DEAR BOB: My stubborn mother, 78, owns her home free and clear, is alert and in quite good health. The house is worth about $450,000. When I recently visited her (I live about 1,500 miles away so don’t get to see her often), I was shocked at how run down her house has become. The roof leaks. I could smell the mold. She finally admitted to me, after a glass or two of champagne at Sunday brunch, that she has outlived her assets, except for Social Security and a small pension. When I suggested a reverse mortgage, which you often recommend, she said her banker recommends a home equity loan to pay for a new roof and other repairs. She wants to stay in her house “forever,” especially because she loves her garden. What do you suggest? –Thomas R.
DEAR THOMAS: The big drawback of a home equity credit line is it requires monthly payments of at least interest only. If your mother is on limited income, how will she be able to afford the monthly interest payments?
Purchase Bob Bruss reports online.
As you know, I often suggest a senior citizen reverse mortgage should be obtained only if the homeowners expect to stay in their home at least five years. The key reason is the up-front reverse mortgage fees are quite expensive unless amortized over five years or longer.
A reverse mortgage could solve your mother’s financial problems by providing a lump sum for a new roof and other repairs, and perhaps even for a frivolous expenditure such as a trip around the world or a new car. Then she can use the balance of her entitlement to provide a credit line or lifetime monthly income, as she chooses.
To locate reputable local reverse mortgage originators for your mother, I suggest you go on the Internet to www.reversemortgage.org and then click on her home state. She should compare the FHA, Fannie Mae, and Financial Freedom Plan reverse mortgages. More details are in my special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” available for $5 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.
NO HOMEOWNER INSURANCE FOR MOLD DAMAGE
DEAR BOB: A few months ago we started noticing a mystery smell in our home, which was built in the 1960s. It doesn’t have a basement. At first, we got used to it. But when friends visit, they try to be polite but they often comment about the smell. Finally, a neighbor said, “I bet you have mold under the house or in the walls.” Long story short, we hired a “mold inspector” who said there was a leak in the flashing around our chimney, which was causing extensive mold as the water drips under the house. We had the roof flashing repaired, but the smell persists. Our homeowner’s insurance company refuses to pay to remove the mold beneath the house. Do we have any recourse? –Marge W.
DEAR MARGE: Most homeowner insurance policies now exclude coverage for damage caused by mold and fungus unless you purchased a specific mold/fungus endorsement at extra cost.
Consider yourself fortunate if you and your family members have not suffered any adverse health reaction to the mold. Most homes have some mold, but usually not serious. Without insurance, however, you are on your own to remediate the mold. Of course, when you sell the house, you must disclose the mold problem to your buyers.
HOW ARE CONDO MONTHLY FEES DETERMINED?
DEAR BOB: My parents are closing on the purchase of a condominium next month. I think they will be paying too high a monthly fee relative to other units in the complex with larger square footage. Are condo monthly fees based on square footage or the price paid for the condo? –Sue S.
DEAR SUE: Condominium homeowner association monthly fees are determined by the method specified in the conditions, covenants, and restrictions (CC&Rs). Many condo CC&Rs set the monthly fees based on unit square footage. Others use the number of bedrooms. Still others use a flat fee system.
I have never heard of monthly fee assessments based on the purchase price of the individual condo unit. Please read the CC&Rs (or ask the homeowner association treasurer how the monthly fees as assessed).
NO RECOURSE IF BORROWER DIDN’T READ THE LOAN DOCUMENTS
DEAR BOB: My wife and I refinanced our house. We were very disappointed to discover our new loan allows for negative amortization, which was never disclosed to us by the mortgage broker who was recommended by a close relative. We trusted the mortgage broker. Originally, we wanted to take out $50,000 to pay some debts, but were convinced to borrow the maximum of 80 percent of market value. We admit we made a big mistake in not reading the mortgage documents before signing. Now we feel we were misled big time. What can we do to make the mortgage broker responsible to the full limit the law will allow? –Segundo C.
DEAR SEGUNDO: Sorry, you have no legal recourse against the mortgage broker for not disclosing the negative amortization possibility of your home loan. It is up to home loan borrowers to read their mortgage documents before signing.
For readers not familiar with negative amortization, that term means the interest rate on an adjustable-rate mortgage can increase faster than the borrower’s monthly payment adjusts. The result can be unpaid interest is added to the mortgage balance. In the future, don’t be so trusting of your relatives.
WITHOUT CO-OWNER’S SIGNATURE, HOME CAN’T BE SOLD
DEAR BOB: My son’s wife deserted him and their two daughters over a year ago. She pays her $400 half of the mortgage and is now living in the same county with another man, but is incommunicado with her address and phone unknown. My son cannot keep up with the home expenses and I have assisted him. But Realtors will not accept a listing for the sale of the house without her cooperation. Can he get a court order to force her to agree to a sale of the $350,000 residence, which has a mortgage of about $90,000? –Paul R.
DEAR PAUL: Presuming there has been no divorce or legal separation agreement, and both spouse’s names are on the title, your son’s legal recourse is a partition lawsuit to force the sale of the house. He should consult a real estate attorney to be certain the wife is properly served with a summons and complaint.
STEPPED-UP BASIS APPLIES TO INHERITED RENTAL PROPERTY
DEAR BOB: You often mention inherited real estate and “stepped-up basis” to market value. I am 81 and plan to leave my rental condo to my stepson when I pass on. I have deducted about 10 years of depreciation on this property. If he sells it, will that depreciation be “recaptured” and taxed? –Mary W.
DEAR MARY: No. As I often say, death is the ultimate tax shelter. After you die and leave your rental condo to your stepson by will or in your living trust, he will receive a new “stepped-up basis” to market value on the date of your passing.
Uncle Sam will be grieving upon your death and he will forgive any depreciation recapture tax that you would have to pay if you sell that rental condo before you die. For more details, please consult your tax adviser.
DON’T TAKE ZILLOW.COM ESTIMATED MARKET VALUE SERIOUSLY
DEAR BOB. My wife and I bought our home on Oct. 4, 2005, for $660,000. The Zillow.com estimated market value is $812,000. But our neighbor’s house has a $653,000 estimated Zillow value. Our home is described as two bedrooms, 1.5 baths, and 1,853 square feet. It actually has 2.5 baths and is 2,200 square feet. How can Zillow place such a high market value on our home? In my opinion, the “Zestimate” is valueless. –Robert T.
DEAR ROBERT: The Zillow.com Web site is fascinating because it offers free “Zestimate” market values for approximately 60 million U.S. residences based on recent comparable nearby home sale prices and public records. But there is no guarantee of accuracy.
What I find remarkable about Zillow is it offers maps, or aerial photos, showing the residence location.
Personally, my home is located on an odd-shaped hilly parcel, but the aerial photo clearly outlines in yellow my lot boundaries. For another property I own, Zillow shows a map with nearby landmarks such as major streets, a lake, creek, and even a railroad track.
Zillow is a great Web site to show where a residence is located in relation to adjacent properties, plus an estimated market value. At least the free price is right.
The new Robert Bruss special report, “How to Obtain the Best Appraisal of Your House or Condo,” 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 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).