Q: My husband is 70 and I am 57. We own a home in California. He also owns a home with his brother in Minnesota.
We’re behind on our mortgage payment on our California home. He has a small mortgage on the Minnesota home. He and his brother are currently in the process of doing a reverse mortgage on the Minnesota home, which will pay off that mortgage and allow a small amount for savings (and bring our loan current on our California home).
The question of which home is our primary residence is causing concern. He has been in Minnesota for seven months this year as he rotates time in both states. Can he have a primary residence in two states?
If not, could he quit-claim his share in the California home to me to avoid the issue? Lastly, we want to attempt a loan modification under the “Making Home Affordable Plan” on the California mortgage. Can we do all of this?
A: You can only have one primary residence. When you are married, the husband and wife usually only have one primary residence. Having said that, it is possible in some cases for spouses to live in different places and have different primary residences. If both of you had different primary residences, neither of you would seem to have a marital residence.
For each of you to have different primary residences, each of you would have to spend most of the time apart. Each of you would vote in different places and have driver’s licenses from different states. Your husband’s bills should be sent to his home in Minnesota and your bills would be sent to California. For all practical purposes, you would be married on paper only while your husband spent most of his time in Minnesota and you spent most of your time in California. Your husband would file his taxes from Minnesota and pay his state income taxes there while you would file your taxes from California and pay your state income taxes in California.
While your life might become a little more complicated by having your primary residence in California and your husband having a primary residence in Minnesota, you would have additional issues to face with your homes.
Since you can’t have two primary residences, your husband or his brother must declare the Minnesota home as his primary residence. If your husband claimed it as his primary residence, you and he might have trouble getting a loan modification for the home in California.
To qualify for a loan modification under the Obama Making Home Affordable Plan – and qualifying is no easy task – you must meet all of the income qualifications, hardship requirements and the home must be your primary residence.
I would assume the loan you want to modify was obtained by you and your husband. Now that you want to modify the loan, the lender will want to see your finances as well as your husband’s.
If you transfer the title to the home to you alone by means of a quit claim deed, the ownership of the home will be in your name but that won’t change the obligations under the loan. You and your husband are on that loan and both of you need to deal with that loan together. If you need your income along with your husband’s income to qualify for the loan modification, you might find that you’ve dug yourself in a hole by transferring title of the property into your name alone.
As an aside, you should know that the information I’m getting about the loan modification process has not been encouraging. While a fair number of people are getting trial modifications under the Making Home Affordable Plan, few of these people are actually getting permanent loan modifications.
For those borrowers that work with their lenders to obtain a loan modification and have never been late in their mortgage payments, many of them are finding their credit scores hurt substantially by entering the trial period for a loan modification.
Homeowners entering the trial loan modification plans are finding out that even if they were never late in their payments before and they make all of the required payments under the trial period, lenders are reporting their payments under the trial loan modification period as paying less than required under their loan. Accordingly, some borrowers are seeing their credit score drop about 150 points as a result of the trial loan modification.
Other borrowers are finding that lenders will put them in the trial loan modification only to reject them later on. Their credit scores are destroyed for no purpose whatsoever. While some lenders claim that borrowers are slow in delivering documents to the lenders, many more of our readers report lenders that are slow in processing the paperwork, losing or misplacing documents or failing to process their loan modifications properly.
A little known fact about the Obama Making Home Affordable Plan is that lenders are not required to grant loan modifications to borrowers. Lenders can place borrowers into a trial loan modification but those same lenders can later reject those borrowers on various grounds even if all other terms of the loan modification have been complied with by the borrower.
At a meeting at the Federal Reserve Bank of Chicago I recently attended, the speakers talked about lenders using a system and formula for determining whether it was better for the lender to grant a loan modification or whether to wait and see whether the borrower defaults on the loan and thereafter the lender forecloses on that loan.
If the lender sees an opportunity that the foreclosure would be better for the lender, the lender can reject the borrower and not grant the permanent loan modification.
You and your husband are in a difficult position. To find out whether he might qualify for a reverse mortgage, you might want to take advantage of free reverse mortgage counseling through Credability.org, a network of nonprofit Consumer Credit Counseling Service organizations that is based in Atlanta.
You may also be able to take advantage of Credability.org’s housing counseling to answer some of your other loan modification questions.