Negative-amortization loan robs homeowner of $23K a year

By Bob Bruss

October 08, 2007

Editor's note: Robert Bruss passed away on Sept. 26, 2007. This was one of the last real estate columns he wrote. Inman News is publishing Bob's last work as a final salute to the nation's most well-known real estate writer.

DEAR BOB: I have a negative-amortization mortgage on a new house in Naples, Fla. It is now worth $140,000 less than when I bought it in January 2006. I am losing about $23,400 each year and will have to take out a $60,000 second mortgage to sell or refinance. Should I stop making mortgage payments and allow a foreclosure to occur? I feel that is my only choice. --Susie T.

DEAR SUSIE: As you knew when you obtained that "negative am" mortgage, you had a very low monthly payment. The unpaid interest portion of each payment was added to your mortgage balance. The result is you owe more than you originally borrowed.

Purchase Bob Bruss reports online.

Just because a property has lost market value after purchase doesn't mean its owner should walk away. When you bought the property you could afford the payments. That hasn't changed.

Keep making the mortgage payments as you agreed to do. If you default and stop making payments, your credit will be ruined and you will lose the property by foreclosure in a highly desirable city.

SPOUSE WITH DEMENTIA UNABLE TO SIGN CONDO SALES PAPERS

DEAR BOB: My wife and I own our condominium mortgage-free. I would like to sell. But my wife has dementia and is unable to sign the condo listing and sales papers. I am able to manage our affairs, but I do not have a power of attorney for her. What would I need to do to sell our condominium? --Terry P.

DEAR TERRY: I am sorry to learn about your wife's dementia. If both of you had placed your major assets, such as your condo, stocks and bonds, and bank accounts into a revocable living trust when she was in good health, then you could sell the condo today as the trustee without the need for her signature now that she is incapacitated.

Since you don't have a durable power of attorney from your wife or a revocable living trust, the only alternative is to have a court-appointed conservator represent her interests. To have a conservator appointed by the local probate court you will need to hire a probate attorney.

WHAT TO EXPECT WHEN FINAL MORTGAGE PAYMENT IS MADE

DEAR BOB: In May 2008 we will make the final payment on our 30-year mortgage. Is there any advice you can give us since we will no longer have an escrow impound account for homeowners insurance payments and property taxes. What should we expect when we make that final mortgage payment? --Travis C.

DEAR TRAVIS: Congratulations on planning for your final mortgage payment. After you mail that final payment to the lender, be sure to contact the local property tax collector and your insurance agent to have the bills sent directly to you. It will be a big change for you to make those payments directly, as millions of other homeowners do, but I'm sure you can adjust.

After making your final mortgage payment, be sure the lender records either a Satisfaction of Mortgage or a Deed of Reconveyance. Some lenders automatically do this for their borrowers. Other lenders send the notarized document to the borrower and let the borrower record it.

Either way, follow up to be certain this very important document gets recorded with the local recorder of deeds so your property title will be clear of that mortgage.

THIS IS NOT A GOOD TIME TO BE A "FOR SALE BY OWNER" HOME SELLER

DEAR BOB: What do you think of homeowners selling without a real estate agent to save on the sales commission if they are already "upside down" on their mortgage? --Kevin J.

DEAR KEVIN: It's hard e