DEAR BENNY: Long story short, several of my brothers and sisters inherited a vacation house many years ago. All but one want out, and one of my brothers is actually willing to buy out the rest at market rate. However, my sister refuses to agree to selling. Can we proceed ahead, with majority rule? Do we have any options other than going to court? And will the losing party have to pay our legal fees and costs?
Maintaining the property costs us a lot of money every year. We divide the costs equally. Of course, you guessed it: The one who does not want to sell uses the property most of the time. Any suggestions? – Sharon
DEAR SHARON: Unfortunately, you are not alone. I get lots of similar stories from my readers. Typically, momma dies, with two children. Jack lives on Oregon and wants to sell but Mary lives in the house in the West and wants to keep it. How do we resolve this?
No, majority rule does not work here. There is a legal procedure known as partition. If one property owner wants to sell, and others do not, the courts have made it clear that it is unfair to require the parties to maintain the status quo. Accordingly, when you file a partition lawsuit, the judge will order the property to be sold. It can be done with a private real estate agent, or – after advertising in the local newspapers – at an auction in the courthouse.
Either way, the only winners are the attorneys and the speculators who often buy at less than market value.
From my experience, having been involved in many similar situations, the mere threat from an attorney that one owner is considering filing such a lawsuit has convinced all parties to reach an amicable, out of court settlement.
Will the prevailing party in such a lawsuit recover legal fees? Probably not. We follow what is known as the “American Rule” on legal fees, namely, each side pays its own lawyer. There are a few exceptions, such as if there is a contract or a statute providing attorneys’ fees. Most consumer protection laws contain such a provision.
Another exception is where the judge finds the conduct of one of the parties so egregious that the judge will punish that person by requiring him to pay the legal fees for the other side. But this is rare and I doubt your facts will meet this exception.
I would talk to an attorney, who may have success in resolving the matter with just one strong letter.
DEAR BENNY: Five years ago we did a reverse mortgage on a home we owned free and clear. We were in decent shape financially, but needed $180,000 to keep our daughter out of foreclosure. We paid off her loan and took ownership of her condo. We assumed it would appreciate faster than the interest on the reverse mortgage.
Now the extra costs they’ve tacked on, service fee and mortgage insurance premium, and the interest, at 5.5 percent, has caused the amount owed to really ramp up. The interest on the interest, etc., compounds quickly. We are considering selling another property to pay off this accelerating reverse before the cost curve steepens faster than the reverse property is appreciating. My question: Is the $200,000 interest that has accrued to date tax deductible if we repay the reverse (with the interest)? – Ren
DEAR REN: I am often asked whether it makes sense to get a reverse mortgage. Ren’s situation is part of the answer. Yes, it is nice to get money upfront, but you pay the price at the end.
The Internal Revenue Service considers such a mortgage a loan advance, and not income. The lender will assess your situation and appraise your house. Once the maximum amount that can be advanced is determined, you can (1) take it all up front, (2) receive periodic payments or (3) a combination of both. The money is not taxable, since you are borrowing on your own property.
The IRS has an answer to your question. In IRS Publication 936, “Home Mortgage Interest Deduction,” it states: “Any interest accrued on a reverse mortgage is not deductible until you actually paid it, which is usually when you pay off the loan in full.”
However, the IRS adds that, “Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt” – also known as home equity loans or HELOCs.
You should consult a tax advisor to determine how much of the $200,000 will be deductible.
Benny Kass is a practicing attorney in Washington, D.C. and in Maryland. He is not providing specific legal or financial advice to any reader. He wants readers to e-mail him, but cannot guarantee a personal response. He can be reached at: [email protected].