QDEAR BOB: Is it necessary to pay for title insurance each time we refinance our home mortgage? We recently refinanced, and the attorney who processed the transaction charged us for title insurance to benefit the lender. He said our original owner's title insurance still covers us. Is this another mortgage-lender rip-off?
-- Cathy H.
ADEAR CATHY: No. Every mortgage lender I've encountered required a new lender's title insurance policy when refinancing. This is because you might have incurred liens against your home, such as unpaid property taxes, judgments and income taxes.
A few lenders will absorb the cost of lender's title insurance by charging a higher-than-normal interest rate. But borrowers are usually better off paying for the lender's title insurance.
However, virtually all home equity lenders are so eager to make those profitable loans that they will usually absorb the closing costs, including lender's title insurance.
DEAR BOB: I am single and plan to sell my principal residence soon. I expect to make a profit of about $500,000. I have owned and lived in it for seven years. Will I qualify for the $500,000 exemption if I add my mother's name to the title? She has been living with me for the past three years, and I claim her as a dependent. -- Julia Y.
DEAR JULIA: No. For your mother to qualify for an additional $250,000 principal-residence-sale tax exemption under Internal Revenue Code 121, she must have owned and occupied the principal residence at least 24 of the 60 months before its sale.
She meets the occupancy test, but not the ownership test. Therefore, if you sell the house now, you get only a $250,000 tax exemption as the sole owner. However, if you add your mother to your title now and wait 24 months to sell, then you each get a $250,000 tax exemption. For full details, consult your tax adviser.
DEAR BOB: Two years ago, I lent the down payment of $29,000 to my daughter and her husband to buy a new home in California. The money came from a home-equity loan on from my home. I received a promissory note from them agreeing to pay me back in two years with monthly interest-only payments. They made two payments to me and I never heard from them again. I am nearly 65 and fear I don't have enough equity in my home to sell it. I am not on their deed and the house is in the husband's name alone. What recourse do I have? -- Nancy P.
DEAR NANCY: Because you didn't secure your promissory note with a mortgage or a deed of trust against the title of their home, your only alternative is to sue them in their local superior court for payment on the promissory note, which is now overdue. After you receive your judgment, record an abstract of that judgment in the county where the home is located. Only then can you foreclose on your judgment lien.
Homeowners have many safeguards, such as the homestead laws where the home is. However, when they try to sell the home, your unpaid judgment lien will show up on the title report and will have to be paid before clear title can be delivered.
Your situation is an important lesson to all of us to never lend money on an unsecured promissory note, especially to relatives, and to always secure a loan with a recorded mortgage or deed of trust on real estate owned by the debtor.
DEAR BOB: I bought a fixer-upper house in Bluefield, W.Va., for $2,000. It is condemned and the city wants me to repair it. I want to either do that or tear it down and build a house on the lot. Is it a worthwhile investment, or should I just put it back on the market for sale, as my friends are advising me? -- Miriam G.
DEAR MIRIAM: Without knowing what the house would be worth after you fix it up, I can't fully answer your question. Personally, I've made substantial profits buying and fixing up condemned houses. However, to earn profits, the market value of nearby houses must make it worthwhile to spend money fixing up the run-down house.
Sometimes the best thing to do is tear down the house and either sell the vacant lot at a profit or move in a nice but inexpensive manufactured house and install it on a foundation. You should probably seek professional advice closer to where you live.
DEAR BOB: I paid off my mortgage in February. The mortgage lender is a private party and he says he recorded a satisfaction of judgment in April. As of Oct. 22, the county recorder says they have nothing. I want my deed. How do I get it?
-- Linda G.
DEAR LINDA: You are to be congratulated on paying off your mortgage and following up to be sure it is cleared from your title. Now is the time to do so. Unfortunately, too many borrowers forget about this important matter. Years later, when the property is sold, it is often difficult to find the lender, especially a private party.
If you paid off the mortgage, the lender should have recorded a satisfaction-of-mortgage document. Or, if you had paid off a deed of trust -- used in many states -- the document is called a deed of reconveyance. Now is the time to ask your lender for either the original or a copy of the recorded document. Be sure it was actually stamped and recorded by the county recorder of deeds.
If the lender refuses to comply with the state law that requires prompt, recorded proof of mortgage payoff, you might have to hire a real estate lawyer.
DEAR BOB: I own a house worth about $650,000, which I am renting to tenants. I owe $62,000 on the mortgage. I also am buying my principal residence. Can I refinance and take $25,000 cash out of my rental property to make improvements on my primary residence? -- Kim G.
DEAR KIM: Yes, but it will be much easier and far less expensive for you to obtain a home-equity credit line on your rental house. If you owe $62,000 on your $650,000 rental house, it will be a no-brainer for your bank to approve a $100,000 or greater home-equity credit line on that property. The interest rate should be prime rate or lower with no closing costs.
DEAR BOB: My retired parents live in a small town in their free-and-clear house my dad built in 1968 for about $23,000. They also own several acres that are seven miles outside of town that used to be an operating farm. However, no one has lived on the farm in 40 years. It is being rented to farmers who graze livestock. The farmyard lies on a bed of gravel, so a quarry company has been excavating gravel for several years, paying my parents a yearly residual. They plan to sell their house and move to a larger city to be closer to family and better medical facilities. Can they sell their farm and their home to use that $500,000 tax exemption to buy another home? The $300,000 to $400,000 profit they will receive should buy them a nice home in a respectable part of town.
-- Susan W.
DEAR SUSAN: Your parents will be making two separate real estate sales. The sale of their principal residence qualifies for the Internal Revenue Code 121 tax exemption up to $250,000 (up to $500,000 for a married couple filing a joint tax return). To qualify, they must have owned and occupied their principal residence at least 24 of the 60 months before its sale. The fact they might buy another home is irrelevant.
However, the sale of the vacant land is not subject to any special tax breaks (except a tax-deferred exchange for another business or investment property). Therefore, your parents will owe capital-gains tax on their profit from the land sale.
DEAR BOB: Is it possible to obtain the status of oil, gas, and mineral rights of a property that was involved in condemnation proceedings for the construction of a dam and reservoir in 1952? The U.S. Army Corps of Engineers was involved. -- Paul L.
DEAR PAUL: You can hire a title abstracter in the county where the land is located to find out if any mineral rights were involved with that property. To locate a title abstracter, talk to an officer of a title insurance company.
However, the general rule is that unless the property seller specifically retained the mineral rights, the buyer automatically received them.
DEAR BOB: My father died and left his house to my two brothers and me. One brother and I want the house. The other brother does not. He demanded appraisals from us and said he would get one as well. We have our two appraisals, but the other brother did not like the numbers and is refusing to get his appraisal. Is there anything we can do to force the third appraisal and buy him out of the house for his one-third value? -- Catherine M.
DEAR CATHERINE: Yes. As a co-owner of the house, you can force a sale by bringing a partition lawsuit against the "difficult brother." Your situation sounds quite simple, but you and the "good brother" will need to hire a lawyer in the county where the house is.
DEAR BOB: When a house is sold after I've lived in it for 10 years, are taxes due from the sale of the house? -- Sylvia R.
DEAR SYLVIA: If the house was your principal residence for at least 24 of the 60 months before its sale, your profit up to $250,000 is tax-free under Internal Revenue Code 121.
If you owned and lived in the house with your spouse for the required period and you file a joint income tax return in the year of the home sale, then each of you gets the $250,000 deduction, for a total of $500,000 tax-free.
DEAR BOB: I took out a home-equity loan on my primary residence to help my son invest in his business. But I now need to refinance a rental condo for 50 percent of its value. However, my bank denied me due to my income-to-debt ratio, though my FICO credit score is over 800. Is there a document my son should sign confirming that he makes payments on that home-equity loan? -- Polly D.
DEAR POLLY: Such a statement signed by your son might be helpful, but I think you are dealing with an out-of-touch, old-fashioned bank.
Congratulations on your great FICO score. Anything above 700 is considered excellent by most lenders. I suggest that you apply with a different lender. Your current lender obviously doesn't appreciate your business.
Personally, I have lots of banks eager to make home-equity loans on my properties. It sounds like you are dealing with a stuffy, outdated bank. Better yet, try your credit union. Most credit unions are progressive.
DEAR BOB: Is there a limit to the number of times I can purchase a home, live in it for two out of the five years before its sale and claim the capital-gains exclusion?
-- Cormac C.
DEAR CORMAC: There is no limit to the number of times you can use the Internal Revenue Code 121 principal residence sale exemption up to $250,000 (up to $500,000 for a qualified married couple filing a joint tax return).
However, this great tax break cannot be used more frequently than once every 24 months.
DEAR BOB: My boyfriend and I bought a new home in March 2003. We hold the title as tenants in common. I am seriously considering dissolving the relationship, but I have concerns about getting my fair share so I can buy another home for myself and my three children. We agreed that we each own 50 percent, with the exception of the $10,000 cash down payment he paid to buy the home. What happens if we split and he refuses to sell the home? Can he be forced to either refinance the mortgage in his name only or pay me my share based on an appraisal? Would I be forced to bring a partition lawsuit? -- Heidi P.
DEAR HEIDI: Unless you have a written partnership agreement with your boyfriend co-owner, you can't force him to refinance or buy you out. Your only legal alternative is a partition lawsuit to force the sale of the property. However, if he wants to keep the house, when he realizes you are serious about bringing a partition lawsuit, he might decide it would be far easier and cheaper for him to refinance so he can buy out your 50 percent, minus $10,000.
DEAR BOB: How much total closing costs should I expect to pay to obtain a senior citizen homeowner reverse mortgage? I hear $8,000 to $9,000 is fair. -- William P.
DEAR WILLIAM: The exact answer depends on the type of reverse mortgage you obtain, such as FHA, Fannie Mae or Financial Freedom Plan, and the appraised market value of your home.
As a general rule, closing costs should be around 6 percent of the reverse-mortgage amount. The higher the maximum loan, the lower the cost percentage.
A great new book I just finished reading on this topic is "The Pocket Idiot's Guide to Reverse Mortgages," by Jennifer A. Pokorney. She answers many typical reverse questions.
DEAR BOB: My dad married my stepmother about three years ago. Shortly after marriage, they bought a house together as joint tenants with right of survivorship. However, my dad died recently at the age of 56. His will left all his assets to me, his only child. However, my stepmother says she inherited the house as surviving joint tenant. Who is right? -- Jason R.
DEAR JASON: Your stepmother is correct. A written will has no effect on joint-tenancy property.
DEAR BOB: I have been a real estate agent for 26 years and I couldn't agree more with your recent comments about lease options. During a slow market, when I have a home listing that doesn't sell "the regular way" -- about three weeks before the listing will expire -- I suggest that my seller consider a lease option. I have never been unable to "sell" a house on a lease option. You are so correct by saying there are always more lease-option buyers than lease-option sellers. Sure, I don't enjoy waiting a year or two for my sales commission when the buyer-tenants exercise their purchase option, but that's far better than receiving no sales commission at all. Why don't you write about lease-option benefits more often?
-- Daryl H.
DEAR DARYL: I should explain lease-option benefits more frequently. Personally, I've been using them for at least 25 years to buy and sell houses, including my current residence. Like you, my experience has been that there are always lots of lease-option home buyers if the price and terms are fair.
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) 2005, Inman News Service