DEAR BOB: After reading your reverse mortgage recommendation, I decided to apply for one. I also told my brother. He applied, too. His house was appraised at $140,000. Mine was valued at $350,000. Both of us were approved. His approval was for $90,000. But mine was for only $80,000. When I called the reverse mortgage company, they said the difference was because my brother is 70 and I am 68. Does this make sense? – Edwin M.
DEAR EDWIN: Yes and no. For readers not familiar with reverse mortgages, these tax-free, no-payment, lifetime mortgages are available to senior citizen homeowners at least age 62. The older the homeowner, the better, because these mortgages are based on (1) life expectancy and (2) home valuation.
Purchase Bob Bruss reports online.
Your brother is a perfect reverse mortgage candidate. With a modest-value $140,000 home, he probably applied for a FHA reverse mortgage. This is the most popular reverse mortgage choice because virtually every senior citizen homeowner is eligible. He can select a lump sum, credit line or lifetime monthly income payments.
But your fancy $350,000 home is different. Although you are only two years younger, because of the relatively low FHA reverse mortgage loan limit, you received a lower maximum reverse mortgage limit.
You should compare the higher-maximum Fannie Mae and Financial Freedom Plan reverse mortgages because of their more generous maximum amounts.
If the broker you consulted only offers FHA reverse mortgages, please go to www.reversemortgage.org to locate other nearby lenders offering all three choices. More details are in my special report, “Secrets of Tax-Free Reverse Mortgage Income for Senior Citizen Homeowners,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.bobbruss.com.
LIFE ESTATE TENANT MUST PAY THE PROPERTY TAXES
DEAR BOB: An elderly couple lived next door to us for 25 years. It was a companionship, not a marriage. The man owned the house free and clear. It was written in his will that if he died first, the woman could live in the house the rest of her days. After that, the house is to go to his children when she dies. Everyone, including his heirs, understood this. He died earlier this year. The woman is paying the utilities and upkeep. But she told us last week the heirs insist she pay the property taxes. Isn’t it wrong for the children, who are the owners of the home now, to insist she pay the property taxes? – Steve S.
DEAR STEVE: No. The situation you describe is a life estate. Legally, a life tenant must pay the property taxes, insurance, mortgage interest (if any), and not allow “waste” to occur. That means the life tenant must maintain the property.
The heirs are known as “remaindermen.” To be politically correct, I suppose they are “remainderpersons.”
They are legally correct the life tenant must pay the property taxes. If she fails to do so, the remainderpersons could terminate the life estate. For more details, your neighbor should consult a local real estate attorney.
COLLECTING JUDGMENT AGAINST A BAD CONTRACTOR ISN’T EASY
DEAR BOB: I recently paid a process server to hand-deliver a summons to the contractor who poorly repaved my driveway. I won the case by default for $2,700, as he didn’t show up in court. Now, to collect my judgment, I must pay $170 to the sheriff to see if the contractor has any assets I can take to satisfy my judgment. I was told at the court house I can have a lien placed on his house. What are my chances of ever being paid? I am 75 and he is about 40. What happens to my lien if I die before he sells or refinances? – Jack O.
DEAR JACK: Winning your judgment by default is just the beginning. Now you have to find some assets of the judgment debtor, which you can attach.
When you record your judgment lien, it automatically attaches to any real estate the debtor owns within your county. However, if all the defendant owns is his personal residence, it is very difficult to foreclose a judgment on a debtor’s home.
In most jurisdictions, you can call the debtor in for a court “order of examination.” That means the debtor must appear before a judge and reveal what assets he owns, such as bank accounts, cars, boats, etc.
You may be able to attach such assets to collect your judgment. For example, years ago I attached a debtor’s beloved golf clubs to collect a debt. The debtor instantly made arrangements to pay his judgment to me. Or you might want to hire a bill collector who will take 33 percent of the collection. For more details, please consult a local attorney.
LETTER FROM 13-YEAR-OLD BROUGHT BACK GOOD MEMORIES
DEAR BOB: As usual, your articles are worth the cost of the newspaper. That letter you ran a few weeks ago from the parents of the 13-year-old who wanted to start investing in real estate brought back good memories. When I was 16 and attending high school, I was a gardener for nine houses. One day I noticed four men in suits walking around a vacant house next to a house I gardened every week. I went over and asked if they wanted to hire me as a gardener. They told me they were from Wells Fargo Bank and were trying to decide what to do with the foreclosed house. I asked them how little they would take as a down payment if I agreed to do the gardening and fix up. They said I could buy for nothing down if I supplied weekly updates on my work, including receipts. I spent six weeks replanting the lawn and fixing up. Long story short, I bought that house for nothing down at age 16 – Lancaster A.
DEAR LANCASTER: Congratulations. Although you were only 16 at the time, you could take title, as a minor, to that house. But you couldn’t convey it until you became 18.
That’s why I advised the parents of that 13-year-old they should be ready to take title, as trustees, to the properties he decides to buy for nothing down.
Several readers asked for the name of the book I recommended that young man study. It is “How to be a Quick-Turn Real Estate Millionaire” by Ron LeGrand (available in stock at local bookstores, public libraries and www.amazon.com).
HOW ARE CONDO MARKET VALUES DETERMINED?
DEAR BOB: How does the market value of condominiums and cooperative apartments hold up compared with the value of single-family houses and townhomes? – Joel S.
DEAR JOEL: Until the last few years, the market values of condos and co-ops did not appreciate as rapidly as single-family houses and townhomes. But in the last few years, condos and co-ops have had much improved appreciation rates.
According to the National Association of Realtors, the annual market value appreciation rate for condos is almost as much as for single-family houses. I suspect this is because condos appeal to many first-time home buyers who are not yet able to afford a single-family house.
However, the market value of condos (and co-ops) is determined by recent sales prices of similar units in the same complex and nearby condo complexes. As the owner of a second-home condo, to keep informed of its value I frequently check up on recent sales prices of similar condos in my complex and the adjoining similar complexes.
ACQUIRING ADVERSE POSSESSION TITLE REQUIRES OCCUPANCY
DEAR BOB: I enjoyed your recent item about stealing real estate by adverse possession. Please give me the details how to do it. How many years must I pay the property taxes? – Marvin W.
DEAR MARVIN: The exact adverse possession rules vary in each state. The general rule is you must be able to prove open, notorious (obvious), continuous, exclusive, and hostile (without permission) occupancy of the entire parcel, plus payment of property taxes, for the number of years required by state law.
California has the shortest time period of just five years. Other states require up to 20 and even 30 years. For adverse possession rules in the state that interests you, please consult a local real estate attorney.
$250,000 OR $500,000 HOME-SALE TAX EXEMPTION APPLIES ONLY TO YOUR PRINCIPAL RESIDENCE
DEAR BOB: My wife and I plan to buy a duplex house and live in one unit while renting the other unit to a tenant. After living there the required two out of five years before selling, can we claim a $250,000 or $500,000 tax-free home sale profit? – Tso-Ming W.
DEAR TSO-MING: Your Internal Revenue Code 121 tax-free principal residence sale exemption of $250,000 applies only to the capital gain profit on the sale of your personal residence unit.
It does not apply to your capital gain on the rental unit, which will be taxable at the current 15 percent maximum federal tax rate (plus any state tax).
Because you are married, up to $500,000 of your capital gain will be tax-free, but only on the increased value of your personal residence unit. More details are in my brand-new special report, “Everything Homeowners Need to Know About the $250,000 and $500,000 Home Sale Tax Exemption,” 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. Questions for this column are welcome at either address.
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