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Real Estate Q&A

Neighborhood Should Pass School Test

March 29, 1998|ROBERT J. BRUSS | SPECIAL TO THE TIMES

QUESTION: We're moving to a new location, due to a job change, and are thoroughly confused about how to pick a neighborhood.

We're working with two Realtors in different parts of town. Each promotes his area as the best. What's the best way to evaluate a neighborhood?

ANSWER: Presuming you can afford both neighborhoods and they are within a 30-minute commute to your job, start with an evaluation of the public schools. Even if you don't have children, top-quality schools are good for home value appreciation. Bad-quality public schools prevent buyers with children from moving into the area, thus holding home values down.

Ask yourselves if you feel comfortable in the neighborhood. Talk with the neighbors near the houses you are considering buying. Ask what they like best and what they dislike about the area. Look for signs of decaying, neglected buildings. Also look for positive signs, such as homeowners remodeling their residences.

Don't be in a hurry to buy. If possible, lease with an option to buy so you don't buy the wrong house.

Misrepresenting House's Square Footage Is Fraud

Q: We bought our home in 1993 through a Realtor who represented us. The house was a foreclosure being sold by a bank. The square footage was represented to us as 4,770. However, we recently had a property evaluation done by our insurance company's inspector, who found only 4,022 square feet. Our purchase offer was based on $125 per square foot and 4,770 square feet. Based on our new knowledge, do we have any recourse after this length of time?

A: If you can prove the seller and/or the listing agent misrepresented the house's square footage, that is fraudulent misrepresentation. In most states, the statute of limitations begins running from the date of discovery of the fraud. Check with your attorney to evaluate if it is worth going after the bank for fraud.

Living Trust Won't Raise Capital Gains Tax

Q: Recently you answered a question from a son whose mother was dying of cancer. She had property she wanted to deed to him now, but you recommended that he obtain it by inheritance to get a new cost basis stepped up to market value on the date of death. Then you advised that, to avoid probate costs and delays, he tell his mother about putting title to the house and other major assets into a living trust. My question is, how would the capital gain be computed if the house is put into the living trust?

A: Deeding real estate into a revocable living trust is not a taxable event. Even in states that reassess property after title transfer, such as California, I am not aware of any that reassess when title is deeded to a living trust if the initial trustee and beneficiary is also the grantor.

The primary purpose of a living trust is to avoid probate costs and delays. It doesn't cause any change in the cost basis of the property. In the situation you described, the mother's cost basis for the house would remain unchanged after she transfers title into her living trust. If she wants to sell or refinance the house, she can still do so because she has complete control over living trust assets.

When she dies, the living trust becomes irrevocable, and its terms must be followed by the successor trustee, presumably the son. He will still get a new cost basis stepped up to market value on the date of her death. There will be no change in the capital gains taxation. If he sells the house for its market value on the date of death, he would not owe any capital gains tax because he has no profit. For details, please consult your tax advisor.

Foreclosed Property Can Be a Good Deal

Q: On a recent vacation in Palm Springs, I learned there are many nice foreclosed condominiums for sale there. As I am thinking of buying a vacation condo, how would I go about buying a foreclosure? Are foreclosures a good deal? What are the pros and cons?

A: Buying a foreclosure property can be a good deal if you purchase far enough below market value to compensate for the risks of buying the unknown. But getting a foreclosure bargain takes work, so don't expect it to be handed to you on a silver platter.

There are three basic foreclosure-buying opportunities. The first occurs after the lender records, depending on state law, a notice of default or a lawsuit against the defaulting borrower. During this time before the foreclosure sale, you can buy out the owner's equity, often for a few thousand dollars, and take title. Lenders will usually then let you reinstate the mortgage. But you might have to get new financing.

The second opportunity occurs at the foreclosure sale auction. If it's a below-market-price bargain with lots of equity, you might encounter competition from "the 40 thieves"--that is, professional foreclosure buyers. They usually insist on buying at least 20% to 30% below market value. The big drawbacks of buying at the auction are: (1) You don't get to see the inside of the home before the sale, and (2) you'll need cash (or cashier's checks) at or shortly after the auction.

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