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More on Mortgages

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Posted On: 05/28/2008

Q: I’ve usually heard that if you do not fully repay your mortgage, any amount owed to the lender but not paid can be regarded as taxable income. Is this true?

A: The ìMortgage Forgiveness Debt Relief Act of 2007 applies to indebtedness on a principal residence that is discharged before Jan. 1, 2010. In essence, you can fail to pay your lender as much as $2 million and not owe a federal tax on the underpayment. Example: You owe the lender $300,000, but the property only sells for $275,000. The $25,000 not paid to the lender will not be taxed as imputed income.

Be aware that the new forgiveness rule does not apply to investment financing. For specifics, please see a tax professional.

Q: My parents are looking into a reverse mortgage. The rules seem to say that both of them must live on the property to qualify, but what if one is in a nursing home?

A: Check with lenders. Most reverse mortgage programs have an exception to the occupancy rule when one party is in a nursing home.

Q: Can parents leave real estate to one child but not another?

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A: Sure. Happens all the time. However, there is a caution here: The property owners must have a valid will. Without a will the estate will be divided according to state rules, and those rules may produce a distribution that is very different from what the parents might have wanted.

All individuals should have a will and a living will. Contact an attorney or legal clinic in your community for details.

Q: We’re first-time homebuyers. Our broker has had us pre-qualify with a lender who is affiliated with the brokerage. Will we get the best possible loan this way?

A: The broker’s affiliated lender certainly has an incentive to make the loan happen, otherwise there’s no transaction, and the broker gets no commission. However, your goal is to get what’s best for you, and that means shopping around for rate and terms. It certainly makes sense to speak with local lenders to see what programs are available and to consider interest rates, terms (such as, is there a prepayment penalty?) and closing costs. Be aware that the lender who promises the lowest rates is not worth your time if he or she cannot deliver as promised by closing.

The other reason to shop around is simply to get a better sense of the marketplace and a fuller understanding of the programs for which you might qualify. For instance, are there any first-time mortgage or purchase programs through your state government that would work in your situation? If you find something really good, you can always ask if the broker’s lender can match the deal you found.

Q: A woman owns a home; however, both the woman and her ex-husband are on the mortgage. Can I, as a real-estate broker, list the property without having the ex-husband’s signature?

A: In the general case you want every possible signature on a listing agreement – then your authority to sell the property is indisputable. However, in this situation, was the wife’s ownership established by divorce? If yes, does she have written authority to sell the property independently? Is there a stipulation that requires the ex-husband’s approval before the property can be sold? If the property is sold, will the mortgage debt be completely paid off? If not, this could impact the ex-husband’s credit standing.

Go no further with this until you have spoken with a local attorney.

Q: Our lender says they don’t have a loan-modification process. We have refinanced twice in the last eight years, each time using a broker. Is there a way to find out who accepts modifications before we refinance?

A: It’s probable that the loan you now have – and any loan you get in the future – will be sold, packaged with other loans and used to create a mortgage-backed security. The investors who own the loan actually determine whether or not they will allow modifications. Since future investors are unknown and because the loan can be repeatedly sold and re-sold, there’s no way to know in advance whether you’ll be able to modify a new loan.

That said, investors are beginning to realize that it is often a lot cheaper to modify a loan then to deal with a foreclosure. If you face foreclosure, immediately hire a local attorney to contact your lender – in realty, a service is most likely acting on behalf of the actual owners of the loan.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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