KASS: Selling your home

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Q:   I am a Senior Citizen who wants to rid myself of my house. There is a mortgage in the amount of approximately $20,000. I believe the house is valued at $70,000, but it is under water.

How do I safely turn the house over to the lender, without paying fees, costs, etc. Please note that mortgage payments and real estate taxes are all current! I’m too old and stressed to keep this up on my Retirement Income. Please Advise. Janice.

A:     Janice, I am confused. You state the house is worth approximately $70,000 and you only owe the   bank about $20,000; that’s not “under water” to me. You have equity.

Before I explain the “deed in lieu” process, I have to throw in a bit of caution. Do you have any relatives or friends with whom you can discuss your situation? I have serious reservations of what you plan to do. If you give the house to the bank – assuming they will   want it – where will you live? Do you have other assets on which you can live? Why throw out $40-50,000 of equity?

With major reservations, I will explain the deed-in-lieu process. Oversimplified, you tell the bank: “I will give you my house in exchange for your cancelling my mortgage and not charging me for this process”. Thus, you give the bank a deed.

I seriously doubt the bank will even consider taking title to your house? The concept is “deed-in-lieu” but it “in lieu” of foreclosure. To my knowledge, I have never heard of a “deed-in-lieu” where the house was not in arrears regarding the Bank’s mortgage. In those situation, banks will reluctantly agree to take a deed to the house so as to avoid the time and expense of a lengthy court fight over a foreclosure.

If the facts are as you reported them to me, I strongly urge you to talk with a family or friend as well as a professional financial or legal advisor.

OF INTEREST

When Congress recently passed the Tax Reform bill, one of its requirements was to impose a $10,000 cap on the amount of tax deductions homeowners can take on the moneys they paid for state and local taxes (SALT). If your house is worth a lot of money, your local SALT tax will most likely exceed $10,000 per year.

Four states – New York, Connecticut, Maryland and New Jersey just filed suit in the Southern District of New York, claiming this tax is unconstitutional. The plaintiffs in this lawsuit believe the SALT cap was enacted to target Democratic-leaning States and the such a tax interferes with the authority of the states, which should be sovereign.

More lawsuits. It should be noted, however, that in addition to litigation, some states are working to enact state legislation that would basically end-run the SALT restrictions. However, the IRS recently issued Notice 2018-54, stating that proposed regulations will be issued addressing the deductibility of state and local tax payments for federal income tax purposes. Notice 2018-54 also informs taxpayers that federal law controls the characterization of the payments for federal income tax purposes regardless of the characterization of the payments under state law. In simple terms: the IRS will not be receptive to state laws that impact in any way the federal SALT tax. Stay tuned: this is a very important issue especially for those homeowners who years ago bought a house that has appreciated significantly in value. Many of these homeowners are elderly and may not be able to afford the higher tax.

Q:       I hope you will be able to give us an advice. My husband and I owe two small commercial condominiums, and they have been unoccupied for at least 2 years. We’ve been trying to lease or sale with no luck. Is there such a company that can buy our properties or we will have to keep putting on the market hopping one day to find a buyer? Thank you in advance for your advice. Nelly

A:     Interesting question and dilemma. Other than a real estate brokerage, I am not aware of any such legitimate companies.

There are a number of options, and in no order of priority: (1) dramatically lower the prices, so long as you are able to pay off any and all mortgage and tax obligations; (2) see if a local church – or local charitable organization – will agree to take the properties; (3) if there is a lender, try to arrange a deed-in-lieu and give them the properties. I suspect, however, that if you have been unable to sell or lease, the bank will not want to touch them, (4) don’t pay the real estate tax and let the city government sell the properties at a tax sale and (5) auction of the properties.