Editor’s note: Robert Bruss passed away on Sept. 26, 2007. Inman News is republishing his work, which still holds value in today’s market, in an ongoing "Best of Bob Bruss" series.
DEAR BOB: We are behind three months on our home mortgage payments due to illness and unemployment. The mortgage loan servicer has been very uncooperative when we tried several times to make partial payments. Last week the loan servicer began the foreclosure process by recording the legal documents. So far we have heard from three lawyers who specialize in bankruptcy. They tell us to file bankruptcy to stop the foreclosure. Is this a smart decision? –Alice V.
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DEAR ALICE: Filing either Chapter 13 bankruptcy reorganization or Chapter 7 "straight" bankruptcy will delay the foreclosure sale of your house. But the auction will eventually occur unless you reinstate the mortgage, refinance it or sell the house. When you file bankruptcy, an "automatic stay" stops creditors from collection efforts, including a foreclosure sale.
But your mortgage is a loan secured by your home. Filing bankruptcy won’t prevent the home’s eventual forced sale unless you either reinstate the mortgage by paying the missing payments or pay off the mortgage by refinancing or selling the home.
Before you can file bankruptcy, you must meet with a certified bankruptcy counselor to discuss your alternatives. Unless you are truly broke, filing bankruptcy could be a major mistake because creditors look very unfavorably on bankrupt debtors.
Chapter 13 bankruptcy, if you now have income, allows you to reorganize and pay off your debts over as long as 60 months. This program gives you time to make up those missing mortgage payments. However, if you miss any payments in your reorganization plan, as approved by the bankruptcy court, then the lender can proceed with the foreclosure.
Chapter 7 is what I call "ultimate bankruptcy." If you have more liabilities than assets, you can then be forced to sell your home and other major assets, with some exceptions such as work tools. Your creditors would be paid, usually pennies on the dollars owed. If you have equity in your home, the mortgage lender will get 100 percent payment as a secured lender.
Don’t be railroaded into filing bankruptcy. Talk with a certified bankruptcy counselor to discuss your alternatives. Maybe the situation isn’t as dire as you think.
WATCH OUT FOR CERTIFIED-DEED SERVICE SCAM
DEAR BOB: We bought our home in May 2007. Recently we received an official-looking form telling us the U.S. Government Federal Citizen Information Center Web site recommends property owners should have an official or certified copy of their deed. This company offers to sell us a certified deed copy for $69.50. This is our fifth home and we have never received this type of letter before. Is it legitimate or a scam? –Carmine C.
DEAR CARMINE: That sounds like a scam. Why didn’t I think of that? It sounds like a rip-off of homeowners. There is no need for you to obtain a certified copy of your deed.
If you want a copy of your deed, just stop by your local county or city deed recorder’s office and purchase a copy for about $10. Or phone the title insurer where your home purchase was insured and ask for a courtesy copy of your recorded deed.
BEST WAY TO PAY FOR HOME RENOVATIONS
DEAR BOB: My husband and I are retired. We own our home, worth about $500,000, without any mortgage. Now we want to add a bedroom and a family room. Is the best way to pay for this a home equity line of credit or a fixed-rate mortgage for about $100,000? –Gerry M.
DEAR GERRY: Either alternative is fine. With a $100,000 mortgage, the fixed interest rate should be around 6.5 percent today, plus closing costs. You will then have a fixed monthly payment for 15, 20 or 30 years (your choice).
But a home equity line of credit (HELOC) is more flexible and easier to obtain. There are usually no closing costs. However, the interest rate will be higher, probably around the prime rate of 8.25 as I write this.
My preference would be a HELOC for as large an amount as possible, perhaps $200,000 to $400,000 in your situation, depending on income, just in case you need cash quickly for an emergency or an investment opportunity.
For example, several months ago I obtained a $400,000 HELOC over the phone from a major nationwide bank at three-fourths percent interest below prime. Although I haven’t used that money, it’s nice to have it easily available by just writing a check.
The major HELOC benefit is it doesn’t cost anything until you write a check to use the money. Your monthly payments can be as low as interest only, or you can pay more and reduce the principal balance rapidly. Then you can re-borrow the money again.
After your home improvements are complete and paid for with HELOC funds, then you can decide if you want to refinance with a new first mortgage.
WHAT HAPPENS WHEN YOU DIE WITHOUT A WILL?
DEAR BOB: If a senior citizen owns several properties and the deed has his or her name only, what happens to the properties when the owner dies? Will they go to the children? –Athena M.
DEAR ATHENA: If you die without a will, or the title to each property is not held in the name of your revocable living trust to avoid probate, the local probate court will determine who inherits your properties.
Title will pass according to the state law of intestate succession in a specific order, such as surviving spouse, children, parents, etc. This law is similar, but different, in each state.
For the protection of you and your heirs, you need a written will or a living trust to be certain your real estate and other major assets pass to the individuals you desire. Some lawyers charge as little as $100 or $200 to prepare a simple will.
WHAT IF CITY BUILDING PERMIT RECORDS ARE LOST OR WRONG?
DEAR BOB: Thanks for your recent article about what happens when space was added to a home without a building permit. I didn’t realize appraisers won’t include square footage added without a permit. But our problem is the city building permit records for our house are lost and inaccurate. The water department turned on the water to our house in 1880, but the city records show our house was built in 1935. How can we correct these errors? Also, we added 2,092 square feet with permits, including architectural and engineering permits. But the city records show only 1,892 added square feet. How do we rectify the city records? –Rodney O.
DEAR RODNEY: It may not be worth your time to try to prove your historic house was built in 1880. A copy of the water department record would be interesting to show to prospective buyers, but the construction date of your home really isn’t that important.
As for the added square footage, it would be a good idea to submit your evidence to the building-permit department for correction of their records. Find out what is required, such as a copy of the architectural plans for the addition.
When you sell or refinance your home, the appraiser will check for building permits and it will be advantageous for you if those records are accurate.
HOW CAN NEW HUSBAND GET HIS NAME ON WIFE’S HOME’S TITLE?
DEAR BOB: My wife and I were married last year. The home is in her name only. How do we get my name on the mortgage loan papers without refinancing? –Phil A.
DEAR PHIL: You don’t need your name on the mortgage loan papers. Forget that. Just leave her name alone on the mortgage obligation.
Presuming you behave yourself and she wants your name added to the title, she can sign and record a notarized quitclaim deed giving you a partial interest in the house.
For example, it might read from Sue Smith to Sue Smith and Phil Smith, husband and wife, as joint tenants with right of survivorship. With joint tenancy, all joint tenants automatically own equal interests. Another advantage is avoidance of probate when a joint tenant dies.
Better yet, this would be a good time to consider putting the title to the home and other major assets into a revocable living trust to (1) avoid probate court costs and delays when one of you dies and (2) equally important, provide management of the assets without conservatorship if one of you becomes incapacitated, such as with a severe stroke, a coma or Alzheimer’s disease.
WHERE TO LEARN MORE ABOUT LEASE-OPTION RENT-TO-OWN
DEAR BOB: Thanks for the recent information about lease-options and rent-to-own. I am looking into this field for investments. How can I protect myself and the property? –Omera H.
DEAR OMERA: There are two recent books on this topic: (1) "Investing in Real Estate with Lease-Options and ‘Subject to’ Deals" by Wendy Patton, and (2) "Rent to Own" by Robert Irwin. Both books are available in stock or by special order at local bookstores, public libraries and www.Amazon.com.
In addition, I highly recommend my report, "How to Profit from Lease-Options (Rent to Own) If You are a Property Buyer, Seller, or Real Estate Agent," available for instant Internet delivery at www.BobBruss.com.
(For more information on Bob Bruss publications, visit his
Real Estate Center).