Q: My father left his house and contents to my brother and me. My brother is living in the house and for the past four years said “it’s only until I find a house.” He’s separated from his wife. I want to sell the house. Is there any recourse I can take so we can sell? Amy.
A: Dear Amy: There is a legal procedure known as “partition” where one owner can ask the court to force the sale of the property. Typically – as in your case – these lawsuits are brought between siblings. Momma (or Poppa) dies, and leaves the house to Amy and her brother John. Amy wants to sell but John is enjoying the free ride in the house and wants to stay.
The courts throughout this country have held that where this situation arises – and if it cannot be resolved amicably between the parties – the court will force a sale. Both sides will get the sales proceeds but the real winners are the trustees, the lawyers, and the potential buyers. Often, the sale is accomplished through a real estate agent, so there is yet another winner.
I have personally represented – on both sides –brothers and sisters in partition cases. I always try to convince my client that litigation is time consuming, expensive and always uncertain. Sometimes I am successful, but not always.
Talk to a local real estate attorney. If your brother is living in the house rent free, you may also be able to force him to reimburse half of what you have been paying. Often – but not always – a threatening letter from an attorney does the trick.
Q: We are a 35-unit condo building. Our reserves are nearly enough for a new roof. The board is having a heated discussion on whether we should have a special assessment for the remainder of the roof or take out a loan. What is your take on this situation? Does either option indicate a financially weak association? Bob.
A: That’s a great question, Bob, but unfortunately, there is no “one-size fits all” answer. You have enough to pay for a new roof, but then what? You won’t have any more reserves for the next problem that occurs. And when it does, the lender you will be talking with will want to see that you have adequate reserves.
You have to talk with your association attorney as to whether the board has the legal authority to borrow money for work that needs to be done. If you were a single family house, the lender would require a deed of trust (a mortgage document). But in a condominium, the association generally does not own anything. Each owner owns a percentage interest in the complex.
Accordingly, the lender cannot get deeds of trust on every owner. Instead, it requires the association – only if it is in default – to require that all condo fees be sent directly to the lender. It is called an “assignment of condo fees”.
Many condo laws specifically require such assignment be spelled out directly in the condo legal documents. You may actually have to amend your bylaws so as to permit the board to assign the condo fees if necessary.
Should you get a loan or use reserves? If you will be depleting reserves, I would seriously consider getting a loan. These are good times; interest rates are historically low.
And you may want to consider a hybrid: if – for example – the new roof will cost $300,000, why not borrow half and fund the remainder out of reserves – or even enact a special assessment.
Q: I leased a house and the real estate agent actually lied about what this agreement was. She also encouraged the owners to lease their home to me for $250more per month! The house was advertised at $1,500/month, but they leased to me at $1,750/month using the excuse that my credit was only fair. I have been totally taken advantage of by both the agent and the owners of the house — both parties totally lied and were deceitful. I actually ended up moving because I needed to find a place that day due to relocating and having to begin work the following week. Vera.
A: Dear Vera. I am somewhat confused. Did you sign a lease and move in? Did you then move out? If so, has the landlord demanded rent for the balance of the lease term? And did you give a security deposit and if so was it returned?
If you signed a lease and were able to walk away without losing any money, you were lucky. Many other people in your situation would be sued by the landlord for the rent for the rest of the lease term.
If you can prove the agent lied, you can file a complaint with the local Real Estate Commission in your State. However, you must be absolutely certain that you can prove your allegations.
I often get email questions from members of our military about legal questions, ranging from can I get out of my lease if I am relocated by the service, to what remedies do I have if my landlord is giving me a hard time.
I recently learned of an interesting publication entitled “Service members Civil Relief Act (SCRA): A Handy Desk Reference”. It was prepared by a Chicago law firm and is available free on line by searching: “dinsmoreco/2agZqdl”.
The American Bar Association has also published “Legal Guide for Military Families” which is available from the ABA, but this will cost you $13.00
Q: My husband and I are selling our house next month. We bought it many years ago for $350,000 and have just accepted a contract for $750,000. Over the years, we have made improvements, but we don’t have good records to prove the costs. How do we deal with this? How important is it to have good records? Sharon.
A: Dear Sharon: I believe I have good news for you. If you and your hubby have owned and used the house as your principal residence for two out of the five years before it is sold, you can exclude up to $500,000 of your gain. In your situation, even if you do not take into consideration any improvements, your gain is less than $500,000 so you will be able to keep all of the net proceeds.
Of course, there may be expenses such as real estate commissions, title (escrow) company charges, and recording fees that will reduce your take-home cash. And if there is an outstanding mortgage, that will also have to be deducted.
Do you have to report anything to the IRS. According to a recent IRS Tax Tip, “if the gain is not taxable, you may not need to report the sale to the IRS on your tax return.
But what if your gain is over $500,000? Then it is important to find every legal way to reduce it, and that’s where improvements come in. If, for example, you added a new room at the cost of $75,000, that will increase your tax basis. In your case, you paid $350,000, but now your basis is $425,000 ($350+75).
Yes, it helps if you have kept records, and I urge all readers to keep your contracts and bills for all improvements until at least three years after you have sold your house.
But there is case law involving George M. Cohan, composer and playwright of “Yankee Doodle Dandy” and many others. Mr. Cohan was too busy entertaining the world and did not keep good records. The IRS went after him. But the courts took the position that just because there are no records, does not mean that you did not have expenses. Accordingly, the Cohan Rule states: even if you are unable to produce records of your expenditures, you – and the IRS – can rely on estimates so long as they are reasonable and credible.
This rule is binding on the IRS. Talk with your tax advisors as to how to pull together your list of improvements.
You are also referred to IRS Summertime Tax Tip 2016-13, entitled “How Selling Your Home Can Impact Your Taxes”, available free from irs.gov.