DEAR BENNY: I owe $13,000 on my home and would like to pay it off. My son thinks there is some legality that protects a homeowner when the bank still holds the mortgage. Is this correct? Any information would be greatly appreciated. –Carol
DEAR CAROL: I am not sure I understand your question. If you have a mortgage and owe money to a bank, the lender has the right to foreclose on your home if you become delinquent on your mortgage payment. The lender also has the right to sue you for a money judgment, based on the promissory note that you signed when you first obtained the loan.
As an aside, a Massachusetts court recently handed down an opinion stating that if the lender seeking to foreclose does not have the promissory note, the foreclosure cannot take place. As we all know from the mortgage problems facing this nation over the past several years, many lenders sold (hypothecated) their loans and no longer have the promissory note. This case is binding only in Massachusetts; but I suspect that many more courts throughout the country will follow up with the same decision.
Getting back to your situation, once you pay off the mortgage loan, the bank must release you from further obligations and record a release of the mortgage (deed of trust) on the land records in the county where your house is located.
So long as you are current with your monthly payments, you have nothing to fear from the lender.
But the real question: Why do you want to pay off the relatively small amount that you owe on your loan? I assume you can afford the monthly payment, especially if you have $13,000 available. Do you get (or need) tax deductions? While the interest you pay on a mortgage decreases yearly, there still will be some interest that you can deduct for tax purposes.
I know that readers will tell me, "I am only getting 0.1 percent interest on the money in my bank account so why not pay off a 4 or 5 percent loan?"
This is a personal matter that can only be answered by each borrower. However, after carefully analyzing all of the pros and cons, one "con" is that you do not want to be "house rich and cash poor." Another "con" is that someday in the future, your bank will start paying you more interest.
So here’s a compromise: Instead of making the exact monthly payment required by the bank, why not add a couple of hundred dollars to the payment each and every month? Make sure that you advise your bank (on the check you send in or on the coupon the bank receives) that you are making an extra payment to be credited toward principal.
In my example, if you add $200 each month, that will reduce your balance each year by $2,400, and will pay off the $13,000 in a little over five years.
DEAR BENNY: Exactly what does "tenants in common" mean? That’s the way title to the house that I own with my boyfriend. –Beth
DEAR BETH: Tenants in common means that you and your boyfriend each own a portion of the house. Typically, it is 50-50, but there is no legal requirement as to how ownership is held. While you may not be able to find a buyer for your half (if that’s what you have), you do have the legal right to sell your share. If you die, your interest in the house will go to your heirs, and generally some form of probate is required (depending on what state you are in).
Permit me to make a suggestion: You and your boyfriend must enter into a partnership agreement. That would cover such issues as (1) who pays what, (2) what happens if one of you cannot make the necessary payments, (3) what happens if one of you wants out of the deal, and (4) what happens if one of you should die.
I would rather you resolve such issues and reduce them to a written agreement while you are talking to each other than when you both are angry and want out of the arrangement.
DEAR BENNY: Is it legal to be charged $350 for an appraisal that I have not seen, do not have in my possession and that has absolutely no value, because of the lapse of time (120 days plus)?
In February of this year, when home mortgage rates dropped below 4 percent, I followed the link on my local bank’s website to obtain further information on refinancing my home. A few days later I was contacted by their loan department. Although I was quite hesitant, the loan person convinced me it was a great time to refinance and assured me the process would be quick and simple and closing costs would not be exorbitant. I agreed to proceed with the process if the rate would lock in below 4 percent; it was, at 3.99 percent, for 45 days.
On March 7 an appraiser came to my home, by order of the bank. I was told by the loan officer that it would be no more than 30 days to receive the appraisal, run the title search, set up closing, etc. After several more calls in March, I was informed that my bank would not actually be servicing the loan and that it would be sold to another company. I expressed considerable concern with that, but was assured it was safe and I was in no danger of falling into the mortgage fiasco that has occurred in recent years.
Sometime in April, shortly before the locked-in rate was due to expire, the loan officer contacted me by telephone and said that a survey of my property would be required, as the aerial photos showed a discrepancy on the property line. I informed him that I had seen aerials of several neighbors’ properties, and that they were incorrect and that I was unwilling to spend $1,000 or more on a survey for a property on which I have already obtained three prior loans and where I have lived for eight years. He stated that there might be a way to get some type of abbreviated survey, which would be less expensive, and that he would get back to me with the information. He did not.
On approximately May 10, 2012, I called the loan officer to inform him that I was tired of waiting on him and that he had really dropped the ball on this loan and I was no longer interested in working with him. I did not reach him, I left a voice mail. He did not even have the courtesy to return my call.
My issue is this: On July 7, 2012, I received an invoice from my local bank for $350 for an appraisal, which, not only have I not seen or been informed of its contents, is out of date and unusable by anyone’s standards. Even the local bank requires an appraisal to be current within 90 days. I did not even receive a letter of apology or explanation for the fees, just an invoice and a copy of a document I signed on Feb. 29 stating that I might incur charges whether the application was approved or denied. I signed the papers put in front of me without question. Foolish perhaps, but I trusted the personnel at my local bank.
This loan did not fail to proceed through any fault of mine. I presented all required documents, with the exception of the survey, I have a credit score of more than 800, and I have adequate income. I have since obtained a refinance loan, through another institution, which closed within 30 days of application, at a lower rate than I was offered by the first loan officer, and which did not require a survey or an appraisal. Am I obligated to pay this fee and would it be worth my while to hire an attorney to fight it on principle? –Susan
DEAR SUSAN: If you want to spend considerably more than $350 to fight the bank, more power to you. But you obviously have to resolve this now or it may come back to haunt you if it shows up on a future credit report, which it probably will.
My suggestion: In addition to sending letters to the bank, I would send a formal complaint to your local state attorney general, and also to the new Consumer Financial Protection Bureau (on the Web at www.consumerfinance.gov).
If that doesn’t work, you may want to consider filing a suit against the bank in your local small claims court. While you can have an attorney represent you, my experience is that most clerks in those courts are very helpful and you can file the complaint without a lawyer. My experience also is that many banks that are sued will immediately settle, rather than have to spend time and money defending a $350 claim.
NOTE: Referring to the newly created Consumer Financial Protection Bureau (CFPB), that agency just issued proposed regulations that if finalized will dramatically make the homebuying process more understandable. Two new forms will have to be provided to potential homebuyers seeking mortgage money: a loan estimate form and a closing disclosure form.
Consumers are encouraged to review the material and send in comments to the bureau no later than Nov. 6, 2012. For more information, type in "Know Before You Owe" on your favorite Internet search engine. That’s the name the bureau uses for some of its projects.
Benny L. 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 email@example.com.
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