Dear Benny: In a recent column you mentioned that the government in some cases is offering $1,500 to homeowners who turn over their keys and accept a deed-in-lieu instead of going through foreclosure.
I can see where this is advantageous to all parties involved. How does one find out about this program?
We are getting ready to sign our deed back, but of course no mention was made of giving us any monies.
We left the place sparkling, with new paint and new carpet, and bought a new washer and dryer. The mortgage servicer has asked us also to sign a promissory note to the private mortgage insurance provider for $1,000 at no interest over 18 months.
We paid PMI $60 each and every month for seven years. Is this an unusual practice?
He said it would help with the lender accepting our deed-in-lieu offer, so I said OK.
But now, after some thought, I think it is not wise or needed. –J.A.
Dear J.A.: I did a website search and found some information about a government program called the Home Affordable Foreclosure Alternatives.
Under this program, borrowers can receive $3,000 in relocation assistance when they successfully close on a short sale or a deed-in-lieu of foreclosure.
A short sale is where your lender allows you to sell your house for less than you owe on the mortgage. Some lenders will release you completely from any deficiency. Others will insist that you make some sort of payment to the lender over and above what the lender receives from the sales proceeds.
In a deed-in-lieu, you give up your house to the lender, and no foreclosure is necessary.
Under the HAFA program, there are several requirements, such as (1) you have to live in the house, or have lived there, in the past 12 months; (2) you have a documented financial hardship; (3) your first mortgage is less than $729,750; and (4) you obtained your loan on or before Jan. 1, 2009.
For more information, go to makinghomeaffordable.gov.
As to your question about having to pay an additional $1,000 for private mortgage insurance premiums, I also question the necessity of this.
However, if you have already signed a written agreement, I am afraid it may be too late to back out of the deal.
Dear Benny: My father-in-law has had major health issues over the last decade.
Because of that, and the fact he and his wife are getting older, he wants to deed his timeshare to his three sons. In that manner, he is hoping to avoid being involved with their estates.
I am thinking that doing this could create a tax situation for the sons and my husband that the sons would not want.
Is this the case? Would they be wiser to create a trust or take some other action with this timeshare? –Johanna
Dear Johanna: I have written about this many times.
When someone gives a gift, the tax basis (the number that is the original purchase price) of the donor becomes the basis of the donee. So in most situations, where the property has appreciated in value, if the giftee sells the property, and has not lived in it for two out of the five years before it is sold, he or she may have to pay a large capital gains tax.
So, in general, I cannot for most situations recommend that parents gift property to their children.
However, if the timeshare has depreciated in value, then it may make sense to deed – i.e., gift – it to her three sons.
If they ever sell the timeshare (which is the subject of another column because it’s not at all easy) they will not make a profit and thus will not have to pay the tax.
Unless the timeshare is used for investment purposes, the sons will not be able to take a tax deduction for the loss, but at least they won’t have any tax to pay.
Talk to your own financial adviser for specifics about your situation.
Benny Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to firstname.lastname@example.org.