QDEAR BOB: You often say senior citizens should not take out a reverse mortgage unless they plan to stay in their home at least five years. I am 87, and my wife is going on 83. We face the possibility that we might need reverse-mortgage income to tide us over. Do you think we should get a reverse mortgage so we can stay in our home?

-- Curtis P.

ADEAR CURTIS: I suggest that senior citizens obtain a reverse mortgage only if they plan to stay in their homes at least five years because of the high upfront loan costs. If you remain in your home for just a year or two, the total annual loan cost that reverse-mortgage lenders must calculate for you is extremely high. However, if you stay more than five years, the effective interest rate becomes reasonable.

If you and your wife are in reasonably good health for your ages and you plan to stay in your home at least five more years, you are excellent reverse-mortgage candidates. DEAR BOB: My friend and I signed a one-year lease for June 2002 to June 2003. Unfortunately, my friend died in October 2002. I am now a permanent resident in a long-term-care nursing home. The apartment was vacated on Oct. 31, 2002, and the key was returned to the manager. Now the landlord real estate corporation demands the rent be paid through May 31, 2003. It is holding a $1,000 security deposit. Is this legal?

-- James O'M.

DEAR JAMES: No. Virtually every state has a statute or court decision requiring a landlord to mitigate damages when a tenant breaks a lease. Your reason for moving out is obviously justified.

The landlord has a duty to use normal methods to re-rent the vacated apartment after the key was accepted by the manager. If the apartment can be re-rented only at a lower rent, however, you could be liable for the rent difference until May 31, 2003.

If your landlord failed to account for your security deposit, you might be entitled to return of the full deposit. However, you owe rent until the apartment was or could have been re-rented, and that rent amount can be deducted from your security deposit.

DEAR BOB: Several weeks ago, a reader asked a question regarding joint tenancy and tenants in common. What is the difference? I ask because my wife and I hold title to our home as tenants in common. -- Jack R.

DEAR JACK: There is a huge difference. Tenants in common each own their property share as individuals and can pass that share by will when they die to anyone they wish.

But joint tenancy with right of survivorship means the last surviving joint tenant owns the entire property. Each joint tenant owns an equal share (tenants in common can own unequal shares), and a joint tenant's will has no effect on joint tenancy property.

An advantage of joint tenancy is that no probate is required, whereas tenancy in common requires probate court action when a tenant in common dies. Consult a lawyer for details.

DEAR BOB: I am at my wit's end trying to straighten out my mortgage and its escrow impound account. This has been going on at least six months.

Every time I call and talk with a supervisor, I am assured my account will be fixed. But nothing happens. I am being overbilled about $225 per month.

Other than taking my lender to local small-claims court each month for its error, is there some government agency to which I can complain? -- Virginia M.

DEAR VIRGINIA: Yes. Every loan servicer is regulated by a state or federal government agency. Some agencies are more effective than others. Next time you call your lender, ask who owns your mortgage and which government agency regulates the lender. You must be told the answers.

Most loan servicers are very good. But a few are dishonest crooks that should be put out of business. Only if you take action and complain to the appropriate state or federal government regulator will your lender either shape up or be disciplined for mismanaging your money.

DEAR BOB: My husband died in August 1997. Because of financial hardship, I had to put our house, which we bought in 1989, up for sale. It was on a lease-option from January 1999 to July 2002, when the tenants exercised their option to buy. As I have only about $25,000 annual income, it will be hard for me to pay the capital gains tax. I did not live in the house two of the last five years before its sale. Is there any way to avoid capital gains tax? -- Rose M.

DEAR ROSE: The only way to avoid capital gains tax on the sale of a rental property is to make an Internal Revenue Code 1031 tax-deferred exchange for another rental or investment property of equal or greater cost and equity.

Because you sold the rental house last July, it's too late to make such an exchange. I hope you didn't spend all the cash you received from the sale so you will have money available to pay the capital gains tax.

DEAR BOB: Last June my husband and I saw a list of HUD foreclosures advertised for sale in the newspaper. We found one not far from where we lived. It seemed like a good deal.

A HUD-approved broker showed it to us. Because the utilities were turned off, we couldn't inspect it very well. The broker said it would be a waste of money for us to hire a professional inspector unless we placed the winning bid.

Being total stupid novice idiots, we placed a bid. It was accepted.

After we got possession, when we wanted the gas and electricity turned on, the gas man refused to turn on the gas because, he said, the furnace was in dangerous condition. We had to buy a new furnace. Then we discovered other problems, such as mold in the second floor from a leaky roof, fuses that had to be replaced with circuit breakers before we could get fire insurance, and a leaky roof that needed replacement.

Isn't there a law requiring FHA and VA to disclose defects when they sell foreclosed houses that are overpriced junk? -- Torrina H.

DEAR TORRINA: When buying FHA and VA foreclosed houses, the rule is: Buyer beware. The unfortunate truth is that the Housing and Urban Development Department (which sells FHA foreclosed houses) and the VA usually know the true condition of the houses they sell, but they are not required by law to disclose what they know.

When a private seller fails to disclose home defects, the seller can be liable for damages to the buyer. But because HUD and VA are government agencies, they need not disclose known defects.

DEAR BOB: My wife and I applied to refinance our mortgage last September. I know lenders are busy with refinancing, but isn't five months a bit too long? We have excellent credit and no debts other than our current mortgage. The lender charged our credit card $20 for a credit report and $390 for a "property evaluation fee." But we still don't have our refinanced mortgage. Do we have any recourse other than suing the lender for a refund in small-claims court?

-- Dirk B.

DEAR DIRK: Home mortgage refinances should take no longer than 30 days from application to loan closing. The best lenders can complete refinances in two or three weeks.

You definitely have a bad lender. I presume you've called many times without results. Something is wrong.

File a formal complaint with that lender's government regulator. Also, you can sue in small-claims court for a refund of your modest fees or protest to your credit card company and demand a credit refund.

Fortunately for you, mortgage interest rates have declined since you applied to refinance. If I were you, I would start fresh with an honest lender who wants your business.

DEAR BOB: My son just bought a house. His monthly payment is $1,800. I hope to give him a check every other month for $300 to help reduce his payments to be applied to principal only. Can the lender holding his mortgage force him to change to payments every two weeks and charge him a fee for doing so? -- Pauline F.

DEAR PAULINE: It's nice of you to help your son reduce the principal on his mortgage. You are very wise to restrict your gift payment to reducing his principal, thus saving him interest over the life of his home mortgage.

The lender cannot force your son into a biweekly mortgage. Most of those payment plans, some even promoted by reputable lenders, are scams. The reason is that they charge an upfront fee, typically $295 or higher, plus $6 per month, for what borrowers can accomplish on their own.

The result is that the lender electronically withdraws one-half of the current monthly payment every two weeks from the borrower's checking or savings account. That is the equivalent of making 13 monthly mortgage payments every 12 months. That means a 30-year loan will be paid off in about 21 years.

By giving your son $300 every other month, you are doing the same as making an extra mortgage payment for him every year. Designating your $300 bimonthly payments for principal reduction will accomplish the same thing as a biweekly mortgage.

DEAR BOB: I live in a condo of 45 units. Currently, there are five rental units. But I am concerned there might get to be too many rental units and this will hurt our ability to sell in the future. What can we do to prevent an increase in the number of rentals? -- Jean K.

DEAR JEAN: As you probably know, when the percentage of renters in a condo building rises above 20 to 25 percent, most lenders stop writing mortgages in that complex. The reason is that where there are too many renters, the maintenance quality often declines, and foreclosures result.

Now is the time to act, while 40 of the 45 units are owner-occupied. It will probably take a bylaw or covenants, conditions and restrictions amendment to restrict rentals. Your homeowners association should consult a lawyer experienced in condominium law.

Another alternative I've recently learned about, which is much easier, is for the homeowners association to impose a monthly "rental supervision fee" of $100 or $200. Although most condo renters are well-behaved, some get out of hand, and there is nobody to supervise them.

By imposing a "tax" on condo rentals, or raising the monthly assessment for rental units, the homeowners association can quickly convey the message to your fellow condo owners that rentals are not in the best interests of the condo members.

DEAR BOB: Three years ago, my father gave his house to my sister and me. The house cost him $80,000 in 1955. We recently sold it for $299,000. My dad's lawyer says we must pay capital gains tax on the $219,000 difference between his cost and the sales price.

We hate to pay this tax of about $40,000 because the sales proceeds will be used to pay for our father's care in a nursing home. Didn't you write something about paying capital gains tax only on the increased value after taking title? -- Andrea H.

DEAR ANDREA: I've said many times it is better to inherit property than to receive it as a gift before the owner dies. The reason is that an heir receives property at its current market value on the date of death. But donees, such as you and your sister, take over your donor father's old low cost basis.

Unfortunately, your dad's lawyer is correct. As recipients of a gift, your basis is the same as your father's $80,000 cost basis, plus any capital improvements he added during ownership. Your father would have been better off selling the house and claiming his $250,000 principal-residence-sale tax exemption. In the future, consult your tax adviser before making a real estate transaction.

DEAR BOB: My wife and I own a small apartment complex we rent to students in a college town. Can we sell the apartment building and make a tax-deferred Internal Revenue Code 1031 exchange into real estate investment trust (REIT) shares? -- Charles H.

DEAR CHARLES: No. Trading investment property real estate for shares in a REIT does not qualify as a "like kind" tax-deferred exchange. The reason is you would be trading real property for personal property (the shares).

However, you can make a Starker delayed IRC 1031(a)(3) tax-deferred exchange into a partnership rental property of 10 or fewer investors.

For example, my friends Dory and Andy sold their rental house and traded their net equity in a Starker exchange for part ownership of an Applebee's restaurant building. Every month they receive a handsome check for their share of the net rent. You could make a similar Starker exchange into a management-free investment like that.

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} 2003, Tribune Media Services Inc.