Q: When my adjustable-rate mortgage was recently "recast" to current interest rates, the unpaid interest was added to the principal balance. I now owe about 110 percent of my home's market value. I recently lost my tech job, which paid more than $100,000 annually. Do I have any recourse?
A: This is the peril of negative amortization. Wikipedia.org defines it this way: "NegAm is an amortization method in which the borrower pays back less than the full amount of interest owed to the lender each month. The shorted amount is then added to the total amount owed to the lender."
You enjoyed the low monthly mortgage payments for a year or two after obtaining that mortgage. When the mortgage terms provided for a "recast" to a higher interest rate and larger monthly payment, the lender added the unpaid interest to your mortgage balance. You now owe more than you borrowed.
If you are unable to make the higher mortgage payments, ask your lender if you can sell the house for its current market value as payment in full on the mortgage. This is called a "short sale." Most lenders will approve a short sale only if you are behind in monthly payments with little hope for catching up.
If the lender approves a "short sale," after the house sells you will receive an IRS Form 1099 from the lender showing the amount of unpaid, forgiven mortgage debt. This is taxable income to you.
For example, if you owe $200,000 but the lender approves a $180,000 short sale, your 1099 form will show $20,000 taxable income to you.
Lien will be paid when house sells
Q: In 1999 my husband and I won a $130,000 judgment in an assault case. In 2006 we located the defendant and his wife living in Las Vegas. We placed a foreign judgment lien on his home. We're still trying to collect. How can judgment creditors like us place the lien with the three major credit bureaus?
A: An individual can't place a lien with the credit bureaus. I assume your judgment lien was properly recorded in Las Vegas against the defendant-debtor, and any other place where he owns real estate. Eventually he will try to sell that property. Then your judgment will have to be paid so he can deliver marketable title to the buyer.
You can get reverse mortgage at 62
Q: My wife and I want to sell our townhouse and buy a single-family home. I am 62, and she is 59. Can we use a reverse mortgage to buy the new house? Or must we buy with a conventional mortgage and then refinance with a reverse mortgage? Will our other assets or our ages prevent the use of a reverse mortgage?
A: Yes, you can use a reverse mortgage to buy a house. However, because your wife is not yet 62, the minimum age to obtain a reverse mortgage, she cannot be on the title with you.
Because of your relatively young age and long life expectancy at 62, you will have to make a large cash down payment. Your other assets or your credit rating don't affect your reverse mortgage eligibility.
You can e-mail Robert J. Bruss by visiting his Web site, www.bobbruss.com. Click on "Ask Bob a Real Estate Question.'' Or write to Robert J. Bruss, 251 Park Road, Burlingame, CA 94010.