Weekly Real Estate Mailbag
Robert J. Bruss, a real estate broker and attorney, answers readers’ housing-related questions a weekly column. In his most recent Q & A session, he tackles the tax laws involving dual residences, reverse mortgages, the battle over real estate commissions, and more…
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Q: About nine years ago, my parents helped me buy my first home, a condo. All three of us took title as joint tenants with right of survivorship. Due to superb location and management, it turned out to be an outstanding investment. I got married about five years ago and moved into a house with my bride.
My parents moved into the condo. Mom died in 2002, Dad still lives there. He and I have decided to sell the condo to pay for his care in an assisted-living residence. The net profit will be around $400,000. Because he owned and occupied the condo 24 of the 60 months before its sale, he qualifies for the $250,000 primary residence sale tax exemption.
However, my tax adviser says I can’t qualify because I don’t meet the occupancy test. Do you agree or disagree?
A: Your tax adviser is correct. The IRS says that in order to qualify for the principal residence sale tax exemption up to $250,000 per owner, you must own and occupy it at least 24 of the 60 months before its sale. For a married couple, only one spouse need be on the title, but both spouses must meet the occupancy tax and file a joint tax return to qualify.
Although your dad qualifies for up to $250,000 tax-free profits, you can’t qualify because you don’t meet the 24 out of last 60 months occupancy test. Therefore, about $150,000 in capital gains will be taxable.
PROPERTY RECORDS: A PRIVATE MATTER?
Q: At age 73, I recently refinanced my reverse mortgage. Since then I am being bombarded with letters from insurance companies wanting to sell me disability insurance. I am upset by these companies invading my privacy. Also, the appraiser came from an area a considerable distance away.
How can he know property values in my town? The reverse mortgage lender didn’t use one local company. The lender’s title insurance even came from out of state. What can be done about this invasion of my privacy?
A: Most recorded documents are public information. The reason is many people, such as mortgage lenders and title insurers, need to know what liens and other recorded documents affect your property.
There are nationwide companies that make money obtaining recent public records, such as your reverse mortgage recording, and selling that information to insurance companies and other users. Because public records are notprivate, there is probably nothing you can do.
MOTIVATED SELLER RAISED COMMISSION TO SELL HOME
Q: Thanks for that item a few weeks ago from a Realtor who got her seller to raise the sales commission to 7 percent and then sold the house that had languished on the market. As my home is listed for sale, I showed that article to my Realtor. I think he is doing a great job, but the buyer’s market is saturated with too many homes in my price range.
My listing has about 40 days remaining so I decided to up the commission to 7 percent with 4 percent to the buyer’s agent. He thought I was crazy, but I convinced him it would be a better selling strategy in this slowing market. So he and heavily promoted my house to the local MLS agents with a re-tour, free lunch, newspaper ads, etc.
Within 10 days, I received two good purchase offers. I accepted the best one and kept the other as a backup. It really works to raise the commission!
A: That item a few weeks ago resulted in many positive letters from realty agents. But there were a few negative letters from penny-pincher sellers who asked why the Realtor didn’t work as hard for 6 percent commission?
They didn’t understand the purpose of raising the commission is to attract the attention of buyer’s agents to get them to show your home rather than another one to their prospects. In the current buyer’s market, the key is getting your home seen by as many prospects as possible.
WHOSE DUTY IS IT TO MAINTAIN HOME?
Q: I am perplexed at your answer to stepchildren whose stepmother holds a life estate in their late father’s property. If the stepchildren will inherit the house after the stepmother dies, shouldn’t they help pay for its upkeep? From the perspective of the second wife who probably took care of the ill father, why should she spend her money for her stepchildren’s inheritance?
A: You make a lot of sense. However, the law of every state with which I am familiar says a life tenant must pay the property taxes, mortgage payments, and the maintenance.
But there is no reason why the terms of the estate shouldn’t require that contributions by the heirs to help maintain the home be made while the life tenant lives in it. Such a document should be carefully drawn out at the onset to prevent administrative problems.
SMELLS LIKE A MORTGAGE SCAM
Q: My niece wants to buy my house without getting a Florida mortgage. She wants me to sign the house over to her. Then she will get it refinanced and pay me my asking price. I will continue living in the house while this plan is pending and I will get my money in three months if all goes well.
If not, she will deed the house back to me. Is this risky or just plain dumb? I am a widow and the house is too much for me to keep up.
A: This could be a family scam. If your niece can qualify for a mortgage, she should do so without you first deeding the house to her. You could agree, for example, to sell the house to her with an 80 percent lender mortgage and you can carry back a second mortgage for the balance of the sales price.
There’s no advantage for you to deed your house to your niece without receiving cash or at least a first Florida mortgage loan from her for your security. Consult a local real estate attorney to make sure you get this in writing.
