Q–Thank you for recommending buyer’s agents. We were looking at houses listed with Realtors but couldn’t find one we liked. Then we spotted a “for sale by owner” sign on a cute house. We phoned our buyer’s agent, who had been showing us houses. She talked the seller into showing it to us, even though the sign said “no agents.”
When we learned the house was free and clear, we made an offer with a 10 percent down payment and a 90 percent mortgage carried back by the seller for 15 years. Although the sellers said they wanted all cash, somehow our agent got them to accept our offer. They agreed to pay our agent a 3 percent sales commission, so she was happy.
Many thanks for recommending buyer’s agents; we couldn’t have bought our home without her.
A–I appreciate your sharing this success story. Negotiating face-to-face with a “fizzbo” (for sale by owner) can be very difficult. But a buyer’s agent can often bring some reality to the situation, as your agent did. Congratulations.
Q–A few weeks ago, I received a letter from my mortgage servicer offering to convert my monthly mortgage payments into biweekly payments withdrawn automatically from my checking or savings account. The analysis showed how my mortgage, which has about 27 years remaining, will be cut down to around 19 years.
While I can easily afford the payments every two weeks, I don’t see why I should pay the lender $385 to set up the biweekly payments. Is this good or bad for me?
A–Save the $385. Set up your own payment plan and achieve virtually the same result.
The biweekly payment plan, of 26 mortgage payments per year of half your current monthly mortgage payment, is the equivalent of 13 monthly mortgage payments each year. Depending when you start the plan, the net result is your home loan will be paid off early and you will save thousands of dollars.
But you can accomplish the same result yourself without paying $385 to enrich the mortgage servicer. Just divide your monthly mortgage payment by 12 and add that amount to each monthly mortgage payment. You will then make the equivalent of 13 monthly mortgage payments a year.
For example, suppose $1,200 is your monthly mortgage payment. Dividing by 12 yields $100. Add $100 to each monthly payment for a total of $1,300 per month. By the end of 12 months you will have paid an extra $1,200, the same as you would have paid under a biweekly payment plan. But you’ll save the $385 scam setup fee.
Q–My neighbor’s tree overhangs our lot line by about five feet. It drops leaves and debris on my yard. I’ve asked him to trim the tree, but he refuses. Can I take him to court to force him to trim this overhanging tree?
A–In most states, a neighbor can’t be forced to trim an overhanging tree. However, the neighbor whose yard is burdened can trim the tree if doing so will not harm the tree. It’s called the “rule of reasonableness.” The same general rule usually also applies to tree roots.
But be careful. A few years ago, in the California case of Booska vs. Patel, a neighbor cut encroaching tree roots. Unfortunately, the tree died. The neighbor on whose lot the dead tree stood sued for and won damages. The appellate court said the “rule of reasonableness” applied and the neighbor whose root cutting killed the tree is liable for damages. Please consult your attorney before taking action.
Q–I hear President Clinton and Congress are proposing a $500,000 tax exemption for married home sellers ($250,000 for singles). If this passes, will it apply to properties other than principal residences? I ask because I own an apartment building I want to sell, but the huge profit tax is holding me back.
A–The proposed $500,000 home sale tax exemption ($250,000 for single owners) would only apply to principal residence sales. It would not apply to investment or business property sales.
Of course, you can make a tax-deferred exchange for other business or investment property, but there’s no other way to sell your apartments without owing profit tax. Please consult your tax adviser for details.
Q–About 12 years ago, we were renting a house. The owner asked if we wanted to buy. We did. She prepared an installment land contract under which we paid her monthly payments and she made the mortgage payments to the lender.
A year ago we moved out of the house and rented it to tenants. We gave the seller our new address and continued paying her on time every month. But the seller failed to keep up the mortgage payments and the lender foreclosed. We learned about this from our tenants when they got evicted by the bank, which now has the title.
Our seller has filed bankruptcy. Since we had about $35,000 equity in this house, what can we do?
A–Please consult a real estate attorney. If your installment land contract–also known as a contract for deed, agreement for sale, contract of sale and a zillion other names in various states–was recorded, the mortgage lender had a duty to notify you of the pending foreclosure. Failure to notify a junior lien holder may be grounds to undo the foreclosure sale.
Your situation shows why it can be dangerous to buy real estate on an installment land contract, especially if it was not recorded or the buyer is not living on the property. I’ll bet your tenants were notified of the foreclosure sale but failed to notify you.
Although the seller remained the legal title holder of the house, you were the “equitable owner” entitled to the ownership tax benefits as well as the duties of an owner. The seller’s failure to keep up the mortgage payments breached her duty to you, but that may be moot if she is now broke.
Q–You often advise not giving real estate to children, but I don’t understand why. My husband and I own, in addition to our home, several apartment buildings that we’ve held for many years.
Our son, 18, is very interested in real estate. He graduates from high school this month and wants to manage the apartments for us. Although he isn’t very academic, he is very smart and extremely handy with tools. He gets along with people very well, so he would be a great property manager. Since he doesn’t want to go to college, we’re thinking of letting him try managing the apartments and eventually putting him on the title with us. Would this be a bad idea?
A–If you and your husband have a very low basis for your apartment buildings, gifting them to your son could be a major mistake. The reason is a donee takes over the donor’s adjusted cost basis for the property. The result is your son would take over your low cost basis.
He would be much better off inheriting those buildings when you and your husband die, because he then gets a new cost basis stepped-up to market value on the date of death. Please consult your tax adviser or attorney before doing anything.
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PLEASE NOTE: Real estate laws vary from place to place. Be sure to check the laws of your state and municipality before making decisions on real estate matters.
Write to Robert Bruss at Tribune Media Services, 435 N. Michigan Ave., Chicago, Ill. 60611.
Robert Bruss’ report “Today’s Best Realty Profit Opportunities: Fixer-Upper Houses and Investment Properties” is available for $4 from Robert Bruss, 251 Park Rd., Burlingame, Calif. 94010.
