Transferring property interest to kids gets tricky

Q: My mother-in law bought a home six years ago. The seller agreed to finance the home if she put down $1,000 on the property and paid $450 per month for 30 years. It works out to about an 8 percent interest rate.

The seller holds the deed of trust. My mother-in-law wants to transfer her interest in the property to me and my wife. We would continue to make her payments to the seller.

Here's our problem: The seller refuses to transfer the property to me and my wife. Can my mother-in-law transfer the property to us as a gift or just because she wants us to have it without the due on sale clause kicking into play? We don't plan to buy this home, but she would like to give it to us.

A: What does your mother-in-law's deed of trust say about transferring control of the property or otherwise selling it to someone? Is she prohibited from doing that during the 30 years in which she is paying off her loan? If so, she was foolish to sign such a document without having some exceptions written into the document.

And about that loan. The seller is probably worried that his 8 percent earnings on his money is about to go down the tubes. It's tough to get an 8 percent return on your investment these days, and if you paid off the loan in full, the seller would only be able to get maybe 5 or 6 percent on his cash. That's quite a step down from 8 percent.

If you realize that the seller is doing what he can to protect his investment, his reasoning becomes understandable – but maybe not correct. Again, it all goes back to the terms of the deed of trust.

If an attorney helped your mother in the purchase of the home (I'm hoping that's the case), then go back to the attorney to help you through this issue. If the attorney contacts the seller to initiate the transfer of control and the seller knows you will be refinancing, the seller may quickly realize that he is going to lose out on the stream of income on the loan and may decide to allow you to take title to the property. However, if the seller is looking to get his or her money out of the home, you will have to refinance to get title of the home into your names.

The real question I have is why aren't you and your wife buying this property from your mother-in-law? Even if she gives you the property over time (she can give each of you up to $12,000 in assets tax free each calendar year), it would be nice to take her name off of the mortgage. Also, if she gives you the property, you will get the property at the value your mother bought it for and when you sell it, you may have a tax to pay on the difference between the sales price and the price she paid for the home.

While you and your wife would be able to exclude paying federal income taxes on $500,000 of the gain, the home must be your primary residence for two out of the last five years. If she were to give you the home and the home isn't your primary residence and you sell it, you may end up paying quite a bit in federal income taxes.

Since you're the one who wrote in for advice, I suggest you check around to see if you can qualify for financing from a regular mortgage lender at something approaching the current interest rate for a 30-year fixed rate mortgage. At press time, that was about 6.5 percent. If you can qualify, you'll be able to officially buy the property from your mother-in-law and pay off the seller. You'll also pay less than if you keep the current loan.

And then you'll be on your own financially, which is a good place to be.

Q: When my son got married, I let him use my credit card to set up his household. He and his wife managed to max the card out with a debt of about $20,000.

Somehow, they had changed the billing address to their home address so I wouldn't know how much debt they ran up. I cancelled the card as soon as I discovered this.

Still, they were making regular payments on the card until he and his wife separated. He is now going through a divorce and custody fight with his wife and the money he was using to pay the card is now going to the lawyer and child support.

I cannot afford the payments and have been borrowing from my own credit cards and life insurance policies to try and keep everything current, but I am falling behind. I do not know what to do.

I have called the credit card company to try and work something out but they refuse to hear anything and only repeat I am responsible for the payments. They have increased my interest to the maximum amount of about 29.99 percent, due to the late payments. Now, any amount I send to them is going to pay the interest only.

I live in a mobile home. I tried to refinance to take out some cash, but I owe too much on the mortgage and the extra money they offered me wouldn't even put a dent in the amount owed. Do you have any suggestions?

A: You've made several significant mistakes. Unfortunately, you're now paying for them.

Your first mistake was to assume that you knew the boy you raised. I'm sure you thought that he and his wife would make good on any debts incurred. But your curiosity should have been raised when you stopped receiving the credit card bills.

Your second mistake was to allow anyone else to use your credit card without your permission. No one will ever help you protect your credit and good name. That, for better or worse, falls on you alone.

A third mistake was to cancel a card that had a remaining balance. That helped tank your credit score, which is why the interest rate on the debt has been raised to nearly 30 percent.

I don't know how much you earn, but if you have nominal income, and your debt is bigger than your annual income, your best option may be to file for bankruptcy.

Please contact the National Foundation for Consumer Credit (www.nfcc.org) to find a reputable credit counselor near you. You should be able to get free or extremely low-cost budgeting assistance and you'll be able to find out if it is even possible for you to pay off your debts without filing for bankruptcy.

Good luck.

Rob Alley
Roy Wheeler Realty Co.
The Avery Group
http://www.robsellscharlottesville.com