Seniors: Avoid lump-sum mortgage payoff
Alternatives help those on fixed incomes from becoming 'house rich and cash poor'
By Benny Kass
DEAR BENNY: I am 74 and recently have been contemplating paying off my condo mortgage. The remainder of the mortgage is $98,000 at 6 percent. Can you help me through this? On the surface it seems like a good idea, but I'm not aware of all the particulars. I am in good health and will not need the $98,000 in the near future. --Dee Dee
DEAR DEE DEE: I am happy to hear that you are in good health today. But can you guarantee that you will still be as healthy next year, or two or three years from now?
What's your reason for wanting to pay off your mortgage and own your condo "free and clear"?
I know you will respond and tell me that you are currently getting less than 1 percent interest on the moneys you have in the bank, so why not pay off that 6 percent loan? And I suspect you will also tell me that you have no real income so you cannot take advantage of any mortgage interest deductions.
All this is valuable information. But over the years, I have represented too many homeowners who at 70-plus found themselves "house rich and cash poor."
Don't let yourself fall into this category. Also, while it may never happen again, I remember getting 18 percent interest back in the early 80s on the money market account I had with a major lender. While no one can guarantee anything, I feel confident that bank interest rates on savings will go up over time.
Here's a suggestion: If you can qualify, I would strongly suggest that you consider refinancing your existing 6 percent loan. Interest rates are currently hovering around 4 percent, which is extremely low. If you can refinance, you will reduce your monthly mortgage payment, but at the same time will keep your money in a bank account in your name and not that of your mortgage lender.
And regardless of whether you are able to refinance, you might want to consider making larger monthly payments on your mortgage. This way, you have your proverbial cake and eat it, also; you keep your money in your bank but start reducing the outstanding loan balance at a more rapid pace.
DEAR BENNY: I bought a condo in 2007 just before the bottom on real estate dropped. The building went into foreclosure and then receivership, and now a bank owns it. Only three of 12 condo owners are paying the assessment fee.
We need our hallways and entrance doors painted, but the management company tells us that it doesn't have the money for that.
I want to know what I can do as an owner: Do I locate the bank to see what its responsibility is to this property? The management company suggests that because I pay my assessments I should contact the other owners and gently ask them to pay their fees. However, I don't feel comfortable doing that. --Yvonne
DEAR YVONNE: You need a lawyer who understands condominium law. I suggest you contact the Community Associations Institute to get the name of some lawyers in your area.
First, there is a condo association; it was created when the condo documents were first recorded among the land records in your state. It is just that the association is dormant.
In my opinion, the bank (the current owner of the rest of the units) has the obligation to (1) maintain the condo association, (2) vigorously collect condo fees from everyone, including the bank that owns the rest of the units, and (3) maintain the building's common elements.
Second, l believe that the management company is not doing its job properly, especially when it tells you to try to collect condo fees from other owners. That's the job of management, not yours. I would demand to see a copy of the management contract; that would give you a lot of information about the owner of the remainder of the units.
Every state has different laws when developers go "belly up" and the lender takes over the association. Your attorney should be able to guide you.
And don't be concerned about having to spend some money on an attorney. It's your condo -- your investment -- and you clearly want to preserve it.
DEAR BENNY: In a warranty deed, my grandmother conveyed 200 acres of farmland, for her life and on her death, to her bodily heirs.
My mother, who is now 102 years old, had two children: my deceased sister and me. When my sister was alive, we naturally assumed that we were her bodily heirs and would share equally. My sister had four children, one of whom died and left two children.
So who are the bodily heirs now? And how do they share? Will I still get half? --Art
DEAR ART: I cannot provide you with specific legal advice, but can give you my opinion. The concept of "bodily heirs" is language that was used many years ago, but has fallen out of favor because it has caused confusion in a number of courts.
Oversimplified, it refers to "lineal descendants." According to the legal dictionaries, a "lineal descendant" is a person who is in direct line to an ancestor, such as a child, grandchild, great-grandchild, etc. This is distinguished from a "collateral descendant," which is a husband, wife, brother, sister, uncle or aunt.
In your case, your mother is the lineal descendant. I am assuming that your grandmother is deceased, based on the age of your mother. If my assumption is correct, then your mother is now the property owner.
If your mother has a last will, then the property will be distributed pursuant to the terms of that document. If there is no will, then the laws in your state (called "intestacy") will control.
Presumably, on your mother's death -- unless there is something to the contrary in her will -- you will get half of the property. The other half will have to be decided either by your mother's will or the laws in your state. Because there are many parties now involved, it's too complicated to explain in this column.
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 email@example.com.
Copyright 2012 Benny L. Kass