Costs, terms often more onerous than conventional mortgages
I am not advocating getting the lowest bid all the time. You get what you pay for, and sometimes it would make sense -- in the board's judgment -- to use a higher bidder. But obviously, if you have only one bid, you can't go either higher or lower.
And there are situations where there is only one company in town that can do the job for you. In that case, the board cannot get more bids. If that's the situation, then the board should document these facts and send a note to all owners about why it is not getting multiple bids.
Communication, in my opinion, resolves most, if not all, problems. Lack of communication, on the other hand, creates distrust and fights.
In your case, the board might want to retroactively get another bid just to satisfy its members -- and you -- that the current price is in the ballpark. Realistically, however, I doubt that any contractor would want to waste time preparing a bid knowing that it will never be accepted.
DEAR BENNY: Congress started removing some financial hazards of default when it enacted a law that temporarily waives the income tax on mortgage debt that is canceled when a homeowner is foreclosed upon, sells a home for less than the remaining debt (a short sale), or gets a loan modification that reduces the principal balance. The tax waiver originally applied only to debt on a primary residence canceled in 2007, 2008 or 2009. Last month, in the bailout bill, Congress extended the waiver until 2013.
Say you lived in your house as a primary residence from 2005-2007. Then because of economic hardships you rented out your house to a tenant in 2008 in order to pay the mortgage. If you are foreclosed on or do a short sale in 2009, do you still get the income tax waiver on mortgage debt that is canceled?
I already know of at least several people in my situation ... before all these federal bailouts occurred in 2008, the only real economic recourse for saving their homes was to rent out their primary residences to tenants. But because of continuing declines in the value of the homes, many would just want to foreclose but aren't sure if the tax waiver on foreclosures applies since the home is no longer their primary residence. --Kevin
DEAR KEVIN: You sent me this email a couple of years ago, and I did not get a chance to use your question. However, it now becomes timely, because when Congress enacted (on Jan. 2, 2013) the American Taxpayer Relief Act, it extended the law you are discussing through Dec. 31, 2013.
In general, as strange as it may seem, if your mortgage debt is canceled by way of a short sale, foreclosure or loan modification, the Internal Revenue Service calls this income and you have to pay tax on it. We call it "phantom income."
However, as you stated, Congress was concerned about this and in 2007, enacted the Mortgage Forgiveness Debt Relief Act. Oversimplified, if the debt that was canceled involved your principal home, up to $2 million of forgiven debt is eligible for exclusion ($1 million if married filing separately), i.e., you don't have to pay any tax on the money you did not get. That law was to have expired at the end of 2012, but, as mentioned above, has now been extended through the end of this year.
However, this must be your principal residence. In your example, if you moved out and rented, for whatever reason, I am concerned that this is no longer your main home. Presumably, you declared the rental income on your tax returns, and even may have taken depreciation. So the IRS would not look kindly on your claim that this is your principal residence.
It's not fair, but neither is the phantom income tax.
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 email@example.com.
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