Husband Is Liable for Ex-Wife’s Default of VA Mortgage on Home

QUESTION: My wife and I were divorced about four years ago. She got the house with its VA mortgage. Shortly after the divorce she became unemployed and quit paying on the mortgage. She lived in the house almost a year before the VA foreclosed.

Then she filed bankruptcy to stall the foreclosure sale. Finally, the VA foreclosed and my ex-wife was kicked out of the house. The VA says they lost about $4,500 after they eventually found a buyer for the house. Now the VA wants me to pay for their loss. Can they do this to me?

ANSWER: Yes. Unless you were released of liability on the VA mortgage at the time of your divorce, you remained liable to the VA for any loss upon foreclosure of the house. Please consult a real estate attorney for further details.

Lender Should Send Papers If Loan Paid

Q: Last month, I made the final payment on my home loan. I attached a short letter explaining this was the last payment, and I wanted the loan removed from the property records. So far, I have heard nothing from the lender. I have tried phoning the lender but their toll-free number is constantly busy. Should I require proof the loan has been removed from the property?

A: Yes. If the loan security was a mortgage, the lender should record a “Satisfaction of Mortgage.” When a deed of trust is used to secure the loan repayment, then a “Deed of Reconveyance” should be recorded by the lender and forwarded to you.

Unfortunately, many lenders fail to promptly record these documents. Why? Because there is no financial incentive for the lender to complete this paper work if there is other work to be done. Don’t give up. Keep pressing the lender to record the proper document and send it to you promptly.

Real Estate Career Not All Milk and Honey

Q: From time to time you encourage people to become real estate salespeople. That’s a bunch of baloney. Selling real estate is the worst job there is.

I tried it for eight months and only grossed about $19,000. Out of that I had to pay my auto expenses, health insurance, income taxes, Social Security tax and other business expenses. I figure I was lucky to net about $1,500 per month for working at least 60 hours per week and often seven days a week.

At the Christmas party, after a few drinks, my broker told one of the guests she earns over $200,000 per year. But we peasant salespeople are practically starving. Isn’t it about time you wise up and tell the truth about what a lousy job selling real estate really is?

A: I’m sorry you were not successful selling real estate. But at least you tried, and now you know it is not what you enjoy. However, most real estate salespeople enjoy their work very much. If that were not true, the National Assn. of Realtors would not be the nation’s largest trade association with over 700,000 members.

Yes, selling real estate is hard work. The most successful realty agents are amply rewarded, often earning more than $100,000 per year. The top salespeople earn more than $200,000 annually.

Selling real estate is one of the few jobs where there is no limit to how much a person can earn and where salespeople can work as hard or as little as they wish. Unfortunately, getting started in real estate sales is not easy, as you discovered.

Assert Easement Rights Before Losing Them

Q: For the last 25 years I have had a flower garden on what is part of my neighbor’s land. There have been several owners of that property over the years and none objected to my garden. But the current owner says he is going to build a fence and enclose my garden in his property. I recall a long time ago you wrote about prescriptive easements. Does my situation qualify?

A: A prescriptive easement across part of your neighbor’s property can be acquired by open, notorious, hostile and continuous use of part of your neighbor’s property for the number of years required by state law. These elements are the same as for acquiring title to property by adverse possession except you do not have to pay the property taxes on the neighbor’s property as is required for adverse possession.

It appears you have met all the elements of a prescriptive easement. I suggest you contact a real estate attorney about filing a lawsuit to perfect your prescriptive easement.

Gift Property Basis Is Same as Donor’s Basis

Q: About 20 years ago, my mother gave me her house when she moved to a retirement home. Recently she died. I am thinking of selling the house, which has greatly appreciated in market value over the 20 years. Would I have to pay any profit tax if I sell?

A: Yes. When a property gift is received, the recipient takes over the donor’s basis in the property. For example, let’s suppose your late mother paid $20,000 for the house, it was worth $50,000 when you received it as a gift, and it is now worth $100,000.

Since your basis is your donor mother’s $20,000 basis, if you sell the house for a net sales price of $100,000, you will have an $80,000 capital gain.

However, if the house is your principal residence, then you can use the “roll-over residence replacement rule” of Internal Revenue Code 1034 to defer your profit tax by purchasing a replacement home of equal or greater cost within 24 months before or after the sale. Please ask your tax adviser to explain further.

Tax Consequences of Move to Cheaper Home

Q: My husband just got a big job promotion. The bad news is that we will be selling our home for about $280,000 and moving to a small town where we can buy a much nicer and larger home for around $130,000. As we are not yet age 55, is there any way we can avoid paying tax on our sale profit?

A: Internal Revenue Code 1034, the “roll-over residence replacement rule,” says the seller of a principal residence must defer the profit tax if a replacement principal residence of equal or greater cost is purchased within 24 months before or after the sale. However, if a less expensive replacement home is bought, the profit is taxable up to the difference in the two prices.

However, any capital improvements, such as landscaping, remodeling, swimming pool and room additions, added to the replacement home within the 24-month replacement period will raise the replacement home’s cost and reduce your taxable profit.

No Capital Gain Taxes on Sales After Death

Q: My wife is 68 and I am 73, so we are thinking of retiring in the next few years. We were talking with our tax man about possibly selling our real estate investments, including our home.

We have large profits and are thinking about carrying back mortgages for retirement income. But then he told us something I found hard to believe. He said if we sell our properties, we will have to pay tax on our sale profits, but if we die still owning our properties there is no tax on our capital gain. True or false?

A: True. When a person dies, there is no capital gain tax to be paid. Death is the ultimate tax shelter. However, the deceased’s assets are subject to federal estate tax. But assets left to a surviving spouse qualify for the marital estate tax exemption. There is also a $600,000 estate tax exemption.

If you need retirement income, selling your properties on installment sales and carrying back the mortgage financing is an excellent idea. In addition to the income benefits, by offering easy financing you can get top dollar and quick results when selling your properties.

Labor on Investments Can’t Be Deducted

Q: I own an apartment building which needs considerable remodeling. I am a firefighter, I have considerable time off during which I can do the work. However, several of my fellow fire fighters who also own real estate investment properties tell me I cannot deduct the value of my labor on my own property. Please tell me this isn’t true.

A: Sorry, your friends are correct. The value of your personal labor on your own investment property is not tax-deductible. However, the cost of materials can be added to your adjusted cost basis for the property and depreciated over 27.5 years. Please consult your tax adviser for further details.

Carrying Out-of-Area Mortgage Is OK

Q: Due to a job transfer we will be selling our home and moving out of state. The market for home sales is slow in our town now. The real estate agent suggests we carry back a second mortgage, so the buyer can assume our VA first mortgage.

We will get enough cash from the buyer’s down payment, so we can afford to buy a home in our new town. However, we are concerned about the problems we might have if the buyer doesn’t make the monthly payments on time. If you were in our situation would you carry back a second mortgage, knowing you will be moving out of town?

A: Yes. Millions of mortgage payments are made to out-of-town lenders every month. Less than 1% of those loans ever go into default. However, the best thing that could happen to you if your buyer defaults, you foreclose and get the house back to sell again for a second profit. But don’t get your hopes up because that rarely happens. If you should have to foreclose, just turn the matter over to a local real estate lawyer.

Who’s Responsible for Fence in Wrong Site?

Q: Last year we bought our first home. The seller pointed out the fence on one boundary is about three feet on the neighbor’s side of the property line, but it had been there when our seller bought the house, so he didn’t think it would cause any trouble.

In April the neighbor said he wants us to remove “our fence” from his property. Since the fence is on his side of the property, it seems to us and our lawyer it is not our job to remove the fence. Do you agree?

A: Yes. Since the fence is located on your neighbor’s property, you would be trespassing if you remove it. The fence belongs to your neighbor, so if he wants it removed it is up to him to do so.

Is Duplex a Better Buy Than a House?

Q: Instead of buying a single-family house I am considering buying a two-family duplex where I would live in half rent the other half to a tenant. Do you think this is a good idea?

A: No. The market value appreciation of duplexes is usually less than for nearby single-family houses. Another problem is you may not want to live so close to your tenants.

Easement Must Be in Writing to Be Valid

Q: I recently bought some rural land where I hope to build a vacation home this summer. When I was staking out the lot for grading, a neighbor informed me he has an easement across my lot to get to his adjoining property. There is nothing in my deed about this. I checked with the seller and she says there is no easement. What should I do?

A: Ask the neighbor for his proof of the easement. To be a valid easement, it must be in writing unless the neighbor has met all the conditions for a prescriptive easement. If the easement proof appears to be valid, consult the title insurance company that insured your deed. You did buy an owner’s title policy, didn’t you?

Letters and comments to Robert J. Bruss, a San Francisco-area lawyer, author and real estate broker, may be sent him at P.O. Box 280038, San Francisco 94128.