Best way for trio to hold title

Ownership, occupancy rights upon death are key issues

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Oct. 19, 2009

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So many banks are hoping that the market will pick up (which it looks like it is doing in many parts of the country) and thus the bank will not lose as much with a stronger sale.

How do you solve this problem? I can think of only two ways. First, literally bug the bank on a periodic basis -- say two or three times a week. Hopefully, you have a direct contact at the bank, since all too often many different bank people get involved in the same transaction.

Second, put a deadline on your offer to purchase. Spell out that if the contract is not accepted by the bank (give it 30 days) the contract is null and void and you get your earnest money deposit back immediately.

Note for short-sale sellers: When you plan to sell your house by way of a short sale, it has come to my attention that although the bank will allow a sale to proceed where the mortgage is not paid in full, many banks are requiring their borrowers to sign an agreement whereby they agree that they are not relieved from the balance of the loan obligation. In other words, if you owe the bank $200,000 and the bank gets only $170,000 from the short sale, you will continue to owe the bank the difference of $30,000. Before you finalize a short sale, have your lawyer carefully review the banks' agreement, and have him/her try to negotiate either no payment at all or some compromise amount.

Some banks claim that even though they require their borrowers to sign such an agreement, they really don't pursue collection efforts. That may be true, but the legal document borrowers are required to sign states otherwise, and gives the bank -- or a successor -- the legal right to pursue this deficiency.

DEAR BENNY: I own two homes, one of which is my principal residence. The second home can be rented out. I know that I could claim deductions for interest only up to $1 million for the combined principal each year because I never rented either of them out.

If I rent it out, I know that I can deduct this rental as a business expense. Because of the downturn in economy, there is a chance, even if I try, that I will not get a renter for months or ever because the rent is $5,000. Can I still get the deductions as a business property in terms of the interest? It is being advertised by an agent so there is documentation. --Susan

DEAR SUSAN: The $1 million limitation applies only to your principal residence and a second home. Taxpayers can claim interest on those properties only up to the $1 million mark. Any interest paid on mortgages over that cap is nondeductible. And for clarification, the $1 million refers to the amount of the mortgage and not the amount of interest paid.

But, your second property is not a "second home" -- i.e., one where you go to relax on weekends. It is investment property and you have the right to deduct all interest you have to pay on that mortgaged property, regardless of the amount. So long as you honestly are trying to rent it out, the deduction is still available, even if it is vacant.

In fact, I can't provide you with specific tax advice, but you may want to talk with an accountant to determine whether you can go back and amend your previous tax returns so as to take more interest deductions for those years in which you did not do so.

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 benny@inman.com.

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