DEAR BOB: Due to a job location change, I will soon sell my present home and buy another. I've noticed that some real estate newspaper advertising says "mortgage takeover." This appears to be a way to avoid having to go from my present 6 1/2 percent interest rate mortgage to one of 13 percent or more. Do mortgage lenders have to honor a request for a mortgage takeover? E.O., District Heights.
DEAR E. O.; You've brought up a hot topic in the real estate world. Obviously, it's better for a home buyer to take over payments on an old 8, 9, or 10 percent interest rate mortgage than to get a new one at today's climbing interest rates. While some progressive lenders don't care if buyers do this, others militantly fight such takeovers.
For example, in a famous 1978 California Supreme Court decision, the Bank of America lost such a takeover fight with Cynthia Wellenkamp. The dispute was over a mere $16 per month additional interest. The judgment cost Ban of America and other California lenders millions of dollars because the decision virtually stopped mortgage lenders from increasing interest rates when a property is sold.
Many lenders still use the infamous "due-on-sale clause," as the Bank of America tried to do, which blackmails the property buyer to either pay the lender's demanded higher interest rate or the lender threatens forclosure. In other words, by virtue of a fortuitous property sale, the lender hopes to profit with no added benefit to the borrower.
Courts in Alabama, Arizona, Arkansas, California, Florida, Michigan, Washington and Wisconsin, and the state legislature of Colorado, have limited the ability of lenders to enforce due-on-sale clauses. Federal savings and loan associations argue that they are exempt from these state rulings and laws, but the issue isn't settled yet.
If you want to take over payments on an old mortgage without an interest rate increase, ask an attorney in the state where you want to buy your next home if it's possible there. Watch for new legislative and court changes in this area of keen consumer interest.
DEAR BOB: We are selling our old home for about $110,000 and will buy a more expensive one. Should we get the largest mortgage we can afford or should we pay as much cash downpayment as possible so our mortgage payments will be small? Scott M., Annapolis.
Dear scott: gEt the biggest mortgage you can afford. Reasons for doing so include 1) repayment is cheaper, inflated dollars worth less than today, 2) easier resale if you home has a large mortgage at resale time 3) maximum income tax savings for the interest deduction and 4) you can invest the cash for your home sale without paying tax on it.
Your profit on the sale of your former principal residence is tax deferred if your replacement costs more than the sale price of your old home, providing it is bought within 18 months before or after the sale. Your tax adviser has details.
DEAR BOB: We offered $108,000 for a house. The seller didn't give us an answer. About a week later she said she got a $110,000 offer but she would let us buy for $112,000 if we will improve our offer. Is this technique legal? Linda O., Oxen Hill.
DEAR LINDA: When you made your $108,000 purchase offer, you should have set a time limit for its acceptance, such as one or two days. It appears you didn't do this, so the seller "shopped" your offer.
There is nothing illegal about this. Now she is shopping the $110,000 offer. The only way to stop offer shopping is to put a short time limit on your purchase offers.
DEAR BOB: We bought a Florida condominium where we hope to retire in two years. In the meantime we plan to rent it to tenants. When we looked at the condo, we told the agent that we have a poodle and that our grandchildren will probably visit us from time to time. She assured us this was no problem. But when we got home and read the bylaws, after the sale closing, we found out that owning pets must be approved by the board of directors and children under age 14 cannot visit for more than two days. Should we sue the agent for misrepresenting the condominium? Morris M., Fairfax.
DEAR MORRIS: See your attorney. A copy of the condominium bylaws and rules should have been given to you before purchase. Since the agent was aware of the dog and grandchildren, she should have checked to be certain that they were allowed without restrictions. You may have grounds for recission of the sale and refund of your money.
DEAR BOB: At today's high interest rates, there is no way we can qualify to buy a home if we have to get a new mortgage. One realty agent we talked to suggests when we find a home we want to buy that we make an offer which asks the seller to carry an "interest-only" mortgage for 10 years with a balloon payment due at that time. Is this a good idea? Sue F., Alexandria.
DEAR SUE: Yes. Interest-only mortgages minimize your monthly payments. All of your payments will be fully tax-deductible as itemized interest. Since very little mortgage equity buildup occurs on an amortized loan in the early years from principal payments (most equity buildup comes from market value appreciation), you really won't be at a disadvantage. You've got a smart real estate agent who understands creative finance techniques.
DEAR BOB: I am Chinese. We have a family tradition of helping family members who need financial aid. One of my nephews needs to buy a house for his growing family. I have been asked to loan $5,000 toward the down payment, which I am willing to do. My nephew suggested that my name and my wife's name be put on the deed as joint tenants. Is this legal? H. C. Washington.
DEAR H. C.: There is no limit to the number of joint tenant co-owners of property. I've seen up to 12 Chinese co-owners in situations like yours. Presumably, each contributed toward the occupant's down payment.
But rather than use joint tenancy with right of survivorship, where the last surviving joint tenant gets full title to the property, it might be better to take title as tenants in common. That way each co-owner's share is specific, such as one-fourth or one-eight. When your nephew repays your loan, then you can sign over your ownership share to him. Talk it over with your attorney.