Ask Liz Weston

Get smart with your money

Real Estate

Q&A: How to get results when you complain to your mortgage company

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Dear Liz: Last year my mortgage was sold to another company. I didn’t know that I had a new loan number, so my automatic payments weren’t posted properly. With the help of my bank, I was able to sort this out but not before the new company reported me as delinquent to the credit bureaus. I have never been late with a payment in 15 years.

I pleaded with the company to remove the delinquency from my credit report, but they declined, saying their records show that they fulfilled their obligation by notifying me that they are my new lender. Do I have any recourse and what are my options in getting this delinquency removed from my credit report?

Answer: You can try disputing the delinquency with the credit bureaus, but that is a highly automated process. The company may check its records and respond to the bureaus as it did to you, refusing to remove the black mark. It’s worth a shot, but far from guaranteed.

You most likely will need to get to the right human being to help you. Sometimes when you run into a brick wall with customer service, you can turn things around by appealing to someone’s expertise. Asking the customer service rep, “If this happened to you, what would you do to fix it?” may get you pointed in the right direction.

Of course, you may have been talking to a call center worker with little training and even less authority. If that’s the case, ask to speak to the manager. You might also write a letter to the company’s chief executive, asking directly for help.

Another option is to involve regulators. Filing a complaint with the Consumer Financial Protection Bureau or your state attorney general may get results.

A single missed payment can knock more than 100 points off good credit scores, plunging you into the “average” category and causing you to pay more for such things as credit card interest, insurance and cellphone coverage. It may take considerable effort, but it’s worth fighting back.

Q&A: Reverse mortgages have improved but still require caution

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Dear Liz: You’ve written about the potential financial flexibility and options for preserving quality of life for seniors by using a reverse mortgage line of credit. I believe there is a great need for much more cautionary advice regarding reverse mortgages.

Someone I know entered into a reverse mortgage and the consequences have been disastrous. She was barely past the minimum age of 62 when she got the loan and took the lump sum option, only to spend it hastily on various purchases and debts.

Having no income other than Social Security, and almost nonexistent savings, she faces many years of figuring out how to pay property taxes and ongoing maintenance costs to avoid foreclosure. So although she has her home, it’s a precarious situation from year to year. She also no longer has an asset that could be used for long-term care or other expenses because the reverse mortgage makes it unlikely the owner will receive any leftover proceeds after paying off the lender.

Answer: You didn’t say when your friend got her reverse mortgage, but the rules for lump-sum payouts have been tightened under the Federal Housing Administration’s Home Equity Conversion Mortgage program.

In the past, borrowers could take 100% of the loan proceeds upfront. Today, only 60% is typically available in the first year. The total amounts that can be borrowed overall have been reduced as well. These changes were meant to shore up the program’s finances, but they also could lead to fewer situations like your friend’s.

That said, people should be extremely careful about encumbering their homes in retirement. Prospective borrowers have to meet with HECM counselors to discuss a reverse mortgage’s financial implications and potential alternatives, but they would be smart to also meet with a fee-only financial planner.

Q&A: Wife should get her name on deed

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Dear Liz: My daughter, who is a stay-at-home mother of two, recently bought a home with her husband. They have been married seven years. I recently discovered that her name isn’t on the deed to the home. I don’t know why, but it doesn’t sound good to me. What are her potential issues?

Answer: The issues depend on where she lives. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

If your daughter lives in one of those, assets acquired during marriage, including a home, are generally considered community property owned equally by both spouses. Her husband, ideally, should place her on title via a deed to reflect true ownership or place it in a trust to provide for his wife. However, if her husband should die without bequeathing her the property, the home could go to probate proceeding, and the wife would have to provide proof that it was community property to receive all of it, says estate planning attorney Jennifer Sawday of Long Beach.

In other states, different rules apply. Typically assets held in one person’s name are that person’s property. If the husband has a will, he could leave the house to your daughter — or not. Should he die without a will, she could wind up sharing ownership of the house with others, such as children from a previous marriage.

Q&A: Selling a home you’ve shared with tenants

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Dear Liz: I am 53 and own a home in which I live and rent out rooms. Every year I pay my taxes on the rental income and get to deduct depreciation.

How does this affect the taxes I will pay on the home when I sell it? Will I be able to claim the $250,000 exemption? I may live in this home until my death and leave it to my children. How would the rental depreciation affect their stepped-up basis and any taxes they might have to pay?

Answer: Renting rooms is similar to taking the home office deduction in the Internal Revenue Service’s eyes. In both cases, you have to recapture any depreciation, but the business use doesn’t affect your ability to take the home sale exclusion.

The home sale exclusion allows you to exempt from capital gains taxes up to $250,000 of home sale profit. (The exclusion is per owner, so a married couple potentially could exempt up to $500,000.) You’re eligible for the exclusion if you have owned and used your home as your primary residence for at least two years out of the five years before the sale. You will have to pay income taxes on the amount of depreciation you deducted over the years. That depreciation amount is added back as income on your tax return.

If the space you rented out had not been within your living area — if it were a separate apartment or retail space — then different rules would apply.

If you decide to bequeath the home at your death rather than selling it, your heirs won’t have to pay the depreciation recapture tax — or capital gains taxes on any appreciation that took place while you owned it. Instead, the home’s tax basis will be “stepped up” to its current market value.

If they sell it soon after inheriting it, they won’t owe much if any tax on the sale. If they hang on to it before selling, they’ll owe taxes only on the appreciation that took place while they owned it. If they move in and make it their primary residence, they too could qualify for the $250,000-per-person home sale exclusion once they have owned the home, and used it as their primary residence, for at least two of the five years before they sell it.

Q&A: You may be good with money, but if sister didn’t ask your opinion, butt out

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Dear Liz: My sister and her husband are in their 80s. They are not in the greatest health but still able to live on their own. They’ve had some bad luck financially in the past. Last year they decided to convert part of their property to serve as a short-term rental. I questioned the advisability and legality of this. I was told they had checked and it was all right legally. They proceeded, but it wasn’t legal and their homeowners association shut them down. They have now decided to rent the space month-to-month through a property management firm as the HOA will allow rentals of one month or longer.

I shared my experience with rental property, which has been very mixed. Busybody that I am, I also provided information from a friend whose family had invested in rental property. My brother-in-law insists that he had a good experience many years ago with rentals. Am I wrong to call this a bad idea? Should old people try to recoup the money they put into their ill-advised initial rental attempt with another ill-advised rental attempt?

Answer: The answer to both questions is most likely, “It’s none of your business.”

You didn’t indicate anywhere in your letter that your sister or brother-in-law had sought your opinion. You also didn’t mention any signs that they may suffer from diminished capacity or any other cognitive problem that would require intervention.

What you did do was call yourself a busybody. You might want to reflect on what causes you to repeatedly offer advice to people who aren’t interested in hearing it. Those of us who are “good with money” often feel justified in lecturing those who aren’t, or who have had (as you put it) bad luck financially. Our advice is seldom welcomed, though, and can be more about making ourselves feel superior than really helping someone else. Giving unsolicited advice is actually a terrible habit, and a hard one to break since it’s so deliciously enjoyable (although not for the recipient, obviously).

If we want our opinions to truly matter, we should be more sparing with them. We can start by proffering advice only when it’s specifically requested. When we’re tempted to make an exception to this rule, we should do so only after careful thought and preferably after consulting with a friend who already is in the habit of keeping her opinions to herself. We’ll likely discover what she’s already learned, which is that our meddling usually isn’t appreciated.

Q&A: Get your credit score ready for the home-buying process

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Dear Liz: What score do you need to be approved for a mortgage? Is 520 even close? If not, how do I get that score higher quickly?

Answer: A score of 520 on the usual 300-to-850 FICO scale is pretty bad. Theoretically, you might be able to get a mortgage if you can make a large down payment, but you’ll have more options — and pay a lot less in interest — if you can get your scores higher.

That, however, takes time. You need a consistent pattern of responsible credit behavior to start offsetting your mistakes of the past. If you don’t already have and use credit cards, consider applying for a secured credit card, which requires a cash security deposit, typically of $200 or more. You’ll get a credit limit equal to your deposit. Using the card lightly but regularly, and paying in full every month, can help your scores.

A credit builder loan, offered by credit unions and the online company Self Lender, is another way to improve your credit while building your savings at the same time. The money you borrow is put into a savings account or certificate of deposit that you can claim once you’ve made 12 monthly payments. Making your payments on time helps improve your credit history and scores.

Taking a year to build your credit also would give you more time to save for your down payment and for closing costs. Rushing into homeownership is rarely a good idea, so take the time you need to get your financial life in order first.