Author Topic: Saving the family house  (Read 8300 times)

Murse

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Saving the family house
« on: January 19, 2018, 08:37:11 PM »
Hello everyone,


I am in a bit of a pickle. My mother called and asked to speak with me. I knew it was no good.

They are currently in foreclosure. They need 50k to make catch up. they owe 108k total (including the 50k.) the house is worth 370k per zillow but letís call it 320 because the house is in rough shape.

They asked for advice because they know I am financially savvy. Their credit is shot. The mortgage company quit accepting payments. My siblings still live there, also my aunt and uncle live there. I donít know what choice I have other then front the 50k.

So letís say I front the 50k, how do I do this in a safe way? Theoretically I should be able to front the money, then co-sign for a refi, put a 120k mortgage on it, they repay me have a little for a remodel and Iím now on the title for the risk I took. Any foreseeable issues? Should I speak with any professionals prior to proceeding?

Frankies Girl

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Re: Saving the family house
« Reply #1 on: January 19, 2018, 08:53:55 PM »
You are not in a pickle. Your parents are, and they are trying to rope you in to rescue them from their poor decision-making processes.*

You should not do this. They are bad with money, let this get so terrible that they owe more than a third of what the property could even be sold for optimistically, and have terrible credit. They are extremely poor risk and I doubt they'd be able to pay you back at all, and they will likely end up losing the house eventually anyway, taking your contribution/equity with it.

If you give them money, they are bailed out, will not change and it will need additional triage in another year or so.

There are siblings, and an aunt and uncle living there with your parents? That is insane that this many people can't manage to collect enough to pay the mortgage, so the idea that you are their only hope is ludicrous. You are not. It is not the only path. You can let them be adults and figure out how to go forward without you providing your own hard-earned money to bail them out of a mess they made that could have avoided.

If you really want to help them, you should either gift them the amount so it's not a loan or equity since you almost certainly won't see it again and may not want this hanging over you (which no, sorry, I couldn't do this with their track record - this isn't an unexpected emergency; they would have had plenty of time to right this ship before it hit the iceberg), or find them a path to getting the house foreclosure stopped long enough to get it sold and pay off the mortgage, start budgeting, paying down their debt and learn how to live within their means in a small apartment or house that they can actually afford.


*The only reason I'd be slightly more inclined to give/lend a substantial sum of money would be if someone was VERY sick, had an accident or some other serious incident that caused them to have no choice but to neglect the mortgage so they could get the emergency under control. BUT most mortgage companies will work with people in dire circumstances and I'd like to think you'd have mentioned if they'd had something like this happen so we had more sympathy for their situation? But without further clarification, it seems as if they were just ignoring the mortgage for whatever reason (too much frivolous spending? too little earnings and inability/lack of interest to find work for all able-bodied adults? mental block on speaking with the mortgage company the instant they realized they were in trouble? stubboness about the dire circumstances that should have triggered them putting the house up for sale ASAP to get out of a situation they could not afford?) then got behind, and then let it get REALLY behind and didn't bother doing anything until they entered foreclosure - which is a huge mess and again, they'd have had many chances to fix this before that happened.
« Last Edit: January 20, 2018, 12:18:28 AM by Frankies Girl »
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Murse

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Re: Saving the family house
« Reply #2 on: January 19, 2018, 09:02:08 PM »
You are not in a pickle. Your parents are, and they are trying to rope you in to rescue them from their poor decision-making processes.

You should not do this. They are bad with money, let this get so terrible that they owe more than a third of what the property could even be sold for optimistically, and have terrible credit. They are extremely poor risk and I doubt they'd be able to pay you back at all, and they will likely end up losing the house eventually anyway, taking your contribution/equity with it.

If you give them money, they are bailed out, will not change and it will need additional triage in another year or so.

There are siblings, and an aunt and uncle living there with your parents? That is insane that this many people can't manage to collect enough to pay the mortgage, so the idea that you are their only hope is ludicrous. You are not. It is not the only path. You can let them be adults and figure out how to go forward without you providing your own hard-earned money to bail them out of a mess they made that could have avoided.

If you really want to help them, you should either gift them the amount so it's not a loan or equity since you almost certainly won't see it again and may not want this hanging over you (which no, sorry, I couldn't do this with their track record - this isn't an unexpected emergency; they would have had plenty of time to right this ship before it hit the iceberg), or find them a path to getting the house foreclosure stopped long enough to get it sold and pay off the mortgage, start budgeting, paying down their debt and learn how to live within their means in a small apartment or house that they can actually afford.

I appreciate the response however there are a lot of factors that lead to this, many not their fault. The breadwinner lost his job due to an injury as well as many other factors. I am not asking permission. I am asking how to do this safely.

Do I risk gift tax? I am loaning them money and in exchange receiving the money back as well as 1/3 ownership of 200k equity.

Is there anyway the bank could take the 50k and say ďnah, we are still foreclosing.Ē?

plog

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Re: Saving the family house
« Reply #3 on: January 20, 2018, 12:11:50 AM »
Quote
I am asking how to do this safely.

'Safe' is a very ambigous term. Frankie's spelled out all the possibilities and their risks.  It sounds like money is leaving you--although it's unclear if it's going to be a secured loan or a gift. So what ate you ultimately worried about?  What concern must be addressed for you to consider this done in a 'safe' manner?

To get around a gift tax issue, make the gift to as many people to get the total gift under the tax limit.

Techically the bank can accept the arrears and still foreclose--the agreement has been breached.  Practically, they will not if it's brought current.  Further if your parents have true equity in the home they will receive a check for that once the home is foreclosed upon and resold.  However, the bank isn't going to get what your parents would get if the sold it.

Mikila

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Re: Saving the family house
« Reply #4 on: January 20, 2018, 07:53:32 AM »
Don't do it.

If you do, you need to understand that it does not permanently "save" them.  The effects of your generosity will run out and they will be back with their hand out.  In order for them to be "safe" they need to change their expenses or income. 

I understand the pressure.  I really do.  Money is a gulf between you and your loved ones who want it and spend it as soon as they have it.

I ended up gifting my mom a few thousand dollars.  When she passed away, she had stipulated that her life insurance money be distributed to those that, in her mind, needed it- which means my spendthrift siblings. (Money was spent the first week on a new car)  There was no thought of reimbursing me.  I don't think she even said thank you to me.  I would do it again, and don't regret it.  That said, I chose a sum I was comfortable losing and it was for a specific one-time purpose.

Preferably, you need to have your eyes wide open if you chose to flush this money down the toilet by giving it to them.

So you want to be safe?  If I were you, I would try to figure out ways to help them that do not involve giving them money.  Helping them sell the house, teaching them to budget, helping them to find a new place they can afford, etc.  Giving money should be a last resort.  Remember, they got themselves into this.  It's not your fault.  You didn't cause this.  Therefore, it's not your responsibility to fix this.

Blackeagle

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Re: Saving the family house
« Reply #5 on: January 20, 2018, 07:56:41 AM »
I join previous posters in saying this may not be a good idea.  However, if you're dead set on doing this, one way to do this might be to buy the house from them and having them rent it back from you.  Assuming that your credit and income are sufficient that a bank would give you a mortgage, that $50k would make a decent down payment (if you can get to 20% down, even better).  If you buy it for the fair market value of $320k, your parent should be able to pay off the mortgage and get about $200k out of it.  They can use that to help cover a reasonable rent.  This is still not a great deal financially for you, but it does at least give you an asset, rather than just giving away $50k.  The family dynamics of being your parents' landlord may be a reason not to do this though.

Murse

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Re: Saving the family house
« Reply #6 on: January 20, 2018, 08:43:37 AM »
Thank you everyone for the responses. I have spoken with my wife and we both feel this is the right thing to do given their situation. There are many details that I chose not to outline here. Our mind is made up as long as they agree to the contingencies.

The plan is to make this contingent on them budgeting monthly, going through Dave Ramseyís FPU course, and to allow me to be their accountability partners. If we can get this part right this will pay dividends into my parents old age.

I should of made myself more clear in the OP. I need to know how to do this in a tax efficient manner as well as how if at all possible to protect myself from the bank taking my money and continuing the foreclosure.

Plog, thank you for the comment about them receiving a check after foreclosure. I was not aware of this and it actually makes me more comfortable.

former player

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Re: Saving the family house
« Reply #7 on: January 20, 2018, 08:49:45 AM »
First thing is: please, please, please don't co-sign anything or guarantee anything.  There is a very instructive thread by PlayingWithFireUK whose other half got into this exact position: it has caused years of angst and is an on-going issue in their marriage and financial arrangements, even to affecting the possibility of having children -

https://forum.mrmoneymustache.com/journals/playing-with-fire-is-getting-burned/

You would be better off giving the money (I'm not advocating this, by the way) rather than co-signing anything.

Secondly, there are apparently at least 6 adults or near adults living in this house (parents, uncle and aunt, siblings), and between them they can't keep up with mortgage payments or undertake any maintenance or improvements.  Why is this?  It can't just be because one of the six adults had an injury: there are other dynamics going on which make this an untenable housing situation long-term.  Unless those dynamics change there will be no future house maintenance by these people and no ability to keep up with mortgage or rent payments.  As long as those dynamics are as they currently are any money you do put into this situation is just postponing the problems coming to a head rather than solving them.

I agree with Blackeagle that if you do want to put money into the house you should look at buying it and treating it as a rental.  Please be aware that your chances of getting rent payments consistently into the future are limited and that you will probably have to take responsibility for all repairs and upgrades.

Before you went into this option, or that of gifting the money, I would look at what other housing options are available to your family.  Honestly, given their inability to maintain a property renting would suit them better than home owning.  There may also be low-cost or sheltered housing which would be suitable for one or more of your relatives.   I don't know how old your siblings are but is it time for them to fly the nest yet?

You sound like a good person who wants to do their best for family members who are in trouble.  I can't fault you for that.  But please remember to put your own lifebelt on first.
Be frugal and industrious, and you will be free (Ben Franklin)

former player

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Re: Saving the family house
« Reply #8 on: January 20, 2018, 09:07:46 AM »
You asked about preventing the foreclosure if you do give money towards the house.  The first thing to do is to find out what the current situation is: it is entirely likely that you have not currently got the full or accurate story (your parents may feel some shame, or not fully understand).  The refusal by the bank to accept payments is a very bad sign: banks will only do this when they have reached the stage of having decided to cut their losses.  To get full and accurate information you will probably have to talk to the bank directly.  You will need written authority from your parents before the bank will disclose any information to you.

If the bank has got to the stage of starting foreclosure you will have a little time but not much.  The bank will probably need to be paid off the whole amount owed to them: $108k.  You have $50k to put in.  Where is the remaining $58k that is needed to pay off the bank coming from?

If there is a way for you and the family to find that remaining $58k, then I would suggest that the house is "sold" to a partnership of your parents and yourself, and any other family member who is putting in money, in the shares equivalent to what you each put in to the house (ie your $50k, your parents' equity of $212k, and the remainder).

The partnership that owns the house would need to be subject to some pretty strict conditions.  Firstly, there needs to be a binding legal restriction that no further loans are taken out on the house and that there is to be no refinancing of any remaining loan.  Secondly, all adults living in the house need to sign formal rental agreements and pay rent (possibly according to their means).  Thirdly, there needs to be a sound plan for arranging and paying for maintenance.

Good luck.
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ReadySetMillionaire

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Re: Saving the family house
« Reply #9 on: January 20, 2018, 10:11:53 AM »
You asked about preventing the foreclosure if you do give money towards the house.  The first thing to do is to find out what the current situation is: it is entirely likely that you have not currently got the full or accurate story (your parents may feel some shame, or not fully understand).  The refusal by the bank to accept payments is a very bad sign: banks will only do this when they have reached the stage of having decided to cut their losses.  To get full and accurate information you will probably have to talk to the bank directly.  You will need written authority from your parents before the bank will disclose any information to you.

If the bank has got to the stage of starting foreclosure you will have a little time but not much.  The bank will probably need to be paid off the whole amount owed to them: $108k.  You have $50k to put in.  Where is the remaining $58k that is needed to pay off the bank coming from?

If there is a way for you and the family to find that remaining $58k, then I would suggest that the house is "sold" to a partnership of your parents and yourself, and any other family member who is putting in money, in the shares equivalent to what you each put in to the house (ie your $50k, your parents' equity of $212k, and the remainder).

The partnership that owns the house would need to be subject to some pretty strict conditions.  Firstly, there needs to be a binding legal restriction that no further loans are taken out on the house and that there is to be no refinancing of any remaining loan.  Secondly, all adults living in the house need to sign formal rental agreements and pay rent (possibly according to their means).  Thirdly, there needs to be a sound plan for arranging and paying for maintenance.

Good luck.

OP, take heed to the bolded. I've defended a few foreclosures and it's never a good sign when the bank stops accepting payments. Your parents (respectfully) likely don't have a clue of what is actually going on with the foreclosure proceeding, so you need to work with the bank.

As for long term, and if you can get the foreclosure resolved, I wouldn't do this unless you got title completely in your name. Sorry, but your parents have lost the privilege to have any monetary/legal interest in the house.

I say this a lot, but if you're dead set on doing this, you need to see a lawyer in your jurisdiction.  It would be penny-wise and pound-foolish not to do so.
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Re: Saving the family house
« Reply #10 on: January 20, 2018, 10:34:12 AM »
It takes a long time to be 50K behind on a mortgage of 108K.  Even with late fees and penalties it must have taken years of no mortgage payments.  Please take all the everyone else's warnings.  Be sure to take the time to read playing-with-fire-gets-burned journal someone else mentioned.  She is living through a financial nightmare cause in large measure by co-signing a loan and also getting a loan for her in-laws.

But to answer one of your concerns...gift tax is not really an issue.  Any US citizen can give ~15K a year to as many other individuals as they want.  In this case you and your your wife could each give 15K to father (30K combined) and 15K each to your mother (30K combined).  Even if you went over, all you'd need to do is file an extra form with your taxes.  The overage would count against your lifetime 11 million or so each that is exempt from estate tax.  Even so, this reminds me of the old saying "there is no right way to do the wrong thing."  I think trying to fix this situation is the wrong thing.

YttriumNitrate

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Re: Saving the family house
« Reply #11 on: January 20, 2018, 10:37:32 AM »
They are currently in foreclosure. They need 50k to make catch up. they owe 108k total (including the 50k.) the house is worth 370k per zillow but letís call it 320 because the house is in rough shape.
Based on your previous posts, you are in your mid-20s, make about 130k a year with your spouse, and are killing it by putting away over half your income into savings. You've mentioned that you can front the 50k, but I'd suggest seeing if you can put forward the whole 108k, and have your parents/siblings pay you back over time. Note: Don't actually expect family to pay you back, anything you receive is just a bonus.

For the gift tax, the exemption is $15,000 for 2018, so you and your spouse could give your parents $60,000 (2*2*15000) without triggering a tax, and then another $60,000 in 2019.

As other posters have mentioned, if you pay off the loan, don't expect it to be a one time occurrence.

debbie does duncan

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Re: Saving the family house
« Reply #12 on: January 20, 2018, 10:58:05 AM »
Please be aware if you bail them out you are denying them the chance of helping themselves.
 You will also be setting the precedent of being there for an easy touch.
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2Birds1Stone

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Re: Saving the family house
« Reply #13 on: January 20, 2018, 12:05:57 PM »
I would not do this.

GizmoTX

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Re: Saving the family house
« Reply #14 on: January 20, 2018, 07:33:47 PM »
It won't end with $50K. If you proceed, contact the bank so that you get your information straight from the source. Get any pay off deals in writing, in advance. Do not co-sign anything. As others have pointed out, it may be better if you assume ownership, but you are unlikely to see any rent & you'll be paying property taxes forever just to 'protect' your investment. Not to mention all the maintenance it's likely to require.

My sister borrowed 16K from us to buy a house; this was after she & my mom had successfully sold a house they owned together for years for a nice profit, which they split. I should have seen the red flags -- why would she need a second mortgage? She made payments to us for about a year & then stopped. Come to find out, her house had a balloon payment due after 5 years, which she hadn't mentioned. Of course she & the bank wanted us to cover the balloon to protect our investment. No way. This was over 20 years ago & she's never paid us anything more.

My brother became disabled after heart surgery & his partner was unemployed. We lent him 9K right after the hospital because he was in a cash crisis (but privately considered it a gift). It became very clear to his siblings that he had too much house & too many cars to support, but he wouldn't consider selling anything. Fast forward to a couple years later, after he had destroyed his credit, put off much needed maintenance, & went bankrupt. Although the bankruptcy left him with the house, it was still unsustainable & soon went into foreclosure.

Chrissy

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Re: Saving the family house
« Reply #15 on: January 21, 2018, 12:53:53 PM »
Wouldn't it be less hassle to take the $50k, buy a different house for your family in your own name, and under your control entirely?  Let the old house go to the bank.  Work out a rental agreement (or rent-to-own?) with your family.

Sibley

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Re: Saving the family house
« Reply #16 on: January 21, 2018, 01:02:01 PM »
OP, whatever you decide to do this time, may I suggest some therapy? I have an inkling that there's something odd about your family dynamics and you may not even realize it. Because people with healthy relationship and boundaries wouldn't be so desperate to bail out their parents when the overall situation is clearly unsustainable.

My 2 cents - no. Whatever is going on that you don't want to share, their financial situation is unsustainable. Doing everything possible to remain in a house that you fundamentally can not afford is only going to cause further stress.  Until the underlying problem is addressed, this is only a bandaid. YOU WILL BE HERE AGAIN.

Another Reader

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Re: Saving the family house
« Reply #17 on: January 21, 2018, 02:31:25 PM »
Wouldn't it be less hassle to take the $50k, buy a different house for your family in your own name, and under your control entirely?  Let the old house go to the bank.  Work out a rental agreement (or rent-to-own?) with your family.

The house is worth at least $320,000, and it looks like he could bail it out for around $158,000.  I would not give that much money to the bank. 

At this point, the OP needs an attorney to deal with the loan servicer immediately.  He also needs to watch out for sharks that appear at his parents' door, offering them a small amount of cash to "get them out of foreclosure."  The equity vultures are usually on top of the notices of default and auction dates, and they WILL appear.  The attorney can stop this by making sure the property cannot be conveyed.

ShoulderThingThatGoesUp

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Re: Saving the family house
« Reply #18 on: January 22, 2018, 07:39:15 AM »
I bet they're behind on the property taxes, too.

frugaliknowit

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Re: Saving the family house
« Reply #19 on: January 22, 2018, 09:03:41 AM »
Being that there is so much equity in the house, have them sell it, then buy something with the equity or rent.

Don't do a bailout.  Too much has to go right and too much can go wrong.

ooeei

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Re: Saving the family house
« Reply #20 on: January 22, 2018, 09:54:33 AM »
Wouldn't it be less hassle to take the $50k, buy a different house for your family in your own name, and under your control entirely?  Let the old house go to the bank.  Work out a rental agreement (or rent-to-own?) with your family.

It would be less hassle to have them find a place and pay rent for them for as long as it takes to hit $50k. Becoming their landlord sounds like a nightmare. Not only will they not pay, but from their perspective he'll be the evil landlord trying to make money off of them.

http://jlcollinsnh.com/2014/02/20/case-study-10-should-josiah-buy-his-parents-a-house/


OP, if you decide to go through with this I encourage you to post a journal (and link it here) with updates on your experience. It will either serve as a cautionary tale a la playingwithfire, or will be an example of a situation that everyone thought was a terrible idea working out for the best. Either way, extra info for anyone in the future looking into something similar.

If I recall the main lesson from playingwithfire is DON'T get on any loan paperwork, even if it means you lose out on equity. When everyone else on the note fails to pay, you then have to choose between paying their share or torching your credit along with theirs.

OP, whatever you decide to do this time, may I suggest some therapy? I have an inkling that there's something odd about your family dynamics and you may not even realize it. Because people with healthy relationship and boundaries wouldn't be so desperate to bail out their parents when the overall situation is clearly unsustainable.

My 2 cents - no. Whatever is going on that you don't want to share, their financial situation is unsustainable. Doing everything possible to remain in a house that you fundamentally can not afford is only going to cause further stress.  Until the underlying problem is addressed, this is only a bandaid. YOU WILL BE HERE AGAIN.

Agreed on all points.

I bet they're behind on the property taxes, too.

Also this.
« Last Edit: January 22, 2018, 09:57:41 AM by ooeei »

affordablehousing

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Re: Saving the family house
« Reply #21 on: January 22, 2018, 11:14:51 AM »
OP, Getting parents to budget is hard, especially when the motivating "consultant" is a family member. Unless this foreclosure is enough of a "near death experience" that sets them straight, budgeting, dave ramsay, whatever other guru consults, might not do much at all. In terms of real loss, foreclosure might actually not be such a bad thing. It sounds like there is some level of parental impairment, and the structure needs significant rehab, and so this might not be the best home for them anymore. If the house is worth $320, and they owe $108 on it, if the bank sells it for $300, after bank fees your parents should still get some significant payout, ~$180? which perhaps might be enough to get them into a smaller more manageable situation?

I also agree with others that buying the house from them is probably a lot wiser than continuing with a mortgage. While it's definitely a shitty situation, perhaps too you could think of it as an investment, and this is your chance to buy the house at a discount. Also as others have intimated, taking over ownership is the only way to "protect" yourself. Otherwise your gift may get forgotten come will time, or be squandered and irrelevant.

Not sure what your concern over taxes are? If you want to just give your family a lot of money just have you and your wife make max gifts to your parents and family members, you ought to be able to transfer a lot of money tax free.

Good luck!

Murse

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Re: Saving the family house
« Reply #22 on: January 23, 2018, 10:28:17 AM »
I hear everyoneís concerns, I honestly do. They wound up in this situation when the bread winner was injured. He got disability insurance only for so long. They then felt he should be on permanent disability, and proceeded to court because the insurance company denied him. Their lawyer told them they would win and get back pay.

After a couple years they lost, no back pay. They lived on loans during this period,expecting to be able to catch it all up with the lump sum.

My mother went back to work, and now makes about what he did prior to his injury. He work and makes close to minimum wage.

I am continuing with this. I will have a contract drawn up for a personal loan. They will then refinance, or I will co-sign if needed in 3-6 months to pull out enough equity to pay off nearly all debt (including me.) I will not take any part of ownership of the home. If they want to gift some money as a Thanks after it is welcome but not expected.

Meanwhile we will be working the baby steps, trying to prep them for life after debt. We start this weekend.


As for how this will affect me, I am pulling money out of the market, will have to pay some capital gains. The total loan amount will take me about 8 months to replace if I am not repaid. I am willing to take the risk. I will continue to max out all retirement accounts, this will not affect my savings rate, just my nest egg.

I appreciate the advice, I will post updates as they come.

Another Reader

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Re: Saving the family house
« Reply #23 on: January 23, 2018, 10:32:38 AM »
Have you talked to the loan servicer yet?  All this other stuff is interesting, but your folks appear to be far along in the foreclosure process.  No point in making a plan to bail them out if the foreclosure auction is next week.

ReadySetMillionaire

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Re: Saving the family house
« Reply #24 on: January 23, 2018, 10:35:38 AM »
I hear everyoneís concerns, I honestly do. They wound up in this situation when the bread winner was injured. He got disability insurance only for so long. They then felt he should be on permanent disability, and proceeded to court because the insurance company denied him. Their lawyer told them they would win and get back pay.

After a couple years they lost, no back pay. They lived on loans during this period,expecting to be able to catch it all up with the lump sum.

My mother went back to work, and now makes about what he did prior to his injury. He work and makes close to minimum wage.

I am continuing with this. I will have a contract drawn up for a personal loan. They will then refinance, or I will co-sign if needed in 3-6 months to pull out enough equity to pay off nearly all debt (including me.) I will not take any part of ownership of the home. If they want to gift some money as a Thanks after it is welcome but not expected.

Meanwhile we will be working the baby steps, trying to prep them for life after debt. We start this weekend.


As for how this will affect me, I am pulling money out of the market, will have to pay some capital gains. The total loan amount will take me about 8 months to replace if I am not repaid. I am willing to take the risk. I will continue to max out all retirement accounts, this will not affect my savings rate, just my nest egg.

I appreciate the advice, I will post updates as they come.

I get it. I'm not going to argue with you, you've already made your decision that you want to help. But, please listen to me here:

HIRE AN ATTORNEY BEFORE DOING ANYTHING ELSE.


I've spent about ten minutes typing and deleting responses politely stating how dumb, irresponsible, and penny-wise-pound-foolish it would be to do anything further without hiring an attorney. But seriously, there's no other way of saying this: you'd be an absolute fool not to seek legal counsel about this--especially when the foreclosure process seems to be as far as far along as it is.
« Last Edit: January 23, 2018, 10:39:04 AM by ReadySetMillionaire »
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Jon Bon

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Re: Saving the family house
« Reply #25 on: January 23, 2018, 10:53:46 AM »
Uh, just buy the house?

Write a purchase contract, take it to the bank, negotiate, make a deal happen.  Worst case you have an asset rather than just giving money away that you will (likely) never see again? I feel like this would cost you about the same amount of money and covers all of the financial bases.

They can stay in the house, sign a lease and pay you rent?

This is what I would do before I ever tried to do a personal loan to a family/friend/ANYONE.....




Murse

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Re: Saving the family house
« Reply #26 on: January 23, 2018, 11:25:28 AM »
I hear everyoneís concerns, I honestly do. They wound up in this situation when the bread winner was injured. He got disability insurance only for so long. They then felt he should be on permanent disability, and proceeded to court because the insurance company denied him. Their lawyer told them they would win and get back pay.

After a couple years they lost, no back pay. They lived on loans during this period,expecting to be able to catch it all up with the lump sum.

My mother went back to work, and now makes about what he did prior to his injury. He work and makes close to minimum wage.

I am continuing with this. I will have a contract drawn up for a personal loan. They will then refinance, or I will co-sign if needed in 3-6 months to pull out enough equity to pay off nearly all debt (including me.) I will not take any part of ownership of the home. If they want to gift some money as a Thanks after it is welcome but not expected.

Meanwhile we will be working the baby steps, trying to prep them for life after debt. We start this weekend.


As for how this will affect me, I am pulling money out of the market, will have to pay some capital gains. The total loan amount will take me about 8 months to replace if I am not repaid. I am willing to take the risk. I will continue to max out all retirement accounts, this will not affect my savings rate, just my nest egg.

I appreciate the advice, I will post updates as they come.

I get it. I'm not going to argue with you, you've already made your decision that you want to help. But, please listen to me here:

HIRE AN ATTORNEY BEFORE DOING ANYTHING ELSE.


I've spent about ten minutes typing and deleting responses politely stating how dumb, irresponsible, and penny-wise-pound-foolish it would be to do anything further without hiring an attorney. But seriously, there's no other way of saying this: you'd be an absolute fool not to seek legal counsel about this--especially when the foreclosure process seems to be as far as far along as it is.

Iíll take your advice, what kind of attorney and how much should I expect to spend?

ReadySetMillionaire

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Re: Saving the family house
« Reply #27 on: January 23, 2018, 11:43:49 AM »
Iíll take your advice, what kind of attorney and how much should I expect to spend?

Really hard to guess on costs.  That totally depends on your market, the status of that foreclosure action, whether your parents need counsel on the foreclosure lawsuit, and what ultimately needs to be done transactionally to accomplish your goals.  If you came into my office and your parents needed representation on the foreclosure action, I'd probably request a retainer of $1,500-2,000 (my rate is $200/hour).

I have two suggestions on who to go to.  My first inclination is to suggest a real estate attorney who would have a lot of experience. Just call your county courthouse (probably the clerk's office at the courthouse) or local bar association and ask who practices in foreclosure defense and/or real estate. 

My other suggestion is maybe to seek the advice of an experienced general practitioner.  This would highly depend on reputation, but reputable civil attorneys are generally pretty darn creative with goofy situations like this.

Hope things go well for you.



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Scortius

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Re: Saving the family house
« Reply #28 on: January 23, 2018, 12:15:54 PM »
As others have asked, if the mortgage holder has stopped accepting payments, exactly how do you plan on paying them?

Murse

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Re: Saving the family house
« Reply #29 on: January 23, 2018, 12:37:28 PM »
As others have asked, if the mortgage holder has stopped accepting payments, exactly how do you plan on paying them?

We requested a reinstatement letter from the mortgage company. They said they would only take what was owed or nothing.

robartsd

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Re: Saving the family house
« Reply #30 on: January 23, 2018, 01:44:58 PM »
I am continuing with this. I will have a contract drawn up for a personal loan. They will then refinance, or I will co-sign if needed in 3-6 months to pull out enough equity to pay off nearly all debt (including me.) I will not take any part of ownership of the home. If they want to gift some money as a Thanks after it is welcome but not expected.

As for how this will affect me, I am pulling money out of the market, will have to pay some capital gains. The total loan amount will take me about 8 months to replace if I am not repaid. I am willing to take the risk. I will continue to max out all retirement accounts, this will not affect my savings rate, just my nest egg.
I won't argue against helping your family in this situation.

I would say you should take action to protect your financial interest in this deal. A formal contract for the personal loan is a good start. Be sure the interest rate is appropriate for your opportunity costs (even if you're not profiting off the risks you're taking). I'd propably have a contract for co-signing as well. Perhaps both contracts could be backed by equity your parents have in the home -  not that you're buying any equity in the home, just that you can claim against it if your parents fail to pay as agreed.

Jon Bon

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Re: Saving the family house
« Reply #31 on: January 23, 2018, 02:00:01 PM »
As others have asked, if the mortgage holder has stopped accepting payments, exactly how do you plan on paying them?

We requested a reinstatement letter from the mortgage company. They said they would only take what was owed or nothing.

So lending 108k then?

At least get your name on the title if you are doing that.

former player

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Re: Saving the family house
« Reply #32 on: January 23, 2018, 02:05:27 PM »
As others have asked, if the mortgage holder has stopped accepting payments, exactly how do you plan on paying them?

We requested a reinstatement letter from the mortgage company. They said they would only take what was owed or nothing.
So they want the whole $108k?  If you are putting in $50k, where is the rest coming from?
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ChpBstrd

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Re: Saving the family house
« Reply #33 on: January 23, 2018, 04:12:42 PM »
1) Could you buy the house outright from the bank for a steep discount (lawyer involved, of course).

2) Could you then reverse mortgage the house and obtain something like an annuity payment from it, eventually recovering much of what you put into it? Best of all, you wouldn't be dependent on rent to recoup your investment.

3) Are you sure addiction is not involved? What's with all the other people living in the house? Do they report paying rent to your parents? There's something fishy going on. Know exactly what you're subsidizing. Totally serious: require a blood test to get the loan. If it's + you need to apply your money to expensive treatments instead of giving them a loan to buy more opiates/meth/whatever with. Assume nothing.

4) Is there some illiquid asset you could buy from your parents or use as collateral (spoiler: it will be the same thing)? E.g. separate land parcels, collectibles, precious metals, cars, etc?

5) Should your parents, with one minimum-wage income, be living in a $370k house? If this is a HCOL area, is it time to relocate them somewhere that costs a fraction as much? If this house is huge, why are they in it? If they can't make the payments, how will they maintain it? Maybe you should put your $108k into a backyard inlaws cabin, which leads to...

6) Is the purpose to save (a) this particular house, (b) their equity, or (c) not leave them homeless? The more of these you choose, the narrower the options.

7) Definitely check on property taxes as suggested above. Also note that the house is currently uninsured and at risk of complete loss even after you bail them out.

8) Talk to an accountant about how you could claim depreciation on your personal loan to your parents after they start defaulting. Then you at least get your tax bracket % back over the course of years.

9) Have your parents consider hiring a company to do an estate sale, selling all but the minimum necessities. This could raise a few thousand.

Another Reader

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Re: Saving the family house
« Reply #34 on: January 23, 2018, 04:16:01 PM »
When is the foreclosure auction scheduled?  Because if the servicer is at the all or nothing point, your folks are well past the notice of default in the process.  The bank will sell the house for whatever is offered as long as they get their money, and your folks may or may not get any money back.

Finances_With_Purpose

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Re: Saving the family house
« Reply #35 on: January 23, 2018, 07:51:28 PM »
Thank you everyone for the responses. I have spoken with my wife and we both feel this is the right thing to do given their situation. There are many details that I chose not to outline here. Our mind is made up as long as they agree to the contingencies.

The plan is to make this contingent on them budgeting monthly, going through Dave Ramseyís FPU course, and to allow me to be their accountability partners. If we can get this part right this will pay dividends into my parents old age.

I should of made myself more clear in the OP. I need to know how to do this in a tax efficient manner as well as how if at all possible to protect myself from the bank taking my money and continuing the foreclosure.

Plog, thank you for the comment about them receiving a check after foreclosure. I was not aware of this and it actually makes me more comfortable.

Quick thoughts:

First, I would put up money for my father in a heartbeat, without question.  But I also knew the man, his character, how he is, his history, and his finances.  And I still wouldn't mortgage my wife's future or my child's future (financially) in order to do it - and he wouldn't have let me do that either. 

Your first obligation is to your immediate family: your spouse.  And your kids.  Then to parents, aunts, uncles, and so on. 

There is no safe way. 

As others said, this has many red flags.  You're insisting on conditions - which implies this is not a good idea.  Your parents waited until they were $50k in the hole and virtually foreclosed before bringing this up - that alone is a warning to you. 

Only "gift" or loan what you can afford to lose, completely.  You're asking us whether it's a good idea to "gift" your entire creditworthiness and/or the total loan value + ongoing taxes and other obligations.  Unless you can afford all that, don't do this.  Unless you can afford that without significant strain on your wife, your marriage, and your own family, don't do it. 

Over 2,000 years ago, the Bible warned against co-signing: "...he who hates striking hands in pledge is secure."  (See also Prov. 22:26-27).  It was true then, and it remains true now.  This is almost never advisable. 

(And I second the "hire an attorney" bolded advice as well.) 

With all of that said, I am terribly sorry: it sounds like an awful situation, but I hope you find a good way forward. 

Finances_With_Purpose

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Re: Saving the family house
« Reply #36 on: January 23, 2018, 07:52:25 PM »
Also, go read about sunk cost fallacy.  We are all tempted to make bad financial decisions when there is already money sunk into something.  It's human - be aware of the bias because it works against you here. 

Murse

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Re: Saving the family house
« Reply #37 on: January 25, 2018, 07:12:10 AM »
As others have asked, if the mortgage holder has stopped accepting payments, exactly how do you plan on paying them?

We requested a reinstatement letter from the mortgage company. They said they would only take what was owed or nothing.
So they want the whole $108k?  If you are putting in $50k, where is the rest coming from?

Sorry, my statement was confusing. They want everything that was due up to this point. It includes all the missed payments, interest, fees and lawyer fees. The reinstatement letter gives us a specific amount of time to get them the money. The lender is saying itís likely to be 53-54k total.

As for if I can afford to lose this, yes I can. It is less then 1 years savings. I am as sure as I can be there are no drugs. My adult brother lives there going to college, my aunt and uncle moved in this prior year, normalish income but 4 kids between the ages of 3 and 8. Uncle also going to college and working. My sister who is a Jr in high school lives there. My parents are hard working people. Honestly they have around 30k debt excluding the house and are now up to around 80k gross income. Including the house they are 140kish in debt. A major part of the 30k is to the IRS because they cashed out a 401k for living expenses without looking into the ramifications. These are not people that live way above their means. These are people who lost income with no E fund/assets, are unorganized and were unable to cut deeply enough to keep from going into debt.

Regarding rent, they charge my uncle around 600$/month, but they often waive it for work around the house (mostly fixing up there very old falling apart vehicles.)

So.. the problem is only my dad is on the mortgage. They attempted loan modification but he no longer makes the kind of money he made when he got the mortgage. The remodification was denied. They stated they canít take my moms income into account because she is not on the mortgage.

The reason for the conditions is because I feel this is the last chance to save them from themselves. The conditions are them being active participants trying to resolve this. Living below their means. Getting organized. I donít always agree with Dave Ramsey but he has a way of getting through to people. I will hold their hand through this process. They are in their mid-40ís. This is their last chance to earn back their retirement. If they choose not to then what happens 1-2 decades from now is on them.
« Last Edit: January 25, 2018, 07:19:28 AM by Murse »

Linda_Norway

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Re: Saving the family house
« Reply #38 on: January 25, 2018, 07:54:40 AM »
Is your uncle paying a fair market price for a family of 6 people? If not, your uncle and aunt should either pay a realistic market rent or make place for another tenant. If your parents let them stay cheaply because uncle goes to college, then you will indirectly be sponsoring your uncle's family. Is that your intention? And is that OK for your wife?

I understand that your parents need to take care of your younger sister. Your student brother should in this case (parents in financial trouble) also contribute with paying rent. To me it sounds like the best alternative for you would be to let your parents and teenage sister move to a cheaper and smaller house and sell the big house. And let the rest of your family find another place to live and take care of themselves.

I wish you good luck in your decision.

Murse

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Re: Saving the family house
« Reply #39 on: January 25, 2018, 08:26:08 AM »
Is your uncle paying a fair market price for a family of 6 people? If not, your uncle and aunt should either pay a realistic market rent or make place for another tenant. If your parents let them stay cheaply because uncle goes to college, then you will indirectly be sponsoring your uncle's family. Is that your intention? And is that OK for your wife?

I understand that your parents need to take care of your younger sister. Your student brother should in this case (parents in financial trouble) also contribute with paying rent. To me it sounds like the best alternative for you would be to let your parents and teenage sister move to a cheaper and smaller house and sell the big house. And let the rest of your family find another place to live and take care of themselves.

I wish you good luck in your decision.

I would argue they are paying market for the space they are receiving. I have never heard of rent based on the amount of people renting.

As for what should be done, there are many things that should be done. However these people are not mustachians and I can not treat them as such. I agree, the best solution is to sell the house. Especially when my uncles family moves out. They are paying for too much space. This will be something we will discuss after we are through this crisis stage.

Sibley

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Re: Saving the family house
« Reply #40 on: January 25, 2018, 09:19:23 AM »
I don't get the point of trying to save a house that is too big for the core family. Once you bail them out, there will be no incentive to downsize. You will lose against inertia. They should sell/lose the house now and move somewhere more appropriate for what they need. If you're just going to bail them out when they get into trouble, why should they make any changes?

However, OP, you seem determined to enable your family to stay in a house that's too large, with multiple adults either not contributing or under contributing to the household. If your parents are in their 40s, that means you're probably early to mid 20s. You are setting yourself up for a lifetime of bank of Murse. Once you start that pattern it is VERY hard to break, and if you ever do, it will likely severely damage the long term relationship you have with your family members.

If you don't believe me, read around on this forum. Read reddit's just no family/mil/so pages, and raised by narcissists, and probably others I'm not aware of. You will see the extreme versions of these patterns, but less extreme ones are just as hard to remove yourself from.

Murse

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Re: Saving the family house
« Reply #41 on: January 25, 2018, 09:38:08 AM »
I don't get the point of trying to save a house that is too big for the core family. Once you bail them out, there will be no incentive to downsize. You will lose against inertia. They should sell/lose the house now and move somewhere more appropriate for what they need. If you're just going to bail them out when they get into trouble, why should they make any changes?

However, OP, you seem determined to enable your family to stay in a house that's too large, with multiple adults either not contributing or under contributing to the household. If your parents are in their 40s, that means you're probably early to mid 20s. You are setting yourself up for a lifetime of bank of Murse. Once you start that pattern it is VERY hard to break, and if you ever do, it will likely severely damage the long term relationship you have with your family members.

If you don't believe me, read around on this forum. Read reddit's just no family/mil/so pages, and raised by narcissists, and probably others I'm not aware of. You will see the extreme versions of these patterns, but less extreme ones are just as hard to remove yourself from.

I appreciate your response. However I am very good at saying no. I am also making it very clear this is the only time I am helping them so they had better make it count. I understand I will not be able to convince you this is a good idea but you will also not be able to convince me to help my family in their time of need.

robartsd

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Re: Saving the family house
« Reply #42 on: January 25, 2018, 10:11:07 AM »
So.. the problem is only my dad is on the mortgage. They attempted loan modification but he no longer makes the kind of money he made when he got the mortgage. The remodification was denied. They stated they canít take my moms income into account because she is not on the mortgage.
If your mom is not on the mortgage, then it should not be on her credit report. How is her credit score? If most of the other bad stuff is on your Dad's credit but not your Mom's, you can help out without risking yourself financially by helping build your Mom's credit score - add her as an Authorized User (don't give her the card) on credit lines you have that are old and have low credit utilization. Maybe she will qualify without you co-signing anything.

Murse

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Re: Saving the family house
« Reply #43 on: January 25, 2018, 10:13:46 AM »
So.. the problem is only my dad is on the mortgage. They attempted loan modification but he no longer makes the kind of money he made when he got the mortgage. The remodification was denied. They stated they canít take my moms income into account because she is not on the mortgage.
If your mom is not on the mortgage, then it should not be on her credit report. How is her credit score? If most of the other bad stuff is on your Dad's credit but not your Mom's, you can help out without risking yourself financially by helping build your Mom's credit score - add her as an Authorized User (don't give her the card) on credit lines you have that are old and have low credit utilization. Maybe she will qualify without you co-signing anything.

Thank you so much for this actionable advice! I will still have to loan them the money but 6 months from now I may not have to co-sign! Simply brilliant.

Sibley

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Re: Saving the family house
« Reply #44 on: January 25, 2018, 11:06:19 AM »
I don't get the point of trying to save a house that is too big for the core family. Once you bail them out, there will be no incentive to downsize. You will lose against inertia. They should sell/lose the house now and move somewhere more appropriate for what they need. If you're just going to bail them out when they get into trouble, why should they make any changes?

However, OP, you seem determined to enable your family to stay in a house that's too large, with multiple adults either not contributing or under contributing to the household. If your parents are in their 40s, that means you're probably early to mid 20s. You are setting yourself up for a lifetime of bank of Murse. Once you start that pattern it is VERY hard to break, and if you ever do, it will likely severely damage the long term relationship you have with your family members.

If you don't believe me, read around on this forum. Read reddit's just no family/mil/so pages, and raised by narcissists, and probably others I'm not aware of. You will see the extreme versions of these patterns, but less extreme ones are just as hard to remove yourself from.

I appreciate your response. However I am very good at saying no. I am also making it very clear this is the only time I am helping them so they had better make it count. I understand I will not be able to convince you this is a good idea but you will also not be able to convince me to help my family in their time of need.

Murse, I really hope it works out the way you're thinking it will.

Acastus

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Re: Saving the family house
« Reply #45 on: January 25, 2018, 11:24:25 AM »
It sounds like the biggest financial mistake your folks made was to ignore the problem until it became a disaster. Most banks will work with mortgage holders that come forward with a problem. Having you act as the grownup in the room might get a dialogue going with the bank. You need more details on the status, as others have said.

One option is to have your parent refiance. HARP helps people that got in over their head. As long as your folks can be responsible, it may work. My parents used their HELOC as a checkbook, and owed 80% of the house value. She had not made a payment in 18 months. I helped my Mom apply, and it was approved. The HARP refinance program is still active through 12/13/18.

https://www.harp.gov/about

A HARP application also halts the foreclosure process, so it will give you some breathing room.

As far as you bailing them out. If you want to give them a gift of 50k, that is an option. I would not cosign a loan with them, as you will be liable for the debt if they default. At the least, it will trash your credit history. The bank may come after your assets as a worst case.

Otherwise, there is still a lot of equity in the house. As you say, maybe 200k. If you create some time in the schedule, you can help them sell the house and keep that money. Otherwise, the bank takes it.
« Last Edit: January 25, 2018, 11:29:13 AM by Acastus »

robartsd

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Re: Saving the family house
« Reply #46 on: January 25, 2018, 12:30:30 PM »
HARP sounds like a good idea - they may be able to help without any of your money. Helping your Mom's credit score won't hurt any in either case.

robartsd

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Re: Saving the family house
« Reply #47 on: January 25, 2018, 12:41:28 PM »
I forgot to mention one thing about adding your Mom as an authorized user to your credit cards. For any cards you add your mom to as an authorized user, you need to have a statment balance for it to be reported to the credit agencies. Any small charge should do. Just pay off the balance by the statement due date to avoid interest. I don't think you need to worry about having a statement balance each month, just the first month after she is added to the account. Also AMEX accounts won't help nearly as much as others because they don't appear as old cards for authorized users.

Catbert

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Re: Saving the family house
« Reply #48 on: January 25, 2018, 04:59:04 PM »
I'm still scratching my head because 5 adults can't come up with enough money on a monthly basis to pay on a  180K house payment.  It's got to have been 18-24 months with no payments to run up 55K in arrearages even including lawyer fees and late fees. 

Why do you think that the 5 of them will suddenly be able to afford the house payment?


Murse

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Re: Saving the family house
« Reply #49 on: January 26, 2018, 03:06:20 PM »
It sounds like the biggest financial mistake your folks made was to ignore the problem until it became a disaster. Most banks will work with mortgage holders that come forward with a problem. Having you act as the grownup in the room might get a dialogue going with the bank. You need more details on the status, as others have said.

One option is to have your parent refiance. HARP helps people that got in over their head. As long as your folks can be responsible, it may work. My parents used their HELOC as a checkbook, and owed 80% of the house value. She had not made a payment in 18 months. I helped my Mom apply, and it was approved. The HARP refinance program is still active through 12/13/18.

https://www.harp.gov/about

A HARP application also halts the foreclosure process, so it will give you some breathing room.

As far as you bailing them out. If you want to give them a gift of 50k, that is an option. I would not cosign a loan with them, as you will be liable for the debt if they default. At the least, it will trash your credit history. The bank may come after your assets as a worst case.

Otherwise, there is still a lot of equity in the house. As you say, maybe 200k. If you create some time in the schedule, you can help them sell the house and keep that money. Otherwise, the bank takes it.

It does not appear they qualify for the harp program. They do not meet ďYou are current on your mortgage, with no 30-day+ late payments in the last six months and no more than one in the past 12 months.Ē Thanks for your input though.