The Big Move is a MarketWatch column that looks at the inside and outside of real estate, from navigating the search for 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 step should be? Email Jacob Passy at TheBigMove@marketwatch.com.
Just before the pandemic, my husband accepted a job that required us to move out of state; however, we haven’t had to do that yet because of teleworking. My husband and I have two young children. Due to our teleworking, my parents-in-law have been watching our children in our home and often stay over for days at a time.
My husband and I have asked his parents to move in with us, after we move. In theory this is a great scheme for everyone involved: free childcare for us, lower costs for them and we all enjoy each other’s company.
The dilemma is that my in-laws are $ 50K underwater on their townhouse. The home has water penetration and foundation issues that make it only worth about $ 100,000, at best. My father-in-law is a very disciplined man and he doesn’t think walking away is the right thing to do. He believes that continuing to pay the mortgage is the best plan, even if they are not living in the home.
A short sale, even if a buyer was willing to take on the issues, would be devastating to whatever savings he has. My husband feels that walking away with them taking the credit credit of closing is the best option. They would live with us and the mortgage payment is no longer stopping them.
In addition, my husband is the only named child and executor of the estate. My husband realizes that whenever his father dies (he is 71), home is his issue. Should my father-in-law continue to pay or walk away? Are there other options we should be considering?
Your letter is an important reminder that even at a time when home values are rising at an all-time high, many Americans still owe their mortgages more than their homes are worth, called also “underwater” on a home.
Millions of Americans found themselves in this situation as a result of the subprime mortgage crisis that caused the Great Depression. But while home prices have risen – in many cases to new all-time highs – about 1.6 million homes are still in negative equity in the third quarter of 2020, according to the latest data available from CoreLogic
That represents about 3% of all mortgage homes nationwide.
Walking away from an underwater home is an ill-advised move, no matter which way you cut it. And practically any financial expert would advise your family to avoid it at all costs.
For starters, foreclosures are completely destructive to a homeowner’s credit score, and remain in an individual’s credit file for seven years. You may be wondering, what difference does it make? Well what if your new living arrangement doesn’t work out? Your family and in-laws have only been spending short periods of time together for short periods – that is very different from living together permanently.
If your in-laws decide they need their own place, they may have difficulty qualifying for rent with the low credit score they have after the closing. Are you and your husband prepared to act as guarantors for them in such a situation?
Closure is not a jail exclusion card. You have eliminated the possibility of chasing a short sale because it would hurt your ‘in-laws’ savings, but that’s exactly what could happen with closing.
“Depending on the laws in their state, the lender could foreclose on the loan, sell the property, and pursue the parents for a default judgment – the difference between the sale price and what was owed on the loan along with taxes, insurance, fines and fees, ”said Rick Sharga, a mortgage industry veteran and executive vice president of real estate data firm RealtyTrac.
Don’t miss: I plan to retire soon. Should we sell our home while prices are high – and rent it for two years?
Federal law states that retirement savings in company-sponsored retirement accounts as 401 (k) s are exempt from being credited by creditors in the case of a default judgment. Some provinces 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 father-in-law felt obligated to hold his end of the deal up. Also, research shows that foreclosures can sink the property values of nearby homes.
What to do instead? Well, for starters, you should all explore whether your in-laws qualify for any kind of assistance in carrying out the necessary repairs to their home to bring it into a state of sale. If either of your in-laws is a military veteran, they may be eligible for assistance through Operation Homefront. Other resources they can research for financial support include the National Association of Area Agencies on Aging and Habitat for Humanity.
I also think you should reconsider a short sale, and see if your ‘in-laws’ mortgage servicer would agree to a reduced amount to pay off the mortgage. Servants can still chase your laws for the remaining balance on the after-sale loan – though that depends on the state – but as I said, that also applies to foreclosures.
“Another option could be an ‘action instead of closing,’ where they would surrender the house to the bank without going through the closing process, perhaps in exchange for the bank’s pledge to waive any shortfall,” said Eric Dunn, director of litigation. in the National Housing Law Project.
A short sale or deed instead would affect your ‘in-laws’ credit, but would still be less serious than the blow they would take from closing. And with either option, the servicer needs to agree.
Can 401k be garnished?
- 1 Can 401k be garnished?
- 2 How does foreclosure happen?
- 3 What happens if your home value drops below your mortgage?
They could also always see if the lender would be willing to forgive them a portion of the main loan balance. On the same subject : My in-laws are underwater on their mortgage and their home is in disrepair. Should they just walk away and move in with us?. It’s unlikely, but the lender may be willing to be flexible – foreclosures are expensive for mortgage companies, after all.
Can the IRS take your stocks?
Before your family makes any decisions, I highly recommend discussing your case with a HUD-certified real estate attorney or housing counselor. Those individuals could help negotiate the best possible solution with your ‘laws’ lender to get them out of this situation in a 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.
What income Cannot be garnished?
Read more: I’m retired and I don’t live to see my mortgage paid off. On the same subject : My in-laws are underwater on their mortgage and their home is in disrepair. Should they just walk away and move in with us?. Should I refinance to reduce my monthly payment?
Can someone sue you and take your retirement?
The general answer is no, a creditor cannot seize or embellish your 401 (k) assets. … Assets in schemes covered by ERISA are protected from creditors. One exception is federal tax liens; the IRS can attach your 401 (k) assets if you don’t pay taxes due.
How does foreclosure happen?
The IRS can seize your stock options if it applies federal tax copyright to you for unpaid taxes. After grabbing your stock options, the IRS can also …
Can you still live in your house after foreclosure?
Federal benefits that are exempt from decorating include: Social Security Benefits. Supplemental Security Income (SSI) Benefits. Veterans Benefits.
Do you get any money if your house is foreclosed?
Whether your individual retirement account (IRA) can be taken in a lawsuit depends to a large extent on your state of residence and the judgment in question. There are no federal protections in place shielding your IRA from confiscation in a lawsuit.
Do banks want to foreclose?
Closures occur when a lender fails to pay its mortgage payments and the home must be repossessed by the lender or mortgage investor. Closures can also occur when the homeowner fails to pay his property taxes or homeowners association fees.
What happens if your home value drops below your mortgage?
In some cases, panic homeowners leave their home after losing a few mortgage payments or once closing. But you have the legal right to stay in your home until the process is complete. Closure procedures can take a few months or, in some cases, as much as a year or more.
What happens if I give my house back to the bank?
The closed lender is generally entitled to the extra money; but, if there were any younger liens in the home, such as a second mortgage or HELOC, or if a creditor entered a judgment lien against the property, those parties get the first crack at the funds.
What brings down property value?
Banks are run as a business because they are a profit-seeking business. If it costs more to foreclose over agreeing to a short sale, the bank is very likely to favor the short sale. With closing, a bank takes possession of the house, then resells it at a mortgage auction to the highest bidder.
- When the value of a property is lower than the remaining balance on the mortgage, it is called negative equity. That means you owe more than your home is worth. This is also called underwater or upside down on your mortgage. Negative equity is often expressed through the loan-to-value ratio (LTV).
- Access lenders owe the full amount of the mortgage even if they operate the house back to the bank. The lender can sell the house for less than the mortgage amount and come after you for all the balance, plus legal fees and costs. Refinancing and home equity loans are almost always revolving loans.
- The value of your home goes down when you neglect repairs and updates
- Deferred maintenance. If it’s not broken, it can still lower the value of your property. …
- Home improvements not built to code. …
- Old-fashioned kitchens and bathrooms. …
- Poor craftsmanship. …
- Poor landscaping. …