DEAR BENNY: I read your recent column regarding bridge loans. I would like to look into a bridge loan for my parents, who are both in their 90s. They have moved into an independent living community and are almost out of money — and their home of 61 years will not sell.
Who do I call to get a bridge loan? It’s the only way they will be able to stay where they are because they are cash-poor. I hope you can steer me in the right direction. –Beth
DEAR BETH: A "bridge loan" is generally a loan to help a consumer buy another home before the old home is sold. When the old home is sold, the bridge loan is paid off. In effect, the loan is a "bridge" between the two houses.
So I don’t think you are referring specifically to a bridge loan. I see three possible alternatives. First, see if your parents can get a home equity line of credit (called a "HELOC"). I assume their house is free and clear of any mortgage. Talk with your local banker about this.
Second, they may be a candidate for a reverse mortgage. Generally, you have to actually live in the house to be eligible, but I understand that some lenders are willing to make the reverse even if you are renting the house.
Third, perhaps you can buy the house, have your parents take back a promissory note and secure the loan with a deed of trust (the mortgage document)? You can pay the note off monthly — with interest — and this way your parents will have a steady income.
And if they have lived in the house for two years out of the five years before you buy it, and file a joint income tax return, they can exclude up to $500,000 of the profit they will make on the sale to you.
DEAR BENNY: I am 74 years old and have been contemplating paying off my condo mortgage. The remainder of my condo loan is $98,000 at 6 percent. Can you help me through this? On the surface it seems like a good idea, but I’m not aware of all the particulars. I am in good health and will not need the $98,000 in the near future. –Dee
DEAR DEE: While you say your health is good and you will not need the money in the near future, what about the "far" future? There is no guarantee that your health will remain good.
I am concerned about people who are "house-rich and cash-poor." They have a house that is paid in full, but cannot afford the upkeep, the real estate tax or even the insurance.
Do you get any tax benefits from your mortgage? Can you deduct the mortgage interest? I recognize that this will not be a lot of money but it is a factor that should be in your thinking.
Now I know that readers will say, "Hey, Benny, she is probably getting less than 1 percent on that $98,000 and paying 6 percent interest, so why shouldn’t she just pay it all off?"
Yes, that’s a good argument, but if there is any possibility in the future that you will need that money, why take the chance of paying off the mortgage? Keep in mind that down the road when you need the money, it may be difficult — if not impossible — to refinance. Lenders may look at your income and your age, and decide that you are not a candidate for a refinance.
But let’s be positive. What if you pay off your mortgage and take out a home equity line of credit, or HELOC? Talk with your lender (or your local bank) about this. Most banks will either not charge you for obtaining such a loan or the charge will be relatively small.
With a HELOC, you have a checkbook in your desk drawer. When you need the money, you just write a check and then — and only then — are you charged interest on the amount of money you have withdrawn.
Alternatively, you can pay off the outstanding mortgage and consider obtaining a reverse mortgage. Recent developments at the U.S. Department of Housing and Urban Development (HUD) have dramatically reduced the upfront costs for reverse mortgages. You can either take a lump sum now, or get a monthly or quarterly check from the lender.
A reverse mortgage should not be obtained until you carefully do your research. Check with organizations such as AARP, which has very good information about these loans on its website (www.aarp.org). There are significant pros and cons to this, and you must educate yourself carefully before going that route.
DEAR BENNY: Our condominium board of directors (BOD) recently sent out proposed new parking rules to the community. Presently, the parking lot is a common element. At the hearing, approximately 60 people showed up for the meeting along with other people who e-mailed the BOD.
Ninety-five percent of the unit owners who responded to the proposal told the BOD they did not like the proposed parking rules and that the BOD should enforce the existing policy. As a result, the BOD wanted to do a survey of the community to see if the community believed there was a parking problem. The BOD received approximately 102 surveys (out of 404) of which 20 people voted that there was a parking problem — the other people said no.
The BOD passed the parking the policy. One BOD member stated, "It does not matter what the majority of homeowners want."
The policy requires owners to register their cars in our state with our condominium address. It also limits the number of parking passes per unit to two. There are always available parking spaces on the property — just not in front of an owner’s condo.
The community does not want a tow truck policing the community. We do not have a 24-hour desk for someone to obtain a parking pass in case they need a pass. What should we do? –Julie
DEAR JULIE: Is this a runaway board or do they have the authority to enact the rule despite overwhelming opposition? Too many times I have heard board members say, "We are the board, and we can do what we want."
I suggest that you organize a "protest group," have people contribute to a legal defense fund and retain a lawyer familiar with community association law. The lawyer should provide a legal opinion as to whether the board has the authority to enact such a rule.
If the board is unauthorized to enact the rule, then your group could consider filing a lawsuit to enjoin the enforcement of that rule. If there is an administrative body that handles community association complaints — such as the Commission on Common Ownership Communities (CCOC) in Montgomery County, Md. — then take your complaint there.
Obviously, before taking any legal or administrative actions, present your case to the board and ask them to respond within a short period of time (two to three weeks). I always believe in giving the other side an opportunity to react before any action is taken.
If, on the other hand, your attorney opines that the board has the legal authority to pass that parking rule, then you really have only three alternatives: (1) mount a campaign to "throw the rascals out of office" — your bylaws will spell out how this works; (2) accept the fact that you live in a democracy, and that your elected board has the right to make decisions that you may not like; or (3) move out.
DEAR BENNY: I live in Chicago and read with interest one of your recent columns in which an individual wanted to purchase a house for his aunt and avoid a huge tax bite. You asked for suggestions as to how this might be accomplished, and I believe I have a method that might work.
The method I suggest requires a little planning. The writer should create a Nevada corporation, of which he is the sole officer and shareholder. He should also create a limited partnership, of which the new corporation is the general partner (with a 2 percent interest), and of which he is the limited partner.
When the nephew buys the house, he should put the property into the limited partnership. Every year thereafter, the nephew should give his aunt a "gift" of a percentage of his limited partnership interest that equals the gift limit the (Internal Revenue Service) will allow without a tax consequence (currently $13,000).
Every year, the aunt receives a tax-free gift equal to a percentage of the value of the house, and does so without paying any taxes. The house is protected from creditors of both the nephew and the aunt, and after eight years the aunt owns the home. –David
DEAR DAVID: I have never heard of a Nevada corporation, so I did a Web search. Apparently, Nevada is a popular state — like Delaware — for creating corporations. However, many of the websites also urged caution, because if you do not do it right, there will be tax consequences.
I don’t see why one has to set up a corporation. The nephew could just buy the house, and gift a percentage of the house each year to his aunt. So long as the percentage does not exceed $13,000 — which is the maximum one can gift to anyone without any tax consequences — ultimately, the aunt will own the entire house.
Don’t do any of this before consulting with your tax and legal advisers.