“The Big Move” is a MarketWatch column that looks at real estate aspects and breakdowns, from navigating to finding a new home to applying for a mortgage.
Do you have any questions 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 forced him to leave the state; however, we have not yet had to do so due to telework. My husband and I have two small children. Because of our telecommuting, my in-laws have been watching over our children in our home and often stay there for days.
My husband and I have asked their parents to move in with us once we move. In theory, this is a fantastic plan for everyone involved: free childcare for us, cost reduction for them and we all enjoy the company.
The dilemma is that my in-laws are $ 50,000 submarine in their house. The house has water penetration problems and foundations that make it only worth about $ 100,000, at best. My father-in-law is a very disciplined man and doesn’t think moving away is the right thing to do. He thinks continuing to pay the mortgage is the best plan, even if they don’t live at home.
A short sale, even if a buyer was willing to take on the problems, would be devastating to any savings he had. My husband believes that getting away and taking out the foreclosure loan is the best option. They would live with us and no longer prevent them from paying the mortgage.
Also, my husband is the only child and the appointed executor of the estate. My husband realizes that every time his father dies (he is 71), the house will be his biggest problem. Should my father-in-law continue to pay or leave? 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 rate, many Americans continue to owe more on their mortgages than their homes are worth, also known as ” being underwater ”in a home.
Millions of Americans found themselves in this position as a result of the subprime mortgage crisis caused by the Great Recession. But while house prices have risen (in many cases to new all-time highs), approximately 1.6 million households remain negative assets since the third quarter of 2020, according to the latest available data from CoreLogic
This represents approximately 3% of all mortgaged homes nationwide.
Moving away from an underwater house is an inadvisable move, 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 score and remain in a person’s credit file for seven years. Maybe you’re thinking, what difference does it make? So what if your new accommodation doesn’t work? Your family and your in-laws have only spent short periods of time together, it is very different from permanent coexistence.
If your in-laws decide they need their own place, they may have trouble qualifying for a rental with the low credit score they would have after the foreclosure. Are you and your husband ready to act as guarantors in this situation?
Foreclosure is not a free release card from prison. You’ve ruled out the possibility of pursuing a short sale because it would hurt your in-laws ’savings, but that’s what could happen with a foreclosure.
“Depending on the laws of your state, the lender could foreclose on the loan, sell the property and come after the parents to get 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, a veteran of 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 as long as prices are high and rent for two years?
Federal law specifies that retirement savings instead of company-sponsored retirement savings, such as 401 (k), are exempt from forfeiture by creditors in the event of a deficiency lawsuit. Some states extend this same courtesy to self-directed retirement accounts.
There are also ethical and moral considerations. Your in-laws signed an agreement with the mortgage lender, so it is understandable that your father-in-law will feel compelled to hold the end of the negotiation. In addition, research shows that foreclosures can collapse the real estate values of nearby homes.
What to do instead? Well, to begin with, you should all explore whether your in-laws meet the requirements for any form of assistance to make the necessary repairs to your home to bring it to a salable condition. If one of your in-laws is a military veteran, you may be eligible for help through Operation Homefront. Other resources that can be investigated for financial assistance are the National Association of Agencies in the Area on Aging and Habitat for Humanity.
I also think you should reconsider a short-term sale and see if your in-laws ’mortgage administrator would accept a reduced amount to pay off the mortgage. Services may still be looking for your in-laws for the remaining after-sales balance of the loan (although this depends on the state), but as I said, this also happens with foreclosures.
“Another option may be a ‘deed instead of foreclosure,’ so they would hand over the house to the bank without going through the foreclosure process, perhaps in exchange for the bank’s promise to waive any deficiencies.” , said Eric Dunn, director of litigation at the National Housing Bill.
A short sale or a deed instead would affect your in-laws ’credit, but it would be even less serious than the success they would get from a foreclosure. And with either option, you need the technician to agree.