How to properly handle taxes, insurance, payments
Benny L. Kass
DEAR BENNY: My wife and I put together an aggressive plan to pay off our mortgage in five years, and our goal will be complete in May 2008. Can you tell us of anything we should be doing and/or asking from the mortgage company concerning the deed to our home, the property taxes or anything else? –Travis
DEAR TRAVIS: First, let me play devil’s advocate. I am one of those believers in having a mortgage on one’s property. Let’s say that your house is worth $300,000 and that it will appreciate in value conservatively 3-5 percent a year. Your house will go up in value whether or not you have a mortgage and thus, in my opinion, you have a considerable amount of dead equity and are not receiving any tax benefits for mortgage-interest deductions.
Now I recognize that everyone’s financial situation is different, but I just wanted to express my thoughts.
If you have been making extra payments to your mortgage lender, do you confirm monthly (or at least periodically) that those payments are in fact being credited toward your outstanding loan balance? I have encountered too many situations where these funds just sit somewhere in the lender’s account doing the borrower absolutely no good.
When your mortgage is fully paid, make sure that it is formally released from the land records in the county where your property is located. Don’t “burn the mortgage before it is released.”
If your lender has been escrowing funds for real estate taxes and insurance, once you pay off your mortgage, you must make sure that you alert the insurance carrier and the taxing authority to start sending you the appropriate bills. I once represented a lawyer who forgot to do this, and his house was almost sold at a tax sale.
Your lender should send you back the original promissory note that you signed, which should be marked “paid and cancelled.”
One final suggestion: If you are making payments by direct deposit, don’t forget to stop those automatic payments. You would be surprised how many people forget this, only to find a month or two later that these payments are still going to their former lender.
DEAR BENNY: I co-own a side-by-side duplex in California. My partner lives in one unit and I live in the other. The property is held as tenants in common and we are each on the title, but the loan is in my name only because I am the one with the good credit. My question is: Would my partner be able to file a partition sale if she wanted to? We do have a TIC agreement but nothing is mentioned in it about a partition sale. –Tom
DEAR TOM: I do not practice law in the state of California, but to my knowledge, every state in the union allows partition suits.
One judge years ago wrote that the law will not allow two or more people who own property and are unhappy with each other to remain as owners. Accordingly, any one owner can file a partition suit, asking the judge to direct that the property be sold and the proceeds divided proportionately between the co-owners.
I have personally represented clients in a number of such lawsuits. All I can tell you is that the only winners in such a lawsuit are the attorneys, the trustees who are authorized to sell, and the speculators who buy the property.
Assuming that you and your friend are still talking to each other, I suggest that you consider amending your agreement and try to resolve all issues that might arise should the relationship go bad.
DEAR BENNY: I would like to buy a house without having my name appear in a public record. Is there any way to do this without having to set up a LLC or an irrevocable trust? –B.T.
DEAR B.T. I once represented a very prominent person here in Washington, D.C., who did not want his name to appear in our local newspaper. Guess what? The very next week, he was featured as having purchased a very expensive house.
I know of no way to avoid having your name appear on any public record — or in the newspaper — unless (as you suggest) you put the house in the name of some kind of trust or in a limited liability company or even in a corporate name. But if you decide to go this route, talk with your tax advisors to make sure that this makes good financial sense.
DEAR BENNY: What are the pros and cons between condos and townhouses? –R.T.
DEAR R.T. I think you are asking about homeowner associations and not townhouses, because there are a lot of condominiums which consist solely of townhomes.
First, let’s look at the basic difference between a condominium and a homeowner association (HOA). In a condominium, the unit owners own their units — the area between the walls, from the floor to the ceiling. But the unit owners also own a percentage of the common elements. In an HOA, however, the association has title to the common areas, and the individual homeowners are members of the association. They do not have any ownership interest.
These distinctions — while legally important — are really technical in nature. In my opinion, perhaps the main reason that HOAs developed was that developers wanted to avoid the condominium laws that were cropping up around the country in the 1980s. The condo laws put severe restrictions on how a developer could function, and the developers created the concept of the HOA to get around these laws. Now, of course, many states have also enacted laws regulating these homeowner associations. The Uniform Common Ownership Interest Act is one such law, for example, that has been enacted in many states throughout the country.
Practically speaking, there are no real differences between a condominium and an HOA. Both are controlled by an elected board of directors and are guided by a set of legal documents, which are recorded among the appropriate land records. In a condominium, these documents are called the declaration (or master deed), while in a homeowner association, it is generally called the declaration of covenants, conditions and restrictions (CCRs). Both entities also have bylaws.
Oversimplified, the declaration creates the legal association, while the bylaws spell out the how the association is to function. And many associations also have rules and regulations, which have been promulgated by the board of directors pursuant to the authority given them by the legal documents referenced above.
If you are considering buying into either one of these legal entities, you must carefully review the documents of the association. If you have a pet, make sure that pets are allowed; if you want to ultimately rent out your place, confirm that rental is permitted.
You should also look at the budget of the association. Does it have adequate reserves to cover future repairs that will be needed? Are there a lot of delinquencies, which means that the association may be short on funds?
If you do not do your homework — whether you buy a condominium or a house in an HOA — you may be subjecting yourself to a lot of problems.
DEAR BENNY: After getting my real estate license, I am having a hard time trying to get business. A lot of people just do not trust me, and the people in my office are not that helpful. –Rose
DEAR ROSE: There are salespersons and there are salespersons; some people are good at it while others are not. Have you analyzed why you believe no one trusts you? Perhaps you come on too strong when meeting with prospective clients?
If you are not comfortable in your office, find another real estate firm and locate your license there.
Keep in mind that in many parts of the country, real estate sales are very slow. Perhaps that is one reason why you are having difficulty.
I really cannot give you any more suggestions. You have to determine — on your own or with professional face-to-face assistance — what the problems are.
DEAR BENNY: Once a contract has been signed by both the seller and buyer of a house, does either party have an option to cancel the deal prior to the closing date? We are the buyers and our loan has been approved. An inspection has been conducted, and there are several corrections and/or repairs we have submitted to the seller. We are, however, having second thoughts about the house and would like to know if we can legally back out at this time. –Alan
DEAR ALAN: Why didn’t you have those second thoughts before you signed the contract? Unfortunately, unless you (or your attorney) can find a loophole — some error in the contract — or unless there is a contingency in the contract such as financing or selling your current house, I am afraid that you are stuck with what you signed. You are facing a possible lawsuit or the loss of your earnest money deposit.
You could talk with the seller; maybe there is another buyer who can step into your shoes.
But the bottom line: A legally binding contract is difficult — if not impossible — to break.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column.
Copyright 2008 Benny L. Kass