Posted on: 12th Aug, 2009 08:33 pm
hi all, hopefully you smarties on here can help me with my predicament.
several years ago, my father convinced me to co-sign with him on a second home, to be used as a rental property. he promised to take care of all expenses and mortgage payments; he just needed someone with good credit to help him get the financing (hence, his daughter who just graduated college with a clean slate of credit). i was young, naive, and trusting of my father's claim that the market could only go up.
fast forward, and you can guess what has happened to the value of the home. i've learned that my father has taken quite a bit of equity out of the home along the way, and right now the value of the home is probably $80k less than what is owed. there are renters in the property, but my father still pays about $500/mo out of pocket to pay the monthly mortgage, and it's now becoming more difficult for him to keep up the payments. he is the type of person to not tell me he's defaulted on a payment before it's too late, so i want to hurry and assume the property before that happens since my credit is still stellar in the eyes of the bureau.
a little over a year ago, i did a quit claim on the deed, as my father had told me he would try to refinance the property under his name only, taking me out of the home. unfortunately, that's when banks started clamping down and he has been unable to refi on his own. so the deed only has his name on it, although the loan is in both our names.
i am admittedly clueless about what to do next. i am not familiar at all with the process, since my father handled everything, and with my current home my husband took care of it. my husband tried asking his broker about the situation, and her thoughts were to not refi, just take over the deed and then maintain payments leaving my father on the loan. my worry about that is if my father somehow defaults on his own home, will that affect my credit? should i try to refinance (current loan is a arm)? any help on next steps?
thanks in advance! (sorry for the long post.)
several years ago, my father convinced me to co-sign with him on a second home, to be used as a rental property. he promised to take care of all expenses and mortgage payments; he just needed someone with good credit to help him get the financing (hence, his daughter who just graduated college with a clean slate of credit). i was young, naive, and trusting of my father's claim that the market could only go up.
fast forward, and you can guess what has happened to the value of the home. i've learned that my father has taken quite a bit of equity out of the home along the way, and right now the value of the home is probably $80k less than what is owed. there are renters in the property, but my father still pays about $500/mo out of pocket to pay the monthly mortgage, and it's now becoming more difficult for him to keep up the payments. he is the type of person to not tell me he's defaulted on a payment before it's too late, so i want to hurry and assume the property before that happens since my credit is still stellar in the eyes of the bureau.
a little over a year ago, i did a quit claim on the deed, as my father had told me he would try to refinance the property under his name only, taking me out of the home. unfortunately, that's when banks started clamping down and he has been unable to refi on his own. so the deed only has his name on it, although the loan is in both our names.
i am admittedly clueless about what to do next. i am not familiar at all with the process, since my father handled everything, and with my current home my husband took care of it. my husband tried asking his broker about the situation, and her thoughts were to not refi, just take over the deed and then maintain payments leaving my father on the loan. my worry about that is if my father somehow defaults on his own home, will that affect my credit? should i try to refinance (current loan is a arm)? any help on next steps?
thanks in advance! (sorry for the long post.)
Hi cougar,
If you father defaults on the mortgage payments, your credit will definitely get affected. As your name is on the mortgage, the lender will have the right to sue you for the mortgage dues. In case, if the lender forecloses the property, your credit score can go down by 250 points.
You can negotiate with your father and try to refinance the loan in your name if you can afford to pay the mortgage dues. This will help you in saving the property as well as your credit.
Take care.
If you father defaults on the mortgage payments, your credit will definitely get affected. As your name is on the mortgage, the lender will have the right to sue you for the mortgage dues. In case, if the lender forecloses the property, your credit score can go down by 250 points.
You can negotiate with your father and try to refinance the loan in your name if you can afford to pay the mortgage dues. This will help you in saving the property as well as your credit.
Take care.
Thanks for the advice! I got a chance to speak to my father about my concerns, and he stated that he has been able to keep the mortgage current. He says he can continue to do it so my credit will not be affected, which I appreciate, but I know that it is a real financial stretch for him to do so.
He is now considering selling the home, as a recent similar home in the area has sold for the amount of our current loan. We both want it off our minds, but now the concern is the capital gains tax. The gain on the home would be about $150k if the house sells for what he thinks, and of course all of that was already pulled out of equity and spent a long time ago (thanks Dad). My father's idea is to sell the home, pay off the loan, and then file for BK. He says he is willing to sacrifice going into BK since the debt was his responsibility, and this way I am no longer affected because the bank obligation will be fulfilled.
If he does this, won't the IRS still be able to come after me for the capital gains even though I am not on the deed (but I was a couple years ago) because I was on the loan? Or would his BK really stop with him?
Thanks again in advance for your help. I wanted to talk to our accountant about this but my father doesn't want me to; I wonder if he is afraid of what our accountant would think of him personally?
He is now considering selling the home, as a recent similar home in the area has sold for the amount of our current loan. We both want it off our minds, but now the concern is the capital gains tax. The gain on the home would be about $150k if the house sells for what he thinks, and of course all of that was already pulled out of equity and spent a long time ago (thanks Dad). My father's idea is to sell the home, pay off the loan, and then file for BK. He says he is willing to sacrifice going into BK since the debt was his responsibility, and this way I am no longer affected because the bank obligation will be fulfilled.
If he does this, won't the IRS still be able to come after me for the capital gains even though I am not on the deed (but I was a couple years ago) because I was on the loan? Or would his BK really stop with him?
Thanks again in advance for your help. I wanted to talk to our accountant about this but my father doesn't want me to; I wonder if he is afraid of what our accountant would think of him personally?
Hi cougar,
If your name has been removed from the property deed, then you won't be considered liable for the capital gains taxes. Your father, who is the sole owner of the property, would be liable for paying off the capital gains taxes. This tax will depend upon the profit your father makes by selling off the property. Also, you should note that there are certain exemptions in case of capital gains taxes. You can find it out from the following page:
http://www.mortgagefit.com/gift.html#111114
Thanks
If your name has been removed from the property deed, then you won't be considered liable for the capital gains taxes. Your father, who is the sole owner of the property, would be liable for paying off the capital gains taxes. This tax will depend upon the profit your father makes by selling off the property. Also, you should note that there are certain exemptions in case of capital gains taxes. You can find it out from the following page:
http://www.mortgagefit.com/gift.html#111114
Thanks
Thanks sooooo much jameshogg! You've made my day. :)
Hey cougar... You're most welcome! :) The pleasure is mine. If you've further queries regarding mortgage or related financial issues, feel free to post in the forums. The moderators and experts participating in the forums will try to help you and give their suggestions to you.
Have a great day!
Thanks
Have a great day!
Thanks