Somebody Help My FICO Score

 

Editor’s note:  The following column from Bruss’ “Best of” collection first appeared Sunday, July 2, 2006.

DEAR BOB: About three years ago, my son wanted to buy a condominium. He was earning about $75,000 per year as a CPA working for a “big six” accounting firm. However, his FICO credit score was horrible, around 600, due to his mistakes (failure to pay credit-card bills) while he was in college. So I agreed to take title and obtain the condo mortgage in my name. Since then, he paid all the mortgage payments on time. I recently signed a quitclaim deed adding him as a joint tenant with right of survivorship. When he approached the mortgage company about transferring the loan to him so he can improve his FICO score, he was told he would have to pay a 1 percent assumption fee, which will be about $3,600. He says he wants to do this so he can deduct the mortgage interest and property taxes on his income-tax returns. Do you think he should do so? –Dan F.

DEAR DAN: No. As a CPA, your son should know he is entitled to deduct the itemized property tax and mortgage interest deductions he pays on his tax returns if his name is on the condo title. His name does not have to be on the mortgage obligation to claim the interest deduction.

Millions of U.S. homeowners have purchased homes “subject to” an existing mortgage. If they fail to make the payments, they can lose their property by foreclosure. That is your son’s situation.

What matters is he must be on the title and be legally obligated to make the payments or risk losing the property. When you added his name to the title, he became eligible to claim the income-tax mortgage interest and property-tax deductions.

Other than improving his FICO score, I see no advantage for him paying $3,600 to assume that mortgage obligation.

EACH MORTGAGE LENDER LOOKS AT LEASE-OPTIONS DIFFERENTLY

DEAR BOB: When a tenant-buyer goes to a mortgage lender to get a loan to exercise a lease-option, does the bank look at the option consideration money and the rent credit earned during the tenancy as part of the down payment? I am told the loan-to-value ratio will be based on the option purchase price rather than the current fair market value –Joel D.

DEAR JOEL: Having been involved in many home lease-option purchases and sales, my experience has been that each mortgage lender treats lease-options differently.

When a lease-option buyer obtains an adjustable-rate mortgage, I’ve found the mortgage lenders are the most flexible, giving full down-payment credit for the buyer’s option money and the rent credit earned during the tenancy period.

The buyer should consult at least a half-dozen mortgage lenders to obtain their specific mortgage terms for exercising a lease-option. This is a situation where I highly recommend consulting an experienced mortgage broker who should know which lenders are the most flexible in such situations.

PRESCRIPTIVE EASEMENTS DON’T REQUIRE PROPERTY TAX PAYMENTS

DEAR BOB: About a year ago, you had a letter regarding prescriptive easements over private property. As I recall, you said one of the important requirements is whether the owners were paying the property taxes. Our private road travels through several other properties before reaching the public road. There are no recorded easements. We each pay the property taxes on our separate parcels. The property is in a rural area, outside the city. Do we have a prescriptive easement? –Delores R.

DEAR DELORES: I think you confused obtaining title to an entire property by adverse possession with obtaining a prescriptive easement over a neighbor’s property.

Adverse possession to obtain title to an entire parcel requires open, notorious, hostile (without permission) and continuous use of the property, plus payment of property taxes, for the number of years required by state law.

However, obtaining a prescriptive easement only requires open, notorious, hostile and continuous use for the required number of years, but without payment of property taxes. For full details, please consult a local real estate attorney.

Copyright 2007 Inman News

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