Reverse Mortgage Will Allow Aunt to Stay in Her Home
Question: My 87-year-old aunt has been receiving 24-hour custodial care in her home. We are considering an assisted-care facility for her, but she insists on remaining in her house.
I recently looked into an FHA reverse mortgage for her. It looks like she can then remain in her house about four more years. It is my understanding that when a reverse mortgage homeowner dies, the home is sold to pay off the mortgage balance.
However, if my aunt outlives the reverse mortgage, will she be forced to move to a Medi-Cal facility with a mandatory house sale at that time?
Answer: Your aunt can’t outlive a reverse mortgage. But I’m guessing you are thinking of arranging an FHA reverse mortgage for her and selecting the credit-line feature with a monthly draw, which would reach the maximum balance in four years.
If your aunt then can’t afford to stay in her home, she might have to move into a Medi-Cal facility. After she is absent from her home for 12 months, the home must then be sold to pay off the reverse mortgage.
However, if she remains in her residence, she can’t be forced to sell it to pay off the reverse mortgage.
Your aunt might easily live more than four years. My suggestion is to compare the FHA, Fannie Mae and Financial Freedom Plan reverse mortgages to help your aunt select the best alternative.
Using up her maximum credit line in just four years doesn’t seem like a smart choice. A better decision might be either lifetime monthly payments or the credit line using a 10-year term.
Slovenly Home May Not Affect Property Values
Q: We live in a small neighborhood of 26 homes. There is one home on a prominent corner lot that is an eyesore because the homeowner doesn’t maintain her property. We think this is adversely affecting our property values. What can we do about it?
A: Unless your neighbor’s property is a fire hazard or a public nuisance, there isn’t much you can do about it. We recently had a similar situation in our neighborhood. After the local code enforcement officer cited the neighbor to cut his weeds, the weeds grew back again in a few weeks.
Unfortunately, some people are slobs. There isn’t much neighbors can do about poorly maintained property unless a local ordinance is violated. But appraisers tell me one rundown home in an otherwise well-kept neighborhood has little or no effect on adjoining property values.
Inherited Summer Home Is Causing Family Feud
Q: Before her death, my mother deeded as tenants in common equal shares in her summer home to her 17 children and grandchildren. She also set up an investment trust from which the earnings, if any, are to be used for maintenance of the property. The trustee has no authority other than maintenance.
Because of intense bickering over all issues regarding this summer home, as well as time-sharing during the peak season, there is never a unanimous decision. We cannot even agree on a spokesperson to represent the group with the trustee. Ten of the 17 co-owners now want to sell or buy out the other seven. The value of the property and trust exceeds $1 million.
Is there any legal way to force a sale under these circumstances? If one co-owner makes improvements at his expense, is he legally entitled to do so without the approval of the 16 other owners?
A: What a mess. Your late mother obviously didn’t realize the opportunity for future nasty family fights she was creating.
The answer to your first question is easy. One or more co-owners can bring a partition lawsuit in court to force the sale of the property, with the sales proceeds divided among the co-owners. This might be the best solution to the never-ending problems.
As for your second question, if one co-owner pays for necessary repairs or expenses, such as paying the property taxes, he or she is legally entitled to reimbursement from the other tenants in common. However, no reimbursement is required if the improvements were not necessary.
My suggestion is the 10 co-owners who want to sell should retain an experienced local real estate attorney to bring a partition lawsuit. Under the hostile circumstances you describe, a judge would find it very difficult to refuse granting such a request.
Shop Around to Avoid Two-Point Loan Fee
Q: You recently advised against paying loan fee points when refinancing a home loan. This makes good sense when paying refinance fees out of pocket because they are not tax-deductible in the year paid and can only be deducted over the mortgage’s life. But what about rolling them into the new mortgage principal amount?
We have a five-year fixed-rate loan that becomes an adjustable rate mortgage (ARM) next year. My wife and I have decided we’ll keep our home a long time. But we want to refinance with a 30-year fixed-rate mortgage. By rolling a two-point (2% of the amount borrowed) loan fee into the principal, we can lower our monthly payment, with no out-of-pocket costs. What do you think of this idea?
A: Please shop around and compare loan terms offered by at least three mortgage lenders. There is no reason why you should have to add the cost of a 2% loan fee to your loan balance. In today’s mortgage market, a two-point loan fee is very high. Unless you have bad credit or other problems, you can probably do much better.
My personal refinance experience is that a so-called no cost mortgage refinance should add about one-eighth percent to the loan’s interest rate. For example, if 7% is the going rate for home loans with a one-point loan fee, a “no cost” 30-year fixed-rate home loan should command 7.12% interest.
Adding 2% to your mortgage balance means you will be paying interest on that extra money for the next 30 years. To illustrate, suppose you are borrowing $200,000. Adding a 2% loan fee means you will borrow $204,000 for 30 years. Chances are you won’t keep that loan for 30 years, due to home sale or another refinance. But you will owe that extra $4,000 loan fee. You will probably be much better off paying a slightly higher tax-deductible interest rate, rather than adding a loan fee to your loan principal.
Weighing the Advantages of New and Older Homes
Q: My wife and I are debating whether to buy an old or new house as our first home. I like the new houses, but they are located in distant suburbs in new subdivisions that are not yet well-established. My wife prefers buying an older house in a closer neighborhood to our jobs.
Although the older neighborhood is very nice, with lots of trees, the prices per square foot are much higher. However, as we plan to start a family soon, the school district is superb, whereas the school quality in the distant suburbs is uncertain.
Do you recommend buying an old or new house?
A: You ask a question that is impossible to answer. New and old houses each have advantages and disadvantages.
However, since you plan to start a family soon, the school district quality can be important for at least two major reasons. The first is you want the best possible education for your children. Top-rated schools, as shown by comparative test scores, offer your children the best opportunities. The second reason school quality is so important is homes in top school districts usually appreciate in market value extremely well.
Yes, I know being the first owner of a brand-new home is a thrill. If you decide to buy a new home, please be sure its advantages far outweigh those of a home in that older established neighborhood closer to your job. Many new buyers in distant suburbs soon wish they lived in a neighborhood with a shorter commute to work.
Query Landlord Before Buying Rental Condo
Q: My spouse and I have been renting a condo for almost two years. Our landlord is a real estate agent. She approached us about buying the condo.
Our concern is she will want to handle the transaction completely. Is this wise? She appears to be an ethical agent and has been a good landlord. We want to save the sales commission. As this is our first real estate purchase, we don’t want to make a costly mistake.
A: Your first step, before further discussion with your landlord, should be to get pre-approved in writing for a mortgage by a lender. Then you will know what price residence you can afford.
The next step is to agree on a purchase price with your landlord. When she names the price, ask how she arrived at that price. It should be based on recent sales prices of comparable condos in your complex or nearby. Don’t be afraid to negotiate if you think the price is too high.
As part of the sales process, your seller should disclose in writing any known defects in the condo or the condo complex. Perhaps she knows, for example, that the condo association plans a big special assessment to pay for repairs. That must be disclosed to you. Or maybe she is aware that the condo homeowner’s association is involved in litigation that affects the desirability and market value of the condo. This must also be disclosed.
Presuming no problems develop, after you sign a sales contract with the seller, you should notify your lender and get your condo appraised to make sure you’re not paying too much.
Sharing Equity With Parent Could Be Risky
Q: Our mother sold her house to buy a condo. The realty agent who sold her house recommended we do a shared equity agreement so that she would not have to live off her savings but could live off the interest. This left my mother with too little monthly income, so her adult children each pay a small amount each month for her mortgage payment.
We are all on the condo title, but a few of us are self-employed and do not have stable incomes. I recall reading that you do not recommend family members being on the title. If one of us has a bankruptcy or other financial trouble, can it affect our mother’s condo?
A: It’s possible, but not likely.
I’ll assume your mother and the adult children are all either tenants in common or joint tenants with right of survivorship. If one of you declares Chapter 7 bankruptcy and if there is a substantial condo equity, the bankruptcy court could possibly force a sale of the condo to pay the bankrupt co-owner’s debts.
But that isn’t probable unless there is a huge condo equity. More likely, if one owner becomes bankrupt, the remaining co-owners could buy out his or her interest to satisfy the bankruptcy court and avoid a forced sale.
You are correct: I usually do not recommend that a parent add adult children to the title to the parent’s home. There are many reasons: The child might refuse to sell when the parent wants to, the child’s judgment creditors could attack the home’s equity and the co-owner child wouldn’t get a stepped-up basis to market value by inheritance. But your situation doesn’t seem to contain those risks.
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Letters and comments to Robert J. Bruss, a San Francisco-area lawyer, author and real estate broker, may be sent to 251 Park Road, Burlingame, CA 94010, or visit https://www.bobbruss.com. Bruss suggests consulting an attorney or tax advisor before making important real estate decisions.
