My daughter and her family purchased a 1970s ranch-style home after the professional inspector she hired gave it and the finished basement a clean bill of health. The seller even signed a ``no water problems'' statement in the closing papers. Within days, her sister noticed her fingers could go through the drywall in the cellar. The brand-new bathroom shower was not connected to the septic system, and flooded the floor. Mold and water remediation followed, costing more than $12,000. The lawyer who handled the closing settlement won't help. What recourse does she have against the seller and inspector? -- Sara C.
Obviously, your daughter bought the house from a dishonest seller who signed a fraudulent defect-disclosure statement. If the bathroom shower was new, she should have inquired as to whether a building permit had been obtained and whether the local building inspector approved the work.
The so-called professional home inspector hired by your daughter before the sale closing should have noticed the basement drywall moistness, which was easily spotted by the sister. Was he a member of a professional home inspection society, such as the American Society of Home Inspectors? If so, he probably carries errors-and-omissions insurance.
Your daughter should consult a local real estate lawyer to discuss her legal alternatives against the dishonest seller, the so-called professional inspector, and possibly the real estate sales agent if that person knew of the water problems.
I am a retired real estate lawyer, so your articles are a highlight in the newspaper for me. I commend you for the good advice. But I am puzzled why you often recommend a quitclaim deed to resolve real estate problems. Where I live we use warranty deeds. -- Jeffrey B.
Anyone who signs a warranty deed, grant deed or any deed other than a quitclaim deed must be very careful. As you know, such deeds include specific and implied warranties, such as the grantor owns the property and has disclosed all existing encumbrances or liens.
The reason quitclaim deeds are widely used to convey questionable titles is that such deeds do not include any representations. That is a key reason why quitclaim deeds are often used in divorce situations where neither ex-spouse wants to make any guarantee of marketable title.
Quitclaim deeds are also used to convey questionable titles. For example, in my college real estate law class, I had a woman who inherited a 1/129th share of rural land in Arkansas. There was probable litigation, and she didn't want any part of it. I suggested she sign a quitclaim deed to her sister, who was involved in the lawsuit and was willing to accept a quitclaim deed without any warranties or representations.
To keep liability insurance costs affordable, years ago my insurance agent advised me to carry $300,000 on each property and an ``umbrella liability'' insurance policy for several million dollars. In the event of an insured loss, the individual property policy pays first, and the umbrella policy pays the excess up to its limit. This is far cheaper and better coverage than carrying liability coverage of several million dollars on each property.
The reason you probably should not incorporate is corporate tax losses cannot be passed through to an individual stockholder, except with Subchapter S corporations, which have several drawbacks. Most real estate lawyers now advise holding rental property titles in a limited liability company (LLC).
My wife and I are in the process of getting a divorce. She moved out. But I want to keep the house and buy out her interest in it. To do this, I need more cash than I have available. We have a 13-year-old, 7.75 percent interest-rate first mortgage, never refinanced. Should I refinance or get a home equity loan? -- Kirt K.
That 7.75 percent interest rate is very high. If you have sufficient income and a good FICO (Fair Isaac Corp.) credit score, I suggest refinancing at around 6.25 percent fixed interest in today's market.
However, if there is some reason you can't qualify for a refinanced mortgage now, a home equity credit line loan is usually easy to obtain. But the interest rate will be higher, probably at the prime rate (8.25 percent as I write this) unless you can negotiate a below-prime reduction, as I recently did.
If you take a home equity loan, be sure it doesn't contain a prepayment penalty. After you buy out your ex-wife, then you can start shopping around to refinance both the first mortgage and home equity loans.
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