Buyers can sue sellers for failure to disclose defects

However, the problems you list sound minor. Perhaps a better alternative is to sue the seller for damages due to failure to disclose the defects.

Q.

I plan to retire at age 51, in a few months. My wife and I are discussing moving to Mexico or Costa Rica. But a major unresolved problem is our house. If we sell it, our net profit should be close to $100,000.

Is there any way we can sell our home and avoid paying tax on our sale profit? I realize we could rent the house to tenants but I agree with you that long-distance property management is not a smart idea. What do you recommend?

A.

Internal Revenue Code 1034, the rollover residence replacement rule tax deferral, can be used if you buy a qualifying principal residence replacement of equal or greater cost in a foreign country within 24 months before or after the sale.

To illustrate, if your U.S. home sells for $150,000 and you buy a replacement principal residence costing at least $150,000 in Mexico or Costa Rica, you thereby defer tax on your $100,000 sale profit. Your tax adviser can give you details.

Q.

I plan to get married next month. My future wife plans to sell her condo and move into my townhouse. By August I want to sell my townhouse because we will be buying a home together near the small college where I will be teaching. My wife should have a net profit of about $15,000 on her condo sale and I am hoping for a net profit of around $25,000 on my townhouse sale.

Can only one of us use that ``rollover residence replacement rule'' to avoid tax, or is there some way we can both avoid paying tax on our home sales?

A.

Like the man above, you and your new spouse can both use the IRC 1034 rollover residence replacement rule to defer profit taxes on the sale of your two principal residences.

The same rules apply. To qualify, the purchase price of your replacement home must equal or exceed the total sales prices of the two principal residences you both sell. For example, if the condo sells for $100,000 and the townhouse sells for $125,000, your joint replacement home must cost at least $225,000.

Purchase of the qualifying replacement principal residence where you both will live must be completed within 24 months before or after the sale of the first home you sell.

Q.

We recently completed the purchase of our new home. The mortgage company insisted we buy our homeowner's insurance policy from its affiliated insurance company, which we did.

But after we moved into our home, I started comparing insurance costs. I find we are paying about $275 more per year than a major competing insurer charges for the same coverage. Can a mortgage company insist we use their related insurance company?

A.

If the mortgage lender is federally regulated, such as a bank or savings and loan, you cannot be compelled to use a specific insurer or insurance agent.

However, I can't find any law prohibiting a private mortgage lender or an individual lender from specifying the insurer, although most don't. But any lender can require reasonable insurance standards, such as the minimum rating of the insurance company.

If you cancel your homeowner's insurance policy now, you probably will not get a full pro-rated refund. My suggestion is to wait to change insurers until your annual policy expires and then switch to the insurer you prefer.

Q.

You mentioned an ``excess mortgage'' problem, where the home seller had refinanced and the existing mortgage exceeded the homeowner's adjusted cost basis. If the home is sold, the excess mortgage amount becomes taxable, just the same as the rest of the seller's sale profit.

I am a certified public accountant who has solved this problem for clients. This is done by having the seller carry back a wraparound mortgage, which is really a second mortgage.

The buyer makes one monthly payment to the seller, who uses part of the payment to keep up payments on the underlying old ``excess mortgage,'' which remains undisturbed. As long as the seller remains liable for that old mortgage, the excess mortgage amount is not taxable to the seller.

A.

Thank you for that suggestion. Of course, it works only if the old underlying mortgage does not contain a due-on-sale clause.

By using a wraparound mortgage where the buyer pays the seller one payment each month, the home seller knows the payment is being kept up on the underlying old first mortgage.

Q.

We've decided to refinance our home loan. But it's a jungle out there. What are loan points? Why do some lenders charge them but others do not?

A.

A loan point is one percent of the amount borrowed. To illustrate, if you want to borrow $100,000 and the lender asks for a one point loan fee, $1,000 will be the charge.

But many lenders no longer charge loan fees. You've probably seen ads for ``no-fee home loans.'' That means the lender charges a slightly higher mortgage interest rate that includes the normal fees other lenders still charge.

The best way to compare fee and no-fee home loans is to ask the mortgage's annual percentage rate,which includes the amortized loan fees.

Q.

We are trying to buy our first home but find the task frustrating. We've made two purchase offers, but someone else came along and made slightly higher offers.

We suspect our problem is the real estate agent. She is a bit pushy and doesn't have the most charming personality. But she came highly recommended by good friends who bought their home through her. Should we be working with more than one agent to find us the right home?

A.

No. It's best to work with only one real estate agent at a time. Give your current agent several months to find you the right home.

As for your realty agent being ``a bit pushy,'' that's good, not bad. The most successful realty agents are pushy, without being obnoxious, of course. Real estate agents should be aggressive and confident.

Q.

We signed a contract with a highly recommended contractor to remodel our kitchen. But the man who showed up was a different contractor. He said our original contractor got too busy so he assigned the job to an ``affiliate contractor.''

I refused to let the man start work. When I call our original contractor, his secretary says he will call me back, but he never does. Do we have to accept this second contractor?

A.

No. Personal service contracts are not assignable. When you signed the contract with the first contractor, you entered into a personal service contract. Such a contract cannot be assigned without your permission.

Robert J. Bruss is a lawyer, licensed real estate broker and syndicated columnist. Write to: Robert J. Bruss, The Herald, 1 Herald Plaza, Miami, Fla. 33132.