Dear Benny: A friend of mine bought a condo a little over a year ago.
The builder recently went bankrupt and his bank sold the balance of one unsold building and two units remaining in my friend’s building and the adjacent property.
The 10 owners who occupy 10 of the 12 units in his building are of mixed races and incomes. All of the original owners are stunned and extremely upset at what has taken place. No one contacted them until after the bank made the sale.
The current owners did not buy their condos to have families with lots of children move in and disrupt their quiet lives. They are fearful that there will be no control over who rents these units and are concerned about drugs and crime. Their property values have probably declined and may not be salable, at least not for the market value they paid.
My question is: How can a bank get away with selling the remaining units and properties to HUD, who will use them as subsidized rentals, without the cooperation and knowledge of the existing owners, and why wasn’t the bank held to the rules of the condominium and instead required to sell the units to private buyers? –Sherry
Dear Sherry: I will try to be politically correct in my answer, but I suspect that there is some racial prejudice involved in your question.
You do not know if these new owners will or won’t be good neighbors. Has your friend — and the other original owners — met the new owners? Is there anything in the condo bylaws that prohibits owners to have children?
While the bank should have discussed the situation with the original owners before entering into a contract with HUD, I see no reason why they are legally obligated to do so.
If these new owners start to violate the rules and regulations of the condo association, the board should pursue legal action against them, the same as if any of the original owners were violating the legal documents.
When your friend bought into the condo, he did not know who would be his neighbors. His next-door neighbor could have turned out great or bad. It’s community association living: You give up a bit of your privacy for the benefit of the entire association, right or wrong.
My suggestion is to wait and see how these new owners will behave. Don’t rush to judgment at this early stage.
Dear Benny: My mother is 80 years old.
She bought her home in 1994. She wants to give me the house outright and wants her name off of the deed.
What is the easiest way and how should we go about it? –Tom
Dear Tom: This is a question I often get, and I always have the same answer. There may be tax consequences for both of you if your mother gives you the house.
I don’t know your specifics, so my response must be general in nature. Let’s say she bought the house for $50,000 and it is now worth $200,000. If she gives you the house, her basis for tax purposes becomes yours. Basis is the way to determine profit or loss.
If you will own and live in the house for two years out of the five years before you sell it, you can exclude up to $250,000 of gain (or if you are married and file a joint tax return, the exclusion is up to $500,000. Your spouse does not have to be on title, but must have lived in the house for two out of the five years.)
But if you do not qualify for this exclusion, when you sell you will have made a profit. Your basis will now be $50,000 — i.e., yours and your mother’s combined — so the difference between basis and selling price is taxable. (I am ignoring for this discussion any improvements you or your mother made or such expenses as any real estate commissions.) The current federal tax rate is 15 percent, plus any state or local tax.
However, if you inherit the house on your mother’s death, you will get a “stepped-up” basis. That means the value of the house on her death becomes your basis. If the house is worth $250,000 when she dies, and you sell for that price, you will have made no gain and, thus, no tax to pay.
Additionally, your mother may have gift tax issues. Please talk to a professional (lawyer or accountant) before you take title to the house.
Benny 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.