DEAR BOB: For about two years, I rented a cottage in a semi-rural area outside of town. I was getting my life back together after a bad divorce and was grateful to the landlord who rented to me although my credit was poor at the time. I got a job at a new Wal-Mart as a clerk. Oops, we’re called “associates.” It is a great place to work and I received many quick little promotions. Today, I’m in charge of the “front end,” which means managing the checkout clerks and making sure customers walk away happy. My income rose substantially. When my landlord said he was thinking of selling the cottage, I asked him if I could buy (it has about an acre of land). He gave me his asking price, which seemed reasonable. But when I applied for a mortgage, I learned my credit report and FICO score still weren’t very good. So my landlord suggested I buy on a “land contract for deed.” He sold the cottage to me for just $5,000 cash down. For over a year, I faithfully made my payments to him on time. The mortgage broker, who originally rejected me, has now arranged a mortgage for me. But when she was ready to close, the title report showed my seller has several judgments against him, which he can’t pay if I take title to the cottage. What should I do? – Mark C.
DEAR MARK: Yours is a classic situation showing why I do not recommend land contract for deed home purchases. They sound like a “good deal” for a buyer like you who had less-than-perfect credit.
Purchase Bob Bruss reports online.
However, when you are ready to obtain the title deed, after faithfully making your on-time monthly payments to the seller, your seller is now unable to deliver marketable title to you. This happens entirely too often.
Unfortunately, there isn’t much you can do if your seller can’t pay those recorded judgments so he can deliver marketable title to you. Sure, you can sue him for breach of contract damages, but it sounds like your landlord is a deadbeat who doesn’t pay his judgment debts.
I suggest is consulting a local real estate attorney. But don’t get your hopes up too high because it sounds like you are dealing with a deadbeat seller who won’t or can’t pay his judgments.
RISK OF BEING A JUDGMENT LIENHOLDER
DEAR BOB: I recently received a letter from a title insurance company stating they are processing a foreclosure on a property owned by an individual who owes me money. I have a recorded judgment against him for $2,802. There is also another recorded judgment against him for $932. The foreclosure is on a mortgage trust deed which was recorded in 2004. If this property is sold at the foreclosure sale on that first mortgage, who gets paid first, second, and last? – Paul B.
DEAR PAUL: Presuming someone bids at the foreclosure sale more than the amount owed on that mortgage, the excess funds will then go to you and that other recorded judgment lienholder in the order you recorded your liens.
If you recorded first, then you get paid first after the mortgage is paid off. However, if you recorded after your competitor lienholder, he gets paid first and you get paid any remaining excess cash.
However, if you are not paid in full from the excess foreclosure sale proceeds, your recorded judgment is still valid against the debtor (but not against the foreclosed property). If your debtor owns other assets, you canseek payment from them. For full details on collecting your judgment, please consult your attorney.
PROS AND CONS OF A “NO DOC” MORTGAGE REFINANCE
DEAR BOB: There are a lot of average attorneys, but you are brilliant. But now I desperately need your valued opinion. I am retired (age 66) on social security disability with an 814 FICO score. My house is worth $950,000 and I owe $160,000 at $952 per month payment. I have an unused $75,000 home equity credit line. I am married so we can claim up to $500,000 tax-free profits if we sell. Property tax is very low. I don’t want a senior citizen reverse mortgage because my mortgage is at 5.75 percent fixed interest and reverse mortgages have adjustable interest rates. Should I sell? Or should I refinance with a “no doc” mortgage although my monthly income is only $1,700? My wife can’t work and is on six Xanax pills a day. What should we do? – Thomas B.
DEAR THOMAS: Although you didn’t directly ask, I presume your real question is what can we do to increase our monthly income?
Fortunately, you are in a great situation with that huge equity in your home.
If you and your wife want to stay in your home, I suggest you get a reverse mortgage and select either lifetime monthly income or a large lump sum. Obviously, part of the reverse mortgage maximum will be used to pay off your small $160,000 mortgage.
Yes, you will be spending your huge home equity so you can enjoy a better lifestyle. But you deserve that. Forget about the fact reverse mortgages have adjustable interest rates whereas you now have a 5.75 percent fixed interest rate.
Frankly, I don’t know how you and your wife survive on just $1,700 per month with a $952 per month mortgage payment. I hope you’re not eating peanut better and jelly sandwiches for every meal.
Please consult a reverse mortgage lender who represents FHA, Fannie Mae, and Financial Freedom Plan (FFP). I suspect a FFP reverse mortgage will be best for you. More details are in my special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
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