Condo Rich and Cash Poor: Find Another Strategy
Question: I recently came into an inheritance of about $200,000. This is more than enough to pay off my condo mortgage. But my savings account and extra cash would be close to zero. Should I use this money to pay off my mortgage?
Answer: You forgot to tell me your mortgage’s interest rate.
If it’s around today’s home loan interest rates of 7%, please don’t pay off your mortgage. Just make the regular monthly payments. You can even add an extra $100 or $200 each month to shorten the mortgage term and save some interest if you plan to keep your home many years. And if your interest rate’s much higher than 7%, refinance to lower it. I don’t want you to become “condo rich and cash poor.”
If you pay off your condo mortgage now, you will save considerable interest each month. But your money will be tied up in your condo. What if you need cash for an emergency or profitable investments? Will you be able to borrow against your condo, especially if you are unemployed or ill?
Siblings Battle Over Inherited Property
Q: My mother died last year. She knew my sister and I weren’t talking, but our mother left everything to us 50-50. The estate includes two properties that my sister and I now own equally.
The big problem is my sister has moved into our late mother’s house. She thinks she and her live-in boyfriend can live there free without paying the property taxes, fire insurance and repairs. The house is worth at least $300,000. There is no mortgage.
I would at least like my $150,000 half, but my sister refuses to communicate. What can I do to either force my sister to give me my half of these properties or sell them?
A: Please consult an experienced real estate attorney in the state where the properties are situated. As a co-owner, you can sue your sister in a partition lawsuit to force the sale of those properties.
It’s time to bring legal action.
After you file a partition lawsuit, she will probably either agree to sell or to buy you out with cash she can get by placing a mortgage on the property.
Couple Could Benefit From Reverse Mortgage
Q: I am 75. My wife is 70. Our house is too large for us, but we like it. Our kids are doing well; they don’t need any inheritance. We have lived in our great neighborhood almost 40 years. Our home was purchased for $32,500. Similar nearby houses now sell for $700,000 to $900,000.
If we sell, would we owe any tax? Our first mortgage is paid off. We have a $60,000 home equity loan on which we pay interest only. Since I am retired, our income is low. I contacted Fannie Mae about a reverse mortgage but have not heard back. Where can I get more details?
A: Your situation is not unusual for thousands of senior citizen homeowners. A reverse mortgage would be ideal to provide monthly income, a credit line or lump sums as needed for special expenses, such as a new roof, new car or a round-the-world trip.
If you sell your home, up to $500,000 principal residence sale capital gains will be tax-free since you owned and lived in your home at least two of the last five years. But you don’t sound like you want to sell your home.
A reverse mortgage from Fannie Mae, FHA or Financial Freedom Plan can meet your financial needs and improve your financial lifestyle. A lump sum can be used to pay off that equity loan and eliminate monthly payments, as long as you or your wife remain in your home. To find local reverse mortgage lenders, go to https://www.reversemortgage.org.
Paying Back Reverse Mortgage After Death
Q: When a senior citizen homeowner who has a reverse mortgage dies, how long do the heirs have to pay the reverse mortgage lender?
A: When the senior citizen homeowner dies or moves out of the residence, such as to a nursing home for more than 12 months, the residence must be sold or refinanced to pay off the reverse mortgage.
I have been unable to find out exactly how much time reverse mortgage lenders allow for the residence to be sold or refinanced. But I have never heard of any problems, probably because the lender continues earning interest until the reverse mortgage is paid in full. For more details, ask a reverse mortgage lender what the time limit is, if any.
Neighbor Is Interestedin Abandoned Property
Q: We suspect our neighbor has abandoned his property. This residence has been occupied only one week in the last three years. There is a substantial property tax delinquency. It will be coming up for tax sale soon. We could be interested in bidding to protect our property value. What issues should be considered?
A: First, visit the property tax collector’s office to learn how much property tax is owed. As a concerned neighbor, you might want to pay those taxes to prevent the property from going to tax sale, where there could be intense competition from other bidders. If you buy at the tax sale, however, you purchase “as is,” so remember “buyer beware” applies.
Second, try to find out what happened to the property’s last legal owner. However, before doing that, obtain a title report to learn what liens, if any, are against the property. If there were an unpaid mortgage, the lender probably would have foreclosed by now.
Third, if you can’t find the last legal owner or any heir, you might want to pay the property taxes (to stop the tax collector from selling the property) and occupy the property. This trespass is called adverse possession, and it’s perfectly legal.
If nobody shows up to claim the property and kick you out, after the required number of years of “open, notorious and hostile” occupancy, you can obtain legal title in a quiet title lawsuit. For more details, consult a local real estate attorney.
Realty Agents Rarely Know About Foreclosures
Q: My husband and I have been told a specific property is in foreclosure. I repeatedly asked several realty agents to research it for me to purchase. After about a month, an agent told me the property was “bought back” by the bank that held the first and second mortgages. The bank has since listed it with a real estate broker. Is it too late to offer the bank a purchase price based on the first mortgage balance?
A: Yes. Realty agents rarely know about property that is in foreclosure because, unless the defaulting owner lists the property for sale with a realty agent before the foreclosure sale, agents have no financial incentive to work on pre-foreclosure property.
You say the property was “bought back” by the bank. That probably means nobody showed up at the foreclosure sale, so the foreclosing lender wound up with the title.
It is not unusual for a foreclosing lender who acquires title to quickly list the property for sale with a local agent at the property’s full market value. Since the property is now listed with an agent, you must make any purchase offer through that agent, who will earn a sales commission if the bank accepts your purchase offer.
If you wanted to buy a foreclosure bargain, you should have purchased from the defaulting borrower before the foreclosure sale, at the foreclosure sale or, if there were no bidders at the foreclosure sale, immediately after the foreclosure sale from the foreclosing lender. When a foreclosed property is listed by the foreclosing lender with a local agent, the asking price at fair market value is usually no bargain.
