Benefit to getting mortgage at credit union?

Q: My son in Charlotte, N.C., is 25 years old with good credit and no foreclosure proceedings. Two years ago, he bought a new townhouse. Today, the townhouses in his subdivision are selling for less money than what he owes on the property.

He also has just relocated to a different city. He says his credit union, which is his mortgagor, will sell his townhouse for a lower price and forgive his debt. He has to sign his deed over. He will pay closing costs and the real estate commission fees. They said they will not report him adversely to the credit union. Then he walks away free and clear with no adverse effect whatsoever.

He says it will all be in writing. Is this possible? It sounds too good to be true.

A: If this is true, your son sounds like one of the lucky ones. And because he worked with a credit union rather than a big mortgage company, he may be able to strike this kind of deal.

But there may be other negative consequences to your son's predicament.

If his debt is forgiven, he may owe federal and state income taxes on the amount that is forgiven. For example, if he sells the property for $20,000 less than his mortgage, he'll owe taxes on $20,000 of what the IRS calls "phantom income." While Congress has debated eliminating that IRS requirement, at the moment it still stands. So, he could owe another $7,000 or more in taxes the following April 15th.

If your son's lender will put this deal in writing, that's good. But your son should consult with a real estate attorney to make sure that he understands exactly what the letter says, and what he must do to avoid having a "deed in lieu" on his credit history (which would be negative information).

The real issue is what happens if the property doesn't sell. Is the credit union taking over the property entirely? If it doesn't sell, will he be required to make his regular mortgage payments to the credit union? Can he afford to do that or would he be better off finding a renter who can rent the property until the rest of the units are sold in the development? Will his new employer be willing to help out at all?

Your son's experience is why I've always talked about real estate being a longer-term investment. You need to plan to stay at least five to seven years in order to ride out a downturn in the market.

Q: How many names can be on a deed? My mother passed in March, and my name is on the deed. I am 21 years old, and my aunts told me I have to move out of my house. What should I do?

A: Unfortunately, your letter is lacking the kind of detail that would allow me to provide more specific advice. But let me start at the top and give you a few options.

First, I don't think there is a limit to how many names can be listed on a deed. Technically, 20 people or more could be listed as co-owners of the property.

Did your mom own the property by herself? Did you own it with her? Are your aunts listed on the deed? You say that you're listed on the deed, but have you checked? You can go to your local recorder of deeds and see who is listed on the title to the property, and you should see what you discover.

Let's say you, your mom and your two aunts are all listed as owners of the property. If you inherited your mother's estate (let's assume you get everything and there is a will), then you might now own half of the property. You'd own your quarter share and your mom's quarter share.

I hardly think that your aunts can force you to move if you're an owner, and you're of the age of majority. But if they do own a piece of the property and they want to sell the property and you want to keep it, you'll have to figure out a way to either buy them out or negotiate how to purchase the home from them, even if you buy it over time. If you want to control the property, you have to own all of it.

It sounds as you feel a bit bullied by the situation. I recommend you sit down with a real estate attorney who can help you figure out what you own, what's happening with your mother's estate (are you the executor?), and what you should do next.

source: lendinguniverse.com