DEAR BOB: I am a real estate broker with an opportunity toobtain a listing on a beautiful house. But there is one little problem. Theseller says her boyfriend moved out about 15 years ago and she hasn’t heardfrom him since. When I checked the official title records, I see the seller andthe boyfriend (with different last names) hold the title. The seller says theywere never married. Is there any way this house can be sold now? The seller haspaid all the mortgage payments since the boy friend disappeared 15 years ago.–Evelyn R.
DEAR EVELYN: As a real estate agent, you were very wise tocheck the title before listing that house for sale. From your description, itappears the title is unmarketable unless the missing boy friend can be found.
Purchase Bob Bruss reports online.
The legal solution is for the mom to bring a quiet titlelawsuit. Depending on the exact facts, her attorney can best advise what legalsteps to take, such as hiring an investigator and publishing legal notices ofthe pending lawsuit to clear the title.
If due diligence is used to locate the missing boy friend,and if the court is satisfied he is either dead, cannot be located, or has notitle interest in the house, then the court can order the title”quieted” in the seller’s name so she can sell marketable title.
WHAT IS STEPPED-UP BASIS?
DEAR BOB: Please give me more details about “stepped-upbasis” for real property. Do you have any information available on thistopic? –Elmer B.
DEAR ELMER: When real or personal property is inherited, theheir receives it with a new “stepped-up basis” of market value on thedate of the decedent’s death.
To illustrate, suppose you inherit a house for which theowner paid $100,000. But at the time of her death, it is worth $300,000. Yournew stepped-up basis will therefore be $300,000, the fair market value on thedate of death.
As a regular reader, you know I often say it is better toinherit property than to receive it as a gift before the owner’s death.Stepped-up basis is the major reason. ???????????
In the example above, if the homeowner gave you her housebefore death, as the donee you would take over the donor’s low $100,000adjusted-cost basis. If you then sold it for its $300,000 market value, youwould have a $200,000 taxable gain.
However, if you instead inherit that house after the owner’sdeath, your stepped-up basis is the $300,000 market value on the date of deathso you can then sell it for $300,000 with no tax due. For more details, pleaseconsult your tax adviser.
PROS AND CONS OF REVERSE MORTGAGES
DEAR BOB: I am a widow homeowner having a hard time makingfinancial ends meet. My daughters keep telling me I am sitting on a “cashcow,” meaning my house. They keep telling me to get a reverse mortgage.But I recall you said reverse mortgages aren’t always a good idea. If I takeout a reverse mortgage, does the bank own my house? –Kay H.
DEAR KAY: To qualify for a senior citizen reverse mortgage,you must be at least 62 and own your house or condo. If you have a smallmortgage that is all right because part of the reverse mortgage proceeds can beused to pay it off, so you won’t have any more mortgage payments.
Contrary to untrue myth, the reverse mortgage lender doesnot “own” your home. You do. But the reverse mortgage lender has alien or security interest in it, just like a regular mortgage.
When you obtain a reverse mortgage, you have three choices:a lump sum (perhaps to install a new roof or to buy a new car), monthlylifetime income even if you live to 110, and/or a credit line to use whendesired (except in Texas).
The reverse mortgage “matures” and must be paidoff when you sell the house, move out for longer than 12 months, or die. Afterthe sale of your home, the remaining equity goes to you or your heirs. If yourheirs want to keep the house after you die, they can obtain a new mortgage topay off the reverse mortgage.
The only time I don’t recommend a reverse mortgage is if youdon’t plan to stay in your home at least five years. The reason is then theup-front loan costs make a reverse mortgage a bad deal. When I get to be 85 or90, I’ll probably get one. More details are in my special report, “TheWhole Truth About Reverse Mortgages for Senior Citizen Homeowners,”available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or bycredit card at 1-800-736-1736 or instant Internet delivery at
SHOULD HOUSE TITLE BE TRANSFERRED INTO A LIVING TRUST?
DEAR BOB: A few years ago, my wife and I had our livingtrust prepared by an attorney who specializes in living trusts. After readingin your articles several times that a living trust is worthless unless title toour house is deeded into our living trust, I contacted him to see if that wasdone. I was told the deed should not be recorded until after a death, as thisgives more flexibility. Now I am very confused. –Hugh D.
DEAR HUGH: After I received your e-mail a few weeks ago, Iconsulted several fellow attorneys to see if they knew of any reason not to”fund” a living trust with title to the trustor’s home.
They all agreed that if title to a home is not transferredinto the trustor’s living trust (with the trustor as the initial trustee)before death, after the owner’s death, the title to the house must be probated(except for small estates). I hate to disagree with a fellow attorney, but Isuggest you consult another attorney in your town to see if there is any reasonnot to transfer title to your home into your revocable living trust.
NO RESALE MARKET FOR A LIFE ESTATE
DEAR BOB: My late father gave my husband and me a lifeestate in his house after he died. We are now living in the house, but we wantto sell it and move to a distant city where my husband has a job waiting.However, I discovered we can’t get much for our life estate, but we need thatmoney for a house down payment in our new city. When we die, the house goes tothe church where my late father belonged. Is there anything we can do? –MaryAnn H.
DEAR MARY ANN: Your letter reveals another reason I dislikelife estates. They tie up property and cause many unexpected problems, such asin your situation.
The reason there is no resale market for a life estate iswhen you die, the life estate “dies” or terminates. Then theremainderman (the church) owns the full title.
You could go to the church officials now to see if theymight give up their remainder interest in your house in return for a generousdonation of several thousand dollars now when you sell the house.
Then you (and the church) can sell the house, obtain cashfor your next home’s down payment, and the church gets a cash donation nowinstead of waiting many years. For full details, please consult a local realestate attorney.
NO EASY WAY TO AVOID TAX ON MORE THAN $250,000 HOME SALEPROFIT
DEAR BOB: I am a widow, age 67. My husband died about fouryears ago. Now I want to sell my house to move to a better climate and to becloser to my grandchildren. My problem is when I sell I will have about$375,000 net profit according to the real estate agent. Because I have lived inmy home many years, I know I am entitled to that $250,000 tax exemption youoften discuss. Is there any easy way to avoid paying tax on the excess$125,000? –Victoria W.
DEAR VICTORIA: No. However, if you are a bit adventurous,you could convert your home into a rental property and make an Internal RevenueCode 1031 tax-deferred exchange for another rental property of equal or greatercost and equity.
My suggestion is you consult your tax adviser to determineyour home’s current adjusted-cost basis.
You mentioned your husband died about four years ago. If youinherited his half of the house that means you received a new “stepped-upbasis” to market value on at least 50 percent of the house (100 percent incommunity property states).
Even if you owe capital gains tax on that $125,000, thecurrent federal long-term capital gains tax rate is only a 15 percent maximum,plus applicable state tax.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
?Copyright 2006 Inman News
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