Q: What happens to all the private information that we give to a mortgage company when applying for a mortgage preapproval, such as your Social Security number, tax returns, etc.?
This gold mine of info can be passed around the office to all the lower-level clerks and can be used to compromise your privacy.
How can this be avoided since real estate agents do not want to do any work unless you have a preapproval letter? In my time, you looked for a property first and then looked for a mortgage. You did not get a preapproval on some fictitious property.
A: You have asked a very important question, and I really don’t have a good answer. Legally, the lender is supposed to guarantee privacy of your personal information. National banks will send you a privacy statement, showing what information they will keep secure and what information they reserve the right to disseminate.
But even with the best procedures and intentions, a dishonest employee has that gold mine of information. As I am writing this, I just heard that over half a billion names, personal information and more were hacked. So privacy is, or should be, a major concern for all of us.
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I have been practicing law for over 50 years. It is disturbing to see our young adults who have no real concern, or even concept, of what privacy means. They freely use social media, revealing all sorts of personal information about their lives.
When I first started working in real estate law, borrowers had to put their Social Security number on the deed of trust (the mortgage document), and if there was a power of attorney, on that document also. Fortunately, that is no longer a requirement.
I also want to comment on your concern that you have to get a preapproval letter even before you find a property. I have two suggestions.
When you sign a real estate contract, the seller wants to know whether you can qualify for a loan and are not bluffing. To the extent that I can get away with this for my clients, I include the following language in the contract: “within 5 business days, the buyer will provide a satisfactory preapproval letter from a legitimate mortgage lender, or this contract will be null and void.” I know real estate brokers will object, but this contingency is no different from the home inspection contingency.
There is another reason for waiting until there is a contract. Too many times, the potential lender provides a statement such as “Mr. and Mrs. Smith can qualify for a house valued at XX dollars.” Mr. and Mrs. Smith are shopping around. If a seller knows that they can qualify for that XX dollar amount, it makes it difficult — if not impossible — to negotiate a lower price.
So I always recommend that the preapproval letter should be a contingency in the sales contract.
Q: I would like to know if the law qualifying for a $500,000 home sale tax exemption is still the same regarding the requirements or if it has changed since your answer in the paper two years ago? My husband died in June 2013, and I would like to know if I still qualify if I sell my house within two years of his death?
A: Yes, a surviving spouse can claim the up-to-$500,000 exclusion of gain if the sale is made within two years after the death, and before the death (a) either spouse met the ownership test, (b) both spouses met the use test, and (c) neither spouse claimed the exclusion within the prior two years.
The use-and-ownership test means that you had to own and live in the property for two out of the five years before a sale.
Benny L. Kass is a practicing attorney in Washington and Maryland. No legal relationship is created by this column; [email protected].