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Thursday, March 10, 2011

A parent’s sad tale of child’s mortgage

A parent’s sad tale of child’s mortgage

Many parents understandably want to help their kids buy a home, but cosigning for a mortgage is a decision that shouldn’t be taken lightly.

Q. I cosigned a loan application in 2007 for my son and daughter-in-law so that they could get a mortgage to buy their first home. They filed for divorce last August. My son moved out and neither he nor my daughter-in-law has made a mortgage payment since then. Now the bank is sending me letters stating that I must start making their payments in order to avoid foreclosure and damage to my own credit record. Am I responsible for their payments, even though my name doesn’t appear on the title to the home and I have never made a payment on their mortgage before?

A. Yes, I’m afraid the bank has the legal right to demand you begin making the payments on the home. The fact that your name doesn’t appear on the title to the property and that you have never made a payment on the mortgage is irrelevant: Your name is on the original loan application, so you’re just as responsible for paying the mortgage as your son and daughter-in-law.

I’m sure the divorce is causing some financial and emotional strain on everyone, but it’s imperative you talk with the kids and come up with a plan for them to start making the mortgage payments again. If the payments don’t resume, the home will fall into foreclosure and each of you will get an awful black mark on your credit record that will be hard to erase.

And if the bank forecloses but cannot sell the house for enough money to pay the loan off and cover any legal costs, it might even be able to sue you individually to make up for its loss.

Contact the bank’s customer-service department to explain the situation and ask for some guidance. Also consider talking to a real estate attorney to see if there’s some way to minimize the potential damage to your pocketbook and personal credit profile.

It’s only natural for parents and even grandparents to want to help their offspring, and cosigning for a mortgage is one of the best ways to help. But your unfortunate situation should serve as a reminder to all those other moms and dads out there that cosigning for a loan is not without its risks. An unforeseen turn of events — such as a divorce, the loss of a job or even a short-term illness — can prevent the grown children from making their mortgage payments themselves and subsequently saddle their parents with a tremendous financial burden.

Q. I’m confused by a term I saw in a classified real estate ad in this newspaper. Can you explain what a “sep ent” is?

A. Some readers mistakenly believe that reference to a “sep ent” suggests that the home is on a septic system. In reality, it’s real estate shorthand for “separate entrance” — like a private entryway to a maid’s quarters or mother-in-law unit, or an individual walk-up to a townhouse or co-op.

Q. I completed a rental application to lease a small house. The landlord checked the application and also my credit score and determined that everything “looked good,” but then demanded that I also give him a copy of my income-tax return to “prove that the payments can be made” because I am self-employed. Is it legal for a landlord to demand a copy of an applicant’s personal tax return? I think that this is a huge invasion of my privacy rights!

A. I don’t blame you for feeling that your privacy is being invaded. Yet, all landlords have the right to take reasonable steps to ensure that a rental applicant can pay the future rent. So like it or not, the landlord can ask to see your tax return before leasing his property to you.

This probably isn’t the answer you wanted. But look at it this way: If you were a salaried worker, the owner probably would have asked for a copy of your most recent pay stub and might even call your employer to verify how much you earn each week. Because you are self-employed, though, the only way the landlord can determine whether you can meet your monthly payments is to take a look at your tax return.

Federal law also allows landlords to ask an applicant for bank statements and many other types of financial documents before they choose one potential tenant over another.

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