‘The Big Move’ is a MarketWatch column that looks at the ins and outs of 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 him to go out of state; however, we haven’t even had to yet because of the telework. My husband and I have two children. Because of our telework, my parents have been watching our kids in our house and they often stay for days on end.
My husband and I asked her parents to move in with us once we moved in. In theory this is a great plan for all participants: free childcare for us, reduced expenses for them and we all enjoy each other’s company.
The dilemma is that my dreams are $ 50K underwater in their town house. The house has water penetration and foundation problems that are worth only about $ 100,000, at best. My father-in-law is a very disciplined man and I don’t think going away is the right thing to do. He thinks 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 deal with the issues, would be devastating for any savings they have. My husband feels that getting away with it and taking the foreclosure credit card is the best option. They were living with us and no longer had the mortgage payment that prevented them.
Also, my husband is the only son and the named executor of the estate. My husband realizes that every time his father dies (he is 71), that house will be his problem to manage. Should my father-in-law continue to pay or leave? Are there other options that we should consider?
Your letter is an important reminder that even at a time when home values are growing at a record rate, many Americans continue to owe more on their mortgages than their home is worth, also known as ‘being under’. water “in a house.
Millions of Americans have found themselves in this position after the subprime mortgage crisis that caused the Great Recession. But even though house prices have risen – in some cases to new all-time highs – some 1.6 million homes are still in negative equity by the third quarter of 2020, according to the latest data available from CoreLogic
This represents about 3% of all mortgaged homes across the country.
Moving away from a house that is underwater is an inadvisable move, no matter how you cut it. And virtually any financial expert will advise 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 record for seven years. You may be thinking, what difference does it make? Well, what if your new life system doesn’t work? Your family and acquaintances have only spent short periods of time together – it’s very different from permanent cohabitation.
If your spouses decide they need their own location, they may have difficulty qualifying for a location with the low credit score they would have post-foreclosure. Are you and your husband ready to act as guarantors for them in such a situation?
Foreclosure is not a prison-free card. You’ve ruled out the possibility of pursuing a short sale because it would damage the savings of your dreams, but that’s just what could happen with a foreclosure.
“Under the laws in their state, the lender could block the loan, sell the property and then sue the parents for a default judgment – the difference between the sale price and what was owed on the loan plus taxes, insurance, fines and taxes, ”said Rick Sharga, a veteran of the mortgage industry and executive vice president of real estate data firm RealtyTrac.
Don’t miss it: I’m thinking of retiring soon. Should we sell our house while prices are high – and rent it for two years?
Federal law specifies that retirement savings in company-sponsored retirement accounts such as 401 (k) s are exempt from disbursement by creditors in the event of a bankruptcy judgment. Some states extend this same courtesy to self-directed pension accounts.
There are also moral and ethical considerations. Your spouses have signed an agreement with the mortgage lender, so it is understood that your partner feels obligated to keep his termination of the agreement. In addition, research shows that foreclosures can lower property values in nearby homes.
What to do instead? Well, for starters, you should all find out if your in-laws qualify for any form of assistance to make the necessary repairs to their home to bring it into a salable condition. If one of your in-laws is a military veteran, they may be eligible for assistance with Operation Homefront. Other resources that can be investigated for financial assistance include the National Association of Area Agencies for Aging and Habitat for Humanity.
I also think you should reconsider a short sale, and see if the mortgage broker of your dreams would agree to a reduced amount to pay off the mortgage. Servants can still go after your dreams for the rest of the balance on the after-sales loan – even if that depends on the state – but like I said, it’s also true for foreclosures.
“Another option could be an‘ act instead of foreclosure ’, so that they would surrender the house to the bank without going through the foreclosure process, perhaps in exchange for the bank’s promise to waive any default,” he said. said Eric Dunn, director of litigation at the National Housing Law Project.
A short sale or a deed in place would have an impact on the credit of your laws, but it would still be less severe than the blow they would have taken from a foreclosure. And with one or the other option, you need the servicer to agree.