Q–When we bought a house where we plan to live next year, we were told by the realty agent and the seller the lease expires in June. That is perfect for our plans, as we don’t want to move until the end of the school year. We closed our purchase in October and notified our tenants to send their rent checks to us.
But when we received the November rent check, the tenant notified us she plans to exercise her option to stay for another year. We phoned her and she sent us a copy of her lease which contains an option to renew for an additional year.
What can we do, as we want to move into our new home next June?
A–Property buyers must honor the terms of existing leases. Your situation shows why it is so important for buyers to review any leases before purchasing real estate.
Unfortunately, your tenant is within her rights to exercise her option to extend the lease for an additional year. I am shocked the real estate agent and the seller didn’t give you a copy of the lease before you purchased the house. You probably wouldn’t have bought if you knew the lease contained an option to renew for an additional year.
Although there is nothing you can do to force the tenant out next June, you have considerable legal recourse against the realty agent and the seller for damages. Please consult a local real estate attorney for details.
Q–Because of a job transfer, we recently bought a home near Chicago. When we asked the realty agent and the seller about utility bills, we were shown several bills that didn’t seem too high.
But we recently received our November utility bills for gas and electricity and were shocked. They were about 50 percent higher than we were shown. Do we have any recourse against the realty agent and seller for misrepresentation?
A–Home buyers should ask to see, before purchase, all the utility bills for the previous 12 months. Perhaps you were shown the bills from the mild spring months, rather than the cold winter months.
Proving any misrepresentation damages will be extremely difficult and probably not worth the trouble. But we can all learn from your experience.
Q–Is there a maximum percentage down payment a home seller can accept and still qualify for an installment sale? We plan to carry back the mortgage for retirement income. What is the maximum percent of the sales price we can accept for the down payment and still spread out our profit tax over the years we receive mortgage payments?
A–Tax law used to limit the maximum down payment to 30 percent of the sales price for the seller to qualify for installment sale tax deferral.
But the current tax law specifies no maximum down payment. Whether you receive a 5 percent down payment or a 50 percent down payment, you can spread out your profit tax over the years you receive payments on your seller carryback mortgage. Please consult your tax adviser for complete details.
Q–After the holidays we want to remodel our kitchen. Our two remodeling contractor estimates are $21,450 and $24,750, not including new appliances.
We are undecided how to finance these improvements. Our current mortgage is at 8.25 percent interest with about 22 years remaining. A nearby bank is offering 10-year home improvement loans at 9.75 percent interest. Should we refinance our existing first loan to give us enough cash to pay for the remodeling or are we better off adding a home improvement loan?
A–There is no right or wrong answer to your question, so consider all alternatives. Start by contacting your first mortgage lender to obtain their best terms for a refinanced mortgage.
Most lenders offer so-called “no cost” mortgages which will include your refinance expenses in the interest rate, around 8 percent today. Next, shop among other lenders to see if you can find better terms. Be sure to check if your existing mortgage has any prepayment penalty or drawback if you refinance with another lender.
Then shop for a home equity loan. Most banks and S&Ls now offer these second mortgages with a credit line. Depending on your equity and income, for example, you might be able to get a $50,000 home equity loan. Although you only need about $25,000 now, you will have the balance available for future emergencies and opportunities. A major advantage of home equity credit line loans is you can pay off the loan as rapidly as you wish but doing so increases your available credit.
After you have all the details you can decide which alternative is best for your situation.
Q–I have rented a house for the last two years. The living and dining rooms badly needed painting so I bought the paint and did the work myself. When I deducted the $124 cost from my rent, not charging anything for my labor, the landlord told me I owe her $124 additional rent immediately. If I don’t pay, she threatens to evict me.
Doesn’t the landlord have to reimburse the tenant for necessary repairs like this?
A–Unless you made a previous agreement with the landlord that you can deduct the paint cost from your rent, the landlord has no legal duty to reimburse you. The general rule is, unless agreed otherwise, the tenant’s improvements become the landlord’s property. However, if you paid for emergency repairs after first giving the landlord a reasonable time to respond, such as a broken water pipe, then the landlord would be obligated to reimburse you.
Since painting is not an emergency repair and there was no prior agreement, if your landlord refuses to reimburse you for costs you have no recourse except to enjoy your freshly painted rooms and pay the $124 additional rent to avoid eviction. For further details, please consult a local real estate attorney.
Q–We are in the process of buying a new home. It should be completed in about two months. We made a list of things to do before the sale closes. One item that puzzles us is the survey. Do we need to have a survey made to determine the lot boundaries?
A–If your new home is in an established subdivision with a recorded map, you might not need a survey if the lot boundaries are clearly defined. By the way, fences are not always on the lot lines so don’t rely on a fence to determine your boundary.
However, if you are buying in a new subdivision where the lot boundaries are unclear, a survey will be a wise investment. Perhaps you can get the seller to pay for it. You can have the survey insured as part of your title insurance policy. To save costs, be sure to ask if the builder had a recent survey done.
Q–My home is listed for sale with a fine Realtor. She brought me an offer whereby the buyer offered me a $75,000 first mortgage on an out-of-state house she inherited for the down payment on the house she wants to buy from me. Her house is rented to her nephew.
The mortgage would provide me with good income and I rather like the idea. But how can I be sure there isn’t already a mortgage on the house?
A–When you accept a mortgage on property with which you are not familiar, be sure to make your acceptance contingent upon (1) the other party paying for an appraisal from a licensed appraiser of your choice and (2) the other party paying for a lender’s title insurance policy on the mortgage you accept for the down payment.
Be sure there is plenty of protective equity for the mortgage you are accepting. To illustrate, if the house is worth only $85,000 and you accept a $75,000 mortgage on it, there is very little equity. But if the house is worth $150,000, then your loan-to-value ratio is only 50 percent so you have plenty of protective equity in case you have to foreclose. For further details, please consult a local real estate attorney.
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Robert Bruss’ report “How to Sell Your Home for Top Dollar With or Without a Realty Agent” is available for $4 from Tribune Media Services, 435 N. Michigan Ave., Chicago, Ill. 60611. Allow eight weeks for delivery.
Please note: Real estate law varies from place to place, so be sure to consult the laws of your state and municipality before making decisions on real estate issues.
Write to Robert Bruss at Tribune Media Services, 435 N. Michigan Ave., Chicago, Ill. 60611.
