What happens to a HELOC after foreclosure?

Homeowner unsure why he must continue payments following bank's repossession

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Nov. 6, 2012

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Due to circumstances involving our elderly parents, we both still live in our respective homes. I know, it's not the best situation for a newly married couple, but we deal with it. So, basically, my primary residence is still my home, and my husband's primary residence is still his home.

We would like to sell both homes and purchase a new one together, but we do not want to do anything that could cause us to have a tax burden for capital gains or some other legal issue. We have sought and received so many conflicting answers and information about this process with regard to the taxes for capital gains and when we can and cannot do this. We are so confused that we even went to the local Internal Revenue Service office and they could not even answer the question with straightforward answers.

Could you please give us some guidance and answers as to exactly how we can legally do this? --Susan

DEAR SUSAN: Periodically, just before the tax deadline on April 15, the Wall Street Journal runs a story about the IRS. They pose the same question to several different local IRS offices, and always get different answers. So I understand your frustration.

Perhaps I am missing something. So long as you and your new husband have each owned and lived in your respective houses for two out of the last five years before they are sold, and you both file separate tax returns, you can each exclude up to $250,000 of any profit you each may make when you sell your individual homes.

DEAR BENNY: When buying a home, is there anything in the home inspection that the seller must fix before the completion of the sale? How does the seller know the contents of the inspection? --Carmeline

DEAR CARMELINE: That's a very good question. First, when you sign a contract to buy a house (whether it's an existing or a newly built home), the contract should contain a home inspection contingency. A contingency gives you the right to cancel the sales contract and get your earnest money refunded if a particular condition is not met.

There are, from my experience, two kinds of home inspections contingencies: (1) if the home inspector finds problems, regardless of what they are, you have the absolute right to back out from the sales contract; or (2) if the inspector finds problems, you present those to the seller and give him X number of days to correct or give you a cash credit. If the seller refuses, you can then decide whether to go forward with the purchase or walk away.

Personally, I like the first option; it gives the buyer a "cooling off" period. All too often, real estate contracts are entered into late at night when the buyer is both on an emotional high but at the same time emotionally drained.

Regardless, however, do not let anyone convince you not to have a home inspection. I have represented too many buyers who failed to get their house inspected only to find major (or minor) problems that could have been corrected before closing.

And, a good real estate agent should provide you with the names of at least two home inspectors. You want to make sure that the inspector you use will be independent and not a "mouthpiece" for the real estate industry that gives him the business.

You asked how the seller will learn about the inspection. If you want to cancel the contract or ask the seller to make some or all of the necessary repairs, you will get a written report from the inspector and you will forward that on to the seller.

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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