DEAR BENNY: A few years ago, my son bought a small, but cute, home. My husband and I were empty-nesters with a large home. Recently, my husband passed away, my son got married and his wife is expecting. I would like to trade homes with my son, because he needs more space and I can’t take care of a huge home by myself. Is there any way of doing this without too much money involved?
I do not have any mortgage on my home, but my son does. If he could just continue to pay his current mortgage and his new taxes, etc., I would pay the bills on the smaller home. Is this possible to do without the nightmare of taxes, closing fees, etc? –Andrea
DEAR ANDREA: That’s a very interesting suggestion. There are a number of ways to accomplish your objectives. First, you and your son (and his wife) could just move in to each other’s house. You each could pay a nominal rent to each other, or you could just stay without paying any rent — although your son would have to continue paying the mortgage, the insurance and the real estate tax.
Under this approach, there would be no closing costs and no income tax to pay. But there is a danger to this. I do not know your financial situation so my response has to be general. If your husband just passed away and you sell the house to your son (or anyone) within two years from the date of his death, (and you did not remarry) you are eligible to exclude up to $500,000 of any profit that you will make on the sale. At the end of the two years, you can deduct only up to $250,000 of gain, so long as you have lived in the house two out of the five years before it is sold. Depending on how long you wait to sell, you may lose all of these tax benefits.
The same scenario is true for your son. So my suggestion is to sell your house to your son now and take back all of the financing. Get a lawyer to draft up the promissory note and deed of trust (also called a mortgage), and record the trust document among the land records where the property is located. Your son can sell his house to you, and he will sign the same documents for the difference between the sales price and the mortgage. Since this will be a transfer between mother and son, the lender will not be able to object to this transaction.
However, since these are general comments, you both should get separate attorneys to review and formulate the correct process.
DEAR BENNY: I am currently paying a mortgage on a condo in South Carolina that I no longer live in. It has been for sale for almost a year.
Shortly after putting it on the market, I had an offer, but the sale fell through because of problems with the community. The association’s current management company is proposing $800,000 worth of improvements to the community and wanted to raise our fees to more than $500 per month. I have now learned that a $100 monthly increase has been approved. One of the problems is that several owners are behind on their fees and the association is basically broke. Because of all the problems, I suspect that no lender will approve a mortgage on the unit even if I am fortunate enough to receive an offer.
I do not want to let the property go into foreclosure. I’ve thought of either signing over the condo to the association while I continue to pay the mortgage or donating the condo to a charity. I just want to get rid of the condo (even if it means I continue to pay the mortgage) and not have to deal with the fee or any future assessments or property taxes.
None of these solutions may even be feasible and I have no idea whom to contact to discuss my options. Should I see an attorney or a Realtor or someone else? Can you give me any advice? –Sharon
DEAR SHARON: I know it will not be a consolation to you, but unfortunately, you are not alone. I am hearing the same issues from many condo owners.
I understand that the association may be broke, but increasing condo fees will only lead to more delinquencies — and even less money for the association. Was the increase properly approved by the board? Did they follow the rules spelled out in your condominium legal documents? You should consult a local attorney on this issue.
Have you talked with the board? Do they understand what they are doing? Perhaps you should try to organize a group of concerned owners and sit down with the board. There are ways to trim expenses; often, there is a lot of "fat" in the budget that can be cut out. Some services can be delayed, while other services can be done once a week instead of daily.
If you cannot convince the board that they are making a big financial mistake, you have several options. If the association agrees (which I doubt they will), you can give the unit to the association. You can try to give it to a charity, but again, you will need its consent. They may be interested, but probably only if you agree to pay the condo fees and the real estate tax at least until the organization can sell the property.
You could also consider selling the unit at a fire sale, just to get rid of it. Before you do this, however, explain to the board of directors that you don’t want to do this but may have no alternative if they don’t reconsider the fee increase. …CONTINUED
DEAR BENNY: I have lived in a 27-unit condo building for almost 16 years. There is no mention in the condo documents about smoking restrictions.
Last week the six-member condo board informed me that I can no longer smoke on the lanai (porch) because a new resident living above me has complained about "secondhand smoke." The board met privately with no notice about the meeting to the residents and informed me by mail of their new ruling preventing me from smoking outside on the lanai.
Can the board legally restrict me from smoking on my lanai? –Robert
DEAR ROBERT: As you know, the issue of smoking and secondhand smoke is a hot-button topic nowadays. Landlords, legislators and even association boards of directors are struggling with how — and whether — they can impose restrictions.
If your legal documents (usually called "declaration" and "bylaws") permit smoking, the board cannot pass a rule that prohibits that. However, if your documents are silent, I believe that the board has the right to enact such a prohibition. However, the rule has to be properly adopted, pursuant to the provisions spelled out in the legal documents. Furthermore, the board cannot, by rule alone, prohibit smoking in your unit. They can deal only with common elements. Your lanai is, I suspect, a limited common element (LCE), because it is outside the physical boundaries of your unit. You have to read your documents to determine the extent of authority that the board has regarding such LCEs.
And although there is one Colorado case where the court upheld the right of the board to enact a no-smoking rule within units themselves, I believe that this can be accomplished only with a bylaw amendment, which takes a super-majority (two-thirds or three-fourths) vote of all association members.
You should consult local counsel to determine whether the board acted properly when it established that no-smoking rule.
DEAR BENNY: My husband, who is almost 70, and I still owe $69,000 on our home. He receives both Civil Service retirement, which will cease when he passes, and Social Security, but at 40 percent less because of the Civil Service retirement. I get Social Security disability and this will be my only income once he passes. We have approximately $27,000 in savings.
We have applied for a reverse mortgage. On the front end of the reverse mortgage we feel that this will be good for us. We understand it fairly well except for this question: "Does the "bank" — between the interest and the service charges — use up most of the equity so when our heirs have to sell the home or purchase it, in reality there will be little or no equity for them? We feel we are working with a responsible company, yet when this question comes up they say, "You don’t have to worry about it — you won’t be here." We need to do the reverse mortgage but don’t want to get taken even if we are not here. Do you know how this works? –Margaret
DEAR MARGARET: I know that many readers will disagree with me (violently or passively), but I believe that you should worry about yourselves, and not be concerned about whether you will be leaving something for your children.
The answer to your question is simple: The longer you live, the more the equity will be eaten away with the interest that keeps accruing. I suspect that the mortgage company you are working with should be able to produce a spreadsheet, showing what will be owed if you live another five years, 10 years, etc.
While I always say that a reverse mortgage should be considered as a last resort (having explored other alternatives such as refinancing to a lower rate, or selling your property to your children and renting back from them), from the facts you have described I believe you are a good candidate for a reverse mortgage. Sorry, heirs.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to firstname.lastname@example.org.
What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.