw up the forms, providing there is total agreement among the property owners regarding all terms. Alternatively, with six owners, why not meet in someone's dining room to discuss common needs. You can agree to mutually finance lawn cutting, snow removal or whatever without a lot of documentation and cost. Question: I bought my house four years ago for $600,000. I borrowed $80,000 from my dad to help with the down payment. I'm now selling for $1.3 million. Can I pay my dad his money back -- plus interest -- through escrow as nonrecurring closing costs, or something else like that. My wife and I get the $500,000 tax free profit amount, but we're over that amount and I don't want to pay taxes on the profit. I can probably put together a note explaining that I borrowed this money. Answer: You have as much as $200,000 in taxable profits ($700,000 less $500,000). But that $200,000 will be reduced by closing costs to buy, receipted capital improvements and selling expenses. In effect, you will have little to tax, and the tax you pay will be minimal in the context of a $700,000 gain. As to the money from your father, was repayment expected? Was interest charged? Is there a proper note? Was there a check showing that the money was a loan? Was a lien recorded? To see how his money should be treated for tax purposes and what documentation is required, please speak with a tax professional. Question: I own a home with my husband. We are not legally separated but live apart. Can he place our home on the market to be sold without my approval or signature? Answer: If you're on the title, no. In that case you're an owner. No less important, no broker will sell the property without your signature on the listing agreement and no lender will finance such a transaction if a title examination lists you as an owner who did not agree to sell. For specifics, speak with a local attorney.
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. | 
