Q & A with Dottie Herman

» Featured Columnists | By Dottie Herman | September 30, 2010 12:05 PM ET

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Dottie Herman

Q1 - What is the difference between going into foreclosure and declaring bankruptcy or both? Does one affect your chances more for securing a mortgage in the future?
A - These are separate items but can be related by circumstances.  A foreclosure is when a bank takes legal action to force the sale of your home due to non-payment of the mortgage and is specific to your mortgage loan.  A bankruptcy is an action that is initiated by a person when they can no longer meet their debt obligations and are seeking legal protection from creditors.  So someone who owns a home can find themselves in foreclosure and also consider using bankruptcy to help them. An important thing to note on this is that while bankruptcy may clear out many debts it is rare that a judge will forgive or limit the banks rights in a foreclosure to force the sale of a home to recover the monies they are owed, but the bankruptcy can delay the foreclosure process.

Q2 - How much money can I give my children toward the purchase of their home without having to pay tax?  

A - The IRS presently allows a gift of $15,000 per parent, per related party, per year without tax requirements.  Everyone's situation is different and there are ways to give more in one year but spread it over additional years for tax purposes so please check with your own accountant for advice and direction on how you should proceed for your situation.

Q3 - My parents took out a reverse mortgage a few years ago- since then my mother passed away and my father is currently ill. When they pass, there will be money owed on the home. Who is responsible to pay that money? Will my husband and I have to pay if we are executors of the estate

A - It is similar to a forward or traditional mortgage in some ways, but slightly different in others. Just as with a forward mortgage, the reverse mortgage must be paid off but all remaining equity stays with the borrowers or the borrowers' heirs. The amount of remaining equity will depend on how much money the borrowers have taken from their mortgage, the interest that accrues, and the value of properties. The property is passed to the borrowers' heirs and then the borrowers' heirs must do the same thing they would have to do with a forward mortgage - determine if they want to keep the home or sell the home.  If they want to keep the home, then they must pay off the balance with a new loan (refinance) or with other money available to them.  If they choose to sell the home, then the heirs need to contact the servicer of the reverse mortgage as soon as possible and inform them of their decision and maintain communication with that servicer. The heirs have periods typically of three months at a time, up to 12 months with the lender's approval to sell the property. A reverse mortgage is a non-recourse loan.  Which means that, if  with the combination of the accrued interest and current market conditions the property will not sell for enough to repay all amounts owed on the loan, then the borrowers' heirs are not liable for any additional amounts owed.

Q4 - I recently went to contract on a house and locked in my mortgage rate. Unfortunately the sellers are having difficulty and our rate is going to expire before closing. What recourse do we have if our rate goes up before we close? Can we get out of the transaction? Can we make the seller pay closing costs to make up for the money we are going to have to pay?

A - Most lenders will offer you the option to extend your rate for an additional cost.  If you are only held up for a week or so this is the best option and you can negotiate to have the seller pay for this.  They will not be obligated to do this unless you are past the stated closing date in your purchase/sale agreement.  Rates have remained steady so you may be able to relock again with little or no cost.  Best to check with your lender at the options available and then check with your attorney or Real Estate agent as to when you can close and then how to proceed with the sellers.

If you have a real estate question for Dottie, please send it to;

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