DEAR BOB: I want to share how my wife and I pressured our home loan lender into canceling our private mortgage insurance. We phoned and wrote our lender several times but were told the lender wouldn't cancel PMI. Our loan wasn't sold to Fannie Mae or Freddie Mac, who require canceling PMI when the loan-to-value ratio drops below 80 percent, and was still owned by the original lender, a major nationwide bank.

We invested $325 in a home appraisal and found out our loan-to-value ratio was about 77 percent. We sent a copy of the appraisal to the bank's chairman with a request to cancel our PMI of $86 a month.

Within a few days, we received a polite phone call that said our PMI was canceled. Legally, our lender didn't have to cancel our PMI, but the pressure we used to prove PMI is a waste of money worked. Just thought your readers might use this technique.--Jules C.

DEAR JULES: Thank you for sharing your success story. Every year PMI helps thousands of buyers purchase homes with low down payments. Mortgage lenders need PMI to protect these high-risk loans against loss.

But after a few years, as the mortgage is gradually paid down and the home appreciates in market value, PMI no longer is necessary to protect the lender against loss. The PMI monthly premiums are a waste of money for borrowers like you.

However, mortgage lenders are reluctant to cancel PMI, which is backup protection in the event of a foreclosure loss. In your situation, obtaining the appraisal to prove your cancellation justification paid off. Other readers with the same problem may benefit, too.

DEAR BOB: My wife and I bought our home in June 1997, and we refinanced in 1998. Recently, we had the house professionally appraised. It shows an excess of $35,000 above our purchase price, giving us 22 percent equity.

I wrote our mortgage lender, attaching a copy of the appraisal, and asked to cancel our private mortgage insurance. The lender says we don't meet the minimum two-year loan-in-service requirements to cancel our PMI premiums. What can we do to cancel our PMI?--Kevin and Juli S.

DEAR KEVIN AND JULI: Ask your loan servicer who now owns your mortgage. If it is owned by Fannie Mae or Freddie Mac, their policy is to cancel PMI if the loan-to-value ratio is less than 80 percent. However, they do require the loan to be in force at least two years before canceling PMI.

But there are exceptions to every rule. If your loan is owned by Fannie or Freddie, it won't hurt to contact them to find out if you can cancel your PMI in less than two years.

DEAR BOB: Those FHA and Fannie Mae reverse mortgages you wrote about could be the answer to my prayers. I owe less than $5,000 on my home mortgage and I'll be 62 in January. I'm on Social Security now, only about $730 per month, but that's not enough to live on. However, there is a medical lien on my home. How would this affect my getting a reverse mortgage?

--Joyce R.

DEAR JOYCE: A reverse mortgage that pays monthly income to senior citizen homeowners who are at least 62 must be recorded as a first mortgage. When you turn 62 in January, you will become eligible for reverse mortgage tax-free lifetime income.

Proceeds of your reverse mortgage can be used to pay off your $5,000 existing mortgage and the medical lien against your home. After that, you can look forward to monthly reverse mortgage as long as you live in your home.

DEAR BOB: A few weeks ago you recommended getting a professional inspection even when buying a brand-new house. Why can't the buyer rely on the local building inspector to be certain the house is built right and is up to building codes? To whom should a new home buyer go to get an honest inspection?--Bernard H.

DEAR BERNARD: Until about a year ago, I did not recommend that buyers of new houses hire professional home inspectors. But then I saw an item on ABC-TV's "20/20" about a badly defective new house and the local building inspector who overlooked obvious defects.

Shortly thereafter, a California court of appeals ruled in Aas v. Superior Court that a home builder is not liable for construction that violates building codes, as long as no damage results. That case is now on appeal. But these are warnings of why new home buyers need their own inspectors. Incidentally, city and county building inspectors have no liability to home buyers for negligent inspections.

DEAR BOB: My mother owns property in New Jersey. She, my father and my uncle bought the house where she now lives about 50 years ago. My father and uncle died almost 10 years ago. All three names are still on the title. There are no liens.

My mother is in her eighties and she doesn't have a will. What must be done to have either just my mother's name on the deed or to add my sister's name?--Michael C.

DEAR MICHAEL: Your mother should consult a New Jersey real estate attorney now to clear up that title problem. If she and your late father and uncle held title in joint tenancy with right of survivorship, it is relatively simple to clear title in your mother's name. However, if title was as tenants in common or another method, probate costs and delays might be necessary.

After your mother gets title in her name alone, presuming that is possible, she can then create a living trust to avoid probate when she dies. Her living trust can specify title to the house shall go to your sister if that's what she desires.

This situation shows what can go wrong when real estate co-owners don't plan ahead. Your mother should get the title cleared now so she doesn't leave you and your sister with an unnecessary burden.

DEAR BOB: When I bought my home more than a year ago, I arranged for my mortgage company to escrow the property tax and insurance payments. I didn't think I had a choice. But a few months ago, I was notified that my escrow account is $400 short and I must pay $400 to avoid increased monthly payments.

I added up the taxes and insurance and determined my monthly escrow payment is sufficient to cover these expenses. However, when I phoned my mortgage company, they said I must have a "reserve" of two months taxes and insurance. I then told them to cancel my escrow as I will pay these expenses directly. My request has been approved, but the lender wants $150 to make this change. Can they do this?--Karen S.

DEAR KAREN: Escrow impound accounts are an endless source of trouble for home loan borrowers. FHA, VA and private mortgage insurance loans require them. But for most conventional mortgages, they are optional unless the lender makes it a loan condition.

Ask your lender to show you where in the loan documents you are required to pay $150 to cancel your escrow account. It's probably not there. The lender is testing you. Some borrowers stop paying their escrow amounts without adverse consequences. I'm not recommending that, but it might work if you just send your principal and interest payment. However, some nasty lenders will then reject your payment and charge you a late fee.

Sorry, I don't have an easy answer except to keep protesting to your lender. Write to the lender's president, demanding escrow cancellation without the $150 penalty. It can't hurt, but it might help. Be persistent until you get rid of that troublesome escrow account.

DEAR BOB: My younger brother noticed our mom, 83, was getting mentally confused. He had her sign me off as power of attorney and trustee. Then he sold her house for at least $20,000 below its fair market value. What could I have done to prevent my mother from being evicted from her home? Can I do anything now?--Frank S.

DEAR FRANK: I presume you didn't learn about these events until after the dirty deeds were done by your younger brother. If you had learned sooner, an attorney could have obtained an injunction to stop the sale and your mother's eviction.

You should quickly consult an attorney to have a constructive trust created for the proceeds of that home sale. Also, your mother needs to have a court-appointed conservator, perhaps you, look after her financial affairs.

DEAR BOB: Eleven years ago, my adult son and I bought a house together for him to live in. He has since married and now wants to buy a new house for his family. When we sell the house he now lives in, will we both be able to avoid capital gain taxes of about $75,000 even though I never lived in the house? Or is my share of the profit taxable?--Lanning K.

DEAR LANNING: New Internal Revenue Code 121 allows up to $250,000 principal residence sale tax-free profits. To qualify, you must have owned and occupied the home an aggregate of two of the five years before the sale.

Obviously, your son qualifies, but you aren't eligible since you don't meet the occupancy requirement. Your share of the home-sale proceeds will be taxable as an investor. However, your son's profit share is tax exempt up to $250,000. For further details, consult your tax adviser.

DEAR BOB: Two months ago, I bought a condominium that I intended to occupy in July. The sellers rented it back until they found another home. But I have changed my mind and wish to remain living in the house my boyfriend and I are renting.

Can my condo mortgage be recalled if I decide to rent it out? When I signed the loan papers, the contract said the condo would be owner-occupied, and I received a 7 percent interest rate. I don't want to ask my mortgage company for fear of putting out a red flag on my rental plans.--Name Withheld.

DEAR NAME WITHHELD: You committed fraud on your lender. Interest rates for nonowner occupants are usually at least one-half percentage point higher than for owner-occupants. If the lender discovers your change of plans, you might explain the situation and hope the lender doesn't call your mortgage.

Chances are the terms can be renegotiated, in return for a higher interest rate. Be sure to make your payments on time. Don't create any problems. After the first six months, lenders usually don't check owner-occupancy.

DEAR BOB: I read your recent reverse mortgage comments with great interest, as I am 68 and my husband is 79. If he dies first, although he is in great health, all I will have is Social Security income. We own our home free and clear. Should we get a reverse mortgage now?--Cherrine S.

DEAR CHERRINE: No. The upfront reverse mortgage fees are substantial. Although you could get a reverse mortgage credit line now for peace of mind, I would wait to see what happens.

DEAR BOB: My husband and I, ages 73 and 68, are thinking about taking out a living trust on our real estate and other major assets. We are contemplating making our daughter, plus one of our sons, successor trustees. Is this a wise decision to avoid probate?--Betty B.

DEAR BETTY: Yes. Everyone should hold title to their home and other major assets in a living trust. It avoids probate costs and delays. Equally important, if you or your husband becomes incompetent, it avoids having a court-appointed conservator or guardian.

Your adult daughter is an excellent choice for a successor trustee after you and your husband die. If you wish, your adult son could be either a joint successor trustee or a successor trustee if something happens to your daughter.

Consult an estate planning attorney to create your living trust. Unless your estate is complicated, the cost should be less than $1,000. Your heirs will thank you.

DEAR BOB: My parents want to sell their home. I told them that since they are 65, there is a tax break for up to $120,000. But I'm having a hard time finding details. Please send me more information.

--Julius S.

DEAR JULIUS: Where have you been for the past few years? The old "over 55 rule" $125,000 home-sale tax exemption was repealed in 1997.

But the good news is, effective May 7, 1997, Congress enacted new Internal Revenue Code 121, which is far better. There are no age restrictions. Any principal residence seller who has owned and occupied their home an "aggregate" of two of the five years before the sale can claim up to $250,000 tax-free home-sale profits.

A husband and wife, filing joint tax returns, can claim up to $500,000. Only one spouse must hold title, but both spouses must meet the occupancy requirements. For more details, your parents should consult their tax adviser.

DEAR BOB: I am 67 and renting an apartment. I am considering buying a two-bedroom condominium in a good neighborhood. If I buy and pay in full with no mortgage, can I get a reverse mortgage although I only have about $800 per month income? Then I could live without worry. Is a reverse mortgage only for houses? This condo purchase would take all my 67 years of savings.--Evaleyn F.

DEAR EVALEYN: You might not need to use all your savings to buy that condo. Fannie Mae offers a reverse mortgage for condominium purchases by senior citizens. Your monthly income is immaterial, but you will need a down payment. However, the Fannie Mae reverse mortgage can pay the balance. There will be no monthly payments.

When you move out, or die, the condo will be sold, and the reverse mortgage will be paid off from the sales proceeds. For details, please call Fannie Mae at 1-800-732-6643 (1-800-7FANNIE) to find a nearby Fannie Mae reverse mortgage lender. This is the only firm making reverse mortgages for property purchase.

DEAR BOB: My husband and I bought our home in 1988. We separated in 1993, and he moved out. Our divorce was final in 1995, and in 1997, he signed a quit-claim deed to the house to me. Two years later, I bought him out of the house for $60,000.

I refinanced the house in 1998. When I finally sell my house, what is the cost basis I use to determine my profit? Do I get a tax deduction in 1999 when I paid him the $60,000?--Jackie M.

DEAR JACKIE: Internal Revenue Code 1041 makes spousal transfers upon divorce tax-free. The general rule is the transferee (that's you) is treated as receiving a gift from the transferor (your ex-husband), so you take over his adjusted cost basis.

Sorry, you don't get a tax deduction for your $60,000 buyout payment. Of course, when you eventually sell your principal residence, you will be entitled to the $250,000 home-sale tax exemption. That's presuming you will have owned and lived in your home an "aggregate" of two of the past five years before its sale. Consult your tax adviser for exact details.

DEAR BOB: After reading your recent item about Bank One's biweekly mortgage plan to pay off existing home loans quicker, I phoned them. Though they don't charge an upfront fee, they are no different from any other institution offering biweekly mortgages.

Every two weeks they take a payment out of the borrower's checking account and hold that money until the regular mortgage payment is due. It is not a true biweekly mortgage.

Bank One makes a 13th payment each year and charges a $26 annual fee while earning interest on the borrower's money. Borrowers can do that themselves by adding one-twelfth their principal and interest payment to each monthly payment.--Neil P.

DEAR NEIL: You are absolutely correct. But the problem is most borrowers are not disciplined enough to add one-twelfth of their regular monthly principal and interest amount to their monthly mortgage payment.

I did not intend to recommend Bank One's biweekly plan, but a reader offered it as an alternative to the costly biweekly mortgage schemes some lenders try to get their borrowers to accept.

Readers with questions should write Robert J. Bruss at P.O. Box 280038, San Francisco, Calif. 94128.

{copy} 1999, Tribune Media Services Inc.