‘The Big Move’ is a MarketWatch column that looks at things and real estate, 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 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 it yet because of the telework. My husband and I have two young children. Because of our telework, my brothers-in-law have been watching our children at our home for a long time and often stay for days at a time.
My husband and I asked his parents to move in with us, once we moved. In theory this is a great plan for all involved: free childcare for us, reduced costs for them and we all enjoy each other’s company.
The dilemma is that my sisters-in-law are $ 50K underwater in their city. 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 walking away is the best thing to do. He thinks continuing to pay the mortgage is the best plan, even if they are not living at home.
A short sale, even if a buyer is willing to take care of the issues, would be devastating to any savings they have. My husband feels leaving and taking out credit affected by foreclosure is the best option. They are living with us and no longer have the mortgage payment that disturbs them.
In addition, my husband is the only child and the said executor of the estate. My husband realizes that whenever his father dies (he is 71), that the house will be his issue to handle. Should my brother-in-law continue to pay or leave? Are there other options to 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 give more on their mortgages than their homes cost, also known as “being underwater” on but.
Millions of Americans have found themselves in this position following the subprime mortgage crisis that caused the Great Recession. But despite house prices rising – in many cases to new all-time highs – some 1.6 million households are still in negative equity as of the third quarter of 2020, according to the latest data available from CoreLogic
CLGX,
-0.24%.
This represents about 3% of all mortgages nationwide.
Walking away from a house that is underwater is a bad move, whatever the way you cut it. And virtually every financial expert advises 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. You may be thinking, what difference does it make? And what if your new living arrangement doesn’t work? Your family and your in-laws are only spending short stretches of time together – that’s very different from cohabiting permanently.
If your in-laws decide they need their own place, they may have trouble qualifying for a low-credit lease after foreclosure. Are you and your husband willing to act as guarantors for them in such a situation?
Foreclosure is not a card released from prison. You’ve written off the possibility of pursuing a short sale because it hurts your in-laws ’savings, but that’s just what can happen with foreclosure.
“Under the laws in their state, the lender can foreclose on the loan, sell the property, and come after the parents for judgment on the default – the difference between the sale price and what it was due on the loan along with taxes, insurance, fines and fees, “said Rick Sharga, a veteran in 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 while 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 attachment by creditors in the event of a deficiency judgment. Some states extend this same courtesy to self-directed retirement accounts.
There are also moral and ethical considerations. Your brothers-in-law have signed an agreement with the mortgage lender, so it can be understood that your father feels obliged to keep his end of the negotiation. In addition, research shows that foreclosures can drown the property values of nearby homes.
What should you do instead? Also, for starters, all of you should explore whether your in-laws qualify for any forms of assistance to make the necessary repairs to their home to bring it into a marketable state. If any of your in-laws are a military veteran, they may be eligible for assistance through Operation Homefront. Other resources that can be investigated for financial assistance include the National Association of Aging and Habitat Area Agencies for Humanity.
I also think you should reconsider a short sale, and see if your sister-in-law’s mortgage service agrees to a reduced amount to pay off the mortgage. Servers can still go after your in-laws for the remaining balance on the after-sales loan – although that depends on the state – but as I said, this also applies to foreclosures.
“Another option could be an‘ act instead of foreclosure, ’whereby giving up the house to the bank without going through the foreclosure process, perhaps in return for the bank’s promise to remove any deficiencies,” said Eric Dunn, director of litigation in the National Housing Law Project.
A short sale or deed would instead have an impact on your in-laws credit, but it would still be less severe than the hit they would take from foreclosure. And with any choice, you need the servicer to agree.
Can 401k be garnished?
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They can also always see if the lender is willing to forgive them a portion of the principal balance of the loan. It’s unlikely, but the lender may be willing to be flexible – foreclosure is costly for mortgage companies, after all.
Can someone sue you and take your retirement?
Before your family makes any decisions, I highly recommend discussing your case with a HUD-certified real estate attorney or housing consultant. Those individuals can help negotiate the best possible solution with your brother-in-law’s lender to ensure that they get out of this situation in better shape. I wish your family the best of luck.
Can the IRS take your stocks?
Read more: I am retired and will not live to see my mortgage paid off. Do I have to refinance to lower my monthly payment?
What income Cannot be garnished?
The general answer is no, a creditor cannot seize or hold your 401 (k) assets. … Assets in plans that fall under ERISA are protected by creditors. One exception is federal tax guarantees; the IRS may attach your 401 (k) asset if it fails to pay due taxes.
What happens if your home value drops below your mortgage?
Whether your individual retirement account (IRA) can be taken into account depends largely on your state of residence and the judgment in question. There is no federal protection in place that protects your IRA from seizure in a lawsuit.
What happens if I give my house back to the bank?
The IRS can seize your share options if a federal tax guarantee applies to you for unpaid taxes. After seizing your stock options, the IRS can also …
What brings down property value?
Federal benefits that are exempt from attachment include: Social Security benefits. Supplemental Security Income Benefits (SSI). Veterans Benefits.
- When the value of a property falls below the outstanding balance on the mortgage, it is called negative equity. This means you have to pay more on your home than it costs. This is also known as being underwater or upside down on your mortgage. Negative equity is often expressed through the loan-to-value ratio (LTV).
- Recourse borrowers must give the full amount of the mortgage even if they give the house back to the bank. The lender can sell the home for less than the mortgage amount and come after you for all the rest, plus fees and legal fees. Refinanced loans and housing equity are almost always recourse loans.
- The value of your home goes down when you neglect repairs and upgrades
- Deferred maintenance. If it is not broken, you can still reduce the value of your property. …
- Home improvements are not built to code. …
- Expired kitchens and bathrooms. …
- Bad work. …
- Bad landscape. …
How does foreclosure happen?
Damaged roofs. …
Can you still live in your house after foreclosure?
Increased noise pollution. …
Do banks want to foreclose?
Nearly registered sexual offenders.
Do you get any money if your house is foreclosed?
Foreclosure occurs when the borrower fails to pay their mortgage payments and the lender or mortgage investor has to take it home again. Foreclosure can also occur when the homeowner fails to pay property taxes or homeowners association fees.
