Need suggestions for a win / win situation with elderly

[Hollis]

I am just getting started and need advice.  I have a neighbor in her 80's who has a very nice home.  I would like to approach her with a plan to purchase her home, but allow her to stay at that location. I'm looking for a win / win situation.  Her home is paid off and valued at about $90,000.  She is on a limited income.  Please advise.

[Eric C]

Hi -

You do realize that if you structure a life estate (whereby the person can continue to live there), you won't get paid until they no longer live in the home?

Were you going to pay a lump sum up-front?

Monthly payments?

How much now and how much later?

Based on what value?

There can be some pretty severe consequences to purchasing a property at a wholesale price from an elderly person if it's not structured correctly.

For example, should the person end up in a nursing home and require financial assistance (from the gov't) there is a "look back" period to locate assets.  In some cases, that time period can cover up to 60 months.  The folks doing the looking looking take "fraud" very seriously, I assure you.

Be careful here and make very sure of your plan before you commit.  Many of the problems come about through arguments as to the purchase price of the property.

Think carefully and you should be able to come up with some ideas that make everyone happy, are easily defensible, and are also "politically correct".

Take care,

Eric C

[Hollis]

Thanks for your reply.  You bring up some great points.  I had thought about going to the bank, borrowing the money, and letting her pay  the monthy mortgage to me.  This would allow her to have a lump sum and take the hassle out of selling the property for her son that lives out of state if something ever happened to her.

I had also thought about setting a price and paying her money out of my pocket each month ($300 - $500).  I feel I should get the property at a very nice discount in a situation like this.  Again, I'm looking for a situation good for both of us.  We are very close friends.

[Eric C]

Hi -

I don't know what State you live in or almost any other relevant point about this deal, but I would caution you to check around with a Real Estate attorney (preferably one that also knows more than just a bit about estate planning too) before you get too involved with this project.

Look up reverse mortgages (yes, they are legal) and then check out all the lawsuits.

Under most circumstances, for you to get a bank loan on her property (home), she would have to transfer the deed to you. I'm not at all sure that's what you want here.

And I should also point out that the son may not appreciate the fact that you're saving him the trouble of marketing this property by purchasing it at a discount from his mother.

Did I mention that look back period for Medicare/Medicaid? Did I also say that any (ANY) transaction that took place during that period can be reversed by a judge?  And that if you make the right people angry (or you look like a good story to the local news department) that sometimes the folks investigating these deals have three little letters on the back of their jackets? Here's a hint: F-B-I.

Again, I ask you -- is this what you want?

Getting a property at a wholesale price is not a crime. Defrauding the elderly will land you on EyeWitness news (and I promise the story won't be flattering -- even your mother won't like you anymore:)).

If you're asking are these deals done? Yes.

Should you be very careful? I can't speak for you. That depends on you, your ethics, and maybe the size of your wallet -- maybe you don't really have anything to lose.

On the other hand, deals based around "fair market value" are almost never attacked. Even those with really good terms or those in which the value is reduced by concessions made to the other party -- for instance, the life estate thing we talked about earlier.

Take care,

Eric C

PS - I should also take the time here to mention that the Feds (and other interested parties) are becoming increasingly annoyed at the trend to transfer assets to other parties just before "Momma" hits the nursing home. They feel that it's unfair for the gov't (State and Federal) to be on the hook for the entire amount without any help, understand?

Their annoyance has risen to the point where they actually threaten estate professionals who casually advise clients to transfer assets.

Don't take them lightly. Do your homework. Research the law and it's ramifications for you and the other parties. Otherwise, you may find yourself a guest of a federal facility --

-- great healthplans, but poorly supervised social activities.

As they say, your mileage may vary.