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Inherited properties need not be refinanced
By Robert J. Bruss, Special to the Times
Published September 8, 2007
Q: I inherited my mother's properties, single-family rental houses that all have mortgages. I was told by several real estate professionals that I must refinance these loans. Where can I find the law that says I can just change the name on the mortgage as well as the Social Security number for tax purposes? A: You don't have to change the name or the Social Security number on the mortgages, nor do you have to refinance. Just keep making the payments. Any lender who tries to enforce a due-on-sale clause in the current buyer's market is crazy. If the property was owner-occupied, the lender cannot enforce the due-on-sale clause, thanks to the federal Garn-St. Germain Act, since you are a child of the deceased owner. However, because you don't live in the property, the lender could try to bluff you into paying an assumption fee. Only if the lender demands an outrageous assumption fee and insists on raising the interest rate should you consider refinancing. If the mortgages have attractive interest rates and terms, just keep making the payments. Don't call the lender's attention to the situation. Your mortgage interest will be tax-deductible because your name is on the property title. It need not be on the mortgage obligation. An expensive lesson Q: I rented a house to a tenant for a year on a written rent-to-own agreement with a specified option price. I charged him $3,500 for this exclusive option to purchase. The tenant did not exercise his option and moved out after a year. He then sued me for return of the $3,500. I hired an attorney, who agreed with the tenant that I must return the $3,500 since the agreement did not specify the money was not refundable. Was it really necessary that I state the option money was nonrefundable? A: Yes. Because you failed to state that the $3,500 option money was not refundable, it looks like an ordinary refundable security deposit. If the matter goes to trial, you can explain to the judge that it was option money and option money is not refundable. However, the judge is likely to rule that it was really a security deposit and you must refund it to the tenant. Fortunately, it's not a huge amount, but it reminds us to be crystal clear when writing lease-option agreements. You can send e-mail to Robert J. Bruss by visiting his Web site, www.bobbruss.com. Click on "Ask Bob a Real Estate Question." Or write to Robert J. Bruss, 251 Park Road, Burlingame, CA 94010.
[Last modified September 7, 2007, 10:39:45]
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