Q-We recently remodeled our kitchen. It is a super-deluxe job with all the latest appliances and it turned out beautifully. We paid the contractor $24,950 and got a receipt marked paid in full. But about a month later we got a phone call from the cabinet man, who said our contractor owes him about $12,000. When we phoned our remodeling contractor, his phone has been disconnected and we can`t find him. Meanwhile, the cabinet man recorded a $12,000 mechanics` lien on our house. He says the remodeling contractor has filed bankruptcy and left town. What should we do?
A-Your situation is a classic example of what not to do. You should not have paid the final payment to the general contractor without seeing paid receipts from the subcontractors and suppliers, such as the cabinet man, the tile company and any suppliers who delivered materials to your job.
Of course, your remodeling contractor is liable to the cabinet man and other suppliers and workers. But that doesn`t do much good if you can`t find the general contractor or if he filed bankruptcy. I know you don`t want to hear this, but if the general contractor you paid is unable to pay his subcontractors, you have the choice of either paying them or possibly losing your house if they foreclose on their mechanics` lien. I suggest you hire the best attorney you can find who specializes in mechanics` lien law because you need legal help.
House as inheritance
Q-I am 87 and in reasonably good health. But my four-bedroom house is too big for me now that I am alone. I have decided to move to a very nice, church- operated retirement home where I will have my own apartment, three meals a day and medical care if I need it. When I die, all my assets will go to my only son. But I am unsure what to do about my house. My attorney is no help, because he says if I give the house to my son now, then I will have to worry about a gift tax. Since my son lives with his wife and two children about 30 miles away and has a nice home, I doubt his family will want to move into my old house. He would probably sell it. However, a family friend wants to rent my house and, frankly, I could use the rental income. What should I do?
A-If you give your house to your son before you die, his cost basis will be the same as yours. That is probably very low. Should he then sell the house, he will have a large capital gain tax to pay. As for the gift tax, if you give away more than $10,000 per donee, per year you have to fill out a gift tax return, but you have a lifetime gift exemption up to your $600,000 estate tax exemption.
However, if your son receives the house by inheritance, then his cost basis is its market value on the day you die. Should he sell the house shortly thereafter, he will have virtually no capital gain tax and unless you leave a net estate over $600,000, there will be no federal estate tax due either.
Meanwhile, if you rent the house to tenants, you will have extra income to enhance your lifestyle. I suggest you keep your old house as a rental. For further details, please consult your tax adviser.
Clearing a title
Q-Twelve years ago, I was divorced. My ex-wife died four years ago. In the divorce I got the house, so I could raise our two children there. Now that they are grown, I want to sell the house. The real estate agent found a buyer, but the title insurance company says the title is unmarketable because the name of my deceased ex-wife is still on the title. Apparently, the divorce attorney never cleared the title. The court decree clearly says I was to get the house. Shouldn`t that be enough, so I can convey valid title?
A-No. As part of the divorce proceedings, your ex-wife should have signed and you should have recorded a quit claim deed conveying her interest in the house to you. To straighten out the title, you now should bring a quiet title lawsuit. If nobody protests the title, such as your ex-wife`s heirs, then the court will quiet the title in your name alone. But this will take time and you need the help of an attorney.
Sales commissions
Q-Having bought and sold several homes, it alway has bothered me the real estate agents work primarily for the home sellers rather than the buyers. Don`t you think it would be a good idea for home buyers, instead of sellers, to pay the sales commissions?
A-No. The theory of your idea is excellent, but the reality is the seller, not the buyer, winds up with the cash and is in the best position to pay the realty agent`s sales commission.
It is true the listing agent works primarily for the home seller, but buyers can hire a selling agent to represent the home buyer even though that agent will split the sales commission with the listing agent. I realize that is difficult to understand, but most home buyers are not in a position to pay any sales commission, since their cash goes toward the down payment and closing costs.
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