Simmons & Schiavo Blog

Thinking of retiring abroad? Know the rules first

The idea of retiring on a beach in Central America or in a quaint village in Europe might seem idyllic. But before you think seriously about retiring in another country, be sure you know all the tax and estate planning rules.

A lot of people have been tripped up by these rules in the past. For instance:

* If you keep more than $10,000 in a foreign bank account, you’ll have to file annual reports with the U.S. government. And be sure you can even open a local account – a law passed by Congress in 2010 requires foreign banks to file detailed disclosures on accounts held by Americans, and many smaller foreign banks won’t even accept Americans as account holders anymore because they don’t want to deal with the paperwork.

* Some foreign countries don’t allow non-citizens to directly own real estate. As a result, you’ll have to own the real estate through a trust or a corporation, or have a local agent hold title while you contract with the agent to control the property. Owning real estate through a foreign trust or corporation can result in onerous tax and reporting requirements here in the U.S. [Read more…]

One-third of existing home sales are now in cash

Some 33% of sales of existing homes (as opposed to brand-new homes) are now cash-only deals, according to a survey by the National Association of Realtors.

The number of sales in which the buyer doesn’t take out a mortgage began to increase a few years ago during the recession, because well-heeled investors were purchasing large numbers of distressed properties with the goal of rehabbing and flipping them.

But according to the survey, in the last few years investors have been joined by a new group of cash purchasers – retirees. These older folks are selling their homes and using the equity to downsize, or are flush from the stock-market boom and are buying vacation homes or condos as an investment.

Cash offers are usually more attractive to sellers than those with a mortgage contingency, and as a result a cash buyer might be able to pay less for a property.

What you need to know about easements on your property

An “easement” is a legal right of someone who doesn’t own a piece of property to use the property for a particular reason. Many properties have easements on them, so it’s important to know about them if you’re considering buying real estate.

An easement permits a third party (such as a neighbor) to use part or all of a property for a specific purpose. For instance, someone may have a right to walk or drive over part of the property to access their home, or to go hunting or fishing there.

The most common type of easement is a utility easement, which says that a utility company can access part of a property to maintain its services. This is generally no big deal – but if a utility truck shows up on your land one day and begins excavating a lot of dirt to upgrade a gas line, it can be very disruptive.

Another type of easement is a right of way – someone else’s right to use your property to get somewhere. This is common where two properties share a common driveway, for instance; one property owner might hold title to the driveway, but the other has a legal right to use it. [Read more…]

Fannie Mae will continue to back larger mortgages

Fannie Mae and Freddie Mac, the quasi-government entities that insure or repurchase a high percentage of mortgages in the U.S., will continue to back mortgages as large as $417,000 – and as large as $625,500 in some high-value areas.

That’s the word from the new director of the Federal Housing Finance Agency, which oversees the two mortgage giants.

This is good news for buyers who want to take out larger mortgages. Mortgages of more than Fannie and Freddie’s maximum amounts are usually considered “jumbo” loans, and borrowers typically have to meet much higher standards and face many more restrictions.

The agency had planned last year to reduce the largest Fannie and Freddie-backed loans to $400,000 (and $600,000 in the most expensive locales), but it now says that continuing to insure larger loans will help the country’s housing recovery.

What will happen to your online accounts if you pass away?

As more and more people live their lives online, the question of what happens to online assets and records after someone dies is becoming more important – and confusing.

Consider all the things that you might “own” on the Internet – thousands of photos and e-mails, Facebook and other social media accounts, music libraries, blogs, genealogy records, domain names, and much more.

Then consider how many financial accounts you have or manage online – including PayPal and other accounts with credit balances, as well as online accounts with detailed financial records, automatic bill-paying processes, etc.

If you haven’t given any thought to what will become of these things – and who will manage them after you’re gone – it’s probably a good time to do so.

Increasingly, executors are being faced with very difficult questions about what to do with these online assets. How can they access them? To whom do they belong? What would the deceased loved one have wanted? [Read more…]

How to buy a vacation home with friends or family

Sales of vacation homes have been rising sharply lately. Across the country, the number of vacation homes sold last year was up 30% from the year before, according to the National Association of Realtors.

Vacation homes now account for 13% of all home sales. The median price last year was $168,700. Interestingly, most vacation home buyers are under age 45.

Many people have long dreamed of owning a second home, but buying one can seem like a big stretch. One solution is to join forces with friends or family and purchase a home together.

This can be an ideal solution – you get to use the home for part of the year, just as you planned, but you can also share the cost, the maintenance work and the expenses with others.

But before you take the leap, it’s important to think through everything that will be involved, and what will happen if something goes wrong. You’ll want to have a frank conversation with your partners and draw up an agreement that covers all the bases – a kind of “real estate prenup.” [Read more…]

‘No down payment’ mortgages are back

Remember “no down payment” mortgages? These were the kinds of loans that often led to foreclosures during the real estate bust a few years ago. They’re making a comeback – but in a different form.

In their new incarnation, home buyers put up their home and a portion of their investments as collateral. The amount of a portfolio that must be pledged depends in part on the nature of the investments – a larger amount must be pledged if they consist of stocks rather than bonds, for instance. The homeowner keeps ownership of the investments, although there are some restrictions imposed by the lender, and typically the investment account must be held at the lender’s institution.

The advantages for buyers are that they (1) don’t have to sell appreciated stocks and pay capital gains taxes to fund a down payment, (2) may get a larger mortgage interest deduction, and (3) may come out ahead if their investments return more than the mortgage interest rate.

Of course, there are dangers, too, since homeowners will have put their personal assets as well as their home at risk if anything goes wrong.

Want to build a second home next to your current one?

Many cities have liberalized their zoning laws in recent years to allow people who live in single-family homes to add a second home on their property. They can do this by creating a basement apartment, building an “add-on” apartment to the house, or even constructing a separate cottage in the backyard.

Cities are responding to requests from homeowners, many of whom are middle-aged couples whose children can’t afford to find their own apartment and want to live with them. Other owners want a nearby space to take care of aging parents who can no longer live on their own, or simply want to rent space to bring in extra income.

Laws have changed recently in Seattle; Vancouver; Salt Lake City; Silicon Valley; Missoula, Montana; and many other places.

Of course, these changes can be controversial, since nearby homeowners may worry that their neighborhoods will become more crowded and experience problems with noise and traffic.

New rules for reverse mortgages

The federal government has tightened the rules for reverse mortgages, making it harder for some seniors to get these types of mortgages and reducing the amount of a home’s value that can be tapped.

Reverse mortgages allow elders who are house-rich but cash-poor to use their housing equity. Homeowners who are at least 62 years old can obtain a loan that doesn’t have to be repaid until the homeowner moves, sells, or dies. The homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the borrower’s age, and current interest rates.

Homeowners can get the money in one of three ways (or in any combination): a lump sum, a line of credit, or a series of regular payments, called a “reverse annuity mortgage.” Seniors sometimes use the loans to pay for home care while they remain in the home.

Almost all such loans are insured by the U.S. government. The government says that in recent years, default rates have been rising, and many seniors are losing their home when they are unable to continue paying for insurance and property taxes. [Read more…]

Tenants with children can’t be limited to lower floors

Managers of apartment buildings sometimes want to require tenants who have small children to live on a lower floor, in order to prevent complaints from other tenants about noise in the apartment above them.

But the U.S. Department of Justice says this is illegal. The government announced that such a rule would violate the federal Fair Housing Act, which prohibits discrimination against tenants based on “family status.”

The Department recently filed a lawsuit against the owner of an apartment complex in Massillon, Ohio, claiming that the owner illegally refused to rent apartments on upper floors to families with children.