Q DEAR BOB: About six years ago, my aunt insisted on putting my name on the title to her home as a joint tenant with right of survivorship. She helped me many times over the years after my mother died when I was 14. We are close, but in the past two years she has become senile. About six months ago, she fell and broke her hip and has lived in a convalescent home since. I try to visit her every two weeks, but I live about 200 miles away. The last three or four visits, I'm not sure she even remembered me. The convalescent home administrator told me my aunt needs to be moved to a Medicaid home unless her bills, about $13,000, can be promptly paid. Her vacant, free-and-clear house is worth at least $450,000. I called her lawyer who said my aunt can't sell her house if she doesn't understand what she is doing. What should I do? -- Janet R.

ADEAR JANET: The obvious solution is to have your aunt declared incompetent by a local court and a conservator or guardian appointed to represent her interests, including sale of the house. This problem could have been avoided if your aunt, while she was competent, created a revocable living trust, deeded title to her home and other major assets into her living trust, and named you or someone else as successor trustee.

Then, after she became incapacitated or died, her successor trustee could decide what to do with her home. Although you are her joint tenant co-owner, unfortunately you can't sell your aunt's house without her approval, which it sounds as if she is now incapable of giving. If her lawyer is unwilling to petition the local court for appointment of a conservator or guardian for her, presumably you, I suggest you retain another lawyer before the convalescent home transfers her to a lesser-quality facility.

DEAR BOB: I especially enjoyed your recent explanation of mortgage escrows. I have had nothing but trouble with my mortgage lender, which collects my property taxes and homeowner's insurance along with my mortgage payment each month. However, I have a Veterans mortgage so I know I am stuck with escrows until I pay off that loan. Last year the bank failed to pay my property taxes on time and the tax collector imposed a $204 penalty. The lender took the $204 out of my escrow account. I caught them and threatened to take them to local small claims court. As a result, the lender refunded the $204 to my escrow account. Just thought you should know. -- Stephen M.

DEAR STEPHEN: As you probably know, many home loans require mortgage escrows for collection of one-twelfth the homeowner's property taxes and hazard insurance premiums each month.

The big problem is many mortgage servicers fail to pay the property taxes and hazard insurance on time, thus incurring penalty fees. Unfortunately, many lenders deduct those penalty fees out of the homeowner's escrow account without permission.

Congratulations to you for catching your lender. Unfortunately, many more get away with their tricks because most borrowers aren't so vigilant.

DEAR BOB: There is a lot next to my commercial property that I want to acquire for extra parking. How can I lock in a purchase deal now, even though the owner doesn't want to sell? Can I start paying him now for the property with the monthly payments to be credited to my purchase price? It would be win-win for both of us. -- Shanon K.

DEAR SHANON: The situation you describe is perfect for a purchase option. If you want to use the lot now for parking, you can lease the lot with an option to buy later. You can write the purchase option so all or part of your payments to the lot owner will be credited toward your option purchase price agreed upon now. Or, you could lease the lot now with a right of first refusal if and when the owner or his estate decides to sell.

Be sure to record a "memorandum of option" so after the elderly owner dies, your option clouds the lot title and you can exercise your purchase option.

DEAR BOB: I thought you should know about the new owner's "enhanced" title insurance policies, which provide expanded coverage. As a lawyer, I recently had a case where a home buyer with enhanced title insurance had to bring an unpermitted home improvement up to local building code standards. The title insurance company paid the more than $18,000 cost under the home buyer's enhanced title insurance policy. -- Daniel B.

DEAR DANIEL: Most title insurance companies now offer enhanced homeowner's title insurance policies with greater than normal coverages, in return for an enhanced title premium. Where I live, most title insurers offer the greater coverage policies at about 10 percent extra premium as standard unless the homeowner asks for the lower-priced owner's policy with lesser coverage. Enhanced homeowner title protection includes access to the property, zoning violations, easement coverage, encroachment removal, building permit violations, and even inflation coverage.

DEAR BOB: We recently bought a house in a semi-rural area. Our buyer's agent suggested we obtain a professional survey, which cost us $750. We submitted the survey to the title insurer and had it insured as part of our owner's title insurance policy. After we moved in and had some free time, we went to meet our new neighbor. I gave him a copy of our survey, which shows the fence between our properties is substantially on our side of the survey property line. He said the fence was built by his father to conform to the contours of the land. I hesitate to tear down the fence, which is on our land, because he has grazing sheep that I don't want running around my property. What should we do to reclaim our land? -- Hazel R.

DEAR HAZEL: Talk to a lawyer. There are several possibilities, such as granting your neighbor written permission to continue using part of your land, thus preventing a possible prescriptive easement, or notifying him of your intent to remove the fence, which belongs to you because it is on your land. However, unless the neighbor is cooperative, whatever you do is sure to cause trouble.

DEAR BOB: I want to exchange my rental property into a single-family dwelling that I plan to rent for the required time to meet the Internal Revenue Code 1031 rules. Then I want to move into that house as my primary residence so I can claim the $250,000 principal residence sale tax exemption of Internal Revenue Code 121. After establishing residency, can I then sell the house and avoid the capital gain taxes? What are the time frames? -- Michael S.

DEAR MICHAEL: Your plan is completely feasible if you follow the tax rules of IRC 1031 and IRC 121.

The first step is to make a tax-deferred exchange from your rental property into a rental house of equal or greater market value and equity.

To make this Starker exchange under IRC 1031(a)(3), the sales proceeds must be held by a qualified third-party intermediary beyond your constructive receipt. You then have up to 45 days to designate the replacement rental property and up to 180 days to complete the acquisition. The tax code doesn't specify a minimal rental time for the acquired property. Most accountants and tax lawyers suggest at least six to 12 months to show rental intent at the time of the trade.

After that, you can move into the acquired property to establish your principal residence. IRC 121 requires you to own and occupy your principal residence at least 24 of the 60 months before its sale. Then you can qualify for the $250,000 capital gain tax exemption (up to $500,000 for a qualified married couple filing jointly).

However, effective Oct. 22, 2004, because you acquired the rental house in an IRC 1031 tax-deferred exchange, you must own the acquired principal residence at least 60 months before qualifying for the IRC 121 exemptions.

DEAR BOB: For about two years, I rented a cottage in a semi-rural area outside of town. I was getting my life back together after a bad divorce and was grateful to the landlord who rented to me although my credit was poor at the time. I got a job as a retail clerk. It is a great place to work, and I received many quick little promotions. Today, I'm in charge of the "front end," which means managing the clerks and making sure customers walk away happy. My income rose substantially. When my landlord said he was thinking of selling the cottage, I asked him if I could buy (it has about an acre of land). He gave me his asking price, which seemed reasonable. But when I applied for a mortgage, I learned my credit report and FICO credit score still weren't good. So my landlord suggested I buy on a "land contract for deed." He sold the cottage to me for just $5,000 cash down. For more than a year, I faithfully made my payments to him on time. The mortgage broker, who originally rejected me, has now arranged a mortgage for me. But when she was ready to close, the title report showed my seller has several judgments against him, which he can't pay if I take title to the cottage. What should I do? -- Mark C.

DEAR MARK: Yours is a classic situation showing why I do not recommend land contract for deed home purchases, even though they sound like a good deal for a buyer who has less-than-perfect credit.

When you are ready to obtain the title deed, after faithfully making your on-time monthly payments to the seller, your seller is now unable to deliver marketable title to you. This happens entirely too often.

Unfortunately, there isn't much you can do if your seller can't pay those recorded judgments so he can deliver marketable title to you. Sure, you can sue him for breach of contract damages, but it sounds like your landlord is a deadbeat who doesn't pay his judgment debts.

I suggest consulting a lawyer. But don't get your hopes up too high because it sounds as if you are dealing with a deadbeat seller who won't or can't pay his judgments.

DEAR BOB: I recently received a letter from a title insurance company stating they are processing a foreclosure on a property owned by an individual who owes me money. I have a recorded judgment against him for $2,802. There is also another recorded judgment against him for $932. The foreclosure is on a mortgage trust deed that was recorded in 2004. If this property is sold at the foreclosure sale on that first mortgage, who gets paid first, second and last? -- Paul B.

DEAR PAUL: Presuming someone at the foreclosure sale bids more than the amount owed on that mortgage, the excess funds will then go to you and that other recorded judgment lien holder in the order you recorded your liens.

If you recorded first, then you are paid first after the mortgage is paid off. However, if you recorded after your competitor lien holder, the competitor is paid first and you are paid any remaining excess cash.

However, if you are not paid in full from the excess foreclosure sale proceeds, your recorded judgment is still valid against the debtor (but not against the foreclosed property). If your debtor owns other assets, you can seek payment from them.

DEAR BOB: I am retired, age 66, on Social Security disability with an 814 FICO credit score. My house is worth $950,000 and I owe $160,000, with a $952 per month payment. I have an unused $75,000 home equity credit line. I am married, so we can claim up to $500,000 tax-free profit if we sell. I don't want a senior citizen reverse mortgage because my mortgage is at 5.75 percent fixed interest and reverse mortgages have adjustable interest rates. Should I sell? Or should I refinance with a "no-doc" mortgage, although my monthly income is only $1,700? -- Thomas B.

DEAR THOMAS: Although you didn't directly ask, I presume your real question is, what can we do to increase our monthly income? Fortunately, you are in a great situation with that huge equity in your home.

If you and your wife want to stay in your home, I suggest you get a reverse mortgage and select either lifetime monthly income or a large lump sum. Obviously, part of the reverse mortgage maximum will be used to pay off your small $160,000 mortgage.

Yes, you will be spending your huge home equity so you can enjoy a better lifestyle, but you deserve that. Forget that reverse mortgages have adjustable interest rates whereas you now have a 5.75 percent fixed interest rate. Frankly, I don't know how you and your wife survive on $1,700 per month with a monthly mortgage payment of $952.

Consult a reverse mortgage lender who represents the Federal Housing Administration, Fannie Mae and Financial Freedom Plan.

DEAR BOB: I own a home in Florida, which is my legal main residence. I spend about six months every year in that house and about six months in my other home. If I sell the Florida home, I assume I will have no capital gains tax because it is my primary residence. Can I then move to my other home, making it my principal residence for 24 out of the last 60 months and claim the home sale tax exemption again? -- Jim B.

DEAR JIM: Yes. It seems you understand Internal Revenue Code 121 well. The IRC 121 exemption can be used once every 24 months. To qualify, you must own and occupy your principal residence at least 24 of the 60 months before its sale.

If you are single, up to $250,000 of your capital gains from the home sale will be tax-free. If you are married and both spouses meet the occupancy test (only one spouse need be on the title), then up to $500,000 of your capital gains are tax-free if you file a joint tax return in the year of the home sale.

DEAR BOB: As a real estate broker, I am often questioned about the accuracy of square-foot measurements. I say taking outside measurement is close enough, but my insurance agent says it must be done inside room by room. What is the industry standard? -- Ken McN.

DEAR KEN: There is no industry standard for measuring residential square footage. Insurance agents and appraisers usually use the outside perimeter and then apply a construction cost of $150 per square foot, for example, for replacement cost estimate purposes. Of course, when measuring the rooms, you would use the inside useable square footage as measured from wall to wall.

As a real estate broker, you must be especially careful to never say a room measures 200 square feet, or 10 feet by 20 feet. Instead, always say the room is about 200 square feet or about 10 feet by 20 feet.

If you take the measurements from the seller's house plans, or even from city records, always quote your source, such as "according to city records." Another "weasel clause" used on many multiple listing service forms is, "Information believed to be reliable but not guaranteed."

DEAR BOB: How can I avoid capital gains tax when selling my free-and-clear vacant lot? Is the only way to do an Internal Revenue Code 1031 tax-deferred exchange? -- Anna N.

DEAR ANNA: Yes, you can defer capital gain tax on the sale of your vacant lot by making an IRC 1031 tax-deferred exchange for another investment or business property. To qualify, the acquired property must equal or exceed the lot's market value and equity.

However, if the lot adjoins your principal residence, and you sell both the lot and your home within 24 months, then the lot's capital gain can also qualify for the Internal Revenue Code 121 tax exemption up to $250,000 (up to $500,000 for a married couple filing jointly). That's presuming you owned and occupied your principal residence at least 24 of the 60 months before its sale. Consult a tax adviser for details.

DEAR BOB: Recently I told my lawyer to include the name of my wife on my home as "joint tenancy with right of survivorship." When I read the quit claim deed, however, it says "tenancy by the entireties." Is this the same thing? -- Juan A.

DEAR JUAN: No. Tenancy by the entireties is a special version of holding title as joint tenancy with right of survivorship. It is allowed only when a husband and wife hold title to real estate in some states.

The legal result is the signatures of both spouses are required to sell or encumber tenancy by the entireties property. When one spouse dies, the surviving spouse then owns the entire property, the same as with joint tenancy. The deceased's will has no effect on either joint tenancy or tenancy by the entireties property.

By comparison, if title is held in joint tenancy, one joint tenant can usually convey or encumber their share alone (thus breaking up the joint tenancy and creating a tenancy in common without the other joint tenant's approval). But this isn't possible when title is held as tenants by the entireties.

Along with the District of Columbia, states that allow tenancy by the entireties title between husband and wife are Alaska, Arkansas, Delaware, Florida, Hawaii, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Vermont, Virginia and Wyoming.

In my opinion, a far better way for spouses to hold joint title to any real estate is in their revocable living trust to avoid probate costs and delays. A second major living trust advantage is, if a co-owner becomes incapacitated such as with Alzheimer's disease or a severe stroke, the successor trustee (usually the other spouse) can continue managing the property, even selling or refinancing it.

However, if title is held in joint tenancy or tenancy by the entireties, a court-appointed conservator or guardian is required to represent the incapacitated co-owner.

DEAR BOB: I applied for a fixed-rate mortgage. Everything is correct on the Good Faith Estimate of Borrower's Settlement Costs form I was given. But at the closing, I was given a Truth-in-Lending Disclosure which showed the annual percentage rate is higher than my fixed mortgage interest rate. What is the relationship of these two interest rates? -- Ryan H.

DEAR RYAN: The APR is almost always higher than the mortgage's interest rate. The APR is supposed to be a true interest rate after considering up-front borrowing costs.

The reason the APR is usually higher is because it includes costs such as the loan fee, called points, which is usually amortized over 10 years.

To illustrate, your fixed interest mortgage rate might be 6 percent. That's the interest rate you will actually pay. However, if you paid up-front costs, such as a loan fee, your APR might be 6.125 percent for the same mortgage. For more details, ask your loan officer to explain further.

DEAR BOB: Our home is located on 3.5 acres of hilly land. When we purchased about six years ago, we obtained a survey, which is part of our title insurance policy. Recently, the large property next to our property was subdivided and staked by a surveyor. He politely informed us our fence is about 12 feet on the neighbor's side of boundary for a length of about 150 feet. The developer threatens to tear down our fence. But our survey shows the fence is on the boundary. What should we do? -- Jess W.

DEAR JESS: Contact the title insurance company that insured your survey as part of your owner's title insurance policy. The company should turn the matter over to their title lawyer, who will probably recommend obtaining a court temporary injunction to prevent the neighbor from tearing down your fence until the boundary dispute can be resolved.

The next step will probably be for you or the neighbor to bring a quiet title lawsuit to determine the true boundary location. Your title insurer should pay the costs of your defense because a loss is threatened. Although it doesn't happen often, surveyors do make mistakes. Thankfully, your survey accuracy is insured so if you suffer a loss of part of your property, the title insurer must compensate you.

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