Real Estate News
No guarantee when housing meltdown will end
How can sellers avoid $40K loss, tarnished credit?
By Benny Kass
11/18/2008 8:00:00 AM
DEAR BENNY: My son and his wife own a house. Just before the housing market downturn, they moved 1,000 miles away to pursue a much more lucrative-paying career for him. Since then they haven't been able to rent the house, and if they sold it they would lose $30,000 to $40,000. Even though he makes great pay, they are barely squeaking by having to make that house payment and an apartment payment. Because they have kept up with the payment their credit rating is still excellent. Is there anything they can do to unload the house without taking a big hit on their credit rating or losing a lot of money? --Janice
DEAR JANICE: What is the loan to value (LTV) of your son's house? Is there any equity left or is it "upside down"? That means that the mortgage is higher than the current value of the house.
If there is some equity remaining, I would arrange a sale at any cost, just enough to pay off the mortgage and a real estate commission. In fact, your son and daughter-in-law should try to negotiate a lower commission with any real estate agent that lists their house.
If this is an "upside down" situation, then they should talk with a lender and see if a "short sale" can be accepted by the bank. This means that the house is placed on the market for sale at a price below its appraised value, and everyone (seller, broker and lender) take a hit. But if all goes well, someone will buy at the reduced price.
There comes a time in everyone's life that you have to "bite the bullet." Your son has been paying the PITI (principal, interest, taxes and insurance) for several years. Had they significantly reduced the price two years ago, they would have taken a loss on the sale, but would not have to carry that house as well as their present location.
My suggestion: There is no guarantee when this "meltdown" will end. Do whatever it takes to get rid of the house as soon as possible.
DEAR BENNY: About 10 years ago my wife and I purchased a home in the state of Maryland. At the time I was unemployed and my credit was not so good, so the house was purchased in my wife's name only. Now my wife is not doing well healthwise. I need to know what to do to add my name to the loan papers and to the deed. Is there any recourse to putting my name on these documents? It's never been an issue till now. --Franklin
DEAR FRANKLIN: Sorry to hear about your wife's health, but you should have put your name on title a long time ago. However, it's never too late. The local recorder of deeds may be able to help, although some recorders believe that they are not permitted to provide legal assistance and will not be helpful. Otherwise, contact a local attorney. It is not a big deal nor is it expensive. Since you are married, at least in the state of Maryland there is no transfer or recordation tax between husband and wife. You will have to pay the nominal filing fee.
You do not have to worry about the mortgage loan, although obviously you have to keep current with the monthly payments. Just send your lender a letter, and enclose a copy of the deed in which your name will be added. The lender cannot take any action against you just because you are going to be a co-owner with your wife.
How will you take title? Oversimplified, although not applicable in all states, there are three ways:
Tenants by the Entirety (T/E): This is reserved for husband and wife. Unless the parties agree to change this form of title, only death or divorce can impact on this title arrangement. On the death of one spouse, the surviving spouse automatically becomes the full owner of the property.
Joint tenants with rights of survivorship: In some states, T/E does not exist. This is similar to a T/E as it pertains to death or divorce. However, a joint tenancy can be unilaterally severed. Furthermore, creditors of one of the joint tenants can attach the joint asset so as to get paid out of the judgment debtor's portion of the property.
Tenants in Common: Under this approach, each party owns a divisible interest in the property. While it often is 50-50, there is no legal requirement that each party own half of the property. On the death of one of the tenants in common, his/her estate has to be probated, and the property interests of the deceased party will be distributed pursuant to any last will and testament. If there is no will, the intestacy laws of the state will guide the probate judge on how to distribute that property.
You must discuss these various approaches with your lawyer to make sure that you are doing the right thing.
DEAR BENNY: My daughter owns a condo unit in Michigan where she has lived for 23 years. She has recently moved to Florida and would like to sell this unit but is unable to do so in the present market even after offering it at a very low price. She would like to put it up for rent to help pay the continuing expenses.
She says that a few years ago she and all other owners signed papers for the presiding board of their association that they would not rent out their units. My daughter is a 100 percent fully paid and deeded owner of this property. Can this association legally keep her from renting her condo unit? --Richard
DEAR RICHARD: The general law for community associations (condominiums, homeowner associations or cooperative apartments) is that all owners are bound by their legal documents, as they existed at the time they first moved in and as they may be properly amended in the future.
The question your daughter has to ask is whether these "papers" that everyone signed were a valid amendment to the condominium legal documents or were merely a pledge on the part of all owners.
If the former, then your daughter cannot rent out her unit. However, she is facing a problem that many owners now have. They have to leave the association for whatever reason, but either cannot sell or have to sell at a "fire-sale" price.
This will seriously impact the financial well-being of your daughter's association. She should discuss the situation with the board. While they do not have the authority to contradict the legal requirements of the bylaws, they can take steps to resolve this situation. The best way would be to amend the bylaws again, but this is time consuming. Alternatively, the board could poll the membership and ask if they would be willing to waive the "no-rental" provision, at least for the next year or so. If the board receives a super-majority response supporting this waiver, it could agree to "close its eyes" and allow rentals. While this is technically not legal -- as it would be a clear violation of the bylaws -- that's the best suggestion I can make. However, the board would have to determine, on a case-by-case basis, whether to approve rentals.
I suggest that you determine if the "no-rent" provision was, in fact, properly adopted as an amendment to your bylaws, and determine if it was recorded among the land records in the county where the condo is located.
DEAR BENNY: How can I, as a landlord, protect myself when a tenant does not give up the house at the agreed-to date and I have signed with a new tenant? Am I totally liable for expenses and discomfort the new tenant will suffer if the property is not available and in move-in condition?
This concerns me because my current tenant wants to have a new lease with a floating 90-day notice period, as she is possibly purchasing a home within this next year. As you know, many factors may surface that could jeopardize her departure date. --Dudley
DEAR DUDLEY: Your new lease with the existing tenant should have a provision that requires her to give you a minimum of 60 days' advance notice of intention to leave the property. If she does not vacate pursuant to her notice, she will have to pay you a higher rent -- say 50 percent higher.
And if you find a new tenant, make sure that your lease states that you will not be responsible for any damages should the house not be vacant when the new tenant is supposed to move in. This may turn off potential tenants, but you need to protect yourself.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to firstname.lastname@example.org.