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posted: 4/20/2013 4:30 AM

Only painful steps remain if mortgagees stop paying

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Q. We rented a home to a couple for 16 years who never missed a payment. Last year they purchased the home and pay us the mortgage. They have not paid the mortgage in five months. My husband has sent two letters asking them to call and let us know what we can do to get back on track knowing the wife had a stroke and can't go back to work. We haven't heard anything. Any suggestions for how we should proceed?

A. First of all, decide what you want to accomplish. Well, OK, that's a useless question, because obviously you want them to start making their mortgage payments. But if that's not possible, you have only two options. Either you let them stay there, or you take the house back.

Can you afford to continue providing free shelter? If so, check to see whether property taxes and insurance premiums are paid up to date. Pay them yourselves if necessary. Otherwise all of you could lose out completely. And if you aren't ready to do that, you'll have to take back ownership.

The kindest solution is to offer the unfortunate couple a modest sum of money to sign over the house and move out. If that can be arranged, it could be less expensive than unpleasant legal procedures and extended loss of rental income. But if it can't be arranged, you'll have to start foreclosure proceedings.

You say they're not answering your letters, so the next one should come from your attorney. I'm pretty sure you knew my advice would be to consult a lawyer immediately.

Q. Does refinancing at today's lower rates make sense even if my monthly payment will change only by about $70? I have a 5.75 rate loan and have had it six years. Balance is $73,000. I can get a Fannie Mae refi for 3.62 for 24 years. With all the paperwork and having to build in closing costs, does it make sense?

A. You gave me lots of figures, but you left out the one that matters most. How much will you pay in closing costs on a refinance mortgage? Once you know, it's easy to calculate how long it will take you to recoup that expense, at a saving of $840 a year. Simple problem in long division.

Q. I want to buy a foreclosure property next month but am new to the whole experience. I have about $2,000 to work with outright, steady income and a "thin file" for my credit history. My fiance has a score of 581 (my mother kind of screwed him over because he cosigned when she needed him). I'm beginning to lose hope on our ability to move next month. Do you know if it is at all possible to get a house with our credit?

A. If you are asking about a publicly advertised foreclosure auction, those require all cash. In my area it's

10 percent immediately upon a winning bid and the rest within a month.

As for buying some other way: I have no idea what your income is or how it compares with real estate prices in your area. Nor do I know just what your "thin credit file" means, or what other monthly debt payments you may have. A mortgage broker or a real estate broker can analyze your situation and let you know whether you're likely to get a mortgage loan. That steady income is in your favor and sometimes special programs are available with little or no down payment. In any event, though, you'd never pull anything off in time to move next month.

My sympathy to your fiance. I would have told him not to cosign for your mother. It doesn't do anyone a favor to help them get in over their head. And as he found out, his own credit rating was at risk.

Q. We have a rental house that was involved in a 1031 exchange. If we were to move into the house (as our primary residence), how long would we have to live there before selling it for minimal tax issues?

A. When you made that 1031 exchange, you rolled over untaxed profit from the sale of your previous rental property, which reduced the cost basis of your present investment.

The general rule is that when rental property is converted to a principal residence, it must be owned and occupied as a main home for at least five years, before the homeowner's tax break can be claimed upon a sale. Whether the 1031 exchange makes any difference is a question for your own CPA. I trust that as landlords you do employ an accountant.

• 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

2012, Creators Syndicate Inc.

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