‘The Big Move’ is a MarketWatch section that examines property details, from finding a new home to applying for a mortgage.
Have a question about buying or selling a home? Want to know where your next move should be? Send to Jacob Passy at TheBigMove@marketwatch.com.
Shortly before the pandemic, my husband accepted a job that forced us to relocate from the country; but because of this work we have not had to. My husband and I have two small children. Parents have watched our children at home remotely because of our work and often stay for several days at a time.
My husband and I asked his parents to move in with us when we moved. In theory, this is a great plan for everyone involved: free childcare for us, reduced costs for them, and we all enjoy each other’s company.
The dilemma is that my mother-in-law has $ 50,000 underwater in their place. The home has problems with water penetration and foundations, making it worth only about $ 100,000 at best. My father-in-law is a very disciplined man and he doesn’t seem to be leaving properly. He believes that continuing to pay the mortgage is the best plan, even if they don’t live at home.
A short sale, even if the buyer were willing to accept the trouble, would be devastating to save. My husband thinks the best option is to move away from them and acknowledge their credit performance. They would live with us and have no more barriers to paying the mortgage.
In addition, my husband is the only child and appointed executor of the estate. My husband is aware that when his father (71) dies, his home will be his home. Should the father-in-law continue to pay or leave? Should we consider other options?
Your letter is an important reminder that even at a time when domestic values are rising at a record rate, many Americans continue to owe mortgages such as those worth their homes, also known as “being underwater” at home.
Millions of Americans found themselves in this situation after the mortgage crisis caused a major recession. But even though housing prices have risen – in many cases to new highs – about 1.6 million homes are still in negative equity since the third quarter of 2020, according to the latest CoreLogic data.
This represents about 3% of all pledged homes across the country.
Leaving a home that is underwater is a reckless move, no matter how you cut it. And virtually any financial expert would advise your family to avoid this at all costs.
For starters, foreclosures are completely devastating to a homeowner’s credit rating and remain in a person’s credit file for seven years. You may be wondering, what is the difference? Well, what if the new lifestyle doesn’t work out for you? Your family and in-laws only spend a short time together – this is very different from living together.
If your cousins decide they need their place, they may have trouble renting with the low credit rating they would have after closing. Are you and your husband willing to live in such conditions for them?
Denial of access is not a card without release from prison. You have written off the option to make a short sale because it would hurt your mother-in-law’s savings, but that’s exactly what could happen with foreclosure.
“According to the laws of their country, a lender can foreclose on a loan, sell a property and pick up the parents to judge the shortcomings – the difference between the sale price and the debt on the loan plus taxes, insurance, fines and fees,” said Rick Sharga, a mortgage veteran and executive vice president of RealtyTrac Real Estate Information Company.
Don’t miss out: I plan to retire soon. Should we sell our home while prices are high – and rent for two years?
Federal law provides that retirement savings in company-sponsored pension accounts, such as 401 (k), are exempt from stock in the event of a default judgment. Some countries extend this same courtesy to self-controlled pension accounts.
There are also moral and ethical considerations. The mother-in-law has signed an agreement with the mortgage lender, so it’s understandable that the father-in-law feels obligated to stick to his end of the contract. In addition, research shows that foreclosures can reduce the value of real estate near homes.
What to do instead? Well, for starters, everyone should research to see if your mothers-in-law are eligible for any form of assistance to make the necessary repairs to their home to bring it to a state of sale. If one of your spouses is a military veteran, he or she may be eligible for assistance through Operation Frontfront. Other sources they may consider for financial assistance include the National Association of Regional Agencies for Aging and Human Habitat.
I also think you should consider a short sale and see if your relatives ’mortgage servicer would agree to a reduced amount to repay the mortgage. Servicemen can still look for your marriages for the remaining balance on the aftermarket loan – although it depends on the state – but as I said, this also applies to foreclosures.
“Alternatively, it could be an‘ act instead of foreclosure ’where the house is handed over to the bank without going through foreclosure proceedings, perhaps in exchange for the bank’s promise to waive any shortcomings,” said Eric Dunn, director of litigation at national housing law project.
A short sale or deed instead would affect your sister-in-law’s credit, but it would still be less serious than the hit you would achieve with foreclosure. In both cases, the service technician must agree.