Even With a Foreclosure, You Have Options

Similar insurance policies are available to condominium owners, who should always carry condo owner's insurance even though the condo homeowners association insures the complex's common areas, including the building structure, for fire and liability coverage. For details, consult an insurance agent.

DEAR BOB: I am 63 and hope I can continue working until I am 70, when my Social Security benefits will nearly double. My $935,000 home needs about $30,000 of repairs. I had hoped to live on reverse-mortgage income until I retire. But the amount I would receive is so small I couldn't afford the repairs. It seems I have no recourse but to sell my 50-year-old home. Any suggestions? -- Helen W.

DEAR HELEN: Your real problem is you are too young and your life expectancy is too long to gain maximum benefits from a senior-citizen reverse mortgage. Because you didn't mention any existing mortgage, I will presume there is none.

Another possibility is to obtain a home equity credit line to pay for the $30,000 of repairs. But the big drawback is a home equity loan requires monthly payments whereas a reverse mortgage does not require any payments.

As you probably know, there are three nationwide reverse-mortgage lenders: the Federal Housing Administration, Fannie Mae and Financial Freedom Plan. FHA and Fannie Mae are usually best for homes worth up to $500,000. Above that, Financial Freedom Plan often is the best alternative.

Please consult a reverse-mortgage representative who offers all three plans so you can compare them. You can find reputable reverse-mortgage originators at http://www.reversemortgage.org.

DEAR BOB: You often mention Internal Revenue Code 121. To qualify, you say the principal-residence owner must reside in the home at least 24 of the last 60 months before its sale. Does that mean I have to own my house at least 60 months before I qualify for the $250,000 exemption? Also, you say this tax break can be used every 24 months. How does that fit in with the 60 months? -- John L.

DEAR JOHN: Internal Revenue Code 121 is very flexible. To qualify for the principal-residence-sale exemption up to $250,000 for a single owner, or up to $500,000 for a qualified married couple filing a joint tax return, the seller(s) must have owned and occupied their primary dwelling an aggregate 24 out of the last 60 months before the sale.

The 24 months need not be continuous. For example, you could live in your house for a year, rent it out for two years to tenants, and move back in for another 12 months to qualify.

There is no need to own the home for 60 months. You can qualify for this tax break if you bought your principal residence as recently as 24 months ago, providing you occupied it as your "main home" for those 24 months.

IRC 121 can be used over and over again, without limit, but not more frequently than once every 24 months. For details, consult a tax adviser.

DEAR BOB: My daughter will be buying a house with her boyfriend, whom she does not plan to marry. How do you recommend they take title together? Is joint tenancy a good idea? -- Kenneth R.

DEAR KENNETH: I'm sure your daughter has her reasons for buying a house with a guy she doesn't plan to marry. But I can see endless complications.

I do not recommend they hold title as joint tenants with right of survivorship. That means if one of them dies, the survivor owns the entire property. Is that what they really want?

When two co-owners take title together, they usually hold title as tenants in common. Then, if one of the tenants in common dies, their ownership share passes according to the terms of their will.

But a big disadvantage of tenant-in-common ownership is that if one co-owner wants to sell but the other doesn't, one co-owner can bring a partition lawsuit to force a sale of the property.

Consider holding title in a partnership, which allows specifying terms that should be considered, such as a buyout agreement, or what happens if one partner can't pay his or her share of the mortgage payment and other expenses. Your daughter should consult a real estate lawyer in the community where the property is located to discuss her title choices.

DEAR BOB: My dad died in 2005. He had no will. Mom passed away in 1999. He left a house worth around $500,000. There are five adult children. His estate has been in probate almost two years, with no sign of any conclusion soon. Dad left debts of about $125,000. The estate executor has sold off dad's car, furniture, etc., to pay the unsecured debts. But there was a $40,000 mortgage on the house. I think we should sell the house to pay off the mortgage and then split the proceeds. But two sisters refuse to agree to the house sale. What can we do? -- Ralph S.

DEAR RALPH: Before the estate assets can be distributed to the heirs, who I presume are the five offspring, the estate debts must be paid. If there are not enough liquid assets to pay the debts, such as personal property, stocks, bonds and bank accounts, then the house will have to be sold even though the two sisters don't want to sell.

In most cases, it will be the probate court judge who makes the final decision if the estate administrator can't reach a consensus with the heirs.

Your situation shows what can happen when a property owner dies without a will and there is disagreement among the heirs. I can see why the probate has taken two years so far. At this point, the best you can do is try to get all the heirs to agree on a course of action. Otherwise, it will be up to the probate judge, and he might not decide what the heirs prefer.

DEAR BOB: Upon the recommendation of a trusted friend, my husband and I invested about $225,000 in a group investment in a shopping center. We had never seen the shopping center, but the real estate agent said it was in a good area. That's true. However, it is now about 40 percent vacant due to bad management. Also, it needs at least $200,000 of repairs just to make it attractive to prospective retail tenants. It is mortgaged to the hilt so we can't borrow more on a third mortgage. The other investors refuse to put any cash into the shopping center. The mortgage is two months in default. What can we do? -- Helen R.

DEAR HELEN: I do not recommend group real estate investing, especially when the property is located a long distance away and the owners are at the mercy of the property manager.

At this point, it appears selling the shopping center is the only alternative to losing it by foreclosure. I wish I could be more encouraging, but without any equity on which you can borrow, getting the co-owners to agree to a sale might be best.

DEAR BOB: In 2003 we bought a modular home and had it set up on a lot we owned. After all the expenses of having a foundation built, plumbing and wiring installed, etc., when we sold it in late 2006 we barely got our investment out. We learned modular homes can be lousy investments. Do we have to report this sale to the IRS? -- Thomas R.

DEAR THOMAS: If your sales proceeds did not equal the amount you invested in the modular home and the cost of the lot, then you had no capital gain profit. But the sale must be reported on Schedule D of your income tax returns, although no tax will be due if you had no profit.

However, if the home was your principal residence for at least 24 of the last 60 months before its sale, then Internal Revenue Code 121 does not require you to report the sale unless your capital gain exceeded $250,000 (or more than $500,000 for a married couple filing a joint tax return).

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

© 2007, Inman News Service