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player ready...Q: I had a house that I sold, and the buyers used a hard-money loan. I asked my title lady to give me a copy of the HUD report showing that it was recorded. She said that hard-money loans don’t get recorded. Is this true?
A: I hope you were not taken advantage of. You should immediately see an attorney to investigate your situation. If you sold your house, the deed from you to the buyer must be recorded among the land records in the county where your house is located.
Briefly, a hard-money lender is a mortgage lender of last resort. If you need a loan and cannot qualify for a conventional loan, the hard-money lender will consider making a loan to you, but on terms and conditions that are considerably more onerous than if you obtained a traditional loan.
Did you take back financing? In other words, did you get all of the sales proceeds or only a portion, with the remainder of the sales proceeds to be paid over time. If that’s the case, then the lender, whether it be a hard-money lender or a commercial bank or mortgage company, will record the deed of trust (the mortgage document) among those same land records.
Q: My sister recently told me of a friend who had to pay a tax on the sale of his mother’s house as a condition of the Affordable Care Act.
My daughter is selling her condominium. I think it would be extremely unfair to her if an additional tax or fee was assessed at the closing. Please advise; I don’t like surprises.
A: This is a rumor that those who oppose Obamacare keep trying to keep alive. Yes, there is a tax, but it is aimed at high-income consumers, who comprise a small majority of American citizens.
Let’s look at the true facts of this new law.
First, it is not a sales tax, nor does it impose any transfer or recordation tax. It is often called a Medicare tax because the money received will be allocated to the Medicare Trust Fund, which is part of the Social Security system.
Next, if your income (adjusted gross income) is less than $200,000, you are home free. If you are married and file a joint tax return with your spouse, the law will apply only if your income is over $250,000. (If you and your spouse opt to file a separate tax return, the threshold is reduced to $125,000. For all other taxpayers, you have to earn more than $200,000 to be under the new law.
The up-to-$500,000 exclusion of gain for married couples filing a joint tax return (or up to $250,000 for single taxpayers) has not been repealed. Nor has the right to deduct mortgage interest and real estate tax payment been eliminated.
According to the National Association of Realtors, the national median existing-home price was $219,800 in August. Clearly, none of these homes could make a profit of even $250,000, so if your daughter qualifies for the exclusion of gain requirements, she will not be affected by this new law.
You have to have owned and used the property as your principal residence for two out of the five years before it is sold. The IRS calls this the ownership-and-use test.
Of course, in homes where a large profit will be made, some homeowners may be hit with this tax. But the large profit that you make should offset the nominal tax that has to be paid.
Since the law applies to all forms of real estate, including vacation homes, readers should consider consulting with their tax and financial advisers as to their exposure.
Benny L. Kass is a practicing attorney in Washington and Maryland. No legal relationship is created by this column; [email protected].