Best way to borrow against property?

[anonneptune]

I have an elderly friend who's apparently got about $25k in credit card debt and they're taking about $600 of her $900 social security income every month to just cover interest.  However, she has land she lives on that she owns outright.  The land is valued at $60k by the tax assessor, probably worth five or ten times that in today's market.  There are no liens or encumbrances on the property.  It's raw land though, she lives in a trailer on it.

I imagine she could get either a mortgage or other loan using the property as collateral, then pay off the credit cards, and have a lower interest payment.  I imagine something like 5-10% interest instead of 25%.

I've never taken a loan so I'm new to looking into this, what kind of loan should she look for?  I've googled "how to get a loan against property" etc, and see lots of options, but I'm coming here because y'all likely have better advice than the top google results that are basically ads.

[Finances_With_Purpose]

She won't get much of a loan or a good rate without good income to pay it back.  It sounds like she's past that point, so her best bet may be to sell some of the land off, if it's to where she can sell it.  Or she can go bankrupt and her land may stay hers, depending, but she would need to talk to a bankruptcy attorney first. 

[reeshau]

I don't know if she could find a lender for land+trailer, but otherwise this sounds like a case where a reverse mortgage could be helpful.  Not only could she lower her payments, but she could choose not to make any, if she would not otherwise wish to pass the land on to an heir.

[GilesMM]

She can get a home equity loan of $25,000 at 7.5% for $175/month as she has income of at least $900/month (post-tax?).  Just be aware that if she fails to pay the note, they can eventually foreclose and take her house .

[Finances_With_Purpose]

I would think hard about just renegotiating the CC or whatever versus doing things that could force her to lose her home.  She needs her home, I assume.  So I wouldn't impair that (or make rosy assumptions about her ability to manage bills going forward, since she's already in a hole). 

So I would either renegotiate the CC, go bankrupt if she gets too underwater (IF and ONLY IF she can keep the home), or maybe sell a chunk of land, but do something that doesn't put her in a position where she may end up homeless. 

[slappy]

Why even continue to pay it? Why not just let it get charged off?

[Finances_With_Purpose]

Yeah @slappy , that's what I'm thinking as well.

[GilesMM]

Why even continue to pay it? Why not just let it get charged off?

Because honesty and ethics?

[slappy]

Why even continue to pay it? Why not just let it get charged off?

Because honesty and ethics?

I mean, yeah I get that. But there is no realistic way she can pay it back. I get it sucks, but it is what it is. My mother in law in the same situation. She ran up her bills and now she can't pay them. It sucks, but it happens. For me, the honesty/ethics comes more into play when you can pay and choose not to. Like, if I can afford my mortgage, but I don't like my house so I just walk away and foreclose the house. Or if I run my credit card bill and then just don't want to pay it.

[slappy]

Yeah @slappy , that's what I'm thinking as well.

Well I guess you and I are both bad people. :)

[Omy]

I have an elderly friend who's apparently got about $25k in credit card debt and they're taking about $600 of her $900 social security income every month to just cover interest.  However, she has land she lives on that she owns outright.  The land is valued at $60k by the tax assessor, probably worth five or ten times that in today's market.  There are no liens or encumbrances on the property.  It's raw land though, she lives in a trailer on it.

I imagine she could get either a mortgage or other loan using the property as collateral, then pay off the credit cards, and have a lower interest payment.  I imagine something like 5-10% interest instead of 25%.

I've never taken a loan so I'm new to looking into this, what kind of loan should she look for?  I've googled "how to get a loan against property" etc, and see lots of options, but I'm coming here because y'all likely have better advice than the top google results that are basically ads.

Are you (or someone else) in a position to lend your friend the money and put a lien against the property (and get your money back when they sell or die)? Or you could buy the property now and give your friend a "life estate" (which would allow friend to live in the property until they die, pay off their debt now, and have extra to live on)?

I'd consider doing either of these options for a close friend or family member but I don't know if that's workable for you and your friend.

[anonneptune]

Why even continue to pay it? Why not just let it get charged off?

She did actually stop paying one of her credit cards and it's building up a bigger balance of interest plus late fees.  My understanding is they might eventually sue and the court could pay it with a lien against the land.  If she had no assets, this might be a viable option technically.

I would think hard about just renegotiating the CC

Her credit score is poor, if experian is to be believed around 530.  Otherwise I'd look into a zero apr credit card to transfer to for the next year-ish while we figure out a better place to put the debt. 

I'd consider doing either of these options for a close friend or family member but I don't know if that's workable for you and your friend.

I'd consider that if it was secured with a lien on the land, but it may take some time for us to figure that out and for me to decide to do it, and I don't want the time pressure if there's another way to cut her interest bill meanwhile.

She can get a home equity loan of $25,000 at 7.5% for $175/month as she has income of at least $900/month (post-tax?).  Just be aware that if she fails to pay the note, they can eventually foreclose and take her house .

Thanks, that might be the best option, either this or a reverse mortgage.  I suppose we just look for whatever relatively-reputable, perhaps local, bank will offer one of those?

[slappy]

Why even continue to pay it? Why not just let it get charged off?

She did actually stop paying one of her credit cards and it's building up a bigger balance of interest plus late fees.  My understanding is they might eventually sue and the court could pay it with a lien against the land.  If she had no assets, this might be a viable option technically.

I would think hard about just renegotiating the CC

Yeah, if she's elderly, just let the estate deal with it. With a $900 month, it seems like there is almost no way she would pay that off in her lifetime, and even if she did, how would that benefit her?

[ChickenStash]

If it were me, I'd file this under "shit happens" and recommend stopping payment. After a few months of annoying phone calls, the CC companies (or collections) will negotiate it down or write it off entirely. There are plenty of guides online about the process. I watched my parents go through this for much more than 25k and it was fairly painless for them. I think they did have to pay tax on the amount that was written off, though.

It's all just business and part of the risk when offering and accepting unsecured loans.

[catccc]

If you have a good credit score, would you add her as an authorized user to one of your oldest accounts?  Not for her to use, of course.  But like selling a tradeline, without the actual sale. This will boost her credit score and then maybe she could try to transfer the balance to a better APR card or intro offer to pay it off faster?

IDK all the details, but I got an interesting solicitation in the mail last week.  It was credit card secured by home equity with favorable rates (over the terrible usual credit card rates) called Aven.

[Finances_With_Purpose]

Yeah @slappy , that's what I'm thinking as well.

Well I guess you and I are both bad people. :)

Ha. 

It still gets paid, most likely.  It just won't get paid until she dies, because we all do better if she isn't homeless before then, and because she doesn't have the funds to pay it now.  Pretty typical in those types of situations.