Dump a scheming client

Answer: What your client is proposing is fraud and if you knowingly participate, you should lose your job and mortgage broker's license.

The borrower's credit will be ruined by the foreclosure and your reputation will be badly tarnished for participating since you knew he planned to default.

Depending on the type of loan, especially FHA and VA, and the state where the property is located, the borrower could be liable to the lender for any deficiency judgment if the lender suffers a loss from the foreclosure.

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Can't back a loan with a life estate

Question: Twenty-one years ago, I was willed a life estate in a two-family home where I live in one unit. I am responsible for the property taxes, repairs and insurance. Now I am 79 and on a limited income. There are some costly repairs to be made to the building. Can I borrow $25,000 secured by the property, which is worth about $400,000?

The property taxes are so high now that I had to cancel the property insurance. What can I do?

Answer: If you have good credit, you might be able to obtain a $25,000 unsecured personal loan at your bank to pay for those repairs. However, because you don't own the property, you can't obtain a regular mortgage or a reverse mortgage.

I am not aware of any lender who will make a loan secured by a life estate. The reason is there is no way to foreclose on a life estate when you die or if you fail to make the payments.

Having dropped the insurance, the other two remaindermen could hold you liable for repairs if there were a fire, but you are probably judgment-proof without any assets.

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How to reduce tax bite on land sale

Question: I own land purchased in 1943 for $50,000 that is now worth about $600,000. How can I sell it and keep taxes to a minimum? I have three adult children and two grandchildren.

Answer: There is only one way to fully avoid tax on the sale of property held for investment, such as your land. That method is an Internal Revenue Code 1031 tax-deferred exchange for another investment of equal or greater cost and equity.