Q & A with Dottie Herman

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Q1 - How does owing money on a credit card affect credit scores and how long does it take for the bad credit to clear from your history?

A - There are many factors that can lower your credit scores. One major factor is a high debt-to-limit ratio--owing too much money on credit cards can dramatically decrease your credit scores. If your balances are more than 7% of the card's limit, your scores will start to drop. The closer the balance inches up to the limit, the more your score will drop. Credit scores are sensitive to individual balance-to-limit ratios, but even more sensitive to aggregate balance-to-limit ratios. Your scores will continue to drop until your balance comes down. The rate at which your credit bounces back is dependent on a number of factors.[isn't this only the case when amounts are delinquent?]

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Q2 - Is it true that a sponsor unit in a co-op building doesn't fall under the building's subleasing rule and can be a good investment property? Thanks.

A - Co-op rules and regulations with regard to sublet policies vary from building to building but, in most cases, sponsor units (especially once such sponsor unit is  sold) are required to abide by the rules, and therefore the co-op type of ownership does not lend itself to investors as well as a condo, which is usually less restrictive.

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Q3 - I attempted to buy a Fannie Mae foreclosed home. A few days before closing, the title insurance company used by my attorney, found a title defect & were not willing to insure title unless the defect was corrected. My attorney indicated that I might have trouble selling the house in the future if the defect wasn't corrected, so I cancelled the deal. My questions are:

1. Are some title companies more cautious or reputable than others? Would the seller's title company be required to correct the defect if I could not sell in future, or reimburse the purchase price of the home? Am I still protected if the title company goes out of business?

2. Was this a matter of my attorney trying to protect me from protracted legal problems when I tried to sell, but the title company would have eventually been forced to correct the defect when I sold? How long does a title company have to clear up a defect? Months? Years?

3. As MERS is involved in over 50% of foreclosures, it is likely that I will encounter this problem again. Is there a way to find out if there is a title defect up front before spending money on inspections, survey, & attorney fees?

A - Title insurance is typically written by agents for the underwriter, similar to other insurance products like home and life. Like any product, the decision to proceed on the risk is up to the insurer. For example, if you are a heavy smoker, a life insurer might charge more for a policy, or not insure at all. Title is no different; some are more cautious than others.

I share your counsel's concern about future sales. The defect might prevent you from selling, and if the insurer fails to cure the defect (rare, but it happens) you may have a problem.

As for your question about the future, there are transaction costs that are not recoupable unless the contract provides it, and typically a seller in a foreclosure is unwilling to make such concessions. That is what makes buying foreclosures more difficult than many think. [Not all questions were answered]

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Q4 - When buying a co-op in Manhattan on Park or 5th Avenue, how does the board interpret  debt-to-income ratio? Is debt considered just the maintenance?

A - Each co-op is different in terms of a debt-to-income ratio, but debt embraces all outstanding payables, including mortgage, taxes, college loans, credit cards, margin accounts, and so on. In high-profile buildings, your liquid assets after purchase are most important. Often, buildings use a multiple of the purchase price as a rule of thumb, which can vary anywhere from 1x the purchase price, to 3 or 4x. However, the foregoing cannot be universally applied to all co-ops. Each board is different, and their interpretation is subject only to their own rules, which are private to the co-op.

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If you have a real estate question for Dottie, please send it to; Reporters@WPCnews.com