DEAR BOB: Last October we sold our home and agreed to carry the 20-year mortgage for the buyers. They paid a $55,000 cash down payment and will be paying us 6 percent interest retirement income payments secured by our former home we would love to foreclose on. Just joking! They paid us all the monthly payments so far on time with no problem. But the husband phoned to ask me if I would be supplying him with an IRS 1099 form for his 2004 interest deduction. I asked my banker but he doesn’t know who I can get to do the calculations for each month’s payment of principal and interest. Who can I get to collect my monthly mortgage payments and do the calculations? Any suggestions? – Jack W.
DEAR JACK: Congratulations on creating a great retirement investment. Where else can you earn 6 percent interest secured by a mortgage on your former residence that you would love to foreclose on and resell for a second profit? Dream on. That’s not going to happen with a $55,000 cash down payment from your buyer.
Purchase Bob Bruss reports online.
It is your obligation to provide your borrower with an annual IRS 1099 form showing his tax-deductible home mortgage interest. Of course, this is ordinary taxable income to you.
For a reasonable fee, your tax adviser might agree to perform this service.
However, as for your much more difficult question about who will collect your monthly mortgage payments for you and perform the simple interest-principal allocation, I don’t have a good answer.
Years ago, my bank collected my seller-financed mortgage payments and sent me a monthly report. As I recall, they charged a $5 or $10 monthly fee. It was well worth it. But most banks have now stopped collecting payments for customers because it is labor intense and unprofitable. You’ll just have to cash those checks yourself.
NO FEDERAL LAW BARS CONDO RENTAL RESTRICTIONS
DEAR BOB: Recent efforts to limit the number of rentals in our 42-unit condo complex went for naught when an owner reported that a federal law prohibits a condo homeowner’s association from taking such action. Rental limitations were voted down. You have advised many times that condo associations should enact rules to limit the number of rentals because of the decrease in market values, difficulty obtaining mortgages when there are too many renters, poor maintenance, and absentee owners voting against assessment increases. Please advise homeowners there is no such federal law and it is an “urban myth,” which is probably spread on the Internet – Lang E.
DEAR LANG: You are correct. As a regular reader, you probably know I own a second home condo where I visit once a month. The homeowner’s association is currently studying the situation to prevent the problem of too many rentals from arising. Out of 63 units, we now have three rentals. The “old timer owners” are upset. I don’t blame them.
When the percent of condo renters rises above 20 percent to 30 percent, mortgage lenders either stop lending or charge higher interest rates. Also, renters often cause problems which owner-occupants dislike. You and your homeowner’s association are wise to take preventive action now before your condo complex has too many renters.
DON’T EXPECT LOCAL BANKER TO KNOW ABOUT REVERSE MORTGAGES
DEAR BOB: As an avid senior citizen reader, I especially enjoy your articles about reverse mortgages for us “old geezers.” As I am 76, in very good health, I am now considering a reverse mortgage to provide extra income for home repairs (new roof) and perhaps even a new car. But when I asked my bank branch manager about reverse mortgages, she looked at me strangely and said, “What’s that?” After I explained what I have learned from you about them, she said, “That sounds like a good deal. Maybe I should get one for my 72-year-old mother.” Where can I find reliable information about the three types of reverse mortgages you discuss? My home is worth around $450,000 – Jess H.
DEAR JESS: I am not surprised your banker is unfamiliar with reverse mortgages for senior citizen homeowners. Most banks do not originate reverse mortgages. They are losing out on a tremendous profit source. But that’s their problem.
As you probably know, there are three nationwide reverse mortgage lenders: FHA, Fannie Mae and Financial Freedom Plan. FHA has the lowest loan limits; Financial Freedom Plan has the highest limits. For that reason, you should check out all three reverse mortgage plans.
The best way to find a reputable local reverse mortgage representative for all three sources is at www.reversemortgage.org. 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 download at www.bobbruss.com.
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