DEAR BOB: We are closing in a few weeks on the purchase of our retirement home. As you often suggest, although we are both 80, we are arranging a mortgage so we don’t tie up all our cash in our home. We are getting the mortgage through the builder’s lender because of a $2,500 incentive toward our closing costs. But we must pay one-eighth percent extra mortgage interest because we do not want an escrow account for the property taxes and insurance. When we questioned this extra cost, the lender said it is legal and everyone does it. Is that true? – John L.
DEAR JOHN: Congratulations on buying a home at age 80. Many mortgage lenders do not require escrow accounts for payment of your property taxes and insurance.
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However, some borrowers enjoy giving their lenders “free money” each month as they pay one-twelfth of their estimated property taxes and insurance into an escrow account along with their mortgage principal and interest.
In the last year or two, mortgage lenders have discovered they can legally charge escrow waiver fees, typically $200 up to $1,000, for allowing borrowers the privilege of paying their property tax and insurance bills directly. Even in states where escrows can’t be required except for FHA, VA and PMI (private mortgage insurance) mortgages, lenders can still charge escrow waiver fees.
But your lender is using a far more profitable scheme. By adding one-eighth percent to your mortgage interest rate, the lender raised the yield and marketability of your mortgage in the secondary mortgage market.
If I were in your situation, I would agree to a mortgage escrow in return for reducing the interest rate by one-eighth percent. But keep a very close eye on your mortgage lender to avoid over-payments and to be sure the taxes and insurance are paid on time.
MUST CONDO ASSOCIATION PUBLISH MINUTES OF ITS MEETINGS?
DEAR BOB: I look forward to your weekly articles. You recently encouraged a new condo owner to attend the condo homeowner association meetings and get involved. We have owned our condo since 1989. I served on the board of directors about 10 years. But our board currently refuses to let association members attend their meetings. We are self-managed without professional management. I have a sense of bewilderment as to what is happening at the meetings. The minutes aren’t even published. Is this legal? – Char S.
DEAR CHAR: The condo laws in most states require the homeowner association meetings be open to the members and the minutes of those meetings be available for inspection by members.
If your condo association is not publishing and distributing copies of their meeting minutes, and allowing the members to attend, you’ve got a BIG problem. I suggest you consult a local attorney who is familiar with your state’s condo laws.
IF YOU’RE NOT A RESIDENT, NO WAY TO CLAIM $250,000 TAX BREAK
DEAR BOB: Almost 10 years ago, I helped my daughter buy a Chicago condo by making the down payment. It turned out to be a very profitable investment. She lived in it until recently when she married and moved to the suburbs. She recently sold the condo at a net profit about $375,000. Half is hers. Half is mine. Her capital gain is tax-free under that $250,000 exemption. But what about my share? Do I get stuck paying tax? – Helen R.
DEAR HELEN: Yes, you are the “stuckee.” Because the condo was not your principal residence for at least two of the last five years, you do not qualify for the $250,000 tax exemption of Internal Revenue Code 121. For more details, please consult your tax adviser.
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