Reader writes:  Do you have any advice on how to deal with an almost fiancé, J.,  who was once married and still owns a house together with his ex wife of five years?  We are in California.  She is in Kentucky.  When they separated, she could not qualify to be on the title (he’s on the title, she’s on the loan together with him) so they agreed on an arrangement where she could stay in the house and he would stay on the title as long as she would pay the mortgage which she’s been doing for five years.  His ex has been with someone new for over three years now, and they are living together in the house with their three-year-old daughter.  My boyfriend has a ten-year-old son that we have nine months out of the year, and she has three months out of the year (son is in year-round school and goes to see his mom when he’s out of school once every three months for a month).  My boyfriend is talking with her now about figuring out something to do with the house now that we’re getting serious, but there’s a good chance she (or she and her new boyfriend) won’t be able to qualify to take over the title due to the economy and their financial status.  My thought is that if that ends up being the case, then they should sell the house so we can move on, but J. is concerned for his son’s well-being and isn’t 100% sure that he would want to do that for his son’s sake and because he made an agreement with his ex.  I’m thinking that this might be a deal breaker for me if they don’t figure out a solution to dealing with the house.  Any advice? 

(NOTE:  This question is answered by guest expert, Carl Delmont, CEO of Freedmont Mortgage.  Carl is the weekly mortgage expert on ABC TV News, CBS, CITADEL, and Shamrock radio stations in and around Baltimore, MD.)

Carl replies:  Being on title gives your fiancé legal ownership of the property. His ex is essentially a tenant who is liable for the mortgage payment, as she has the financial obligation, but no ownership. Aside from this being a “deal breaker” for you, you and your fiancé have other areas of concern. First, I am assuming that the mortgage payments go directly to the Kentucky home, since she is making the payments.  If she misses a payment, it will show up as a late payment on your fiancé’s credit report, which may prevent you both from buying a home, car, etc. in the future.

Moreover, the payment of the Kentucky home will be counted against him/you when you look to make a major purchase.  Since she lives there and has been making payments, she should ask her current lender to consider refinancing the current loan in solely her name and adding her to the deed. Your fiancé could then sign off the deed and remove any liability. If there are any concerns over equity, your fiancé could place a second mortgage against the property for an amount that they both agree is fair.  It is nice that he is concerned over his ex and their son, but this arrangement has the real potential to hinder, or worse, harm your new partnership in many ways.  You should strongly suggest that your fiancé consult a competent real estate attorney and arrange to place the home in the name of his ex. No matter how you slice this arrangement, it is bad for both parties: she has no ownership and he is hurt if a payment is missed.  Now that both of them have started new lives, it is time to start a new arrangement with this home.