‘The Big Move’ is a MarketWatch column that looks at in and out of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Want to know where your next move should be? Email Jacob Passy at TheBigMove@marketwatch.com.
Shortly before the pandemic, my husband accepted a job that required us to move out of the state; however, we have not had it yet due to telecommuting. My husband and I have two small children. Because of our teleworking, my in-laws have been keeping an eye on our children in our homes, and they often stay for several days at a time.
My husband and I have asked his parents to move in with us once we have moved. In theory, this is a good plan for everyone involved: free childcare for us, reduced expenses for them, and we all enjoy each other’s company.
The dilemma is that my in-laws are $ 50,000 underwater at their townhouse. The home has water intrusion and foundation problems that make it worth only around $ 100,000 at best. My father-in-law is a very disciplined man and does not think it is the right thing to go away. He thinks that continuing to pay mortgages is the best plan even if they do not live in the home.
A short sale, even if a buyer would be willing to take on the problems, would be detrimental to the savings they have. My husband feels that it is the best solution to go away and that they are taking the credit layer for foreclosure. They would stay with us and no longer have an obstacle to the mortgage payment.
In addition, my husband is the only child and the named executor of the estate. My husband realizes that when his father dies (he is 71) that home will be his problem to deal with. Should my father-in-law continue to pay or walk away? Are there other options we should consider?
Your letter is an important reminder that even at a time when home values are rising at a record pace, many Americans continue to owe more on their mortgage than their home is worth, also known as “being underwater” in a home .
Millions of Americans found themselves in this position in the wake of the subprime mortgage crisis that caused the Great Recession. But even though house prices have risen – in many cases to new all-time highs – 1.6 million homes are still in negative equity from the third quarter of 2020, according to the latest available data from CoreLogic
CLGX,
+ 0.38%.
It represents approx. 3% of all mortgaged homes nationwide.
Walking away from an underwater home is bad advice no matter which way you cut it. And virtually any financial expert will advise your family to avoid it at all costs.
First, foreclosures are absolutely devastating to a homeowner’s credit score, and they remain in a person’s credit file for seven years. You might be thinking, what difference does that make? Well what if your new living arrangement does not work? Your family and your in-laws have only spent short periods of time together – it is very different from permanent cohabitation.
If your in-laws decide they need their own place, they may have trouble qualifying for a rental with the low credit score they would have after foreclosure. Are you and your husband ready to act as guarantors for them in such a situation?
Foreclosure is not a free out of jail-free card. You have written off the possibility of pursuing a short sale because it would hurt your in-laws’ savings, but that’s exactly what can happen with a foreclosure.
“Depending on the law in their state, the lender could foreclose on the loan, sell the property and sue the parents for a defective judgment – the difference between the sale price and the debt of the loan plus tax, insurance, fines and fees,” said Rick Sharga, a veteran of the mortgage industry. and CEO of real estate data firm RealtyTrac.
Do not miss: I plan to retire soon. Should we sell our home while prices are high – and rent for two years?
Federal law specifies that pension savings on company-supported pension accounts such as 401 (k) s are exempt from garnishing creditors in the event of a defective judgment. Some states extend the same courtesy to self-managed retirement accounts.
There are also moral and ethical considerations. Your in-laws signed an agreement with the mortgage lender, so it is understandable that your father-in-law feels obligated to end his termination of the agreement. Plus, research shows that foreclosures can lower property values for nearby homes.
What should I do instead? To begin with, you should all check if your in-laws are qualified for any kind of help to make the necessary repairs to their home to bring it up in a salable condition. If one of your in-laws is a military veteran, they may be eligible for assistance through Operation Homefront. Other resources they can explore for financial assistance include the National Association of Area Agencies on Aging and Habitat for Humanity.
I also think you should consider a short sale and see if your in-laws mortgage lender will accept a reduced amount to pay the mortgage. Servicers can still go after your in-laws for the remaining balance of the after-sales loan – even if it depends on the state – but as I said, so do foreclosures.
“Another option could be a ‘deed instead of foreclosure’, whereby they would hand over the house to the bank without going through the foreclosure process, perhaps in return for the bank’s promise to waive any defect,” said Eric Dunn, director of litigation. . by the national housing law project.
A short sale or a deed instead would affect your in-laws’ credit, but it would still be less serious than the hit they would get from a foreclosure. And with both options, you need the service company to agree.
How does foreclosure happen?
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They could also always see if the lender would be willing to forgive them a portion of the loan’s principal balance. This may interest you : My in-laws are underwater on their mortgage and their home is in disrepair. Should they just walk away and move in with us?. This is unlikely, but the lender may be willing to be flexible – after all, foreclosures are expensive for mortgage lenders.
Do banks want to foreclose?
Before your family makes any decisions, I highly recommend that you discuss your case with a real estate attorney or a HUD-certified housing counselor. These individuals could help negotiate the best possible solution with your in-laws lender to ensure they get out of this situation in better shape. This may interest you : My in-laws are underwater on their mortgage and their home is in disrepair. Should they just walk away and move in with us?. I wish your family good luck.
Do you get any money if your house is foreclosed?
Read more: I am retired and do not live to see my mortgage paid. This may interest you : My in-laws are underwater on their mortgage and their home is in disrepair. Should they just walk away and move in with us?. Do I need to refinance to lower my monthly payment?
Can you still live in your house after foreclosure?
Foreclosure occurs when a borrower does not pay their mortgage payments and the lender or mortgage investor has to take the house back. Foreclosure can also occur when the homeowner does not pay their property taxes or homeowners association fees.
Can 401k be garnished?
Banks are run as a business because they are a business that wants to make a profit. If it costs more to exclude too much from accepting a short sale, it is very likely that the bank will prefer the short sale. With foreclosure, a bank takes over the house and then resells it at a priority auction to the highest bidder.
Can someone sue you and take your retirement?
In general, the excluded borrower is entitled to the extra money; but if there were junior mortgage rights on the home, such as another mortgage or HELOC, or if a creditor registered a court right on the property, those parties get the first crack at the funds.
Can the IRS take your stocks?
In some cases, panic homeowners leave their homes after missing a few mortgage payments, or when foreclosure starts. But you have the legal right to stay in your home until the process is complete. Foreclosure procedures can take a few months or in some cases as much as a year or longer.
What income Cannot be garnished?
The general answer is no, a creditor cannot seize or decorate your 401 (k) assets. … Assets in plans that fall under ERISA are protected from creditors. An exception is federal tax law; The IRS can attach your 401 (k) assets if you do not pay tax due.
What happens if your home value drops below your mortgage?
Whether your individual pension account (IRA) can be taken in a lawsuit depends largely on your state of residence and the judgment in question. There is no federal protection in place that protects your IRA from seizure in a lawsuit.
What brings down property value?
The IRS can seize your stock options if it applies a federal tax law to you for unpaid taxes. After exercising your stock options, the IRS can also …
- The federal benefits that are exempt from decorating include: Social Security benefits. Supplementary Security Income Benefits (SSI). Benefits of veterans.
- When the value of a property falls below the outstanding balance of the mortgage, it is called negative equity. That means you owe more on your home than it is worth. This is also known as being underwater or upside down on your mortgage. Negative equity is often expressed through the loan-to-value ratio (LTV).
- The value of your home decreases when you neglect repairs and updates
- Deferred maintenance. If it does not break, it can still lower your property value. …
- Home improvements not built to code. …
- Obsolete kitchens and bathrooms. …
- Fun craft. …
- Poor landscaping. …
What happens if I give my house back to the bank?
Damaged roofing. …
