Avoiding Refinancing Fees

By Robert J. Bruss
Saturday, September 1, 2007

Q: DEAR BOB: I'm wondering about mortgage refinance junk fees. I know consumers have the right to avoid these fees, but my experience has been these lender fees usually come at the end of the refinance process, after the mortgage is approved. How should borrowers distinguish between real fees and unnecessary junk fees? Will we ever find a mortgage without junk fees? -- Nan S.

A: DEAR NAN: Each mortgage lender is required to disclose all fees in a good-faith estimate, which must be given to you within three days after you submit a written loan application. This form, however, is not binding on the lender, and there is no penalty or legal enforcement for a false estimate. When you spot a junk fee on the estimate, object to it upfront. Unless the lender waives or at modifies the junk fee, maybe you should do business elsewhere.

However, if the lender failed to disclose a fee on the estimate and it later shows up on the closing documents, you are in a strong position to challenge that unexpected fee and negotiate it away.

The best way to determine if a fee is necessary is to ask yourself, "What benefit am I receiving for this fee?" For example, an appraisal fee is a legitimate charge because the lender requires an independent appraisal and you will benefit by knowing the appraiser's opinion of the property's fair market value. Other examples of legitimate fees include those for tax service, courier, flood certificate, recording, title insurance and notary. But unnecessary junk charges, which provide the borrower with no specific benefit, include processing fee, application fee, administration fee, documentation fee, warehousing fee, underwriting fee and, when the lender runs out of names, miscellaneous fee.

DEAR BOB: My daughter co-signed a mortgage with her boyfriend about three years ago. They have been split for about two years. He is making the mortgage payments on time. She wants to know how to get herself free of this obligation because he wants to keep the property. -- Barb L.

DEAR BARB: If your daughter is a co-signer on the mortgage, there is no way she can get out of that obligation until either the property is sold or the mortgage is refinanced. She should be thankful that the ex-boyfriend makes the payments on time so he doesn't harm her credit. If your daughter is also a co-owner of the property, she could bring a partition lawsuit to force the property sale unless the ex-boyfriend refinances.

DEAR BOB: My boyfriend and I have owned a home together for about 10 years. We each pay half of everything. But only my name is on the title and the mortgage because his situation was not the best 10 years ago. As we have no plans to marry, how do we get the $500,000 tax exemption, instead of just $250,000, when we decide to sell? -- Christi P.

DEAR CHRISTI: Thanks to Internal Revenue Code 121, if you own and occupy the house as your principal residence at least 24 of the 60 months before its sale, you can qualify for up to $250,000 tax-free profit when selling it. However, your boyfriend is not eligible for a $250,000 exemption. Even though he pays half the mortgage, he is not on the title. He is not entitled to claim any itemized income-tax deduction for mortgage interest and property taxes for the same reasons. If you add him to the title and he owns and occupies the house as his principal residence for at least 24 of the 60 months before its sale, then he would become eligible for his own $250,000 exemption.

DEAR BOB: After a legal settlement with the developer of my rental property over water damage, I was still out several thousand dollars more than the payment I received from his insurance. Can this non-insured amount I had to pay to complete the repairs qualify for the casualty loss deduction? -- Mike H.

DEAR MIKE: Because this is a rental property, you can deduct your out-of-pocket expense as a repair cost on Schedule E of your income-tax return.

DEAR BOB: What is your opinion of weekend open houses? I am renovating a house so I can sell it for a profit. My real estate agent says he doesn't do open houses. He says that he has been selling real estate for 20 years and that open houses don't work. This agent also says that other marketing tools such as ads are worthless and that listing on the local multiple listing service and several Web sites with the right price is the best marketing. What do you think? -- Brent H.

DEAR BRENT: I think you are talking to a lazy real estate agent. I'm surprised he has survived 20 years selling houses with such a bad attitude. What is his success record in selling houses like yours? I suggest that you interview two or three other agents who sell homes in your vicinity to compare their listing presentations. The agent you described doesn't realize open houses are a great place for him to meet prospective buyers and sellers.

Maybe he won't sell your house at a given open house, but if he doesn't hold open houses, he surely won't sell your listing or any other houses as a result of meeting prospective buyers. If that agent thinks he can sell your house by merely putting your listing into the local multiple listing service and on a few Web sites, he is downright lazy and isn't working in your best interest.

DEAR BOB: I own a tenant-occupied rental house that I am considering selling to my tenants on a lease option or a lease-purchase agreement. What is the difference? -- Gene G.

DEAR GENE: A lease option gives the tenant the option to buy the property at the agreed price and terms. The term of a lease option is customarily one or two years. But a lease-purchase agreement obligates the tenant to buy at the agreed price and terms, within the specified time limit.

Either way, insist on substantial, nonrefundable upfront option money. Be sure the lease option or lease-purchase contract clearly states that the option money, typically 1 to 3 percent of the option price, is not refundable. For details, consult a real estate lawyer.

DEAR BOB: I own a rental house. My neighbor's pecan tree litters my driveway and roof with leaves, pecans and sap. The tree roots have cracked the fence and raised part of my concrete driveway. What recourse do I have? Can I cut the roots and limbs? What if the tree dies? -- Etta J.

DEAR ETTA: The laws of most states allow you to trim the neighbor's encroaching tree roots and limbs back to the property line, at your expense. However, if you kill the tree, you could be liable to the neighbor for the lost value of the tree, possibly several thousand dollars.

DEAR BOB: To avoid probate costs and delays when I die, I created a revocable living trust and deeded my condo title to it. I am 62 and plan to get a reverse mortgage in about eight years, when my interest-only mortgage converts to an amortized mortgage. Does having the condo title in my living trust prevent me from getting a reverse mortgage? -- Alan W.

DEAR ALAN: No. As long as you have sufficient equity in your principal residence, holding title to it in your revocable living trust won't prevent you from obtaining a reverse mortgage. However, the reverse-mortgage lender will ask you to take the title to your home out of your living trust momentarily so the reverse mortgage can be recorded against the title. After that is done, you can then have the attorney or title company re-deed the title back into your living trust. It's a bit confusing, but it is done every day.

DEAR BOB: I own a rental property and will have its mortgage paid off in 12 months. I am considering an Internal Revenue Code 1031 tax-deferred exchange for a rental property closer to my home. Must all the cash realized from the sale of the current property be used as a down payment on the property to be acquired, which will be of higher value, or can I take some cash out and just carry a larger mortgage? -- Claudia M.

DEAR CLAUDIA: The general rule of IRC 1031 is that you must trade equal or up in both price and equity. That means if you take out any cash, called "boot," it will be taxable to you. However, if you want to take out cash, you can refinance either property before or after the trade, just not as part of the trade transaction. Please consult a tax adviser for details.

DEAR BOB: I am paying half of my son's mortgage payments, but my name is not on the mortgage papers. However, I am on the title. Can I deduct half of the mortgage interest and property taxes on my 2007 income tax returns? -- Rhoda J.

DEAR RHODA: Yes. It is irrelevant that your name is not on the mortgage obligation. What matters is that your name is on the title to the residence, making you legally obligated to be sure the mortgage and property taxes are paid.

DEAR BOB: I recently bought a home using a Federal Housing Administration rehabilitation loan. My question involves the private mortgage insurance required by my lender. I bought the house at a foreclosure sale. I know that PMI is supposed to be paid until there is 20 percent equity accumulated in the home, but in my case, I already have more than 20 percent equity. Yet my loan contract says I must pay PMI for the next 10 years. When can I stop making these extra payments? -- Dwight B.

DEAR DWIGHT: You have an FHA mortgage, but it is not a PMI mortgage.

The rules are different. Depending on the type of FHA mortgage, there may be mortgage insurance, which must be paid for a number of years. If you wish to get rid of the FHA insurance, consider refinancing with a non-FHA mortgage.

DEAR BOB: I have a buyer for my condo, but I do not have a real estate agent. How can I sell my property without an agent? -- George B.

DEAR GEORGE: You accomplished the hardest part of a residential sale, finding a buyer. After you have done that, you don't need a real estate agent to market your condo. But you do need a local real estate lawyer to prepare a written sales contract, which includes all the details of the sale, such as the price, down payment and financing. The closing can be handled either by that real estate lawyer or at a local title or escrow firm, depending on local custom.

DEAR BOB: My wife and I have been having marital problems for the past five years. We stay living together for the kids. About six months ago, she tricked me into signing a quitclaim deed for my half of the house. But she has not recorded it. Is there anything I can do to stop her from recording it? I thought there had to be two witnesses, and there were no witnesses to my signature. -- Jon R.

DEAR JON: The requirements to record a quitclaim deed vary by state. If you signed a quitclaim deed to your wife but there weren't any witness signatures or a notary public's acknowledgement stamp on the document, it probably is an unrecordable document.

Technically, that deed might be valid between you and your wife. But if it can't be recorded to give constructive notice, the document is virtually worthless. Also, if she really tricked you into signing, then the document would be unenforceable and voidable.

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

Copyright 2007 Inman News Service