‘The Big Move’ is a MarketWatch column that looks at things and 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 leave the state; however, we haven’t had it yet because of the telework. My husband and I have two young children. Because of our telework, my brothers-in-law have been watching our children at our home for a long time and often stay for days at a time.
My husband and I asked his parents to move in with us, once we moved. In theory this is a great plan for all involved: free childcare for us, reduced costs for them and we all enjoy each other’s company.
The dilemma is that my sisters-in-law are $ 50K underwater in their city. The house has water penetration and foundation issues making it only worth about $ 100,000, at best. My father-in-law is a very disciplined man and doesn’t think walking away is the best thing to do. He thinks continuing to pay the mortgage is the best plan, even if they are not living at home.
A short sale, even if a buyer is willing to take care of the issues, would be devastating to any savings they have. My husband feels leaving and taking out credit affected by foreclosure is the best option. They are living with us and no longer have the mortgage payment that disturbs them.
In addition, my husband is the only child and the said executor of the estate. My husband realizes that whenever his father dies (he is 71), that the house will be his issue to handle. Should my brother-in-law continue to pay or leave? Are there other options to 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 give more on their mortgages than their homes cost, also known as “being underwater” on but.
Millions of Americans have found themselves in this position following the subprime mortgage crisis that caused the Great Recession. But despite house prices rising – in many cases to new all-time highs – some 1.6 million households are still in negative equity as of the third quarter of 2020, according to the latest data available from CoreLogic
This represents about 3% of all mortgages nationwide.
Walking away from a house that is underwater is a bad move, whatever the way you cut it. And virtually every financial expert advises your family to avoid it at all costs.
For starters, foreclosures are absolutely devastating to a homeowner’s credit score, and remain in a person’s credit file for seven years. You may be thinking, what difference does it make? And what if your new living arrangement doesn’t work? Your family and your in-laws are only spending short stretches of time together – that’s very different from cohabiting permanently.
If your in-laws decide they need their own place, they may have trouble qualifying for a low-credit lease after foreclosure. Are you and your husband willing to act as guarantors for them in such a situation?
Foreclosure is not a card released from prison. You’ve written off the possibility of pursuing a short sale because it hurts your in-laws ’savings, but that’s just what can happen with foreclosure.
“Under the laws in their state, the lender can foreclose on the loan, sell the property, and come after the parents for judgment on the default – the difference between the sale price and what it was due on the loan along with taxes, insurance, fines and fees, “said Rick Sharga, a veteran in the mortgage industry and executive vice president of real estate data firm RealtyTrac.
Don’t miss it: I plan to retire soon. Should we sell our house while prices are high – and rent for two years?
Federal law specifies that retirement savings in company-sponsored retirement accounts such as 401 (k) s are exempt from attachment by creditors in the event of a deficiency judgment. Some states extend this same courtesy to self-directed retirement accounts.
There are also moral and ethical considerations. Your brothers-in-law have signed an agreement with the mortgage lender, so it can be understood that your father feels obliged to keep his end of the negotiation. In addition, research shows that foreclosures can drown property values of nearby homes.
What should you do instead? Also, for starters, all of you should explore whether your in-laws qualify for any forms of assistance to make the necessary repairs to their home to bring it into a marketable state. If any of your in-laws are a military veteran, they may be eligible for assistance through Operation Homefront. Other resources that can be investigated for financial assistance include the National Association of Aging and Habitat Area Agencies for Humanity.
I also think you should reconsider a short sale, and see if your sister-in-law’s mortgage service agrees to a reduced amount to pay off the mortgage. Servers can still go after your in-laws for the remaining balance on the after-sales loan – although that depends on the state – but as I said, this also applies to foreclosures.
“Another option could be an‘ act instead of foreclosure, ’whereby giving up the house to the bank without going through the foreclosure process, perhaps in return for the bank’s promise to remove any deficiencies,” said Eric Dunn, director of litigation in the National Housing Law Project.
A short sale or deed would instead affect your in-laws credit, but it would still be less severe than the hit they would take from foreclosure. And with any choice, you need the servicer to agree.