Foreclosure differs from repossession of a car
Q. The recent letter from the person whose home was foreclosed on in 2008 and then, when it sold at auction for more than the mortgage owed, asked if he/she could "recoup any of the surplus" was a classic! How does someone that "stuck" someone have the nerve to go back to them and ask for "what they're owed." Excuse me. When you didn't pay for something, it no longer is yours!
A. Maybe you're thinking of repossessed cars - I don't know how that works. But in real estate, the house still belongs to the homeowners, even while it's put up for a foreclosure auction. The house is in their name, and they have put their money into it in the past.
Proceeds from the auction sale will be used to pay the house's debts - any overdue taxes, legal costs of foreclosure, and - if there's enough - what's owed to the lender. If the sale price was so high that there's money left after all that, the rest would indeed belong to the homeowners. That seldom happens, but it would be only fair.
That ex-owner who wrote me knew the sale had brought more than he owed on his mortgage. I suspect, though, that he hadn't taken into account back taxes, overdue interest, late fees and the like. And in any case, he'd waited almost seven years to look into the matter - probably too late even if he had been entitled to anything.
Q. I really don't have a question for you, but I thought you'd find this interesting. In a recent column, someone asked about the pros and cons of combining two adjacent properties into one.
Some years ago I purchased two adjacent properties on a lake. A couple of years later I wanted to have the two combined so I wouldn't receive two tax bills. I drove to the county clerk's office and found someone who could understand what I wanted to do. The man pulled out this huge vellum property map, located the two properties in question, and erased the line between my two properties! The job was done!
This man assigned me a new tax parcel number for the now bigger piece of land, and that was the end of that. When I received my next property tax bill, it was lower than the sum of the two properties together!
This wasn't probably the legal way of doing this, but it sure was quick and easy. Too bad we can't have everything done this easily.
A. Thanks for a delightful story. I can just see that eraser recording the change. The job wasn't exactly done at that moment, though. I'll bet there was a bit more paperwork involved - new dimensions recorded for the single parcel, for one thing. But with no change in ownership, perhaps that new tax number did take care of the matter.
Q. My wife and her brother had a deed to their mother's house. The deed is dated July 2005. My mother-in-law passed away this past October.
Her house was purchased in 1954 for $12,000. It was sold last month for $154,000. I know my wife and her brother will have to pay capital gains tax on $142,000. Our financial adviser said they will have to split the improvements made to the house in half. Can you explain how that will work? We have no paperwork on any of the improvements. We can only come up with two roofs, new windows, new furnace, central air, etc.
How will this shake out when we file our taxes? We have been having them done by the AARP people. Do you think they can handle this situation or should we file with a tax specialist? We file married filing jointly. I am 67 and my wife is 63. Also what paperwork do we need when we file? Will we be getting any forms in the mail that we will need?
A. AARP volunteers do a fine job, but this might be a good year for using a CPA or an enrolled agent.
When your wife and her brother received their mother's house as a gift, they also took over her cost basis. That starts with the original purchase price, but it may have changed when their father died. And then, yes, the cost of permanent improvements over the years is added to the basis and reduces their capital gain.
Years ago, I phoned the IRS to inquire about the same thing you have asked - what do people do when they don't have proof or figures for improvements made to a house? The answer I received was that "they're entitled to estimate as best they can."
• Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (include a stamped return envelope), or readers may email her through askedith.com.
© 2015, Creators Syndicate Inc.