Dealing With Deadbeat Agents

DEAR FRANK: Presuming your son is your sole heir, if he doesn't cooperate with the lender to pay off the reverse-mortgage balance after your death, the reverse-mortgage lender can hold a foreclosure sale. Then the lender gets paid the mortgage balance, and any foreclosure-sale excess cash goes to your heir. However, if your heir wishes to keep the house, he can obtain a new mortgage to pay off the reverse-mortgage balance and then own the house subject to the new mortgage.

DEAR BOB: Our neighbor recently sold her property and carried back a $20,000 mortgage on the $120,000 sale. When the neighbor moved out of state, we assumed that mortgage and installment note. We thought that if the borrower defaulted, we could foreclose and the property would become ours. But a friend told us a public auction is required and we would have to outbid any other bidders to retain the property. Is this correct? The payments are now four months in arrears. -- Susan M.

DEAR SUSAN: Don't worry. As the foreclosing lender, you can submit a "credit bid" for the amount that is owed to you, including attorney or trustee's fees and other expenses of foreclosure. With the monthly payments four months in arrears, it's time for you to consult a lawyer to start the foreclosure. A public auction is required. If a bidder shows up and bids $1 more than the amount owed to you, including costs, then you receive that cash and walk away happy. If no bidders show up, you get title to the property subject to any first mortgage, hopefully for a profit.

DEAR BOB: My nephew is interested in acquiring, renting and perhaps selling residential properties. What are some good books for beginner real estate investors? -- Ed K.

DEAR ED: Two recent good books for your nephew are "Real Estate Investing for the Utterly Confused" by Lisa Moren (McGraw-Hill, 2006) and "Buy Even Lower" by Scott Frank and Andy Heller (Kaplan, 2006) -- written by two successful investors.

DEAR BOB: I have owned and lived in my home about six years. I want to build a single-family house on my large corner lot. Can I live in the new house for two years without paying capital gains tax and, if I rent my old house, am I still exempt from capital gains tax when I decide to sell? -- Julianne S.

DEAR JULIANNE: If I understand your question correctly, you plan to move into the new house to be built and then rent your current residence for a few years before selling it. Until a property is sold, no tax consequence occurs.

To qualify for the Internal Revenue Code 121 principal-residence-sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple filing a joint tax return), you must have owned and occupied the home at least 24 of the last 60 months before its sale. That means you can rent your old home up to 36 months before losing your IRC 121 principal-residence-sale tax exemption. Consult a tax adviser for details.

DEAR BOB: A friend owns a vacation home at Lake of the Ozarks in Missouri. She said if she sells, she has 45 days to buy another piece of property, perhaps a condo in Florida, before she owes tax on her profit. Is this correct? -- Sue E.

DEAR SUE: Your friend is mistaken and she should consult a tax adviser. Unless she is selling a rental property, which can qualify for an Internal Revenue Code 1031 tax-deferred exchange, she will owe capital gains tax on her sale profit. There are no special tax breaks for the sale of a nonrental vacation property.

DEAR BOB: You often discuss partition lawsuits where one co-owner wants to sell but the other co-owner doesn't. Does a judge have to grant permission for the partition lawsuit to force the sale of a property? If so, when one co-owner wants to buy out the other co-owner, might the judge deny a partition sale and allow the purchase by the co-owner? -- Mark S.

DEAR MARK: Judges don't have to grant a partition lawsuit brought by a property co-owner, but they usually do, even when a majority of the co-owners don't want to sell. Of course, a judge can grant a continuance for one co-owner to buy out another co-owner. Anything can happen in court.