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Do you have questions 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 yet had to because of teleworking. My husband and I have two small children. Because of our remote work, my fathers-in-law observe our children with us and often stay for days.
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 in-laws are $ 50,000 underwater at their cottage. The house has problems with water penetration and foundations that are worth only about $ 100,000, at best. My father-in-law is a very disciplined man and he doesn’t think leaving is the right thing to do. He thinks that continuing to pay the mortgage is the best plan, even if they do not live in the house.
A short sale, even if the buyer were willing to accept the problem, would be disastrous for any savings he has. My husband thinks going and accepting a foreclosure loan agreement is the best option. They would live with us and would no longer be bothered by paying the mortgage.
In addition, my husband is the only child and the appointed executor of the estate. My husband realizes that his home will take care of his home whenever his father dies (he is 71 years old). Should my father-in-law keep paying or walking 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 still owe more on their mortgages than their homes are worth, also known as “being underwater” at home.
Millions of Americans found themselves in that position after the mortgage crisis that caused the Great Recession. But even though house prices have risen – in many cases to new highs of all time – some 1.6 million homes are still in negative capital since the third quarter of 2020, according to the latest data available from CoreLogic
This represents approximately 3% of all mortgage homes nationwide.
Leaving a house that is under water 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 absolutely disastrous for a homeowner’s credit rating and remain in a person’s credit record for seven years. You might be thinking, what’s the difference? So what if your new living arrangement fails? Your family and your in-laws only spent a short time together – this is very different from living together forever.
If your in-laws decide they need their place, they may have trouble qualifying for a low-credit lease they would have after foreclosure. Are you and your husband ready for them to be guarantors in such a situation?
Enforcement is not a ticket to get out of jail. You have written off the possibility of making a short sale because it would harm your in-laws ’savings, but that is exactly what could happen with foreclosure.
“Depending on the laws in their country, the lender could enforce the loan, sell the property and ask the parents to rule on the defect – the difference between the sale price and what is owed on the loan plus taxes, insurance, fines and fees,” he said. is Rick Sharga, a veteran of the mortgage industry and executive vice president of real estate company RealtyTrac.
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 specifies that retirement savings in company-sponsored retirement accounts, such as 401 (k), are exempt from prohibition by creditors in the event of a default judgment. Some states provide the same courtesy to stand-alone retirement accounts.
There are both moral and ethical considerations. Your in-laws have signed an agreement with the mortgage lender, so it’s understandable that your father-in-law feels obligated to maintain his end of the deal. In addition, research shows that foreclosures can reduce the value of nearby homes.
What to do instead? Well, for starters, you should all investigate whether your relatives meet the laws of any form of assistance to make the necessary repairs to your home to bring it to a state of sale. If any of your dads are military veterans, they may be eligible for assistance through Operation Homefront. Other resources they may seek for financial assistance include the National Association of Regional Aging Agencies and Human Habitats.
I also think you should consider a short sale and see if your dad’s mortgage servicer agrees to a reduced mortgage repayment amount. Servicemen can still claim your in-laws for the remaining balance after the sale of the loan – although it depends on the state – but as I said, the same goes for foreclosures.
“Another option could be‘ act instead of foreclosure ’, where they would hand over the house to the bank without going through foreclosure proceedings, perhaps in exchange for the bank’s promise to waive any deficiencies,” said Eric Dunn, litigation director on the national housing law project .
A short sale or replacement contract would affect the merits of your father-in-law, but they would still be less serious than the blow that would take them to foreclosure. And with both options, you need the service technician to agree.