Effect of Mortgage When Property is Transferred Through Inheritance

Unless the mortgage is assumable, generally speaking, when real property (subject to a deed of trust or a mortgage) is conveyed or transferred to another person; the mortgage that the seller or transferor has needs to be paid off and the property is either purchased by the new owner(s) in all cash or by way of a new mortgage from the new borrowers or transferees. This is referred to as the "due on sale" clause in your mortgage. 

What occurs, however, when title, deed or ownership of the property is transferred to another upon death of the owner through probate of a will or through inheritance?

Federal law provides some exceptions to the "due on sale" clause when the property subject to a mortgage (other than a reverse mortgage) is being transferred as a result of the person's death. A full list of the exceptions to the "due on sale" rule can be found in The Garn St. Germain Depository Institutions Act of 1982, (U.S.C.) 1701j-3(d)(8). For estate planning purposes, property owners should be aware that the "due on sale" clause will not apply to:

• a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
• a transfer to a relative resulting from the death of a borrower.
 

So, if you own property jointly as (1) joint tenants with rights of survivorship, or (2) tenants by the entirety (for married persons only), with any person (relative, friend, business partner, life partner) and that person dies, you get full ownership of the property by operation of law. The property does not pass through or is subject to the decedent person's Will, but rather passes directly to you as the joint owner. Thus the term, "right of survivorship". Also, the mortgage on the property continues with no alteration in its original or existing terms. 
 

If you bequeath the mortgaged property to a person through your Will or a Trust (or by way of intestacy if you don't have a Will), AND the person is your relative, then the mortgage can continue upon the transfer of the property to the new relative owner(s).

Some further considerations:

• The exception applies to properties with no more than 4 units (i.e.: a multi-unit property with 5 or more units would not qualify for the exception).
• The exception includes a transfer of stock in a co-op.
• Same sex couples should beware that they may not be deemed a "relative" for purposes of inheriting property subject to a mortgage; it may be better planning to hold title as joint tenants with rights of survivorship during both partners lifetimes.

• Just because a person inherits the property and the mortgage won't be invoked or "assumed" by the new owner or heir, doesn't necessarily mean that the beneficiary can afford the mortgage.
• In doing estate planning you should consider if the beneficiary can in fact maintain the property you are leaving them.
• When inheriting mortgaged property, you should consider if you can afford the current mortgage.

Also for estate planning purposes, if you are planning to leave real property to a relative or other heir, you might want to also consider purchasing life insurance that will pay-off the balance of your current mortgage if you pass away before it is entirely paid-off.  This will leave your heirs or beneficiary owning the property without the encumbrance of a mortgage or bringing financial hardship on your heir if they cannot assume your old mortgage or take deed or title to the property subject to a mortgage. 

Title/Escrow Agent Screws Up on Purchaser's Transaction

How a simple real estate transaction can go awry.  Whenever money is involved, especially LARGE sums as in the sale or purchase of a home, make sure you conduct all "due diligence" and follow up with all parties involved to make sure the transaction has gone the way it should have and all funds applied and credited correctly with your mortgage lender and that the title or deed to your property (selling or buying side of the transaction) has conveyed and has been recorded correctly.  Make sure you are using a reputable title or escrow company or agent who has been in business for many years so something like this does not happen to you!

Federal Regulators Considering New 20% Down Payment Requirement

Federal regulators are considering a new rule that would require a minimum 20% down payment for many home purchases. Just imagine how you or your children would be affected if this proposal were to pass.

Would you be able to buy a home? For example, you would need $80,000 up front for a $400,000 home. In the Washington DC Metro and Northern Virginia area this would only buy you a condo or townhouse.

Already a home owner? The proposed rule would hurt property value appraisals by shutting many qualified buyers out of the market. Fewer buyers means less resales, which in turn leads to longer times properties are on the market, which leads to fewer sales comps for appraisers to use and slower rate of appreciation, which leads to lower overall home values in a given market area.

Help keep the dream of home ownership alive by saying NO to the 20% down payment requirement.
Regulators are trying to fix the root causes of the housing crisis, which is fully supported. But the proposed rule is the wrong solution. Strong evidence shows that responsible lending standards and ensuring a borrower’s ability to repay, not high down payments, have the greatest impact on reducing lender risk.

Take action now. Regulators in Washington need to hear the voices of home owners as they make their policy considerations. This is why your input is so important. Please send a letter to the U.S. Dept. of Housing and Urban Development (HUD) to ask that they drop the proposed 20% down payment requirement and instead focus on sound underwriting standards.

Taking action is easy and takes just a few seconds of your time.


Source: National Association of REALTORS

Anatomy of a House

Freedom in the 50 States ? Civil Liberties

Here's an interesting study report on which States in America are the most or least conservative ~ liberal. The findings are from the Mercatus Center at George Mason University (GMU) in my hometown of Fairfax, Virginia. 

Virginia ranks 9th in the Most Overall Freedom Ranking; 5th in Economic Freedom Ranking, and 22nd in Personal Freedom Ranking.  To view the complete report and see where your state ranks and it's profile go to:

http://mercatus.org/freedom-50-states-2011

What Are Some Factors & Public Policy Changes That Affect Home Prices?

What are some factors that influence or result in increased home price sales and subsequent appraisals (appreciation)?

Residential (Home) Swimming Pool Safety Tips

Here's a good short video on the basics of residential (home) swimming pool safety

What is "Green Building" Design or Principles? (Part 1)

Over the past decade or so, "Green Building" has become a real estate trade and building industry buzz word that also gets thrown around loosely in the media or press; but how many people really understand what it is?  The proliferation and use of a variety of different [non standard] "Green Building" logos or images also adds to the confusion...

Put very simply, the ideas behind "Green" building, environmentally friendly, or "eco-conscious" building designs have these principles in mind:

Fundamental Core Principles:

*  Environmentally Friendly
*  Energy Efficient
*  Minimize Water Consumption
*  Create/Maintain Healthy Indoor Environment
*  Use Sustainable Materials

Another way to remember or think about it is by using the acronym "RRRR" - The 4 R's or "R-Square"

*  Reduce - use less
*  Reuse [energy or materials]
*  Recycle - make new again
*  Reclaim


See my part 2 Article for specific ways to achieve "Going Green" and a list of some "Ecologically Sustainable Solutions".

Here are some logos which you may see in advertisements or marketing for "Green Building" designs or materials

Understanding Your (FICO) Credit Report Score & Letter Grade (Part 2)

Range of Score Numbers (from which Letter Grades are Derived)

A FICO score is between 300 and 850, exhibiting a left-skewed distribution with 60% of scores near the right between 650 and 799.  According to FICO, the median score is 723. The performance of the scores is monitored and the scores are periodically aligned across scorecards within each scoring model, as well as across the three credit bureaus, so that the score represents the same credit risk to lenders regardless of its source.

Each individual actually has three credit scores for the FICO scoring model because the three national credit bureaus, Experian, Equifax and TransUnion, each has its own database. Consequently, data about an individual consumer can vary from bureau to bureau. Studies point out that people with higher scores have fewer claims. Studies also indicate that the majority of insureds pay less in insurance through the use of scores.

Credit scores may be a little confusing to understand. Even within a FICO score there are additional ratings that may vary from lender to lender.

FICO Credit Score Valuation Letter Grades

720 + excellent      A-credit
650 + good            B-credit
575 + average       C-credit
below 575 poor     D-credit

However, as previously stated, credit ratings may vary from lender to lender. Additionally, those A, B, C, D ratings can become A+, A-, etc. and what for one lender can be a B- for another could be a C+.

Bad Credit Ratings:

Furthermore, A-credit, B-credit, C-credit, and D-credit will be used by subprime lenders and often refer to borrowers with FICO credit scores below 630. In that case A-credit applies to people with 580+, B-credit will be 560+, C-credit will be 530+, and D-credit will be 500+.

VantageScore Credit Rating:

VantageScore was introduced by the three major credit-reporting agencies in 2006. This credit score model ranges from 501 to 990 and also assigns letters from A to F to the different credit score ranges.

VantageScore Valuation Letter Grades

901-990   A-credit
801-900   B-credit
701-800   C-credit
601-700   D-credit
501-600   F-credit

Understanding Your (FICO) Credit Report Score (Part 1)

Source:  http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

What’s in your FICO® score

FICO Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining your FICO score.

These percentages are based on the importance of the five categories for the general population. For particular groups - for example, people who have not been using credit long - the importance of these categories may be somewhat different.

 

Payment History

• Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
• Presence of adverse public records (bankruptcy, judgements, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
• Severity of delinquency (how long past due)
• Amount past due on delinquent accounts or collection items
• Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
• Number of past due items on file
• Number of accounts paid as agreed

Amounts Owed

• Amount owing on accounts
• Amount owing on specific types of accounts
• Lack of a specific type of balance, in some cases
• Number of accounts with balances
• Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
• Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

Length of Credit History

• Time since accounts opened
• Time since accounts opened, by specific type of account
• Time since account activity

New Credit

• Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
• Number of recent credit inquiries
• Time since recent account opening(s), by type of account
• Time since credit inquiry(s)
• Re-establishment of positive credit history following past payment problems

Types of Credit Used

• Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

Please note that:

• A FICO score takes into consideration all these categories of information, not just one or two.
  No one piece of information or factor alone will determine your score.
• The importance of any factor depends on the overall information in your credit report.
  For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your FICO score. Thus, it's impossible to say exactly how important any single factor is in determining your score - even the levels of importance shown here are for the general population, and will be different for different credit profiles. What's important is the mix of information, which varies from person to person, and for any one person over time.
• Your FICO score only looks at information in your credit report.
  However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.
• Your score considers both positive and negative information in your credit report.
  Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your FICO credit score.

"Green" Building Designs

Here are some interesting "Green Building" or eco-conscious, eco-friendly home building designs from Solaleya.

  

Floor Plans ?

Some of the best laid plans are often drawn up on napkins, pieces of scratch, or in the dirt ....

I go to the restroom for a few minutes in a restaurant, meanwhile my "Sayang" is doing this: