“The Big Move” is a MarketWatch column that examines the ins and outs of real estate, from finding a new home to applying for a mortgage.
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 have not yet had to do this because of telecommuting. My husband and I have two young children. Thanks to our teleworking, my in-laws watch our children at home and they often stay several days at a time.
My husband and I asked his parents to move in with us after we 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 on their townhouse. The house has water penetration and foundation issues that are only worth around $ 100,000 at best. My stepfather is a very disciplined man and doesn’t think leaving is the right thing to do. He thinks that 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 tackle the issues, would be devastating to the savings they have. My husband thinks that walking away and taking out foreclosure credit is the best option. They would live with us and no longer have the mortgage payment that is in their way.
In addition, my husband is the only child and the designated executor of the estate. My husband realizes that whenever his father dies (he is 71 years old) it will be up to him to take care of the house. Should my stepfather keep paying or go? Are there other options we should consider?
Your letter is an important reminder that even in an era when home values are rising at an all time high, many Americans continue to owe more on their mortgages than their home is worth, also known as “being under water”. a house.
Millions of Americans found themselves in this position following the subprime mortgage crisis that triggered the Great Recession. But even though house prices have risen – in many cases to all-time highs – some 1.6 million homes are still negative in the third quarter of 2020, according to the most recent data available from CoreLogic.
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This represents about 3% of all mortgaged homes nationwide.
Getting away from a house underwater is a misguided decision 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 rating, and they stay on a person’s credit report for seven years. You may be wondering what difference does it make? What if your new lifestyle doesn’t work? Your family and in-laws have only spent short periods together – which is very different from living together permanently.
If your in-laws decide they need their own housing, they may have a hard time qualifying for a rental with the low credit score they would have after foreclosure. Are you and your husband ready to act as guarantors for them in such a situation?
Foreclosure is not a free card to get out of jail. You’ve written off the option of doing a short sale because it will hurt your in-laws’ savings, but that’s exactly what could happen with a foreclosure.
“Depending on the laws of their state, the lender could foreclose the loan, sell the property and sue the parents for 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, 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 business retirement accounts such as 401 (k) s are exempt from garnishment by creditors in the event of an improper judgment. Some states extend this same courtesy to self-directed retirement accounts.
There are also moral and ethical considerations. Your in-laws signed an agreement with the mortgage lender, so it’s understandable that your step-dad feels pressured to hold his end of the bargain. Plus, research shows that foreclosures can lower property values in neighboring homes.
What to do instead? Well, to begin with, you should all consider whether your in-laws qualify for any form of assistance in making the necessary repairs to their home in order to bring it to a salable state. If one of your in-laws is a veteran, they may be eligible for Operation Homefront assistance. Other resources they can seek financial assistance from include the National Association of Regional Agencies on Aging and Habitat for Humanity.
I also think you should reconsider a short sale and see if your in-laws mortgage manager would agree to a reduced amount to pay off the mortgage. Agents can still sue your in-laws for the loan balance after the sale – although that depends on the state – but like I said, this is also true for foreclosures.
“Another option may be a ‘deed in lieu of foreclosure’, whereby they would relinquish the house in the bank without going through the foreclosure process, perhaps in exchange for the bank’s promise to waive any loopholes,” said Eric Dunn, director of litigation at the National Housing Bill.
A short sale or deed in lieu would have an impact on your in-laws’ credit, but it would still be less serious than the blow they would suffer from foreclosure. And whatever option you have, you have to agree with the after-sales service.
What happens if your home value drops below your mortgage?
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They could also always see if the lender would be willing to forgive them part of the loan principal balance. This may interest you : My in-laws are underwater on their mortgage and their home is in disrepair. Should they just walk away and move in with us?. This is unlikely, but the lender may be willing to be flexible – foreclosures are expensive for mortgage companies, after all.
What happens if I give my house back to the bank?
Before your family makes a decision, I strongly recommend that you discuss your case with a real estate attorney or HUD certified housing advisor. These people can help you negotiate the best possible solution with your in-laws’ lender to make sure they are better off. Read 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?. I wish your family good luck.
What improves house value?
Learn more: I’m retired and won’t live to see my mortgage paid off. Read 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?. Do I have to refinance to reduce my monthly payment?
- When the value of a property falls below the outstanding mortgage balance, it is called negative equity. This means that you owe more for your home than it is worth. This is also known as being underwater or upside down on your mortgage. Negative equity is often expressed as the loan-to-value ratio (LTV).
- Recourse borrowers owe the full mortgage amount even if they have assigned the house to the bank. The lender can sell the house for less than the mortgage amount and sue you for everything else, plus legal fees and costs. Home equity and refinanced loans are almost always recourse loans.
- Let’s dive in!
- Add beauty. Okay, the first thing you can do to increase the value of your home is to literally make your home more attractive. …
- Add more space. Larger homes tend to sell for more. …
What brings down property value?
Add energy efficiency. …
- Add updated systems and devices. …
- Add technology.
- Your home’s value drops when you neglect repairs and updates
- Deferred maintenance. If it is not broken, it can further reduce the value of your property. …
- Home improvements are not built to code. …
- Old fashioned kitchens and bathrooms. …
- Poor quality workmanship. …
- Poor landscaping. …
How does foreclosure happen?
Roof damaged. …
Do you get any money if your house is foreclosed?
Increase in noise pollution. …
Can you still live in your house after foreclosure?
Registered sex offenders nearby.
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 occur when the homeowner does not pay their property taxes or homeowners association fees.
Can 401k be garnished?
In general, the foreclosed borrower is entitled to the additional money; but, if secondary liens were on the house, such as a second mortgage or HELOC, or if a creditor registered a judgment lien against the property, those parties get the first crack in the funds.
Can the IRS take your stocks?
In some cases, panicked homeowners leave their homes after missing a few mortgage payments or once a foreclosure begins. But you have the legal right to stay in your home until the process is complete. Foreclosure proceedings can take a few months or, in some cases, up to a year or more.
Can someone sue you and take your retirement?
Banks are run like a business because they are looking to make a profit. If it costs more to enter than to accept a short sale, the bank is very likely to favor short selling. With foreclosure, a bank takes possession of the house and then resells it in a mortgage auction to the highest bidder.
