Q DEAR BOB: Ever since you began writing about senior citizen reverse mortgages, I have saved every article. Now I'm ready to get such a mortgage. On the Internet, I filled out the requested forms for information and within 36 hours four companies responded. One agent said there is little difference between one reverse mortgage company and another. Another company wants a $35 per month service fee, but a different company wants only $25 per month. What about termite inspections and maintenance? How stable are these reverse mortgage companies? Could they go broke? -- Tom L.
A DEAR TOM: There are three nationwide reverse mortgage lenders: FHA, which is the most popular; Fannie Mae; and Financial Freedom Plan. Their reverse mortgages are originated by local mortgage brokers and mortgage bankers, so those were probably the people who contacted you.
The safest place to find a reliable reverse mortgage originator in your area is on the Internet at www.reversemortgage.org, which is operated by the National Reverse Mortgage Lenders Association in Washington. If a reverse mortgage originator is not an NRMLA member listed on that Web site, watch out.
There are big differences among the three nationwide reverse mortgage plans. FHA has the lowest limits, varying by county. Fannie Mae has a $333,700 limit, but Financial Freedom Plan has no maximum and is usually best for owners of expensive homes. I don't think you need worry about the financial stability of these major lenders.
All the reverse mortgage lenders charge monthly fees of about $30, which comes out of your home equity, not out of your pocket.
When your reverse mortgage is originated, the lender wants to be sure your home is in reasonably good condition, so a termite or other inspection might be required.
The cost of any necessary repairs, such as a new roof, can be paid with a lump sum advance from your new reverse mortgage.
DEAR BOB: When my husband and I married, we each owned a house. I sold mine and moved into his. However, my name is not on the mortgage or the title. I've heard that in the unlikely circumstance he should pass away unexpectedly, I might have some legal hurdles regarding ownership of his house. Is this true? -- Kitty W.
DEAR KITTY: Yes. Because your name is not on the title to his house, if your husband dies before you do, you could receive title if he leaves the house to you in his will (or if he holds title in his living trust, which leaves the house to you).
If your husband dies without a will or a living trust, then his assets automatically pass according to the state law of intestate succession.
In some states, a surviving spouse is entitled to a statutory survivor's allowance, but this can get complicated, especially in second-marriage situations.
If your husband is willing, he could now change the title to his house into joint tenancy with right of survivorship. Then, if he dies first, you get the house as surviving joint tenant without probate. If you die first, then he holds title alone just as he does now.
It's time for you and your husband to have a serious discussion about this issue, perhaps in a local estate-planning lawyer's office.
DEAR BOB: We took title to our home in December 2002, but we did not move in until March 2003 after we completed renovations. Must we wait until March 2005 to sell to receive that $500,000 home-sale tax exemption? Or will we be eligible in December 2004? -- Jim J.
DEAR JIM: A close reading of Internal Revenue Code 121 says you must have owned and occupied your principal residence a minimum "aggregate" two years within the last five years before its sale to be eligible for the $250,000 profit tax exemption (up to $500,000 for a married couple filing jointly).
That means you must wait until March 2005 to sell and meet both the ownership and occupancy time tests.
DEAR BOB: My husband died in October 2003. The deed to our house was as tenants in common. I am allowed to stay in the house as long as I want. But when I die or move, the sale price of the house will be split with his two daughters and my three children. I feel they should help now with major repairs, as I am taking care of the house while its market value goes up. They will benefit. Would it be fair to ask them to pay for large repairs, such as a roof? -- Ginny G.
DEAR GINNY: It sounds as if you have a life estate in your late husband's half of the house. As a life tenant, it is your duty to maintain the property, keep it insured, pay the property taxes and not allow it to "waste" or deteriorate.
You can ask the "remaindermen" to contribute to any major expenses, such as a new roof. But they are not legally obligated to pay. Consult a lawyer for details.
DEAR BOB: My monthly mortgage payment consists only of principal and interest. Next to the principal balance on my lender's monthly bill there is a disclaimer that says the principal balance isn't the same as the amount required to pay off the mortgage. You've often written about mortgage "junk" fees when buying a home. What junk fees are reasonable when paying off a mortgage? -- Stuart VanD.
DEAR STUART: If you pay off your mortgage within the first few years, its terms might include a prepayment penalty.
There will probably be some recording, notary or other minor fees to clear the mortgage or deed of trust from your title after your final payment.
But extra fees involved when paying off your home mortgage usually are not large. Before you're ready to make the last payment, ask your lender for a fee itemization so there won't be any junk-fee surprises.
DEAR BOB: I notice you often refer to Internal Revenue Code 121 for the principal residence sale $250,000 tax exemption. But you seem to refer to it as a temporary tax break, which you expect to be rescinded. Do you expect the government to take this perk away anytime soon? -- Charles O'B.
DEAR CHARLES: No. Internal Revenue Code 121 is permanently in the federal tax code. I am not aware of any talk in Congress about removing it.
Changing IRC 121 would incur the extreme wrath of the 1 million members of the National Association of Realtors, plus millions of homeowners. This is one tax law that is unlikely to change, although the exemption might be increased as the values of homes of members of Congress increase.
DEAR BOB: My daughter and I will soon be inheriting a rental property from my deceased husband. She will be 18 in four months. How long do we have to sell the property before we are hit with capital gains tax? Can we sell before she is 18? -- Bibi K.
DEAR BIBI: If title to the inherited property was in your deceased husband's name alone, you and your daughter's new stepped-up basis will be the property's market value on the date of his death (or alternate date used by his estate).
Because your daughter is a minor, she can receive title to real estate but she can't convey title until she is 18 (without a court-appointed guardian). Waiting four months to sell the property shouldn't be a problem.
The only taxable capital gain might occur if the property is sold for a net sales price that exceeds its new stepped-up basis to market on the date of your late husband's death.
For example, suppose the property was worth $200,000 on the day your husband died. That will be its new stepped-up basis for you and your daughter as co-owners.
If you are fortunate to sell the property for $210,000 net after selling expenses, your taxable capital gain would be only $10,000 (currently taxed at a maximum federal rate of 15 percent). For details, consult a tax adviser.
DEAR BOB: Can our condominium owners association legally prohibit an owner from buying as many condo units as he wants? We are updating our conditions, covenants and restrictions. One owner in our condo complex owns four units and we find this distressing -- Kay Y.
DEAR KAY: If your condo association conditions, covenants and restrictions prohibit one owner from acquiring more than a specific number of units, I don't see how the association can legally enforce such a prohibition. Consult a lawyer who is experienced with condominium laws.
DEAR BOB: My neighbor's mortgage had her monthly mortgage payment due on the 15th day of each month. Then the loan was sold to another lender who changed the payment due date to the first of each month. Is this legal? -- Nathan S.
DEAR NATHAN: A mortgage lender cannot unilaterally change the monthly payment due date on the promissory note without the borrower's approval. I suspect your neighbor is a bit confused.
She was probably paying her old mortgage loan servicer by the 15th day of each month. But her payment was probably due on the first day, with a 15-day grace period (most home loans have a 10- or 15-day grace period).
The new loan servicer informed your neighbor the payment is due on the first. However, if she reads her promissory note, it probably says the payment is due on the first but a late payment fee won't be charged until after the 10th or 15th day of each month. Some states, by law, have an automatic grace period of 10 or 15 days even if it is not mentioned in the promissory note.
DEAR BOB: I was trying to buy a lot that is listed for sale at $59,900. I offered $55,000. The seller did not accept and asked for the full price. I then agreed to $59,900. The real estate agent filled out the forms and told me he had to send them to the seller to sign. After a few days, the agent phoned to tell me the seller wants $65,000 or he won't sell. Is it legal to ask for more than the listed price? The lot is still listed in the local multiple listing service for $59,900 -- Tami C.
DEAR TAMI: Unless the seller accepted your written purchase offer at $59,900, you don't have a binding purchase contract.
Unfortunately, some unethical realty agents put a listing into the local listing service at a price they know the seller won't accept. This is done to create a bidding frenzy, but it is not illegal. Maybe the seller changed his mind before accepting your $59,900 purchase offer. Legally, like any advertisement, the listing is just a request or invitation for offers at the asking price.
DEAR BOB: I am in the process of selling a townhouse in El Paso. The real estate agent says I must pay the loan fee points for either a VA or FHA loan for the buyer. Is this the law? -- Dorothy C.
DEAR DOROTHY: No. FHA and VA mortgage lenders, like most lenders, usually charge up-front loan fees, often called "points." Each point equals 1 percent of the amount borrowed.
There is no law requiring the home seller to pay these FHA and VA loan charges. However, if most homes in the El Paso area are sold with FHA and VA mortgages, and if other home sellers pay the loan fees for their buyers, your listing won't be competitive if you refuse to pay the loan fees.
Presuming you interviewed at least three successful local agents, if they all agree you should pay the buyer's loan fees, then don't put yourself at a disadvantage by refusing to do so.
DEAR BOB: There is an easement across the edge of my property for access to a city-maintained sewer line. The sewer lines from my neighbor's homes run through my lot to attach to the city sewer. Recently, there was a break in one neighbor's line. In the course of having that line replaced, my neighbor's plumber installed a clean-out in my yard. Is that included in the easement? Also, am I responsible for damage if the roots from my trees get into the neighbor's sewer line? -- Jessie P.
DEAR JESSIE: Installing that sewer clean-out was a good idea (it might even be required by city ordinance) to prevent future digging on your property to reach the sewer.
However, I am not aware of any legal liability you might have if the roots from your tree clogs your neighbor's sewer line, which is located on the neighbor's property. For details, consult a lawyer.
DEAR BOB: I am doing a tax-deferred exchange of two properties I own in South Dakota. One property has a $40,000 mortgage. The other is free and clear. The replacement property is in Florida. I recall reading in your articles that to defer my profit tax I must trade equal or up in both value and mortgage debt. If I do not have a mortgage on the Florida replacement property, will I be creating a taxable situation? -- Larry J.
DEAR LARRY: First, all the properties in your Internal Revenue Code 1031 tax-deferred exchange must be held for investment or for use in a trade or business. I hope none of these properties is or will be your personal residence, which is not eligible for a tax-deferred exchange.
Second, if you owe $40,000 less after the exchange of two qualifying properties for one large property, that means you received $40,000 taxable "boot" (defined as "unlike kind" property, such as cash).
If you can pay off that $40,000 mortgage on your South Dakota property before the exchange, that should solve your tax problem. If you can't do that, however, paying capital gain tax on $40,000 shouldn't be too difficult.
Third, review the exact details of your planned transaction with your personal tax adviser before you sell the first property. Then you can be sure you comply IRS rules.
DEAR BOB: Last September we bought two lots, which contain one house. We plan to totally remodel the house. Our financing is an interest-only mortgage. Are the mortgage interest payments tax deductible? -- Patti L.
DEAR PATTI: Yes. The interest you pay on an interest-only mortgage is tax deductible. It is a personal itemized interest deduction on your income tax return if the home will be your personal residence after remodeling.
However, if you acquired the property as a rental investment, then Schedule E is the appropriate place to deduct the mortgage interest and other applicable expenses. This is the same place you report rental income.
DEAR BOB: Forty-two years ago, my parents had a house built by a developer. Their driveway to the road is over a culvert, which drains the adjoining lots and the street. The vacant lot next door was recently bought by a builder who told my mother he plans to build a house on his lot. The builder told her to remove her car, which had been parked on "his lot" by about 3 feet. My parents presumed the driveway and culvert are on their lot. The new owner's survey shows the lot line is 1 foot on the existing driveway. What recourse does my mother have? She is 82, a widow, and doesn't need any stress. I suggest she ignore the situation. What would you do? -- Robin D.
DEAR ROBIN: If necessary, your mother may need to hire a local real estate lawyer to perfect her prescriptive easement to continue using part of the adjoining lot.
The legal requirements for a prescriptive easement are open, notorious (obvious), hostile (without permission) and continuous use for the required number of years in the state where the property is located. It appears your mother meets those legal tests.
If the new neighbor causes any further trouble, a pre-emptive letter from her lawyer might prevent future legal difficulty.
You and she should know surveys are not always accurate. Your mother might want to have her lot surveyed by a different surveyor to see if the neighbor's survey is correct.
Readers with questions should write Robert J. Bruss at 251 Park Rd., Burlingame, Calif. 94010, or contact him via his Web page, www.bobbruss.com
(c) 2004, Inman News Service