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Article posted: 8/11/2012 5:09 AM

Cosigner in the dark on son's foreclosure

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By Edith Lank

Q. To help my son and his wife a few years back, I consigned for a mortgage for their home in another state. When they divorced, my son's ex and her agent sent me documents to sign to sell the house. I did not know until recently that the sale fell through, and the home was foreclosed. I found out when the foreclosure suddenly appeared on my credit report. Shouldn't I have been notified by the bank that the home was in foreclosure or even that they were behind in their payments?

A. I'd like to think you should have been included in any notices, but maybe the law assumes co-borrowers will keep each other informed. You can take your question to the agency in charge of mortgage lending in their state.

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As a practical matter, though, what would you have done if you had known? If your son's ex was living there, for example, would you have taken over the payments? If not, this mess would have ruined your credit record anyhow. And the lender has the right to sue you for the remaining debt, though in many cases, they don't.

When you cosigned, you took on full personal responsibility for the whole loan. You risked your credit, and your own money, on kids that the bank had already judged were poor risks. You don't do anyone a favor by helping them get in over their heads financially.

Q. Is it prudent to have a professional home inspection before putting a house on the market? My husband believes it would spare us being blindsided by problems discovered in a buyer's inspection. I believe it would put us at a disadvantage because we might discover problems we wouldn't otherwise know about. We're seniors planning to stay in our well-maintained home of 20 years as long as our health permits, but we'll have to be able to move quickly when the time comes.

A. There's something to be said for both your opinions. Local custom in this matter varies. In my area, it's usually buyers who hire their own inspector after the purchase contract is signed. The contract gives them the option to back out if the report isn't satisfactory. In practice, a surprise in the report sometimes triggers more negotiating, but it doesn't often delay closing to any degree.

Local real estate agents can tell you what's usual where you live. Don't hesitate to call and ask for free advice.

Q. I own a condo I rent out. My tenant would like to purchase it; we have established a price, and he has received a mortgage prequalification letter from the bank. Being that neither of us has a Realtor, what is our next step?

A. So far so good. Now it's time for some professional help. You need to get the full agreement down on paper, in a binding contract. The tenant's attorney can draw up an offer incorporating everything you have agreed upon, and your attorney can go over it before your signature becomes binding. Or perhaps you can ask a local real estate broker to help at this point for a stated amount or an hourly fee. Other services may be needed before you get to the closing, so it might not hurt to have a broker standing by.

Q. Due to two and a half years of unemployment, I fell behind on mortgage payments. After finally getting a job last fall, I applied for a modified mortgage, and the bank lowered my interest rate. But they added several thousand dollars, closing expenses, to the principle they want me to pay back.

The property valuation is now less than what the bank wants me to pay back. My condo is also in a "special hazard flood zone," which is why the valuation is so little.

Is it worth it to keep this place, or should I just give it back to the bank? I'm 63 and don't want to move, but I don't make enough money to keep up with my bills. I also fell behind on the homeowners association dues and had to go to the emergency room with no insurance. I simply feel overwhelmed with all the bills. I just want to know what you would do in this situation.

A. Mostly, all I can offer is sympathy. I don't have any magic solution. I doubt the bank would agree to take your condo, and your credit would suffer even further.

In your situation, I would consult a nonprofit consumer credit counseling agency. You can find local addresses and phone numbers at nfcc.org.

• Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (include a stamped return envelope), or readers may email her through askedith.com.

2012, Creators Syndicate Inc.

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