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Spouse's death can hurt refi chances

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POSTED April 5, 2012 6:48 p.m.

DEAR BENNY: I enjoy reading your articles and I have a question of my own. My wife passed away three years ago and I recently remarried. I plan to retire this year and want to refinance my home. The house is in both my deceased wife's name and mine. What complications will I run into when I do this? --Harold

DEAR HAROLD: It's not a problem if you and your wife owned the property as tenants by the entirety or joint tenants. If that's the way you held title, when your wife died, by operation of law, you automatically became the owner. When you go to refinance, the settlement attorney (or title or escrow company) will be able to complete the transaction. You should make sure that you have a certified true copy of your wife's death certificate. These are usually available from the local health department in your state (or county).

Although it really isn't important, you may want to ask the title person how to make sure your deceased wife's name is no longer on title.

However, if you and your wife owned the property as tenants in common, then you have some work to do. With that form of title, you owned half and your wife owned the other half. So when she died, we have to determine how that half is to be distributed.

In many states, you will have to probate her estate. Talk with a lawyer to determine (1) how title was held and (2) what, if anything, has to be done to make sure that title is now in your name exclusively.

Although most married couples hold title as tenants by the entirety, there are reasons why title is held as tenants in common. For example, when two divorced parents remarry but want their children and not the new spouse to inherit their share, they would hold title as tenants in common.

That brings me to another suggestion: How will you and your new wife hold title? Make sure that you (and your new wife) fully discuss this before any action is taken.

DEAR BENNY: In reference to your article about force-placed insurance, I have a client who recently closed on a short sale as the seller. He had moved out about a year and half prior to the final closing and maintained insurance coverage up until the final months leading up to the closing. The lender is now claiming it placed insurance on the property prior to closing and is trying to collect for its policy post-closing. Is this is a legal mandate that the seller must pay now? --Johnny

DEAR JOHNNY: If your client can demonstrate that he in fact maintained insurance coverage up until closing (not just the final months before closing), then he is not obligated to pay this force-placed insurance.

For my readers, force-placed insurance is home insurance that the bank arranges for (at the homeowner's expense) if the homeowner is not covered by that insurance. For example, if the homeowner forgets to renew the policy and there are no escrows for insurance, then clearly the lender has the right to have the property covered with adequate insurance. Accordingly, the lender "force-places" the insurance.

Unfortunately, the cost of this insurance is usually much more expensive than if the homeowner had obtained it on his own. And, while I have no independent knowledge, I suspect that the lender gets some kind of kickback from the insurance agent.

My suggestion is to gather the proof that you have and discuss the situation with the lender. If that fails, and if the lender is a national bank, file a formal complaint with the Office of the Comptroller of the Currency, a federal agency that monitors actions of national banks.

One suggestion: When a lender is involved in a short sale, it is obligated to send the borrower IRS Form 1099-C ("cancellation of debt"). If the lender sent that form at the beginning of the year following the short sale, ask the lender why (after it has told the borrower and the IRS that the loan was canceled) it continues to pursue the lender. Doesn't "cancellation" mean "cancellation"? It should!

DEAR BENNY: I am 71 years old and drawing Social Security. In 2004 when I was working, I co-signed with another co-signer to help my cousin buy a house for his family.

My cousin has four children and did not want to live in a rental property. He had some problems with his credit. He promised that he would try to resolve his credit problems and work with the bank to get the existing property in his name.

My cousin is still living there and making monthly payments without any problem. Now I need to refinance my home and my income is only Social Security. Every time any bank pulls my credit report it shows that I have two mortgages.

Please help me resolve this dilemma. The other co-signer has no problem if I take out my name from this property. --Sved

DEAR SVED: Your mistake was being a nice guy to assist your cousin. Your situation, unfortunately, is similar to husbands and wives who divorce and one spouse wants to keep the house and that other wants off of the mortgage loan. Most lenders will require the spouse who wants to keep the house to refinance in order to remove the former spouse from the mortgage obligation.

The ideal situation is for your cousin to refinance while interest rates are currently very low.

But if your cousin cannot qualify for a refinance loan, all I can suggest is that you talk with your lender. Explain the situation. It would help if your cousin would give you copies of his mortgage payment checks for the past two years, so that you can demonstrate to your potential lender that even though you are a co-signer, your cousin has been making all payments on his own.

It might work, but it's a lesson to be learned. Co-signing a loan may be a nice gesture to help a friend or family member out, but the net result is that you are considered a borrower, which can seriously impair your credit rating.

DEAR BENNY: My family of eight just inherited a home. How can I buy it? --Robert

DEAR ROBERT: Money talks. First, tell the remaining seven members of your family that you are interested in owning the house on your own, and see if they are receptive. If they are, then you should arrange to obtain an appraisal from a professional appraiser in your area. That would give you a ballpark value of the house.

Once you have this information, you have to decide what to offer the members of your family. Will you divide the value by eight, so that each of you will have an equal share? Or are some members of the family to be treated differently, such as distinguishing between older members as compared to children?

Once you have determined the value, unless you have the necessary cash, make sure that you can qualify for a mortgage loan. Then it's time to make your family an offer "they can't refuse." You should make sure that they receive a copy of the appraisal so they can't accuse you of lowballing.

Assuming everyone is in agreement, you should have a written agreement signed by everyone. Then, when you go to closing (called escrow in the Western part of the country), the person handling the settlement will distribute the loan proceed pursuant to that signed document.

It sounds easy, but people have their own ideas, and you have some work to do.

In the final analysis, you can threaten to file a suit to partition the property. The courts in the United States are consistent in holding that when two or more people own property, and one wants out of the transaction, the courts will force the sale. The only winners, however, are the lawyers, the trustees who sell, and the speculators who buy. And such an action will not guarantee that you will end up owning the property.

But it is a way to possibly convince your family that, ultimately, they will not have the house but only money.

Benny L. 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 benny@inman.com.

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