What’s With All This Paper?!

When buying or selling an home, there can be a lot of documents to sign. The question is, which ones are important enough to keep? At Main Street Realtors we use an online management system to organize and maintain all of the items in the transaction. This system allows you to see or share your paperwork at anytime during the process. My Broker (and brother), Geoff McIntosh, uses the comparison to shopping on Amazon.com. You order an item online, get an confirmation and then can follow it through every step on it’s way to delivery. Why shouldn’t you have the same access to information when making what is the largest purchase a person is likely to make in their lifetime?  Another great benefit in this system comes at the end of the transaction when I can hand you an CD with all of the paperwork compiled for easy storage and an second CD for your safety deposit box.

I wish we had this system in place when I purchased my home!

I got to thinking about this today when I came across the following article by Benny Kass. If you don’t have your documents on a disc, maybe this will be helpful.

– Todd


Deciding which mortgage papers are “most important” to keep

By Benny Kass

DEAR BENNY: I recently purchased a “firesafe” box to store my family’s important papers (birth certificates, etc.). I thought I should also include the important house papers as well, but that’s when I got confused.

We purchased our home when first married in 1988. Since then we’ve refinanced twice (1998 and 2002) and at some point, our original mortgage was transferred to another two lenders. In any case, we carefully saved all the papers for each transaction.

My firesafe box is relatively small and I now find I don’t know which papers I should save. I’ve got two deeds of trust — one from the original and the other from the 1998 refinancing. Our 2002 refinancing was with the current lender at the time, so I’m not sure if they didn’t need to provide another deed of trust (as they already had one) or if I’ve lost it. I’ve also got the original 1988 sales agreement and the 1988 and 1998 settlement agreements — lots of other papers but not sure how important they are.

Finally, I also have papers from the opening of an equity line of credit with our primary bank. I’m hoping you can tell me, if our house were to burn down, what papers do we need to keep? –Nancy

DEAR NANCY: If your house burns down, you will not need any of the loan documents. The important ones — deed of trust (the mortgage documents) and the deed to your property — are all recorded among the land records in the state (or county) where your house is located. You might want to keep a copy of your last promissory note, just in case there is a question about its terms and conditions. You should also keep a copy of your home insurance policy, since there may be issues as to coverage and the policy controls.

But, more importantly, there are many documents that you will need for taxation purposes. Currently, homeowners who sell their house can take advantage of the up-to-$250,000 exclusion of gain (or if you are married and file a joint tax return, up to $500,000).

If your profit is less than the maximum gain exclusion and if you are audited by the Internal Revenue Service, your original settlement statement showing the purchase price will be good evidence of what you paid for the house.

But if your profit is over that maximum, you want to increase your tax basis so that your profit will be smaller. How do you do this? First, if you have made major improvements to the house — such as remodeling your kitchen or bathroom, or an addition to the house — you will be able to increase your basis. But you will need proof, such as your construction contracts.

Also, your settlement statements over the years may contain other items that can increase basis — such as attorney fees and many closing costs. You should discuss your specific situation with your own tax advisers.

Perhaps it would be a good idea to get a larger firebox, or better yet, get a safe deposit box in a local bank.

According to the IRS, “You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. You cannot deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities.”

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column.

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