DEAR BOB: Is it necessary to pay for title insurance each time we refinance our home mortgage? We recently refinanced and the attorney who processed the transaction charged us for title insurance to benefit the lender. He said our original owner’s title insurance still covers us. Is this another mortgage lender rip-off? – Cathy H.
DEAR CATHY: No. Every mortgage lender I’ve encountered required a new lender’s title insurance policy when refinancing. The reason is because you might have incurred liens against your home, such as unpaid property taxes, judgments, income taxes and others.
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A few lenders will absorb the cost of lender’s title insurance by charging a higher-than-normal interest rate. But borrowers are usually better off paying for the lender’s title insurance.
However, virtually all of home equity lenders are so eager to make those very profitable loans they will usually absorb the closing costs, including lender’s title insurance.
ADDING CO-OWNER TO TITLE WON’T INSTANTLY INCREASE EXEMPTION
DEAR BOB: I am single and plan to sell my principal residence soon. The house has about a $500,000 profit. I have owned and lived in it for seven years. Will I qualify for the $500,000 exemption if I add my mother’s name on the title since she has been living with me for the past three years and I claimed her as a dependent? – Julia Y.
DEAR JULIA: No. For your mother to qualify for an additional $250,000 principal residence sale tax exemption under Internal Revenue Code 121, she must have owned and occupied the principal residence at least 24 of the 60 months before its sale.
She meets the occupancy test, but not the ownership test. Therefore, if you sell the house now, you only get a $250,000 tax exemption as the sole owner. However, if you add your mother to your title now, and wait 24 months to sell, then you each get a $250,000 tax exemption. For full details, please consult your tax adviser.
PITFALLS OF MAKING AN UNSECURED LOAN
DEAR BOB: Two years ago I lent the down payment to my daughter and her husband to buy a new home in California. The $29,000 home equity loan came from my home. I received a promissory note from them agreeing to pay me back in two years with monthly interest-only payments. They made two payments to me. I never heard from them again. I am nearly 65 and fear I don’t have enough equity in my home to sell it. I am not on their deed and the house is in the husband’s name alone. What recourse do I have? – Nancy P.
DEAR NANCY: Because you didn’t secure your promissory note with a mortgage or a deed of trust against the title of their home, your only alternative is to sue them in their local Superior Court for payment on the promissory note which is now overdue.
After you receive your judgment, then record an abstract of that judgment in the county where the home is located. Only then can you foreclose on your judgment lien.
But homeowners have many safeguards, such as the homestead laws where the home is located. However, when they try to sell the home, your unpaid judgment lien will show up on the title report and will have to be paid before clear title can be delivered.
Your situation is a very important lesson to all of us to never loan money on an unsecured promissory note, especially to relatives, and to always secure a loan with a recorded mortgage or deed of trust on real estate owned by the debtor. For full details, please consult a real estate attorney in the county where the home is located.
LOW-COST CONDEMNED HOUSE MIGHT BE WORTHLESS
DEAR BOB: I bought a fixer-upper house in Bluefield, W.Va., for $2,000. It is presently condemned and the city wants me to repair up. I want to either fix it up or put up a new house on the lot. Is it a worthwhile investment or should I just put it back on the market for sale as my friends are advising me? – Miriam G.
DEAR MIRIAM: Without knowing what the house would be worth after you fix it up, I can’t fully answer your question. Never having had the privilege of visiting beautiful Bluefield, W. Va., I have no clue how much that house might be worth after fix up.
Personally, I’m made substantial profits buying and fixing up condemned houses. However, to earn profits, the market value of nearby houses must make it worthwhile to spend money fixing up the run-down house.
Sometimes the best thing to do is tear down the house and either sell the vacant lot at a profit or move in a nice but inexpensive manufactured house and install it on a foundation. Please consult a local real estate agent to discuss your alternatives.
FOLLOW-UP TO BE SURE PAID-OFF MORTGAGE IS CLEARED FROM TITLE
DEAR BOB: I paid off my mortgage in February 2005. The mortgage lender is a private party. He says he recorded a satisfaction of judgment in April. But as of Oct. 22, 2005, the county recorder says they have nothing. I want my deed. How do I get it? – Linda G.
DEAR LINDA: If you paid off the mortgage, the lender should have recorded a satisfaction of mortgage document. Or, if you had paid off a deed of trust used in many states, the document is called a deed of reconveyance.
You are to be congratulated on paying off your mortgage and following up to be sure it is cleared from your title. Now is the time to do so. Unfortunately, too many borrowers forget about this important matter. Years later, when the property is sold, it is often very difficult to find the lender, especially private parties.
Now is the time to ask your lender for either the original or a copy of the recorded document. Be sure it was actually stamped and recorded by the county recorder of deeds.
If the lender refuses to comply with the state law that requires prompt, recorded proof of mortgage payoff, you might have to hire a real estate attorney in the county where the property is located.
WHEN A HOME EQUITY LOAN IS BETTER THAN REFINANCING
DEAR BOB: I own a house worth about $650,000, which I am renting to tenants. I only owe $62,000 on its mortgage. I also am buying my principal residence. Can I refinance and take $25,000 cash out of my rental property to make improvements on my primary residence? – Kim G.
DEAR KIM: Yes. However, it will be much easier and far less expensive for you to obtain a home equity credit line on your rental house.
If you only owe $62,000 on your $650,000 rental house, it will be a “no-brainer” for your bank to approve a $100,000 or greater home equity credit line on that property. The interest rate should be prime rate (or lower) with no closing costs.
TWO PROPERTY SALES; ONE IS TAXABLE
DEAR BOB: My retired parents live in a small town in their free-and-clear house my dad built in 1968 for about $23,000. They also own several acres that are seven miles outside of town that used to be an operating farm. However, no one has lived on the farm in 40 years. It is currently being rented to farmers who graze livestock. The farmyard lies on a bed of gravel so a quarry company has been excavating gravel for several years, paying my parents a yearly residual. They plan to sell their house and move to a larger city to be closer to family and better medical facilities. Can they sell their farm and their home to use that $500,000 tax exemption to buy another home? The $300,000 to $400,000 profit they will receive should buy them a nice home in a respectable part of town – Susan W.
DEAR SUSAN: I notice your e-mail is from Sioux Falls, S.D. I remember that city very well. When I was a little boy, my mom and dad took meon an auto vacation trip to the Black Hills and Mount Rushmore, but my dad forgot to go to the bank to get cash before we left. This was before ATMs. When he realized his error, we stopped in Sioux Falls. Dad went to the First National Bank, walked to the officer’s platform, explained his problem, showed his business card and ID, and asked to cash a $1,000 personal check. I couldn’t believe how fast the bank officer approved his check and welcomed us to Sioux Falls. After that, I thought my dad could do anything. We had a great vacation.
Your parents will be making two separate real estate sales. The sale of their principal residence qualifies for the Internal Revenue Code 121 tax exemption up to $250,000 (up to $500,000 for a married couple filing a joint tax return). To qualify, they must have owned and occupied their principal residence at least 24 of the 60 months before its sale. The fact they might buy another home is irrelevant.
However, the sale of the vacant land is not subject to any special tax breaks (except a tax-deferred exchange for another business or investment property). Therefore, your parents will owe capital gains tax on their profit from the land sale. For full details, they should consult their tax adviser.
HOW TO DETERMINE MINERAL RIGHTS ON YOUR PROPERTY
DEAR BOB: Is it possible to obtain the status of oil, gas, and mineral rights of a property that was involved in condemnation proceedings for the construction of a dam and reservoir in 1952? The U.S. Army Corps of Engineers was involved – Paul L.
DEAR PAUL: You can hire a title abstracter in the county where the land is located to research if any mineral rights were involved with that property. To locate a title abstracter, virtually every title insurance company officer in the county can refer you.
However, the general rule is that unless the property seller retained the mineral rights, the buyer automatically received those rights.
The new Robert Bruss special report, “How to Earn Up to $250,000 (or more) Tax-Free Every 24 Months Buying and Selling Houses,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
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