Bounced checks shouldn't scuttle homeowner's refinancing plans
Just about everyone has accidentally written a bad check over the years. Doing so won't hurt your credit score, provided that the old check is replaced by a new one immediately.
Q. I am planning to refinance my mortgage. I am self-employed, and a $4,000 check that one of my clients wrote for some work I did was sent back to me because he didn't have enough money in the bank to cover the $4,000. Because his check bounced, three of the checks that I wrote to pay some bills also bounced. Will this hurt my credit score and force me to pay a higher rate when I file my refinancing application?
A. No, the checks that you bounced because your client's check was returned by the bank should have no impact on your credit score or refinancing plans - provided that you act quickly.
Bounced checks are not reported to credit bureaus, so they don't automatically lower your score. However, if you don't soon "make good" on the three checks that you wrote and the creditors eventually turn the accounts over to a collection agency, the agency or creditors themselves will indeed report the unpaid bills to the bureaus and your score will be lowered.
Of course, the lower your score, the higher the rate you will have to pay when you apply for the new mortgage. That's why it's so important to replace those bad checks that you unwittingly wrote with good ones as quickly as you can.
Q. I have owned my home for several years, and am planning to marry in August. My fiancee, who owes nearly $12,000 in back taxes to the Internal Revenue Service, rents an apartment and will move in with me after the wedding. If I add her name to the title to my home after we are wed, could the IRS place a lien on my house to recover the money that she owes?
A. Yes. If you continue to hold title to your house in your name only, the IRS won't be able to touch it, because your new spouse would have no ownership stake in the property. You will lose this valuable protection if you instead add her name to the title. It would enable the government to slap a lien on your house so it could recover the money when you eventually sell, or perhaps even force the two of you to sell immediately to collect the back taxes.
Play it safe. Don't put your soon-to-be wife's name on the title to the home until she settles up with the IRS and pays any other overdue bills that she may owe.
Q. I rent a unit in a duplex, but the owner recently put the property up for sale. What are my rights if the duplex is eventually sold?
A. Rental laws vary from one area to the next, but your rights will largely depend on the terms of your rental agreement.
If you rent on a month-to-month basis, the new owner would probably be able to kick you out simply by providing a 30- or 60-day notice. But if you instead signed a long-term lease, the buyer would likely have to honor the terms of the lease and could not force you out until it expires - unless the current landlord included an "escape clause" in the contract that explicitly allows for immediate termination of your tenancy if the property is sold.
Call your local rent board or similar agency to find out which rules apply in your particular neighborhood. Also ask whether you would be entitled to any relocation payments if the new owner indeed decides to send you packing.
Q. We would like to form a living trust and put our home into it so our kids could get control of the property quickly after we die instead of wasting lots of time and money in probate court. However, our mortgage contract includes a due-on-sale clause that requires the entire loan balance to be paid immediately in a lump sum if the house is sold or "ownership is otherwise transferred." If we follow through with our plan, could the bank enforce the clause and require that we pay the loan off now because title to the property would be transferred out of our names and into the trust?
A. No, transferring the title to your house into a trust that you control will not trigger the due-on-sale clause.
Regular readers of this column know that I'm a big fan of living trusts, largely because trusts - unlike wills - are not subject to the long and costly probate process.
Although nearly all mortgage contracts contain a due-on-sale provision, the federal Garn-St. Germain Depository Institutions Act of 1982 specifically prohibits a bank from enforcing such a clause if title to the property is merely transferred into a trust that the borrowers will control.
Consult an attorney for details. Also get a copy of the Garn-St. Germain Act itself: Many lenders offer them for free, or you can obtain one by contacting the local office of your congressional representative.
• For a copy of the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.
© 2009, Cowles Syndicate Inc.