DAVID W. MYERS: Best of About Real Estate: Bank can't automatically call in loan after a divorce
A federal law prohibits lenders from demanding immediate repayment of a mortgage solely because a couple divorces or one spouse dies.
DEAR DAVE: You recently answered a question from a man who is getting divorced, and told him that he will remain liable for the mortgage on the home that he is quitclaiming to his wife unless she refinances the property in her name only. My ex-husband is about to quitclaim his half-interest in our home to me, too, but does our lender even have to know that we're getting divorced? If the bank finds out, can it order me to pay the loan off in a single lump sum?
ANSWER: The lender must indeed be notified of the pending change in ownership, but federal law prohibits it from demanding that the loan immediately be paid off in a lump sum.
Virtually all mortgage contracts today include a clause that requires borrowers to notify their lender if a change of ownership occurs. The plan to have your soon-to-be ex quitclaim his half-interest in the home to you is covered by this provision, because you will then own 100% of the property rather than 50%. Call your bank's customer-service department to see if it needs any formal paperwork.
The federal Garn-St. Germain Depository Institutions Act of 1982, however, specifically prohibits the bank from demanding that you pay off the loan simply because of the pending divorce. It also bans lenders from demanding immediate full payment under certain other circumstances — including the death of a co-owning spouse if the survivor will remain in the home, or the transfer of the property into a money-saving living trust if the owners will continue residing in the house.
Of course, the lender retains the right to demand that you immediately pay off the loan in a single lump sum and then can initiate foreclosure proceedings if you fail to make the monthly mortgage payments on a timely basis. But you have nothing to worry about as long as you keep your payments up-to-date. Talk to a qualified attorney for details.
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DEAR DAVE: We have some nasty oil stains on the cement floor of our garage, and all the scrubbing we've done hasn't been enough to get the stains out. Do you have any ideas to get rid of them?
ANSWER: Probably the best and safest method is to scatter some store-bought kitty litter on the stains to soak up any excess oil. After sweeping it up, add some hot water to a cup or two of dry dishwasher or laundry detergent and use the resulting paste to scour the stains with a stiff brush before rinsing the spots with a garden hose.
If that doesn't work, you can spray the stains with a commercial oven cleaner and then start scrubbing after letting the foam stand for several minutes. But remember that most oven-cleaning sprays have potentially dangerous chemicals in them, so keep children and pets away from the stains that you have scrubbed and then rinse the area thoroughly.
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DEAR DAVE: My wife and I are interested in forming the type of inexpensive living trust that you recently wrote about so our kids can inherit our home quickly when we die instead of spending lots of time and money in probate court. But if we create a trust, would we have to file the trust documents with the courts or the state?
ANSWER: Probably not. A trust is essentially a private document, so its creation does not need to be reported to the courts or other agencies. And, unlike a common will, details of a trust that you create will not be subject to inspection by the general public after you die — an important benefit if you would like to keep your final wishes away from prying eyes.
A few states have laws that technically require the registration of a newly formed trust, but none of them has ever imposed a penalty on those who ignored such a requirement. Judges also are loath to set aside a trust that was created by homeowners who leave their property to their kids or other heirs, provided that the trust was made when at least one co-signer had the mental capacity to sign it.
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DEAR DAVE: My wife and I found a condominium that we would like to buy. We're worried about making an offer, though, because the bylaws of the development's homeowners association give the board of directors "right of first refusal" to purchase any unit that goes up for sale. Is this a common provision? Should we be worried?
ANSWER: Your concern about giving the board right of first refusal to purchase the condo is justified.
A growing number of HOAs across the nation are demanding such rights. On its face, the trend seems harmless enough: Many buyers think it simply allows the board to match an offer that an individual might make when an owner eventually decides to sell.
Unfortunately, some associations are now being accused of using their first-refusal rights to wrest costly concessions from sellers or even to screen out prospective buyers that the board simply doesn't like. Most lenders are aware of such potential problems, and some will no longer finance units in a development that's covered by an HOA's first-refusal provision.
A lack of broadly available financing could hurt the unit's eventual resale value, too, because future buyers might be forced to pay "all cash" to close the deal — and they likely would demand a deep discount of the home's offering price to do so.
Our booklet "Straight Talk About Living Trusts" explains how even low- and middle-income homeowners can now reap the same benefits that creating an inexpensive trust once provided only to the wealthiest families. For a copy, send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960. Send questions to that same address and we'll try to respond in a future column.