Pitfalls of co-signing on a real estate loan

DEAR BOB: About five years ago, I co-signed a home mortgagefor my niece so she could buy a condominium. All went well until about fourmonths ago. She lost her job and refuses to take another job that doesn’t payas much. The result is she is now four months behind on her mortgage payments.Frankly, there is no way she can catch up, even if she does find her perfect”pie in the sky” job. However, I have a 723 FICO score, which I don’twant to lose because good credit is important to me. Other than paying themissing mortgage payments, which now are about $14,000, how can I protect my goodcredit? –Fred G.

DEAR FRED: You can’t. You probably now realize it was amajor mistake to co-sign on your niece’s mortgage. I’m sure you wanted to helpher and you trusted her to make the monthly payments. But when she defaulted,it not only hurt her credit rating but it also hurt yours as a co-signer.

Purchase Bob Bruss reports online.

Your situation is a classic example why not to co-sign on amortgage obligation.

Legally, you are liable for the missing mortgage payments.However, if there is sufficient equity in the condominium, the lender will probablyforeclose and either be paid in full by a bidder at the foreclosure auction orreceive title to resell the condo.

Chances of the lender suing you for a deficiency loss arenot great, but it could happen. For more details, please consult a local realestate attorney.

DON’T WASTE YOUR INVESTMENT PROPERTY TAX LOSS

DEAR BOB: Is there any way to carryover Internal RevenueService Schedule E losses to the next tax year? Why can’t I defer expenses tooffset future taxable income? –Claude R.

DEAR CLAUDE: If your IRS Schedule E tax loss is fromoperating your rental property, probably due mostly to the non-cashdepreciation deduction, you can carryover “suspended” tax losses tofuture tax years.

Or you can use suspended tax losses to offset your capitalgains profit when you sell your rental property. It sounds like you shouldconsult a new tax adviser to be certain you are maximizing your real estateinvestment property tax benefits.

IF YOU DIDN’T INHERIT PROPERTY, NO STEPPED-UP BASIS FOR YOU

DEAR BOB: My late mother battled cancer for five or sixyears. Three years ago, she deeded her house to me to avoid probate and apossible claim by her ex-husband. She died about four months ago. I havedecided to sell the house, but my tax adviser says that because I received alifetime gift, I took over my mother’s very low cost basis of $160,000. Today,the house is worth at least $550,000. Since I did not own and occupy the houseas my primary residence, is there any way I can avoid capital gain tax on thisprofit of about $390,000? –Paula W.

DEAR PAULA: No. If you didn’t inherit the property, youdon’t get a new “stepped-up basis” to market value on the date of thedecedent’s death. Because you received a pre-death gift deed to the house, asthe donee you took over your donor’s low adjusted-cost basis.

However, the current maximum federal capital gains tax rateis only 15 percent, plus any applicable state tax. Your tax adviser can providefull details.

The new Robert Bruss special report, “Pros and Cons ofFast and Slow House Flipping for Big Profits,” is now available for $5from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2006 Inman News

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