QDEAR BOB: I am retired and have owned my home since 1966. My girlfriend has lived in my house for the past three years. We plan to marry soon and I expect to put my home up for sale in February. Will my girlfriend qualify for that $250,000 tax exemption? Before selling the house, do we need to get married and file a 2003 joint tax return to qualify? Where can I find a copy of Internal Revenue Code 121, to which you frequently refer? -- Earle

ADEAR EARLE: You qualify for the $250,000 tax exemption on the profit from the sale of a principal residence as stated in Internal Revenue Code 121 because you have owned and occupied your principal residence an aggregate two of the five years before its sale. Your girlfriend does not qualify for an additional $250,000 tax exemption because she has not owned and occupied the home for the required two of the five years before its sale.

Your girlfriend can qualify for the extra $250,000 exemption if she marries you and if you both file a 2003 joint tax return for the year of the sale. IRC 121(b) (2)(B) says only one spouse need hold title to the residence on the date of its sale. To qualify for up to $500,000 in tax-free profit, both spouses must meet the two-year occupancy test.

You can find a copy of Internal Revenue Code 121 at your public library or county law library.

DEAR BOB: I hold the mortgage on my daughter's house, which she bought from me several years ago. I am 85 and would like to forgive her mortgage before I die. How do I do this? I am concerned about a family member who will try to collect on the remaining mortgage payments. -- Lucille S.

DEAR LUCILLE: Depending on whether you hold a mortgage or a deed of trust on your daughter's home, you can record either a mortgage satisfaction or a deed of reconveyance and return the promissory note to your daughter. Then none of your nasty relatives can demand any payments from your daughter.

It sounds as if you have a troublesome family situation. Be sure your will or living trust is up to date. Consult a lawyer to be certain everything is handled to your satisfaction.

DEAR BOB: My sister and I jointly own our house, with the title in both our names. If we sell the house, will we each receive a $250,000 tax exemption, or is just one $250,000 tax break available? -- Elizabeth C.

DEAR ELIZABETH: If you and your sister each owned and occupied the principal residence an aggregate two of the five years before its sale, you each qualify for up to $250,000 in tax-free profits.

DEAR BOB: We own a rental house with a high mortgage, but we want to sell another rental house. Can we sell the second rental house and make a tax-deferred exchange to pay down the high mortgage balance on the other rental house to avoid tax? -- Edward DeL.

DEAR EDWARD: No. An Internal Revenue Code 1031 tax-deferred exchange requires selling one property held for investment or business use and acquiring another such property of equal or greater cost and equity. Paying down the mortgage on a currently owned rental property won't qualify for a tax-deferred exchange.

DEAR BOB: My mother is 80 and has lived in her home for more than 50 years. I was never aware of reverse mortgages. My sister lives with my mother. The house needs lots of work. Are reverse mortgages available where they live in South Carolina? -- Glenda C.

DEAR GLENDA: Reverse mortgages are available everywhere in the United States. The three nationwide providers are FHA, Fannie Mae and Financial Freedom Senior Funding Corp. Each offers different programs. All these lenders offer senior citizen homeowners choices of a lump sum, credit line (except in Texas), lifetime income or any combination.

DEAR BOB: I bought my house in December 2001. Since then, the house has appreciated in market value by at least $50,000. With a 5 percent cash down payment, I still have to pay $96 per month on my private mortgage insurance premium. With more than $50,000 equity, my lender has a safe mortgage. Why should I still have to pay this premium? -- Phongphisuthi R.

DEAR PHONGPHISUTHI: PMI enabled you to buy your home with a 5 percent down payment. Before canceling PMI, mortgage lenders want to be certain they don't have a risky loan due to a temporary blip in your home's market value.

Some mortgage lenders, such as Fannie Mae and Freddie Mac, will cancel PMI after at least 24 months of on-time mortgage payments if you have at least 20 percent equity from appreciation in market value, home improvements or paying down your mortgage balance. Ask the loan servicer that owns your mortgage what its rules are for canceling PMI.

DEAR BOB: My son and daughter-in-law bought their first home a few months ago, just before he was laid off from his job. He was able to find a comparable temporary job at similar pay. If he should be unable to make the mortgage payments, I told my son to let me know and I would make the payments for him. Their monthly payment is $1,672. If I make the payments for a while, can I deduct the mortgage interest and property taxes on my personal tax returns? -- "Dear Old Dad"

DEAR DAD: If you help them with the mortgage payments, you will not be entitled to any itemized income-tax deductions, presuming he is not your dependent. The reason: You are not legally obligated to make the monthly mortgage payments.

However, if you need to make the payments, your son and daughter-in-law can add you to their property title, thus making you legally obligated to make the mortgage payments and thereby entitling you to the income-tax deductions for the payments you make.

By the way, this problem most frequently occurs in exactly the opposite situation, where a son or daughter makes the mortgage payments for parents. Consult a tax adviser for details.

DEAR BOB: When I applied to refinance my home loan about a year ago, I was told my FICO (Fair, Isaac & Co.) credit score was only 580, so I would have to pay an above-average interest rate. The mortgage officer advised me to clean up my credit and reapply later. Now I've straightened everything out, am current on my credit cards, and want to refinance to lower my 8.25 percent mortgage interest rate. How can I find out my FICO score before I apply for a mortgage? -- Ryan H.

DEAR RYAN: Congratulations on cleaning up your credit. Unfortunately, it takes many months of on-time monthly payments to improve a FICO score.

The best place to check your FICO score, and obtain a copy of your credit report, is on the Internet at www.myfico.com. The fee is $12.95. No matter how high your FICO score, you will be informed of how to improve it. If there are any errors on your credit report, you will be told how to correct them.

DEAR BOB: I am 73 and very interested in those reverse mortgages you often discuss. My question is: What happens when I move out of my home? Does the reverse mortgage lender take my house? It is worth at least $300,000.

I just need about $25,000 for home repairs and to pay off credit card debts. Also, it would be comforting to have a credit line for emergencies or perhaps a new car.

However, I have severe diabetes and am not sure how long I will be around. If I die, or have to move to a convalescent home, does the reverse mortgage lender get all my home equity? -- Mavis T.

DEAR MAVIS: If you're in poor health, I do not recommend a reverse mortgage because the upfront loan fees are high if you only use a small part of your reverse-mortgage entitlement.

However, if your doctor expects you to remain in your home at least five years, then a reverse mortgage can be a very good deal. As you probably know, the sole security for reverse-mortgage repayment is your principal residence. You never have any personal liability.

Presuming your doctor says you are likely to stay in your home at least five years, then a reverse mortgage can solve the financial problems you described. Reverse-mortgage homeowner borrowers can choose a lump sum, credit line (except in Texas), lifetime income, or any combination.

When you permanently move out of your home, or die, the reverse mortgage balance must be repaid. This can be accomplished by either selling the home or, if your heirs wish to keep the home, refinancing to pay off the reverse mortgage.

DEAR BOB: Thank you for the information on a living trust to avoid probate costs and delays. As you suggested, we contacted our lawyer for more details, but he tried to talk us out of a living trust.

Because my husband is a construction general contractor, the lawyer said the advantage of probate proceedings is that they would cut off the rights of creditors. This is a big deal for us because we often have disputes with subcontractors over the quality of their work. Do you think a living trust is right or wrong for us? -- Kinsey T.

DEAR KINSEY: Your lawyer raises a valid argument against living trusts. By not going through probate proceedings, if your husband dies first, creditor claims are still valid against the living trust heirs, presumably you. However, as living trust successor trustee, you can elect to have your husband's estate probated to cut off creditor claims.

I think a living trust solves more potential problems than it creates, even in your unusual situation.

DEAR BOB: I have refinanced many times on my home loans. When the new loan is funded, the borrower pays interest until the end of the month. This makes sense, but interest is also paid on the old loan until the lender receives the funds, usually two to four days later. Several times I have refinanced with the same lender. I know it pays off my old loan right away, but I'm always charged interest on both loans for several extra days. What can a borrower do to stop this procedure? -- Richard McC.

DEAR RICHARD: Unfortunately, this situation occurs every day, and there is almost nothing a refinancing borrower can do. The interest on your old and new mortgages will often overlap for two to four days.

Unless you have a home loan for several million dollars, the overlapping interest is not worth fighting about. Just figure it is a cost of refinancing to get a lower interest rate.

DEAR BOB: For the last 15 years, I have owned a rental house. During that time, I've had at least six tenants. None ever complained about or showed any signs of illness because of living in my rental house.

But about five months ago, I rented the house to a young couple. Almost immediately after moving in, the husband became ill and his doctor couldn't figure out the problem. When he went on a 10-day business trip, however, he was fine. When he returned to the house, he became ill again. His wife, who was not affected, read a newspaper article about toxic mold and decided to have tests done. The inspector found toxic mold under a crawl space. The couple has since moved out and I gave them a full refund of their deposit.

My wife and I moved into the house, but we have had no health problems. Where did this toxic mold problem come from all of a sudden? -- Keven S.

DEAR KEVEN: Toxic mold has probably been with us longer than we knew. It is usually caused by moisture trapped in damp spaces, such as under homes and inside walls, often due to roof or wall leaks. Most people are not affected by it, but a few can become violently ill.

For example, friends of mine rented a house. The husband moved in while his wife and baby were away visiting her parents. The husband didn't notice anything wrong.

But when his wife and baby returned a week later, the wife immediately became ill and had to be taken to a nearby hospital where she spent the night. The next day, upon returning to the rented home, she again became ill. For her health, they moved out. A later inspection revealed toxic mold in that house.

DEAR BOB: We recently bought our first home. The day before the closing, our buyer's agent insisted we re-inspect the home, which we did. The sellers had moved out and, other than a dirty kitchen, we didn't notice anything wrong.

The next day the sale closed and we received the keys to our home. Immediately upon entering our home, my wife noticed the sellers had removed the dining room chandelier and installed a cheap light fixture.

We phoned our agent, who called the seller's agent, who called the seller. The sellers claim they were entitled to take the chandelier because it wasn't mentioned in the sales contract. Who is right? What should we do? -- Dennis R.

DEAR DENNIS: The chandelier was a fixture, permanently attached to the structure, so it is automatically included in the sale unless specifically excluded in the sales contract.

Years ago, my parents had a similar situation. I was helping them move into their condo. My mother was a mild-mannered woman who never raised her voice, but I still recall her entering the condo and screaming, "Where is the dining room chandelier?"

For some reason, house and condo sellers think they are entitled to remove the dining room chandelier. Legally, unless it is specifically excepted in the sales contract, the chandelier must remain because it is a fixture that is permanently attached to the structure.

In my parents' situation, the real estate agents got the condo seller to reinstall the chandelier, which is there to this day. If your seller refuses to return the chandelier, your best recourse is to sue the seller in small-claims court for the cost of replacing the chandelier.

DEAR BOB: My family and I have been in the mortgage brokerage business for more than 20 years. I've been following your comments about mortgage "junk" fees. I agree with most of your comments. However, some mortgage lenders charge unexpected fees, such as for processing, which we mortgage brokers pass along to borrowers. If we don't, we lose our loan profit.

My suggestion is for borrowers to compare the annual percentage rate (APR) on mortgage offerings. The lender must disclose the true APR to borrowers, and it must include the various junk or garbage fees, such as administration, processing, underwriting and other creative fees charged by the actual lender. -- Rich W.

DEAR RICH: Mortgage brokers who shop for the best loan for their borrowers are often caught by unexpected fees charged by the actual lenders. However, mortgage brokers should know what junk loan fees the lender will attempt to charge. If the mortgage broker didn't disclose those fees on the good-faith estimate of loan charges, the borrower is free to borrow elsewhere.

DEAR BOB: I am a 66-year-old owner of a townhouse. I recently applied for a reverse mortgage and went through the FHA screening process. I also paid for a termite inspection.

However, my broker said I can't get a reverse mortgage because the builder failed to comply with FHA-HUD requirements. The builder's lawyer refuses to bring the condo complex into compliance with FHA-HUD requirements. Do I have any recourse? -- Michael O.

DEAR MICHAEL: There is no law requiring a condo complex to comply with FHA-HUD construction requirements. Maybe your building complies but the builder elected not to endure the FHA-HUD compliance paperwork and other hassles.

Unless there was misrepresentation, it appears you have no alternative but to obtain a non-FHA reverse mortgage.

DEAR BOB: Your recent article advising consumers not to trust mortgage lenders was right on target. In October, I refinanced my home loan. My old lender attempted to defraud me of $2,456.31 by charging me a prepayment penalty after my 36-month prepayment penalty period expired. Only after I complained did the lender cancel the charge.

I doubt my lender's attempt to cheat me during the payoff process was unique. I thought you and your readers should know. -- Hal B.

DEAR HAL: Thank you for sharing your experience. Your lender is one of the nation's largest and, in my opinion based on frequent complaints, one of the most dishonest lenders. I am not surprised it attempted to charge you a prepayment penalty when it was not entitled to receive it.

Every time I mention that lender's name, however, it denies the charges or claims that it was an honest error, quickly corrects the problem, and threatens to sue me if I don't retract the item. Although I want to name your lender, I don't need the grief that it often causes.

Readers with questions should write Robert J. Bruss at P.O. Box 280038, San Francisco, Calif. 94128, or contact him via e-mail at robertjbruss@aol.com.

{copy} 2002, Tribune Media Services Inc.