Question:

I signed a contract two months ago for a newly-built house with a leading builder. The home will take about four months to build. The builder has not applied for the permit and has not done any of the ground work on the home.

The builder told me that until I pay him about $9,000 in earnest money and all the money for the upgrades I ordered, he will not apply for a building permit and will not start building the home.

But when we negotiated the terms of our deal, he agreed that I would pay him for the upgrades in four installments over a period of two months. So far I have paid him most of the earnest money and most of the money for the options.

We found another house which we like more. Can we cancel the contract and get my money back? In the contract (obviously it has tons of papers), I believe it states that if we default, the builder will not refund any money. What should we do?

Answer:

It seems that you have new home buyer’s remorse and are now looking for a way to get out of the deal you entered into with the builder.

Frequently, builder contracts contain provisions that deal with the payment of funds from the buyer to the builder over time. In some situations, a buyer will pay a builder a small sum of money when the contract is entered into, then more money when the building permit is obtained, more money when the foundation is poured, then another installment when the house is framed with a final payment at closing when the home is finished and an occupancy permit has been issued.

There are many variations of the method that builders use to get money from their buyers. Builders will generally not want to proceed to the next step of the building process in building a new home unless their buyer has complete steps that are outlined in the purchase and sale agreement.

While you didn’t say so, it may be that your purchase agreement states that the builder will give you time to make payments on the contract, but the builder won’t have to commence construction on the home until those payments are made. If that’s the case, the builder has done nothing wrong under the contract and any delay in the closing date may come from the timing of your payments.

You’ll probably see a provision in the contract that states that the builder is allowed to delay the closing date to accommodate those payments and other delays caused by weather.

Some purchase agreements go so far as indicating a target date for closing but setting a firmer closing date when the builder actually obtains the building permit and commences construction on the home.

If you decide to not buy this home, you’ll have to negotiate a termination of the contract with the builder. You may need to be prepared for the reality that you will lose all the money you gave the builder unless the contract provides otherwise or the real estate laws in your state give you other protections. If you walk away from the deal, the builder will claim that you are in breach of contract or in default and try to keep all the earnest money you have deposited on the contract.

It would be at this point that you would be wise to talk to a real estate attorney and discuss your options. After listening to your attorney, you may decide to continue with this purchase, move in and ultimately enjoy living in your new home.

One last word of advice, when you buy a new construction home, you need to make sure you know who you are dealing with. Once you give money to the builder, that money may be at risk of loss if the builder goes out of business or files for bankruptcy. In the ideal world, you’d want your money held by an escrow company or other entity that would hold your money until closing in a segregated account that could not be touched by third parties.

Please speak to a real estate attorney immediately to understand your legal options.

Updating...

The news of excessive radiation from a damaged nuclear plant in Japan has scared the pants off of many Americans – and prompted a run on iodine pills in California.

It’s difficult to imagine leaving your home and belongings because they were damaged by radiation. And yet, that could be what happens to thousands of Japanese who live near the damaged nuclear plant.

Watching this has terrified many U.S. residents: Many homeowners are wondering if their homeowners’ insurance policy will protect them in the event of a nuclear accident.

Unfortunately, it won’t. Homeowners’ insurance policies exclude damage caused by a nuclear accident or “event.”

However, it may surprise you to learn there are some financial protections for both homeowners and renters that were created by a law that has been on the books since 1957.

The Price-Anderson Nuclear Industries Indemnity Act (commonly called the Price-Anderson Act) is a United States federal law, first passed in 1957 and since renewed several times, which governs liability-related issues for all non-military nuclear facilities constructed in the United States before 2026.

The Price-Anderson act was proposed by the Federal government as a way to encourage companies to pursue nuclear power as a resource by limiting possible liability.

Companies were afraid of taking on excess liability, especially after WWII (ironically, the bombings in Japan) and the inception of the atomic age. People were scared by the very thought of radiation. Government wanted companies to research how nuclear power might be harnessed to supply energy to U.S. residents, so they eliminated at least a portion of any future liability.

In a way, the Price-Anderson act works similarly to the FDIC insurance fund. Businesses that are involved with nuclear energy pay premiums every year that go into a giant fund. If something was to happen, and radiation was to contaminate an area of the U.S., nuclear power plant operators have contributed $12 billion into a giant pool which would be used for the claims.

It is worth noting that the Act protects all Americans, even renters, not just homeowners and provides comprehensive, “reasonable” coverage of the following in the event of a nuclear power plant malfunction: Bodily injury; sickness, disease or resulting death; property damage and loss; and reasonable living expenses for individuals evacuated from their homes.

That’s why insurance companies don’t have to deal with covering damage caused by nuclear accidents, says Chris Kissell, a spokesperson for Insurance.com.

Are Americans in danger of a Level 5 radiation leak like in Japan or Chernobyl? What about an even bigger accident? Kissell says there only a small chance of a grave problem.

“With more modern U.S. facilities, this is not a real danger. Some of the [nuclear plants] which go back 30 years or more could be a problem,” he said.

And yet, he acknowledges Americans are nervous. “It’s just human nature that when something happens, people wonder how it could affect them. And these things are often beyond government control. I think out in California where you have [nuclear] plants and earthquakes, people are more concerned,” he explained.

“People realize there are a lot of safeguards but they want to know how they’re being kept safe,” he added.

For more information about the Price-Anderson Act, go to the American Nuclear Society website.

Q: I was divorced a little more than 20 years ago, and a quit claim deed transferred the property to my name. My name was never on the original deed or mortgage. When I sell my home will I have to pay taxes on profits over $250,000 over the value of the home when it was built in 1972, or can I use the valuation when the quit claim deed was signed in 1984? Many thanks.

A: When you were given the property, you were given the property at its original cost basis. So, if the property was purchased for $25,000 and someone gave that property to you, the cost basis is still $25,000 even if the property was worth $100,000 when it was given to you.

If you’re single and use the property as your primary residence, you’re allowed to exclude from federal income taxes up to $250,000 of profit from the sale of the home. And, if you’re married, you are allowed to exclude from federal income taxes $500,000 of profit on the sale of the home.

The key question for you will be what is your cost basis and how much profit will you receive from the sale of the home.

To determine the cost basis, you take into account what the home was purchased for and add to that number the costs associated with the purchase of the home.

Then you add all capital improvements made to the home over the years. If you put on an addition to the home, install a new kitchen and put on a new roof, all of these items will increase your basis in the home. And then when you sell the home, the costs of sale will get factored into determining your basis and the profit you get out of the home.

Given all of these issues, you should talk to a real estate attorney, tax expert or accountant who can help you figure out the cost basis for the home, and assist in helping you figure out whether you’ll have any taxes to pay or estimate the amount of taxes you will have to pay the federal government.

Good luck.