Q–I’ve been renting a house for nearly six years. My landlord never increased my rent. He led me to believe that if he ever sold, it would be to me. I have spent money over the years landscaping and keeping up the house as if it were my own.
Now he has just informed me that, because of financial difficulties, he’s selling his own residence and needs to move into my house by May. The alternative he offered is for me to buy now and he’d help me finance the purchase. I have only a rental agreement, which expired five years ago. What redress do I have, if any, if I cannot buy the house and must move? Must he reimburse me for the work and fixtures I have invested in the house? More important, do I have to move?
A–In the absence of any applicable local ordinances, because you are on a month-to-month tenancy, your landlord can give you notice to move. Failure to move by the deadline could result in your eviction, which would appear on your credit report. The improvements you made to your landlord’s property, in the absence of any agreement allowing you to remove them, became his property. He need not reimburse you for the costs.
Because you appear to want to buy the house, I recommend you do so. This is an ideal time to finance a home purchase, because interest rates are low and mortgage money is readily available. Depending on your income and the market value of the home, you should be able to get a home loan for 90, 95 or even 97 percent of the purchase price.
First, shop for a mortgage so you know if you can afford to buy the house. Second, make a written offer to the landlord and get his signed acceptance. Third, close the sale. It’s really quite simple. Consult a real estate attorney for assistance.
Q–My husband and I live in a house and rent two other houses located on the same large lot. If we sell this property, will we be eligible for the full new $250,000/$500,000 principal residence sale tax exemption?
A–Yes. But the exemption only applies to the sales price of your principal residence, not to the profit on the sale of the two rental units. (I’m presuming you and/or your husband have owned and occupied your house at least two of the last five years before the sale.)
In other words, selling owner-occupied rental property is really the sale of two properties. One is the principal residence unit, to which the generous new tax exemption applies. The other is the sale of the two rental houses, which will be taxable at the new 20 percent capital gains tax rate. Please consult your tax adviser for details.
Q–About 20 years ago, my wife and I deeded our six-family apartment building to our son and reserved a life estate. My wife is now deceased. I am 91. In 1987, under pressure from the bankruptcy court, I sold the property, then appraised at $135,000, for $42,000. The buyer got a $30,000 loan, but defaulted. The bank took over and sold the building for $79,000.
My thinking is that when I die, the property will go to my son. This is because when my wife and I sold the building in 1987, all we had was a life estate, so that was all we could sell. But the city assessor tells me when I sold in 1987, the buyer obtained full title. Please clarify.
A–Thanks for the very challenging question. If you and your late wife transferred fee simple title in 1978 to your son, but retained a life estate in the building, you could only sell a life estate in 1987, since that is all you still owned. That would account for the low $42,000 sales price, since the building was worth $135,000.
A life estate, of course, sells for much less than the property’s full market value. Since you sold your life estate in the building in 1987 for $42,000, when you die the life estate terminates. The life estate buyer was gambling you would live a long time. Whoever has been collecting the rents must get out when you die. Presuming your son owns the fee simple now, after you die he will own the building free of your life estate and can then collect the rents.
Please consult a local real estate attorney to be sure your son holds fee simple subject to the life estate that you sold.
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Have a question about real estate? You can write to Robert Bruss in care of Tribune Real Estate Features Service, 435 N. Michigan Ave., Suite 1400, Chicago, Ill. 60611. Answers will be provided only through the column. Please note that laws vary from state to state and area to area. Consult an attorney for specific legal advice.
