DEAR BENNY: I am going to pay off my 30-year mortgage at the end of this year, which is 10 years early. When I contacted the mortgage company to ask for a payoff amount, the representative said there would be some fees included. Someone else told me that there should be no fees and to refuse to pay them. What should I expect when paying off my mortgage? Should I also get the original deed? –Jay
DEAR JAY: Permit me to explain the mortgage process. When you first obtained your mortgage (also called a deed of trust) 20 years ago, among a large number of papers involved, you signed a promissory note and a mortgage (or deed of trust). The note is the IOU — "I promise to pay the lender ‘X’ dollars, at ‘Y’ interest rate, due in full in 30 years."
Your lender wanted security, just in case you were unable to make the necessary payments. So you also signed a document entitled a deed of trust, which was recorded among the land records in your county or state. Some states still use mortgages, but the majority of loans are secured by deeds of trust.
The deed of trust basically states that you deed the property in trust to a trustee appointed by your lender. If you are in default — and depending on the foreclosure laws in your state — the trustees have the right to sell your property at a foreclosure sale.
You are not in default, and now want to pay off your mortgage. Since it was recorded on the land records, it must now be released. Typically, the appropriate recorder of deeds will charge a fee for recording — usually nominal, ranging from $35 to $100. And someone — usually the lender when you are not selling the property — has to prepare the appropriate release document.
Lenders typically charge a small fee to prepare and send you the payoff amount. So, the answer to your question is that there will be some fees associated with the payoff of your loan. Ask the lender to provide you with the specific charges.
But more importantly, the loan is not paid off in full until the lender actually receives the money. If you are told that you will owe "X" amount on a certain date, your check must be there on that date or additional interest will accrue. Lenders will provide you with a "per diem" amount — which means that you have to add the daily interest charge to make sure you are really paying off your loan.
If you are dealing with a legitimate lender, I recommend sending them three to five days’ additional interest — just to make sure that you have paid off the loan. The lender will calculate what is actually owed and should send you back any overage.
You asked about getting the deed back. You should have received that when you first bought the house. You want the lender to send you (1) the original promissory note, marked "paid and canceled," and (2) the original deed of trust (or mortgage document), again marked "paid and canceled."
And don’t forget to advise your insurance company and your real estate taxing authority that you no longer have a mortgage and that all future communication should go directly to you.
DEAR BENNY: How long do I have to own a house before I have to start paying capital gains on it? –Cindy …CONTINUED
DEAR CINDY: While your question sounds rather basic, because of the federal tax laws it can be confusing.
First, you have to make a profit on the sale. That means that you take the original purchase price, add to it any closing costs, and also add any improvements you made to the property. That is called the adjusted basis of your house.
Next, you take the sales price, deduct any real estate commissions or other closing costs you had to pay, and that is called the adjusted sales price. The difference between the adjusted sales price and the adjusted basis is your profit.
Have you owned the house for less than one year? If so, the profit is taxed as ordinary income. If you have owned the house for more than one year, you qualify for the federal capital gains tax rate, which currently is 15 percent. (Note: Depending on your income, the rate may change).
However, if you have owned and lived in the house for two years out of the five years before it is sold, you may be eligible for certain exclusions from this gain. If you are married and file a joint tax return, you can exclude up to $500,000 of this profit; if you are single (or only file a separate tax return) the gain is limited to up to $250,000.
This is only a general, oversimplified, response. You should consult a tax adviser to make sure that you are maximizing your exclusions and minimizing the tax that you may have to pay.
DEAR BENNY: My husband and I purchased a house four years ago. We were legally separated 16 months ago and the house was deeded over to me. I have been paying the mortgage since our separation. I tried to contact the lender several times but was told I need his permission to talk to them because the loan is in his name only and I can’t claim the deduction even though I am making the mortgage payments. When I contacted the lender I was told that the mortgage is not assumable. What are my options? Do I stop paying the mortgage or continue to pay? –Lenny
DEAR LENNY: This is a continuing — and major — problem when people get divorced or separated. The privacy acts prohibit a lender from discussing a loan with someone who is not on that loan.
If you are financially able, the easiest way to resolve this is to refinance. Mortgage interest rates are quite low — and may even be lower than your current loan.
Otherwise, I suggest you talk with your husband (you are still married) and tell him to authorize you in writing to talk with the lender. Tell him that if he does not cooperate, you may decide to stop making payments, which will impact his credit (although you may lose the house).
I have many clients in this same boat who have to go through the authorization route to finally be able to talk with the lender. But even if you are able to make contact, this will not guarantee that you will get the annual Form 1098 indicating how much interest was paid for tax purposes. …CONTINUED
However, because you made the payments and have proof that you own the house, I believe you are entitled to take the tax deductions. But please confirm this with your own tax adviser.
COMMENT: I enjoy receiving e-mails from readers whether favorable or not. Recently, I wrote that even if a common element in the community association may be completely inaccessible to one or more unit owners, they still have the legal obligation to pay their percentage share of the entire community assessment. I received a large number of e-mails complaining, indeed objecting, to my statements.
I respect everyone’s opinion. But the fact remains that unless your legal documents state otherwise, everyone — I repeat everyone — is legally obligated to pay their share of the common assessment.
This raises an important issue: When you plan to purchase a condo or a house in a homeowners association, read your documents carefully. Examine all aspects of the property in question. Whether you like it or not, you are legally bound by those legal documents as they currently exist or as they may be legally and properly amended in the future.
DEAR BENNY: My daughter got a notice in her mail from the company that manages the apartments where she resides. According to the notice, if she wished to renew her lease, she must purchase renters insurance. Without renters insurance, the lease will not be renewed. Is this legal? Can they force a tenant to purchase renters insurance as a condition of renewing a lease? –Saul
DEAR SAUL: I don’t know the laws in all 50 states, so I cannot tell you whether this is legal. However, generally speaking, landlords have the right to impose reasonable restrictions and conditions on their tenants.
And in my opinion, whether it is legal is irrelevant. Renters insurance, in my opinion, is a good investment. Your daughter’s apartment may be burglarized, and unless the landlord was somehow negligent with security, she will not have a claim against her landlord.
Your daughter may have other problems in the property — such as an accidental fire — and again the landlord may not be responsible.
The cost of renters insurance is nominal, and I recommend it for every tenant. I call it "peace of mind" coverage.
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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