Dear Benny: I recently purchased a 5-year-old house and when I signed the residential purchase agreement there was a provision for the seller (a bank) to provide a one-year home warranty plan for a price not to exceed $350.
Since the close of escrow — also called settlement or closing in many states — and officially turning over the keys, I have not received the warranty.
My real estate agent essentially is saying that the warranty was never “officially” taken out, despite the agreement, and the listing agent is leaving the matter in the Realtor’s hands. I’ve been unsuccessful in bringing this to a resolution. Do you have any suggestions? –Mike
Dear Mike: Yes. You should send a letter to the bank and include a copy of the sales contact highlighting the warranty requirement.
Send a copy to your state’s attorney general, your state’s banking commission and the United States Office of the Comptroller. That should do the trick.
However, my experience is that those warranties are not always worth the cost. You have to read the fine print because there are too many loopholes. But since the bank has to pay for it, you might as well put some pressure on them.
Dear Benny: After my dad died last year, my mom sold their house.
During the title search, however, she was surprised to learn that she didn’t even own the house. Apparently, my dad had been convinced by a lawyer many years ago to change the title of the house, putting us three kids on it and taking himself and mom off of it but with the “right” to stay there indefinitely. She obviously would have had to sign that as well but had no idea what she was signing.
So, at closing, each of us kids had to sign off on the sale, which I assume means that we will get some tax statement at the end of this year showing a third of the proceeds coming to each of us. As part of the sale, we also all signed statements that we were turning over the proceeds directly to mom.
Questions: How was it even possible for a lawyer and my dad to put our names on the title without our knowledge or consent? Can you legally just put anyone you want on the title of your house?
What tax consequences might this incur for us kids that we received money from the sale and that we turned it over to mom? The house sold for only about $10,000 over the purchase price of 15 years ago, plus they had recently put on a new roof, siding and windows, so there would have been very little if any real profit. –Doug
Dear Doug: The answer to your first question really depends on the laws in your state. For example, in the District of Columbia, where I practice law, both grantor and grantee must sign a transfer and recordation tax form. Thus, in D.C., you and your siblings would have to sign something before the deed putting you on title could be recorded.
But in Maryland, where I also practice, there is no requirement that both parties sign, so your father, in Maryland, could have put you all on title without your knowledge.
As for the second question regarding any tax consequences, you really should consult an accountant for specific answers.
Generally speaking, however, you have to determine the tax basis of the property on the date that your mother died. Furthermore, her basis would have been increased when your dad died. This is because of a tax provision called the “stepped-up” basis. Oversimplified, the basis for tax purposes is the value of the property on the date of a property owner’s death.
Basis is important. To determine whether there is any profit, you take the basis, then add any major improvement to get the “adjusted basis.” Then you take the sales price and deduct such items as real estate commissions and closing costs to get the adjusted sales price. The difference between the adjusted basis and the adjusted sales price is your gain or loss.
If the house sold for only $10,000 over the original sales price, I seriously doubt that there will be any profit, but your tax accountant must give you this answer.
However, there is yet another tax issue: You and your siblings gave the proceeds to your mother. That is a gift. You have no tax consequences if the gift does not exceed $13,000 to any one person in any one year. Note: You can gift $13,000 to many people in one year with no tax implications.
But if the gift is more than $13,000, you will have to file a gift tax return, which your accountant can do.
Since your mother presumably had a life estate in the property (that has to be formally determined), then it could be argued that you did not give her a gift but rather paid her for her share of her life estate.
These are complicated tax questions that must be answered by your own professional tax and financial advisers, especially if the amount in question is large. I can provide only some basic guidance.
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 firstname.lastname@example.org.