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Children might have to go ‘hard-money lender’ route to fix inherited home

Dear Benny: My brother and I inherited our mother’s house when she passed away in January.

We wanted to fix it up so we could rent it out. We were hoping to keep it and pass it on ourselves. We need approximately $50,000 to get it ready for rental.

Neither of us could ever qualify for a loan on our own. I thought because the house is paid in full, with no mortgage, we would easily get a loan based on the equity in the house. Also, the house was purchased in the 1950s and has incredibly low taxes.

Doing research, I am being told that is not true. What options do we have to find the money for the remodeling? –Diedre

Dear Diedre: In the good old days, because you have a house with no outstanding mortgage, you would not have had a problem getting a loan of at least 50 percent of the appraised value.

But times have changed. Lenders are scared and are now very conservative.

No one really knows what lenders are willing to lend. However, all I can do is suggest that you shop around for a mortgage. I can’t believe that some lender will find your transaction favorable.

While I am not recommending this, there are what are called “hard-money lenders,” lenders who take greater risks but with higher mortgage interest rates. If all else fails, you can consider such a lender.

Dear Benny: We have recently paid off our mortgage loan and received two documents from the bank that state the loan was paid and canceled.

We also received a disbursement check voucher that states the mortgage was paid in full.

Are these two documents all we need or are there more that we need to prove that we own the house outright? –Luis

Dear Luis: That is not all you need. As discussed above, your mortgage, called a deed of trust, was recorded in the county where your property is located, and you have to have it released from land records.

You can either have your attorney do this or you can go to the recorder of deeds in your county, and they should be able to assist you.

Dear Benny: Some years ago I read an article stating that homes in a 55-and-over development should get a reduction in home insurance.

Is this true? If so, how do I convince my insurance company? –Ray

Dear Ray: I don’t know that much about insurance but have not heard about this.

I do know that insurance companies give discounts for such things as smoke detectors, good track record or having other insurance coverage with the same company, such as auto and home. But I just don’t know the answer to your question. Perhaps my readers can assist.

Dear Benny: In connection with getting an appraisal for a house, you discussed the “three appraisal” method.

You wrote: “If the appraiser’s values are far apart, the two parties together hire a third appraiser whose decision will be final.”

This makes sense to me if the third appraisal is between the first two, which are more than 10 percent apart.

But what if the third appraisal is outside of either of the range of the first two? To say that this outlier appraisal was final seems questionable to me.

I may use this recommendation in a sibling situation with my sister for our mother’s home. Can you please clarify? –Jim

Dear Jim: Appraisal is not a science but perhaps an educated art.

If the third appraisal is so out of line, you could arrange that the appraisals are all added together and then divided in three. That would be the number.

However, while your situation could happen, my experience is that competent appraisers will come in fairly close to a market value. But if you want to cover this contingency, have your agreement spell out that if that third appraisal is too high, you will take the average of all three.

Benny 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 benny@inman.com.

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