Voluntary foreclosure might be best action for couple

DEAR BRUCE: We are in our 70s. We purchased a unit in a retirement community just before the bubble burst. The lender was more than happy to help us figure out a way to qualify.

We were naive enough, though we should have known better, to fall for his brilliant sales pitch.

We were homeowners many times before returning to California after a six-year stint in the state of Washington.

We were reluctant to part with all of our resources for a down payment; hence the creative financing our lenders gave us. We have a first mortgage at a decent rate that will balloon in 12 years and a second at a higher rate that will be due in seven years.

We had enough going in the stock market to enable us to pay off the second this year, which was the soonest we could.

You know how that went. We lost enough so that we don't have enough to pay it off, and our income isn't adequate now.

Should our health remain as good as it is, we could live well beyond that time.

If I am left on my own before then, I would lose everything, as my income would drop to a third of what it is now. At the rate we are having to dip into what savings are left, we stand to lose it all, perhaps before the seven years are up.

Should any of the above occur, would the lenders be able to attach any funds which might be left?

Also, do you know of any recourse that might be open or open in the future for us to be able to save our sanity and our security?

Our home's value has dropped more than $100,000. Please don't tell us how stupid we were. — B.T., Camarillo, Calif.

DEAR B.T.: What you didn't tell me was how much this home that you purchased, which could be considerable in California, is now worth.

What I'm suggesting is, if you have equity in the home of any sort, you might very seriously consider selling the house.

If enough would be generated to pay off all of the mortgage indebtedness.

If it is not, and it is very considerable, then you might wish to consider a voluntary foreclosure.

If that would not be acceptable to the lender, then a bankruptcy.

I know this is not what you wish to do, but I suspect that your payments are very considerable, and if the home is under water (worth less than you owe on it) given your age, you may never recover in your lifetime. This is a tough circumstance, but you indicate that your income is inadequate. You might be better advised to take this huge hit. Do that math or have someone do it with you. If you wish to get back to me with specific numbers, I'll take a shot at it.

DEAR BRUCE: Our son purchased a condo 31/2 years ago. It was supposed to be built in a year but turned out to take more than three years to complete. He was supposed to get a VA loan, but there weren't enough condos that sold, so the VA would not fund a mortgage. Then something else went wrong, and there is a lien on the building from a contractor. The condo people stated the money was paid, but the lender wouldn't fund the loan until they could see the paperwork. Is this a bad investment? Should he take the loss of his down payment and upgrades he put into the condo, or should he continue to try to get ownership? — C.B., Beverly Hills, Fla.

DEAR C.B.: Is he represented by counsel? If not, he should get an attorney now. You didn't tell me how much of a down payment he made, and I assume that he gave extra money for upgrades. It would appear that the builder is in trouble and the condos are not selling. What happens if he does get in and buys the condo and most of the units are unsold or many people are not paying their condo assessments? This can cost him not only a great deal of trouble but also a great deal of money. I would take a hard look at all the numbers. I'd want to know the financial condition of the condo association and the current value. It may well be that these things are not worth what he agreed to pay for 31/2 years ago. He should not sign anything until he has had an attorney review this entire transaction.

DEAR BRUCE: I am married to someone who has three kids from a previous marriage. My husband was still obligated to pay child support when I met him. After we were married, I started filing my income taxes as "married, but filing separate." Several years ago, my husband broke away from his father's business and started his own. I recently discovered that he had not been filing all of his income taxes. I am not a part of his business in any way because I kept my name off of his business documents. I have my own bank accounts and retirement savings, and our finances are separate, except for our home, time share and my car. Will I be liable for any of his tax debt, and will it be wise to have the home, time share and car titles changed to my name only? — Worried and Anxious, via e-mail

DEAR WORRIED: That you never filed a joint return will very likely be in your favor, as will your separate banking accounts, etc. However, your home is jointly titled, and if there is a mortgage on that home, you will not be able to put it in your name, even if he acquiesces, until the mortgage is satisfied. The same thing is true with a time share and any debt on the car. As to whether you'll be liable for any taxes, that is a question that only a competent accountant who has access to all of your records can answer accurately. I urge you to seek that advice. Whether the items that you have mentioned can get or deserve protection is another matter.

Send your questions to: Smart Money, P.O. Box 2095, Elfers, FL 34680. E-mail to: bruce@brucewilliams.com. Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.

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