Use cost of rebuilding as basis for insurance coverage

Dear J.S.: I don’t know where you found information suggesting that you insure the house for a fraction of the appraisal, but let me disabuse you of this notion completely. You don’t want value of the appraisal; you want “replacement” value. You could have a home that sells for $134,000, but it might be a 100-year-old Victorian mansion requiring perhaps twice that price to replace. That is the amount to insure for “replacement,” not the selling or appraisal price. The lot is not going to burn, of course, but rebuilding the home can be an expensive venture. The same thing is true with your contents. It’s not actual cash value – what’s an old couch worth? – but the replacement of it could be expensive. I’m sure you see where I’m going.

Hang on to the summer cottage

Dear Bruce: We have a house on the market, and we also have a summer cottage. I work part time, and my husband will continue to work for 10 years. Our home is paid for, but we owe on the cottage almost what we will get out of our home. We plan on renting a condo for a year, to see if we like that lifestyle when we sell. My husband would like to pay off the cottage. I don’t know if that would be the wisest thing, considering we might have to buy something in the area for the remaining time he is working. If we do pay off the cottage, could we claim that as a primary residence to lower our property taxes? It is lake property, and the taxes are very high. – Grace, via e-mail

Dear Grace: It would appear your “cottage” is a lot more valuable than your current home. While that’s not unheard of, it is a little out of the ordinary. Given your plans are somewhat in limbo, I would not pay off the cottage. Assuming you can manage, you could invest the proceeds from the sale of your home, which will most likely have no tax impact, and keep that flexibility.

Without regard to whether you pay off the cottage or not, I don’t see why you can’t make that your primary residence, which means you will pay your taxes from that address, vote from that address, register your automobiles, etc. In short, you can choose which address you claim as your primary. I would keep myself in a position of liquidity where making a decision would be a great deal easier than committing and having to reapply for mortgages, etc.

Make repairs and seek qualified buyer

Dear Bruce: Three years ago, we sold our deceased son’s house. The buyers made four payments over the course of two and a half years. During that time, they also removed a brand-new garage door, bricked up the wall and turned the garage into a second family room. They obviously had money to spend. We got a lawyer, went to court, had a sheriff’s sale and now we have the title back. We can’t evict them until late January. It has been an expensive and frustrating several years. What I want to know is: How can we report them to the three national credit-rating businesses so a future seller will be protected? We wish the sellers before us had done it, as we would not have sold to them. – K.R., via e-mail

Dear K.R.: Answering your last question first, you do not have access to reporting to the credit bureaus because you are not a client. It seems to me what you have said is that you carried the paper, meaning you took back the mortgage or it might have been on a contract for deed. I don’t know the answer to that, but why you went into the banking business is something I don’t understand.

Generally, when people want someone to carry the paper, it’s because they wouldn’t qualify through ordinary sources, and that seems to be the case here. There is plenty of money out there for legitimate buyers, and while prices may have softened when you did this before, you’re going to have to make some repairs. That, unfortunately, is the penalty one pays for being the banker. I’d suggest you get the house in good condition to sell and only sell to someone who can get outside financing.

Lack of building permit a hitch in future sale

Dear Bruce: We are leasing our home for a few years. It’s on one acre and has a guesthouse, which is in excellent condition; however, it has never had a building permit. I want to lock up the guesthouse and keep it off the lease, but my husband disagrees. Would we be liable if someone got hurt or died in a fire? - Reader, via e-mail

Dear Reader: A building permit will not increase or decrease your liability, but it will come into play when you try to sell the property. The community is going to come down on you like a cloud. They may either require you to pay back fees for a number of years or they may tell you to tear it down. Their collective judgment about this event will be very much governed by the condition of the building – not only its appearance but its conformance with the building codes. Whether you put it up without a permit or the previous owner did so does not matter. The fact is, you are not going to have any problems until you sell it. Then let the games begin.

Bruce Williams is a national radio talk show host and syndicated columnist. He can be reached at bruce@brucewilliams.com.