Ask Realty Times

Written by Posted On Thursday, 29 November 2007 16:00

Question: I put down a pre-construction deposit (10 percent) on a Florida condo two years ago. The second 10 percent was due at ground breaking, but today -- more than 24 months later -- the developer has not broken ground. The good news is I'm not stuck in the broken bubble trying to unload a unit a miserable housing market. The bad news is I have no idea if or when this project will happen, and I want my deposit back. The contract has no explicit timeframe requirement for when the condo needs to be completed; however, it does use the language "time is of the essence." When can I ask for my money back?

Answer: Most builder contracts talk about a completion date, but also say that it's not the builder's fault if construction is delayed because of labor or materials shortages, bad weather, acts of God, etc. These are vague and debatable terms, giving builders a way to delay construction until everyone goes to court.

You can ask for your money back right now and it's possible that you have grounds to demand its return. However, you first need to see what the agreement actually says and that's a job for a real estate attorney. Ask if your deposit is in an escrow account, separate and apart from the builder's funds. This will be important if a builder goes out of business.

Question: Is now the time to finance a real estate purchase, or should a buyer wait? Why?

Also, what expenses related to real estate investment can a taxpayer deduct? Should it matter whether the taxpayer is an individual or a business to get those deductions? Why or why not?

Answer: With regard to the first question, most buyers have no choice: If they buy today they lack the capital to purchase for cash. For those who do have the capital to buy for cash, the question is one of alternatives: Is your money better used avoiding a mortgage or it is better to have a mortgage and use your cash elsewhere? The answer depends on the risk tolerance of the investor and the substitute uses of his or her capital.

On the matter of investment real estate deductions, everyone is best served with a copy of IRS Publication 527, Residential Rental Property and a discussion with a CPA or enrolled agent.

One reason to own real estate as a limited liability corporation as opposed to personal ownership concerns the potential for liability. Some investors prefer an LLC, others do not. For specifics, speak with an attorney who specializes in real estate.

Question: My husband and I have lived with and cared for my 84-year-old-mother for the last two years. She quit claimed to us what she believes to be the equity in her home, even though it has a reverse mortgage on it. Now, due to health reasons, my husband and I bought a house elsewhere, and my mother is moving there with us. We attempted to sell my mother's house to no avail and finally took it off the market. A friend recommended that we rent it while we try to sell it again, but a broker advised us to seek legal advise before we did. Since we can't afford to keep up utilities, landscaping services, insurance, and maintenance on two homes, we are somewhat concerned about expenses. What can we do?

Answer: Listen to the broker. A reverse mortgage typically does not need to be repaid until the borrower moves, sells the property or dies. In this situation, by moving from the house your mother may well be setting off a reverse mortgage requirement to sell the property or give up title.

As to renting, please read your reverse mortgage documents. Typically they say that any rents collected must be assigned back to the lender.

For instance, FHA reverse mortgage guidelines say that if allowed by state rules, then the "Borrower unconditionally assigns and transfers to Lender all the rents and revenues of the Property. Borrower authorizes Lender or Lender's agents to collect the rents and revenues and hereby directs each tenant of the Property to pay the rents to Lender or Lender's agents. However, prior to Lender's notice to Borrower of Borrower's breach of any covenant or agreement in the Security Instrument, Borrower shall collect and receive all rents and revenues of the Property as trustee for the benefit of Lender and Borrower. This assignment of rents constitutes an absolute assignment and not an assignment for additional security only."

Please do not move your mother or do anything else until you have reviewed this matter with an attorney who specializes in elder law.

Also, you need to determine fundamental information, such as: What is the current reverse mortgage balance? What is the fair market value of the property? If there's no equity, then ask your attorney if it makes sense to have your mother move and effectively "sell" the property to the lender.

Question: My parents recently sold a piece of vacant land for about $500,000. They are convinced that they will be paying a capital gains tax of about $90,000. They are in a good place financially, their home is paid for and they have a couple of other pieces of property. They do not believe in investing in anything other than real estate, but at this time they may rather have the cash. Do they have any options to reduce the tax, and perhaps put their money into something that will give them a little income?

Answer: There are tight deadlines involved, but consider having your parents look into a 1031 exchange for another piece of property.

Question: My friend wants to buy a home in this down "buyers" market, so he applied for a loan with both a bank and a mortgage broker. He was surprised; both turned him down. On the other hand, he can readily get a high-end car loan that is as large or larger than a small mortgage. Why is a car loan so much easier to get?

Answer: The great thing about a car is that it's easy to re-possess, the lender is often a corporate arm of the seller and financing typically has a short term (perhaps five years versus 30 years), thus reducing a lender's risk.

When talking about cars with prices above the value of typical homes, say $200,000, we are talking about a very limited number of automobiles relative to the millions of cars sold each year. An ultra-auto lender is going to look very carefully at buyer's income, debts and credit rating. A lender is also going to insist on a strong insurance policy because accidents, theft and damage are real concerns.

It's just a guess, but I suspect that those who can afford a car for $200,000 or above likely do not bother with a loan.

Question: We have a home on a canal with a beautiful view of the river. It's sail boat water, with no bridges going out. Should we sell now or wait six months or so on selling this property, the payment is killing us.

Answer: I know nothing about the property or the market, but I know the meaning of a "payment that is killing us." It's an expression which says you will struggle with the mortgage as long as you own the property.

Can you make payments for the next six months? What if the property does not quickly sell? If you sell could you get at least enough money from the sale to pay off your loan and other expenses? Go no further with this until you have spoken with local brokers about the sale potential of your property. You need to sell now, before foreclosure and bankruptcy loom.

Question: I own 16+ acres in a very valuable county in the State of Maryland. The property can be subdivided but it's land locked. I am taking offers from adjacent land owners but am pursuing other options.

It at one time had a right away to it. How can I best sell this property?

Answer: The county may have high prices, but you're not selling the county, you're trying to sell a land-locked property.

Syd Machat, a farm and land broker based in Keedysville, MD, offered this analysis:

"A tract actually can be 'landlocked' within the real world of country property," says Machat, who is affiliated with Real Estate Teams in Frederick, Md.

"If a private dirt entrance road is washed out due to a big storm -- that might do it. Private access to any tract, which is located off public roadways, can be restricted or blocked by adjoining owners. This is typically done by a mean-spirited landowner along the so-called private road. If physical access to land is effectively denied, then your land might be 'locked'.

Machat, an accredited land consultant (ALC) -- one of about 440 nationwide recognized by the Realtors Land Institute (RLI) -- says, "a hostile neighbor could fence off the right-of-way, fell a large oak tree over the roadway, move in a huge rock, and so forth. Then your drivable access has gone kaput, at least for today. Clearly a deeded right-of-way is the key to establishing owner's rights. An unwritten, or implied easement, might be your open invitation to a lawsuit if trouble surfaces.

"A few points: How would public utilities get installed on your entrance road if they are not already at the property? Who will pay the costs for electric, telephone, and cable installation under the road? Is the right-of-way wide enough to receive underground utilities? How many linear feet is the line to run? What do the local subdivision and zoning ordinances require? Will your county planning commission approve a proposed split of a tract that enjoys NO public road frontage? Do area banks and mortgage firms approve home mortgages located off implied or prescriptive easements? Who maintains the roadway's surface, maintains adequate drainage, plows snow,and so on?

"An attorney can help you determine what ingress or egress rights the deed may or may not contain. Examine any existing survey documents prepared by licensed survey engineers, especially regarding the status of the right-of-way leading from the public road. Of course, it's always better for a property owner to have a proper legal description of the right-of-way. Old woodland and farm deeds frequently present no adequate descriptions. As a practical matter, attempting to buy a right-of-way from adjoining owners can prove to be a difficult or even impossible undertaking."


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