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Tiff over mortgage insurance refund

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POSTED July 4, 2013 12:10 a.m.

Q: My husband and I purchased a home in October of 2010 using an FHA mortgage through Bank of America. We had a 30-year fixed rate mortgage with a PMI requiring “up-front” money of  $4,635.61 and a monthly premium.  Luckily we were able to sell our previous home which was mortgage free and, together with savings, paid off this mortgage in February 2013 - about 28 months into  the 30-year commitment.  Looking at the FHA/HUD website it states that a refund of some of the premium money is available if the following three criteria are met:

(1) the loan was originated after 9/1/83; (2) you paid an upfront mortgage insurance premium at settlement, and (3) you did not default on your mortgage payments. As I see it, we met all these criteria, yet when I contacted FHA by phone I was told that there would be no refund, but if we were interested in a new FHA loan within 3 years the remainder of our “up-front” money would be used to lessen the amount needed for “up-front” on the new loan.  If no loan was applied for within the 3 years, the remainder is forfeited by us. Their risk is totally gone and I feel as if we have paid  insurance on a risk they no longer are taking. Who is correct? If I am correct, how do I resolve this issue? Mary.

A: Dear Mary. I was not – and am still not – fully versed in FHA  refunds. I went on line, searched “FHA refunds” and found a lot of helpful material and information.

For example, there is a web page where you can type in your name and the FHA case number (3 digits, a dash and then 6 more digits) and you will find out if you are eligible for any refund. You can also call 1 800 697 6967 for additional information.

I also confirmed the three conditions you wrote about. However, if your loan was assumed or refinanced into a FHA refinancing program, no refund will be available.

HUD also warns consumers that you do not need to pay anyone else to assist you in collecting your refund.

I would first search the HUD database to confirm if you are entitled to a refund. If the report comes back negative, I would contact your local FHA representative and demand an explanation. There may be a legitimate reason, but bureaucrats are bureaucrats, and mistakes do happen.

And if all else fails, contact your local Federal congressman and Senator. They are elected to serve you and they have better access to HUD then you or I have.

Q: In Massachusetts,  is it legal for Trustees in a condo association to get paid by not paying their condo fees, and getting travel fees? Also isn’t unlawful to hire a landscaping firm without soliciting 3 bids? Is the only way to find this out by hiring a lawyer? Norman.

A: Norman.    I practice law in Maryland and the District of Columbia, so I cannot provide specific legal guidance for Massachusetts. However, your legal documents (declaration and bylaws) should provide an answer.

Generally, board members (trustees in Massachusetts) can not get paid. There is a hot-button debate currently on this subject, but my personal opinion is that board members should not get paid.

If your legal documents state that board members should not get paid, then it is absolutely wrong to allow them not to pay their condo fees. All owners must pay those assessments. If board members can, in fact, get paid, (which I doubt is the case) then the association should provide them a periodic check, rather than compensate them with “perks”. That’s good accounting practice.

As for travel expenses, if a board member travels to a condo convention, for example, and the entire board has authorized that, then it is not improper for the association to reimburse the travel expenses. But they must be reasonable. The board member cannot fly first class nor rent a large suite in a first class hotel. Don’t do what the IRS did.

I would consult the association attorney and seek his/her opinion. Additionally, I would demand access to the books and records of the association, including copies of any checks written to board members. To my knowledge, although some states put some technical restrictions on access to books and records (such as having a need to know or paying a nominal fee), all states allow condominium owners to review the financial status of their own association.

After all, its your money, and you have the right – and the need – to know.

You also asked if there is anything wrong with hiring a landscape firm (or any outside contractor for that matter) without getting three bids. That’s not an easy question to answer. In general, yes, management should attempt to get two or three bids for most contractor jobs. Keep in mind that the board – acting through its managing agent – has a fiduciary duty to make fiscally sound decisions, and clearly getting several bids falls into this category.

However, there are times – and circumstances – where getting many bids is not appropriate. For example, if there is an emergency, the manager cannot spend a lot of time soliciting the best price. Furthermore, for low cost jobs, such as under $2 or 3,000, I am not that concerned if only one contractor was selected.

And, there are situations where there is only one contractor in town that specializes in the task to be done. Clearly, there is no reason for trying to get more bids.

Q: I live in a cooperative apartment in a city that has only 4 cooperative associations,  and there is not much solid legal advice available on coops. I am on the Board for my building and a shareholder has inquired about selling her shares to her daughter who lives elsewhere. The shareholder in return wants to have a Life Estate arrangement.  What are the legal effects for the association if the Board approves the arrangement? Kathleen.

A: Dear Kathleen. Although there are differences between cooperative housing and condominium associations, I don’t believe your question is unique to cooperatives. Accordingly, you should  be able to find an attorney in your area who has real estate experience and can provide you with a specific answer.

If you are unable to find one, go to the Community Association Institute website (caionline.org) and you should be able to locate an attorney in your area.

Your shareholder wants to sell her shares to her daughter, but remain in the apartment based on a Life Estate arrangement. This is a common arrangement, usually done for tax purposes.

However, I would allow the sale on two conditions. First, once the daughter is a shareholder, she is the only one who can vote the shares., Accordingly, the daughter must provide a general proxy to her mother. You don’t want to be chasing around locating the daughter for her vote.

Second, if there comes a time when the mother is no longer living in the apartment, the daughter must either physically move in or sell the shares to a person who will make it his/her personal residence. You don’t want non-resident owners in your small building.

Q:  In 2011,  I purchased a house for a family member to rent from me. Well the relative decided not to rent the house, so now after a new Roof, Siding and AC/Heat Pump system, the house is currently on the market since May 2012.  No renters are in this property.

 My question is, am I able to claim the interest and real estate taxes on my Federal Return? My tax guy told me I was not able to since it is on the market I will have to wait until its sold to determine a loss or gain. Patty.

A: Dear Patty. The bottom line: mortgage interest and real property taxes would be deductible if your property really was on the market for rent – even if no one actually rented it.  Your “tax guy” probably considered this to be “investment interest” which is deductible but only up to the extentof any investment income. In that case, since there was no income, you probably could not take the deduction, but can “carry it forward” to the time when you do have income.

I am not an accountant;  suggest you ask your tax person his rational as to why you cannot claim the deductions for last year.

You can get a lot of helpful information from IRS Publication 550, entitled “Investment Income and Expenses” (www.IRS.gov/publications)

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