Author Topic: messy Family loan advice  (Read 3646 times)

Murse

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messy Family loan advice
« on: May 04, 2018, 01:10:50 PM »
I donít need any judgement or facepunches, just advice on how to do this the smartest way.

My parents were in trouble and getting foreclosed on. I offered to loan them the money to bring them current. I made a previous post About the original decision to loan them 60k but now I am considering co-signing a loan for them and wanted more input- so I created a new thread. Here is the current situation-

Money owed to me-61k
Money owed to other people/loans- around 25kish (10-15k to the IRS, over 6k in personal loans at >22% interest and others)
Money owed on a variable rate mortgage-90kish
Both parents each have around 4K in collections. Household income around 75k.

Their house is worth around 320k, the plan thus far has been to tread water until at least a year after the last late payment so they can refi and roll all the debt into the mortgage. This debt is caused by a job loss for years, they are coming out of it. Part of the conditions of me loaning them the money was that I come over weekly and we work on the Dave Ramsey plan.

There monthly debt payments total around 900$/month (not including the mortgage)

We are trying to sell their Jeep, however one of the personal loans are on it. So we tried getting another loan for them to pay it off, loan was denied because of collections.

Our choices are a) do nothing, continue treading water. With this option they will eventually need some form of help (a loan) to rid them of the collections so they can qualify for a refi. or
B) co-sign a personal loan anywhere from 5k-90k (5k pay off collections or 90k consolidate all non-mortgage debt)

I am currently leaning towards B. I already have 60k exposure to this, at the very least they will need all their collections gone before being able to refi (feb or March of 2019.) and the current budget wonít get the collections paid off in time.

If we were able to get a 90k personal loan (or whatever loan works best) and co-signed, they could pay me back now, pay back all the loans and the payments would all be consolidated to a lower interest rate. We could still refi or get my name off in feb or March.

Or we could co-sign a 5k loan to pay off the collections (in my moms name) so that they qualify for an unsecured loan to pay off the Jeep loan so they can sell the Jeep to pay debt. I worry about all this loan churning and how it would effect the refi in feb or March.

Really I am looking for any advice. I do not regret my decision to help them. I honestly trust they have changed their ways. They are not exactly mustachian but I donít believe they will go into debt again after this experience.

They have both been added as authorized users to my cards, mothers credit score is now in the high 600ís and fathers in the high 500ís (the mortgage was only in my fathers name.)

I am really hoping for some creative ideas. Thanks.

Murse

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Re: messy Family loan advice
« Reply #1 on: May 04, 2018, 01:44:57 PM »
Or maybe I continue holding my loan for a better debt to income ratio and co-sign a 30k loan?

LadyMuMu

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Re: messy Family loan advice
« Reply #2 on: May 04, 2018, 01:49:57 PM »
Is there a particular reason they are keeping the house? Does it have equity that could pay off debts if sold? Can they move into smaller apartment until finances are stable again?

Murse

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Re: messy Family loan advice
« Reply #3 on: May 04, 2018, 02:08:07 PM »
First off, the house is in bad condition, it would actually be worth closer to 380-400k if it were in good shape. I said 320 to be conservative.

Second they donít know if they want to move or not. We have talked about the possibility of moving but they have yet to decide.

Third my sister lives there as a dependent at 17 years old, they would like her to at least finish her last year of high school prior to moving

Fourth my uncle is currently living with them contributing 600$/month of rent. He plans on moving out in 3-4 months so that will constrain the budget even more.

Lastly if they do move they would still like to own, meaning they have to wait until feb or March until they will be able to get a new mortgage. They donít want to move now then move again in 6 months.

They have lived in this home for over 20 years, it has a large amount of sentimental value to them. I do not plan on aggressively pushing this issue, but above are their reasonings.

frugaliknowit

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Re: messy Family loan advice
« Reply #4 on: May 04, 2018, 02:14:53 PM »
A

life_travel

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Re: messy Family loan advice
« Reply #5 on: May 04, 2018, 04:00:52 PM »
I remember your previous thread but don't remember your exact financial situation so sorry if my answer below is not possible.
Personally I would pay extra myself into their collections , so essentially gifting 4-5 k over few months. Then once collections are paid off they can apply for a loan to pay off the jeep , sell it and pay off that loan plus a bit from others , hopefully .
I wouldn't cosign more loans since they already owe you 61K.

Paying their smaller loans off while your sister is finishing high school , then fixing up the house , selling and moving to a cheaper one can in 3 years time have them debt free , mortgage free since their mortgage is only 90k . They are very close to turning their situation around , but don't rush it and get more loans , work with them as you said you would and hopefully they will respond .

Cassie

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Re: messy Family loan advice
« Reply #6 on: May 04, 2018, 04:02:05 PM »
I agree with life travel.

SwordGuy

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Re: messy Family loan advice
« Reply #7 on: May 04, 2018, 04:12:59 PM »
My wife and I lived for 5 years on about 1/3 median family income.

Here's the thing we understood that your parents don't seem to understand.

"What you want and what you can afford aren't always in accord.   What you can afford will win that argument, so suck it up and accept that.  Deal with it."

Unless, of course, they can guilt-trip someone into paying for it for you.   

I wouldn't get on any more loans with them.   If they die in a car wreck you'll still owe the money.  If they get very ill and can't work anymore, you may not be able to help them because you've already gone on the hook for $150,000+ and you'll still owe that.

Your parents need to accept a plan that they can afford to follow.   Give cash as needed to help them transition, but don't get on the hook for big loans.

Cassie

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Re: messy Family loan advice
« Reply #8 on: May 04, 2018, 04:39:49 PM »
I would have thought that they would have sold the house when things got bad versus taking a loan from you.   They have some resources to help themselves. I would never do this to my kids. 

Freedomin5

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Re: messy Family loan advice
« Reply #9 on: May 04, 2018, 04:44:10 PM »
With family members, call it a loan, hope For the best, but expect the worst. Thatís is, hope to be paid back, but donít be surprised if it turns into a gift. When you give to family members you should not do so with any expectations in your heart of hearts  of repayment. If you approach with that attitude you will be fine.

The other idea is, if you can afford a $60K loan on a less than $320K house, can you buy the house from them, and then charge them a ďrentĒ to live there, which covers repayment for your original loan and the mortgage from buying the house? Or they put you on the deed and you co-own the house? Which means you co-own the mortgage.

Finally, I agree with SwordGuy. Your parents donít really have the luxury of ďwantsĒ now. It doesnít matter whether they want to live in this house for the rest of their lives  or whether they want to own a place. If they can afford to do so, fine. But given the info you have provided and the fact that they are facing foreclosure I donít think they can afford to own on their own.


tyrannostache

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Re: messy Family loan advice
« Reply #10 on: May 04, 2018, 04:52:28 PM »
Maybe I'm missing something. Why do they need to refinance in Feb/March? Why can't a refi wait until they have  gotten other debts in order?

I'm sure it sucks to see the interest piling up, but there's really no quick way out of a situation like this. I'm with life_travel here--pay extra toward the loans collections if you want, but don't shoulder any more of their debt yourself.

Jon Bon

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Re: messy Family loan advice
« Reply #11 on: May 04, 2018, 05:11:31 PM »


So they owe you 60k in a personal loan.
They are an authorized user(s) on your credit cards
Now you want to loan them up to another 90k?

I realize you are cosigning the loan. But I would never co-sign anything unless I was expecting to pay it back, Because obviously the other party is not trustworthy enough to do so. I think you should look up the case of Jack Johnson. He is a professional hockey player whose parents stole $10 million from him because he let them handle his financial affairs. He declared bankruptcy while playing in the NHL. He was liable for debt incurred by his parents.

This is basically what you are signing up for. Your financial life will be intertwined with theirs to a point where separation will be near impossible. Have you run their credit? I would want to know where all their debts are. Geeze do that before you even THINK about loaning or signing anything. In family situations like these debts are often conveniently forgotten about when borrowing from family.

What happens when they cant pay due to an emergency one month,  do you let the late fees happen and ding your credit? or do you cover it?  Because the second you do that they are going to realize "Hey, this loan pays itself" It might be subconscious, it might be with zero malice. But they will realize that fact.  I'd say go give them all your free cash right now, sell your car, clothes, and stocks. Give them all that money before I would cosign a 90k loan. I honestly think that the need that hard landing. Then you can put them up in an small but affordable apartment.

This sounds like a really though personal decision for you. Parents sometimes need to let their children fail to learn and grow. This might be a situation where you have to let them fail so they can learn and grow.



Murse

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Re: messy Family loan advice
« Reply #12 on: May 04, 2018, 07:06:38 PM »
There seems to be some confusion. If we took a 90k loan then I would be returned what is owed to me. I would not be on the hook for another 90k, just a total of 90k as a co-signer.

To answer the question, if they failed to make a payment, yes I would pay it but I would expect it returned. My parents have every intention of paying me back but I do recognize something else could happen keeping them from being able to pay me back.

As far as there credit, yes I have personally checked both of there credit reports.


The reason to refi in feb/March is so that I can be returned the money that I loaned them.

They are no longer facing foreclosure. Their entire financial picture is 90k in debt, a 90k mortgage and a house worth around 320k. The primary bread winner lost his job and is now working for nearly minimum wage due to a disability. They have made many poor decisions financially, I agree.

As for them being able to choose wants I both agree and disagree. The problem we are facing is not a ďwe cannot afford itĒ problem. The problem we are facing is ďour credit is wrecked so we canít consolidate our debt.Ē They can afford their loans with their current situation (yes, I understand situations change I am willing to take that risk)

They are caught in a catch 22. They have collections so no one will loan them money to pay their collections. The ways around that are A)co-sign a loan and ask them to repay it B) loan them the money myself (I would have to pull money out of the market, I would prefer not to do that at current evaluations.)

Depending on the rate we got if I co-signed and we consolidated their monthly payments would likely be very close to what they are already paying, but while making payments on the collections and IRS debt (which we are not currently doing.)

As far as gifting them the money, I donít want to. Even if I did want to, they would not accept it and would repay it when they could anyways.

former player

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Re: messy Family loan advice
« Reply #13 on: May 05, 2018, 05:51:45 PM »
So, parents total debt is -

$61k to you
$90k to mortgage
$15k to IRS
$6k in personal loans at 22%+
$9k in collections (5k your mom, $4k your dad)

For a total of $181k.

The debt repayments are $900 per month, plus whatever the mortgage payment is.  Income is $75k per year plus $600 per month rent.

Assets are a house currently worth $320k, potentially worth more but only with repairs no-one can afford, and a jeep.

I think you are overcomplicating things in your analysis.  You want to reduce interest rates: OK, so how would taking out a commercial loan reduce the interest rates on the $61k loan you have made to your parents?  You are charging them more than a bank would?  If you are not charging them more than a bank would then you are worsening their position by making them take out a loan to cover the amount they owe you.  (If you want your money back, that's a different matter.  But you need to be clear that's what this is about, which you haven't been.)

Setting aside what you are owed, the first thing is for your parents to sell the jeep.  Is it underwater?  If it's not, sell it, pay back the loan on it, put the rest of the proceeds to other debt.  If it is underwater, how much by?  What's the interest rate on the loan against it?  What's the math?  Is the problem trying to organise a private sale when there is still a loan on it?  If so, is the answer to find a buyer and for you to then bridge the loan (pay it off immediately before the sale and then collect from the buyer) so the sale can be made?

Do your parents have any other assets they can sell?

On the other loans, are your parents putting as much as they can towards the highest interest loans?  How much is owed at each interest rate?  As long as they are overpaying on their debts and not falling further behind,  why not just be content with the progress made and just continue with that?  22% is horrible but there's a decent amount of income coming in.  Don't subsidise any further, including co-signing loans, until you are sure that every possible penny of your parent's income is already being applied where it should be.  If your parents have made the decision to buy comfort at 22% then let them: it's not your problem.

kimmarg

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Re: messy Family loan advice
« Reply #14 on: May 05, 2018, 07:53:17 PM »
NO. Don't sign anything else. $61k is more than enough. If you want to do something, gift them some money to cover expenses through your younger sisters graduation.

Sibley

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Re: messy Family loan advice
« Reply #15 on: May 05, 2018, 08:17:54 PM »
My advice would be to sell the house this year, as is or with whatever repairs they can manage - prioritize the ones that will improve selling price the most. Use the proceeds to pay off all debts, including to you. Then sell the newly cleared Jeep. Whatever's left is banked and not touched.

Assuming your sister is graduating in 2019, they can rent an apartment nearby or something that's within their budget until she's done. That way she doesn't have to switch schools. They spend however long in the apartment while they figure out next steps, let the bad stuff age a bit on their credit reports, etc.

partgypsy

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Re: messy Family loan advice
« Reply #16 on: June 07, 2018, 01:20:12 PM »
Dude, I wish I saw this earlier. Do not loan them any money. Do not cosign on a loan. In fact have them take out debt to pay you back. Have them declare bankruptcy. They are probably eligible.

Do NOT roll dischargable debt into the mortgage. Credit card debt is dischargeable with bankruptcy, while mortgages, helocs are not. Even if they are unwilling to declare bankruptcy, in their financial situation they should be calling up their creditors and seeing if they negotiate terms, pay a lesser amount, and explain otherwise not able to pay debts.

"My parents have every intention of paying me back but I do recognize something else could happen keeping them from being able to pay me back."





 
« Last Edit: June 07, 2018, 01:25:22 PM by partgypsy »

AMandM

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Re: messy Family loan advice
« Reply #17 on: June 07, 2018, 01:57:50 PM »
How about if you pay off the loan on the jeep, then they sell it and pay you back? That would discharge one of their high-interest personal loans. They could then put whatever they were paying on the jeep towards paying off the debts in collections.

By the time the collections are paid off, your sister will probably have graduated, so they will be free to sell the house. Even without fixing it up, it would generate plenty of cash to pay off all their debts. I don't see that there's any rush to refinance (with the associated transaction costs) since they may sell fairly soon anyway.

Or, if at that point they are adamant about staying in the house, then they can refi on their own.



Frankies Girl

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Re: messy Family loan advice
« Reply #18 on: June 07, 2018, 02:29:06 PM »
So the no facepunch answer:

Don't do it. You've already done enough. Too much actually.

I fully expect you to ignore this and others' advice in this manner tho, since you're somehow locked into the idea of being the family savior.

They need to sell the fucking house. Your sister isn't going to die if she has to move. Very likely they could find a nice apartment in the same school district that would be much more affordable than the stupid giant waste of a house, and the stupid thing would pay off all their debts. Oh, and they all need jobs, second jobs if they're only working 40 hours a week (adults), but your sister needs to get a part time job and make sure her grades are top notch if she plans to go to college. But I'm sure they'll just hit you up as a co-signer for her school loans next year.

sassyfrassy244

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Re: messy Family loan advice
« Reply #19 on: June 07, 2018, 04:24:32 PM »
I believe your goals to be:
  • pay off collections
  • pay off jeep

The simplest way to accomplish this quickly (because it seems your parents could accomplish this with their income / bills) is for you to lend them the $9,000 to pay off collections and the amount between Jeep value and what is owed.  Then, when the Jeep is sold you are first to be paid back. 

Not for nothing, any plan that involves shuffling debt around and borrowing for a kid can be called the Dave Ramsey plan.

Cassie

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Re: messy Family loan advice
« Reply #20 on: June 07, 2018, 05:11:10 PM »
You are spending $ on your parents but want to keep a roommate for cheap rent. This is seriously messed up.

letired

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Re: messy Family loan advice
« Reply #21 on: June 07, 2018, 06:32:56 PM »
Here's the thing about cosigning a loan. You are responsible for paying it back. You can expect whatever you want, but that doesn't change anything when they fall behind on payment except you've got a ding on your credit and you're mad at your parents for not meeting your expectations.

I also have cosigned loans that folks on this forum would facepunch me for. I don't regret it. And for over 10 years, it was fine. But it's still my credit score when a payment is missed, and still my responsibility to make it current if I don't want the credit ding. At this point, I consider the loans to be 'gifts' and I am saving up to pay them off myself. And the total loan balance is ~20k, not 90k.

Are you willing to make a 90k (or 60k, or however much) gift to your parents?

Villanelle

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Re: messy Family loan advice
« Reply #22 on: June 07, 2018, 07:07:54 PM »
How about if you pay off the loan on the jeep, then they sell it and pay you back? That would discharge one of their high-interest personal loans. They could then put whatever they were paying on the jeep towards paying off the debts in collections.

By the time the collections are paid off, your sister will probably have graduated, so they will be free to sell the house. Even without fixing it up, it would generate plenty of cash to pay off all their debts. I don't see that there's any rush to refinance (with the associated transaction costs) since they may sell fairly soon anyway.

Or, if at that point they are adamant about staying in the house, then they can refi on their own.

This was going to be my suggestion.  A very short term, relatively small loan to pay off the Jeep, with the caveat being that they immediately sell it and pay you back.  Then they put the rest toward their worst/most emergent debts. 

SwordGuy

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Re: messy Family loan advice
« Reply #23 on: June 07, 2018, 08:13:14 PM »
@Murse, what did you decide to do?

Murse

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Re: messy Family loan advice
« Reply #24 on: June 07, 2018, 08:27:36 PM »
@Murse, what did you decide to do?

This was a tough one for me. I decided to loan them 4000 with the condition that the 320$ they were using to pay the loan payments be snowballed onto other debt. The 4000 was added onto their other debt and the intention is for me to be reimbursed when we do the cash out refi in feb or March. This will be the last loan made unless something else comes up towards the refinance time requiring a loan to make it go through.

They are still doing great and sticking to their budget. They actually asked that I have them sign a promissory note Incase something happens to them so I can get in from the estate (house equity-debt.)

SwordGuy

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Re: messy Family loan advice
« Reply #25 on: June 07, 2018, 08:29:02 PM »
Great!

AMandM

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Re: messy Family loan advice
« Reply #26 on: June 08, 2018, 12:59:07 PM »
@Murse, what did you decide to do?

This was a tough one for me. I decided to loan them 4000 with the condition that the 320$ they were using to pay the loan payments be snowballed onto other debt. The 4000 was added onto their other debt and the intention is for me to be reimbursed when we do the cash out refi in feb or March. This will be the last loan made unless something else comes up towards the refinance time requiring a loan to make it go through.

They are still doing great and sticking to their budget. They actually asked that I have them sign a promissory note Incase something happens to them so I can get in from the estate (house equity-debt.)
I'm so glad it seems to be working! May I ask how you chose the amount and what it was used for? From what you posted, it seems like an amount larger than necessary to fix the Jeep problem, but too small to fix the collections debts.

Murse

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Re: messy Family loan advice
« Reply #27 on: June 09, 2018, 06:45:36 AM »
@Murse, what did you decide to do?

This was a tough one for me. I decided to loan them 4000 with the condition that the 320$ they were using to pay the loan payments be snowballed onto other debt. The 4000 was added onto their other debt and the intention is for me to be reimbursed when we do the cash out refi in feb or March. This will be the last loan made unless something else comes up towards the refinance time requiring a loan to make it go through.

They are still doing great and sticking to their budget. They actually asked that I have them sign a promissory note Incase something happens to them so I can get in from the estate (house equity-debt.)
I'm so glad it seems to be working! May I ask how you chose the amount and what it was used for? From what you posted, it seems like an amount larger than necessary to fix the Jeep problem, but too small to fix the collections debts.
I got accurate numbers and decided that I would rather free up cash flow then pay off the collections. I want them to make more progress then they otherwise would to help them from a psychological point of view.

Turned out their personal loan balances were not 6k like I had guesstimated, they were a little under 4K. I paid both of them off, freeing up 320$ of monthly cash flow to start snowballing onto their collections.

Just an extra tidbit, they told me the other day thanks to budgeting this upcoming winter will be the first time in 3 years that they will have working heat. It went out 3 years ago, estimated cost to fix is around 400$ and they were so unorganized that for two years they couldnít put 400$ together. They all shared 1 space heater, that is all they had.

marty998

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Re: messy Family loan advice
« Reply #28 on: June 27, 2018, 02:00:40 AM »
Nice update @Murse. Good to hear a happy outcome (so far)