Reverse-mortgaged home may be lost after death

DEAR BOB: My mother passed away a few months ago. She willedher home, which has a reverse mortgage, valued at $570,000, entirely to my45-year-old brother. Yes, my sister and I are not too pleased! We know he needsto refinance in order to stay in the house, as he obviously does not qualifyfor a senior citizen reverse mortgage. How does the bank learn of the death ofa reverse-mortgage borrower? Will our brother be offered a refinanced mortgage?He doesn’t work and has no income at this point so he would have to sell.–Barbara B.

DEAR BARBARA: Reverse-mortgage lenders periodically verifythe senior citizen homeowner is still alive and living in the residence, whichis the security for the reverse mortgage. After the borrower sells the home,permanently moves out or dies, the reverse mortgage “matures” andbecomes due in full.

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When there is a sale of the property, the reverse-mortgagelender will receive a loan payoff demand. If there is a title transfer, sincemost reverse mortgages provide for property tax payments by thereverse-mortgage lender, the lender knows there was a change of ownership. Orwhen there is a change of homeowner insurance policy name, that is another clueto the lender of a transfer affecting the reverse mortgage.

The reverse-mortgage lender will not offer refinancing toyour brother, especially since he has no income qualifications.

Because he is unable to refinance with a new mortgage to payoff the existing reverse-mortgage balance, he will have to sell the house orlose it when the reverse-mortgage lender declares a default and forecloses. Hisbest alternative is to sell the house and walk away with as much equity aspossible.

DON’T CO-SIGN MORTGAGE FOR YOUR PARENTS

DEAR BOB: My parents, in their 60s, plan to buy a house inArizona. It will be their principal residence. They want me to co-sign on theirmortgage so if anything happens to them, I will be the heir. Shouldn’t theyinstead just create a revocable living trust instead of hurting my chances ofbuying my own home in a few years? What are my tax implications, debt risks andtitle rights? My parents both have excellent credit. –Mas H.

DEAR MAS: Please don’t co-sign on your parents’ mortgage ifthey can qualify for it without your help. As a co-signer, you will greatlyreduce or eliminate your borrowing power to obtain a mortgage in the future foryour own home or investment property.

For the protection of your parents and you, they should holdtitle to their Arizona home in their revocable living trust, naming you as thesuccessor trustee and eventual beneficiary. The result will be probateavoidance after they both pass on. You will then receive a new “stepped-upbasis” to market value. If your name is already on the title, you won’treceive a fully stepped-up basis. For more details, you and they should consulta real estate attorney.

WHY BOTH SPOUSES SHOULD HOLD TITLE TO THEIR HOME

DEAR BOB: The title to my parents’ home is held in mymother’s name alone. When they bought it about 35 years ago for around$200,000, dad was overseas in the military and my mother earned enough incometo qualify for a mortgage on her own. However, my dad is now in rapidlydeclining health. The house has greatly appreciated in market value and is nowworth about $1 million. When I visited my parents recently, my mother saidafter my dad dies she plans to sell the house because she won’t owe any taxthanks to that “stepped-up basis” you often discuss. Will she get astepped-up basis although my dad’s name is not on the title? –Scott R.

DEAR SCOTT: No. If your dad’s name is not on the title tothe house, presuming your mother survives him, she can’t inherit any interestin the house from him because he doesn’t own any portion of it. Therefore, shecan’t receive a stepped-up basis after his death because she won’t inherit hisinterest in the house.

However, she can easily solve this problem with herquitclaim deed to him of a 50 percent interest before he passes on. Maritaltransfers are tax-free.

Then, presuming he dies first, she will get at least a 50percent stepped-up basis in a common-law state and a 100 percent stepped-upbasis if they own the house together in a community property state. For fulldetails, she should consult her tax adviser or tax attorney.

The new Robert Bruss special report, “2007 Realty TaxTips: Eight Chapters of Tax Savings for Homeowners and Realty Investors,”is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif.,94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2007 Inman News

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