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Real Estate Q & A

Is Seller Liable If Buyer Assumes VA Mortgage?


QUESTION: Last November, we sold our home to a buyer who assumed our VA mortgage. The lender approved of the loan transfer and, as I recall, we paid a small transfer fee. Now we have received a notice the buyer is three months behind on the mortgage payments and the lender expects us to pay. How can this be? When I phoned the lender, I was told our names are still on the mortgage.

ANSWER: When a home buyer assumes an existing VA (or FHA) mortgage, the seller is not automatically released from further liability on that loan obligation. Since you were the original borrower, your name remains on that mortgage until the lender releases you from further liability.

At the time your buyer assumed the mortgage, you could have asked for release of liability. If the buyer had sufficient income and good credit, the lender could have released you from any further obligation on that loan. Apparently, that did not happen, perhaps because you didn't ask.

It doesn't seem fair, but if the current homeowner defaults and the VA lender suffers a foreclosure loss, then you can be held liable for that loss. This is true even in states that have anti-deficiency laws, such as California.

Unfortunately, there isn't anything you can do unless you carried back a second mortgage. Then you could foreclose on that second mortgage because default on a first mortgage is also a default on the second loan. Please consult a local real estate attorney immediately.

Is Loan to Buyer Wise If Seller Moves Away?

Q: We plan to sell our home and move to North Carolina where we will be closer to our children and grandchildren. Since we own our home free and clear, our lawyer son suggests we carry back the mortgage for our buyer to make the sale easy with seller financing. But I'm concerned that if the buyer doesn't make the mortgage payments we will be living too far away to foreclose. Would a long-distance mortgage in a situation like this be a bad idea?

A: No. Financing the sale of your home is an excellent way to provide secure retirement income. A local bank can collect the monthly payments or you can ask the home buyers to send you a year's post-dated checks so you can deposit one check on the first day of each month. That's what I do with my out-of-town lenders.

If you get a substantial down payment of 10% to 20% and check the buyer's income and credit carefully, chances of a foreclosure loss are minimal. However, if the buyer defaults, a local attorney can handle the foreclosure details for you. If you get the house back, you can sell it again for a second profit.

Save Receipts From Family Room Addition

Q: In 1994, we completed a family room addition to our home. The material cost was about $9,000, not including the value of my husband's labor and the help of his construction buddies. Since I am the family bookkeeper, do we need to save the receipts and does the addition provide any income tax deductions?

A: Please save all the material receipts for the family room addition. When you eventually sell your home, add the cost of the family room to your original purchase price to arrive at your home's adjusted cost basis. But the expenses won't provide any immediate income tax deductions.

Unfortunately, Uncle Sam values your husband's labor and that of his friends at zero, so nothing can be included in the family room basis for that labor. For further details, please consult your tax adviser.

Can Broker Delay Sale Closing for Unpaid Fee?

Q: I am the buyer of a house. The sale is finally ready to close. But the seller and the listing agent are having a dispute about the amount of the sales commission. The realty broker threatens to delay the sale closing until the commission dispute is settled. My attorney says the seller's agent has no legal right to delay the closing. Is this right or wrong?

A: Your attorney is correct. The seller's real estate agent has no legal right to delay the home sale closing just because the agent and seller don't agree on the sales commission amount.

If the seller doesn't pay the listing agent's sales commission, that agent should sue the seller for the sales commission. But this dispute has nothing to do with your contract to purchase the home. The seller, not you, agreed to pay the sales commission.

Perhaps your attorney can talk some sense into the realty broker. If you threaten to walk away and not buy the house, maybe that will make the realty agent reconsider the consequences of losing the entire sale.

Unwritten Agreement Probably Worthless

Q: I have been a tenant in the same house for almost 11 years. The landlord said to me several times, "If I ever decide to sell this house, you'll have the first chance to buy it." But I recently learned the owner sold the house to a close friend without even consulting me. I think the friend inspected the house when I wasn't home. Do I have any recourse against the owner who promised to sell to me?

A: The Statute of Frauds requires real estate agreements to be in writing if they are to be enforceable in court. The only exception occurs when one of the parties to an oral agreement affecting real estate detrimentally relied on that contract and partially performed it.

For example, if you made valuable improvements to the house in reliance on the seller's giving you an option or right of first refusal to buy the house, then you could argue your detrimental reliance bars the owner from selling to another person. Please consult a local real estate attorney to see if your situation qualifies for this exception to the Statute of Frauds requirement for a written agree

Letters and comments to Robert J. Bruss, a San Francisco-area lawyer, author and real estate broker, may be sent to P.O. Box 280038, San Francisco, Calif. 94128. Bruss suggests consulting an attorney or tax adviser before making important real estate decisions.

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