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Sunday, April 25, 2010

Got Questions? Get Answers...Clueless Is Concerned About What The Lender May Do If She Pays Off A Loan From Her Parents While Pursing A Short Sale On Her Underwater Home

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Hello. My husband and I are currently in an "underwater" mortgage. Our loan was for $262,000, which we have paid down to $253,000. The general consensus of realtors, is that we should be able to get between $215,000 and $220,000 for our home. Our mortgage is with Bank of America. We hare hoping they will forgive this amount and allow us to complete a short sale. My question is in regards to a savings account that we have. I had a $30,000+ student loan. The rates on the loan were going way up, so my parents took out a home equity line of credit, several years ago, and to pay off the loan. Here's where I made a mistake. Instead of making monthly payments to my parents, I have been putting money into a savings account, with the intention of transferring the money to my parent's account, when I had saved the total amount that I owed them. In this savings account, I have the exact amount that the payoff of the student loan was. It's not money I'm trying to hide from the bank. It's money that I rightfully owe my parents. However, I understand that if I close the savings account, obtaining a check for the full amount in the savings account, that would thus be deposited in my parent's account, it will look very shady to the bank. In other words, I am preferring to pay my parent's back the total amount of my student loans, yet ask the bank to forgive a similar amount on my mortgage. How can I LEGALLY safeguard this money? I don't want to put myself, and more importantly, my parents, at risk for what could be easily MISunderstood as a fraudulent transfer (which could mean fines, restitution orders, probation, imprisonment, crime, etc...) I've asked this question to someone a few days ago, and they dismissed me, as if I were asking them to take part in something illegal. I have the student loan payoff documentation, as well as all the payments that were ever paid on the loan, which was by my parents. It is a valid debt to my parents. I don't have a certified letter stating that I would pay my parents back by a specific date and time, etc, etc.... I have great parents and they knew I would repay them. I never thought to compose a payback agreement, for goodness sake. I also never expected to be in an underwater mortgage. My parents have helped us for the past few years, when the mortgage companies have repetively turned us down for refinancing or streamling of our loan, because we weren't delinquent on our payments. It's frustrating. My parents deserve way more than simply the money from my student loan. I want to pay them back, at least for the student loan, before we lose everything, including our credit rating, in a short sale, or deed in lieu situation. I've received a whole spectrum of advice...including not reporting that I even have that savings account to putting the money in an IRA. But it still seems to me that the bank will find this money. Could I take my husbands name off the account and add my dad's name? If my dad's name was on the account with my name, would that prevent the bank from being able to take the money? UGH...please, please help me. There are so many terms being thrown at me and so many laws...I am confused, overwhelmed, and feel stuck in a terrible situation. Please help me. I would appreciate any advice you can provide.

Thank You In Advance

Clueless

Get Answers…

Dear Clueless:

Yes, it is true. When seeking a short sale from a lender, the lender requires disclosure of your finances. I do not recommend that you try to "hide" information from the lender. If the money is in the savings account when and if a lender agrees to a short sale, then a lender has the right to the money and an expectation that you will use the savings to pay the remaining debt.

If you owe a debt to your parents then you should pay them back. As long as there is an agreement between your parents and yourself re: the loan, then why not honor the terms of the loan and pay back your parents. It seems that this loan predates any deficiency with the lender.

A fraudulent transfer normally means that money and/or assets are moved around in order to prevent a creditor from collecting on a valid debt.

You are asking great questions. Once again, if you have a valid loan agreement between you and your parents then pay your parents back. If not, then you must be upfront with the lender and negotiate how much of your savings the lender is willing to let you keep.

Of course, let me add that you can and should seek the advice of an attorney and/or accountant in your state. This way you can properly explore all legal and financial options.

Good luck. I am confident you will work it out.

Thanks.

Augustine Diji

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