‘The Big Movement’ is a MarketWatch column that looks at real estate entries, from navigating in search of 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 us to relocate from a state; however we have not had to so far due to teleworking. My husband and I have two young children. Because of our telecommuting, my in-laws watched our children at our home and they often stay for a few days.
My husband and I asked his parents to move in with us after we moved out. Theoretically 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 in-laws are $ 50K underwater on their townhouse. The home has water penetration and fundamental problems that are worth it for at least about $ 100,000. My father-in-law is a very disciplined man and doesn’t think leaving is the right thing to do. He thinks paying off the mortgage is the best plan, even if they don’t live in the home.
A short sale, even if a buyer would willingly handle the issues, would destroy all savings. My husband feels that walking away and taking the credit for execution is the best choice. They would live with us and no longer have the mortgage payment preventing them.
In addition my husband is the only child and the so-called executor of the estate. My husband realizes that whenever his father dies (he is 71 years old) that the home will be his problem to deal with. Will 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 growing at a record rate, many Americans continue to owe more on their home mortgages than their homes are worth, also known as “being underwater” in a home.
Millions of Americans have found themselves in this position after the subprime mortgage crisis that caused the Great Recession. But although home prices have risen – in many cases to new all-time highs – some 1.6 million households still have negative equity since the third quarter of 2020, according to the latest available data from CoreLogic
That represents about 3% of all mortgaged homes nationwide.
Leaving an underwater home is a wrong move, no matter which way you cut it. And virtually any financial expert would advise your family to avoid it at all costs.
For starters, foreclosures absolutely destroy a homeowner’s credit, and they remain in a person’s credit file for seven years. You might be thinking what difference does it make? Well, what if your new lifestyle doesn’t work out? Your family and in-laws spent only a short time together – this is very different from constantly living together.
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 foreclosure. Are you and your husband willing to act as guarantors for them in such a situation?
Execution is not a free card to get out of jail. You canceled the option to continue a short sale, as it would damage your in-laws ’savings, but that’s exactly what could happen with foreclosure.
“Depending on the laws in their state, the lender could execute the loan, sell the property and come after the parents for a default 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 out: I plan to retire soon. Should we sell our home at high prices – and rent for two years?
Federal law specifies that retirement savings in companies for retirement accounts such as 401 (k) are exempt from creditors ’guarantee in the event of a default judgment. Some states extend this same courtesy to self-directed pension accounts.
There are also moral and ethical considerations. Your parents-in-law have signed an agreement with the mortgage lender, so it is understandable that your father-in-law feels compelled to give up his end of the bargain. Further research shows that foreclosures can suppress the values of nearby homes.
What to do instead? Well, to begin with, you all need to find out if your in-laws are allowed to receive some form of help to make the necessary repairs to their home to bring it to a state of sale. If any of your in-laws are a military veteran, they may be eligible to help through Operation Home Front. Other resources they can explore for financial assistance include the National Association of Regional Agencies for Aging and Habitat for Humanity.
I also think you should reconsider a short sale, and see if your in-laws ’mortgage attorney would agree to a reduced amount to pay off the mortgage. Servants can still sue your in-laws for the remaining balance of the after-sales loan – although that depends on the state – but as I said, that also applies to foreclosures.
“Another option may be‘ action instead of foreclosure ’whereby they would hand over the house to the bank without examining the foreclosure process, perhaps against the bank’s promise to waive any default,” said Eric Dunn, director of litigation at the Project on National Housing Act.
A short sale or replacement deed would affect your in-laws ’credit, but it would still be less severe than the success they would receive from foreclosure. And with both options, you need the server to agree.
How does foreclosure happen?
- 1 How does foreclosure happen?
- 2 What happens if your home value drops below your mortgage?
- 3 Can 401k be garnished?
They could also always see if the lender would like to forgive them part of the principal balance of the loan. It is unlikely, but the lender may be willing to be flexible – foreclosures are expensive for mortgage companies.
Do you get any money if your house is foreclosed?
Before your family decides, I strongly recommend discussing your case with a real estate attorney or HUD-certified housing counselor. These individuals could help negotiate the best possible solution with your in-laws ’lender to ensure that they get out of this situation in better shape. I wish your family good luck.
Do banks want to foreclose?
Read more: I am retired and will not live to see my mortgage paid off. Should I refinance to decrease my monthly payment?
Can you still live in your house after foreclosure?
Foreclosure occurs when a borrower fails to pay his mortgage payments and the lender or mortgage investor must repossess the home. Foreclosure can also occur when the homeowner fails to pay their property taxes or homeowners ’associations.
What happens if your home value drops below your mortgage?
Generally the borrower is entitled to receive the extra money; but, if any youth rights were at home, such as a second mortgage or HELOC, or if a creditor has registered a lawsuit against the property, those parties receive the first crack at the funds.
What brings down property value?
Banks operate as a business because they are a business looking to profit. If it costs more to foreclose on a short sale agreement, the bank will most likely favor the short sale. With foreclosure, a bank takes possession of the house, then resells it at a mortgage auction to the highest bidder.
- In some cases, panicked homeowners leave their home after a lack of some mortgage payments or after a foreclosure foreclosure. But you have the legal right to stay in your home until the process is over. Enforcement proceedings can take several months or, in some cases, even a year or more.
- When the value of a property falls below the remaining balance of the mortgage, it is called a negative equity. That means you owe more to your home than you deserve. This is also known as underwater or reversed by your mortgage. Negative equity is often expressed by the loan-to-value (LTV) ratio.
- The value of your home decreases when you neglect repairs and upgrades
- Delayed maintenance. If it doesn’t break, it can still lower your home value. …
- Home improvements not built to code. …
- Old-fashioned kitchens and bathrooms. …
- Bad craft. …
- Poor landscaping. …
What happens if I give my house back to the bank?
Damaged roof. …
Can 401k be garnished?
Increased noise pollution. …
What income Cannot be garnished?
Nearby registered sex offenders.
Can the IRS take your stocks?
Medical borrowers owe the entire amount of the mortgage even if they returned the house to the bank. The lender can sell the house for less than the mortgage amount and come after you for all the rest, plus fees and legal costs. Refinanced and home loans are almost always resource loans.
Can someone sue you and take your retirement?
The general answer is no, a creditor cannot seize or garnish your 401 (k) assets. … Assets in plans in ERISA are protected against creditors. One exception is federal tax rights; the IRS can attach your 401 (k) assets if you do not pay due taxes.