I’ve enjoyed reading your articles and now have a question that has been on my mind for a while now. My sister and I plan to team up to purchase a home for our elderly parents. The house purchase price of the home will be approximately $200K. We have considered putting down $30K and then obtaining a mortgage for the rest ($170K). Under this plan, my sister and I would be joint owners of the property.
However, a friend recently told me this is not a good idea because both my credit record and my sister’s record will show a loan of $170K. He said that my sister and I should each take a tenant- in-common role. Under his plan, he said that my sister and I should each put down a down payment of $15K ($30K total) and that we should each obtain a mortgage loan for $85K (one under my sister’s name and one under my name). In this way, the total down payment is $30K and there are two $85K loans ($170K total debt). He said that under this method there would only be an $85K loan under each of our names so that our credit records would not be affected as much.
My question is whether my friend’s advice is well-founded or whether it makes no difference if my sister and I just obtain one loan together. I’m not sure my friend’s suggested plan can be done. If it can, I’m not sure a lender would be willing to do something like this. Please advise. Alfonso.
A: Alfonso, I commend you and your sister for wanting to take care of your parents. Nowadays, it’s often just the reverse. What do they call it: “boomerang babies?”
I seriously doubt your plan would work. You basically are suggesting there be two loans. The lender (or lenders) will want to know “who’s on first?” Why? Because typically, a second mortgage (deed of trust) will carry a higher interest rate and may not be permitted for the full 30 years amortization.
More important, even under your scenario, you would still both be jointly and severally obligated under the mortgage document. Should one of the two loans go into default, the lender has the right to foreclose and thus your credit ratings will go down anyway.
No, I like your first plan so you should stick with it. However, have you talked to your parents about getting a reverse mortgage? Although there are many commercial lenders who handle reverse mortgages for purchase (called HECM for Purchase), I have learned that many people like yourself become the lender. Of course, you would need all of the money to buy the house for your parents.
That’s just a thought! You may want to consider this as an additional option.
Finally, make sure how you want title to be held: joint tenants or tenants in common. Discuss both alternatives with your attorney to make sure your needs are met. For example, if one or both of you are married with children, you may want to hold title as tenants in common; under this arrangement, when one owner dies, his/her share will go by way of the last will and could go to your children. If title is joint tenants, one the death of one of you, title will go to the survivor, and not to your children.
* * *
Q: I hope you can respond to both of my questions:
- My mother lives in a condo where they assessed over $65,000 per owner to rebuild windows and patio doors that were defective from the builder. Her building is just over 10 years old.
After the assessments were received, and the builder and the architect were sued, and the lawyers were paid, and the building repaired, there are excess funds that were not used to improve the building. The association is using those excess funds from the special assessment to pay off bad debt from other owners. Is that legal? Shouldn’t the special assessment excess funds be returned to the owners?
A: You have to read your legal documents – usually the bylaws – to see if there is any answer to your question. And you also have to look at your state law for guidance.
For example, here in the District of Columbia, where I practice law, our condominium act contains the following language: “Unless otherwise provided in the condominium instruments (defined as declaration, bylaws and plats & plans), any surplus funds of the unit owner’s association that remain after payment of or provision for common expenses and any prepayment of reserves shall be paid to the unit owners in proportion to the unit owners’ liabilities for common expenses or credited to the unit owners to reduce the unit owners’ future common expense assessments.”
The answer should be clear from your legal documents.