DEAR BOB: Our home is in a depressed area where there are lots of houses for sale but few buyers. We had to move due to illness and unemployment. After listing our home for sale with no offers, we asked the lender to accept a deed in lieu of foreclosure. The lender wrote back, “It is against our policy to accept a deed in lieu of foreclosure.” We had to stop making mortgage payments because we could no longer afford them, so why does the lender let our vacant old house fall into vandalism and foreclosure instead of accepting our deed in lieu of foreclosure? –Wallace C.
DEAR WALLACE: Some mortgage lenders are not very smart. Especially if you have a VA, FHA or PMI (private mortgage insurance) mortgage, you might be caught in the lender’s bureaucracy where nobody wants to make a decision.
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A deed in lieu of foreclosure means the borrower deeds the property to the lender. The benefit for the lender is avoidance of foreclosure costs and delays.
However, if the lender accepts a deed in lieu of foreclosure, it then becomes responsible for all liens on the property, such as unpaid property taxes, second mortgage, judgment liens, mechanics’ liens, etc.
But this problem can be easily overcome if the lender obtains a title insurance policy that shows no undisclosed liens or encumbrances. Yet this isn’t enough for some Neanderthal lenders, like yours, who have a blanket policy of refusing to accept deeds in lieu of foreclosure even if the result is higher costs for the lender.
NO MORTGAGE DEDUCTION IF YOU ARE NOT LIABLE FOR MORTGAGE
DEAR BOB: I live in my girlfriend’s house. We’re not sure if we want to get married. Meanwhile, I make half of the mortgage, insurance, property tax and other household payments. Can I deduct these expenses on my income tax returns? –Ed W.
DEAR ED: No. The reason is you are not legally obligated to make those payments.
To illustrate, if the mortgage goes into default for nonpayment, you won’t suffer any adverse consequence (except having to move out). But if your name were on the title to the house and the mortgage payments aren’t paid, you could lose the house by foreclosure. Then you are entitled to deduct on your income tax returns your share of the mortgage interest and property taxes you paid. For more details, please consult your tax adviser.
IS MOM CONSIDERED AN OWNER OR A RENTER?
DEAR BOB: I am on the board of directors of a condominium association that has a strict bylaw requiring condo owners to obtain permission from the association before renting a unit. The rule has worked very well to hold down the percentage of renters below 15 percent. But recently we had two owners who allow their relatives (one is the owner’s mother and the other is the owner’s brother) rent their condos. They refused to obtain advance rental permission from the board of directors, which would have been denied because that would raise the rentals above 15 percent. Are relatives considered to be renters or should they be exempt from our association’s rental rule? –William W.
DEAR WILLIAM: Congratulations to your condo association for restricting rentals. There are many reasons for doing so, but the primary one is if the percentage of renters rises above 20-30 percent, many mortgage companies either refuse to approve new loans or they charge above-market interest rates. Also, renters often cause disturbances, and it is hard to control unruly condo tenants or get them to move out.
There is no definitive answer to your question on whether close relatives of the condo owners are considered renters or owners. I would argue they are renters, but it could be very difficult to enforce your association’s rental restrictions in such a situation.
The new Robert Bruss special report, “Pros and Cons of Investing in Rental Houses and Condominiums,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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