Federal law seeks piece of mortgage relief pie

By Robert J. Bruss
Inman News

DEAR BOB: I am considering selling a rental house I own. Myplan is to invest the sales proceeds into another rental house I own to improveit, also paying down the mortgage balance. Will this qualify as a tax-deferredexchange? It seems to comply with the "spirit of the law" Doug W.

DEAR DOUG: Because you already own the rental property youwant to improve and pay down its mortgage balance, it cannot qualify for anInternal Revenue Code 1031 tax-deferred exchange. Forget about your"spirit of the law" silly idea. IRS revenue agents don't think likethat.

Purchase Bob Bruss reports online.

IRC 1031 requires you to acquire a qualifying "likekind" rental or investment property of equal or greater market valuewithout receiving any taxable "boot," such as cash or net mortgagerelief. For more details, please consult your tax adviser.

HOW MANY IS TOO MANY CONDO RENTALS?

DEAR BOB: Some time ago you gave a formula for calculatingthe maximum number of rentals in a condo complex. What is that formula? JimW.

DEAR JIM: There is no "formula" for determiningwhen there are too many rentals in a condo complex. Fannie Mae and Freddie Mac,the nation's largest secondary mortgage market buyers of home loans, usuallywill not buy a condo loan if more than 30 percent of the units in the complexare rentals.

When there are more than 25 percent rentals, many lenderscharge higher-than-normal interest rates. The reason is absentee condo ownersusually vote against assessment increases to pay for repairs and maintenance.

Another problem is renters usually don't take as good careof the property as do owner-occupants.

The foreclosure rates on condos where more than 25 percentof the units are rentals are usually much higher than where most of the condosare owner-occupied. I recommend not buying a condo in a complex where more than10 percent of the units are rentals.

PROS AND CONS OF MORTGAGE ESCROW ACCOUNTS

DEAR BOB: Why are you opposed to mortgage escrow accountsfor property taxes and insurance? If I get rid of my escrow account, will mymonthly payment be lower? Keisha R.

DEAR KEISHA: When properly serviced by a mortgage lender,escrow accounts for property taxes and/or insurance premiums are great. But somany problems develop with loan servicers that I can't recommend escrowaccounts.

Lenders often overcollect, make mistakes and forget to paythe taxes and/or insurance bills on time. Worse, many dishonest lenders whomake late payments even take the late fees from the escrow accounts withouttelling their borrowers.

If you already have an escrow account with your mortgage,and if your lender is properly servicing it, leave it alone. However, if youspot any irregularity, then it's time to get tough with your lender.

Canceling your mortgage escrow account, however, won't saveany money because you still must pay your property taxes and insurance.

The new Robert Bruss special report, "Ten Easy ProfitMethods for Your Home and Investment Property," is now available for $4from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at1-800-736-1736 or instant Internet download at www.bobbruss.com.

 

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