‘The Big Move’ is a MarketWatch column that looks in and out of properties, 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 will be? Email Jacob Passy at TheBigMove@marketwatch.com.
Just before the pandemic, my husband accepted a job that required us to move out of the state; but we have not had it yet due to telework. My husband and I have two young children. Because of our remote work, my parents-in-law have accompanied our children home, 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 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 in their townhouse. The home has problems with water penetration and foundation which means that at best it is only worth around $ 100,000. My father-in-law is a very disciplined man and does not seem to go away is the right thing to do. He seems to continue to pay the mortgage 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 all the savings they have. My husband feels that the best option is to walk away and take them credit for the foreclosure. They wanted to stay with us and no longer have the mortgage that prevents them.
In addition, my husband is the only child and the appointed executor of the estate. My husband realizes that when his father dies (he is 71 years old), the home will be his problem to deal with. Should the father-in-law continue to pay or pass 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 mortgages than their homes are worth, also known as “being under water” in a home.
Millions of Americans were 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 full-time points – there are still 1.6 million homes in negative equity from the third quarter of 2020, according to the latest available data from CoreLogic
It represents about 3% of all mortgaged homes nationwide.
Walking away from a home that is under water is a poorly recommended move, 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 completely devastating to a homeowner’s credit score, and they remain in a person’s credit file for seven years. You may be thinking, what difference does it make? What if your new lifestyle does not work? Your family and your in-laws have only spent a short 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 rent with the low credit score they would have had after exclusion. 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 the in-laws’ savings, but that is exactly what can happen with a foreclosure.
“Depending on the laws of their state, the lender can foreclose on the loan, sell the property and sue the parents for a defective judgment – the difference between the sale price and what was due to the loan plus tax, insurance, fines and fees,” said Rick Sharga, a veteran of the mortgage industry. and Executive Vice President of Real EstateTrac.
Do not 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 pension savings on company-sponsored pension accounts such as 401 (k) s are exempt from garnering creditors in the event of a default 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 pawnbroker, so it is understandable that your father-in-law feels obligated to keep up the end of the deal. In addition, research shows that forced barriers can lower property values to nearby homes.
What should I do instead? Well, first of all, you should all check if your in-laws qualify for any kind of help to carry out the necessary repairs in the 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 reconsider a short sale, and see if the in-laws’ mortgage lender will accept a reduced amount to pay off the mortgage. Service personnel can still follow your parents-in-law for the remaining balance of the loan after the sale – even if it depends on the state – but as I said, this also applies to compulsory stoppages.
Another option could be a “deed instead of foreclosure” act, in which they would hand over the house to the bank without going through the foreclosure process by the National Housing Law Project.
A card sale or a deed instead will affect the in-laws’ credit, but it will still be less serious than the hit they would get from a foreclosure. And with both options, you need the waitress to agree.