When is it safe to destroy mortgage papers?
Multiple refis has homeowner itching to declutterBy Benny Kass, Monday, September 29, 2008.
DEAR BENNY: 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 or can I toss the original papers when we bought the home and the second refinance papers and just keep the most recent refinance mortgage papers? --Ann
DEAR ANN: 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 those 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.
DEAR BENNY: Some years ago, we purchased 20 acres for our retirement home. Upon retirement, we moved in and were never disappointed. Now we are getting older and have decided to move closer to our children.
Two years ago, I was mowing a part of the yard a considerable distance from the house and the mower blades hit what I thought was an outcropping rock. Upon checking into this, I found a fallen 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. If anyone has ever visited the grave, we never knew of it.
The simplest way of handling this is to dump a wheelbarrow of earth on top of the stone and smooth it out flat. But that is not a solution that I would be proud to do. How would you handle it? --K.H.
DEAR K.H.: 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. While it may be easier to just cover it up, I can't recommend that. First, it is disrespectful to the deceased. Equally important, when you sell your property, I believe you would have to disclose the existence of that grave.
DEAR BENNY: 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? --Sandra
DEAR SANDRA: 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 (called "escrow" in many Western states.)
Too many of these companies are just interested in flipping 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.
DEAR BENNY: 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. --Mrs. M.
DEAR MRS. M: 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. Effective Oct. 1, 2008:
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.
DEAR BENNY: I have a real estate question to which I have gotten conflicting answers. If a husband and wife own their home in joint tenancy with right of survivorship (with both names on the official tax-roll records) and one dies, should the survivor take action to change the ownership to be in his or her name only?
If they owned the property free-and-clear, with no mortgage and therefore no lender to be involved, is this a trivial action that the surviving spouse can do by simply going to the local assessor's office with a certified copy of the deceased's death certificate, or is it something that becomes complicated and requires the services of an attorney?
I have been told that there is no need to do this at all, and conversely, have also been told that it is important to do this to make the disposition of the property in a new will by the surviving spouse possible (or at least as simple as possible). If there is a mortgage and a lender involved, how does that affect the issue?
With an aging population and more people remaining in their homes later in life, I think that this would be a very common question and well worth a column discussing it. --William
DEAR WILLIAM: You are absolutely correct; this is a common question that I often get from my clients.
My answer is the same whether you have a mortgage or not. Practically speaking, it is not necessary to put the title into your name. You and your wife owned the property as joint tenants with right of survivorship, which means that when your wife died, you automatically -- by operation of law -- became the sole owner of the property.
Having said that, however, if you prefer, you can arrange to have the deed corrected into your name. State procedures may differ, but generally you can just file a document called "deed of confirmation" with the recorder of deeds where the property is located. This deed will state the date of death, and that the property is now in the survivor's sole name. There should be no recordation or transfer tax, but there will be a small filing fee. The recorder of deeds may want to see a certified true copy of the death certificate.
You do not need an attorney if you can get assistance from the governmental office. Otherwise, the legal fee should be nominal.
DEAR BENNY: I am a single co-op owner in New York City who bought for $7,000 in 2001. There is no mortgage. It is my primary and only residence. I can sell today at market rate for about $300,000. Do I have to pay capital gains? --Barry
DEAR BARRY: You are a very lucky man. That's a healthy profit. Since you file a separate income tax return, and will have owned and lived in the cooperative unit two out of the five years before it is sold, you can exclude up to $250,000 of your gain.
You paid $7,000 and can sell it for $300,000. That's a profit of $293,000. But before you write that check to the IRS (and possibly to the state and city of New York), let's see if we can increase your tax basis from $7,000 and reduce your tax obligation.
Did you make any improvements to the property? Did you have any expenses when you bought the cooperative that you could not deduct back in 2001? Will you have to pay a real estate commission -- or other closing costs -- when you sell? All of these expenses can be added to your basis, thereby reducing the income tax that you will have to pay. I suggest that you discuss your situation with a tax advisor before you sign any sales contract.
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 firstname.lastname@example.org.
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