By Robert J. Bruss
Saturday, July 29, 2006; F14

Q: DEAR BOB: About nine years ago, my parents helped me buy my first home, a condominium. All three of us took title as joint tenants with right of survivorship. The condo turned out to be an outstanding investment. I got married about five years ago and moved into a house with my wife while my parents moved into the condo. Mom died in 2002, but Dad still lives there. He and I have decided to sell the condo to pay for his care in an assisted living residence. The net profit will be about $400,000. Because he owned and occupied the condo 24 of the 60 months before its sale, he qualifies for the $250,000 principal residence sale tax exemption. However, my tax adviser says I can't qualify because I don't meet the occupancy test. Do you agree or disagree? -- Troy W.

A: DEAR TROY: Your tax adviser is correct. Internal Revenue Code 121 says that to qualify for the principal residence sale tax exemption up to $250,000 per owner, you must own and occupy it at least 24 of the 60 months before its sale. For a married couple, only one spouse need be on the title, but both spouses must meet the occupancy tax and file a joint tax return to qualify. Although your dad qualifies for up to $250,000 tax-free profits, you can't qualify because you don't meet the 24-of-the-last-60-months occupancy test. Therefore, about $150,000 of that capital gain will be taxable.

DEAR BOB: At age 73, I recently refinanced my reverse mortgage. Since then I am being bombarded with letters from insurance companies wanting to sell me disability insurance. I am infuriated by these companies invading my privacy. Also, the appraiser came from an area a considerable distance away. How can he know property values in my town? The reverse-mortgage lender didn't use one local company, except the termite inspector. The lender's title insurance came from out of state. What can be done about this invasion of my privacy? -- Marilyn G.

DEAR MARILYN: Most recorded real estate documents are public information. That's because many people, such as mortgage lenders and title insurers, need to know what liens and other recorded documents affect your property. There are nationwide companies that make money obtaining recent public records, such as your reverse mortgage recording, and selling that information to insurance companies and other users. Because public records are not private, there is nothing you can do but throw away the mail you don't want.

DEAR BOB: Thanks for that item a few weeks ago from a real estate agent who got her seller to raise the sales commission to 7 percent and then sold the house that had languished on the market. As my home is listed for sale, I showed that article to my agent. I think he is doing a great job, but the local market is saturated with too many homes in my price range. My listing has about 40 days remaining, so I said, "Let's raise the commission to 7 percent with 4 percent to the buyer's agent." He and his broker promoted my house to the local multiple listing service agents with a tour, weekend open houses and newspaper ads. Within 10 days, I received two good purchase offers. I accepted the best one and kept the other as a backup. Raising the commission really works. -- Cindy R.

DEAR CINDY: That item a few weeks ago resulted in many positive letters from real estate agents, but there were a few negative letters from some home sellers. One asked why the real estate agent didn't work as hard when the house had a 6 percent commission. They didn't understand that the purpose of raising the sales commission is to attract the attention of buyer's agents to get them to show your home rather than another one to their prospects. In the current buyer's market, the key to success is getting your home seen by as many buyer's agents and their prospects as possible.

DEAR BOB: I am perplexed at your answer to stepchildren whose stepmother holds a life estate in their late father's property. If the stepchildren will inherit the house after the stepmother dies, shouldn't they help pay for its upkeep? Most widows live on fixed incomes and often can't afford to maintain the property. I think you need to think this through from the perspective of the second wife who probably took care of the ill father. Why should she spend her money for her stepchildren's inheritance?

-- Muriel O.

DEAR MURIEL: You make a lot of sense. However, the law of every state with which I am familiar says a life tenant must pay the property taxes; mortgage payments, if any; and the maintenance. The person who will eventually receive property, known as a remainderman, has no legal duty to help pay for maintenance. If the life tenant allows the property to go to "waste," the remainderman can have the life estate terminated.

There is no reason why the terms of the life estate could not require contributions by the remainderman to help maintain the home while the life tenant lives in it.

Such a document should be carefully drawn to prevent administrative problems.

DEAR BOB: My niece wants to buy my house without getting a mortgage, and she wants me to sign the house over to her, after which she will get it refinanced and pay me my asking price. I will continue living in the house while this plan is pending, and I will get my money in three months if all goes well. If not, she will deed the house back to me. Is this risky or just plain dumb? I am a widow, and the house is too much for me to keep up. -- Valerie J.

DEAR VALERIE: If your niece can qualify for a mortgage, she should do so without you first deeding the house to her. You could agree, for example, to sell the house to her with an 80 percent lender mortgage, and you can carry back a second mortgage for the balance of the sales price.

There's no advantage for you to deed your house to your niece without receiving cash or at least a first mortgage from her for your security. Consult a lawyer, and get it all in writing.

DEAR BOB: Why don't you warn people about the dangers of gift deeds? My mother was diagnosed with terminal cancer. I am her only child, and she wanted to gift-deed her house and two rental properties to me to avoid probate after her death. Her attorney prepared the gift deeds, and I recorded them. Little did I know how costly that would be. A few months later I received notices from the county tax assessor that the properties would be reassessed. At the least, this will result in several thousand dollars higher annual property tax. But the bigger surprise is that the cancer diagnosis was wrong. My mother has another disease, and now it looks as if she will live for many years. Even if I deed the properties back to her, the tax assessor says he will still reassess them. -- Todd W.

DEAR TODD: You left out a much greater disadvantage of a lifetime gift deed. Because you received those properties as lifetime gifts, you took over your mother's low adjusted cost basis. If you had instead inherited those properties, you would have received a new "stepped-up basis" to market value on the date your mother passes on.

When you eventually sell those properties, you will have a large taxable capital gain, most of which could have been avoided by instead inheriting those properties. Your mother meant well to avoid probate, but she could have kept ownership, given you a stepped-up basis and avoided probate by use of a living trust.

DEAR BOB: We are having great difficulty selling our rural house. It has been listed for sale about eight months with only one offer. The buyer will obtain a 70 percent first mortgage, pay us 5 percent down payment and give us a 25 percent second mortgage. However, this is to be an unrecorded "silent second" mortgage. The real estate agent says the idea is to make the mortgage company think the buyer is paying 30 percent cash down payment. He says it is done all the time, especially with "difficult" properties such as ours. What is your advice about a silent second mortgage for us? -- Vickie V.

DEAR VICKIE: An unrecorded silent second mortgage is a fraud on the mortgage lender. I know it goes on, and lenders rarely prosecute the borrower or seller. However, an unrecorded silent second mortgage is dangerous for you. If you don't record it, and if the borrower doesn't make the payments to you, you can't foreclose to get the property back if your second mortgage hasn't been recorded.

At the least, you should record your silent second mortgage after a week or so. But you should be aware that before it gets recorded, your buyer might incur liens, which would have priority over your later-recorded second mortgage.

For example, your buyer might have a prior judgment lien, income tax lien, child support lien or other possible liens, which could attach to the property. If you decide to proceed, be aware of your high risk and do everything possible to minimize it. Consult a lawyer for details.

DEAR BOB: We obtained a senior citizens reverse mortgage in 2004. Recently, we received a letter from our mortgage company outlining why we should refinance to obtain greater reverse mortgage benefits. Is this possible? -- Jopie C.

DEAR JOPIE: Yes. Reverse mortgages can be refinanced. Perhaps your home has greatly appreciated in market value. The reverse mortgage lending limits have increased substantially in the last two years, making today's reverse mortgages more attractive than a few years ago.

If you have a need for increased funds, I suggest you inquire about the possibilities for refinancing your reverse mortgage.

DEAR BOB: I bought my house in 1960 and paid it off in 1980. I have a living trust in my name. My problem is for the last 18 months I have been receiving mail from real estate agents addressed to a person I don't know, asking if I want to sell my home. I phoned one agent to ask where he got her name. He said he got the name on the Internet. I called the county assessor, and he told me not to worry as everything is in the name of my living trust. However, I seem to have misplaced my title insurance papers. Any advice? -- Phillip V.

DEAR PHILLIP: If you are receiving your property tax bills in your name, you probably have nothing to be concerned about. However, when you are near the county recorder of deeds office, stop in to double-check how the title to your home is held. Mistakes do happen. Or there could be a forgery in your chain of title.

I don't mean to alarm you, but checking won't do any harm. If you find there is a title problem, contact your owner's title insurance policy insurer. Your title policy is valid as long as you or your heirs own your property.

DEAR BOB: We are considering buying a retirement home in a nice new golf course development near where we frequently vacation. However, we learned the houses are on 99-year land leases. Although we don't plan to be around when the lease expires, won't that hurt the value of the homes as they become older? Are there any advantages or disadvantages? -- Connie S.

DEAR CONNIE: That 99-year land lease is a great deal for the developer but not so good for the home buyers. The reason is at the end of the 99 years, title to the houses reverts to the landowner.

As you can see, the market value of the houses will decline as the 99th year approaches.

However, if the 99-year land leases contain an option for the individual homeowners to buy the land beneath their houses, that makes them much more attractive for several reasons.

The major reason is your land lease payments then become tax deductible, just like interest. But another reason is most people want to own the land under their home. Consult a lawyer to review the documents before getting involved.

DEAR BOB: Four of us own a valuable piece of land that we want to sell in the next year or so. The problem is one owner is ill and will probably die in the next few months. Is there any way to avoid having her share tied up in probate court so title can be transferred to her heir quickly after her death? A problem, however, is she has Alzheimer's and doesn't understand what's going on.

-- Lucie R.

DEAR LUCIE: Presuming you hold title as tenants in common, not as joint tenants with right of survivorship, her share will pass in probate court according to the terms of her will.

Or, if she holds her share in her living trust, then probate court action is not required after her death and her successor trustee can easily transfer her share of the land to whoever is named in the living trust.

Unfortunately, because of the Alzheimer's disease, it's too late to create a living trust for her now to avoid probate. Consult a probate lawyer for details.

DEAR BOB: Is there a law requiring a landlord to refund the tenant's security deposit after a number of years of occupancy? I have never heard of such a law; have you?

-- Gus G.

DEAR GUS: No. But landlord-tenant law is controlled by state or city law. Although I try to keep up on new real estate laws, I have not heard of any state that requires landlords to refund tenant security deposits before the tenant moves out. If any reader knows of such a state law, they will surely let me know and I will pass on the information.

DEAR BOB: I heard there is a way to buy a house or condo with a reverse mortgage and not have to make any monthly mortgage payments. Is this true? Is this a way for a senior citizen to buy a retirement home?

-- Mr. L.M.

DEAR MR. L.M.: Yes, a "reverse mortgage for home purchase" is available from Fannie Mae. The two other major reverse mortgage lenders, the Federal Housing Administration and Financial Freedom Plan, do not offer these special reverse mortgages.

A reverse mortgage for home purchase usually requires a large cash down payment, typically around 50 percent of the purchase price. The balance is funded from a reverse mortgage.

Such a reverse mortgage is ideal for the purchase of a retirement home where you obtain the down payment cash from the sale of your former residence. Of course, you must be at least 62 to qualify. Details are available on the Internet at http://www.reversemortgage.org/ . Look for Fannie Mae reverse mortgage originators in your state.

DEAR BOB: My wife died recently. If I sell our home soon, can I take the $500,000 principal residence sale tax exemption, or am I limited to just $250,000? You often mention "stepped-up basis" for tax purposes. How does this affect my situation? -- Berton McC.

DEAR BERTON: There is no need to rush to sell your home. If you decide to sell in 2006, and your wife died in 2006, presuming you and she both occupied the principal residence at least 24 of the 60 months before its sale, and at least one of you held title for that period, Internal Revenue Code 121 allows you to claim up to $500,000 principal residence sale tax exemption. That presumes you file a joint tax return in the year of your late wife's death.

However, if you don't sell the home in 2006, you will probably come out just as well or better thanks to the "stepped-up basis" rule for inherited property. Presuming your wife held title to 50 percent of the home and you inherited her share, your new basis becomes the market value for that half on the date of her death, plus your original basis for the other half.

But I notice your letter is postmarked from a community property state. If the home was community property, then you get a new stepped-up basis for 100 percent of market value on the date of your wife's death. Consult a tax adviser for details.

DEAR BOB: What is the best and easiest way to add a co-owner to the title to my home?

-- Fran G.

DEAR FRAN: The easiest way is to sign and record a quit claim deed from yourself to yourself and the new owner. Be sure to specify on the deed how you want to hold title, such as tenants in common or joint tenancy with right of survivorship.

Consult a local real estate lawyer to discuss the possible tax and legal consequences. If you decide to proceed, the lawyer can then prepare the quit claim deed and have it recorded.

Readers with questions should write Robert J. Bruss at 251 Park Road, Burlingame, Calif. 94010, or contact him via his Web page, www.bobbruss.com.

© 2006, Inman News Service