Q: I am a recently divorced single mother of four kids, but I earn a great salary. About a year ago, during my divorce, I lost my home through foreclosure, and then declared bankruptcy. When I lost my home, my mother and I went in together to buy a $550,000 home where she, the kids and I could all live together — her name went on the mortgage and she provided a $60,000 down payment; I paid the monthly mortgage payments; and both our names went on the title.

Recently we had a falling out and she moved out. Now she’s filed for bankruptcy herself and has notified me that she plans to give the house back to the bank, since it’s upside down — even though I live there, I’m on title and I’ve been making the mortgage payments!

Since she told me that, I tried talking to the mortgage company about letting me assume the loan, but they won’t even talk to me without her permission, which she won’t give. I didn’t make the payment last month, because I don’t want to keep pouring my money into the place if it’s going to go back to the bank. What could I have done differently here, and what should I do now?

A: I’m not going to parrot the normal adage about not doing business with family and friends. I’ve done business with family, friends and strangers, and had deals of each sort go well and deals of each sort go poorly. The attorney in me feels strongly that the likelihood of success (defined by each party coming away not regretting having participated in the deal) of these kinds of arrangements has more to do with the level of advance communication about who is entitled to what in alternative and worst-case scenarios and how well documented such arrangements are.

Call me crazy, but I could wax rhapsodic about how contracts are the best preventive medicine around — sometimes, the deal never happens because the negotiation around the contract falls apart (which avoids a nasty debacle later), and most of the rest of the time, the deal does proceed, but on clear, mutually agreed-upon terms that everyone involved abides by. In the remaining, rarer cases, the deal proceeds and then goes bad anyway, but then the arbitrator, mediator or (if all else fails) judge has the contract as evidence of what everyone intended and agreed upon up front.

So, what could you have done differently? Lots of things along the way, like not doing the deal in the first place, and just choosing to rent until your personal situation settled down. But who knew you would fall out with your mother, or that she would proactively move to put you and your kids out of the house you’ve been paying for, locking in her own loss of $60,000 at the same time?

Since the structure of your arrangement with your mother was not at all farfetched or an inherent setup for failure, the only glaring error I can see in your transaction was that there was no real estate attorney involved, who could have (and would have) created — and recorded on the title to the property — a written contract documenting your and your mother’s respective rights and interests to the home, including how various alternative scenarios and foreseeable conflicts would be resolved.

More importantly, what can you do now? Well, it’s not too late to talk with a real estate attorney, and get their advice on how to proceed — especially if you can’t convince your Mom to sign the authorization for you to talk with the lender. The attorney might have better headway getting the bank to discuss the matter, but the reality is that assuming the loan is a little more than a long shot as far as likely solutions to this debacle go.

It might also be a good move to find out when the creditors’ meeting in your mother’s bankruptcy proceeding will be held, and show up to that to make your interests in the home known, and to (hopefully) have a better opportunity to connect with the lender on the property. Doublecheck with your attorney, but it’s probably a good idea to keep the mortgage current on the place — the lender is unlikely to just take the home back from your mom because it’s upside down, and they cannot legally foreclose on it so long as the payments are current. And finally, talk with your attorney about recording a lis pendens against the property, so that anyone who does intend to take title to the property must first deal with your interests in it.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.


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