QDEAR BOB: We have owned and lived in our house more than 25 years. Soon we will be moving to another house. We plan to rent our current house, instead of selling it, for a few years. However, we don't want to lose that tax exemption you often discuss when we eventually sell. How long can we rent our house without jeopardizing the tax exclusion benefit? -- Prim P.

ADEAR PRIM: To qualify for the Internal Revenue Code 121 tax exemption of up to $250,000 of capital gains (up to $500,000 for a qualified married couple filing jointly), you must have owned and occupied your primary home an aggregate two of the last five years before its sale.

In your situation, that means you can rent the house to tenants up to three years before losing your IRC 121 entitlement. Consult a tax adviser for details.

DEAR BOB: What is the logic that some states require the buyer of property to purchase title insurance for the acquisition? It would seem the seller should be required to guarantee title and provide the title insurance.

-- Elam F.

DEAR ELAM: You are mistaken. Title insurance is not required by law in any state.

However, almost every mortgage lender requires a lender's title insurance policy or the buyer won't be able to get the mortgage. In addition, smart buyers always insist upon an owner's title policy to protect their equity.

Local custom usually determines whether the property buyer or seller is expected to pay the title insurance cost.

For example, in the county where I live, it is customary for the home buyer to pay for the title insurance. But in the adjoining county to the south, the custom is for the home seller to pay for the buyer's title insurance.

However, this, like just about everything else in real estate, is negotiable. No matter the custom, if you are the buyer and are short of cash, specify in your purchase offer that the seller is to pay for your title insurance. Unless it's a local seller's market for homes, if the seller wants to accept your offer, the seller will probably agree to pay for your title insurance.

Or, if the local custom is for home sellers to pay for title insurance, but if it's a strong seller's market, as a seller you can specify in the sales contract that the buyer will pay for the title insurance.

Whether the home buyer or seller pays for the title insurance, the seller is obligated in the sales contract to deliver "marketable title." If the title isn't insurable, with exclusions for known exceptions such as an easement, then the title isn't marketable.

DEAR BOB: I am a senior citizen homeowner, age 77, who has been considering the reverse mortgages you often discuss. Recently, I received a fancy mailer from a company offering reverse mortgages, but I am puzzled. It says: "Did you know that the U.S. government has a program that pays off the balance of your home mortgage and pays you to live in your home for the rest of your life?" The words "reverse mortgage" are used throughout the brochure. Is this a new type of reverse mortgage? -- Hedie W.

DEAR HEDIE: The brochure is misleading. I was shocked to discover that reverse-mortgage broker is a member of the National Reverse Mortgage Lenders Association, an excellent organization. As you probably know, there are three nationwide reverse-mortgage lenders: FHA, Fannie Mae, and Financial Freedom Senior Funding Corp. Each program is different. FHA is the most popular.

While technically correct, the brochure statement you quote is misleading. The Federal Housing Administration insures and regulates FHA reverse mortgages, but it is not government money that funds FHA-insured reverse mortgages.

I suggest you consult a reverse-mortgage originator that offers all three loan types so you can compare their pros and cons.

DEAR BOB: We are concerned because our elderly parents own an expensive house free and clear but do not have it in a living trust. They seem to think having their home included in their written will is sufficient to avoid probate. What is the best way to avoid probate in a situation like this? -- Merle D.

DEAR MERLE: The exact answer depends on state law where your parents' home is located. Some states have probate-avoidance procedures for small estates, such as those below $50,000 to $100,000.

In most states, when the decedent's assets pass according to the terms of their written will, local probate court proceedings are required. Delays can range from a few months to a few years. For example, when my mother died a few years ago, her Minnesota lawyer told her not to put her condominium title into her living trust. That turned out to be bad advice.

It passed upon her death according to the terms of her will. That meant it had to go through probate court. Although there were no problems, it took almost a year to clear the title to her condo. Thankfully, she didn't leave any large debts requiring the sale of the condo.

You should recommend that your parents consider transferring title to their home and other major assets into their living trust to avoid probate costs and delays. Another advantage of a living trust is if an owner becomes incompetent, such as due to a severe stroke or Alzheimer's disease, then the alternate or successor living trust trustee can manage the assets, even selling the property if necessary.

DEAR BOB: I've been a successful mortgage broker for 11 years. Before that, I was a loan agent for a major nationwide bank. The reason I went independent was that when I worked for that bank, I could only offer that lender's mortgages. Now I represent about 50 mortgage lenders. I can offer dozens of home loans to meet almost every homeowner need. I could probably even arrange a mortgage for that "bankrupt arsonist" you jokingly mention occasionally. However, let your zillions of readers know it is usually the actual lender, not the mortgage broker, that imposes unnecessary junk or garbage fees. I am shocked at the dirty tricks some dishonest major lenders often impose as last-minute surprises. Of course, I discontinue doing business with those crooked lenders. But don't blame the mortgage brokers for all those junk fees. -- Jeanie C.

DEAR JEANIE: There is plenty of blame for unexpected junk or garbage fees to share among mortgage brokers and the actual mortgage lenders.

I must hasten to explain a legitimate mortgage fee is an actual cost which is paid by the borrower to a third party. Examples include the appraisal fee, title insurance fee, escrow or attorney fee, credit report fee and courier fee.

Unnecessary junk or garbage fees paid to the actual lender, or the mortgage broker, include underwriting fee, documentation fee, loan review fee, warehouse fee, and even a miscellaneous fee.

Instead of charging these fake fees, mortgage lenders should fully disclose their loan fee (usually called "points" -- each point equals 1 percent of the amount borrowed) and any yield-spread premium paid by the actual lender to the mortgage broker.

DEAR BOB: How many times can I do Internal Revenue Code 1031 exchanges with my investment properties? How often are these exchanges allowed? -- Baxter T.

DEAR BAXTER: The easy answer is there is no limit to the number of times or the frequency you can use IRC 1031 to pyramid your real estate wealth without paying capital gains taxes along the way.

Unlike the Internal Revenue Code 121 home-sale tax exemption, which can be used only every 24 months, IRC 1031 has no time frequency limitations.

Theoretically, you can buy an investment property shack, fix it up to increase its market value, and make a tax-deferred IRC 1031 exchange for a larger run-down shack within a day. Then you can make another tax-deferred exchange again, a day later, for a larger property.

DEAR BOB: As a former timeshare victim, I greatly enjoyed your recent expert advice on how to get rid of that offshore timeshare. I'm a stupid buyer of an offshore timeshare and one in Florida. Getting rid of the offshore timeshare was easy. I just stopped paying the annual fees. It went away without any adverse result. But getting rid of the Florida timeshare was far more costly. I tried listing it with two of the reputable-sounding timeshare marketing companies. I was lured by a famous real estate franchise name of one of those firms. I just wanted to sell for any price to get rid of the obligation. No luck. Finally, I convinced my nephew that he and his wife would enjoy taking over my Florida timeshare payments. So far, so good. But if he defaults, the timeshare company can harm my credit by reporting I'm a deadbeat because my name is still on the timeshare. -- Bruce W.

DEAR BRUCE: Thank you for sharing your timeshare woes. Although a few readers write with their happy timeshare experiences, most letters are like yours from readers who can't get rid of their timeshares even at huge losses.

DEAR BOB: My father says when he dies I will inherit his house. I don't want to seem too eager, but should I be concerned about how he holds title to the house after my mother died about five years ago? What is this "stepped-up basis" you often mention? -- Marc H.

DEAR MARC: Inherited property receives a new stepped-up basis of its market value on the date of the decedent owner's death, or alternate valuation used by the deceased's estate.

That's why you will probably be better off inheriting your father's house than receiving it as a gift before he dies. If he tries to deed it to you before his death, as a donee you will then take over his probably low adjusted cost basis.

You will be much better off receiving the house with a new stepped-up basis of market value when your father dies. Consult a tax adviser for details.

DEAR BOB: My wife and I have been following the pro and con discussions in your recent columns about paying all cash or getting a mortgage for a retirement home. We have contracted to buy a new house in Florida, which is now under construction. It should be finished in October or November. Although we can pay all cash, we're having doubts. The home builder and the developer seem to be first class. But we would not want to tie up about half of our retirement assets in a new house, which might turn out to be defective. What can we do? -- Myron T.

DEAR MYRON: I would never recommend you tie up half of your retirement assets in a new house, which could turn out to be defective and unable to be sold if something goes seriously wrong.

Be aware that I, after having written this column for more than 30 years, hear primarily from house and condo buyers who bought defective homes. I never hear from those homeowners who are 100 percent satisfied.

Therefore, I must be cautious with my advice. My best suggestion is you and your wife make a 20 percent to 30 percent cash down payment and obtain a mortgage for the balance of your new-home purchase price.

If all goes well after at least three years of homeownership, if you wish, then go ahead and pay off your mortgage to save interest. (Of course, be certain the mortgage doesn't have any prepayment penalty.)

Should serious problems develop with your new home that can't be resolved, at the worst you could sell it and let your buyer take over your mortgage payments. I just don't want you tying up most of your retirement assets in a house that might prove to be defective. If you were buying a condominium, your risk would be even higher because condo developments are notorious for construction defects.

DEAR BOB: We are buying our first home, a condominium. The developer offers a fixed-rate mortgage at a below-market interest rate for up to 100 percent of the purchase price. The "catch" is there is a stiff prepayment penalty for the first three years. Do you think we should pass on this opportunity? -- Lou L.

DEAR LOU: Not necessarily. You can't blame the mortgage lender for wanting to be reasonably certain of earning the agreed mortgage interest rate for at least three years. Chances of interest rates plummeting and your wishing to refinance within the next three years are slim to none.

However, you might have to sell your condo, perhaps because of a job transfer or family situation, within the next three years. If the chances of that happening are great, consider the cost of paying the mortgage prepayment penalty.

But most mortgage lenders will allow a buyer of your condo to take over the existing mortgage, perhaps by paying an assumption fee about 1 percent. Then you will avoid the prepayment penalty.

Unless you expect to sell your condo within the next three years, I would grab that mortgage, although it has a prepayment penalty.

DEAR BOB: You recently explained joint tenancy with right of survivorship. As I understand joint tenancy, when one joint tenant dies the surviving joint tenant automatically receives the full title without any probate court proceedings. My situation is that my partner and I own our condo as tenants in common. If one of us dies, our wills specify the other co-owner will receive full ownership. Would we be better off holding title as joint tenants with right of survivorship? Must joint tenants be married? -- Jerome P.

DEAR JEROME: Joint tenants need not be married to each other. There are millions of joint tenancy real estate ownerships among co-owners who are not married to each other. Joint tenant with right of survivorship co-owners should understand that when a joint tenant dies, that person's will has no effect on the joint tenancy property, which then automatically passes without probate proceedings to the surviving joint tenant.

In other words, joint tenancy is a survivor-take-all situation. The deceased joint tenant's will has no effect on joint tenancy property. Consult a lawyer for details

DEAR BOB: When my father died about four years ago, his will specified his surviving wife (my stepmother) would receive a life estate in his luxury house. She now lives in the 20-room house, which she is barely able to financially maintain. The property taxes are constantly in default, unless my lawyer pressures her to pay. When she dies or decides to vacate the house, I am the legal remainderman who will then receive clear title to this valuable house. As I am on semi-cordial terms with my stepmother, I have offered her several financial incentives to give up her life estate in this lavish house, which she can barely afford. My concern is it will deteriorate and lose market value. It is a prime property that could command a substantial sales price, which I have agreed in writing to split with my stepmother 50-50 if she will move out now. But she refuses to move out or agree to any settlement although she is obviously letting the house run down. What can I do if she doesn't maintain the house? -- Evelyn H.

DEAR EVELYN: As the remainderman, you can bring a legal action against your stepmother for "waste" if you can prove she is letting the property seriously deteriorate. But waste can be difficult to prove in court so, before you sue, be 100 percent certain you can prove she is committing waste.

However, if she fails to pay the property taxes, thus risking loss of the property by a tax sale for unpaid property taxes, that is strong evidence of waste.

I suggest you consult a lawyer to discuss your alternatives. Waiting too long to take action could prove costly if the house loses substantial value from deterioration.

DEAR BOB: I enjoyed the controversy some time ago in your articles about whether weekend open houses sell homes listed for sale. As a real estate agent for the last 16 years, my experience has been many home sellers demand I hold open houses for their listed homes. But I can't recall one sale that resulted. However, as a top-selling agent with my brokerage, I met dozens, perhaps hundreds, of buyers and sellers at my open houses who produced extremely profitable listings and sales for me. You are correct that weekend open houses rarely produce direct sales of the house being shown. But open houses are one of the most effective marketing techniques for listing agents to meet new clients.

-- Alan S.

DEAR ALAN: Thank you for sharing your sales experiences.

DEAR BOB: My aunt, age 87, is in a convalescent residence where she is receiving superb care from the devoted staff. However, her funds are rapidly running out. She owns her vacant house, worth about $400,000, free and clear. Her desire is to return to live in it, but I don't think that is realistic. Although she is not living in her house, is there any way she can obtain a reverse mortgage to provide the monthly income she needs to continue her convalescent home care? -- Ned W.

DEAR NED: No. Reverse mortgages require the house or condo be owner-occupied. My best suggestion is to talk with your aunt about selling her house so she can use the sales proceeds to continue receiving the excellent care in the convalescent residence.

DEAR BOB: Several years ago, I inherited a house from my mother. I have rented it since then, but now I want to sell. How can I prove her cost basis for this house to calculate my capital gain? -- Helen J.

DEAR HELEN: There is no need for you to prove your mother's probably low cost basis for the house you inherited from her. Your cost basis is the stepped-up market value of the house on the date of her death, or alternative date used by her estate.

You can hire an experienced professional appraiser to determine the fair market value of the house as of that date. That is the easiest and least expensive method to prove your stepped-up cost basis for the inherited house.

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