Funding parents' reverse mortgage a win-win

Each side should use attorneys for protection

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jan. 27, 2009

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Before the foreclosure sale, have you exhausted all available options? Does your state have any laws or programs that can assist you? Have you talked with a real estate agent about arranging for a short sale? Or have you discussed giving the property back to the lender so as to avoid the foreclosure sale; this is known as a "deed in lieu" of foreclosure.

DEAR BENNY: My parents' house is paid off. The house is in my father's name only; my mother has his power of attorney (and I have hers). My father is in a nursing home, recovering from a stroke, but we do not foresee him coming home (he's 86); he's wheelchair bound, and conversant, though with some short-term memory problems.

My father's last will and testament leaves everything to my mother. Is there any reason to get my mother's name added to the deed? If so, what are the legal steps one should follow to get it done? If it is done, I assume it should be joint tenants with rights of survivorship? --C.H.

DEAR C.H.: Normally, I don't recommend putting children on title with the parents, as there can be taxable consequences. In your situation, however, I think your suggestion makes sense.

While we don't like to think about death, it is inevitable. When both of your parents die, whoever inherits the house will get what is known as the "stepped-up" basis. That means for tax purposes, the value of the house on the date of death becomes the new tax basis of the property.

Currently, when your dad passes, you will have to probate his last will and testament. However, if your mother is added to title as "joint tenants with right of survivorship", she will automatically own the house at that time, and probate will not be necessary.

Your mother should also have a will. In fact, in addition to a will, all of you should have a general durable power of attorney, a durable power of attorney for health, and a living will. Just make sure that your father is mentally competent at this time to prepare all of those documents.

An attorney can assist you with all of this.

DEAR BENNY: My husband and I are looking to purchase some homes for investment that are being foreclosed. Because many of these loans are the first deed of trust that are defaulted and the legal notice mentions nothing of second or third deeds of trust, if purchased at auction, who is responsible for additional liens taken out by the owner? --Lindsay

DEAR LINDSAY: While state laws may differ, in general, when the holder of the first deed of trust (the mortgage document) forecloses, it eliminates all subordinate liens.

Before you consider buying at a foreclosure sale, you must obtain a complete title report, which would indicate what liens and clouds are on the land records. Some tax liens may have a superpriority, and must be paid off at closing (escrow).

You should also make sure that you have inspected the house -- inside and out-- although many homeowners who are facing foreclosure are reluctant to open their house to strangers.

Too many of my clients have been burned when they bought property at a foreclosure sale. There is a lot of homework you have to do in advance of the sale, and I recommend that you get a tax professional and a lawyer to assist you along the way.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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