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Parent should not risk retirement to bail out son’s mortgage

Q: My son is going through a divorce, his credit is terrible, and I am his only hope of keeping his home. I want to help him out, as I’m concerned about his ability to stay on top of things.

We went over the figures, and if I lent him the money he needs, his mortgage payments to me plus property taxes would equal less than 30 percent of his income. He has about $20,000 equity in the house, and I’d hate to see him to lose that.

Am I crazy to consider granting a mortgage loan to my son? I’m not in a position to lose this investment, as I’m nearing retirement and will rely on the income from that sum as a portion of my retirement plan. — B.T.

A: You’re asking for personal finance guidance, and I’m in no position to give you advice on that, but I’m going to anyhow.

I don’t know your financial situation or why your son’s credit is poor; how much money is involved and what share it would take of your retirement savings; if your grandchildren are involved; if your son has other monthly debt payments; whether you have other children who are your potential heirs — all of which are important factors. But that won’t stop me from offering my immediate reaction: Don’t do it.

Your son can rent. He can walk away with his share of the equity if the house is sold now. He can mend his credit and borrow again someday.

You, however, will not be able to borrow for your retirement.

SUSPICIOUS OF TEAM

Q: My real estate agent is part of a team. When I first talked to her about listing my home, she told me a selling price I could live with. A couple of months later, I was ready to put my house on the market, and someone else from the team came in and told me I needed to list the house almost $12,000 lower.

In this market, that’s a big difference. Now, I feel l don’t trust anyone on the team. They’re supposed to be reputable, but maybe they’re just good at getting people to low-ball their houses and that’s how they sell so many. Should I seek an outside opinion? — F.G.

A: Sometimes, I get letters expressing concerns to the opposite of your suspicions, and I read, "Is the agent urging me to up the price simply to make more commission?"

Perhaps there’s been a downward change in your local market. And then, there’s the time of year — houses sell more quickly and, in most places, for somewhat higher prices in the spring and early summer. Families like to move before the school year starts.

You’re free to call other brokerage companies that are active in your area. They’ll give you price recommendations and you’ll be in a better position to judge for yourself.

TAXES ON PROFIT

Q: My brother has life estate interest in a home. He’s disabled, and I’m his guardian. My husband and I have survivorship ownership. When we sell our current home, can we apply our profit to that property to make improvements, or do we have to declare it as a capital gain? — K.

A: The regulations about profit from the sale of one’s own home changed some years ago. The IRS no longer cares what you do with the proceeds

If you’ve owned and occupied the property as your principal residence for at least two of the five years before you sell, as a married couple, you can take up to $500,000 profit with no federal capital gains tax due. The other house doesn’t have anything to do with it.

LIEN ON THE HOUSE

Q: My husband and I own our home jointly. He owned a business and one of the creditors put a lien against him on our home. If we jointly sell the house, will that lien interfere in the process?

The lien was for a trailer that was never delivered. It’s not an obligation he’s trying to avoid. At the time the lien was put on, we did not get an attorney. –M.W.

A: You should have. If someone bought your home, that lien would remain as a claim against it. They’d take over the debt and the problem along with the property. You’d have trouble finding a buyer willing to go along with that. For one thing, it would interfere with any attempt to place a new mortgage on the property.

You don’t say how long ago all that happened. At any rate, consult an attorney to see if there’s anything you can do at this point.

Edith Lank will respond personally to any question sent to askedith.com.

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