Author Topic: Help Out Family Member or NOT???  (Read 8860 times)

Silrossi46

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Help Out Family Member or NOT???
« on: April 12, 2016, 07:04:09 AM »
So this is the situation i would like some input on:

Sister currently advised that she is looking to divorce.  They own a home with value of 440,000 and currently owe 308,000. The home is in good condition and all the major items have been replaced or remodeled withint he last 5 years.  He earns 180,000 and she earns 30,000.   Her alimony for the next 3 years is 3000 a month and child support for 2 boys is 1600 a month.   She cannot refinance and remove him from the mortgage and deed since she cannot afford to stay in the home on her own salary.   For the next three years she is fine with his alimony support.   She would like to stay in the home for the next three years mainly to keep the kids in the same school district and schools that they are currently in.  After three years she would then decide to sell evaluate the situation at that time.   They are currently separated and he lives at a different location.   She approached me and asked me if i would buy the house for the remaining mortgage balance and she would pay rent to me each month for the three years until such time the house would be sold and then the situation re evaluated.   The main reasons she wants me to do this is 1 to not have to move and keep the kids int he same school district and 2 to get him off the mortgage and deed for the house.   He supposedly is not interested in any equity that currently sits in the house so that is a moot point.  As i figured it buying the home for the exact loan balance at a 4% interest rate would be about 1450/ month on a 30 year.  Taxes are at 1083/month total PITI would be about $2600 / month.  Right now the PITI on the home is 3200/ month.   The rate is higher on the current loan.  She is making the payments now without issue with the alimony that she gets and her other income from her regular employment so there is nor reason for me to believe that for the next three years she wouldnt be able to make the payments to me in rent.   ( she sould realize a savings of 600/ month)

Given all that information my current situation is as follows.   I have a home with zero debt and have zero other debt.   household income is at around 200k per year.  My spouse is ok with us doing this and has posed no issue.  I would easily qualify for any mortgage since i have an 800 credit score.    My questions are as follows:

1:)  would you do it?   if so what type of return should i be wanting/ asking for at the end of the three years?
2:)  put the house in a LLC and treat it a s a rental and depreciate it yearly for the three years?
3:)  Upon the sale of the home at say 440,000 how would i ge tthe equity back to her?    this is suburban NJ so values are fairly stable and i will assume a sale of 440,000 or more.

My thoughts are that the house should rent for around 3200 - 3500 a month.  Given that analysis if i assume 500 per month in cash flow as a reasonable number should i assume that  500 x 36 months  (the three years i would be carrying the house) = 18000 should be what i am expecting at the end of 3 years?       Say an even 20,000 is fair to ask for at the end of three years upon the sale of the home?

I would like others thoughts on this and also am i thinking this completely wrong?   I would like to help out if i can but i am very much a person that will not do something if it does not make financial sense to me.    Any help or input would be greatly appreciated.   

little_brown_dog

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Re: Help Out Family Member or NOT???
« Reply #1 on: April 12, 2016, 07:10:38 AM »
Honestly I don't know if I would do it unless I was already considering making a real estate investment any way. In my experience, getting so intimately involved in a family member's financial situation almost always goes badly at some point. What if she doesn't want to leave in a few years? What if she leaves and then you can't find renters? I guess if I had no mortgage and no debt, the last thing I would want to do would be to take out a 300,000 mortgage with strings attached to a family member whose emotions and priorities might change.

frugaliknowit

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Re: Help Out Family Member or NOT???
« Reply #2 on: April 12, 2016, 07:18:56 AM »
No!  Don't do it.  Have her find a rental she can afford in the school district.  Too many things have to fall in place for this to be a win-win and too many things can go wrong.


ooeei

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Re: Help Out Family Member or NOT???
« Reply #3 on: April 12, 2016, 07:27:57 AM »
There are 1,000,000 ways this could go wrong, but there is some benefit if it goes right.  Are there no lower priced houses in that school district? What about rentals?  You're talking about basically giving her a loan the bank doesn't think she can pay.  At the end of 3 years, she definitely can't pay it.  The numbers you're talking about put her housing cost at something like 60% of her GROSS income.  That's with her alimony included.  Once the alimony is removed in 3 years, housing costs are over 100% of her GROSS income.  She's still going to be in the same predicament in 3 years, only she'll have way less money.

She can't afford the house.  She should get something in her price range so she can save some of the alimony for hard times in the future (or retirement, or college, or anything else). 

If you're okay with completely paying for the house if (when) she can't make payments and not be resentful, then maybe it will work.  Just imagine these few not unlikely scenarios: 
She has some big expense come up and can't pay rent for 6 months.
You lose your job, and she has a medical issue that forces her to lose some of her income so she can't make rent and has medical bills. Now she needs medical help too!
You lose your job, and her kids have a medical issue and she can't make rent.
She loses her job and can't make rent, and now needs all sorts of other help too.
You or your wife have a life changing medical/family event and need all of your excess money for it, and she can't pay for some reason.
So on and so forth.

You're taking on a risk the bank doesn't want, for minimal profit, and with huge potential family/financial consequences if everything doesn't go perfectly.  The bank literally loans money for a living and often loans more than they should, if they don't think she can afford it, she can't.  Have her go to something she can afford, then if she does have some hard times come up (especially in 3 years when her alimony runs out) you'll be in a better position to help her with things she needs, instead of things she wants.

Noodle

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Re: Help Out Family Member or NOT???
« Reply #4 on: April 12, 2016, 07:34:22 AM »
If you are seriously interested in this, I would spend a few hundred to talk to a real estate lawyer. There may be legal/taxation aspects you are not thinking of since this is an unusual situation.

But I agree, has your sister considered a rental instead? I get not wanting to move kids who have been through a tough time, and how overwhelming cleaning out a whole house would be, but does she really want to be responsible for upkeep on a big house by herself? Normally the landlord would do it, but I am assuming you would not want to take that on along with the financial aspect. If there truly are no rentals available (and some neighborhoods don't have them), then maybe if you feel very confident in your sister's maturity.

ooeei

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Re: Help Out Family Member or NOT???
« Reply #5 on: April 12, 2016, 07:37:36 AM »
Also here, not exactly the same situation, but relevant nonetheless.

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

Of note is this paragraph:
Quote
Now here’s where the psychology gets really interesting. My mother was a smart woman. She understood intellectually that I was supporting her to the tune of hundreds of dollars each month, thousands each year. But she never saw that money. What she saw, and felt emotionally, was the $300 check she wrote and mailed to me each month. Wrote and mailed to (cue me twirling one end of my imaginary handlebar mustache) her landlord.

ShoulderThingThatGoesUp

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Re: Help Out Family Member or NOT???
« Reply #6 on: April 12, 2016, 07:52:05 AM »
When will the house need a new roof? Who will replace appliances when they break? Clean the gutters? How much does it cost to heat and cool a $440,000 house? Can she make those utility payments along with the house payments?

Simply put she can't afford this house right now, much less in three years, and you're not doing her any favors by enabling her to keep it.

vivophoenix

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Re: Help Out Family Member or NOT???
« Reply #7 on: April 12, 2016, 07:57:21 AM »
If she thinks the school district is important, and is willing to pay 110% of her alimony for three years to stay there, why can't she rent out another house, one that you do not need to buy?

If i am reading this correctly: they have some equity in the house, the ex doesnt want it. why doesn't she sell the house., pocket the equity and then rent somewhere nearby?

Alimony is meant for her to get better footing . it lasts for three years cause it assumes that is how long it will take her to achieve that better footing. that money should really be used to improve her job prospects or life situation. so she spends it up to stay in house she cant afford and three years from now she still have two kids and makes $30k a year. sure she gets child support, but that is for the children. does she have no thoughts to improving her own situation?


if you decide to do this.  I would not wait three years to hand her equity. Evaluate this property like an investment, cause it sure isn't benefiting you for pleasure, or primary housing. get a loan for the entire value of the house, and then rent it to your sister. she can use her equity to cover the higher monthly cost. do not do this entire arrangement to benefit your sister only.

good luck evicting your own sister when alimony ends.

you are mixing business and family and you will get burned.

pbkmaine

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Re: Help Out Family Member or NOT???
« Reply #8 on: April 12, 2016, 08:10:00 AM »
Noooooo! Do NOT do this!

formerlydivorcedmom

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Re: Help Out Family Member or NOT???
« Reply #9 on: April 12, 2016, 08:27:22 AM »
I would advise not to do this.  If you buy it now at the mortgage value and sell it later at market value with the intention of giving her the equity, then you and she have essentially committed fraud in her divorce case.  Her STBX may say he doesn't want the equity now, but that doesn't mean that in a few months he won't come after her for it.

I've been in her shoes.  I sold the marital home, took my share of the equity, and bought a much smaller home in the same general area.  I could afford the new home on my salary alone and still save.  I was worried about my kids, but they adjusted fine.  She can always set aside part of the money she is saving for counseling for them.

MrsDinero

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Re: Help Out Family Member or NOT???
« Reply #10 on: April 12, 2016, 08:34:25 AM »
This is a tough one.  If everything falls 100% into place it could work out.  But if one thing happens to disrupt the plan then it could all fall apart.

I agree with others that she should try to find a cheaper rental (or ownership) she can afford on her salary only (not including alimony or child support).  The reason is because if anything happens to him or his job then alimony and child support are usually the first things that don't get paid. 

Once she finds a new place to live, then you should advise her to take that alimony and stash it away somewhere, savings account, Vanguard, etc. 

I understand her not wanting to uproot the kids while they are going through the divorce.  Divorce is hard enough on kids, but this situation sounds like a house of cards.

patchyfacialhair

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Re: Help Out Family Member or NOT???
« Reply #11 on: April 12, 2016, 08:36:53 AM »
I know that when family is involved, things can seem complicated. I get it.

However, I like to think of most things as basically as possible:
A bank, that makes money from lending money, won't give your sister the loan necessary to purchase the home on her own. They have lots of sophisticated software and well paid employees that can determine whether an applicant will pay back a loan, with a fairly high amount of certainty. Do you really want to tempt your own fate?

Sounds harsh, but your sister would probably benefit more from finding a place within her means now. You can still support her by paying for some of the costs of the kids extracurricular activities, or doing a spa day with her, or maybe even covering the apartment deposit/fees of her new place.

Sorry to hear about the divorce; hope she ends up ok.

humbleMouse

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Re: Help Out Family Member or NOT???
« Reply #12 on: April 12, 2016, 08:43:46 AM »
heeeeelllllllll nooo!!!!

edit -
Furthermore, we are currently experiencing another housing bubble and this is a terrible time to be buying real estate.  If you buy this house, the market is going to crash again soon and you will be out a large piece of equity.  Bad idea.
« Last Edit: April 12, 2016, 08:59:01 AM by humbleMouse »

Fishindude

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Re: Help Out Family Member or NOT???
« Reply #13 on: April 12, 2016, 08:45:19 AM »
Sis needs to realize that things have changed drastically and like it or not she can't continue to live the same lifestyle she's accustomed to.  Kid's are going to have to get used to it too.  At $30,000 income she's going to have to live pretty frugally.  Sure there is alimony and child support, but it's not forever.  She ought to be banking some of that alimony and child support to take care of herself in the future.

I'd rather see you gift her some cash to help her get settled into someplace much cheaper.

Cannot Wait!

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Re: Help Out Family Member or NOT???
« Reply #14 on: April 12, 2016, 09:00:53 AM »
Like your sister, when I divorced I was desperate to keep the house so as not to uproot my kids.  I got into a convoluted financial agreement which I so regret.  I remember my lawyer saying, "Becareful what your wish for - you can't afford that house."  But it became my focus and I worked out a crazy scheme to allow the kids and I to stay there.  It is so hard to make sound decisions in those early days and months after separating because you want to keep things, as much as possibe, the same for the kids.
My advice would be (the same as for anyone coming into hard times) - live within your means, improve your skills to make more money and take care of yourself (emotionally). The sooner she gets on track financially, the sooner she can move forward.  She does not need the stress of living beyond her means.
There are plenty of other ways to help her out.

AZDude

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Re: Help Out Family Member or NOT???
« Reply #15 on: April 12, 2016, 09:03:10 AM »
Quote
He supposedly is not interested in any equity that currently sits in the house so that is a moot point.

I find this far-fetched, and even if true, you would need this in writing. Best case here is to sell the house, then either split the equity with ex-husband or just keep it all(this way the equity matter is settled right then), and then use the money as a down payment on a house that is sustainable for the future. This just seems like a bad idea. You have enough earnings to easily support her in other, better, more sustainable ways.




Kaspian

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Re: Help Out Family Member or NOT???
« Reply #16 on: April 12, 2016, 09:11:06 AM »
Oh, hell no!!   I was thinking when I opened this thread that maybe somebody got severely hurt or something happened way beyond their sphere of control.  In a case like that, I'd definitely help.  But aiding to maintain a sibling's current lifestyle and status quo because they don't want to adapt?  Nope, not my job.

iris lily

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Re: Help Out Family Member or NOT???
« Reply #17 on: April 12, 2016, 09:17:53 AM »
No!  Don't do it.  Have her find a rental she can afford in the school district.  Too many things have to fall in place for this to be a win-win and too many things can go wrong.
This. Exactly  this.

Again and again and again I see single mothers with low income clawing at the expensive family home as they swirl down the toilet of financial ruin.

Tell her to take the big hit now, rather than lose it all in painful slow increments.

The lives of her children have changed and there is nothing she can do about that, dad is out of the house. Its good to keep them in their schools if they are satisfied with those schools. Let that be the stabilizing structure, schools stay the same but they move house.

Silrossi46

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Re: Help Out Family Member or NOT???
« Reply #18 on: April 12, 2016, 10:02:03 AM »
Thank you all for the replies so far.    It's interesting to see and collect the different viewpoints.   I suppose i need to separate more the business side of this versus the emotional side.   I do realize that condoning her living in a place that she realistically cannot afford isn't necessarily the correct approach. 

The thing to keep in mind is that the house would Definitely be sold after the three year period should she not be in a position to buy it back.   (remarriage or whatever ect.)   

I will have to spend some more time thinking about this and possibly suggesting renting and selling the current home and banking the equity until such time her position changes for the better.   

humbleMouse

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Re: Help Out Family Member or NOT???
« Reply #19 on: April 12, 2016, 10:05:50 AM »

The thing to keep in mind is that the house would Definitely be sold after the three year period should she not be in a position to buy it back.   (remarriage or whatever ect.)   


In 3 years the market is going to be absolutely terrible, especially for 400k houses.  You will loose most if not all of your current equity and you will be lucky to break even on the sale.  Even ignoring this likely scenario, it is an extreme risk to burden on yourself and your sister. 

Sell the house now and get a rental place in the same school district. 

vivophoenix

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Re: Help Out Family Member or NOT???
« Reply #20 on: April 12, 2016, 10:23:20 AM »
Thank you all for the replies so far.    It's interesting to see and collect the different viewpoints.   I suppose i need to separate more the business side of this versus the emotional side.   I do realize that condoning her living in a place that she realistically cannot afford isn't necessarily the correct approach. 

The thing to keep in mind is that the house would Definitely be sold after the three year period should she not be in a position to buy it back.   (remarriage or whatever ect.)   

I will have to spend some more time thinking about this and possibly suggesting renting and selling the current home and banking the equity until such time her position changes for the better.   

so you are taking on all the risk and responsibility of your sister continuing to keep her kids in a certain school district to the tune of 300K.

you ASSUME you will get your money back, IF the house sells at its current appraisal.
the question is: would you give you sister a loan of $300k that you might  never see again. if you say yes, go ahead.

SwordGuy

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Re: Help Out Family Member or NOT???
« Reply #21 on: April 12, 2016, 10:32:00 AM »
It's a stupid, stupid idea. 

She needs to sell the place now, while she can afford to pay for it and before the market tanks and she loses that equity, and lock in the equity for future needs (like college for her kids!).  If she waits 3 years and the market is in the toilet, she will lose everything.   

Enabling her to make stupid decisions is foolish on your part.


ShoulderThingThatGoesUp

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Re: Help Out Family Member or NOT???
« Reply #22 on: April 12, 2016, 10:33:43 AM »
Thank you all for the replies so far.    It's interesting to see and collect the different viewpoints.   I suppose i need to separate more the business side of this versus the emotional side.   I do realize that condoning her living in a place that she realistically cannot afford isn't necessarily the correct approach. 

The thing to keep in mind is that the house would Definitely be sold after the three year period should she not be in a position to buy it back.

It's very easy to make a commitment to uproot your life in three years. It's much harder to actually do it, and houses don't sell instantly, either. It's hard to see how you wouldn't end up in a "one more month" situation that permanently ruins your relationship with your sister. It's better for everybody to say that you can't do it now.
« Last Edit: April 12, 2016, 10:44:49 AM by ShoulderThingThatGoesUp »

Silrossi46

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Re: Help Out Family Member or NOT???
« Reply #23 on: April 12, 2016, 10:36:52 AM »
I will agree that she should be leaning more towards selling the home at this point however to the point that was made about the housing market crashing.   EVEN at 2008 levels the housing in my suburban NJ area did not go down that drastically.   There is no way that the home would ever in my opinion reach the level to loose any initial investment.

That being said, i do understand all the other points and am definitely thinking the best plan will be for her to sell at this point. 

Silrossi46

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Re: Help Out Family Member or NOT???
« Reply #24 on: April 12, 2016, 10:51:43 AM »
There is one other point that was not mentioned in my original post.   That point is that i suppose i was trying to initiate some sort of help for this situation before my parents intervened and tried to help.  What i mean is that they will most certainly try to come to some sort of rescue with some large sum of money of sorts.  My parents are older and retired and basically financially independent at this point.   They always lived within their means and worked hard for what they have.  I don't want to see them throw 100K or more at the problem.   Of course i realize that i cannot stop that if it happens and i probably shouldn't be trying to band aid it either at this point.   

My thought however with them doing this is that even if they did i still do not believe a refinance and a 100k addition to the existing mortgage would still be affordable for her.   Especially after the alimony stops.   

Does anyone know how the bank figures your ability to repay a mortgage based on a short term agreement such as alimony?   do they use that exclusively in determining your ability to repay NOW or do they take into consideration when those payments stop?   

SKL-HOU

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Re: Help Out Family Member or NOT???
« Reply #25 on: April 12, 2016, 10:57:09 AM »
I would help my sister out in a bad situation. But in this situation, you wouldn't be helping by buying the house. She should really rent or buy much cheaper and save the remaining because she is going to need that when she is down to her income. But in any case here are some questions you should really consider.

If you sell, who will pay for the realtor fees?
Since you will own the house and rent it out, you will be paying taxes on income. How would you handle that?
What if the house doesn't sell right away?
Who is going to take the loss if the equity isn't there in 3 years? Say it is worth $380k instead of 440k, is she willing to part with the 60k or will you have to make up for the loss?

I don't think there is a way to make the deal financially good for both of you.

bogart

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Re: Help Out Family Member or NOT???
« Reply #26 on: April 12, 2016, 11:00:23 AM »
So, she gets $3K/month alimony for 3 years and then -- doesn't?  Unless there'll be some other significant change in her situation within the next 3 years, I'd say she needs to downsize and regroup now, not later.

That said, I totally get the goal of wanting to keep things as stable as possible for the kids, up to and including staying in the same house (however, if they're going to need to move sooner or later before they grow up, it's not clear to me that it's better to have significant-changes-spread-over-time or just make all the big changes required in one jump and be done with it.  I just don't know.).

If I were you and I wanted to (and could afford to) help my sister and/or nephews, I wouldn't do it the way you are describing.  I'd offer to give her enough money per month (or even as a single lump sum) that she could pay the mortgage and continue to live in the house for however long you want to commit to helping her out in this way, and be done with it.  A simple, straightforward gift, full stop.

And if you can't afford to do that, I wouldn't get myself intertwined in this (house) situation in other ways, though I might of course help out in still other ways, financial or otherwise.

robartsd

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Re: Help Out Family Member or NOT???
« Reply #27 on: April 12, 2016, 11:05:56 AM »
It's very easy to make a commitment to uproot your life in three years. It's much harder to actually do it, and houses don't see instantly, either. It's hard to see how you wouldn't end up in a "one more month" situation that permanently ruins your relationship with your sister. It's better for everybody to say that you can't do it now.
This would be my biggest concern - that she is unable or unwilling to make the changes in three years forcing you to either continue to subsidize her lifestyle or be the "bad guy" and force her out of the home. If you are 100% confident that she would follow through in 3 years, then you could look at the business side of it. I think there may currently be enough equity in the home to compensate for the financial risks you would be taking on; but only you can evaluate the personal risks this would mean for your relationship.

As far as returning equity to her after the sell of the home: don't. If she's to get any equity from the home, she should get it when she sells it to you, not down the road when you sell it. If she's not willing to give up enough equity to compensate you for the risks you are taking, then this fails on the business side.

MrsDinero

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Re: Help Out Family Member or NOT???
« Reply #28 on: April 12, 2016, 11:12:40 AM »
There is one other point that was not mentioned in my original post.   That point is that i suppose i was trying to initiate some sort of help for this situation before my parents intervened and tried to help.  What i mean is that they will most certainly try to come to some sort of rescue with some large sum of money of sorts.  My parents are older and retired and basically financially independent at this point.   They always lived within their means and worked hard for what they have.  I don't want to see them throw 100K or more at the problem.   Of course i realize that i cannot stop that if it happens and i probably shouldn't be trying to band aid it either at this point.   

My thought however with them doing this is that even if they did i still do not believe a refinance and a 100k addition to the existing mortgage would still be affordable for her.   Especially after the alimony stops.   

Does anyone know how the bank figures your ability to repay a mortgage based on a short term agreement such as alimony?   do they use that exclusively in determining your ability to repay NOW or do they take into consideration when those payments stop?   

It sounds like the situation is either you bail out your sister or your parents bail her out.

Question:  Can your family adopt me?

In all seriousness, though, if you go through with this deal it should be with the expectation of not getting any money from your sister and you paying for everything (mortgage, insurance, taxes, etc).  If BIL is a good guy, healthy with a stable job then yes the alimony and child support are a sure thing.  However if ANYTHING ANYTHING happens to BIL and his finances, I guarantee the alimony and child support will stop. I have experienced it first hand and have seen it dozens of time with friends.  You  have to be prepared to pay for your household and her household for the foreseeable future.

gettingtoyes

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Re: Help Out Family Member or NOT???
« Reply #29 on: April 12, 2016, 11:50:10 AM »
Have her sell the house. She cannot afford it and she needs to have a reality check on her new life now. I can't imagine how hard it must be to be in her situation, but that doesn't give her the leeway to bury her head in the sand. She needs to do what's best for her family's future.

Moving kids to another school district isn't the end of the world. I attended 5 different school districts (military) and it didn't kill me or my siblings. We grumbled about it at the time, but in retrospect, it was really good for our development to learn to interact with different people. The only caveat I would put on is that it is harder to do it if the kids are in high school. I think spending 10th, 11th, and 12th grade together in one school is important because of the life changes that occur then.

Catbert

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Re: Help Out Family Member or NOT???
« Reply #30 on: April 12, 2016, 12:29:04 PM »
As others have said this deal has a ton of problems.  Let me mention another wrinkle.  You will have to declare this as a rental on your tax return.  If it's a money losing deal after depreciation at your income level you won't be able to write off the lose. (Ability to write-off rental loses starts being phased out at 100k and is fully phased out at 150K.  These cut-offs are not indexed for inflation.)

Also what's magic about 3 years as far as the kids' schools goes?  I understand her alimony goes away.  But are both your niece/nephews graduating HS in 3 years?  If not, what are you going to do in 3 year when she wants to stay "one more school year" at a reduced rent?  If they have to change school, sooner is better than later.   

partgypsy

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Re: Help Out Family Member or NOT???
« Reply #31 on: April 12, 2016, 12:47:32 PM »
I really feel for you and your sister. I understand her feelings of not wanting to change things when so many other things are changing, time to grieve and you for wanting to help her at this time.
I would not take on the mortgage, unless you and your spouse are OK with worse case scenarios (she stops paying you, her alimony ends and she continues to live there so you have to evict her or continue paying the mortgage. If a worse case scenario happens, have you and your spouse discussed it? If you are BOTH OK with it, then so be it.

Otherwise what I would do, is give her what money as you feel comfortable, no strings attached, one time only, and leave it at that. You will lose less money and it will be more clear cut.

I don't know if relevant, but my mother got the house in the divorce, and never sold it. All her net worth (such as it is) in the house, 2 adult siblings have moved in, and at this late point (in her 70's) seems emotionally and in every other way incapable of selling it to her financial detriment. She has poured all money she has into trying to keep the house. Hopefully there is some happy medium between that and moving out asap, such as you and your parents giving her say a school year's grace period to transition.   
« Last Edit: April 12, 2016, 12:49:26 PM by partgypsy »

Axecleaver

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Re: Help Out Family Member or NOT???
« Reply #32 on: April 12, 2016, 01:08:10 PM »
She needs to sell the house as part of the divorce settlement. If you bought it today and sold in three years, you'd have to pay capital gains on the difference. She could take advantage of the 500k married exclusion if she sold it today: https://www.irs.gov/taxtopics/tc701.html

You should also plan on the equity being split; I find it hard to believe that the STBX or his lawyer would just ignore that equity. If he passes on it, count on him taking the value from some other account (which means a higher % of her assets are tied up in the house). Depending on how long they've been married, she may be entitled to half of his social security benefits, retirement account, and health insurance that he pays for through his job.

You're taking on an immense amount of risk for a dubious goal of helping her shelter her kids from making necessary changes in their lifestyle. If the husband decides to quit his job, and stop paying alimony and child support, what would you do? Gets sick and goes on disability? There are so many things that can disrupt the flow of payments, that you're in a very precarious spot.

BFGirl

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Re: Help Out Family Member or NOT???
« Reply #33 on: April 12, 2016, 01:13:53 PM »
I think that this would be a mistake.  If she wants to stay in the same school district she can look for another place to live.  She can't afford this and needs to learn to live within her means and start saving some money, especially for when the alimony ends.  I think you can help her in other ways financially if she needs it, but I think this places an excessive burden on you and doesn't really encourage her to take the steps necessary to become self-sufficient.

Cannot Wait!

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Re: Help Out Family Member or NOT???
« Reply #34 on: April 12, 2016, 02:06:42 PM »
When I read about the ex not caring to get his equity out of the house, a red flag goes up for me.  Is he feeling guilty over an affair?  Is he responsible in part for their differences in salary?   Did your parents fund the buying of the house?  Is the divorce all his idea? 
If so, he might be feeling bad about the situation.  These feelings could change when lawyers, girlfriend, etc get involved and inform him of his legal rights.  Things will also change when she goes through the crazy-post-divorce-dating-phase. 
You might also change your mind when you see "the wrong guy" moving into "your house" a few months down the road!
Way too many ways for this to go sideways in my experience.
« Last Edit: April 12, 2016, 04:29:09 PM by Cannot Wait! »

Lanthiriel

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Re: Help Out Family Member or NOT???
« Reply #35 on: April 12, 2016, 02:15:28 PM »
This does not feel like helping; it feels like enabling. I do not see how this situation ultimately benefits either of you. She needs to learn how to live with her new reality while there are still alimony payments or she's going to have huge problems when they stop and she's left in a house that's more than double what she can afford.

Jouer

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Re: Help Out Family Member or NOT???
« Reply #36 on: April 12, 2016, 02:34:40 PM »
I'm not going to tell you what to do. Instead, I'll give you the perspective of someone who went through what her kids are currently going through.

When my parents divorced, they sold the family home. Mom, my brother and I moved to a 2-bedroom apartment 20 minutes away. I've got to be honest: it wasn't that bad. Both my brother and I came out the other side ok. We made new friends and even the smaller living space didn't bother us. We were happy our parents were finally happy, to be honest.

So your sister may be worrying about the kids, but staying in that house (or not) is not the most important factor in them being ok.

Silrossi46

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Re: Help Out Family Member or NOT???
« Reply #37 on: April 12, 2016, 06:58:06 PM »
Thanks for all of the replies.   A lot to consider here and take in.  It sure seems like the best solution may be to address the new reality now.   

Fuzz

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Re: Help Out Family Member or NOT???
« Reply #38 on: April 12, 2016, 07:22:06 PM »
It isn't clear from the OP that the sister and her husband have actually filed for divorce. So it's possible that they are talking about it in the abstract, without knowing anything about the law. Once they file for divorce, he will have an attorney (almost everyone at his income level has an attorney). I have a hard time seeing an attorney let the husband walk away from the equity; if he does walk away from the equity, most likely he is keeping his retirement accounts to offset the value of the equity. I don't know about NJ law, but most likely the sister should get half of his retirement accounts, which if he grosses $180K/year, may be worth more than the home equity.

Your sister needs to pay for a legal consultation with a good divorce lawyer from her county. Give her $300 to pay for a 1-2 hour consultation with someone. Look for someone who has been in practice for 7-15 years; who is local; who went to a decent school. It's hard for a layperson to vet an attorney. Consider asking someone in the community for a reference for that person, e.g. the bankruptcy attorney in the same office building, or someone in your network for a referral.

Also, you and your sister need to get whatever agreement you have in writing. Most likely, it will blow up, and you'll be out some money. But if the expectation is in writing that she moves out after 3 years, it's not a terrible plan. You know your sister--how likely is she to follow through with this plan?

Final thought: holy hell are east coast property taxes and insurance expensive. $1100 monthly PITI on a $440K house? In my state, you're well over 1M before you get there. Your sister can't afford the PITI on her income of $30K annually.


Silrossi46

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Re: Help Out Family Member or NOT???
« Reply #39 on: April 12, 2016, 08:36:29 PM »
piti is 3200/ month.   Taxes and insurance = 1100/ month alone

Final thought: holy hell are east coast property taxes and insurance expensive. $1100 monthly PITI on a $440K house? In my state, you're well over 1M before you get there. Your sister can't afford the PITI on her income of $30K annually.
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Zamboni

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Re: Help Out Family Member or NOT???
« Reply #40 on: April 12, 2016, 09:28:09 PM »
It's hard to move out of your home when you divorce. But, most of the time coping with the move is much worse for the adults than it is for the kids, particularly if the kids stay in the same school.

You've gotten lots of good advice here. Most divorce attorneys will recommend selling the jointly owned home and splitting the proceeds at the time of the sale. It's just the cleanest method to get things financially separated, which is good for everyone in the long run, and also they've seen plenty of single mothers try to stay in houses they can't afford to upkeep.

Yes, your sister needs to have a nice place to live. I remember my dad telling me that when I was divorcing, sad and upset at having to move out of my nice house, and worried that temporary finances would have me living in the ghetto. So, thank you, Papa Zamboni, for suggesting that I check into the rent at the "luxury" apartment complex closest to my children's school. It cost more than I thought I could afford in rent, but still way less than the house. That property had a heated pool, a "waterfall", ponds full of frogs and crayfish, an indoor basketball half court, a gym, and very high density of their school friends . . . the kids LOVED it. They were WAY WAY happier sharing a bedroom with mattresses on the floor in my tiny apartment than they had been in our hoity toity suburban house. In retrospect, I'm so glad I got out of that house. Besides the kids being happier at the apartment, it was too big and a money pit even though it was fairly new (big yard, big utilities bills, etc.)

Like your sister, I couldn't afford it. If I had stayed in that house with "help" from a relative, then I wouldn't have nurtured the new sense of independence that I needed to get my life straight. Also, about 15 months after we separated, my ex stopped paying child support for no good reason. He just decided he resented writing checks to me and stopped, rationalizing in his own mind that he paid plenty for the kids' expenses directly already. I would never have predicted he would do that, so you just never know. We had a signed agreement about what he would pay, and social services helped me recover that money, but it took a good six months of not being paid before they even got it on their docket. Thankfully by then I was out of the house and in a situation that I could pay my bills every month without that money.

Good luck with it! My suggestion is that you offer to help your sister move if you are nearby.