Q: I am concerned about property that is in my parents' trust. Since they both have died, me being the executor, I have had the home on the market in Apple Valley, Calif., since February 2006 with three different real estate companies. I also have dropped the price from $525,000 to $387,000 and still have had no bites. It is a lovely place that needs the right buyers.
Anyway, for tax purposes, how can I find an appraiser who would place a value on the house for December 2005 when my father died so I can claim a loss on the property when it sells, if it ever does? Joanna Ellis.
A: The direct answer to your question is that any qualified appraiser should be able to reconstruct the value of the property in question on the day your last surviving parent died. The Internal Revenue Service suggests you insist on someone who is licensed in California and a member of a professional association.
However, you needn't go to that trouble because there is no loss, at least not yet. Just because you believe the place should have sold for $525,000 and didn't doesn't mean there is a loss. You can't lose something you never had, so as long as the house eventually sells for more than your adjusted basis in the place, you'll have a gain, not a loss.
Your adjusted basis in the property is its value at the time it was inherited by you. Obviously, at this point, you'll need an appraiser to help you figure out what the fair market value was at that time. But even at that, the IRS says that "to claim and prove that you're entitled to a loss because the fair market value dropped dramatically and you sold at a much lower fair market value several months later...... would be difficult."
The eventual sales price could be documented through the closing statement, but you will need a qualified appraisal to establish that the basis (fair market value as of a certain date in time) was greater in order to claim a loss. Again, it needs to be from a qualified appraiser.
The IRS suggests that you read two publications: Sales and Other Dispositions of Assets (Pub.544) and Basis of Assets (Pub. 551). Visit the IRS Web site.
Q: I believe I am a victim of one of those exotic or toxic loans I have been reading about. I hit a period of financial difficulty and refinanced an investment property. It was one of those 1.99% first month and negative amortization loans. I didn't want it. I told the mortgage broker over and over I was uncomfortable with this type of loan, but he kept hammering away at me to take it.
He may have been trying to help me through my financial difficulties. Because he had put so much time and effort into the loan, I felt sorry for him and took the loan against my better judgment. And now of course, I curse him every time I pay the mortgage.
I have never paid less than the interest and try to pay more toward the principal. The interest is tied to the 12-month Treasury bill and goes up every month. I am now paying more than 8.25% interest and it could go up to 10%. I asked and the prepayment penalty is more than $5,500. Is there any way I can get out of this awful thing? My FICO score has been adversely affected because I moved money out of my [home-equity line of credit] at 8.25% interest into a credit card debt of 4.99%. Ann Shonstrom.
A: Sorry, Ann, but there isn't much I can offer. One course of action would be to bite the bullet and keep paying on the note until the prepayment penalty period expires. They usually run from three to five years. Another would be to appeal to the lender to waive the fee in return for refinancing with the company.
Tell the lender your tale of woe, that you were coerced into taking a loan that was foisted upon you by an unscrupulous broker and now are in way over your head and on the autobahn to foreclosure. From what you say, the part about being preyed on by the broker doesn't sound like it's exactly true. But a little exaggeration on your part won't hurt and may help to grease the skids.
Finally, if all else fails, try refinancing with another lender and rolling the prepayment charge with the first lender into the new loan's principal. That way, you'll at least ease the pinch of a lump-sum payment. None of these suggestions are pretty, but that's all I have for you.
Q: I bought a $100,000, one-bedroom, one-bath condo in March of 2006 because I thought real estate prices would keep going up. They plummeted instead. Now I'm stuck making interest-only payments on a condo that I live in, which is located in St Petersburg, Fla.
I have emergency money in the bank that will keep my safe for 12 months. But I don't know if I should hold onto the condo until the market turns around or sell it immediately and take a loss. Every other owner is selling their unit in the same complex, so I have competition. I'm worried this market won' t turn around for another five years. What's your opinion. I need some advice. Thanks, Todd.
A: I'm not totally familiar with the St. Pete market, but from what I hear about Florida in general, the state is terribly overbuilt with condominium apartments that are either sitting unsold and empty or have been sold to investors who now trying to unload them because, like yours, their deals didn't pan out as expected. From what I understand, the market won't turnaround for several years, so you are, indeed, in a pickle.
If you want to sell immediately, which may be your best option, you'll have to cut your price drastically so it is far enough below your competition to draw some attention. Remember, sales are going on all the time, even in overbuilt markets. It just takes the right price to make a deal. If, on the other hand, you want to wait this thing out, you should be prepared to hang tough for a lot longer than 12 months.
You mentioned that you live in your condo, which is not like most investors I know. For the most part, they either rent them or leave them empty in hopes of reselling in a few months after prices have risen to the point where it is worthwhile to sell. But since you are an owner-occupant, your situation is a bit different. If you want to keep the place as your principal residence, you might want to consider refinancing into another loan.
I realize that an interest-only payment on a $100,000 or so mortgage can't be much, but eventually you are going to come face to face with much larger monthly payments. So it may be to your advantage to refi now while you still can and while loan rates are still rather low.
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