DEAR BOB: To avoid probate costs and delays when I pass on, I recently created a revocable living trust and deeded my condo title into it. I am 62 and plan to get a senior-citizen reverse mortgage in about eight years when my current interest-only mortgage converts to an amortized mortgage. Does having the condo title in my living trust prevent my getting a reverse mortgage? –Alan W.
DEAR ALAN: No. As long as you have sufficient equity in your principal residence, holding title to it in your revocable living trust won’t prevent you from obtaining a reverse mortgage.
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However, the reverse-mortgage lender will ask you to take the title to your home out of your living trust momentarily so the reverse mortgage can be recorded against the title.
After that is done, you can then have the attorney or title company re-deed the title back into your living trust. It’s a bit confusing but is done everyday.
HOW TO GET CASH OUT OF A TAX-DEFERRED EXCHANGE
DEAR BOB: I own a rental property that is 12 months from having its mortgage paid in full. I am considering an Internal Revenue Code 1031 tax-deferred Starker exchange for a rental property closer to my home. Must all the cash realized from the sale of my current rental property be used as a down payment on the property to be acquired, which will be of higher value, or can I take some cash out and just carry a larger mortgage? –Claudia McM.
DEAR CLAUDIA: The general rule of IRC 1031 is you must trade equal or up in both price and equity. That means if you take out any cash, called “boot,” it will be taxable to you.
However, if you want to take out cash, you can refinance either property before or after the trade, but not as part of the trade transaction. Please consult your tax adviser for exact details.
RISKS OF HAVING A NEW HOME BUILT
DEAR BOB: What are the risks of buying a brand-new house or having one built by a builder who might be in financial trouble? What happens if the builder goes bankrupt (a) while the house is being built, (b) within the builder’s one-year warranty period, or (c) before the entire neighborhood is completed? We are concerned because the builder has had some bad publicity with its mortgages and its stock price is way down. –Lori McM.
DEAR LORI: I think you already know the answers to your questions. Home builders are notorious for filing bankruptcy and leaving their home buyers without any recourse for bad construction or uncompleted developments.
A favorite trick of some builders is to form a separate corporation for each new subdivision, and after the development is completed dissolve the corporation to avoid future liability.
I would like to be more optimistic. Why not instead buy a home that is a few years old so you will be in an established neighborhood and any construction defects have probably been corrected?
The new Robert Bruss special report, “Pros and Cons of Living Trusts to Avoid Conservatorship, Probate Costs and Delays for Heirs,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 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).