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Article updated: 3/16/2013 11:07 AM

Divorce settlement has little impact on mortgage obligation

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Q. My brother is going through a divorce. The home, which is jointly owned, has about $115,000 mortgage left and is worth maybe $ 275,000. My brother wants to give his future ex-wife the house and forget about it. My question is if he signs the deed over to her, does he have to pay off the mortgage to avoid liability? If he still has his name on the mortgage, it's very scary to me, as he has limited funds.

A. Having that much equity protects your brother in case of a future problem, but your concern is a valid one. If your sister-in-law is (will be) financially able to carry the payments on her own, the best solution is to go through whatever paperwork will allow her to take sole responsibility for the present mortgage. If the lender won't allow that, she could refinance in her name alone.

Judging from the mail I receive, her promise to do that in the future as part of the divorce settlement might not be enough. Lending institutions don't have to obey a divorce decree. Your brother's lawyer should be able to suggest an arrangement that will protect him properly.

And by the way -- if your sister-in-law can't qualify to carry the loan on her own, trying to hold on to the house is just storing up trouble for both of them.

Q. I want to buy a home and apply for a FHA loan. How do I go about applying for one? Is it safe to apply online, or do I need to get a loan officer? What do I need to do? Please advise. I'm renting and do not want to continue renting.

A. It sounds as if you could use the services of a real estate broker. Agents are used to educating first-time buyers about the process of buying and financing a home. Start answering ads in the areas you like, and visit open houses. Brokers will start with a brief financial analysis to see if you're likely to qualify for an FHA mortgage program. It won't cost anything or obligate you.

After that they can guide you to a local lender, which may be a better option in your case. It's a good idea to get loan approval even before you make an offer on a house. Or you can leave the loan application to later, after you've found the house you want to buy and reached a binding written contract with the owner. Good luck!

Q. As a landlord, if you take a tenant to court and get a judgment against them (for nonpayment of rent) does this go on their credit report? My husband says it is stealing and is surprised about how hard it is to collect (warning to all your readers about being a landlord). Yet stealing items from a store can land a prison sentence.

A. When your husband gets a judgment, he should see that it's entered in the county's public records where, yes, it would show up in a credit report. But people who aren't paying their rent probably don't have much of a credit score to protect anyhow, so they may not care.

Tell your husband there was a time when people were indeed put in prison for not paying their debts (see Dickens' novels). But he bears some of the blame for not exercising enough care in tenant selection. Landlords need thorough familiarity with state and federal anti-discrimination laws, the ability to secure and read credit reports and the patience to wait for the right tenants.

Q. I own a condo for which I'm slightly under water. Real estate agents tell me I could sell it for about $360,000. I owe $335,000 and paid $400,000. I would lose approximately $40,000. My wife is now pregnant and we need more space. Should I rent it out and let someone pay my mortgage? It could take 10 years for me to break even.

A. Don't rent the place out. As you can see by the preceding discussion, landlording is no job for amateurs, and it's easy to get into trouble. Would you buy a condo for $360,000 today as a rental investment? I'll bet you wouldn't. Forget that part.

Some investors hang on to losing stocks because it's emotionally difficult to admit a loss. You're in that sort of situation. But you need to get out and get on with your life. Remember -- if you're buying and selling in the same market, what you lose on one end you'll make up on the other.

Ÿ 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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