Local zoning laws can limit homeowners' property rights
Q. We have a small home that sits on a very large lot. The mortgage is paid off, but we live on a modest fixed income, so we'd like to get some extra monthly cash. Would it be possible to build a separate rental unit on our land to generate some rental income, or to add an additional unit to the back of our own home to create a rental duplex?
A. That's a tough question, the answer to which largely depends on the zoning laws in your neighborhood.
Most neighborhoods are zoned either R-1 - which means only one residential home can sit on each parcel - or R-2 or R-3, which permits two or more dwelling units on the land. If you don't know which designation applies, call your local zoning or planning department for an answer.
If your parcel is zoned R-1, your plans to build a second unit on the property probably are doomed. Most cities and counties have the power to provide exceptions to existing zoning ordinances, but they rarely grant them, in part because they want to preserve the overall character of the neighborhood.
Even if you can gain approval to build the rental unit, financing the construction could be tough because you and your spouse are living on what you call a "modest fixed income." That may make qualifying for a loan difficult and, should you be able to get the needed cash, the monthly payments on the loan could be higher than the rent that the new rental unit would generate - making your day-to-day financial situation worse, not better.
If you have a lot of money tucked away in a savings account or have other assets that can be easily liquidated, it might make sense to pay the building costs on an all-cash basis and use part of the rental income you eventually receive to restore the depleted financial reserves.
Another alternative would be to apply for a reverse mortgage, which I recently wrote about. The ability to get these loans, often called "home-equity conversion mortgages" or simply "HECMs," is based on a homeowner's current equity and age, rather than monthly income.
Because no payments are owed until the borrowers move out or die, a HECM could provide the money you and your spouse need to build the rental unit now, bank the monthly income it then creates, and avoid any loan payments while both of you are alive. Instead, the balance of the loan (plus accrued interest) would be taken out of your estate after both of you pass away.
Talk to a few bank loan officers, mortgage brokers and maybe an estate planner or two to explore your options. Also consider contacting one of the Federal Housing Administration's free or low-cost reverse-mortgage counselors by calling the U.S. Housing and Urban Development Department at (800) 569-4287 or by visiting www.hud.gov.
Q. I am applying for a loan, but my ex-wife wants to get a copy of my current credit report. Can she have it?
A. No. The Federal Credit Reporting Act generally outlaws credit checks by unrelated people. Your ex-spouse can't get a copy of your credit history unless you approve it or have named her as a co-borrower on the application.
Q. We made a $1,000 deposit for a week's stay in a privately owned bungalow on the beach in Cabo San Lucas, Mexico. We also paid $517 each for airfare to get there, and then paid another $125 for "travel insurance" that would reimburse us for our rental and airfare costs after seeing TV reports that a hurricane was going to hit Mexico a few days later. We canceled our trip, but now the insurer won't pay for our lost expenses, and the landlord in Mexico won't refund our deposit. What can we do?
A. Not much. Most travel-insurance policies cover only "unforeseen events," such as a trip that must be canceled due to illness or death (yours or that of a close family member), or an unexpected weather event that leaves the hotel or other place you expected to rent uninhabitable.
The torrential storms that recently hit Mexico and Hawaii alike started out as hurricanes that had been tracked by meteorologists for days or even weeks, and broadcast on the news every night. That means that they were "foreseeable" events, so the insurer probably doesn't have to reimburse you for your losses.
Contact your state's insurance department or department of consumer affairs to see if your denied claim can somehow be appealed.
Real estate trivia: Houston is the only metropolis in the U.S. that has no zoning laws. That's why my beloved "Space City," nicknamed for its famed Lyndon B. Johnson Space Center, has one of the most distinctive skylines in the nation.
• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405.
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