Welcome to Ask the Bills, where every two weeks Helaine Olen answers readers’ questions about their most nagging personal-finance and financial-etiquette dilemmas. Seeking advice on a money issue? Email firstname.lastname@example.org.
I had a roommate who kept shorting me on the rent, and I became concerned he would never pay up in full. I asked if he would sign a promissory note to structure a repayment for what he owed me and he agreed. I could have opted to evict him for nonpayment of rent (I was acting as the landlord given that the lease was in my name), but since he’s the little brother of a good friend, I didn’t want to cause any problems. He initially made the payments on the date they were due, but then they would be a day late, followed by two days late, then it just kept sliding. Since we lived together, I would approach him to inquire why he was late in paying and he would give me some story. But he was also getting increasingly annoyed, and even insulted me twice for “badgering him” over the payments. He’s now moved out to live with his family, but he’s still not paying on time. His last payment was five days late. The day after his payment wasn’t made, I texted to ask about the delay and got no response. I left a message asking him to pay at the end of the day. When he finally sent me a payment, he insulted me for reaching out via text, cell, and email. At that point, I told him that due to the lack of communication on his part, I was calling his loan. He then replied via email, saying I shouldn’t communicate with him again without a judge. I suspect that until he actually doesn’t pay on the due date, I don’t have a reason to take him to court. Is it unlikely a judge would dismiss the small-claims case if brought against him for repeatedly missing his payment due date, which is clearly written in the promissory note? I’d rather not go through the time and hassle if the judge will dismiss it, because the most he’s been is five days late.
How much do you value your “good friend”? Because if you take your pal’s little brother to court, that friendship could get rocky or worse. If you want to preserve that relationship, you’re almost certainly going to need to accept that some portion of this debt is not going to be recovered and move on with your financial life. And you will move on—your friend’s brother is no longer living in your home, which sounds like a very good thing. (By the way, evicting him would have depended on everything from your own lease with the owner of the property to your actual written agreement with your now-former roommate.)
But what if you still decide you want the money? It is yours, after all, and maybe you need it urgently. I consulted Kristen Browde, an attorney in Westchester County, New York, who specializes in, among other things, civil litigation. She recommends small-claims court. If your promissory note aligns with the laws of the state you’re in, and the contract indeed says the loan can be called in for late payment, a judge will likely rule in your favor.
One other thing: Stop calling and texting this guy! Yes, your frustration is justified, but it still doesn’t look good. There are laws about this sort of thing of which you could unwittingly run afoul. Besides, someone has to be an adult here. He’s paying up, albeit late—and, really, not that late. Find out if he’s really a deadbeat before you make a decision about going legal. And if you do, get a lawyer to draft that letter.
My dad is approaching 70 and lives primarily off of Social Security and income from a rental property. An extraordinary series of bad decisions has left the rental property in a bad state. Fifteen years ago, he took out a bad mortgage on the property with his new wife. The wife divorced and moved away. He has a quit-claim deed on the house, and the divorce papers say she has no right to it, but the mortgage is still in her name with a sky-high interest rate and a balance of around $20,000. Housing values are low in our area, and I think we’d be lucky to sell it for $50,000. He luckily has had the same renters for two decades who have taken care of the house, but it needs some serious updating. We’ve also heard the ex isn’t in the best of health. We’re uncertain what will happen to the house if he passes away while the mortgage is still in her name, or my dad has to go into an assisted-living facility. Our options would be to continue as is—the rental income pays the mortgage and gives him a meager extra income—or try to sell the house as is, hoping to make enough to cover the loan and give him a small rainy-day fund. We’ve looked into refinancing, but it seems next to impossible for him to refinance, and I’m concerned about the future tax implications if he gives me the house and I refinance the mortgage. I’m stuck between a rock and a toxic mortgage!
You’ve given me a ton of information. I know your dad’s divorced, I know he doesn’t have much money, I know the rental home isn’t in great shape, and I know that his former wife might suffer from ill health. But something’s still missing: What do you and your dad want to do?
“Are you trying to make it simpler, or get more income, or help out the tenants?” asks Lauren Locker, a certified financial planner with a specialty in eldercare planning. All of this, needless to say, requires different strategies.
Whatever you do, here’s how to start: Sit down with an accountant who can run some numbers with you. How much do you think the home will sell for? How much money will be left after taking the mortgage and a potential tax bill into account? How would you need to invest that money so that it equals or surpasses the income the home currently throws off? Is that even possible?
Then you need to answer other questions. Do you or your dad even want to be landlords? Did you approach the renters? If your dad decides to sell, could they afford to buy the home? Or would you risk leaving loyal renters scrambling for a new place to live? I realize that’s not quite a financial decision, but it’s certainly an ethical one that needs to be addressed. Yes, renters know that a home they are leasing can get sold at any point, but two decades is a long time, and you owe them some consideration. That doesn’t mean you need to own the home indefinitely so they can continue to remain in place, but they do deserve notice of your plans.
Lastly, I shared your letter with Browde, whom you’ll remember from letter No. 1. She thinks it’s possible that this quit-claim deed—that is, the legal paperwork transferring ownership of the property—was never properly recorded. It happens more often than people realize, and is something you should double-check. You do that by consulting the government recorder of deeds in the county the property is located in. Do that soonest.
I’m student in my mid-20s with a significant error on her credit report. For some reason, one of my dad’s credit cards is included in my report. I found the mistake a couple of years ago, and it appears to be on all three credit agency reports. I haven’t done anything about it because it’s not causing any problems. My credit score is excellent, in part because the error has dramatically lengthened the age of my credit history. I’m not worried about my parents misusing the card, and I’ve heard nightmare stories about trying to get such errors fixed, so I haven’t bothered messing with it. However, if I wanted to get it corrected, it should be easy, right? The card was opened two years before I was born! I’m inclined to do nothing unless it starts causing issues. What do you think?
You know how they say you can only control your own behavior, not that of anyone else? Even if this mistake benefits you right now, it might not in the future. As Bruce McClary, a spokesman for the National Foundation for Credit Counseling, puts it, “You are really taking a risk unless you have a high degree of certainty that dad is not going to have any slip-ups with the credit account.” McClary suggests you gather the appropriate documentation—which, in this case, would include a copy of your birth certificate—and file a dispute with the credit bureaus making this error. Since documentation is involved, send your complaint via certified mail. The law requires them to respond within 30 days. And then you can take responsibility for maintaining your own credit.