Ask Liz Weston

Get smart with your money

Q&A

Q&A: Naming co-executers

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Dear Liz: Is it legal for my parents to appoint me co-executer of their estate, along with my sister, without asking me first if I was okay with this, and keeping me as co-executer after I told them I do not want the responsibility? My sister is more intelligent and competent than I am and would do a better job of this by herself.

Answer: Your parents can name pretty much anyone they want, but that doesn’t mean you’re legally obligated to accept the role when they die. You’ll have the right to decline.

If your parents don’t name an alternate, your sister may be allowed to serve on her own or another executor may be appointed by the court, depending on how the will is written.

Obviously, your parents are being short-sighted by trying to force you to serve when you’ve made your feelings clear. Being an executor can be a time-consuming, complex and often thankless task that shouldn’t be foisted on anyone who’s not willing. If they don’t trust your sister to function alone, they should name someone else—and get that person’s permission before they do. It’s smart to name an alternate or two besides, in case their choices also decide they don’t want to serve.

Q&A: Removing a quit-claim house mortgage from your credit

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Dear Liz: I recently divorced and quit-claimed my house over to my ex-wife. She has been making all the payments on time but the mortgage still shows up on my credit. Because of this, I can’t borrow as it is considered my indebtedness still. Do you know of anyway of having it expunged from my credit reports?

Answer: She will have to refinance the mortgage in her own name to get you off the loan. The contract you signed with the lender otherwise remains in force and isn’t affected by the divorce agreement.

It’s good that she’s making payments on time, since a single skipped payment could trash your credit scores.

It’s unfortunate your attorney didn’t advise you of the consequences of quit-claiming the property while remaining on the mortgage. It’s rarely a good idea to give up an asset while keeping the liability. A better approach is to separate your credit before the divorce is final. That means closing all joint accounts and transferring the debt to separate accounts in the name of the person who will be responsible for the payments. If your ex wasn’t able to get approved for a refinance, the house could have been sold so that you wouldn’t be on the hook indefinitely.

Q&A: How to get rid of home-equity loan headaches

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Dear Liz: We have taken several withdrawals from our home equity line of credit. Now the balance is close to $100,000. It’s the interest-only type. We don’t know how to pay off this amount systematically. Can you help?

Answer: As you’ve discovered, it’s not a good idea to pledge your home as collateral when you don’t know how you’ll pay off the debt. Home equity lines of credit can be an inexpensive way to borrow initially, but the interest-only period doesn’t last forever and eventually your payments will get a lot more expensive.

Many homeowners who tapped their equity before the financial crisis are discovering this fact — and some risk losing their homes. The initial “draw” period where you pay only interest typically lasts 10 years. After that, you can’t make further withdrawals and you’re expected to pay both interest and principal over the next 20 years. Your payments may jump 50% or more, depending on prevailing interest rates.

A better way to use HELOCs is for short-term borrowing that’s paid off well before the draw period expires. If you can increase your current payments to do that, you should.

If you can’t make pay more than your minimum, though, you’ll need to explore other alternatives. You may be able to arrange a cash-out refinance that combines the HELOC balance with your current mortgage and gives you 30 years to pay it off. If not, you can make an appointment with a housing counselor (you can get referrals at www.hud.gov) to see what options may be available to you as a distressed borrower. If you can’t restructure the debt, a short sale or a deed-in-lieu of foreclosure may be a better option than letting the lender take your home.

Q&A: Getting through to Social Security

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Dear Liz: I read your article about checking your Social Security earnings record and benefits. I tried to set up an account with the Social Security Administration to track my retirement benefits (I turn 65 in December). Apparently the Social Security Administration will only text a required security code to a cellphone. I do have a cellphone but live in an area with very sketchy reception. I couldn’t get a signal the day I tried to set up the account. Do you have any suggestions about an alternate source or method for accessing my benefits?

Answer: The Social Security Administration briefly required people to use a one-time code sent to their cellphones in order to set up an online account. You weren’t the only one who was having trouble with this new hurdle, and the administration has since dropped the requirement.

People still have the option of getting and using a code if they’re comfortable doing so. This so-called two factor authentication — which uses both something you know, such as a password, and something you have, such as a code sent to your phone — is a smart idea for any sensitive online account. Banks and brokerages should offer this option to further protect customers’ security, but many of them don’t.

By the way, the Social Security Administration allows only one account per Social Security number, so you’d be smart to continue setting up your account. That will prevent someone else from doing so and making unauthorized claims or changes.

Q&A: Free credit score? Be careful

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Dear Liz: As a financial planner, I am surprised you pointed someone in the direction of paying for a credit score. Your score can be accessed at several credit sites for free. Why would you want your readers to pay for something they could get free? 

Answer: As a financial planner, you should understand that “free” is a squishy concept.

Some sites do offer free credit scores in return for your private financial information, including your Social Security number. Most of these sites are committed to protecting your information — the credit bureaus they’re working with insist on that — but the sites may use your data to market financial products and services to you. As the saying goes, if something on the Internet is free, then the product being sold is you.

Many people are comfortable with that trade-off. Others aren’t. The other and perhaps more important reason to buy your credit scores from MyFico.com is that you’ll be getting numbers created from the same FICO formulas that most lenders use. The sites handing out free scores typically offer VantageScores, which is a FICO competitor. This particular reader wanted to see the auto FICO scores his lenders would use, and for that the best source is MyFico.com.

Q&A: Getting a new mortgage after a foreclosure

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Dear Liz: Is it true that we can’t refinance our home until seven years after a foreclosure? We lost a rental property six years ago. Our credit scores now are in the 740 range, and we are anxious to take advantage of lower rates since our mortgage rate is 5.75%. Other than the foreclosure, our credit is perfect.

Answer: As foreclosures surged, the agencies that buy most mortgages increased the amount of time troubled borrowers had to spend in the “penalty box” before being allowed another mortgage.

Fannie Mae and Freddie Mac still have a seven-year waiting period after foreclosures. But that has been shortened to three years when borrowers can prove “extenuating circumstances,” such as a prolonged job loss or big medical expenses. Waiting times for other negative events, such as bankruptcy or short sale, have been reduced to two years with extenuating circumstances. Otherwise, it’s four years.

There are other loan programs that are even more forgiving. For example, the FHA has a three-year waiting period that can be shortened to one year if borrowers participate in its “Back to Work” program, which requires they document a significant loss of household income, that their finances have fully recovered from the event and that they’ve completed housing counseling. The Veterans Administration, meanwhile, makes loans available one to two years after foreclosure.