Mortgage co-signer wants one-third of house

Q: My husband and I are in the process of divorcing. When we bought our house eight years ago, his mother co-signed the mortgage because our credit was poor. Now she is claiming to own one-third of the house and plans to take legal action to force the sale of the property, thereby removing me and the three minor children from the premises. Does she have any claim to this property?

A: Your soon-to-be-ex-mother-in-law sounds like a charming woman who is very concerned about her son, but not as concerned about her grandchildren.

Just because she co-signed the mortgage doesn't necessarily mean she is on title to the property. She may be legally liable for the mortgage but not have any ownership interest in the property, or she may be on title. You'll need to find out.

What you should do now is talk to a real estate attorney or your divorce attorney to make sure your mother-in-law doesn't get anything she isn't entitled to.

Q: I'm a retired engineering executive. I'm building a second career owning rental real estate houses. I have an 800-plus credit score and own several properties that are debt-free, although I have open lines of credit on them.

What I typically do is buy a new house with cash from one of my home equity lines of credit, rehab the property and then rent it out. After the property is rented, I try to get a mortgage.

Lenders seem not to want to talk to me because I have more than four properties. Is there anything I can do? I would like to build up to 15 rental properties.

A: When the market began tanking last fall, Fannie Mae and Freddie Mac changed a longstanding rule that has hit investors like you smack between the eyes: They limited the number of properties you could own if you were trying to buy or refinance a mortgage to a total of four.

Fortunately, that rule has now been rolled back. You should be able to find a lender who can refinance your property as long as you own no more than 10 properties at the same time. The 10 properties would also include your primary residence and any vacation property you own.

Once you own 10 properties, you'll have to get creative about how you fix and finance future investment real estate.

Q: We own two rental properties. One has a 6.87 percent 30-year fixed-rate mortgage with a loan balance of $170,000. The property is currently worth about $220,000. We have a long-term renter who pays us $1,500/month to live in the house.

Our second investment property has a 5.75 percent 30-year fixed with $35,000 left to pay off. We have a long-term renter who pays $1,275/month. Our primary residence has a 15-year fixed-rate mortgage at 5 percent with $240,000 left on the loan.

We're contemplating paying off the $35,000 on the second rental. Our combined income is $200,000. We fully fund our 401(k) plans, plus put $1,000/month in our 15-month-old son's 529 plan. Basically, we live off one paycheck and bank the other.

The reason we want to pay off the $35,000 on the second rental is to have some peace of mind. If one property goes vacant, we could still be able to meet the mortgage on the other without a disruption to our cash flow from our jobs. We're not too comfortable putting more money into this market and don't have the time to manage another rental property. What do you think?

A: I think it's fine to pay off the second rental property. Once you pay off the property, you can always start saving the rental payments to build up your cash reserves.

Just remember that in this economic environment, cash is king. It's extremely difficult to get financing at the moment for investment properties so if you decide to make another investment, you may not be able to find the financing without a significant cash down payment. On the other hand, if you have a $35,000 cash stash, you have a lot of options.

Even if you lose a tenant, you'll still have this pot of cash to keep making the payments for some time to come. Or, you could opt to pay off the mortgage at that time. If I were you, I'd keep building up your cash pile.

Q: Ten years ago I bought a home with a friend. He refinanced about five years ago and got a new mortgage solely in his name, although I am still on the title as a joint tenant.

I want to move out and buy a single-family home by myself. Will a quitclaim deed be enough to release me from the title and any other financial obligations to this home?

A: You may use a quitclaim deed to transfer any ownership interest you have in the property to your co-owner. But if you are still listed on a mortgage or home equity loan that hasn't been paid off, you would still be liable for it.

Here's the question: If you've lived in the space for 10 years and contributed time, energy and cash toward it, will you receive something for your ownership share? If you want some of the cash back that you've put into the property, now would be the time to ask for it, before you sign away your ownership interests.

Please talk to a real estate attorney for details on how to create a document that would sever your financial and ownership interests in the property in exchange for consideration.

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