DEAR BOB: About six years ago, my aunt insisted on putting my name on the title to her home as a joint tenant with right of survivorship. She helped me many times over the years, as my mother died when I was 14. We are very close. But in the last two years, she has become quite senile. I think it is Alzheimer’s disease, but her doctor isn’t sure. About six months ago, she fell and broke her hip. The surgery didn’t go well. She has lived in a convalescent home ever since. I try to visit her every two weeks, but I live about 200 miles away so it is difficult. The nurses tell me she “perks up” when I phone to tell them I will be visiting on the weekend. But the last three or four visits, I’m not sure she even remembers me. The convalescent home administrator told me my aunt needs to be moved to a “Medicaid home” (meaning lower-quality care) unless her bills can be promptly paid (about $13,000). Her vacant, free-and-clear house is worth at least $450,000. I phoned her attorney who said my aunt can’t sell her house if she doesn’t understand what she is doing. What should I do? – Janet R.

DEAR JANET: Congratulations on looking out for your aunt’s best interests. The obvious solution is to have your aunt declared incompetent by a local court and a conservator or guardian appointed to represent her interests, including sale of the house.

Purchase Bob Bruss reports online.

I must hasten to explain this problem could have been completely avoided if your aunt, while she was competent, created a revocable living trust, deeded title to her home and other major assets into her living trust, and named you or someone else as successor trustee.

Then, when she died or became incapacitated (as determined by her physician), her successor trustee (presumably you) could decide what to do with her home. Although you are her joint tenant co-owner, unfortunately you can’t sell your aunt’s house without her approval, which it sounds like she is now incapable of giving.

If her attorney is unwilling to petition the local court for appointment of a conservator or guardian for her (presumably you), I suggest you retain another attorney before the convalescent home transfers her to a Medicaid lesser-quality facility.

Details on living trust benefits are in my special report, “24 Key Questions Answered: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays,” 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.

MORTGAGE ESCROW RULES DETERMINED BY LOAN TYPE

DEAR BOB: I especially enjoyed your recent explanation of mortgage escrows. I have had nothing but trouble with my mortgage lender who collects my property taxes and homeowner’s insurance along with my mortgage payment each month. However, I have a VA mortgage so I know I am “stuck” with escrows until I pay off my VA mortgage. But last year the bank failed to pay my property taxes on time and the tax collector imposed a $204 penalty. The lender took the $204 out of my escrow account. I caught them and threatened to expose their scam and take them to local Small Claims Court. As a result, the lender refunded my $204 to my escrow account. Just thought you should know – Stephen M.

DEAR STEPHEN: As you probably know, VA, FHA and PMI (private mortgage insurance) home loans require mortgage escrows for collection of one-twelfth the homeowner’s property taxes and hazard insurance premiums each month.

The big problem is many mortgage lenders fail to pay the property taxes and hazard insurance on time, thus incurring penalty fees. Unfortunately, many mortgage lenders deduct those penalty fees out of the innocent homeowner’s escrow account without permission.

Congratulations to you for catching your dishonest lender. Unfortunately, many more get away with their tricks because most borrowers aren’t so vigilant of their escrow impound accounts.

PURCHASE OPTION CAN TIE UP ADJOINING PROPERTY

DEAR BOB: There is a lot next to my commercial property that I want to acquire for extra parking. The owner is elderly and I do not want this lot to get away from me. How can I lock in a purchase deal now, although he doesn’t want to sell? Can I start paying him now for the property with the monthly payments to be credited to my purchase price? It would be win-win for both of us – Shanon K.

DEAR SHANON: The situation you describe is perfect for a purchase option. If you want to use the lot now for parking, you can lease the lot with an option to purchase later.

You can write the purchase option so all or part of your payments to the lot owner will be credited toward your option purchase price agreed upon now. Or, you could lease the lot now with a right of first refusal if and when the owner or his estate decides to sell.

Be sure to record a “memorandum of option” so when the elderly owner passes on, your option clouds the lot title and you can then exercise your purchase option. For details, please consult a local real estate attorney.

ENHANCED OWNER’S TITLE INSURANCE OFFERS MANY BENEFITS

DEAR BOB: I read your great articles religiously every weekend. Just thought you should know about the new owner’s “enhanced” title insurance policies, which provide expanded coverage. As an attorney, I recently had a case where a home buyer with “enhanced” title insurance had to bring an unpermitted home improvement up to local building code standards. The title insurance company paid the more than $18,000 cost under the home buyer’s “enhanced” title insurance policy – Daniel B.

DEAR DANIEL: Thank you for that valuable information. Most title insurance companies now offer “enhanced” homeowner’s title insurance policies with greater than normal coverages (in return for an “enhanced” title premium, of course).

Where I live, most title insurers now offer the greater coverage policies at about 10 percent extra premium as standard unless the homeowner asks for the lower priced owner’s policy with lesser coverage.

“Enhanced” homeowner title protection includes access to the property, zoning violations, easement coverage, encroachment removal, building permit violations, and even inflation coverage.

REMOVING A FENCE IS CERTAIN TO CAUSE TROUBLE

DEAR BOB: We recently bought a wonderful home in a semi-rural area. Our super-sharp buyer’s agent suggested we obtain a professional survey. It cost us $750 and was very worthwhile. We submitted the survey to the title insurer and had it insured as part of our owner’s title insurance policy. I didn’t know you can do that but our Realtor told us. After we moved in and had some free time, we went to meet our new neighbor. I gave him a copy (not the original) of our survey, which shows the fence between our properties is substantially on our side of the survey property line. He said the fence was built by his father to conform to the contours of the land. I hesitate to tear down the fence, which is entirely on our land because he has grazing sheep, which I don’t want running around my property. What should we do to reclaim our land? – Hazel R.

DEAR HAZEL: Please consult a local real estate attorney. There are several possibilities, such as granting your neighbor written permission to continue using part of your land (thus preventing a possible prescriptive easement), or notifying him of your intent to remove the fence, which belongs to you because it is on your land. Unless the neighbor is cooperative, whatever you do is sure to cause trouble.

HOW TO MAKE TAX-DEFERRED EXCHANGE INTO YOUR HOME

DEAR BOB I want to exchange my rental property into a single-family dwelling, which I plan to rent for the required time to meet the Internal Revenue Code 1031 rules. Then I want to move into that house as my primary residence so I can claim the $250,000 principal residence sale tax exemption of Internal Revenue Code 121. After establishing residency, can I then sell the house and avoid the capital gain taxes? What are the time frames? – Michael S.

DEAR MICHAEL: It has been a long time since I had a question like yours. Your plan is completely feasible if you follow the tax rules of IRC 1031 and IRC 121.

The first step is to make a tax-deferred exchange from your rental property into a rental house of equal or greater market value and equity.

To make a Starker exchange under IRC 1031(a)(3), the sales proceeds must held by a qualified third-party intermediary beyond your constructive receipt. You then have up to 45 days to designate the replacement rental property and up to 180 days to complete the acquisition.

The tax code doesn’t specify a minimal rental time for the acquired property. Most CPAs and tax attorneys suggest at least 6 to 12 months to show rental intent at the time of the trade.

After that, you can move into the acquired property to establish your principal residence. IRC 121 requires you to own and occupy your principal residence at least 24 of the 60 months before its sale. Then you can qualify for the $250,000 capital gain tax exemption (up to $500,000 for a qualified married couple filing jointly).

However, effective Oct. 22, 2004, because you acquired the rental house in an IRC 1031 tax-deferred exchange, you must own the acquired principal residence at least 60 months before qualifying for the IRC 121 exemptions. Your tax adviser has full information.

More details are in my special report, “How the New Tax-Deferred Real Estate Exchange Rules Can Make You Very Wealthy,” 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.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

***

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