‘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.
How does foreclosure happen?
- 1 How does foreclosure happen?
- 2 What to do if you are underwater on your mortgage?
They could also always see if the lender would be willing to forgive them a portion of the loan’s principal balance. This is unlikely, but the lender may be willing to be flexible – after all, foreclosures are expensive for mortgage lenders.
Do banks want to foreclose?
Before your family makes any decisions, I strongly recommend that you discuss your case with a real estate attorney or a HUD-certified housing counselor. These people can help negotiate the best possible solution with the parents-in-law’s lender to ensure that they get out of this situation in better shape. I wish the family good luck.
Do you get any money if your house is foreclosed?
Read more: I am retired and do not want to live with seeing my mortgage pay. Should I refinance to lower my monthly payment?
Can you still live in your house after foreclosure?
Foreclosure occurs when a borrower does not pay off his mortgage, and the lender or mortgage lender must take back the home. Foreclosure can also occur when the homeowner does not pay the property tax or the homeowners’ association fee.
What to do if you are underwater on your mortgage?
Banks are run as a business because they are a business that wants to make money. If it costs more to exclude to accept a card sale, the bank will in all probability favor the card sale. With exclusion, a bank takes possession of the house, and then resells it at a mortgage auction to the highest bidder.
- Usually, the excluded borrower is entitled to extra money; but if any junior lien was on the home, such as a second mortgage or HELOC, or if a creditor noted a lien over the property, those parties get the first solution on the funds.
- In some cases, panic homeowners leave their homes after missing out on a mortgage or when a foreclosure starts. But you have a legal right to stay at home until the process is complete. Foreclosure procedures can take a few months or, in some cases, as much as a year or longer.
- What are your options if your mortgage is under water?
- Option 1: Stay at home and work to build more equity. …
- Option 2: Refinance your mortgage. …
Can I refinance if my house is underwater?
Option 3: Sell your house and use your savings to pay the amount you still owe. …
What happens if you sell a house for less than you paid?
Option 4: Sell your house through a short sale process. …