DEAR BENNY: We have been renting a house with an option to buy for two years now. We recently learned from mail the bank has sent that the property was listed for foreclosure. (No, we have not opened the letters addressed to the owners, but they are from the bank that holds the mortgage and they have been coming every two weeks addressed to both lien holders.) We also received a letter from an attorney indicating that the property was listed for foreclosure.
So it appears that the landlord has not been paying the mortgage. Is there anything we can do at this point?
I feel as though we are being ripped off if we are paying rent on time every month but the owner is pocketing the money. If the owner can’t pay the mortgage, what happens to our deposit and our option to buy next year? –Juan
DEAR JUAN: Why do you think you are getting "ripped off"? Are you using the house? Are you enjoying living there? I would assume the answer is "yes" because you are still interested in buying. No one is taking advantage of you, so I don’t agree that someone is "ripping you off."
But I do agree that you have the right to inquire about your security deposit as well as your right to buy.
Here’s my suggestion: Before you stop paying the monthly rent, talk with your landlord. I doubt that he really wants to be foreclosed upon, and if you are interested — and able — to buy the house now, that might be a win-win for everyone. You may be able to buy at a bargain price, and the landlord won’t have a foreclosure impacting his credit standing.
Then, regardless of what the landlord says, you should contact the attorney who sent you a letter. Explain your position and see if the attorney can get you in contact with an appropriate, authorized representative of the lender. Unfortunately, too many foreclosure attorneys take the position that they are "hired guns" for the lender, and refuse to get involved, even if only to give you the name of an appropriate representative.
Basically, if you are interested in buying, you are looking for a short sale. You may want to get a real estate agent/broker to assist, as they should know the process. However, the owner/landlord will have to agree.
Finally, to answer your two questions: (1) Will you be able to buy? That depends on the lender, as discussed above. (2) What about your security deposit? Generally, most deposits are the equivalent of one month’s rent. If you know that you will actually have to move, I would just withhold the last month’s rent. I know this technically violates the terms of your lease, but you clearly want to protect your assets. Of course, if there is damage to the house caused by you or your family, that will be your responsibility.
Keep in mind, however, that even if the house is foreclosed upon, whoever ends up owning the property (either the lender itself or a third party) may still want you to stay on as a tenant.
DEAR BENNY: I read the response from your column, by a real estate broker for time shares, with tremendous interest. You did not post the name because you did not want your column to be used as advertising. I do respect that and understand that. I am wondering however, if you would be willing to share that name with me. I’ve been looking for a reputable time-share broker for years and I certainly would not hold you responsible for anything should I contact that person. –Elaine
DEAR ELAINE: I am sorry, but I will not provide such information. There are two reasons: (1) First, I don’t believe it is my role to provide free advertising to anyone; and (2) second, I really don’t know if that broker is honest.
I receive numerous emails from brokers (or companies) claiming they have experience in selling time shares. When I check them out on the Internet, I find that some of them have either been cited by a state agency for fraud/misrepresentation or have a negative rating from the Better Business Bureau.
DEAR BENNY: I am 74. Recently, I have been contemplating paying off my condo mortgage. The remainder is $98,000 at 6 percent. Can you help me through this? On the surface it seems like a good idea, but I’m not aware of all the particulars. I am in good health and will not need the $98,000 in the near future. –Dee Dee
DEAR DEE DEE: That is an excellent question, but not easy to answer. There are many factors that you should consider.
You say you will not need the money "in the near future." But what about the "far future"? You are a young 74-year-old in good health. Will you need the money when you are 80, 90 or even 100?
Can you take advantage of the tax benefits associated with the mortgage interest you pay, which you will lose if you pay off the loan?
Over the years, I have represented too many clients who were "house rich but cash poor." What’s the real advantage of having the house free and clear? Or turn this around: What’s the disadvantage of having a mortgage? If and when you die, does it really matter to your heirs whether you have a condo free and clear of a mortgage? I don’t think so.
In my opinion, assuming you can qualify for a refinance loan, you should contact your current lender and see if it will reduce the interest rate. You are currently paying 6 percent, but interest rates (as of this writing) are hovering around 4 percent.
If you can refinance, I submit you will accomplish your objectives as well as my concerns.
And whether or not you refinance, there is a compromise position. Every month, add a little extra money when you pay your mortgage. That will reduce the loan principal, and shorten the term of your loan. If you do this, however, make sure you note on your check and on the payment coupon that this is "extra principal."
DEAR BENNY: Due to the death of my former husband, I find myself owning a rental cottage with my two children. Due to the tough real estate market, and also family sentiment, the kids (ages 20 and 24) and I want to hold on to it as a rental property at least for a couple of years. I fully understand that co-owning property with children is not recommended, but the real estate market and the family memories for now make our decision.
We will have the property retitled. As 50 percent owner can I require some sort of property use agreement for the kids (who’ll each own 25 percent) and me to sign? I want to avoid the family cottage from becoming a hotbed of nightlife or other misuse. And if some sort of property use agreement is done, who does that for us: a real estate or estate attorney? –Cyndi
DEAR CYNDI: Yes, you can enter into a property use agreement with your two children, and a real estate attorney can assist you. It’s no different from the co-ownership agreements I draft for unmarried clients.
But let me ask you a question: Why do you have to put them on title? As you know, in general I do not think it’s a good idea, primarily for the tax consequences.
You should go on title on your own, but prepare a last will and testament giving your two sons the property on your death. You indicated that this might be a rental property. If so, shouldn’t you keep all of the rental income?
And you further indicated that you might sell in a couple of years. Again, why complicate title, so that you don’t have to get your son’s consent for any such sale?
My suggestion: Put the house in your name, and if your kids want to use it, spell out the rules and regulations. You may even want to charge them a security deposit just in case there is any damage caused by them or their guests.
Incidentally, you should also check with your tax adviser to see whether there would be any taxable consequences to you should you decide to add your sons on title. The Internal Revenue Service might consider that to be a gift.