Q DEAR BOB: My mother allowed a neighbor to attach his fence to hers, but his fence is two or three feet onto my mother's property. The neighbor's house was recently sold. My mother is upset that part of her property will be sold along with that house. If this is not resolved, my understanding is part of her property will belong to the neighbor. Is this correct? -- Lisa H.

A DEAR LISA: No. Your mother should obtain a survey to establish the exact boundary with her new neighbor. This will be money well spent. If she learns from the survey her neighbor is using part of her lot, but she really doesn't mind, she can grant written permissive use to prevent losing part of her lot as a prescriptive easement.

DEAR BOB: You often advise not to add an adult child's name to a home's title. I would like to add my daughters' names to the titles to receive the tax benefits of the houses they live in but which I own. Can I deed over a 1 percent ownership to accomplish that but not give up control of the houses? -- Gladys G.

DEAR GLADYS: If your daughters own (at least a portion) and live in their principal residences, then they are legally obligated to pay the property taxes and mortgage payments. The consequence of their nonpayment is losing the house by foreclosure.

Therefore, they are entitled to the itemized income-tax deductions for interest and property-tax payments they personally make to the property-tax collector and the mortgage lender. Consult a tax adviser for details.

DEAR BOB: I am in the process of having my mother give me the house where I was raised. What will my cost basis be? She was given the house by my father in 1983 after they divorced. -- David F.

DEAR DAVID: You take over your mother's presumably low adjusted cost basis for the house. That means when you sell the house, unless you then qualify for the Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 ($500,000 for a qualified married couple filing jointly), you will owe a substantial capital gains tax.

You would be better off inheriting the house after your mother dies. Then you will receive a new "stepped-up basis" to market value on the date of her death. The result will be little or no capital gain tax if you decide to sell the house.

DEAR BOB: I've been following your explanations of the Internal Revenue Code 121 principal residence sale tax exemption. My neighbor and her husband are considering selling their house, which is in an irrevocable trust. The trust provides for distribution of the trust assets on Jan. 1, 2006. Her accountant told her that although she has lived in the property for more than five years, because she won't become the owner until Jan. 1 she won't qualify for the IRC 121 exemption until 24 months after that. Do you agree? -- Fred M.

DEAR FRED: Yes. Irrevocable trusts to hold title to real estate are usually a major mistake, as in this situation. Your neighbor's circumstance means she cannot qualify for the $250,000 IRC 121 exemption until Jan. 1, 2008, although she has lived in the home as her principal residence well over 24 months.

The reason is IRC 121 requires her to have owned the property at least 24 months.

DEAR BOB: If I want to buy a home and assume the existing mortgage, will the lender evaluate my credit report? -- Mary S.

DEAR MARY: Yes. When you buy a home and specify in your purchase offer you want to assume the existing mortgage, the lender will evaluate your income, credit report and Fair Isaac Corp. credit score.

However, my experience has been lenders are not so tough on mortgage assumptions as they are on original mortgage qualifications. The worst that might happen is the lender could demand an assumption fee of about 1 percent of the mortgage balance. If the existing lender is unreasonable and demands full mortgage payment, after you hold title, just refinance with another lender.

DEAR BOB: We recently bought a condo in Florida and plan to rent it out when we are not using it. My husband is a physician. I am concerned about the liability if a tenant falls or is injured in the condo. What are your thoughts on placing the title in a limited-liability company? -- Beth R.

DEAR BETH: You and your husband need a condo landlord's rental insurance policy for at least $300,000 liability coverage, plus a personal umbrella insurance policy for at least $3 million from the same insurance company. Be sure to buy these policies from a Florida insurance agent representing a reputable insurance company. Such coverage should protect you and your husband if a tenant or a guest trips over the carpet.

As for changing your title to an LLC, if a tenant is severely injured, it is relatively easy to "pierce the corporate veil" to reach your assets. Adequate insurance is much better. Consult a Florida lawyer for details.

DEAR BOB: You often warn about junk fees in the mortgage industry. What about real estate agent junk fees? I am selling my home with a reputable agent and negotiated a fair sales commission completely in line with the local market. However, the agent is insisting on charging me a $495 "transaction fee." He justified it by saying it all goes to his assistant for handling the paperwork and the fee is "in line with the market." Isn't this profit padding like the junk fees mortgage brokers charge? Shouldn't the agent be responsible for paying his own overhead? This agent's insistence on this fee is extremely annoying. -- Rob P.

DEAR ROB: Unless that outrageously high $495 fee was included in the listing agreement you signed with the realty agent, you are not obligated to pay it when the sale closes.

Listing agents are well paid when the property sells. That $495 fee is an unnecessary junk fee that comes out of your pocket and adds to the brokerage profit. If you protest enough, most agents will pay the fee themselves to retain your goodwill.

Successful agents realize they will survive over the years from referrals by satisfied buyers and sellers. I hope you don't recommend that agent.

DEAR BOB: I would like to take out a Fannie Mae home loan in case I have a prolonged illness. How does a homeowner locate a local Fannie Mae office? -- Mario F.

DEAR MARIO: Nationwide home mortgage lenders Fannie Mae, Freddie Mac, FHA and VA all originate their home loans through local mortgage brokers, mortgage bankers, Internet lenders and banks. They do not directly originate mortgages with homeowners.

Most local mortgage lenders can help you compare the offerings of these major nationwide lenders who buy, insure or guarantee home loans originated locally. These loan originators handle the paperwork details such as your loan application, appraisal and title insurance.

However, if you don't need money now, instead of borrowing money on which you probably can't earn as much as it costs, why not instead obtain a home equity credit line?

That's what I did recently. I obtained a $200,000 home equity credit line secured by my home just in case I ever need that money. The lender couldn't have been nicer. Your local bank probably has a similar home equity plan that costs nothing until you use your credit line.

DEAR BOB: If I pay my son $10,000 in 2005 as part of a lease-to-sell agreement that we have reached, will he have to pay taxes on the $10,000? Or will the monthly rent I pay him to cover his mortgage until I exercise my option to buy the property in 2008 be taxable? -- Beth L.

DEAR BETH: If you pay $10,000 to your son for rent to use his property with an option to buy it, that rental income must be reported by your son on Schedule E of his income tax returns. This is where he also can deduct applicable rental property expenses such as his mortgage interest, property taxes, insurance, repairs and depreciation.

However, if the $10,000 is a non-refundable option consideration paid to your son, he doesn't have to immediately report that option money as income. If you exercise your purchase option in 2008 as you expect, at that time the $10,000 becomes part of the sales proceeds taxable as a capital gain. Or, if the option expires unexercised in 2008, then the $10,000 is taxed as ordinary income to your son.

DEAR BOB: I am 59, looking forward to retirement in a few years. My home has a mortgage of about $180,000. The house is worth around $500,000. Will I be able to get one of those reverse mortgages you often discuss? Will my outstanding mortgage balance prevent me from getting a reverse mortgage? -- James T.

DEAR JAMES: When you become 62, you can obtain a reverse mortgage, which pays you money (instead of you paying the lender money each month). At that time, if you have sufficient home equity, you can use your reverse mortgage to pay off your existing mortgage in a lump sum. Then you won't have any more monthly payments.

The old mortgage must be paid off when you get a reverse mortgage because the reverse mortgage must be recorded as a first mortgage. The reason is its balance will slowly grow as you use the funds and interest accrues.

When you sell your home, move out for more than 12 months, or die, then the reverse mortgage "matures" and must be paid off. If your heirs want to retain the home, they can then refinance to pay off the reverse mortgage.

Of course, the remaining equity goes to you or your heirs. Even if you live to 120, the reverse mortgage lender has recourse only against your home for repayment. There is never any personal liability for reverse mortgage repayment.

Because you are so young, I suggest you wait to obtain a reverse mortgage until you really need the money. At age 62, you won't be entitled to much money. The reasons: reverse mortgages are based on the market value of your home at the time you take out a reverse mortgage, and your life expectancy at that time.

DEAR BOB: I own a house that I want to sell, but I cannot afford to fix it up before sale. The houses in my neighborhood range from handyman specials to totally renovated homes with major upgrades. I realize that because of the condition of my home I must sell below market. Should I sell it "as is?" What about these companies that advertise in the newspaper they buy houses in any condition for cash and can close in a few days? I am not in foreclosure or behind in my mortgage. Should I list my house for sale with a realty agent although it needs work? -- Sharon C.

DEAR SHARON: Congratulations on being realistic about your home. The firms you describe will buy ugly houses in any condition, but they insist on a far-below-market-value purchase price.

I suggest you answer those ads and talk with those sharks but don't sign anything. Be sure to get their offers in writing and insist on time to think it over. Again, don't be pressured into signing anything. Next, interview at least three successful real estate agents who sell homes in your neighborhood. You may be pleasantly surprised to discover your home is worth far more than the sharks will pay for a fast sale.

There are lots of buyers for "handyman specials" or "fix-up houses" like yours. If you are not in a hurry to sell, consult both the sharks and legitimate real estate agents. When you decide to list your home for sale with the best agent you interview, after checking his or her references of recent nearby home sellers, don't sign a listing for longer than 90 days (just in case you selected the wrong agent).

DEAR BOB: I was confused about your recent comments regarding a possible "real estate bubble" about today's high home sales prices. Why did you say never pay more than 20 percent cash down payment? -- Abel C.

DEAR ABEL: Nobody can be 100 percent certain they are buying a house or condo at the best time. That's why I recommend never paying more than a 20 percent cash down payment, just in case you buy a bad house or a bad condo.

The 20 percent cash down payment limits your maximum cash loss just in case you made a bad decision.

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.

(c) 2005, Inman News Service