Reverse Mortgages, Title Conveyances, Tax Deferrals & More: Weekly Real Estate Q & A

The weekly real estate mailbag in the Miami Herald contains a couple of interesting entries this week. Readers’ questions are answered by Robert J. Bruss, a licensed real estate broker.

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Q: I am a senior citizen homeowner, age 68, who is, as you say, ”property rich and cash poor.” My house is worth at least $400,000, but needs a new roof, which will cost an estimated $15,000 to $20,000. My daughter says I should take out a home equity loan at my bank. But when I ask how I will afford the payments on my limited retirement income, she says to take the payments out of savings. I have about $35,000 in CDs but don’t want to touch that money except for an absolute emergency. What would you do in my very limited cash situation?

A: I don’t blame you for wanting to keep your $35,000 liquid cash reserves. Spending up to $20,000 of that amount on a new roof would be the least costly of your alternatives, but will leave you with depleted liquid reserves.

It sounds like you need increased monthly income. My suggestion is for you to consider reverse mortgages, which never require repayment until you sell the home, move out for more than 12 months or die. Meanwhile, you can enjoy monthly lifetime income, lump sums as you need them or a home equity credit line (except in Texas).

If you are already short of cash, making monthly home equity payments will further deplete your cash. A senior citizen reverse mortgage can solve your cash problem. It’s easy to find local reputable reverse mortgage originators online using this link.

Q: My father-in-law resides in New Jersey in his own home, but is the victim of financial exploitation. His grandson’s wife recently had him sign a quitclaim deed (he has dementia and did not know what he was signing). The grandson’s wife prepared the deed but put the wrong block number on it. Is this enough to invalidate the transaction while the D. A. investigates the case? I am afraid the grandson and his wife will try to sell the house.

A: Financial abuse of the elderly is a major nationwide problem. You were wise to bring this situation to the local district attorney for investigation. The general rule is a deed with an incorrect description of the property conveys nothing. That is why it so important the legal description on a deed be 100 percent accurate.

However, if the deed contains other evidence describing the property, such as street address or county parcel number, a court might rule such information prevails over an incorrect legal description in the deed. Keep on top of this matter until the local district attorney investigates. You might wish to speak to a local real estate attorney about recording a lis pendens (which means litigation pending) against the title to prevent a conveyance.

Q: A few years ago, we made an Internal Revenue Code 1031 tax-deferred exchange of our rental property for a beautiful single-family house where we eventually wanted to live. Following your advice, we rented that house to tenants. They recently moved out and we moved in to our dream home. What is our adjusted cost basis for this house?

A: I suggest you consult your personal tax advisor for details, but an easy way to estimate your adjusted cost basis on the property acquired in such an exchange is to subtract from your purchase price the amount of your tax-deferred capital gain.

For example, suppose you paid $400,000 for the new rental property and you had a $150,000 deferred capital gain on your old property. Subtracting the $150,000 deferred capital gain results in a $250,000 adjusted cost basis for the acquired property. From that amount, don’t forget to subtract the depreciation you deducted on the acquired rental house.

Q: I entered into home purchase contract that was supposed to close October 22, 2005. It has yet to close because the bank I am buying from does not yet have the title. What can I do?

A: It sounds as if you are buying a bank foreclosure property. The bank should not be selling that property unless it already holds title, or unless the contract clearly disclosed the bank does not yet hold title. I suggest you and your attorney read that contract carefully to see what it says about conveying marketable title. If the bank misrepresented it held marketable title, the bank might be liable for damages.

Unless the bank can clear up its title problem quickly, I suggest you ask your attorney about suing the bank and recording a lis pendens against the title to that home. There is a possibility the bank realizes it sold to you for a bargain price and they can get a higher price from another buyer. Especially in a situation like this, don’t trust the banker.