Seeking water-damage repair costs could prove fruitless

Dear Bruce: I recently purchased a home. During a rain storm, we noticed that water started seeping into the house. It cost me about $2,000 for all the water damage and cleanup. When I purchased the home, the property disclosure didn’t mention anything about a water problem. The real estate people involved in the transaction say that I would have to go to mediation if I want money from the previous owner, and it would cost about $200 for me to do this. The previous owners only lived in the home for a short period of time. Do you think I should go through with the mediation? – D.M., via e-mail

Dear D.M.: If the previous owners were not aware of the problem, it would be very difficult for them to reveal it to you. Since they only lived in the home for a short period of time, it’s possible that they didn’t know of a problem. It could be that the owners before them knew of a problem, but since you have no relationship with that individual, you most likely will lose. I would suck it up and get on with my life.

Dear Bruce: I know a young couple in their mid-30s who plan on razing the home of one of their mothers. The home is located on a very popular lake with an exceptional view. At present, the home and property is valued at slightly over $400,000. They choose to dismantle it and rebuild. There is a $160,000 mortgage still on it. Could they completely raze a house that is not paid off? The land’s value would be just about the same as what they owe. – E.R., via e-mail

Dear E.R.: They would be committing an egregious mistake if they destroy a property that has a mortgage. Furthermore, even if they were to get away with that, unless they have the cash, how are they going to finance the new building since the current mortgage company would have to subordinate its interests, which it is not going to do? Their best shot would be with the current mortgage holder. Discuss the situation and see if they can get an agreement for a construction loan based upon prints, plans, zoning, etc. That ordinarily can be worked out. Just to go out and raze the house would put the lender in a position of immediately calling the mortgage, which could be somewhat difficult, if not impossible.

Dear Bruce: My wife and I are facing a substantial capital gain on the sale of a vacation home we’ve owned for 10 years. We want to minimize the gain because it impacts our federal taxes and forces us to file and pay a state income tax in Maine (where the house is located). We claim residency in New Hampshire, a state with no income tax. About a year and a half ago, we transferred the title from joint ownership to my wife’s revocable trust. Would this be a favorable impact when establishing the cost basis or do we simply have to take the original purchase price plus improvements? We file a joint tax return. – P.G., New Hampshire

Dear P.G.: I don’t see any favorable impact because you had the title in your wife’s revocable trust. You did not mention that you would also have to recapture whatever depreciation you have taken over the past decade, which can be considerable. As to the income tax in Maine, these are all local matters, but I suspect that you will be subject to them since the property was in their jurisdiction. First of all, you’re fortunate that the property has gone up – not everyone has been that lucky. That having been said, the way to minimize taxes is to plan ahead. Unfortunately, it’s a little late for you to do that now. You could try to do a 1031 exchange, which will avoid federal taxes for the present time but it does not in any way eliminate them; it just puts them off. You will then have use of the money that you would have spent for taxes. This means another property purchase, which may not be something that you wish to consider.

Dear Bruce: I am in the process of possibly starting a residential remodeling company. I have been in the business for more than 20 years, currently as general manager of a company that employs about 60 people and has an annual volume of $7 million. It’s time I spread my wings, and I am looking for information on putting my business plan together. I wondered if you know of a very good publication and/or software that could assist me? – D.D., Coralville, Iowa

Dear D.D: I hope spreading your wings is the way to go; it certainly has been for many people. I’m wondering why you need a written business plan. More often than not, when people ask about business plans, what they’re really asking is how to write a presentation to get money. If you know the business and you know what the capital requirements are and you have the capital, great. Don’t underestimate your need for income at the beginning. While your present company is doing very well, business is not just going to fall into your lap overnight. Consider how you’re going to get your name around the industry. At what cost? Be certain that there are no noncompetes in place where you could get your wings clipped by your present employer. Hopefully you have a good relationship and it might even be where they could send their overage business to you. By all means, become well-informed and remember undercapitalization has caused the stillbirth of many an enterprise.

Bruce Williams is a national radio talk show host and syndicated columnist.

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