DEAR BOB: Ever since you began writing about senior citizen reverse mortgages, I have saved every article. Now I’m ready to get one. On the Internet, I filled out the requested forms for information and suddenly felt like a pot of honey surrounded by hungry bees. Within 36 hours, four companies responded. One agent said there is very little difference between one reverse mortgage company and another. Another company wants a $35-per-month service fee, but a different company wants only $25 per month. What about termite inspections and maintenance? How stable are these reverse mortgage companies? Could they go broke? – Tom L.
DEAR TOM: There are three nationwide reverse mortgage lenders: FHA (the most popular), Fannie Mae, and Financial Freedom Plan. But their reverse mortgages are originated by local mortgage brokers and mortgage bankers. Those were probably the persons who contacted you.
Purchase Bob Bruss reports online.
The safest place to find a reliable reverse mortgage originator in your area is on the Internet at www.reversemortgage.org, which is operated by the National Reverse Mortgage Lenders Association in Washington, D.C. If a reverse mortgage originator is not an NRMLA member listed on that Web site, watch out.
There are big differences between the three nationwide reverse mortgage plans. FHA has the lowest limits, varying by county. Fannie Mae currently has a $333,700 limit. But Financial Freedom Plan has no maximum limit and is usually best for owners of expensive homes. I don’t think you need to worry about the financial stability of these major lenders.
All the reverse mortgage lenders charge monthly fees around $30, which comes out of your home equity, not out of your pocket.
When your reverse mortgage is originated, the lender wants to be sure your home is in reasonably good condition, so a termite or other inspection might be required.
The cost of any necessary repairs, such as a new roof, can be paid with a lump sum advance from your new reverse mortgage. More details are in my special report, “Secrets of Tax-Free Reverse Mortgage Income for Senior Citizen Homeowners.” It is available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com.
SPOUSE WITHOUT NAME ON HOME’S TITLE COULD HAVE TROUBLE
DEAR BOB: When my husband and I married, we each owned a house. I sold mine and moved into his. However, my name is not on the mortgage or the title. I’ve heard that in the unlikely circumstance he should pass away unexpectedly, I might have some legal hurdles regarding ownership of his house. Is this true? – Kitty W.
DEAR KITTY: Yes. Because your name is not on the title to his house, if your husband dies before you do, you could receive title if he leaves the house to you in his will (or if he holds title in his living trust, which leaves the house to you).
If your husband dies without a will, or a living trust, then his assets automatically pass according to the state law of intestate succession.
In some states, a surviving spouse is entitled to a statutory survivor’s allowance, but this can get complicated, especially in second-marriage situations.
If your husband is willing, he could now change the title to his house into joint tenancy with right of survivorship. Then, if he dies first, you get the house as surviving joint tenant without probate. If you die first, then he holds title alone just as he does now.
It’s time for you and your husband to have a serious discussion about this issue, perhaps in a local estate-planning attorney’s office.
WHEN DOES 24-MONTH HOME OCCUPANCY TIME BEGIN?
DEAR BOB: We took title to our home in December 2002. But we did not move in until March 2003 after we completed renovations. Must we wait until March 2005 to sell in order to receive that $500,000 home-sale tax exemption? Or will we be eligible in December 2004? – Jim J.
DEAR JIM: A close reading of Internal Revenue Code 121 says you must have owned and occupied your principal residence a minimum “aggregate” two years within the last five years before its sale to be eligible for the $250,000 profit tax exemption (up to $500,000 for a married couple filing jointly).
That means you must wait until March 2005 to sell and meet both the ownership and occupancy time tests. For more details, please consult your tax adviser.
WHAT ARE THE DUTIES OF A “LIFE TENANT?”
DEAR BOB: My husband died in October 2003. The deed to our house was as tenants in common. I am allowed to stay in the house as long as I want. But when I die or move, the sale price of the house will be split with his two daughters and my three children. I feel they should help now with major repairs, as I am taking care of the house while its market value goes up. They will benefit. Would it be fair to ask them to pay for large repairs, such as a roof? Ginny G.
DEAR GINNY: It sounds like you have a life estate in your late husband’s half of the house. As a life tenant, it is your duty to maintain the property, keep it insured, pay the property taxes, and not allow it to “waste” (deteriorate).
You can ask the “remaindermen” (remainderpersons to be politically correct) to contribute to any major expenses, such as a new roof. But they are not legally obligated to pay. For full details, please consult a local real estate attorney.
JUNK FEES WHEN PAYING OFF A HOME MORTGAGE
DEAR BOB: My monthly mortgage payment consists only of principal and interest. Next to the principal balance on my lender’s monthly bill there is a disclaimer that says the principal balance isn’t the same as the amount required to pay off the mortgage. You’ve often written about mortgage junk or garbage fees when buying a home. What junk fees are reasonable when paying off a mortgage? – Stuart VanD.
DEAR STUART: If you pay off your mortgage within the first few years, its terms might include a prepayment penalty.
There will probably be some recording, notary, or other minor fees to clear the mortgage or deed of trust from your title after your final payment.
But extra fees involved when paying off your home mortgage usually are not very large. Before you’re ready to make the last payment, ask your lender for a fee itemization so there won’t be any junk-fee surprises.
REAL ESTATE BOOKS FOR LONG DISTANCE INVESTORS
DEAR BOB: My wife and I are interested in investing in real estate outside our home state. Can you recommend any books on this topic? – Curtis P.
DEAR CURTIS: As you know, I do not recommend long-distance real estate investing because of the lack of control over the property. You will be dependent on a local property manager.
For example, just a few days ago I talked with the president of our local real estate investor’s club. He and his wife bought some rental houses in Phoenix where they have a high vacancy rate. But it’s very difficult to solve the problems from 1,000 miles away.
Real estate author and investor Robert Shemin has written several excellent books where he recommends hiring local property managers (he hates management). He now lives in Miami Beach but invests primarily in Nashville. His most recent book is “Successful Real Estate Investing,” available at local bookstores, public libraries and amazon.com.
IS INTERNAL REVENUE CODE 121 A TEMPORARY TAX BREAK?
DEAR BOB: I notice you often refer to Internal Revenue Code 121 for the principal residence sale $250,000 tax exemption. But you seem to refer to it as a temporary tax break, which you expect to be rescinded. Do you expect the government to take this perk away anytime soon? – Charles O’B.
DEAR CHARLES: No. Internal Revenue Code 121 is permanently in the federal tax code. I am not aware of any talk in Congress about removing it.
Changing IRC 121 would incur the extreme wrath of the 1 million National Association of Realtors members, plus millions of homeowners. This is one tax law that is very unlikely to change, although the exemption might be increased as market values of Congressperson’s homes increase.
The new Robert Bruss special report, “Pros and Cons of Earning Big Profits from Foreclosures and Bargain Distress Properties,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download 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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