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Borrower says bank refused to hand over report after $400 charge

Benny Kass
Inman News

DEAR BENNY: I have a question regarding a refinance. We had several unsuccessful attempts with two mortgage brokers because our house is located in a risky ZIP code and the appraiser said he was unable to get two comparables to complete the deal. Finally, we went with another bank, and it said "no problem" right off the bat.

Well, it's been almost three months now and we've turned in all necessary papers and have an 800-plus credit rating -- and we're still waiting.

But that's not the problem. Here is my concern: When we applied, we paid a $400 appraisal charge. That would be fair if an appraiser were actually doing something. There was no walkthrough inspection; according to the bank, there was only a drive-by inspection, and the home value was done electronically.

All the calculations seemed to be acceptable by the bank for the refinance to go through but why are we being charged $400 for this? There was no outside appraiser. Is this practice kosher?

I asked for a copy of our appraisal and was told there is none; only the value amount could be told. Shouldn't the bank just say, "It will cost $400 for a refi: Take it or leave it"? Do we have any recourse? --Christine

DEAR CHRISTINE: Under federal law, you have the right to obtain a copy of the appraisal. You paid $400 and have the right to see the bank's report. Furthermore, under current lender rules, the bank should have used an outside, or independent, appraiser.

I suggest that you demand to get either (1) a copy of the report or (2) a refund of your $400. If the bank balks, I suggest you file a formal complaint with your state's attorney general as well as the Office of the Comptroller.

True, it's only $400. But if the bank is doing this to others, it is a practice that should stop.

DEAR BENNY: My wife and I are elderly and thought we would sell our home, which we own free and clear, to our grown children (in an all-cash transaction), and we would continue to live in our home till our death. We would pay them a market rental rate and they would be responsible for paying the taxes, repairs, etc.

But we are concerned that in selling to our children we might lose our maximum $500,000 capital gains exclusion. We have been living in our home for more than 45 years and it is worth approximately 10 times more than what we paid for it.

According to IRS Publication 523 (2008 edition), a seller "cannot exclude gain from the sale of a remainder interest in (his or her) home to a related person." It indicates that a "related person" includes lineal descendants such as children. What does this mean? --Frank

DEAR FRANK: I cannot provide legal information in my column. In general, however, you will not be selling a remainder interest. That is a legal term often used for tax purposes. It also refers to life estates. It is defined as a future interest; the remainder interest holder has an interest in the property, but possession will not come until a later date.

For example, you would sign legal documents, which reserves for you and your spouse a life estate, with the property going to someone else (called the remainderman) when the last life estate holder dies.

In your situation, however, there is no issue involving remainder interests so you need not be concerned about that issue.

However, there are other issues involved.

I consulted Julian Block, a tax attorney in Larchmont, N.Y. His advice: "In advance of the sale, the parents should meet with a qualified tax professional (someone who does not also represent the children) to discuss the tax consequences of the transaction."

Block raised some significant issues that you (and your tax advisers) should consider.