DEAR BENNY: In a recent column you mentioned that the government in some cases is offering $1,500 to homeowners who turn over their keys and accept a deed-in-lieu instead of going through foreclosure. I can see where this is advantageous to all parties involved. How does one find out about this program?
We are getting ready to sign our deed back but of course no mention was made of giving us any monies. We left the place sparkling, with new paint, new carpet, and bought a new washer and dryer. The mortgage servicer has asked us also to sign a promissory note to the private mortgage insurance (PMI) provider for $1,000 at no interest over 18 months.
We paid PMI $60 each and every month for seven years. Is this an unusual practice? He said it would help with the lender accepting our deed-in-lieu offer, so I said OK. But now, after some thought, I think it is not wise or needed. –J.A.
DEAR J.A.: I did a website search, and found some information about the federal Home Affordable Foreclosure Alternatives (HAFA) program. Under this program, borrowers can receive $3,000 in relocation assistance when they successfully close on a short sale or a deed-in-lieu of foreclosure.
A short sale is where your lender allows you to sell your house for less than you own on the mortgage. Some lenders will release you completely from any deficiency; others will insist that you make some sort of payment to the lender, over and above what the lender receives from the sales proceeds.
In a deed-in-lieu, you give up your house to the lender, and no foreclosure is necessary.
Under the HAFA program, there are several requirements, such as (1) you have to live in the house (or have lived there) in the last 12 months; (2) you have a documented financial hardship; (3) your first mortgage is less than $729,750; and (4) you obtained your loan on or before Jan. 1, 2009.
For more information, go to makinghomeaffordable.gov.
As to your question about having to pay an additional $1,000 for private mortgage insurance premiums (PMI), I also question the necessity of this. However, if you have already signed a written agreement, I am afraid it may be too late to back out of the deal.
DEAR BENNY: I inherited my father’s duplex in 1970 upon his death, my mother having died much earlier. I have not always lived in this duplex since my father first bought it in 1949, but have lived in it since 1970.
I had planned to sell the building and move to a retirement building, so I took one of those five-year mortgages, about eight years ago, and then realized it was not such a good time to sell, so I renewed the mortgage for another five. Recently, when it appeared that it was a good time to refinance, I applied for a 30-year fixed-rate loan. However, I was rejected because my house is designated "single-family" by the county assessor’s office.
This house is exactly the same as it was in 1949, except for some cosmetic remodeling and repairs over the years I have owned it. It has two units, two entrances, and two of everything. The mortgage has been refinanced several times, and the title brought up every time never showed this problem before.
I contacted the assessor’s office, and they say the value of the house has no bearing on the classification by the assessor, and that it will take about 18 months to make any change. There is no other house like it on this block or anywhere close by in the neighborhood. Naturally, I need the money from the rental of the second floor in order to qualify and to be eligible for the mortgage.
The bank that currently holds the mortgage, and which I was dealing with for the refinance, took several months before it notified me I was declined. The only reason is the problem with the assessor’s office. Can you give me some suggestions as to what I can do?
I have not tried to apply with anyone else, I was simply too aggravated. The current mortgage has a conversion at the end of the five-year period to a 30-year mortgage, of course, at a much higher interest rate. I have done nothing since the rejection of my application. –Brenda
DEAR BRENDA: I am not an appraiser, but would think that a two-unit building would be more valuable than a single-family house. I welcome comments on this from appraiser readers.
However, there are two steps you should take:
1. Go in person to the county assessor’s office and start the process of having it reassess the classification of your house.
2. Go back to the lender that rejected you and ask when your application was completed. This is important, because under the Equal Credit Opportunity Act (a federal law) lenders must advise you within 30 days from the time a loan application is made whether you qualify or are rejected.
If, for example, more than 30 days have elapsed, you have a cause of action against that lender. I am not necessarily suggesting that you file a lawsuit, but you could use that information as leverage to convince the lender to make you the loan.
Also, show the lender pictures of your house, so that the lender will understand that — contrary to what the city assessor says — it is not a single-family house. Tell the lender that you have started the process to have that assessment changed, but that it will take a long time and in the meantime you want to take advantage of the lower interest rates.
If the lender still refuses to give you a new loan, I would go to other lenders in your area.
DEAR BENNY: My father-in-law has had major health issues over the last decade. Because of that, and the fact he and his wife are getting older, he wants to deed his timeshare to his three sons. In that manner, he is hoping to avoid being involved with their estates.
I am thinking that doing this could create a tax situation for the sons (and my husband) that the sons would not want. Is this the case? Would they be wiser to create a trust or take some other action with this timeshare? –Johanna
DEAR JOHANNA: I have written about this many times. When someone gives a gift, the tax basis (the number that is the original purchase price) of the donor becomes the basis of the donee. So in most situations, where the property has appreciated in value, if the giftee sells the property (and has not lived in it for two out of the five years before it is sold) he or she may have to pay a large capital gains tax.
So, in general, I cannot — for most situations — recommend that parents gift property to their children.
However, if the timeshare has depreciated in value, then it may make sense to deed (i.e., gift) it to her three sons. If they ever sell the timeshare (which is the subject of another column because it’s not at all easy) they will not make a profit and thus will not have to pay the tax.
Unless the timeshare is used for investment purposes, the sons will not be able to take a tax deduction for the loss, but at least they won’t have any tax to pay.
Talk to your own financial adviser for specifics about your situation.
DEAR BENNY: I was left a "life estate" in a residency and wish to know how long my family would have to clean out my property before the siblings are allowed to take possession of the home. The siblings will own the house when I die. –Corbin
DEAR CORBIN: To my knowledge, there is no specific time frame in which your belongings need to be removed. What do you want to do with those belongings? Do you have a last will? If not, perhaps you should arrange to get a simple will (unless of course you will have a large estate) and have it spell out the disposition of your personal belongings.
Have you discussed this with the siblings? Because this is a concern to you, I suggest that you meet with the potential heirs and try to get a written agreement. This should resolve your issues. You should show them your will (or some document explaining how and where your belongings are to be distributed). Hopefully, they will honor your wishes.
You should also talk to those who will receive your belongings, so they will be prepared to act upon your death.