DEAR BOB: I had a contract to sell my home. I gave the buyerseven days to bring me an acceptable mortgage letter from a bank, but hepresented a letter from a mortgage broker indicating final approval of his loanwas subject to “underwriting.” His bank returned his $1,000 depositcheck for insufficient funds. Can I legally terminate his contract? –Jorge S.
DEAR JORGE: From your description, it sounds like your buyeris in breach of the sales contract. That letter from a mortgage brokerindicating his mortgage approval is subject to “underwriting” isworthless.
Purchase Bob Bruss reports online.
Today’s smart home buyers get pre-approved in writing by anactual lender before shopping for a home. If your buyer had done that, andshown you the lender’s approval letter or certificate, you could feel confidenthe will obtain a mortgage.
Although mortgage brokers can obtain such pre-approvals fortheir borrowers, because they are not the actual lenders, mortgage brokers canonly issue pre-qualification letters, which are non-binding on actual lenders.
Especially because your buyer’s $1,000 deposit checkbounced, if I were in your shoes, I would feel confident canceling that salefor breach of contract. For full details, please consult a local real estateattorney.
ANOTHER DISADVANTAGE OF GIFTING A PROPERTY BEFORE DEATH
DEAR BOB: In a recent article, you answered a widow’squestion about gifting her property to her daughter and son-in-law. But one taxconsequence you failed to mention, which snares many people, is the fact thatby gifting real estate before death to a child, the child loses the opportunityto receive a stepped-up basis to market value upon the donor’s death –Tim F.
DEAR TIM: Shame on me. How could I have forgotten that majorbenefit of inheriting real estate instead of receiving it as a gift beforedeath?
A big disadvantage of a property gift is the donee takesover the donor’s adjusted cost basis. In the situation you describe, the motherpresumably had a very low cost basis if she owned the property for many years.The gift donee takes over that low basis.
However, when real estate or other assets are inherited, theheir receives title by inheritance with a new stepped-up basis of market valueon the date of the decedent’s death. For more details, please consult your taxadviser.
MUST HOMEOWNER FORM A CORPORATION TO RENT A HOUSE?
DEAR BOB: Do I need to form a corporation to rent mysingle-family house as an investment property? My son says “yes.”–Christina K.
DEAR CHRISTINA: I’m sure your son is a fine young man, buthe is mistaken on this issue. Landlords do not need to form a corporationbefore they can rent their property to tenants.
Millions of property owners rent real estate to which theyhold title in their own names without forming a corporation. Perhaps your sonwas thinking that forming a corporation to hold title to the rental house wouldlimit your liability.
But forming a corporation is not necessary. Nor is it a goodidea, especially because holding title in a corporate name forfeits your rentalproperty income tax benefits.
However, before renting that house to tenants, pleaseconsult your insurance agent to be certain you have adequate liabilityinsurance. You need a rental property owner’s insurance policy, not ahomeowner’s insurance policy. With adequate liability insurance, you can resteasy and forget about all the drawbacks of owning corporate real estate. Formore details, please consult a local real estate or tax attorney.
The new Robert Bruss special report, “How to Sell YourHouse or Condo for Top Dollar With or Without a Real Estate Agent,” is nowavailable for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or bycredit card at 1-800-736-1736 or instant Internet delivery at
(For more information on Bob Bruss publications, visit his
Real Estate Center).
Copyright 2006 Inman News