When Co-signing a Mortgage Goes Wrong

Q: DEAR BOB: About two years ago, I helped my daughter buy a one-bedroom condo by cosigning her mortgage. She was just out of college with a good job at an accounting firm. About 18 months ago, she quit that job because she didn't like her boss. Since then, she hasn't been able to find another job that pays as well. She is now three months behind on her mortgage payments, plus the monthly condo fees. I didn't know about this until I recently applied for a car loan and the dealer told me I was three months late on my mortgage payments and my FICO credit score is now about 600. This was news to me, as I always had a good FICO score of more than 700. Now I learned from my daughter the mortgage lender has started foreclosure. What can I do? How can I get my name off the title?

-- Andrew S.

A: DEAR ANDREW: If your daughter is now working and has enough income to make the monthly mortgage payments, she should contact the mortgage lender to work out a forbearance agreement to stop the foreclosure. If that is not possible, she should sell the condo to pay off the mortgage. Let the lender know when it is listed on the market for sale with a real estate agent.

Your situation shows the sometimes-bad results of cosigning a mortgage for an irresponsible relative. Your daughter not only ruined her credit, but also ruined yours. Even if you sign and record a quitclaim deed to your daughter to get your name off the title, you are still obligated on that mortgage. There is no way for you to get out of that. If it goes to foreclosure, then you will have a foreclosure on your credit report.

DEAR BOB: What can I do with a real estate agent who refuses to cancel my listing? The reason to terminate is that my agent is hard to get in touch with and she doesn't respond to my phone calls. -- Delia F.

DEAR DELIA: There is no valid excuse for your listing agent not to return your phone calls or e-mails within 24 hours. However, that alone is not a reason to cancel your listing. Lack of due diligence is the most valid reason to cancel a listing. For example, if she didn't put your listing into the local multiple listing service, failed to put it on the national Web sites and didn't properly market your home, that would be lack of due diligence.

But rather than trying to prove lack of due diligence, a better alternative is to contact the listing agent's supervising broker and ask to transfer your listing to a better agent within the same brokerage firm.

Presuming you still want to sell your home, your home will then be properly marketed, the listing agent will get a referral fee after your home sells and everyone should be satisfied.

DEAR BOB: My parents have a quitclaim deed on their home, naming all seven of their children. Their home is worth $250,000; they paid $40,000 many years ago. Four of the seven children live out of state. Two brothers live close by and would probably take occupancy as their primary residence after mom and dad die. Can tax be avoided if the two brothers take title as their residence? Should it be put in their names now? -- Mary Beth U.

DEAR MARY BETH: Forget about that quitclaim deed idea. I hope it wasn't recorded. Ask your parents to tear it up. Instead, they should put the title to their home into their revocable living trust to avoid probate after they are both gone. Also, if one becomes incapacitated, such as by Alzheimer's disease or a severe stroke, the other can still manage the property, even selling it if necessary.

After they both die, presuming the living trust leaves the house and other living-trust assets to all seven children, you all will inherit it at the fair-market, "stepped-up value" on the date of the last co-owner's death.

Then you can sell the house to the two brothers and owe little or no capital gains tax. Putting the brothers' names on the title now would be a major mistake that could have costly tax implications. Consult a lawyer specializing in living trusts.