Expert: Dick Dennis - 9/11/2006

Question
I have a couple of mortgage problems that I am hoping that you can help me out on.

First of all I live in California. I hope you are familiar with the real estate here. My husband and I have been looking to buy a house for some time. We were pre-approved for an 80/20 loan with 100% financing. We need to verify six months reserve. We found a house that we liked. It was a fixer. Everything seemed to be going good, until our lender said that we would need 20% down because the property was on over an acre. So then we found a local lender. She was unable to approve us without a down. Plus we have to go stated because my husband started a business last year.
Now our father is going to take out the loan for us and we will be living there and making the payments and repairs. The loan lady said that my husband can be added to the title after the close of escrow. Is this true? And how will this secure our claim on the house? I am just really worried that we won't be able to get a tax write off for the mortgage payments and interest. I am not worried about the building materials to fix it up. My husband can write off all of that stuff under his business. I was reading some where that the bank can call the loan if someone else is making the payments. Our lender also said that she has heard that if someone else is making the payments, that they can be written over to them and they will get the tax break. I just am really worried about all of this. My husband says that in two years we will just get the loan in our name. what if something happens to my father? then what will happen. If you could give me some answers and guidance that would be great!! thank you.

amy

Answer
First of all, Amy, I have been a California broker since 1971. There is very little in real estate with which I am not familiar. I will address each question you have as I approach them.

You said, "The loan lady said that my husband can be added . . ." I am sure you meant, my father can be added. And that is correct. Your father must be on title if he is going to be at least partially responsible for the loan. You can make the payments just as I am sure you intended. Later, if you want you may have your father removed from the title of the property by having him sign over a quit-claim deed to both of you. However, that does not release your father from responsiblity of the loan.

As your husband indicated, later on you can refi the property without your father and no sweat. As for using your payments for your tax returns, just make sure you have all the necessary documents and checks to prove that it was YOU who made those payments. Then you should have no problem with the IRS as to depreciation, deductions, etc.

If your father is indeed going to make the payments, then you're going to have a little harder time with the IRS. You don't have to worry about "someone else" making the payments, especially in your case, because your father will be on title with you.

Since you are concerned with your father, I strongly recommend (after you get the loan and the property) you deed the property over to a revocable living trust. The head trustee(s) would be your father, or you two. If something does indeed happen to your father, there will be no trouble because nothing has happened as far as the property is concerned. It is still in the name of the trust. Whoever is the successor trustee would continue on to manage the property and make the payments. I strongly suggest you counsel with a local REAL ESTATE attorney to make sure this all goes down correctly.

I believe I have knocked down a few concerns for you. I do wish you well.

Dick Dennis               dixiedee13@aol.com