Simmons & Schiavo Blog

Appraisal problems are causing home sales to fall through

The housing market has picked up steam lately, but one of the side effects of the sudden improvement is that home appraisals often take longer than they used to, and often come in with a much lower value than what everyone expected. This is causing a number of house sales to collapse.

Appraisals are taking longer because there’s suddenly more demand for them, at the same time that far fewer people are working as appraisers than during the boom years. This is understandable, but the problem with a slow appraisal is that it can sometimes cause a purchaser to lose an interest-rate lock, which can be a big problem at a time when interest rates are rising.

The main reason that appraisals are coming in lower than expected is that prices have risen so quickly lately. If an appraiser values a property by using “comparable sales” from a year or even six months ago, those sales might not reflect the most recent changes in the market, and might result in a surprisingly low value. [Read more...]

Consider a special FHA loan if you’re buying a fixer upper

If you’re purchasing a “fixer-upper” or are otherwise planning to make major renovations to a home you’re buying, you might want to consider a special type of loan called a “203k” loan from the Federal Housing Administration.

These loans are specifically designed for homes that need major repairs, and they allow you to roll the cost of the repairs into the amount of your mortgage. They’re especially helpful for people who can’t afford an expensive home and are willing to buy a starter home that needs a lot of work. However, they can be used by anyone who wants to invest in a property that needs an upgrade.

The big advantages of 203k loans are that they usually allow a low down payment and they’re often available to people who don’t have great credit. [Read more...]

Stepchildren can present challenges in estate planning

If you or someone you know has an older estate plan that doesn’t carefully take into consideration the role of stepchildren, it’s a good idea to have it reviewed. If you have stepchildren – or if your children have stepchildren – it’s critical to make clear whether they’re included in your plans.

Take the case of Bill and Pat Clairmont. This North Dakota couple had a daughter, Cindy; a son-in-law, Greg; and several grandchildren including a grandson named Matthew. In 1996, they decided to set up a trust to benefit Matthew. Greg, their son-in-law, wrote the trust document.

Under the trust, Matthew would start receiving the trust funds when he turned 40. If he died before then, the trust funds would go to his brothers and sisters. [Read more...]

Can homeowner associations restrict medical marijuana?

A large number of states now permit medical marijuana, while other states have decriminalized the drug and two have voted to legalize it. But while medical marijuana might be helpful to the seriously ill, many condominiums and homeowner associations are worried about the effects of allowing pot-smoking on their property.

Apart from the fact that marijuana is still illegal under federal law, some residents are also concerned about an increased risk of crime (as the users’ “stash” might be a tempting target), the effects of second-hand smoke inhalation, and the exposure of small children to the drug.

But can the board of an association restrict the right to light up?

This is a brand-new question, and the law is largely unclear. [Read more...]

Beware of the tax change for widows and widowers who remarry

Widows and widowers who are considering remarriage should be aware that a law recently passed by Congress could make a huge difference in how much of their assets they are able to leave to their heirs after taxes.
In general, anyone who is considering remarriage later in life should talk to an estate planner first in order to avoid possible tax problems. But the new law gives added urgency to this advice.

Typically, when a person dies, his or her estate can give an unlimited amount to a surviving spouse tax-free. However, if the person’s bequests (plus large lifetime gifts) to other beneficiaries – such as children – total more than a certain “exemption amount,” then an estate tax must be paid. For 2013, the exemption amount is $5.25 million.

In the past, the general rule was that the exemption amount applied separately to each spouse. So if a husband died first, his estate could use his exemption amount, and when his wife died later, she would have her own exemption amount.

But under the new law, if the first spouse to die doesn’t use all of his or her exemption amount, the difference can be passed along to the other spouse. (This was true in 2011 and 2012 as well, but on a temporary basis. The new law makes this rule permanent.) [Read more...]

Things to consider before you buy your vacation home

More and more people are buying vacation homes. In fact, vacation homes accounted for 11% of all residential real estate sales last year.

And most of these buyers plan to supplement their income by renting the home for part of the year. In a recent survey by the National Association of Realtors, 92% of vacation home buyers said they planned to rent the home within a year, and 76% said their purchase was motivated at least in part by the potential for rental income.

That’s great – as long as you do your homework and know what you’re getting into. Here are some things to keep in mind before you take the leap into becoming a part-time landlord:

[Read more...]

Get an accurate appraisal when donating property

If you’re donating assets to a charity, don’t scrimp when it comes to an appraisal and don’t try to file the tax forms yourself. That’s the lesson of a recent case from the U.S. Tax Court.

The case involved Joe Mohamed, an extremely successful real estate investor in Sacramento, California. Joe donated real estate he valued at $18.5 million to a charitable trust. Because Joe was a qualified appraiser, he valued the properties himself. He also filled out the relevant tax form himself to claim a deduction for the donation.

But the IRS denied any deduction for the real estate, claiming that Joe made mistakes on the form. And the Tax Court reluctantly agreed that the IRS was right.

For one thing, the IRS rules say that a donor of property can’t act as the appraiser. They also contain a laundry list of things that must be included with the form, such as the taxpayer’s basis in the property, which Joe didn’t include. [Read more...]

Fed eliminates the most popular type of reverse mortgage

The most popular type of reverse mortgage for senior citizens has been done away with by the Federal Housing Administration.

In a traditional mortgage, you borrow money against your house and pay it back in monthly installments over time. With a reverse mortgage, you borrow money against your house, but you don’t have to pay it back until you die, sell the house, or move – which means you don’t owe anything as long as you stay in your home.

In most cases, to qualify you must be at least 62 years old.

In the past, borrowers could choose to receive a lump sum, monthly payments at an adjustable interest rate, or a line of credit. But the FHA has now eliminated the lump-sum option.

Seniors who prefer a lump sum can still apply for one through the “Saver” reverse mortgage plan. But the amount you can borrow with this plan is less than with the standard plan – typically about 10% to 18% less (although the fees may be lower as well). [Read more...]

Be careful using IRA funds for ‘alternative’ investments

IRAs can be an important part of estate planning, especially for savvy investors and business owners. But be careful – mixing your IRA and your business interests too closely can cause big tax problems.

The IRS can “revoke” an IRA, and deny you all its tax benefits, if you use the funds for certain improper purposes. This rule applies not only to you, but also to actions by your family members and any business or trust that is controlled by you or your family.

What can’t you do? You can’t buy, sell, or lease property to or from an IRA; you can’t borrow money from an IRA or lend money to it; and you can’t make personal use of IRA property. [Read more...]

Supreme Court helps landowners to develop their property

A new decision from the U.S. Supreme Court will strengthen the hands of many landowners who are battling with local authorities over development of their property.

The decision makes it harder for municipalities to demand financial concessions from owners in return for land-use approvals.

The case involved Coy Koontz, who owned 15 acres of land near Orlando, Florida. Much of the property was wetlands, and as a result, in order to develop it, Coontz had to negotiate with the local water management district.

Coontz proposed what seemed like a reasonable deal: He would develop 3.7 acres along the northern edge of the property, and in return he would agree never to develop the remainder. He offered to give the district an “easement” allowing it to prevent any future development on the remaining acreage.
But the district wasn’t satisfied. In addition to limiting Coontz to the 3.7 acres, it also wanted him to pay to make improvements to ditches and culverts on 50 acres of other, unrelated wetlands that the district owned several miles away.

Instead of giving in, Coontz took the case to court. And the Supreme Court sided with Coontz, saying the district’s demand that he pay for the ditches and culverts was illegal if it’s wasn’t reasonably related to the effects of Coontz’s own project. [Read more...]