Geri D.

Palm Springs

A: Please don’t rush to sell your home after your husband passes on. Making quick decisions after the death of a loved one can be a big mistake.

If you sell your home in the tax year of your husband’s death, you can still use the $500,000 principal-residence-sale tax exemption for a married couple, thanks to Internal Revenue Code 121. That’s presuming you both met the 24-out-of-last-60-month occupancy requirement and title is held in at least one spouse’s name.

You should be aware that if he leaves his half of the house to you, as I presume he will, you then receive a new stepped-up basis on your inheritance. In a common-law state, this would be a 50 percent stepped-up basis. But in community-property states with the names of both spouses on the title, then a new 100 percent stepped-up basis to market value on the date of death applies.

You can see why there is no need to hurry to sell the home in the year of your husband’s death.

Q: What is meant by the real estate term “short sale”?

Rich F.

Phoenix

A: A short sale means the mortgage is in default and the lender agrees to accept a sales price below the amount that is owed on the mortgage as payment in full.

This situation usually occurs when a home has declined in market value or the home was financed for more than it is worth. For example, suppose a mortgage in default has a $200,000 balance, but the fair market value of the house is only $180,000. If the lender agrees in advance to accept a $180,000 short sale as full payment, then the title can be delivered to a buyer who agrees to pay $180,000.

However, the defaulting borrower will have $20,000 of taxable debt relief income, as shown on the lender’s IRS 1099 form sent to the borrower and the IRS. Lenders who agree to short sales insist that borrowers not receive any cash from a short sale.

Q: How can you recommend a reverse mortgage instead of a home equity line of credit for a senior citizen homeowner?

As a loan officer, I am often frustrated by your advice. I run my lines of credit for my clients at almost zero commission to myself. With fees of only about $175 including the appraisal, there isn’t room for much commission.

Reverse mortgages should be outlawed. I will never do that type of mortgage for my clients. Reverse mortgages require mortgage insurance. The commissions I’ve seen are about four points. I am appalled. Seniors who have equity in their homes should do a cash-out refinance and have a financial adviser manage their money. This is the most cost-effective loan. And they get to keep their house.

Jamie B.

San Francisco

A: I suggest you fully study the benefits of reverse mortgages before you close your mind. Refinancing a mortgage and turning the proceeds over to a financial adviser makes no sense (except for you, who will receive a loan origination fee). How will the senior citizen homeowner make the mortgage payments?

Reverse mortgages require no monthly payments. Yes, the up-front fees can be stiff. For that reason, a reverse mortgage should not be obtained unless the senior plans to stay in the home at least five years. How else can senior homeowners obtain the money they need from their home equity without having to make monthly payments? Contrary to your mistaken remark, the senior citizen with a reverse mortgage keeps his/her home.

The reverse mortgage is repaid when the homeowner sells, moves out or dies.

Q: About five years ago, when my dad’s health started declining, his attorney suggested his giving me a power of attorney. The form was witnessed and notarized. He is now been living in an assisted-living facility and there is no chance he will return to his house. So I put it on the market and sold it. However, the title insurance company refuses to honor my power-of-attorney form.

The title officer says she must verify my father really wants to sell his house and is not a victim of elder abuse. Because dad often doesn’t even recognize me when I come to visit him, there is no way he can understand I need to sell his house to pay for his care. Meanwhile, the house buyer backed out. What should I do?

Harlan R.

Stockton

A: Talk to an attorney about having a conservator appointed to represent your father’s best interests. Title insurance companies have seen too much elder abuse and they have to be cautious about accepting a power of attorney.

There are many valid uses for a power-of-attorney form, such as when a person is unable to attend the closing settlement for a home sale.

Every time I’ve seen a power of attorney used for a home sale, the title officer always phones the individual to be certain he or she is alive, understands the transaction, and has authorized the attorney-in-fact to sign the documents.

The special report, “2007 Realty Tax Tips: Eight Chapters of Tax Savings for Homeowners and Investors,” is available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010, or by credit card at (800) 736-1736 or at www.BobBruss.com. Questions for this column are welcome at either address.

Source:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/02/25/REGAUO8LS71.DTL