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Termite damage found after purchase

Question: When we bought our home in 1996, we got a termite inspection and a professional building inspection, but three weeks after we moved in we removed mirrors from a wall and found large holes through the wood in the wall. It was subterranean termite damage that the sellers, who lived in the house for more than 30 years, failed to disclose to us.

We learned that they had a termite inspection in 1991 so they knew about the termites in the walls plus dry-rot damage.

We spent more than $7,000 on repairs. The sellers have moved to Arizona, where the maximum Small Claims amount, we're told, is only $2,500. Two attorneys have written letters for us to the sellers without response. Whether it's fraud, concealment or unintentional failure to disclose, it's not right. What should we do?

Answer: Your situation shows how difficult it can be to prove that the sellers knew of an undisclosed defect and to receive payment for your damages, especially when the sellers have moved out of state.

I'm very surprised that your termite inspector didn't discover the infestation at the time you bought the house. If your inspector missed the evidence of termites, then your recourse is against that firm.

A similar situation happened to me a few years ago, and I had no trouble getting payment from the termite inspection company.

Although the $7,000 you spent on repairs is not insignificant, it isn't a huge amount. I've seen homes with up to $30,000 of termite damage repair costs.

Considering the modest amount involved, my recommendation is to cut your loss and forget it. Since you have apparently solved the problem but at your expense, I would drop the matter. Even if you sued the sellers and got a judgment, collecting it is an additional hurdle. Your attorney can advise further on the legal aspects.

Gift house

Question: My husband and I received a wonderful gift from my mother. She has given us a quick deed on a house worth about $50,000 that she has owned for years. It's not in the best of neighborhoods but has no mortgage.

We want to build a new home and thought that this home could work for us, maybe as a rental. Our combined annual income is around $100,000, but we've had past credit problems (bad divorces). We've taken steps to improve our credit.

Any suggestions on how to handle this gift to help us buy a home?

Answer: I think you meant that you received a quitclaim deed, which conveys whatever interest your mother owned in the house. It's probably fee simple. If you decide to keep the house, you may want to buy an owner's title insurance policy to protect against title risks, such as liens.

My suggestion is to sell the house and use the $50,000 proceeds for a down payment on a new house. I'm presuming that you don't want to move into the house.

With your excellent income, you can probably buy a very nice home. Be sure to get preapproved for a home mortgage before shopping for a house. With your credit problems, you might discover that you can qualify only for an expensive B or C quality mortgage.

After you have sold your mother's house and arranged a mortgage, you will know what price range home you can afford to buy.

Cash from exchange taxed

Question: I own a four-family house free and clear. It is completely depreciated. If I sell it, my CPA says I will owe capital gain tax on about $275,000 profit.

I've been looking into those Starker tax-deferred delayed exchanges you often discuss, but my CPA says I can't take any cash out of such a trade. Is that true? I would like to take out about $50,000 cash to pay bills.

Answer: Your CPA is correct. If you take out cash from a tax-deferred exchange, you will be taxed on that portion of your profit. However, you could refinance by putting a $50,000 mortgage on the property well before the exchange. Of course, that will decrease the equity you have available for exchanging.

Robert J. Bruss is a nationally syndicated columnist on real estate. Write to him in care of the Tribune Media Syndicate, c/o the Times, 435 N Michigan Ave., Suite 400, Chicago, IL 60611. Questions of general interest will be answered in the column.

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