Question: I have a new home that was completed and financed in November of 2003. We might be transferred to Dallas, TX in the next few months. If I sell my house before the two-year mark I was told we have to pay taxes on the profit. Is this correct?
Answer: When you say you are being "transferred" does that mean you are being forced to move because of a job change? If yes, good news: The IRS says that if you must move 50 miles or more then only a proportion of your profits will be taxed. Example: You have a $100,000 profit and must move after 18 months. Eighteen months is 75 percent of 24 months, thus $75,000 would be tax-free. For details speak with a tax professional and review IRS Publication 523, "Selling Your Home."
Question: Several years ago I purchased a parcel of land. I had a sales agreement for a "general" warranty deed but instead I received a "special" warranty deed. Can I do anything now to change this?
Answer: You plainly want the "general" warranty deed because it is more valuable, especially when it is time for you to sell.
In broad terms, with a general warranty deed a seller says title is good and marketable; the history of ownership has been traced to the first recorded property owner and there are no liens on the property unless otherwise noted.
A special warranty deed says title is good and marketable. However, there may be liens and claims against the property and the seller does not guarantee any title other than his own.
Did you get title insurance when you bought the property? If yes, contact the title insurance company to see if they can help.
As to a four-year old sale agreement, it may be written so that it was "merged" into the deed at the time of closing -- which effectively means that it does not exist any longer. Or, the agreement may have said that some or all of the provisions would "survive" closing -- which means you may be able to go back after the owner if problems arise. For details, please speak with a real estate attorney in your community.
Question: My husband and I are thinking of taking out a 5-year ARM interest-only loan to finance a condominium in the San Francisco area. Unfortunately with our current income and the outrageous market in the bay area, this is the only type of loan we probably could afford. We are first-time buyers and do not want to do anything hasty, but believe that getting into the housing market is important. We do not plan on staying in this condominium for more than five years anyway and feel that with appreciation rates in this area, we would probably be okay. Is our strategy sound?
Answer: There is logic to your approach -- but it requires two major assumptions to be on your side. One assumption concerns price: What happens if there is little or no appreciation during your term of ownership? What happens if prices actually decline?
With an interest-only mortgage you pay only interest during some or all of the loan term -- five years in this case and then the loan becomes an adjustable-rate mortgage. This means the entire debt will be outstanding in five years -- and it also means that the entire debt will have to be repaid on the basis of a 25-year loan once the initial interest-only period ends. So, the second assumption must be that you will be able to afford the mortgage in five years.
No one knows where loan rates will be in the future, but if the rate is 8.5 percent, then for a $500,000 debt the monthly cost for principle and interest would be $4,026.14. (This compares with $3,844.57 per month for a self-amortized loan over 30 years.)
For a $500,000 mortgage at 6 percent over 30 years, roughly today's rate, the loan balance would be reduced by $34,728.22 after five years with a self-amortizing loan. However, the initial monthly payments would be higher: $2,998 for principal and interest with the self-amortizing loan versus $2,500 for interest-only payments.
The real question here is this: Do you risk higher rates and costs to acquire property today that may appreciate significantly? For many people buying has surely been a good choice in most markets. But what happened in the past does not tell us what will happen in the future. The choice is yours.
Question: My husband and I are in the process of buying a home which is 10 years old. The home inspection revealed that the utility closet should have more ventilation. After reviewing the home inspection report, we asked the sellers to replace the utility closet door to provide the appropriate ventilation. The sellers' attorney came back saying that the sellers would not repair the door.
I have since done some investigating, however, and discovered that a class-action lawsuit was brought against the builder of our townhouse (for another development) for this very same issue -- lack of proper ventilation for the utility closet. Should we demand that the seller fix this door problem and participate in the currently pending-class action lawsuit?
Answer: A lawsuit may last years and it may not be successful. In the meantime you and other owners need to ventilate the utility areas. Also, it is a common practice for builders to create shell companies for each individual project they construct, thus a suit at one project may not be against "your" builder at all.
Why doesn't the association contact an engineer and ask if it's possible to take the current doors and insert a proper opening with mesh and slats as required? Then hire a contractor to make the repair in all units. If the owners then want to sue the builder, that's a matter to discuss with an attorney. Another approach is simply to say that you will consider a suit unless the builder pays the actual repair costs.
Question: I have a 2-bedroom, 1-bath condo in a 55-and-older community. I purchased this property in March 2004. As of this date I have not been able to rent it out. The same broker who sold it to me is handling the rental. Should I be advertising on my own?
Answer: Speak with the condo association and ask about the rules which apply to rentals. Also, review the marketing plan with your broker. If other units have been leasing you need to determine if you want to renew the broker's rental listing once it expires. Perhaps another broker who has had success with similar units would be a better choice.