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by: Robert J. Bruss
DEAR BOB: A few weeks ago, my mother-in-law passed away.
My husband and I are now trying hard to move my father-in-law closer to us. He is currently about two hours away. If he were to sell their home of 17 years, would he be entitled to the $250,000 or $500,000 principal residence sale tax exemption? If it's $500,000, what is the latest date he can claim this exemption? – Sharyn Y.
DEAR SHARYN: Your father-in-law can claim up to $500,000 tax-free profits on the sale of his principal residence if it is sold in the same tax year (2003) as your mother-in-law's death. That's presuming they both occupied the home at least two of the five years before the sale to qualify for the Internal Revenue Code 121 exemption.
If he waits until 2004 to sell the principal residence, then he can claim up to a $250,000 tax exemption. However, presuming he inherited the half of the house owned by your late mother-in-law, he gets a new stepped-up basis on either 50 percent or 100 percent of the home's market value on the date of death.
The exact stepped-up valuation depends on how they held title and in which state the house is located. Your father-in-law should consult his personal tax advisor to be certain he maximizes his principal residence sale tax exemption.
RECOMMENDED REAL ESTATE INVESTMENT BOOKS
DEAR BOB: Please recommend books a beginner real estate investor like me should read – Joseph B.
DEAR JOSEPH: The classic all-time best seller real estate investment book is "How I Turned $1,000 into $5 Million in Real Estate in My Spare Time" by William Nickerson. It was last updated in 1980 and is now out of print. But it is still available at most public libraries where it should be kept under lock in the rare book section. One of my college real estate law students recently told me it sells for about $125 on eBay.
Another great realty investing book is "Nothing Down" by Robert G. Allen. It's still available in bookstores and libraries.
More up-to-date books include any realty investment book by Robert Irwin written within the last few years. I also recommend Robert Schmin's real estate books, especially his latest "Unlimited Riches." William Bronchick and Robert Dahlstrom wrote the excellent "Flipping Properties." David Schumacher's "Buy and Hold" is also superb. All these books are available at www.amazon.com and at better bookstores and public libraries.
SHOULD HOME LOAN BORROWERS BENEFIT FROM LOWER INTEREST RATE?
DEAR BOB: We are in the process of refinancing our home loan. We locked in at 6 percent interest. But now the interest rates have dropped to around 5.5 percent. I was told we have to stay with the 6 percent we locked in. Why can't we have the lower rate? – Beverly G.
DEAR BEVERLY: You can. Most reputable lenders will give borrowers the benefit of a lower interest rate when interest rates fall after a rate is locked-in by the borrower. But you must ask, ask, ask, ask, ask. Get the idea?
Be persistent. If your lender refuses to give you the current lower interest rate, you would be better off going to another lender to save a half percent on a long term mortgage.
HOME SELLER IS TOO HARSH ON LISTING AGENT
DEAR BOB: We just listed our house for sale with the realty agent from hell. The listing contract should have set off warning bells, but we weren't listening. The agent tried to get us to list for six months. But we followed your frequent advice and signed up for 90 days. However, there is a clause that says if we cancel the listing before expiration, we have to reimburse the agent for advertising costs, plus a $500 fee. Suppose we fire this agent. Do we have to pay $500? That's a rip-off. The worst clause of all in our listing says if the buyer defaults and forfeits his earnest money deposit, the agent gets to keep half of the deposit. Then the house goes back on the market, the agent eventually gets a commission, but do we have to pay half of the first buyer's forfeited deposit? – Miranda T.
DEAR MIRANDA: Congratulations on signing only a 90-day listing. As you discovered, even 90 days can be a very long time when you select the wrong listing agent. But I can't figure out from your letter why you are unhappy with your listing agent. Give your listing agent time to do a proper job of marketing your home for sale.
The clause in your listing about the agent getting part of the buyer's forfeited deposit if he cancels is normal. You get half of the forfeited deposit and the agent gets the other half for all the work and costs involved.
But your letter didn't say what the listing agent has done which dissatisfied you. Rather than complain, if you are dissatisfied, have a calm friendly talk with the manager of the listing agent's brokerage. If you dislike the agent, ask to have your listing transferred to another sales agent. That way, your agent gets at least a referral fee when your home sells.
In the future, please interview at least three successful realty agents who sell homes in your vicinity. Before signing a 90-day listing, be sure to call the agent's most recent home sellers to ask, "Would you list with the same agent again and did you have any unresolved problems selling your home?"
DOES FEDERAL LAW REQUIRE ARBITRATION OF LOAN DISPUTES?
DEAR BOB: We just went through an unsuccessful home loan refinancing. The 5.875 percent interest rate was good. The mortgage broker was ready to close within three weeks. But, as we always paid our property taxes and insurance ourselves, we insisted the $125 escrow waiver fee be cancelled. It was. However, when we read the loan papers, we discovered a clause requiring arbitration of any disputes with the lender. When I protested, the mortgage broker said the arbitration agreement is now required by federal law and the lender refused to waive it. So we cancelled the refinance. Do all lenders require arbitration of loan disputes? – Jack and Beverlee B.
DEAR JACK AND BEVERLEE: I am not aware of any federal law requiring arbitration of home loan disputes with lenders. You should have asked the lender to cite the exact federal law. There is no such law.
However, some lenders have tried to include arbitration clauses in their loans. Just recently, however, several California courts ruled against Household Finance and TransAmerica arbitration clauses that were held to be unconscionable and unenforceable. The primary reason was the lender can still use state foreclosure laws without going to arbitration.
As for the escrow waiver fee, congratulations for refusing to pay for the privilege of paying your property taxes and fire insurance premiums directly. A few states, such as California, prohibit lenders from requiring escrow tax and insurance accounts, except for Federal Housing Administration (FHA), Veterans Administration (VA) and private mortgage insurance (PMI) home loans. All states should have such laws.
Keep shopping to refinance your home loan with a lender who isn't trying to take unfair advantage of you.
WHAT IS THE DIFFERENCE BETWEEN A TOWNHOUSE AND A CONDO?
DEAR BOB: My wife and I are in the market to buy our first home. As we both work and don't have much time for home maintenance, we are looking at condos and townhouses. What is the difference? – Marc L.
DEAR MARC: Most townhouses are part of a planned unit development (PUD). That means there is a homeowner's association which maintains the common area grounds. However, many townhouse developments specify each owner owns the land beneath his own house and is responsible for both interior and exterior maintenance. Before buying a specific townhouse, ask a lot of questions and read the documentation to determine who owns and must maintain what components. Ask your attorney for additional advice.
Condominium complexes have common areas and structures owned by the homeowner's association, which is responsible for the maintenance. But each condo owner owns to the inside surface of their walls, ceiling and floors. The building, including plumbing and wiring within the walls, is owned by the association, which is responsible for its maintenance.
Townhouses and condos are financed the same way. You can obtain an individual mortgage on your unit, just like you would to purchase a single-family detached house. Although the homeowner's association carries a master fire and liability insurance liability policy on the complex, you should have personal condo owner's insurance for liability, fire and water damage to your unit, plus coverage for theft and other homeowner coverages.
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