Q. Almost 10 years ago we bought a brand-new condo. We have lived here ever since. It is in a large complex of about 200 condos. At first, there were mostly owner-occupants. Many buyers, like us, bought with 10 percent down payments and 90 percent mortgages. But over the years, many of the original owners have moved out. Now the occupancy is about 50 percent renters. The result has been gradually declining maintenance.
The quality of many of the renters leaves much to be desired. We especially object to the noisy weekend parties and the lack of consideration by the renters for other residents. To make matters much worse, the board of directors now has only two owner-occupants. All the other directors are absentee landlords. The result is the directors have depleted our homeowner association reserves rather than raising our dues to pay for repairs.
We have tried to sell our condo, listing it with an excellent realty agent. She has brought us two purchase offers, which we accepted. But neither buyer was able to get a mortgage because of the high percentage of renters. What should we do, as our existing mortgage is now paid down to only about 50 percent of current market value?
A. Your situation shows what can happen when a good condo complex goes bad. It is similar to what often occurs when owner-occupants move out of an inner city neighborhood and renters become predominant in the area. The quality of maintenance by absentee landlords usually declines, crime increases and the area often becomes a slum.
Mortgage lenders usually will not lend in a condo complex where the percentage of renters exceeds 25 or 30 percent. The reason is the mortgage default rate often increases as the percentage of owner-occupants decreases.
When you saw the percentage of renters increasing, you should have sold while buyers could still easily get mortgages in your complex. Now it might be too late to sell easily, except at a big discount, especially since the absentee landlords have taken control of the condo board of directors. You and other owner-occupants should band together to vote as a block at the next election to elect more owner-occupant directors.
Q. My wife and I want to buy our first home. Is there any home-buying book we should read?
A. In my opinion, the best book for home buyers is “Home Buying for Dummies, Second Edition” by Eric Tyson and Ray Brown. It’s available at better bookstores, public libraries and www.amazon.com.
Q. I bought my home in October 2000. The lot was represented as 7,360 square feet and confirmed by an appraiser. In April 2001, I refinanced and learned from a second appraiser the lot is only 6,250 square feet. The dimensions were correct, but the first appraiser used only two of the four dimensions to calculate the square footage. The lot is on a corner and is an irregular shape. I am considering suing but am not sure who to sue. Who shares responsibility for verifying measurements?
A. There are several legal possibilities: breach of contract, negligent misrepresentation, and fraud or deceit. However, to win you’ll need to prove damages. Did you base your purchase offer on the lot’s square footage? I doubt it, especially since the actual size of the lot was readily visible.
Please consult a real estate attorney to see if you have good grounds for a lawsuit against the seller and/or realty agent. The appraisers were hired by the lenders, so they probably have no liability to you. If I were in your shoes, I would forget it.
Q. We sold our house in 2001 and carried back a first mortgage for income. The net profit was about $375,000. As I got married in early 2001, I am only eligible for a $250,000 principal residence tax exemption. My tax adviser says I have a $125,000 taxable capital gain. He says I can elect to either pay all the tax in 2001, or spread it out over the 20 years I will be receiving installment sale payments on my mortgage. I was hoping to delay the tax payment until the 20th year when the final payment is due. Is that possible?
A. Nice try, but that’s not possible. Your tax adviser correctly told you the two choices: (1) pay all the capital gain tax in the tax year of the sale or (2) spread the tax out over the years you receive payments from your buyer. If I were in your situation, unless you have offsetting capital losses to use up, I would spread out the tax over future years by making an installment sale election.
Q. My parents, in their 70s, recently deeded their house to a major charity, retaining life estates. They did this without consulting me. The house is worth around $300,000, free-and-clear.
They said they wanted the charitable tax deduction and the lifetime income paid to them by the charity. Is there anything I can do about this?
A. Real estate donations to charities are usually made by homeowners who have no close heirs. It sounds like your parents really needed the monthly income, which the charity agreed to pay them based on their life expectancies. Another alternative, if your parents wanted monthly income, could have been a reverse mortgage.
Q. We have an FHA home loan. It is about 60 percent loan-to-value, well below the 80 percent you mentioned several weeks to cancel PMI. But when I contacted our FHA lender, I was told we can’t cancel our PMI. Why?
A. The reason is FHA mortgages do not have PMI (private mortgage insurance). Only high-ratio conventional mortgages, such as for 90, 95, 97 and even 100 percent of the home’s purchase price, have PMI to protect lenders in case the borrower defaults.
Depending on the age of your FHA mortgage, you have MMI (mutual mortgage insurance) or another variety of FHA loan insurance to protect your FHA lender in case you default. It is virtually impossible to get a FHA lender to agree to cancel your mortgage insurance, even on a low loan-to-value ratio like yours. Refinancing with a non-FHA, non-PMI mortgage is the best way to get rid of your FHA mortgage insurance expense.
———-
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, IL 60611 or e-mail questions to robertjbruss@aol.com.
