With Terry Story, 28-year veteran Real Estate Agent with Coldwell Banker in Boca Raton, FL
“Bankruptcy Season” And When To File For Bankruptcy
Today’s chat with Boca Raton real estate agent Terry Story begins with an article she gave to Steve titled “Distressed Homeowners: It’s Bankruptcy Season.” Terry says she’d never heard of such a thing as “bankruptcy season” and was baffled at first to learn that it occurs “at the same time as March Madness.” It turns out that many people in dire financial straits wait until this time of year because they plan to use their tax refunds to hire an attorney to help them file bankruptcy. While acknowledging that some folks really can’t afford an attorney without a windfall (tax fund or otherwise), Terry feels that this is probably not a great reason in itself to file Chapter 7 bankruptcy and that, instead, it should be considered when someone is struggling badly and overwhelmed by debt. To put some numbers to this situation, Terry argues that if your debts—whether medical, credit card, or high-interest loans—are equal to or more than 50% of your annual income, or you can’t see any way of paying off all your debts within the next 5 years, or your debts are interfering with other parts of life like the need for a new car or to save for retirement, you should seek professional guidance from an accountant or attorney. Bankruptcy is not always the best or only option to heavy debts. Steve notes that neither he nor Terry are attorneys and that they’re just providing a general idea of when a bankruptcy might make sense.
What To Do When You Don’t Want An Inherited Property
The next topic on the burner is how homes that are passed on by parents upon their death to their children can inadvertently create a host of problems for those who’ve inherited the property. Terry brings up an example where a reverse mortgage has stripped all the equity out of the house. Not only is there no cash value for the inheritor even if they sell the property, but they must immediately take on responsibilities that come with a price tag and take up time. This could be anything from paying homeowner association fees to fixing broken pipes and other maintenance work. There is a simple legal maneuver available to people who find themselves in this situation known as “disclaim your interest.” Just because you’ve inherited something doesn’t mean you have to accept it; you can also disclaim it. In practice, this means that the property will be given to the inheritor who’s next in line, so to speak, and all the responsibilities associated with the inheritance are now going to be the problems of that person. Needless to say, this can raise some hackles between siblings and other family members, especially when the hassles obviously outweigh any possible benefits. In this “zero equity” case, there may be other options like deeding the property back to the reverse mortgage company in lieu of foreclosure, essentially giving it back to the bank. Because they already own 100% of the equity in the house, the bank may not even object to receiving the deed. In this situation or anytime you inherit anything and you don’t fully understand your rights or obligations, it’s best to consult an attorney.
Home Seller Disclosures And The Need For Buyer Beware
The final subject of today’s conversation has to do with home sellers and what information they should disclose to prospective buyers. Steve depicts a situation where a seller’s home is in the flight path of a nearby airport. When the would-be buyer visits, all is quiet and the airport issue is far from the buyer’s mind, but every night at 5 am a plane flies over which rattles the windows. Does the seller have an obligation to mention this to potential buyers? Terry states that the seller is required to disclose anything that “is not readily seen” which could affect the value of the home. In this particular case, Terry believes the seller should definitely disclose the issue of the plane shaking the house every night. Terry describes how many of the would-be buyers she takes out to visit homes for sale are oblivious to the proximity of some of these homes to I-95, the major highway on the eastern side of Florida. Even though it sounded to Terry like an ocean of white noise when they stepped outside of a home abutting I-95 that they’d just visited, the buyers were oblivious to where they were and didn’t register the sound as traffic noise. She felt that she had a responsibility to explain to her buyers that they were indeed standing very near the highway and that this absolutely affected the value of the property. Steve recalls how he was visiting with friends in their gated community, having a glass of wine in the backyard, and noise—which apparently wasn’t noticed by anyone other than himself from a major road a quarter of a mile away—interfered with the bucolic surroundings. Whether or not this would meet the definition of an unseen factor that could affect the value of the home was unclear, but his advice to home buyers was two-fold: when touring a home, go out back and listen carefully; and more importantly, “caveat emptor”—buyer beware.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent, Terry Story. Terry is a 28-year veteran with Coldwell Banker, located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: I was reading an article that you had passed to me about distressed homeowners and it was titled, “Distressed Homeowners: It’s Bankruptcy Season.” Tell us what you know.
Terry Story: I didn’t realize there was a season for bankruptcy, but filing Chapter 7 bankruptcy is a common form for individuals, and it comes with a season. It goes with March Madness, which is crazy. I have no idea why, but what happens is it’s tied into their tax returns. Those that are anticipating a tax refund, they take those funds and they use it to hire an attorney to file bankruptcy. That’s why it seems to happen in the month of March. The question is, why are people filing bankruptcy? When does it make sense? Really, there is a time for filing Chapter 7 bankruptcy. It’s when somebody is struggling and is overwhelmed with their debt.
Here’s a couple of ideas, Steve. Your problem debt is greater than 50% of your annual income. That usually means medical bills, credit card debt, high-interest loans, or you see no way of paying off your debt within five years. The other reason is debt is interfering with other parts of your life, such as hampering your ability to buy a car or save for retirement. Of course, in order to file Chapter 7 bankruptcy, you always have to consult an attorney. Everyone’s situation is unique and different. Sometimes, it’s just beneficial. Sometimes, it’s not. There may be other ways to get you out of debt, so absolutely consult an accountant and an attorney.
Steve Pomeranz: The interesting part about all this is that, on the surface, if you don’t dig down any deeper, you think people get a tax refund, they’ll use it maybe to pay down a portion of their debt or some other purpose, and you don’t think about, “Well, I need to file bankruptcy; I need to get out from under all these debts, but I don’t even have the money to hire an attorney,” so the whole gist of this is that, “Oh, now I got my tax refund. I can hire an attorney.” That’s why it’s seasonal because March, April is refund season. Also, like Terry said, we give incidental advice here. We are not attorneys. We’re just letting you know the generic or the general idea about when bankruptcy might make sense, but always consult an attorney before you do anything.
Let’s move on. As parents age and they pass on, they pass on their assets, and one of the assets they may pass on is a home. That can create some problems. What are some of the hassles of an inherited home?
Terry Story: In this one particular article, they’re talking about a home with a reverse mortgage, where there’s now absolutely no equity in the house. Here you are, your mother passes away, now you’ve inherited a house with no equity. Once you’ve inherited it, it becomes your problem, so it’s important to, again, go consult an attorney, but you’re responsible for paying the condo dues, taking care of broken pipes. Those have now become your responsibility and obligation, but there is a solution that you can do. It’s called legally disclaim your interest, which is a simple procedure to have the law ignore your interest in the property, which basically is skipping you in favor to your next heir.
Steve Pomeranz: Wait a minute. Wait a minute. Let’s back up. Basically, you’re saying, “I don’t want it.” Just because you get an inheritance doesn’t mean you have to accept it. You can disclaim it.
Terry Story: You can disclaim it.
Steve Pomeranz: By disclaiming it, it relieves you from the responsibilities. Of course, if you have brothers and sisters who are also part of the inheritance, you’re putting it on them.
Terry Story: Correct. You’re passing the buck to somebody else. You pass it on to the family member you don’t like, but it is a problem for somebody. You definitely have to deal with these things. You can also then try … In this particular case that we’re talking about. Again, this is a property that has no equity. You can try to deed the property back to the reverse mortgage company, like a short sale, Steve, or a deed in lieu of foreclosure. You’re giving it back to the bank. In many cases, you think about it, the bank wouldn’t mind having the property back. They’ve got all of this equity. There’s 100% equity in this property for the bank if they take it over. Then, of course, the bank reserves the right to foreclose on the property.
If you find yourself, first of all, if you ever inherit anything, absolutely consult an attorney. You do have some options with situations like this. Pass it on to somebody else to take care of.
Steve Pomeranz: Got it. Let’s move on. Sometimes, a home seller doesn’t tell the buyer everything, and there’s a question here. Should a home seller tell buyer about airport flight path? In other words, you’re going to buy a home and you come at a period of time, maybe it seems quiet, but maybe in the morning at 5 AM, your windows shake because the airport is two miles away and right in the flight path. How much responsibility does a seller have to tell the buyer this stuff?
Terry Story: The seller has to disclose anything that is not readily seen that can affect the value of the property. If the planes are flying every day, every 15 minutes, that’s obvious, but if it only comes at 5 o’clock in the morning and your windows are shaking and it wakes you up, that’s something I would say you would be a little more obligated to disclose. I’ll give you an example. As crazy as this sounds, I had a beautiful home that backed up to I-95, but there’s all this hedge right behind it, and you would think it would be very obvious to people that it was I-95. Walking through a beautiful home, you step out, and it sounds like the ocean with the white noise of the cars zooming by on I-95.
I took the time to tell everybody, “Oh, by the way, that is I-95.” Surprising, it blew my mind away that so many people didn’t realize that was I-95 because they didn’t necessarily know where they were because they’re in a car with a realtor being driven around. Even though I found that very obvious, some people didn’t even notice.
Steve Pomeranz: I’m very sensitive to noise. Let’s say I go over to a friend’s house in my neighborhood. I noticed not too long ago we were sitting out in the back and having a glass of wine, and I heard all this street noise. We live in a gated community, beautiful trees all around, the golf course, as well, but what was I hearing? I was hearing really a major road that was maybe a quarter of a mile away. I guess they didn’t care. I was disturbed by that. That would be something that I would want to definitely know was there. I don’t know if the seller needs to disclose that. Just go out back and listen carefully. Buyer beware, caveat emptor.
Terry Story: Exactly.
Steve Pomeranz: My guest, Terry Story, 28-year veteran with Coldwell Banker, located in Boca Raton, Florida, and she can be found at TerryStory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve.