DEAR BOB: We built a house on my wife’s parents’ 20-acre property. Their money was used to finance construction with the intent of our buying it from them when the house was completed. It is now almost finished. What is the best way to transfer ownership to my wife and me? The parents have the financial means to carry the mortgage, if that’s good for us. What about the legal matters? – Dale C.

DEAR DALE: Congratulations on choosing your in-laws very well. Seller financing is almost always the best way for a home buyer to finance a home purchase. Then you won’t have to deal with nasty mortgage lenders, loan committees or pay unnecessary mortgage junk or garbage fees.

Depending on the state where the property is located, a promissory note with a mortgage or deed of trust recorded against the title as the security device should be used. Your in-laws can transfer title to you and your wife with a quit claim deed.

However, when you take title, be sure to get an owner’s title insurance policy to be certain you and your wife receive marketable title without any surprise liens against the property. A local real estate attorney can handle the title transfer and paperwork details. Be sure to get a written attorney-fee agreement in writing so there is no misunderstanding about the attorney’s fees.

Partition lawsuit can break up bad property purchase.

DEAR BOB: Two years ago, I bought a house with a friend. After less than a month, she moved out and left me with the mortgage payments. We bought the house as tenants in common. About a year ago, I started a partition lawsuit. The process was delayed because we had to serve her by newspaper publication, as she couldn’t be found. I figured she wouldn’t show up and I would win by default. But she reappeared and now wants half of the equity. My lawyer says I will get credit for all the money I put into the house. Will we get a fair price for the house? What if I put in more than the house is worth? She put in absolutely nothing. Will the judge care that she ran away and left me with all the bills? – Karen G.

DEAR KAREN: I’m glad you have a good real estate attorney to present the facts to the judge. You should receive credit for the necessary bills you paid which improved the property.

The court should allow the property to be listed for sale with a successful local realty agent. You should be thinking now about who you want to get the listing. Be sure to interview at least three agents before selecting the best one.

However, don’t list the house for sale longer than 90 days, just in case you select a bad agent. Your real-estate lawyer can explain the exact procedure after the judge approves the partition sale of the house.

What is stepped-up basis for inherited house?

DEAR BOB: You recently answered a question for a lady about “stepped-up basis” for an inherited house. Please explain what stepped-up basis means. – Hugh M.

DEAR HUGH: When a property owner dies, and his or her real estate and other assets are inherited, the heir receives that property with a new “stepped-up basis” of market value on the date of the death. This is a major tax benefit of inheriting property.

For this reason, it is usually better to inherit property than to receive it as a gift before the owner dies. When property is gifted before death, the donee takes over the donor’s usually low cost basis. If the property is later sold, the gift donee then usually has a much larger capital gains tax than if the same property were inherited. For full details, please consult your tax adviser.

The new Robert Bruss special report, “Secrets of Tax-Free Reverse Mortgage Income for Senior Citizen Homeowners,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at (800) 736-1736 or instant Internet download at Questions for this column are welcome at either address.

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