DEAR BENNY: I am a retired teacher on a fixed income, with a home in California, a small 401(k) and an even smaller Roth IRA. I bought two very good new houses in 2005 with nothing down at a 10 percent market discount. I have a first loan and a second loan on each house. Since then, the rents have dropped dramatically and both houses are now empty.

This summer I will lose $12,000 on both houses, and renting them will add up to an $800 loss per month. I can no longer throw money away on these investments. If I go into foreclosure, what can happen to me besides my first-ever bad credit rating and an IRS bill for the difference in foreclosure price vs. loan amount? –V.K.

DEAR BENNY: I am a retired teacher on a fixed income, with a home in California, a small 401(k) and an even smaller Roth IRA. I bought two very good new houses in 2005 with nothing down at a 10 percent market discount. I have a first loan and a second loan on each house. Since then, the rents have dropped dramatically and both houses are now empty.

This summer I will lose $12,000 on both houses, and renting them will add up to an $800 loss per month. I can no longer throw money away on these investments. If I go into foreclosure, what can happen to me besides my first-ever bad credit rating and an IRS bill for the difference in foreclosure price vs. loan amount? –V.K.

DEAR V.K.: Because you are an investor, you will not be able to take advantage of the many federal and state programs designed to protect residential homeowners.

You have a number of options, but because you have a first and second mortgage on both properties this will require both lenders to cooperate, which is not always possible.

You can try to arrange a short sale. Under this approach, you (or your real estate agent) will find a buyer and then negotiations will have to be worked out with the lender(s) as to what price they will accept below your existing loan balances. Short sales take a lot of time and patience, and once again, the existence of the second mortgage will make this difficult.

You can ask the lender to take back the deed and cancel the mortgage. But once again, your second mortgage must be either paid off or canceled.

You can declare bankruptcy, seeking a reorganization under Chapter 13. This will allow you to work out a plan with your creditors over a period of years. I am not a bankruptcy attorney, and you should consult with such a lawyer to get more information.

And finally, you can let the properties go to foreclosure. As you suggested, this will impact on your good credit rating, but more importantly, any cancellation of your debt may be taxed as ordinary income. There are some exceptions, and you must consult a financial adviser for specific information.

DEAR BENNY: I recently inherited a condominium from a relative. I’m finding that the homeowners association (HOA) does things very differently than my own HOA. The president modifies the "common areas" of her own unit by adding skylights, changing the front door, hanging window boxes, planting her own plants, and displaying personal items in the common walkways, including an electric light to illuminate her entryway. She plants trees and has other trees removed, according to the view she wants from her own windows. She hired the property management company from her prior residence, and some of us question their exact relationship.

During a recent plumbing inspection, she or the vice president accompanied the plumbers into each of our units. One owner refused her entry out of privacy concerns. My own HOA never asks to enter our units. …CONTINUED

I attended the annual HOA meeting, and no financial documents were produced at all. Where I live, the treasurer distributes the annual budget and explains it line by line.

The problem is that nobody volunteers to take her place on the board. I work full time and am a nonresident owner. What can be done? –Anonymous

DEAR ANONYMOUS: Just like here in Washington, D.C., there are presidents and there are presidents. Some are truly dedicated to work for the association while others are solely in it to satisfy their ego — it’s nice to be called "Mr. or Mrs. President." And some — such as the president you have described — may seek to use the office for their own personal enhancement.

Clearly, from what you have written, your president is not acting in the best interests of all of the owners. I am not that concerned that she wanted to inspect all units, but using association funds to fix up her unit is, in my opinion, unacceptable and possibly illegal.

But I tell all of my clients who complain about their association that they have but three choices: (1) sell and move out; (2) get involved by joining a committee or running for the board; or (3) put up with it.

DEAR BENNY: After my dad died, my mom bought a property as her residence. Title was registered as joint tenancy (with my sister) with right of survivorship. My sister is the primary caretaker of my mom but has zero financial share in the purchase. Her name was added for "convenience," and the ultimate plan is to liquidate the property and divide the proceeds among the 10 heirs.

My real worry is my sister’s situation. She and her boyfriend, with whom she has a teenage daughter, have been living together for the past 18 years. Will her boyfriend have a conjugal share should my sister take sole possession of the property when my mom passes away? Should my sister pass away ahead of my mom, will her boyfriend inherit her "share" of the property or will my mom take sole possession?

Will a side agreement be sufficient if signed by my sister stating her zero financial share/ownership to the property to avoid the above-mentioned complications? What’s the best way to hold title should it be amended? –Cesar

DEAR CESAR: While I understand and appreciate your concerns, this is your mother’s decision to make — and hers alone.

If your mother dies first, because title is held as joint tenants, your sister will automatically become the full title holder. You will have to discuss with your own attorney what rights her boyfriend and her daughter will have. …CONTINUED

If your sister dies first, then title will be vested completely in your mother’s name.

Your mother should consult legal counsel in your area so that her decisions can be implemented. One possible suggestion (although there may be taxable consequences) is for your mother to be the sole owner of the property and her last will and testament will then control. Right now, despite what directions she has given in her will, on her death your sister will own the property. If that’s not what your mother wants, she has to arrange to make the changes. And a side letter will not do the trick.

DEAR BENNY: A couple of years ago, I bought a townhome in a development that is about 20 years old. The dues are fairly reasonable for this area, but the association is always in financial difficulties and can’t afford to cover what they are obligated to under the covenants/bylaws. Other than the insurance policy that covers the exteriors, lawn mowing and snow removal, not much else gets done.

There are only four or five out of 28 owners who even bother to show up for our bimonthly meetings, so getting any kind of consensus to do anything at all is almost impossible.

Is there a way for an association to be dissolved or an individual owner to withdraw? There are now some exterior maintenance issues on my unit that need to be addressed, and I find it irksome, to say the least, to continue to pay the association dues if I have to make the repairs myself. –Bill

DEAR BILL: You have to look at your state condominium or homeowner association act as well as the legal documents for your association. An association can be terminated, but it requires a super-majority vote of all the owners. For example, in the state of Maryland, the law requires an 80 percent vote of all owners based on their percentage interest in the association.

Some courts are now allowing receivers to be appointed who will take charge and manage the association. While this is a relatively new concept in community associations, it has worked well over the years for rental properties.

Is your association actively collecting delinquent assessments? Is your association foreclosing on properties where the owner will not pay? While I recognize that foreclosing will in the short run lower the market values of your property, it is one way of stopping the bleeding. The new owner — whether it is a person who was the successful bidder at the auction sale or the lender itself — is legally obligated to start paying future assessments.

We are in troubled times, and if it’s any consolation to you, you are not alone. Hopefully, we will soon see the end of this economic crisis and get on the road to recovery.

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 benny@inman.com.

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