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posted: 5/18/2013 4:30 AM

Heirs worry about 96-year-old with mortgage

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Q. When my 96-year-old dad dies, will we heirs have to pay on his mortgage until the property sells? What happens if we don't make payments?

A. Your dad's estate would be responsible for mortgage payments. You wouldn't be personally liable. But if the estate didn't have the money to make payments, you'd probably want to step in to protect your inheritance, assuming the house is worth it.

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If payments weren't made, the house could be sold in a foreclosure auction or, eventually, for unpaid property taxes. If you sold it yourselves before that happened, you'd have to make up overdue interest anyhow, along with any late charges and unpaid property taxes.

Q. You wrote that if I gave my children fully depreciated rental property, they would get a zero cost basis. Could we not "sell" it to them, take back a mortgage and forgive a tax-free amount every year? I assume not or you would have suggested this.

A. I doubt if I said "zero" cost basis; the underlying land doesn't depreciate. At any rate, there's almost always more that could be said, but all you asked about was the kids' cost basis.

Yes, you could "sell" the property as you suggest, but it's never that simple. Homemade solutions often bring unintended consequences. My CPA assures me the imaginary profit on your "sale" would be subject to real capital gains taxes.

Q. My mom's deed to her house has my sister and I as co-owners. In May of last year, Mom went to an assisted living facility so my sister has been the sole occupant of the house.

Recently, we found out my sister hasn't paid the utility bill in months and service will be discontinued. This prompted me to think about the taxes; I went online and sure enough, the taxes are in arrears as well.

Since half the equity of the home is mine, I'm concerned about what the worst-case scenario may be. Can I sell the property over my sister's objections and give her half of the proceeds? (I haven't been able to discuss this with her since she won't return my phone calls.)

I'm not upset with my sister; I just don't understand her. She has no mortgage, rent or car payments and a really well paying job so I find this inexcusable. Before I speak to her, I just want to know what my rights are.

Also, my wife is of the opinion that since my name is on the deed, I could be responsible for the utilities and taxes. Is this correct?

A. It's partly correct. As a co-owner you are personally responsible for the entire property tax bill. If it's not paid, your credit rating is at risk, and the house could be seized for nonpayment. Utilities, though, are probably not in your name. If so, you're not personally liable. If they aren't paid, it's your sister who would feel the inconvenience of a shut-off.

You can't sell without your sister's agreement (and possibly your mother's, depending on how the deed reads.) You could go to court, though, and force a sale. That process involves legal costs and a public auction that seldom yields true value.

It's clearly time to discuss this with a lawyer who specializes in real estate. The worst case you asked about? Losing the house and ending up with a judgment for unpaid taxes. Or having a fire and discovering there was no insurance coverage.

Q. We applied for a mortgage and we paid a fee for the bank to send an appraiser to value it. What does that figure mean? Is that how much the bank will lend us? What happens if it isn't high enough?

A. The appraisal is a skilled estimate of what the property is worth in today's market. The old rule (which hasn't worked too well in the past few years) is that the bank is safe if it lends you no more than 80 percent of the value of the property. Some mortgage plans require you to put up less than 20 percent of the purchase price. They might involve FHA insurance, private mortgage insurance, a guarantee by the Veterans Affairs or special programs sponsored by the state or the Department of Agriculture.

If the loan wouldn't be as much as you counted on ("the house doesn't appraise") you will request a reappraisal, make up the difference with a higher down payment, renegotiate your purchase price with the seller, or forget the whole thing and get your deposit back.

• Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (include a stamped return envelope), or readers may email her through askedith.com.

2012, Creators Syndicate Inc.

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