“The Big Move” is a MarketWatch column that examines the ins and outs of real estate, from finding a new home to applying for a mortgage.
Have a question about buying or selling a home? Do you 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 leave the state; however, we have not yet had to do this because of telecommuting. My husband and I have two young children. Thanks to our teleworking, my in-laws watch our children at home and they often stay several days at a time.
My husband and I asked his parents to move in with us after we moved. In theory, this is a great 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 on their townhouse. The house has water penetration and foundation issues that are only worth around $ 100,000 at best. My stepfather is a very disciplined man and 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 don’t live in the house.
A short sale, even if a buyer would be willing to tackle the issues, would be devastating to the savings they have. My husband thinks that walking away and taking out foreclosure credit is the best option. They would live with us and no longer have the mortgage payment that is in their way.
In addition, my husband is the only child and the designated executor of the estate. My husband realizes that whenever his father dies (he is 71 years old) it will be up to him to take care of the house. Should my stepfather keep paying or go? Are there other options we should consider?
Your letter is an important reminder that even in an era when home values are rising at an all time high, many Americans continue to owe more on their mortgages than their home is worth, also known as “being under water”. a house.
Millions of Americans found themselves in this position following the subprime mortgage crisis that triggered the Great Recession. But even though house prices have risen – in many cases to all-time highs – some 1.6 million homes are still negative in the third quarter of 2020, according to the most recent data available from CoreLogic.
This represents about 3% of all mortgaged homes nationwide.
Getting away from a house underwater is a misguided decision no matter how you cut it. And virtually any financial expert would advise your family to avoid it at all costs.
For starters, foreclosures are absolutely devastating to a homeowner’s credit rating, and they stay on a person’s credit report for seven years. You may be wondering what difference does it make? What if your new lifestyle doesn’t work? Your family and in-laws have only spent short periods together – which is very different from living together permanently.
If your in-laws decide they need their own housing, they may have a hard time 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 card to get out of jail. You’ve written off the option of doing a short sale because it will hurt your in-laws’ savings, but that’s exactly what could happen with a foreclosure.
“Depending on the laws of their state, the lender could foreclose the loan, sell the property and sue the parents for a deficiency judgment – the difference between the sale price and what was owed on the loan plus taxes, insurance, fines. and fees, ”said Rick Sharga, mortgage industry veteran and executive vice president of real estate data company RealtyTrac.
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Federal law specifies that retirement savings in business retirement accounts such as 401 (k) s are exempt from garnishment by creditors in the event of an improper judgment. Some states extend this same courtesy to self-directed retirement accounts.
There are also moral and ethical considerations. Your in-laws signed an agreement with the mortgage lender, so it’s understandable that your step-dad feels pressured to hold his end of the bargain. Plus, research shows that foreclosures can lower property values in neighboring homes.
What to do instead? Well, to begin with, you should all consider whether your in-laws qualify for any form of assistance in making the necessary repairs to their home in order to bring it to a salable state. If one of your in-laws is a veteran, they may be eligible for Operation Homefront assistance. Other resources they can seek financial assistance from include the National Association of Regional Agencies on Aging and Habitat for Humanity.
I also think you should reconsider a short sale and see if your in-laws mortgage manager would agree to a reduced amount to pay off the mortgage. Agents can still sue your in-laws for the loan balance after the sale – although that depends on the state – but like I said, this is also true for foreclosures.
“Another option may be a ‘deed in lieu of foreclosure’, whereby they would relinquish the house in the bank without going through the foreclosure process, perhaps in exchange for the bank’s promise to waive any loopholes,” said Eric Dunn, director of litigation at the National Housing Bill.
A short sale or deed in lieu would have an impact on your in-laws’ credit, but it would still be less serious than the blow they would suffer from foreclosure. And whatever option you have, you have to agree with the after-sales service.