What to do inherited second home w/ mortgage and equity loan?

sandyinvaJune 5, 2011

My father placed his summer house in Cape Cod in my name with a quick claim deed 8 years ago. He took out an equity loan a couple of years ago, and over that time, borrowed $48,000 before he died in January. My husband died unexpectatntly in March, and I think my best plan now is to sell it. It is going on the market in July, as soon as we change old carpet, replace a window, trim, etc. In the event that it doesn't sell in a range that works for me, I will rent it for the year, and try again next spring.

If I have to rent it, I wanted to look into refinancing. Current mortgage is $1363, house was appraised at $409, the principal on the loan is 138,000.

I need to know what to do with the equity loan. It's $120 a month, I have been paying $200 a month to reduce it out of my checking account. My son says I should pay if off out of my savings, that I will get it back when it is sold, b/c I am going to have to pay it off one way or the other. I'm hesitant to take such a large chunk out of savings.

My brothers say if we have to rent it for a while, then to refinance both loans into one. It sounds too simplistic, and can that actually happen so the $48,000 is worked into a refinance, and if I were to sell it later, than I have escaped paying it off?

Thanks in advance,

Sandy

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sandyinva

Just realized that if it is refinanced then it will be added onto the current principal, raising it to about $200K, it doesn't come out of my pocket, put decreases what I would get back in a sale. My goal is to purchase a smaller home for myself on the Cape after the sale of this home. How do I determine which would be the best option?

    Bookmark   June 5, 2011 at 2:32PM
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feedingfrenzy

I don't think you need to do anything right now. If the house sells at a satisfactory price, then both the first mortgage and the equity loan balance will be paid off at the closing, and the balance (minus agent's commission, if your using one) will go to you.

You definitely should NOT pay off the loan with your savings. That cash provides you with financial flexbility that you will lose if you pay off the loan. A recent widow should hang on to her cash reserves until life settles down and her financial situation becomes more certain.

If the equity loan is a HELOC with a floating interest rate and the house doesn't sell by the end of the summer season, you probably should do a refinance and combine both loans into one so that you don't have to worry about the possibility of rising interest rates inflating the size of the HELOC payments.

    Bookmark   June 5, 2011 at 8:11PM
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Billl

You really need to see a lawyer with help settling the estate. I find it hard to believe that your father took out a loan backed by a property he had already deeded to you. If any lender was foolish enough to do that, you may not owe them any money. Whatever you do, don't consolidate the loans until you have all the legal issues settled for the estate. Once you put loans into your name, you owe the money no matter what.

    Bookmark   June 6, 2011 at 9:04AM
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azmom

You also need to see a TRUSTWORTHY CPA or a financial planner to take an integrated look at your entire financial picture.

You did not provide enough details for us to determine if the numbers you listed here regarding the house related loans are accurate, let alone to recommend what approach you should take in handling this house. By listening to your son and your brother to make decisions on your finance is not a good idea. You need to educate yourself.

    Bookmark   June 6, 2011 at 10:31AM
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jkom51

Yes, you need to talk to an expert fiduciary. For one thing, you need to know your tax liability because you probably don't qualify for a step-up basis, should there be substantial equity in that house.

With such a specific financial question, you should never be looking for advice from amateurs or anonymous Web forums. Making a mistake can literally cost you thousands, because the only 'skin in the game' in this case, is your own.

    Bookmark   June 8, 2011 at 5:51PM
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vala55

I agree you need to see an estate lawyer. I don't see how he could have gotten a loan unless he failed to file the quick claim document. something is wrong here.

    Bookmark   June 8, 2011 at 8:32PM
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sandyinva

Rest assured, I have been in contact with a financial planner concerning my 401 K's, emergerncy savings, etc, and continue to be so.

My brother seems to think my father was given the option of the equity loan at the time he purchased the house. I am faxing a letter and the quickdeed to the mortgage company as a third party interest, explaining why I need to know the the date of origination before I legally assume the equity loan, in the event that it did happen after quick claim deed, written 8 years ago. Once they have that information, they will divulge when the equity loan was originated.

    Bookmark   June 10, 2011 at 6:52PM
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randy427

I believe the term is QUIT CLAIM, as in the person is quitting, or cedeing their ownership of the property.

    Bookmark   June 11, 2011 at 10:00PM
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feedingfrenzy

It sounds like you think your father took out the HELOC simultaneously with the purchase mortgage at the time he bought the house, but did not access the funds available from the HELOC until after he quitclaimed the property to you.

Did you not find his closing papers on the property among his personal records after his death? That would be something most people would keep among their valuables. I assume you've gone through everything of his, but perhaps he kept them in a safty deposit box that you're not aware of?

Tracking down this HELOC may prove to be more difficult than you think because it's really not in the mortgage company's interest to help you with this. A consult with a real estate lawyer (one who specializes in real property law and not probate or decedant's estate law) at this point sounds like a good move to me.

    Bookmark   June 12, 2011 at 11:29AM
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marie_ndcal

I agree, you do need a estate lawyer to guide you, not your planner or any relatives. You need to protect yourself and please do not sign any papers until you get the legal advice.

    Bookmark   June 12, 2011 at 4:11PM
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feedingfrenzy

She may well need a probate lawyer to handle the estate if she doesn't have one already, but as I said above, she should also probably consult a lawyer who specializes in real estate (property) law to help her find out the details of the HELOC if she's unsucessful getting them from the mortgage company.

    Bookmark   June 14, 2011 at 10:33AM
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