House Calls by Edith Lank

Dear Edith: My husband and I are buying a repossessed, foreclosed house from a bank. It is a new house, and we know for a fact that many of the people who worked on it or supplied vinyl, etc. have not been paid by the builder and no one knows where he is now.

We are closing on the house this week, paying all cash.

The man who put a very expensive retaining wall on the property told us he was coming after whoever buys the property. We have been assured by our Realtor that he can't do that and the bank is giving us "clear title." Somehow that just doesn't convince me. We don't understand one paragraph in the contract stating what we will be responsible for. Is it true we cannot be held responsible or should we buy title insurance? — M. and C.N.

Answer: You may not have anything to worry about, but still.

I'm sure your real estate agent is good at what he or she does, but that's not where you should look for legal information. Is the agent ready to back that up with a written promise to pay any bills you might end up responsible for? Is the bank?

Take all your documents, including that paragraph you don't understand, to a lawyer who specializes in real estate, and do it immediately. And yes, in any event, get title insurance in place before you part with your money.

Who Takes The Deduction

Edith: This past summer my daughter and her boyfriend purchased a house. For income tax purposes do they split the interest and taxes? Or can they determine who would benefit the most and one or the other claims the deduction? — L.

Answer: Assuming they're both on the title and the mortgage, each is liable for the bills. The rule is that each may take as a deduction whatever he or she actually pays.

Changed Since The '70s

Mrs. Lank: You wrote that even if you send in extra money to reduce the principal owed, you must still make every monthly payment.

In the '70s I paid an extra $100 a month on my mortgage. It reduced the principal by my prepayment amount. I was almost a year ahead of my payments and then the bank let me skip payments for almost a year.

Of course they made extra interest while I wasn't paying.

It was OK then as long as the total extra that you had paid in was more than what you should have paid all those months. What has changed? — G.

Answer: I'm interested in your experience, but I don't think most lenders would go along with it today. I'll bet you were dealing with a local lender. I picture you sitting down with the president of the bank in my hometown, Penn Yan, in his office on Main Street, and working out the figures.

These days, most mortgages are packaged in uniform groups, bought and sold many times and owned by large financial institutions. Even with a mortgage that was still locally owned, modern computers wouldn't be set up to handle the arrangement you made in the '70s.

Buyer Backed Out

Ms. Lank: I had everything in place for a short sale on my home. The buyer had put down a large cash deposit.

At the last minute the buyer changed his mind, and I was left high and dry. The real estate agent handling the sale said the mortgage company wouldn't consider another bid offer. We had no choice but to go to foreclosure. I didn't even receive an apology or an explanation from anyone! Do we have any action we can take against the agent? — Via e-mail

Answer: You can certainly consult your own real estate lawyer to find out if you have a valid claim against the buyer. I can't judge from here whether he had any legal justification for walking away.

I suspect your only claim against the broker might be if he or she wrongfully released the deposit without the written consent of both parties.

How Long For Tax Break

Ms. Lank: How long do you have to live in a home before you sell it to avoid paying capital gains? — P.B.

Answer: The home sellers exclusion allows you to take up to $250,000 profit (twice that for a married couple filing jointly) with no federal capital gains tax due. It's available if the place has been your main home for at least two of the five years before the sale. (If you'd been there for the two years just before the sale that would be enough.)

The only other requirement is that you can't use this tax break more than once (on different homes) in any two-year period.

Edith Lank will respond personally to any questions sent to her at 240 Hemingway Drive, Rochester, NY 14620 (please include a stamped return envelope), or readers may e-mail her at ehlank@aol.com.

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