DEAR MR. MYERS: I lost my job four months ago and then fell behind on my monthly mortgage payments. I called the bank for help, but the loan representative said that I do not qualify for any of its special loan programs to stop foreclosure because (DUH!) I am out of work and have no income to qualify for a refinance. The loan rep suggested that I sign a "deed in lieu of foreclosure" that would allow the lender to take the property back without going through the "formal" foreclosure process. How do these deeds work?ANWER: I'm sorry that you're having such severe financial problems, and I hope that you'll get back on your feet soon.
Because the lender won't restructure the loan, it probably would be better for you to sign a "deed-in-lieu" instead of forcing the bank to start foreclosure proceedings on the house. That's because, by signing the deed, you would voluntarily turn control of the property over to the lender.
Though defaulting on the loan will hurt your credit rating, it probably won't do nearly the damage that a bank foreclosure would.
As I wrote before, a foreclosure and bankruptcy are the two worst stains that you can put on your credit record. Either one will stay there for at least seven years, and maybe more than a decade.
By signing a deed-in-lieu, you may be able to limit the damage to your credit score and improve your chances of getting a mortgage after you regain your financial footing.
DEAR MR. MYERS: What is the difference between a general contractor and a subcontractor?
ANSWER: A general contractor is a company or person you might hire to oversee a large remodeling or new-construction job. A subcontractor is someone who agrees to work for the general contractor that you hired.
For example, if you want to build a new house or add a second story to your home, you would probably hire a general contractor for the work. The general contractor would then hire various sub-contractors, such as electricians or plumbers, to help complete the job.
Though the general contractor would technically be responsible for paying its "subs," they would still have the right to file a lawsuit against you if the general contractor didn't pay for their work or if one of them got hurt while working on your property.
DEAR MR. MYERS: My husband and I want to buy our first home. My in-laws agreed to cosign for the loan, but now the bank won't approve the application because they live in another state. Is this legal?
ANSWER: Yes. There's no law that prohibits the use of an out-of-state co-signer, but many banks don't like to make such an agreement. Your lender is probably worried that, if you and your spouse default on the loan, it would have to spend thousands of dollars to sue your in-laws in another state to recoup its losses.
Your lender might still approve your in-laws as co-signers for the loan if they agree to sign a waiver stating that any legal dispute that may arise would be settled in the bank's home state rather than the state where your in-laws currently reside. By signing such a statement, your in-laws would demonstrate that they're serious about paying back the mortgage even if you cannot.
DEAR MR. MYERS: You recently wrote that a bankruptcy can stay on a consumer's credit record for up to 10 years. I have never filed for bankruptcy and have always paid my bills on time. How long does positive information stay on a person's credit report?
ANSWER: Positive information about your credit history, such as monthly payments you have made promptly to mortgage lenders or credit-card companies becomes part of your permanent credit record. Generally, this good stuff will stay on your report forever, unless you personally request that it be removed.
DEAR MR. MYERS: Our son will be entering college in the spring, so we are applying for every kind of student financial assistance that the government has to offer. We don't earn a lot of money, but our home is worth nearly $200,000 more than we paid for it. Will the fact that we have so much equity in our house hurt our chances of getting college aid?
ANSWER: Probably not. The government generally doesn't consider how much equity that parents have in their home when determining a student's eligibility for a federal loan or grant.
Obviously, a federal or state grant is much better than a student loan because a grant doesn't have to be repaid. But if you can't qualify for a free grant, it might make better financial sense to either refinance your house or take out a home-equity loan to pay for your child's college education than to get a student loan: