“The Big Move” is a MarketWatch column exploring the ins and outs of real estate, from looking for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you 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 to do this yet because of telecommuting. My husband and I have two young children. Because of our telework, my parents-in-law have kept an eye on our children at our home and they often stay for days on end.
My husband and I asked his parents to move in with us once we moved. In theory, this is a great plan for everyone involved: free childcare for us, less cost to them, and we all enjoy each other’s company.
The dilemma is that my in-laws have $ 50,000 underwater in their town home. 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 running away is the right thing to do. He thinks continuing to pay the mortgage is the best option, even if they don’t live in the house.
A short sale, even if a buyer were willing to address the issues, would be devastating to the savings they have. My husband believes that running away and taking the credit of foreclosure is the best option. They would live with us and would no longer have the mortgage payment hindering them.
In addition, my husband is the only child and the said executor of the estate. My husband realizes that when his father dies (he’s 71), the house will be his problem. Should my father-in-law keep paying or should I run away? Are there other options we should consider?
Your letter is an important reminder that even at a time when the value of a home is growing at a record rate, many Americans still owe more on their mortgage than their home is worth, also known as being ‘underwater’ on a home .
Millions of Americans found themselves in this position in the wake of the subprime mortgage crisis that sparked the Great Recession. But while house prices have soared – in many cases to new record highs – as of the third quarter of 2020, about 1.6 million homes are still in negative equity, according to the most recent data from CoreLogic.
That represents about 3% of all mortgage homes across the country.
Running away from a house that is underwater is an unwise move no matter which way you cut it. And practically any financial expert would advise your family to avoid this at all costs.
For starters, foreclosure sales are absolutely devastating to a homeowner’s credit score, and they remain in a person’s credit record for seven years. You may think: what difference does it make? What if your new living situation does not work? Your family and in-laws have only spent a short amount of time together – that’s very different from living together permanently.
If your in-laws decide they need a home of their own, they may struggle to qualify for a rental because of the low credit score they would have after the foreclosure. Are you and your husband willing to vouch for them in such a situation?
Foreclosure is not a card to get out of prison. You’ve written off the ability to pursue a short sale because it would hurt your in-laws’ savings, but that’s exactly what can happen with a foreclosure.
Depending on the laws in their country, the lender may cancel the loan, sell the property, and chase the parents for an assessment of deficiencies – the difference between the sale price and what was owed on the loan plus taxes, insurance, fines and fees, ”said Rick Sharga, a mortgage industry veteran and executive vice president of real estate data company RealtyTrac.
Don’t Miss: I plan to retire soon. Should we sell our house when 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 creditors’ seizure in the event of a deficiency judgment. Some states offer the same courtesy to self-directed retirement accounts.
There are also moral and ethical considerations. Your in-laws have signed an agreement with the mortgage lender, so it is understandable that your father-in-law feels obliged to hold up on his end of the bargain. In addition, research shows that foreclosures can lower the property values of nearby homes.
What should you do instead? To begin with, you should all investigate whether your in-laws qualify for any kind 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 through Operation Homefront. Other sources they can research for financial aid 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 lender would agree to a reduced amount to pay off the mortgage. Service providers can still go after your in-laws for the remaining balance of the loan after the sale – although that depends on the state – but as I mentioned, that includes foreclosure sales.
“Another option could be a ‘deed instead of foreclosure sale,’ where they would hand over the house to the bank without going through the foreclosure process, perhaps in exchange for the bank’s promise to refrain from any shortcomings,” said Eric Dunn, litigation director. at the National Housing Law Project.
A short sale or bill of sale would affect your in-laws’ credit, but it would still be less severe than the blow they would receive from a foreclosure. And with both options, the administrator must agree.
What to do if you are underwater on your mortgage?
- 1 What to do if you are underwater on your mortgage?
- 2 How does foreclosure happen?
They could also always see if the lender was willing to forgive them a portion of the main balance of the loan. See the article : 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 – foreclosure sales are expensive for mortgage companies, after all.
- Before your family makes any decisions, I highly recommend discussing your case with a real estate attorney or HUD-certified housing advisor. Those individuals can help negotiate the best possible solution with your in-laws’ lender to make sure they get out of this situation in better shape. I wish your family the best of luck.
- Read more: I am retired and will not experience my mortgage again. Do I have to refinance to reduce my monthly payment?
- What are your options if your mortgage is under water?
- Option 1: Stay with your home and work to build more equity.
- Option 2: Refinance your mortgage.
Can I refinance if my house is underwater?
Option 3: Sell your home and use your savings to pay the outstanding amount. To see also : My in-laws are underwater on their mortgage and their home is in disrepair. Should they just walk away and move in with us?.
What happens if you sell a house for less than you paid?
Option 4: Sell your home through a short sales process. See the article : My in-laws are underwater on their mortgage and their home is in disrepair. Should they just walk away and move in with us?.
How does foreclosure happen?
Option 5: foreclosing your home.
Can you still live in your house after foreclosure?
You cannot refinance your loan while you are underwater. Most lenders require you to have some equity in your property before refinancing.
Do you get any money if your house is foreclosed?
When you sell your home, your mortgage expires, giving your lender the right to demand full repayment of your loan. If your home is sold for less than you owed on it, your lender can demand the difference from you.
Do banks want to foreclose?
Foreclosure occurs when a borrower fails to pay their mortgage payments and the lender or mortgage investor has to repossess the home. Foreclosure can also happen when the homeowner fails to pay their property taxes or homeowners association fees.