Mortgage deal between siblings is part of an estate

Q. I lent my sister the money for her house. I had the mortgage recorded. My question is: In the event of my death, how can I make sure she keeps up the payments of her agreement?

A. As the holder of the mortgage, you have the right to foreclose the loan and auction off the property should your sister fall behind in her payments. That mortgage is one of the assets in your estate. After your death, one (or more) of your heirs will own it, and they’ll have the same rights then that you do now.

Q. If you sign a purchase contract with a seller who has a power of attorney and then the seller dies, can the purchase go through if the house was left to another party? Or does ownership of the house pass to the heirs upon death?

A. First off, I’m not a lawyer. I do know that the power of attorney dies with that seller, so let’s forget that part. Then the question becomes — does that sales contract still hold? Is it binding on the estate? I’m guessing that it is. But we’ve reached the “I don’t really know, see a lawyer” part of my answer.

No matter whether you were the buyer or the seller, it would be prudent to have an attorney explain where you stand.

Q. Can you explain what a short sale is? My daughter is several months behind in mortgage payments and some suggested maybe she should look into a short sale, as she really can’t afford it any more. She and her husband have two small children. How do you go about starting this type of procedure and the consequences?

A. For a short sale, the important questions are: How much do they owe on their mortgage, and how does that compare with what they could get if they sold the house? If a sale would yield enough to pay off the debt, their best bet may be to sell right now on the open market. Their real estate broker or lawyer could consult with the lender in hopes of holding off foreclosure in the meantime.

A short sale, on the other hand, is sometimes appropriate when a house has gone down in value and the homeowners owe more than the place is worth. For it to work, the lender has to analyze their whole financial situation, agree to accept whatever the place brings in a sale, and cancel the rest of the mortgage. (Sometimes, but not often, the bank might still go after the shortfall with a judgment against the borrowers.)

Judging from letters I receive, short sales can be long, drawn-out and frustrating. But if their house wouldn’t sell for enough to pay off the debt, they could investigate whether the lender would agree to one. It wouldn’t be quite as bad as a foreclosure on their credit record.

But if it’s just a matter of not being able to make payments, one good place to look for advice is from a nonprofit housing counselor. They can locate a local one at www.nfcc.org.

Q. We have sold our home, and are in the process of buying a replacement primary residence in another city. We would like to have our grown child’s name included on the deed so that upon our death he will own the home outright without going through the estate. What are the negatives of doing this? My spouse and I both have good long-term health care insurance plans so having to sell the home to cover those costs is not an issue.

A. I can’t judge whether that’s a good idea or not, but since you ask for negatives, here are some: What if your son is in a bad car wreck and ends up with a judgment placed against all real estate he owns? What if an unpleasant divorce involves your house? What if he has a dispute with the IRS that ends up with a lien being placed on the property? What if he is the one who needs long-term care? What if you want to sell some day, and he owes capital gains tax on his share of the profit?

Maybe your plan does fit your particular situation. But a lawyer who specializes in estate planning may suggest simpler and safer ways to achieve your goal.

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.

© 2013, Creators Syndicate Inc.