DEAR BOB: My first husband and I bought a new home in 1986 and sold it in 1989. Our buyers later sold the house to another buyer. This second buyer shows up on my credit report because he is constantly late with his mortgage payments on my old mortgage. The house even went into foreclosure, but the second buyer rescued it just before the foreclosure auction. Why am I still responsible for a mortgage on a house I no longer own? It is ruining my credit report. The mortgage company says I will continue to be responsible for this mortgage until it is either refinanced or a new buyer obtains a new mortgage. This is not fair. What can I do? – Lori D.
DEAR LORI: It appears you sold that house in 1989 “subject to” its existing mortgage. That means you remain legally liable for the mortgage payments although you no longer own the house.
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From your viewpoint, it would have been smarter for you to have required your buyer to formally assume that mortgage so you could obtain a release of mortgage liability from the lender. Because you didn’t do that, now it is too late.
There is nothing you can do to force the second buyer to make his mortgage payments on time to stop ruining your credit report. Although he must make the mortgage payments or lose his house by foreclosure, because his name is not on your mortgage obligation he has no incentive to pay on time (other than to avoid late fees).
Sorry, there is nothing you can do. But your situation provides a warning to other home sellers to insist their buyers “assume” the old mortgage rather than allowing a “subject to” sale, as you did.
DOES SPOUSE HAVE ANY RIGHTS TO INHERITED PROPERTY?
DEAR BOB: Our living trust provides that when we die, our daughter will receive our real estate and other assets. Will her spouse have any rights in her inheritance? – Al S.
DEAR AL: I notice your letter is postmarked from California. If your daughter lives in California, when she inherits your real estate and other assets, the inheritance is her separate property and her spouse has no legal rights in it. Therefore, his creditors cannot put a lien on it.
The law is the same in most states, but your daughter should check with an attorney in the state where she lives to be sure.
REVERSE MORTGAGE OR HOME EQUITY CREDIT LINE; WHICH IS BEST?
DEAR BOB: I am a senior citizen, 74, who needs extra income. My accountant and a mortgage lender advise me against a reverse mortgage. Instead, they suggest a home equity line of credit (HELOC) at the prime rate of interest. There are no closing costs. I have been approved for a HELOC up to $100,000, which will enable me to pay off my $57,000 mortgage. My condo is worth at least $225,000. The problem with a reverse mortgage is the closing costs seem so high. But I realize I will owe no monthly payments on a reverse mortgage. Which would you take? – Mrs. M.E.
DEAR MRS. M.E.: The big drawback of a HELOC is you will have to make monthly payments. If you need extra income, I can’t understand why you would take a HELOC, which requires you to pay monthly payments.
Have you talked with several reverse mortgage representatives? Please do so to compare the FHA, Fannie Mae, and Financial Freedom Plan reverse mortgages.
Yes, the up-front reverse mortgage fees seem high. But each reverse mortgage lender must prepare a TALC (Total Annual Loan Cost) chart for your situation.
If you only live a year or two, your interest rate cost is very high. However, since you are relatively young, you have at least a 10-year life expectancy, thus reducing the TALC considerably. Also, the reverse mortgage costs don’t come out of your pocket, but out of your home equity.
To find reputable local reverse mortgage lenders, please go on the Internet to www.reversemortgage.org for lenders in your area. You will need a lump sum to pay off your $57,000 existing home loan, but then you can select a credit line, lump sum, or lifetime monthly payments for the balance of your entitlement. More details are in my special report, “Secrets of Tax-Free Reverse Mortgage Income for Senior Citizen Homeowners,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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