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Elderly neighbor good candidate for reverse mortgage

July 15, 2011

Q: I am writing for my 80-year-old neighbor. She is mentally sharp and owns a lovely home. But she says she is running out of money. When I suggested a reverse mortgage, she said her son is opposed to it. She says that when she dies, the reverse mortgage lender takes the house and nothing is left for him. Is this true?

A: No. That son is either mistaken or greedy. Your neighbor is a perfect candidate for a reverse mortgage so she will have plenty of money to enjoy her remaining years without cash worries.

When a senior citizen obtains a reverse mortgage, the lender receives a first mortgage lien on that residence. As the years go on, the reverse mortgage balance grows as the home owner receives payments. No monthly payments to the lender are required during the homeowner's lifetime.

When the homeowner dies, or when she decides to permanently move out of the house, the reverse mortgage matures. That means its balance must be paid in full.

But the reverse mortgage lender doesn't take the house. Any remaining equity either goes to the homeowner or the homeowner's heirs. To illustrate, suppose your neighbor's house is worth $400,000 at the time she permanently moves our or dies, and she has received $150,000 from her reverse mortgage lender, with a new $150,000 mortgage to pay off the reverse mortgage balance. Or, if he wants to sell the house, he then mays off the $150,000 reverse mortgage from the sales proceeds and keeps the remaining $250,000 cash for the equity.

This is my second response from six letters. I hope I picked a good one to respond to for the others and all. I will try to respond to the others in the next few ...

Q: After my wife died, I became engaged to a widow. We have been counseled to sell each of our houses and buy a new one together to facilitate a new start as a family. We will marry in June.

We each will have a capital gain of less than $50,000 on the sale of our houses. She has lived in her home about seven years. I have lived in mine for four years. We presume we should file separate tax returns so we can each claim our $250,000 principal residence sales tax exemptions. Any thoughts of wisdom for us?

- John

A: It appears you have received excellent tax advice. After reading and rereading Internal Revenue Code 121, I can find nothing that will disqualify each of you from selling your principal residences and claiming the $250,000 home-sale tax exemption. That's presuming that each of you owned and lived in your homes two to five years before their sale.

However, I am concerned about the limitation of using this tax exemption more often than once every 24 months. That's why it appears to me you should each sell your old homes before the marriage. For more details, please consult your personal tax adviser.


Have a real estate question? Write, call, fax or e-mail:

Bob Jeffries, Realtor,

Century 21 Birchwood Realty, Inc.

4040 Del Prado Blvd., Cape Coral, FL

239-549-5724 Office

239-542-7760 Fax



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