About Real Estate: Divorcing spouse liable for home loan even after quitclaim is signed
It#146;s sad, but it is much easier for couples to get divorced today than it is to separate themselves from a lender who issued a jointly held mortgage earlier.Q. My husband and I are getting divorced. He makes good money and wants to keep the house, even though it is probably worth less than we paid for it, so he has agreed to keep making the mortgage payments if I sign a quitclaim deed that gives my half interest to him. The lender, however, says I will remain liable for the loan payments even if I give up my interest in the home. Is this correct? If so, what can I do to protect myself?
A. The bank has the right to hold you financially liable for the loan even if you quitclaim your half interest in the property to your soon-to-be #147;ex.#148; Both you and your husband agreed to repay the mortgage when you originally purchased the house, and the fact that you#146;re now getting divorced doesn#146;t relieve either of you of that responsibility.
There are some other dangers here. In a worst-case scenario, you would give up your half-interest, your husband would stop making the payments, and then you would be forced to personally pay off the mortgage on a property you no longer own.
I#146;m not suggesting your husband is planning to dupe you, but he easily could fall behind on his monthly bills if he gets sick or is laid-off in this uncertain economy.
Your letter states your husband #147;makes good money,#148; so he should try to refinance the current loan based on his income alone. Doing so would sever your own financial ties to both the bank and the property. If he can#146;t qualify for a loan by himself, perhaps his parents, other relatives or even the company he works for will cosign his application.
Of course, the simplest solution to your problem is to insist that the home be sold. The lender would be paid from the sale proceeds, you wouldn#146;t have to worry about being liable for any future payments, and any loss (or unexpected profit) from the sale could be split however the two of you wish. Talk to an attorney and a tax expert for details.
Q. We recently spent about $200 for a credit report and some other bank services to get prequalified for a mortgage. The application was approved, but now we have decided to delay our home-buying plans for a year or so because the crummy economy has scared us. Can we get a refund of the $200 we spent? More importantly, will the fact that we have decided not to take the mortgage hurt our credit score?
A. You won#146;t be able to get a refund of the $200 for the credit report and other services that the bank has already provided. But fortunately, the mortgage you canceled won#146;t have any effect on your credit report or overall credit score.
A credit report does not show whether you were rejected for a loan or were approved for one but then voluntarily turned it down. The only reference will be a note on the report showing that the bank reviewed your credit history, which won#146;t have any impact on your score.
Q. I already own my own home. However, I have some extra cash and interest rates are down, so I am thinking about buying my first rental property. One real estate investment book I read said that I should buy a single-family house for my first rental, but another said I should buy a small apartment building because I would always collect at least some rent even if one of the apartment units was vacant. What do you think I should do?
A. Because you have never bought a rental property before, it#146;s probably best to start by purchasing a single-family house instead of a small apartment building.
Being a small-time landlord is not easy. You will have to learn how to market the property to tenants, screen applications, collect the rent and keep the property in good repair. Hiring a management company to perform all these tasks for you would be a big expense that cuts deeply into your profit.
Managing a single-family house would be easier than managing a small apartment building, in part because you would have to deal with only one tenant instead of several, and you already know what it takes to keep your own house in shape.
It#146;s also worth noting that the long drop in home prices has created a glut of good but bargain-based houses out there. Many of them can be purchased at a cut-rate price today and rented out at a profit tomorrow.
Of course, if you buy a single-family house as your first rental and decide you like being a small landlord, you can eventually parlay your newfound expertise to buy an apartment building.
Ÿ For the booklet #147;Straight Talk About Living Trusts,#148; send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.
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