Inherit home, refi immediately?

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DEAR BENNY: My husband and I inherited a home from my husband’s uncle who passed away a few weeks ago. Will the lender expect us to refinance the home or can we just assume it even if it is a conventional loan? –Karen

DEAR KAREN: Unless the existing loan was from a private person, it is most likely covered under the Garn-St. Germain Depository Institutions Act of 1982. This federal law puts restrictions on the ability of a lender to exercise the “due on sale” clause that exists in most mortgages (also called deeds of trust). One of these restrictions reads as follows: “With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon … (5) a transfer to a relative resulting from the death of a borrower. …”

Accordingly, you should advise the lender of the death, and just continue paying under the terms and conditions of the old mortgage.
However, do you know what the interest rate is on that property? Rates are currently very low, and if you can get a better rate — and assuming that you and your husband can qualify for a new loan — you should consider refinancing.

DEAR BENNY: My father co-signed on my mortgage approximately 12 years ago. We are both listed on the title/loan papers, although I have been the only one actually paying the mortgage all this time. If one of us died would the property automatically go to the other party or do we need to make further arrangements for that to happen and stay out of the probate process? Any help that you could give me would be greatly appreciated. –Kimberly

DEAR KIMBERLY: The answer depends on how title is held. This answer must be general in nature, because different states have different procedures. If you were married, you and your spouse would generally hold title as tenants by the entireties; on the death of one, the survivor would own the entire house.

But clearly you are not married to your father. Thus, you can hold title as joint tenants with rights of survivorship — which means that on the death of one joint owner, the survivor owns the entire property, and probate regarding the house is not necessary. However, if you and your dad hold title as tenants in common, on the death of one owner, his/her share of the property will have to go through probate. On the death of one tenant in common, his/her share is distributed according to the last will and testament, or if there is no such will, then according to the laws of intestacy in your state. But probate is required for this type of title.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column.

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Always look before you leap!

What’s “Debt Bomb” mean in Investor Words? #Investorwords

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Yes, this one is used actively. Sign of the times.

Defaults on debts or other obligations taken on by large financial institutions that affect not only the economy of the financial institution’s home country, but also the global financial community as well. FDIC look out.

Debt Bomb

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Why did you sign the divorce papers? Get your name off of that loan!

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DEAR BENNY: I am recently divorced. We had two houses. In the divorce, I got one and he got one. We both signed quitclaim deeds to each other. However, I needed to refinance mine to pay off the bills I accumulated just to get my house back into livable shape. (It was a rental while we were married.) Both houses have mortgage loans: Mine carries a rate of 6 percent and his is at 5.75 percent interest. Needless to say, there is no incentive for him to refinance that favorable loan rate.

My ex is not the healthiest man, and my name is still on his loan. I told my lawyer several times through the divorce process that I wanted it stated in the divorce agreement that we both have to refinance. It did not happen.

Even though a quitclaim was signed, what is my exposure if something happens to my ex, considering my name is still on the loan? –Becky

DEAR BECKY: Why did you sign the divorce papers when they did not require your ex to refinance so that your name will get off of that loan? You might want to explore whether your lawyer did not properly represent you — although there may be legitimate reasons why that did not happen.

Should your ex die, his estate will most likely have to be probated. The most likely outcome will be either that the heirs to the property will assume the mortgage and keep the property, or will arrange to have it sold. Under either scenario, you are protected.

However, if your ex stops making the monthly mortgage payments, and goes into default, since your name is still on the loan, the lender has the right to either foreclose on the property — which will be a blemish on your credit rating — or sue you for the balance of the note. I assume that when you were married and borrowed the money, you signed a promissory note, which indicated that you were both — jointly and severally — obligated to repay the loan.

You should immediately contact the other lender and advise them that you no longer own the property. Make sure that you provide them with your current mailing address, so that any notices of default will go to you as well as to your ex. Should that happen, you should immediately retain a lawyer (a different one) who can take all appropriate steps to protect you, including filing suit against your ex.

You have a problem that at the present time can be resolved only if your husband refinances.

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Divorceee pleads: Help me keep my home and free myself of the quitclaim deed.

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DEAR BENNY: I am a recently divorced woman. After many years of marriage in the same residence, I was decreed full ownership of the family home. However, I had to secure a substantial loan on the home to give to my ex-husband in order for him to move out. Because of my financial situation, I could not secure the loan without keeping him on the loan and on the deed. However, in the divorce settlement there is a quitclaim deed stating that I have five years to refinance the loan and get my ex-husband’s name off the loan and off the house deed.

I will not quality for a loan myself. However, I have a son, a recent college graduate, who has an excellent job and salary, and who is living downstairs and helping to pay the mortgage.

Should I go ahead and record the quitclaim deed? My name has been changed. Would the mortgage company be alerted and would they then require the loan to be paid in full? Would I then be forced to sell sooner than the five years? Also, I know my ex-husband’s name would still be on the loan. They may make me refinance with my name alone (I would not qualify), but maybe with my son’s credit I could qualify, making him part owner with his name on the deed. Could you please clarify the most prudent steps for me to take to keep my home and free myself of the quitclaim deed? –Amy

DEAR AMY: First, federal law does not permit the lender to call your loan just because you changed your name or add your son to title.

I suggest the following: Assuming that your son qualifies for a loan, have him buy half of the house. You then will both apply for a new loan, which if approved will pay off the existing loan, and your ex will be out of the picture.

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She will stick to her guns even if it’s not the popular view…

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Sheila Bair
By Patricia Sellers

During the worst economic crisis since the 1930s, Sheila Bair has been the little guy’s protector in chief. Guaranteeing the savings of bank customers is the main job of the chair of the Federal Deposit Insurance Corporation. Bair did that while the FDIC handled 25 bank failures in 2008. To boost trust, she also upped the guarantee from $100,000 to $250,000. “No customer has ever lost a penny of insured deposits,” she says.

Bair’s unusual clout, though, derives from the breadth of her command and her guts in staking new ground. An early Cassandra about the dangers of subprime loans, she incensed Treasury officials last fall by pushing aggressively for a massive mortgage-refinancing program. “She will stick to her guns even if it’s not the popular view,” says personal-finance expert (and fellow TIME 100 honoree) Suze Orman.

Bair, 55, is the rare Republican who has not only survived in the Obama Administration but gained power. The government has enacted many of the mortgage-modification proposals she championed. And the FDIC now has oversight of public-private funds that are being created to buy troubled bank assets to crank up lending again. A lawyer who hails from tiny Independence, Kans., Bair believes that fiscal responsibility begins at home. She’s written two children’s books on the subject. In Rock, Brock and the Savings Shock, about twin boys who get money from their grandpa, the lesson is clear: “You just have to stop spending all your money and save.”

Sellers is an editor-at-large at Fortune

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Rather have a mortgage, as appreciation WILL take place over the years…

DEAR BENNY: I am confused about paying off our mortgage on our primary home or on a secondary home/rental. My husband is totally against paying off either loan, even though we could pay off at least one of the mortgages. Our home mortgage has 10 years left at 5.25 percent interest and the other is a 30-year at 5.75 percent interest.

One of my girlfriends says you should definitely get your mortgages paid off, and yet another person who has his own business and is in his fifties says he is going to get the longest (30- to 50-year) mortgage he can get on his next home.

I don’t know what to do. I would feel much more secure personally if we had one of the mortgages paid off, especially our primary. I must say though that we may sell in the next couple of years and move our primary home to Florida. This is where the second home is. –Cynthia

DEAR CYNTHIA: You have asked perhaps the most difficult questions in residential real estate: Should I pay off my mortgage? And if so, when?

Some people like to have the comfort of having their home “free and clear” of any debt. Others — like your 50-year-old friend — want a large mortgage so that they can take advantage of the tax benefits.

But there is no easy answer. Personally, I believe in having a mortgage on my home. Why? Because over the years, my home will appreciate in value (notwithstanding the current real estate market). Let’s take this example. If my home currently is worth $300,000, conservatively speaking it will appreciate 3-5 percent per year. And this appreciation will take place regardless of whether I have a mortgage. So instead of paying off my mortgage, why not use that money for some other purpose — whether it is for personal travel, entertainment, or just to have it for that rainy day?

The more equity I have in my house — and assuming that the property will appreciate — the more it is “dead equity.”

I know that readers will differ with me, but that’s my opinion. You have to look to your own situation, as everyone has different issues and concerns.

In your case, because you plan to sell your current home in the next few years, I see absolutely no reason to pay off that mortgage. Use that money — if you so choose — to pay down the second home in Florida, which carries a slightly higher interest rate.

And here’s a suggestion: Instead of paying off the mortgage completely, if you can make one additional payment each year, you can reduce a 30-year loan down to approximately 22 years. For example, if your monthly mortgage payment is $2,000, each month add $166.66 (1/12th of the monthly payment) when you send in your check. But make sure that your check — and the coupon — clearly indicates that you are making an extra payment.

 

 

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column.

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They want to acquire her property after her death #realestate

DEAR BENNY: I have an older friend whose neighbor has approached her regarding doing a reverse mortgage. They want to acquire her property after her death or when she goes to an assisted living facility. She has a niece and two nephews who will inherit her estate when she is gone. They are not in a position to do a “family” reverse mortgage as you suggested. My question is that my friend feels very comfortable with the honesty and integrity of the neighbor who suggested this, but is it a good idea? She said she would definitely go through a real estate lawyer to prepare the paperwork, etc. What is your opinion? –Betty

DEAR BETTY: As you can see from my previous answer, I advised the parents to get an attorney even though their children were going to lend them the money on a reverse mortgage. In your friend’s situation, while she may trust the neighbor, she definitely needs to discuss the entire situation with her own lawyer. If, for example, she would like to leave the house to her niece and nephews after she dies that may not be possible under the reverse mortgage — or in the worst-case situation, the heirs may inherit a very large mortgage, which would have to be paid off to satisfy the neighbor’s loan. Keep in mind at all times that the neighbor wants the house.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column.

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Avoid claim that you somehow took advantage of your elderly parents in a Reverse Mortgage

Dedicated to Christian Erickson

DEAR BENNY: I want to help my older parents so they can have a more stress-free and comfortable retirement, and believe I am in a position to do so. They have a home in an area where housing prices are actually still increasing, which makes the scenario even more attractive to my husband and me.

Their home is valued at about $250,000. They have an interest-only mortgage with a balance of $115,000. I would like to give them a personally financed reverse mortgage of $115,000 to pay off this first mortgage.

So I would give them $115,000 and set the interest rate at 6 percent. The $115,000 grows for me like a long-term, fixed-rate, compound-interest CD would grow, except I would get no payments of interest or principal until they sold the house or the house was sold because they passed away. They would make no payments so long as they were living in the house and I could not/would not get back my investment or interest until the house was sold. Is this correct?

For someone who has the funds to invest and is looking for a tax-deferred and safe investment, this sounds like a great opportunity (so long as they can live without the funds for potentially a long time — which I can). As far as it being a great deal for the elderly parents, I can see no disadvantage to them — only benefit. Am I missing something? –Lisa

DEAR LISA: Sounds like a good plan — for you and your parents. However, before you enter into this transaction, I suggest that you consult a tax professional so that you (and your parents) understand the tax consequences. An attorney should also prepare the promissory note and the reverse mortgage document.

When a person (or couple) reaches the age of 62 and is considering obtaining a reverse mortgage from a commercial lender, he generally is required to have a meeting with a consumer credit counselor so that he fully understands the pros and cons of such a reverse mortgage. I don’t think that would be necessary in your situation. However, it might make sense to have your parents retain their own attorney, so as to avoid any potential claim that you somehow took advantage of your elderly parents.

 

 

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column.