QDEAR BOB: Thank you for recommending that my husband and I set up a living trust for our major assets. The first lawyer we consulted said living trusts were a rip-off. However, a close friend recommended her lawyer, who set up our living trust and deeded our four properties into it. All went well until my husband became afflicted with Alzheimer's disease. He quickly deteriorated and, after consulting our two adult children, we agreed he should be moved to a convalescent home specializing in Alzheimer's.

Unfortunately, such care is not paid by Medicare, so I sold one of our rental properties. Because of the living trust, I had no problem doing so. Then he suffered a serious stroke and had to be moved to a higher, more expensive level of care. Again, I had to sell a rental property. As successor living trust trustee, I had no problem transferring title without his signature. Then he died. It was a blessing because he no longer recognized me or his children. After his died, the lawyer advised me how to clear the titles to our two remaining properties, one of which was out-of-state, without probate. Thank you for telling us about living trust benefits, which made this ordeal so much easier financially.

-- Doris H.

ADEAR DORIS: Thank you for sharing your experience so we can see how your living trust made the situation more bearable. Your circumstances show how living trusts allowed you, as successor trustee, to manage living trust assets when one co-trustor is unable to act.

Equally important, when your husband passed on, probate costs and delays were avoided, even for that out-of-state property.

DEAR BOB: I received notice from my mortgage lender about how I can save thousands of dollars by paying half of my mortgage payment twice a month instead of paying the entire payment once a month. The cost of setting up the plan is $300. When I called the lender to inquire, I was told that if I do this on my own and send in a partial payment every two weeks, my payment will be put into a "holding account" until I have paid a full month's payment. As I understand the biweekly mortgage, my loan will be paid off in about 22 years and I will save lots of interest. Do you recommend this plan?

-- Derek G.

DEAR DEREK: No. That $300 biweekly mortgage setup fee is a scam. You can accomplish the same thing yourself and keep full control.

The basic idea of a bi-weekly mortgage is to make the equivalent of 13 mortgage principal and interest payments every 12 months. The result, depending on your mortgage's age and interest rate, is to cut the loan term to about 22 years and save thousands of dollars in interest.

To achieve the same result, without involving a third party, just divide your mortgage principal and interest payment by 12. Disregard any amount you pay into an escrow account for property taxes and insurance. Then add the result to your regular monthly mortgage payment. Be sure to clearly indicate the extra sum is for principal reduction.

However, it is worthwhile to make extra mortgage principal payments only if you plan to stay in your home for a long time. If you expect to sell in a few years, you won't save much mortgage interest by making extra principal payments each month.

DEAR BOB: My husband and I missed out on buying our first home while mortgage interest rates were lower. However, we met a mortgage broker who offers a low fixed-rate mortgage for seven years. After that, it converts into an adjustable-rate mortgage. The index is based on the one-year Treasury bill. What worries me is there can be "negative amortization," which, I think, means we might owe more principal than we originally borrowed. Is an adjustable-rate mortgage too dangerous now? -- Sophia E.

DEAR SOPHIA: Lots of prospective home buyers missed the boat by failing to buy a house or condo while mortgage interest rates were at rock bottom. Interest rates are still low and an adjustable-rate mortgage locked-in for seven years can be a good deal for you.

However, I don't like that negative amortization feature. It means your ARM interest rate is adjusted frequently, perhaps every month, but your monthly payment is fixed. Any unpaid interest is added to your loan's principal balance. That's not good for you.

Shop around. You can find ARMs with interest rates locked for three, five, seven and even 10 years without negative amortization.

DEAR BOB: We have locked in a 6.12 percent interest rate on our home loan refinance. However, it requires us to pay a one point loan fee. The mortgage broker said this loan fee is tax-deductible. I recall you saying something about nondeductible loan fees. Who is right? -- Herb H.

DEAR HERB: I'm right. Your mortgage broker is wrong. Perhaps he or she is thinking of a home acquisition mortgage in which the loan fee is fully tax-deductible in the year of the home purchase.

Because you are refinancing, any loan fee points you pay can only be deducted over the life of the mortgage.

For this reason, I suggest you pay a slightly higher, fully tax-deductible interest rate but don't pay any loan fee points on a home loan refinance. Consult a tax adviser for details.

DEAR BOB: We are shopping to refinance our home loan, which has a 6.75 percent interest rate. My wife found a fixed-rate mortgage on the Internet at 5.75 percent, which seems like a good deal because it requires no loan fee payment. It was from one of those Internet lenders that advertise: "We make lenders compete for your loan." So we filled out all the online application forms. Then we waited. And waited. There wasn't any phone number to call. So we repeatedly e-mailed the lender almost every day. No reply. Unfortunately, we don't have the name of the actual mortgage lender. Now we're worried it was all a scam and somebody got all our personal credit information and we might become fraud victims. Are Internet mortgages a good deal?

-- Rich H.

DEAR RICH: Although I personally obtained an excellent home equity loan on the Internet, I dealt directly with a major nationwide bank and was satisfied. However, dealing through one of those Internet mortgage brokers that shops your loan application among dozens of lenders is a different matter. I have received many complaints about all the major Internet lenders, including the one you named.

To put matters bluntly, I wouldn't give my personal financial information to any Internet mortgage broker unless I knew exactly which actual lender I was dealing with and unless I had a phone number to call in the event of problems.

DEAR BOB: I am one of those "cash challenged" home buyers you often mention. Fortunately, I'm working with an excellent mortgage broker. She found me an outstanding fixed-rate mortgage and locked in my interest rate. Because I only have 5 percent for the down payment, I will have to pay private mortgage insurance. However, if I pay an extra 1/8-percent interest on my mortgage, I can avoid the PMI cost. Is this a good deal? -- Breen W.

DEAR BREEN: Yes. If you pay the PMI premium, it will add about 1 percent extra to your mortgage cost. And, as you know from reading this column, getting rid of PMI when you build up more than 20 percent home equity can be a nightmare.

Another advantage of paying the extra 1/8-percent interest is all that interest will be tax-deductible for you. Consult a tax adviser for details.

DEAR BOB: I live in a wonderful but older condo complex of 78 units. It was a garden apartment development built around 1965 that was converted to condos in 1980. The board of directors recently voted to replace our old single-pane windows with double-pane, super-duper energy-efficient windows. I agree that's a good idea. But they levied a $4,000 special assessment on each condo owner without any vote of the members. When I inquired, I was told no vote is required because if the cost of new windows is taken from our reserve account, we will then be in a dangerous financial situation. Many of my fellow owners and I say the purpose of our reserves is to pay for major replacements such as this. Can the directors levy a $4,000 assessment on each condo owner without a member vote when we have plenty of money in the reserves? -- Grace A.

DEAR GRACE: Without reading your condo covenants, conditions and restrictions and bylaws, I can't give you a legal answer as to whether a vote of the members is required. Each condo association has different CC&Rs and by-laws.

However, I must commend your condo board of directors for maintaining substantial reserves, which, you say, are adequate to pay for the window replacements. Having at least $4,000 per unit in reserves is superb.

But the directors should have considered the financial situation of the homeownr's association members. If many of the members can't afford to pay a $4,000 special assessment, provisions should be made to spread out the assessment payments for members who apply.

DEAR BOB: I own two residences. One is a condo where I spend the winter months. I spend the summers in my other residence. I am 78 and a widower. I have decided I want to live full time in my winter condo. My summer home meets the ownership and occupancy two-out-of-

last-five-years tax law tests. If I sell it now, can I sell my other home in spring 2005 so I can then move to an assisted living facility?

-- Norman W.

DEAR NORMAN: Not if you want to take advantage of the full $250,000 tax exemption. Internal Revenue Code 121 can be used only once every 24 months, even if you meet its two-out-of-last-five-years principal-residence ownership and occupancy tests.

If you sell your "summer home" in 2004, you must wait at least 24 months until 2006 to sell your other home if you want to claim the $250,000 for the profits of its sale. Consult a tax adviser for details.

DEAR BOB: I recently rented my condo, where I lived before I married three months ago, to my mentally retarded older brother. He works as a supermarket bag boy. We are so proud that he has held a steady job for the last 14 years. However, he is financially unable to pay the full market rent for the condo. So he pays me $500-per-month rent even though comparable condos in the complex rent for about $1,200 per month. In this situation, can I claim condo rental deductions, such as the monthly condo fee, mortgage interest, property taxes, landlord's insurance, depreciation and repairs? -- Stephanie H.

DEAR STEPHANIE: Unfortunately, the IRS isn't so appreciative of your effort to help your brother.

You are required to report the $500-per-month rent received on Schedule E. That is also where you can deduct the mortgage interest and property taxes paid. But the other expenses you list are not supposed to be deducted when a below-market rent is charged to a relative. Consult a tax adviser for details.

DEAR BOB: I was under the impression that when I reached 20 percent home equity, my private mortgage insurance premium would be automatically canceled. When I contacted my mortgage company recently, I was told I cannot cancel PMI unless I have at least 24 months of on-time mortgage payments. I mistakenly forgot to make my payment one month, paid the late fee, and have been on time every month except that one. How can I force my mean, nasty, hostile mortgage company to cancel my PMI? -- Nate K.

DEAR NATE: The only time PMI premiums are automatically canceled occurs when you pay down the original mortgage balance by 20 percent. That usually occurs in about the 10th year of most home mortgages.

However, many mortgage lenders will cancel PMI premiums if the mortgage is at least 24 months old, the borrower has a perfect on-time payment record, and there is at least 20 percent home equity as shown by a new appraisal paid for by the borrower.

Unfortunately, your one late payment proved costly. I suggest you call your lender, ask to talk with a supervisor, discuss your exemplary payment record except for your one forgetful month, and beg for an exception to the lender's harsh policy.

If that doesn't work, you can try a successful tactic reported by several PMI borrowers. They made their loan payments on time and then sued their lenders in small-claims court for refund of their PMI premiums. Of course, the lender won't show up. After a few months of default judgments, most lenders give up and cancel the PMI premiums.

DEAR BOB: I stupidly co-signed a mortgage about three years ago for a dear friend to help her buy a condo. She makes all the mortgage payments. Unfortunately, sometimes she's late with her payments, thus harming my credit record. I've begged her to pay on time, but she still is often tardy. I had to go on the title with her to help her get the loan. If I give her a quitclaim deed, will I then be off the mortgage obligation too? -- Rick H.

DEAR RICK: No. You are legally obligated to make the mortgage payments even if you quitclaim your title interest in that condo. Until your friend sells the condo or refinances her mortgage without you, you will still be obligated as a mortgage co-signer.

DEAR BOB: I am 80 years old and my wife is 75. We both are in good health. Our living will says "pull the plug" in case of a vegetative state or catastrophic illness. But what if one of us gets Alzheimer's or dementia? Wouldn't it be wise for us to deed our home to our three children now rather than deplete all our assets in nursing home costs if they are needed? -- Roberts P.

DEAR ROBERTS: I presume you want to retain a joint life estate in the house. If you deed your home to your adult children now, you could be creating unexpected problems. Deeding property to potential heirs before death has many drawbacks.

For example, suppose one incurs a large judgment or a divorce occurs and the ex-spouse claims an ownership interest in your house? Consult a tax adviser for details.

DEAR BOB: More than two years ago, we had a minor roof leak, which was repaired by a professional roofer. We observed no problems with the roof since then. When we sold our home last February, we didn't say anything about the roof repair when we filled out the disclosure form for our buyers. However, when a heavy rain occurred in late April, the roof leaked in the same spot. The buyers called us because they discovered the roof repair. We referred them to the roofer who said there was no guarantee on his repair work two years ago. Now the buyers claim we failed to disclose the roof repair two years ago. Do we have any obligation to them?

-- Horst S.

DEAR HORST: No. Home defect disclosure forms ask if the seller is aware of the itemized possible problems listed on the form. At the time you sold your home, the roof didn't leak.

The fact the roof leaked in the same spot two years after the roof was professionally repaired doesn't make you automatically liable to the buyers for damages.

Unfortunately, the buyers might sue you in small-claims court for the cost of roof repairs. If that happens, to protect your good credit, if you can work out a reasonable settlement, it might be smart to pay the buyers rather than have a judgment recorded.

DEAR BOB: On our mortgage good-faith estimate there is an $81 tax service fee, $35 wire transfer fee, $18.50 flood certificate fee, $430 underwriting fee, $300 processing fee, $50 document preparation fee, $40 notary fee, $100 FedEx fee, plus $3,750 to the mortgage broker. Which of these are disputable? It seems to me that $100 FedEx fee is ridiculous. -- Beth E.

DEAR BETH: The definition of a "junk" or "garbage" fee is a borrower charge that is not paid to a third party for a legitimate service, such as an appraisal. Of the fees you listed, the $430 underwriting fee and $300 processing fee are negotiable junk fees. The estimated $100 FedEx fee is high. Ask to see the actual FedEx bill when your loan closes and pay only that fee. The $50 document preparation fee and the $40 notary fee might be junk fees. But it's not worth your time negotiating them if you are otherwise obtaining a favorable mortgage.

DEAR BOB: Recently my wife and I spent a weekend visiting a timeshare development. We were pleasantly surprised. There was no high pressure to buy. But we recall your frequent admonitions not to buy timeshares so we didn't buy. However, we have talked several times since then about the pros and cons of timeshares. Are all timeshares a swindle?

-- Ron W.

DEAR RON: As I often say, don't buy a timeshare with money you will ever need again. Getting into a timeshare is easy. Getting out is almost impossible except at a large loss. There is nothing favorable I can say about timeshares.

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

{copy} 2004, Inman News Service