Q: We have owned our home since 1998 and have refinanced twice since that time. I still have the original mortgage papers along with the twice-refinanced papers. I am afraid to throw anything out but they are quite bulky and take up a lot of room. Do I really need to keep all three?
A: So long as you are absolutely sure that the two earlier mortgages have been paid in full and appropriate releases recorded among the land records where your property is located, you can toss the old loan documents. However, one document that you should keep until you sell your very last house is the HUD-1 (settlement statement). You should keep every HUD-1. This document shows what the property cost, what your closing costs were, and any other costs — some of which can be added to your basis for tax basis.
You should also keep all records of any home improvements. Improvements help in increasing your tax basis. And while you may be eligible for the up-to-$500,000 exclusion of gain (for married persons who file a joint tax return) you may have made more than $500,000. Thus, for every dollar that you can add to your tax basis, you save 15 cents on your federal tax return plus any applicable state income tax.
A grave problem
Q: Some years ago, we purchased 20 acres for our retirement home. Two years ago, I was mowing a part of the yard and the mower blades hit what I thought was a rock. Instead, I found a sunken tombstone for a person who died about 65 years ago. Nowhere in our deed is there any mention of a grave on the property. Furthermore, the last name is not common to anyone in the area. How would you handle this?
A: I get a lot of unusual questions, but I think your beats them all. First, it is my understanding that most states have laws regarding cemeteries. If, for example, a developer wants to create a community where there is a cemetery, the developer has to go through a lot of hoops, including making bona fide efforts to locate the families of those buried in the land, and to pay for the cost to remove and relocate the burials. I don't know whether these laws apply to a single grave or tombstone.
You should consult an attorney in your state's attorney general's office and explain the situation. They should be able to assist you. Also, when you sell your property, I believe you would have to disclose the existence of that grave.
Ugly is as ugly does
Q: Do you recommend companies such as "we buy ugly houses" in today's market? Are they safe and secure? Can it come back to haunt you?
A: I suspect that you do not believe that your house is "ugly," so why would you want to deal with that company?
Seriously, if this company will pay your price, and if your attorney assists you throughout the process, I don't have any problems with this arrangement. However, you have to treat this company as any other buyer: You need a valid, binding real estate contract; an acceptable good-faith earnest money deposit (I recommend no less than 10 percent of the purchase price); and assurances that your buyer really has the money to go to closing.
Some of these companies plan to flip their contract; this means that they already have another buyer for your property — usually at a higher price than you will get — and they will assign their contract rights just before settlement. I recommend that your sales contract specifically prohibit any such assignment.
New rules for reverses
Q: I have a reverse mortgage that I took out three years ago and am concerned as to whether these mortgages will be affected by the current housing loan situation.
A: So long as you live in the house, you need not worry about anything involving your reverse mortgage. The current mortgage meltdown will not impact you or your mortgage.
I want to use this question to report on some new reverse mortgage developments that were included in the recently enacted housing legislation.
1. The national loan limit goes up to $417,000, but can increase up to $625,500 in some parts of the country.
2. There are a number of protections for seniors, such as prohibitions on requiring that borrowers purchase annuities or other financial products with the proceeds they receive from their reverse mortgage.
3. You can use an FHA mortgage to purchase your home, and
4. Origination fees will be capped at 2 percent of the first $200,000 borrowed and 1 percent on the balance, with an overall cap of $6,000. This is an important change, because many of the complaints about reverse mortgages in the past have been about the high upfront costs.
For more information on reverse mortgages, go to www.aarp.org, and type in "reverse mortgages" in the search box.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. He can be reached at firstname.lastname@example.org.