DEAR BENNY: My mother has a mortgage for about $26,000. Her home is worth considerably more (how much I’m not sure), but given today’s housing market the value has probably declined. I do know that the terms of the loan are such that she’s paying only the interest monthly — she’s not paying down the principal.
If she defaults on the loan, can the bank compel her to sell her home? Would they be entitled to the $26,000 plus fees? And if so, any idea what those fees would be?
What options does she have regarding a different loan or repayment schedule? She’s 75 and lives with my brother who has diabetes and for the time being is sick and will be on disability — so his income will be less than it has been (and may at some point disappear altogether). She has been able to pay only the bills with her Social Security; his income bought consumables like groceries and gas. I’m worried about her ability to pay her debts as well as have money to live without the possibility of her defaulting on her home loan — and what that might entail. –Liz
DEAR LIZ: The simple answer to your question is that if your mother is unable to make her monthly payments, the bank has the right to foreclose on the house. This means that a stranger — or the bank itself — will buy the property at a foreclosure sale, and your mother and brother may be forced to move.
This is the ugly reality of the current financial situation here in the United States.
That does not mean, however, that the bank will, in fact, foreclose. Banks do not want to end up owning real estate, because they would have to pay the real estate taxes and insurance. Although speculators often attend these foreclosure sales, quite often the bank ends up owning the property.
You should explore a number of options. First, talk with the bank and see if you can work out some form of relief — either by way of a modification of the loan (a lower interest rate or a longer payoff time) or a moratorium on payments for several months.
Second, talk to state, local and federal agencies about any programs they may have to assist people like your mother.
Third, contact your local AARP office, and learn about reverse mortgages. Although I usually recommend that such a mortgage be used as a last resort, perhaps in your mother’s case, she would be a prime candidate for a reverse mortgage. But if you go this route, make sure that you — and especially your mother — fully understand the consequences and the impact of such a mortgage when she ultimately sells or dies.
One word of caution, however. In recent months, because there are a number of people who, like your mother, are having trouble paying their mortgage, there are also a number of dishonest people who have surfaced.
If any reader is contacted by a stranger who promises to assist by paying off the mortgage, please be careful. Do not sign any document until it is reviewed by an independent attorney chosen by you (and not the stranger), and under no circumstances should you give that person any money.
When economic times get bad, fraud runs rampant. Caveat emptor: Let the consumer beware.
DEAR BENNY: We recently purchased a condo. Our association is called an HOA. Can you describe the difference? –Joe
DEAR JOE: Too many people mistakenly call their condominium association a homeowner association, or HOA. There is a basic difference, but terminology can differ from state to state. For example, an HOA could be called a planned-unit development (PUD) in one state, where in another it could be called a common-interest development (CID).
Although condos and HOAs function more or less in the same way, there is a technical legal difference. In an HOA, the association holds title to the common property, while the individual members have only a membership interest in the entire association. In a condo, on the other hand, the association owns nothing: Each condo owner owns a percentage interest in the common property — but the elected board of directors are empowered to make the major decisions for the association owners.
You should look at your legal documents to determine exactly what your association is called.
DEAR BENNY: As president of a 58-unit condominium, our board is concerned about potential foreclosures in our building. Other than checking with county records, how can we find out if any of the units in our building are going into or are in foreclosure? –Marcy
DEAR MARCY: Since state law differs in the area of foreclosure, I can provide you only with a general response, based on my experience here in the Washington, D.C., metropolitan area.
Traditionally, if a mortgage lender is about to foreclose upon a property, it must notify all parties that have an interest in the property. That includes junior lenders and condominium associations.
The purpose of requiring such notice is to allow any such parties the right to protect their own interests, and possibly bid in at the foreclosure sale. The condominium associations that I represent do get notice of foreclosure sales, and in each case, the board discusses the pros and cons of trying to buy the unit at the sale.
Pros: The board may need a unit for its own purposes (such as an office for management or a health club facility); this may be a good financial arrangement for the association, so that it can either rent it or sell it later at a profit.
Cons: The board will have to come up with the money to pay off the lender based on the foreclosure sales price. Additionally, there may be other outstanding liens and encumbrances on the property — such as tax or water bills — that are not wiped out by the sale.
You should discuss this issue with your association lawyer.
DEAR BENNY: In August 2007 we bought our first house. More than a year later, our local gas company showed up on our property to inform us that a gas pipe line runs through our property, and that they have an easement going back to 1968. They told us they will cut down the trees on their easement area and will not restore our landscaping. We went to court, but our case was dismissed. In November, the gas company showed up with heavy machines and equipment, and some 30 trees approximately 20-30 years old were cut, destroying our landscaping. We are afraid that water drainage to our property was destroyed and water will start coming into our basement.
When we bought our home, the seller disclosed to us that the house had been treated for termites in the past; how old the roof, furnace, air conditioner, etc., were; and we were told that we were given full disclosure. So we signed a contract.
If we had been told on the disclosure that there were interstate pipelines present and that we could not use 90 percent of the backyard the way we wanted, we never would have signed that contract. Where we can go for help? Is there any law that can protect us? –Tanya
DEAR TANYA: Some states require that home sellers disclose a number of things, including whether there are any easements on the property. You may have a case against your seller, but an attorney would have to advise you on the status of your specific state’s laws.
When you went to settlement (called escrow in some western states) did you obtain an owner’s title insurance policy? If so, you should read that policy very carefully to determine whether the easement was disclosed.
In addition to a possible remedy against the seller, I see two other possibilities. First, if the title policy did not disclose the existence of the pipeline easement (which should be a matter of public record), you have a possible claim against the title insurance company,
On the other hand, if the policy specifically lists the easement, then you have a possible claim against the company (or attorney) who conducted the settlement. That information should have been disclosed to you before — or at the very least — at closing.
Finally, the utility is regulated by some state regulatory agency. You may not be able to restore the trees, but you may be able to get the agency to assist in getting the utility company to restore your backyard — and to determine if the actions of the company have impacted on your water drainage.
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 firstname.lastname@example.org.
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