DEAR BOB: About five years ago I got a reverse mortgage on my house. It relieved me of a great amount of worry about retirement income, which didn’t stretch enough to keep up with inflation. You do a great service to older people like me. But you need to tell us more. When I received my 2003 property tax bill, I realized the market value of my home was nearly $100,000 higher than when I obtained my reverse mortgage. I phoned my reverse mortgage company, Financial Freedom Plan. The result is my monthly reverse mortgage payments to me were more than doubled. I can’t tell you how much that additional income means. Please tell all the other senior-citizen reverse mortgage holders out there to keep an eye on what their homes are worth now. – Lucy B.
DEAR LUCY: Shame on me for not explaining senior-citizen reverse mortgages can be periodically renegotiated (refinanced) as the market value of the home appreciates. But I’m glad you obtained a reverse mortgage five years ago and are very satisfied with your increased retirement income.
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You should see all the letters and e-mails I receive from senior citizens who say, in essence, the reverse mortgage up-front fees are too high.
Yes, they are expensive. But each senior-citizen reverse mortgage lender must provide prospective borrowers with a TALC (Total Annual Loan Cost) chart.
I’m glad you didn’t let your personalized TALC scare you.
For senior citizens who plan to stay in their home less than five years, the TALC interest rate is quite high. But the longer you stay in your home, the lower your TALC.
The reverse mortgage benefits are too numerous to list. But you are living proof why senior homeowners should not deprive themselves of the financial enjoyment of their retirement years. More details are in my new special report, “Secrets of Tax-Free Reverse Mortgage Income for Senior Citizen Homeowners.” It is available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com.
LIFE ESTATE RESIDENT IS CAUSING WASTE
DEAR BOB: When my mother died in 1991, my stepfather was granted a life estate in her house. Since then, he has let the house fall apart. What can I do to assure that when he passes on the house is in decent condition? – Charles M.
DEAR CHARLES: I will presume you are the legal “remainderman.” That means after the life tenant dies you will receive title to the house.
As a remainderman (to be politically correct, you are a remainderperson), you have a legal right to assure the life tenant is properly maintaining the house. He must pay the property taxes, mortgage interest (if any), fire insurance, and other upkeep costs.
If you can prove your stepfather is not properly maintaining the house and is allowing it to deteriorate, you have legal grounds for a lawsuit to terminate his life estate for “waste.” Please consult a local real estate attorney where the house is located for full details.
HEIR CAN’T BE FORCED TO SELL OR RENT A VACANT HOUSE
DEAR BOB: I have never seen this subject discussed in your articles before. But my wife reads your column every week and I hope she will take your advice. Several years ago, her parents died and left her their house where she grew up. It has great sentimental attachment for her. She will not rent the house. She will not sell the house. She will not even discuss what she wants to do with it. If I try to talk with her about it, she changes the subject or walks away. The last time we visited the vacant house, the lawn was dying and filled with weeds, the paint was peeling, and the inside looks bad. I say that a house that is not lived in deteriorates and loses value. How much will a house lose value in five or 10 years if it is neglected? – Don G.
DEAR DON: Nobody can give you an exact answer to your challenging question. Eventually, the deteriorating empty house will become worth just the lot value alone. Fortunately, in most communities the market value of homes that are not in hopeless condition continue to gradually appreciate, currently at a national 6 percent average annual rate, according to the National Association of Realtors.
Because the house has been vacant for more than 30 days, I presume no insurance company will insure the high risk of loss from fire, vandalism, liability and other causes. Your wife is incurring a dangerous situation where vandals might enter the house and damage or set it afire just for thrills.
If your wife absolutely refuses to sell the vacant house, perhaps you can talk her into renting it to good tenants who will take care of the home where she grew up.
If she is adverse to risk, you should explain the high possibility of loss for an uninsured vacant house and the personal liability she incurs if somebody is injured on the property.
LOW DOWN PAYMENT PAID OFF
DEAR BOB: Thank you for warning about the pitfalls of paying all cash for a home. We sold our old home and were flush with tax-free cash. But we decided to buy a townhouse with an 80 percent mortgage and 20 percent cash down payment. We are so thankful. Our homeowner’s association became involved in a lawsuit, and counterclaim, against the developer. It looks like there will be a settlement within the next year. However, we are so thankful we didn’t put all our cash eggs in one basket because my husband’s job will probably be transferred within a year and we will have to sell – Cheryl W.
DEAR CHERYL: I’m glad you didn’t pay all-cash for your townhouse. If you had done so, it might be very difficult to sell with a homeowner’s association lawsuit pending.
However, since you have a first mortgage of about 80 percent of market value, if you should have to sell, the mortgage lender will probably allow your buyer to assume the existing mortgage upon payment of an assumption fee, perhaps 1 percent.
That’s far better than having all your cash tied up if mortgage lenders refuse to make new loans because of the pending lawsuit.
CAN ONE JOINT TENANT SELL WITHOUT THE OTHER JOINT TENANT?
DEAR BOB: My mother and I are joint tenants with right of survivorship in her home. Several months ago, she suffered a debilitating stroke. I had to put her into a long-term care facility as she is getting progressively worse. I visit her every day. But some days she doesn’t even recognize me. Her doctor says she might live years. Or she could die at any moment. Meanwhile, her bills grow. Fortunately, I have her power of attorney so I have been able to pay her bills by selling off her common stocks. But her major asset is her free-and-clear home. Is there any way I can sell her home to pay her bills without her signature on the deed? – David C.
DEAR DAVID: Please consult a local attorney who specializes in elder law. Depending on state law where the house is located, the situation you describe may require court appointment of a conservator or guardian to represent your mother’s interests in the sale of the home. I presume you were added to the title, before her serious stroke, as a joint tenant for convenience to avoid probate when your mother passes on.
The circumstances you describe show why it is so important for homeowners to hold their titles in a living trust to (a) avoid probate and (b) provide for the possible incompetence of an owner.
Joint tenancy with right of survivorship will avoid probate, but it doesn’t avoid the problem you describe for a necessary home sale. More details are in my special report “Living Trust Pros and Cons for Avoiding Probate Costs and Delays for Your Heirs” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com.
HOW LONG MUST EXCHANGE PROPERTY BE HELD BEFORE ANOTHER EXCHANGE?
DEAR BOB: I wrote you before and received great information about Internal Revenue Code 1031 Starker tax-deferred exchanges for investment property. I just completed such a trade. It went very smoothly. Now my question is how long must I hold title to the acquired property before I can exchange again? – Ethel S.
DEAR ETHEL: There is no minimum holding time specified in IRC 1031 for a property acquired in a tax-deferred exchange. That means you can trade the acquired investment or business property as soon as you wish.
Of course, you must meet the IRC 1031 requirements, such as a trade up for a more valuable property without receiving any taxable “boot,” such as cash or net mortgage relief. For full details, please consult your tax adviser.
The new Robert Bruss special report, “Secrets of Buying Your Home or Investment Property for Nothing Down,” is now available for $4 sent to Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
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