All Forum Posts by: Burt L.

I am working with a seller in foreclosure. The seller just filed the Notice of Intent to Cure, and the bank/attorney can take up to 10 days to provide that. I would like to put the property under contract now, but don't know what the payoff amount will be.

How can I do this, without a hard number, and not risk losing the property? I plan to put it on a wrap, rehab it, and then give the seller cash at the time of closing. She really got taken advantage of by some "investors" that convinced her to buy the property as a flip with them, but they just lived in it for the last 1.5 years without doing any of the work, and damaging her credit.

I want to put it under contract, but don't have the payoff numbers.

I appreciate the response. Yes, one can't let a tax strategy drive investment strategy. It also seems that when one defers the tax into a second property, if that second property is sold at a gain, then the seller is paying two tax bills combined into one property, all at once. Its not as though real-state becomes non-taxable at age 591/2 like a traditional IRA.

If a seller can eliminate a tax while still within the 3 of 5 year confines of Section 121 vs. just deferring it, they are well ahead. As you wrote, tax-free income is better than tax-deferred income.

I've been speaking to a seller who relocated out of state due to work in June, 2011. He lived there for at least 2 years, so if he sells before June, 2014 he can avoid the capital gains tax. His current lease with tenants expires in December, 2013 and I've mentioned that if he renews the lease he will lose the benefit of the Section 121 Capital Gains exclusion as of June, 2014. Thus it would be wise to sell before the lease expires this December or he will be trying to sell a rented property from out of state by June, 2014. I've also mentioned the increasing Section 1250 depreciation recapture at a combined 29.6% state and fed rate that the Cap Gain Exclusion does not avoid.

His response is that he will do the oft-mentioned Sec. 1031 exchange. This is his only rental property, and an unintended one at that. I was in a forward 1031 exchange and could not find a suitable replacement property and the Qualified Intermediary would not refund my monies despite not having to do the exchange. Another downside is that you have to hold the replacement property until you pass away to continue avoiding the tax.

I also like the phrase to not "let the tax tail wag the investment dog". I also know that if you let the sellers of the replacement property know you have to close by a certain date on this property, they may find a reason to raise the price. Lastly, I understand that in a couple of isolated instances a the Qualified Intermediary has simply stolen the funds from the first sale.

Are there other downsides to doing a 1031 exchange? People seem to view them as such a permanent tax solution. I sold another property and chose to pay the tax instead of dealing with the 1031 rules and another property that I wouldn't have sought other than for the tax avoidance of the previous property.

I appreciate your replies. Apparently the seller told the tenants verbally that they could use the $2,200 deposit for their last two months rent. I went through the transaction believing this, and that my buyer was well protected as he'd have two months of rent ($1,100 each) for security at the leases conclusion. This has been quite a surprise, as the woman who lives next door and managed the property for the out of state owner told me this today.

Yes, if the tenants do pay the rent - as I or an attorney will have to explain to them - they can stay. Mentioning that legal fees will be deducted if an eviction must be undertaken if the non-binding verbal agreement to use it as the last two months rent is undertaken - is very wise.

Another approach, as the property badly needs a new roof, exterior paint, fencing, etc. is to undertake that work now, if they won't relocate - keeping in mind the right to quiet enjoyment. The lease provides for making repairs without notice, but has to be done reasonably.

I had thought tenant estoppels were for multi-family property; this is the first time I've seen such a blatant difference between what was written and what was apparently said to the tenants - by the owner himself. I believed my buyer was protected with an unusually large deposit, and I got a credit at closing for it, and passed it on to my buyer (double closing).

Ultimately, this isn't my problem, but my buyers. I told him I would try to get the tenants out after closing, but was specific that I couldn't promise it, and that he might have to wait until October. The numbers were good enough that he was willing, but it will push it into a sale early next year.

I recently had my "back-side kicked" by a tenant who was an attorney and who got my last wholesale deal stopped by putting fear into that seller-landlord; guess I still have something of a "hangover" from losing that deal because of a tenant/attorney and am sticking around, in this deal, longer than I need to, because of it.

I recently wholesaled a property that has three months on the lease to run. The property is in Colorado and a lease does survive a change in ownership.

As for myself, I've been fully paid and explained to the buyer that the tenants might not move until the three moths expire on the lease. He is in a real estate group with me, and I would like to help get the tenants out so the project can be completed and still sold this fall.

The tenants have been offered an extra months rent to leave early, and have not accepted the offer. The complicating factor is that although the lease specifically states that there is a security deposit of two months rent ($2,200 total), the tenants were told verbally they could use this amount for their last two months rent, leaving zero security deposit at move-out time.

The lease is not written this way, and provides for eviction seven days after a missed payment. I have also offered to return the security deposit - no questions asked about damages- plus the extra months rent, for a total of $3,300.

I know see why they are declining, as they believe they have made their last rent payment and are not concerned about having any security deposit left. The lease does not state this.

I wonder how others would proceed on this. Perhaps a letter from an attorney offering clarification? The seller is flying here from out of state, in two days, to clean out the garage and get his car out. Perhaps he could make a presentation to the tenants and clarify as well. Happy to give him a few hundred dollars for the conversation too. I went through the transaction believing that what was in the lease was accurate. I did not do a "tenant estoppel" on a single family home.

This all seems to be an ongoing problem - getting tenants out -absent this specific lease conflict, when working with absentee owners.

I had the sewer scoped by a local company that only does scopes and not repairs. I watched the video as it was being done and have CD copy of it as well.

This is for a three-plex and the main-line from the main house to the street is fine. In question is a second line which runs under a former three-car garage that was converted to the third unit. This line, which is also white plastic PVC pipe and was installed in 1997 at the time of the garage conversion- has a thee inch "dip" in the line, and this dip runs for about ten feet. It allows water to stand there, but doesn't collect any solids. The next time water flows, it displaces this water and is clear afterwards. There is no evidence of dirt or debris standing in the line.

This property is located in Denver, Colorado, and this unit is on a slab foundation. The dip in the line is under the living area, beneath the slab. The man who did the scope said its likely been this way since 1997 when it was installed, and that as long as the dip in the line is under the heated unit and the heat is on in the winter, its unlikely to be a problem.

Still, he had to write on the report "Recommend Spot Repair of Dip Section at some point". I did not object to this and the inspection period has ended. My buyer will see the video and report on Monday, and I have verbally mentioned there is a dip in the line.

Is this something the buyer can/should object to? Is the 3" dip in the plastic sewer line an issue at this point, after working since 1997? I don't want to get "squeezed" and have to pay for someone elses' sewer line.

In this case, the contract is in the name of an LLC, and the registered agent can be located through public records easily. Some use a corporation as the registered agent, but I didn't.

I have heard of using a land trust, but understood that is largely to avoid the cost of forming disposable LLC's.

Based on Sharon's post, it sounds as there is a very good reason not to be in the chain of title; I just don't know what that reason might be but suspect its liability related.

I have a transaction that is on the borderline - has a gross margin of 12K less a 2k marketing fee for finding the buyer, less 1.1k as tenants security deposit is not credited to me, and my side of closing costs. Thus the margin looks larger than it is and if assigned the gross fee must be disclosed and shows as "Fee to X Co".

I can do this simultaneous closing (dry funded) at a total cost of $700, some of which includes the closing costs I would have had to pay anyway. I know that some, including Sharon Vornholt double-close virtually every deal to avoid any problems at the last moment.

Conversely, some are concerned about being "in the chain of title" and that it can create a future liability and shows as a double-close on the same day at the MLS, public records etc, for many years. There may also be a liability for environmental issues if one is in the chain of title, but I would like to believe environmental issues are lesser with residential properties.

I have mentioned that I have a partner in the transaction to the owner, but haven't provided specifics. There is also a tenant that will carry over to the new ownership and of course has a relationship with the current owner. Current owner says he doesn't care what I do with the property afterwards- at least that is the comment for now. The sales price is 250K

How do others balance the issues of being "in-title" with the likelihood of a smoother closing without last-minute issues?

Jon Holdman - Yes, I am going to have to find someone to take the risk of it not being a legal tri-plex. Right now, its not a registered duplex, though I have the building permit information issued in 1997 to add a 2 bed/1ba accessory unit, which has been in service since then. It was never added to the assessors records, so the entire property shows as being just a 2bed/2ba and not even the permitted 4bed/3ba it should at least be. Its really a 5bed/3ba in its current format. No wonder lenders turn their noses up.

It looks alot like I should take the building permit information from 1997 down to the assessors office and have them add it to their records. I don't know how long the process would take to update or what it might open up about the basement unit.

The sellers wont be able to sell a threeplex when its listed at public records as a 2 bed/2ba, and have benefitted from low taxes for some time. Any suggestions on visiting the assessors office, or another path of action, is of course appreciated.

Jon Holdman - Thank you for sending the zoning document.

I don't want to create problems for the owners with the city, but they do want to sell and the way the property is only listed at public records as a 2 bed/2ba, despite the permitting of converting another building to another 2 bed/1ba. If I bring this to the attention of the city to have the public records changed, I'm sure it will increase the taxes and don't know if it will create an inspection of the main building.

I see on page 4-15 of the zoning document you forwared that for the zoning E-TU-C mentioned, that a duplex is alright, as is an accessory dwelling unit. I don't know if both are allowed at the same time. If so, then perhaps this is all legal. I'm concerned about "kicking a sleeping dog" at the city.

Is there a way to do this, without creating problems?