Mortgage payoff in a divorce

Can split trigger due-on-sale clause?

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Mar. 16, 2010

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If you qualify, you can claim a tax credit equal to 10 percent of the home's purchase price, up to a maximum of $6,500. However, there are income limitations. If you are a single taxpayer, you cannot claim the credit if your income is over $125,000; the limit for joint taxpayers is $225,000.

One interesting fact of the new law is that you do not have to sell your existing home; if you can afford to keep it as a rental, this does not disqualify you from the tax credit. Also, the home does not have to cost more than that value of your present residence.

A tax credit is not the same as a tax deduction. The latter allows you only to reduce the amount of the tax owed by the percent of your tax bracket. A tax credit is a full dollar-for-dollar deduction of what you would otherwise owe the IRS.

For more information, go to federalhousingtaxcredit.com (sponsored by the National Association of Home Builders) or to the IRS Web site and locate Form 5405.

DEAR BENNY: Our home equity lender has instituted a new flood insurance requirement. They now require homeowners to carry coverage equal to either 80 percent of their hazard insurance coverage amount or the unpaid principal balance of all liens on the property, whichever is greater. If this amount is more than the maximum $250,000 of coverage available through the National Flood Insurance Program, the lender requires we carry the maximum $250,000.

My question: In our case, even the $250,000 coverage amount is much more than the unpaid liens on the property, which total about $155,000. Can the lender legally require a coverage amount greater than the total amount of unpaid liens? --Therese

DEAR THERESE: This is a common problem that homeowners face, not only with their home equity loan but with their primary (first) mortgage as well. I firmly believe that a lender can insist on insurance coverage only up to the amount of the moneys owed to them.

However, that's my opinion; not everyone agrees with me, especially mortgage lenders.

The answer to your question depends on the state law where your property is located. It is my understanding that many states have enacted legislation specifically prohibiting a lender from requiring insurance that exceeds the amount of the mortgage loan.

Talk with a local attorney about your situation. If there is no law, complain to your lender and send a copy of your complaint to your state attorney general. If enough people complain, the lenders may cave.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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