Author Topic: Mortgage + Family = trouble. Please help with ideas!  (Read 7303 times)

Xtal

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Mortgage + Family = trouble. Please help with ideas!
« on: September 20, 2013, 01:37:30 PM »
So I've gotten myself into a clusterfuck of a situation.  I'm just gonna go ahead and swear because this is MMM, after all.

Back in 2009, I bought a house.  An expensive house.  I didn't even really want a house, but my mom was pushing me (because of the $8000 tax refund and the low, low interest rates) and also my then-fiance wanted a house.  Shortly after I bought the house, my fiance and I split up.  No big deal in the end; the house was completely in my name, and I could -- at least nominally -- afford the payments.

In 2011, I met somebody new and we married.  My husband has a house of his own.  Now we have two houses!  What to do?  We were reluctant to sell my old house because the housing market was in a slump and it would have cost us money to sell.

MEANWHILE...

My sister, her husband, and their three bairns are living with my sister's husband's parents --  seven people (2 grandparents, 2 parents, and 3 kids) living in a 3-bedroom one-bathroom house.  Nobody's happy.  My sister and her family need a place to live.  I have an extra house.  You can see where this is going....

My mom cooked up a plan for me to sell my house to my sister under a contract for deed.  At the time, it seemed like the answer to everyone's problem.  My sister gets a home for her family, and I don't have to sell my house in a down market.  After 7 years, my sister and her husband apply for a for-real mortgage, and the house is taken off my hands.  Win!  Right?

No.

After two years, this has turned out to be a huge headache.  I wish I'd thought it through more at the outset.  My sister is not very good with money.  I've always been happy to help her out financially, but it's been in the form of outright giving her money.  I have a rule -- I do not lend money to friends and family members.  If they need help, I give it, without expecting a payback.  Anything else leads to strife, in my opinion.

But what I've done with this house, essentially, is to give a $200,000 loan to my sister.  Not a good idea.

In the many, many months that my sister and her family have been living there, they've paid me on time only a few times.  Most months the mortgage money is late, or only partially paid.  They eventually pay me back with their springtime tax returns.

The stress of this is making me really, really depressed.

What can I do?  What are my options?  Here are the options I've thought about so far:

1)  Sell the house.  It's going to be hard to do becaus the house is currently occupied by four adults (there are 2 roommates who help with the rent to one extent or another) and three children.  (It's a 4-bedroom 2-bathroom house, and there are extra rooms that are used as bedrooms so there's plenty of room for everyone).  Everybody is messy and the place is constantly dirty and full of stuff.  I can't imagine potential buyers coming through and wanting to offer what it's worth.

2)  Let the bank foreclose on the house.  I lose the equity that's gone into it so far, but so what? 

3)  I don't know.  I know there must be other options I'm not seeing.

Feel free to ask questions.  I'm at my wit's end with this.

Rural

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #1 on: September 20, 2013, 02:06:29 PM »
You could also evict and then try to rent and/ or sell. I know it seems harsh, but if you do manage to just sell it, or if you walk away, you're effectively evicting anyway.

Having said it, I don't know that I could bring myself to do it (see recent thread on buying a house for inlaws), but I felt someone should point out the possibility.

jrhampt

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #2 on: September 20, 2013, 02:22:32 PM »
oh dear god.  How much equity do you actually have in the house?  That is, is letting the bank foreclose actually a good option? 

I hear you on trying to sell the house while they're all living in there and completely disinterested in helping you sell by keeping it nice.  We bought our current house as a short sale, and the original owner was renting to relatives.  I remember being appalled that they were renting from a family member and not having the courtesy to take care of the place.  There were holes punched in the walls, piles of dirty laundry everywhere...  balls!! 

I do think it would make sense to evict and try to sell the place now.  They've had two years to get their act together, and they've been taking advantage of your generosity.  I don't know if you have the stomach to evict family, but logically this would make the most sense.

Xtal

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #3 on: September 20, 2013, 02:31:50 PM »
oh dear god.  How much equity do you actually have in the house?  That is, is letting the bank foreclose actually a good option? 

I hear you on trying to sell the house while they're all living in there and completely disinterested in helping you sell by keeping it nice.  We bought our current house as a short sale, and the original owner was renting to relatives.  I remember being appalled that they were renting from a family member and not having the courtesy to take care of the place.  There were holes punched in the walls, piles of dirty laundry everywhere...  balls!! 

I do think it would make sense to evict and try to sell the place now.  They've had two years to get their act together, and they've been taking advantage of your generosity.  I don't know if you have the stomach to evict family, but logically this would make the most sense.

The original mortgage was for $220,000.  Currently there is $199,000 owed.  Zillow says the house is worth $233,000, but I don't see anybody wanting to offer that in its current cosmetic condition.

I don't know that I have any formal recourse as far as evicting my sister and her family.  There's no lease.  We drew up a Contract for Deed and had it notarized, but I never filed it with the county as I realized I did not know what I was doing.  I've had the intent to hire a real estate lawyer, but I haven't gotten around to doing so.  So at this point, in the eyes of the law, the agreement is entirely informal.  I don't quite see how I could evict them.  (Note:  I'm not trying to be negative or make excuses -- I just am freaked out and can't quite see what I should do).

This is why foreclosure seems like the best option to me.  I don't see what other recourse I have to shoehorn them out of the house.

I deeply regret getting myself into this situation.  My advice to anybody else thinking about getting involved in something like this with a family member is: Don't!

(There is also the guilt of thinking about the kids.  My nephews are all elementary-school age and settled into schools.  I don't want to disrupt their lives, but I don't feel like I should have to subsidize housing for my sister.)

hoodedfalcon

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #4 on: September 20, 2013, 02:39:49 PM »
I don't know which state you live in, but I wouldn't rule out the option of eviction. Many states have enacted a version of the model landlord/tenant act that does not require a written lease. I know in my state, the eviction process is the same regardless of whether the lease was written or oral. And "lease" is often a term of art for contract between parties to exchange housing for money. If there is an understanding that they should pay you a certain amount of money every month, you probably have a "lease" agreement.

As far as the contract you drafted, it sounds as though they may be in breach of that contract, if it was even a valid contract to begin with.

It doesn't sound like foreclosure is anywhere near your best option.

*edited for clarity
« Last Edit: September 20, 2013, 02:45:57 PM by hoodedfalcon »

Mr.Macinstache

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #5 on: September 20, 2013, 02:42:52 PM »
Oh boy.... have you tried to sit down and talk to your sister and tell her your thoughts, and essentially give her an ultimatum? It's such a hard spot to be in, but maybe being firm with her, saying that the rent needs to be paid on time or you'll have to have it foreclosed on, meaning she'll have no place to live.

Does she want to try to work things out, or is she just using you until her time is up? I would certainly give her the chance to make things right under the conditions that if she doesn't you will be forced to ask them to leave because you can not afford it.

Foreclosure might be the easiest option but probably the worst in terms of your credit.

Jimbo

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #6 on: September 20, 2013, 02:46:05 PM »
Are the lines of communication already cut off? It's entirely possible, and I wouldn't blame you, but if not, why not explain the situation to them and tell them that the fact they are not paying rent/mortgage and not doing standard upkeep is draining all your savings, which will not be tolerated. And that if it stays the same, you will have to sell/foreclose/get rid of the white elephant.

They very well might not take this well, but it's worth a try...

Also, I'm a glass half-full kinda guy, and here the lesson is definitely burnt in your brain. So there is positive! :-)

jrs

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #7 on: September 20, 2013, 02:48:47 PM »
I'm so sorry.  I understand what a difficult position that must be.

I would say that their past negligence and your past leniency has undermined the terms of the agreement.  So one way to look at this is a struggle to reestablish the expectations and boundaries as clearly as possible.  Consider: having a sit down with them.  Provide a written statement that tracks their past late and missing payments.  Show the sum balance you've had to carry as a result of their lateness.  Mention the emotional and financial stress it is putting on you (and your family). 

Tell them that as of the January 1st, 2014, for financial reasons, you can not allow late payments.  Say that as of the first of the year, any late or missing payments and you will have to evict and put the house on the market for sale.  Tell them if they anticipate having trouble making their payments as of the first of the year, then they should start searching for an apartment to downsize to now.

before you talk to your sister, talk to your mom.  Don't go into details, but tell your mother that payments have been missed and you're stretched to your financial limit.  Tell her that you plan to talk to your sister about it.  Tell your mom that you hope she is able to remain neutral on the issue, as it's hard for everyone, but it's time for to put your family first.

About the legal unknowns about eviction, you would have a few months to figure it out, also if your sister tries tell you that eviction isn't an option, rather than being apologetic about missed payments, then you have reason enough to put sympathy in the back seat.

the above is just one opinion, I have no way to know if this makes sense for you, but it would be my gut response.


Xtal

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #8 on: September 20, 2013, 02:53:42 PM »
Are the lines of communication already cut off? It's entirely possible, and I wouldn't blame you, but if not, why not explain the situation to them and tell them that the fact they are not paying rent/mortgage and not doing standard upkeep is draining all your savings, which will not be tolerated. And that if it stays the same, you will have to sell/foreclose/get rid of the white elephant.

The lines of communication are not cut off; despite this mess, my sister and I still have a fairly good relationship.

The problem is, I have explained that there will be consequences if they can't pay me on time each month.  Now I'm at the point, I guess, where I feel like I have to enforce those consequences, and I kind of don't know how to do it, or don't want really want to. 

Xtal

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #9 on: September 20, 2013, 02:55:31 PM »
I'm so sorry.  I understand what a difficult position that must be.

I would say that their past negligence and your past leniency has undermined the terms of the agreement.  So one way to look at this is a struggle to reestablish the expectations and boundaries as clearly as possible.  Consider: having a sit down with them.  Provide a written statement that tracks their past late and missing payments.  Show the sum balance you've had to carry as a result of their lateness.  Mention the emotional and financial stress it is putting on you (and your family). 

Tell them that as of the January 1st, 2014, for financial reasons, you can not allow late payments.  Say that as of the first of the year, any late or missing payments and you will have to evict and put the house on the market for sale.  Tell them if they anticipate having trouble making their payments as of the first of the year, then they should start searching for an apartment to downsize to now.

This is excellent advice.  I'm also thinking I should just hire a real estate lawyer already and have the Contract for Deed filed properly -- there are provisions for non-payment in the contract that, if filed properly, I could probably have enforced.

StarryC

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #10 on: September 20, 2013, 03:00:28 PM »
You probably should try to talk to a lawyer with the agreement that was signed.  You might not be able to evict them or there might be other rules. Those contacts should be very complex: Rules about due dates, what happens to equity, when the deed is transferred, what if payments are late or missed, acceleration clauses, insurance, utilities, taxes, damage to the property etc.  If yours isn't you might be in big trouble. 

I wouldn't "evict" them in a formal way, at first.  I would go to them and say that you believe you could profit by selling the house now if it were unoccupied, and you would like to no longer deal with worrying about it, but you want to help them.  Present 3 options (assuming you can afford them, and the lawyer says they are legal). 

Option 1: They apply for a mortgage and you sell it to them.  You might even be able to gift them your equity, so they would need no down payment.  If it is worth 233,000, and you gift them your equity of $34,000 that is a 14% down payment!  I think the mortgage on the remaining $200,000 would probably be about $1,300 a month.  You take a big hit by losing equity but at least your credit isn't ruined by a foreclosure, and you are the kind sister who gave your sister $34,000! 

Option 2: They move out by the end of November, and you ask for no rent for October and November.  They can "save" the normal payments up so they can pay the security deposit and first month's rent at a new place.  You take a smaller hit right away, and maybe several more months as you try to sell, and seem like the mean sister, but you are being very generous.  (Or, if you can handle it, make this deal with them moving out by July 1- that way you don't "ruin" Thanksgiving/Christmas and the kids can finish the school year, you could tell them now and then say no rent for May or June or longer if you'd like.)

Option 3:  Sell with them in, by making a deal- They keep the house nice and keep paying you, but when and if it sells they get 75% of the profit you make.  So, if they do a good job by caring for the house and it sells for 225k, - mortgage, -6% fees, they get about $9,000 cash.  This extends the problem, maybe for a long time.  However, they might be motivated by getting a large chunk of money.  People who finally pay off rent with a tax return might see that $9k chunk as a big incentive.  And the nicer they make it, the more money they get.

Xtal

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #11 on: September 20, 2013, 03:04:19 PM »
^^  Beautiful.  These are all good options.  You've given me a lot to think about!!

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #12 on: September 20, 2013, 04:54:20 PM »
A Face Punch must be given for even thinking about foreclosure. You have plenty of equity in the deal to sell the place. Tell your sister that you can not financially carry two homes and you need to sell the house since you are not receiving the agreed upon rental payments. She needs to move out by the end of November. Spend December to fix up the house and put it on the market after consulting with a Realtor that is prominent in your neighborhood. Or you can try calling those people that advertise that they buy ugly houses and see what they offer. Obviously you'll have to dicker with them since you don't want to let on that you might be a little desperate to sell.

Another idea is to have a direct deposit from you Sister's account into your bank account on the 1st of the month.

HamhockHammock

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #13 on: September 20, 2013, 06:32:25 PM »
Yikes. Sorry to hear about your situation. This sounds tough. I wish you the best of luck.

Where do you live? If you're in the States, I would first dig around in my state's code (land contract law is probably in the "real property" segment) and then consult an attorney.  In the great state of Maryland, in which I live, land contracts are very different from rental arrangements and you can't "evict" someone, as others before me suggested. The fact that you failed to file it isn't material. In fact, in Maryland (if you lived here), it looks like by not filing the agreement, you violated the law. Here is the statute:

(f) Vendor to record contract. -- Within 15 days after the contract is signed by both the vendor and purchaser, the vendor shall cause the contract to be recorded among the land records of the county where the property lies and shall mail the recorder's receipt to the purchaser. This duty of recordation and mailing of receipt shall be written clearly or printed on the contract. Failure to do so, or to record as required under this section within the time stipulated, gives the purchaser the unconditional right to cancel the contract and to receive immediate refund of all payments and deposits made on account of or in contemplation of the contract, if the purchaser exercises the right to cancel before the vendor records the contract.

Yup. Harsh: The purchaser (your sister) could cancel the contract and demand immediate refund of all payments and deposits. That is, in Maryland, of course. (Disclaimer - I'm not an attorney. This isn't legal advice)




NumberJohnny5

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #14 on: September 20, 2013, 10:51:15 PM »
...and to receive immediate refund of all payments and deposits made on account of or in contemplation of the contract, if the purchaser exercises the right to cancel before the vendor records the contract.[/i]

I would definitely check with an attorney ASAP, and probably then turn around and file this sucker ASAP. Ok, they're family...but when it comes to money they "seem" to not be treating you all that well, and if this little carrot falls into their lap...hard to say exactly what they'd do. Heck, they may be extremely upset if they find out right AFTER you actually file. "What do you mean, all I had to do was X and I'd get back a crapload of money, and still get to stay here rent-free until they evict? Why didn't I find out earlier??!!"

I'd try to get the agreement nullified/voided somehow. Perhaps there was a clause that if they were late X times, the agreement would be void (stuff to check with a lawyer; maybe it's only enforceable AFTER your contract is recorded, maybe you have to send official notices certified mail, etc.). At any rate, if you can start over, that's great.

Now, make the agreement informal, or very carefully worded, but it needs to basically be "pay the amount due for the mortgage by the mortgage due date." If they're late, the bank charges a late fee, no? Well, that's an amount due for the mortgage, it's the bank charging it...it's out of your hands (though a friendly reminder that they're trashing your credit is probably due; do realize that your credit will go to hell with this option, you won't really be concerned but you can act it). If the bank starts to foreclose, not your fault. If the bank evicts, again, not your fault. Hopefully, "the bank" will be the bad guy now, and not you.

You'll lose any equity you had in the house if it's foreclosed (ok, if it sells at auction for a high price, the bank has to give you any actual profit; but in reality this isn't going to happen). Your credit will be trashed for however long this charade lasts (could be a year, could be a couple decades). Oh, and you'll be asked to bail them out financially, you know, so the bank won't foreclose on "their" home. Forgot to mention there's a part two.

You've got to act like you're in financial trouble yourself. Make them scared that you'll ask THEM for money; they'll just think you're too proud to actually ask for help. Shouldn't be too hard, you're already on this site. Ditch cable, sell one/both cars, downsize your own home, bike everywhere, stop going out to eat at fancy restaurants, etc. And don't say you're "saving money" as that conjures images of a big fat bank account (that they can borrow from you at any time). If it comes up, just mention that you just didn't have money in the budget for Option A anymore, so you now go with Option B which is less expensive (they don't have to know that your budget limitations are self-imposed). This could backfire, however, if in the far-off future you're called out on it (say, when you're checking facebook while sipping margaritas on your private island in the Caribbean) just say "I never said I didn't have the money for it, I said it wasn't in our budget; we decided to make some changes in our budget so we could afford to buy this wonderful private island in the Caribbean and a lifetime's supply of margaritas."

Ok, I know...very silly thing to even think about. But if you want to exit out of this and keep a cordial relationship with your family...I don't see an easy way out. They think of this as "their" home and whoever takes it away from them will be the bad guy. To keep this as amicable as possible, they either need to stop thinking of it as "their" home, or someone other than you has to be perceived as the one taking "their" home away from them. The facts may be in your favor, but emotions are going to play a bigger part in how this turns out.

pumpkinlantern

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #15 on: September 21, 2013, 08:42:35 AM »
I would start by talking to your sister especially since you seem to still have a working relationship.  Even if you do end up evicting her and her family, this will go a lot smoother if you tell her this as soon as possible.

Tell her, "Because you are not paying for the mortgage, I cannot afford to keep the house.  I want you to have a place to live, but the current arrangement is not working.  Here are our options. 

1. You can pay me back everything you owe within x months and you pay me rent on time every month.  If this does not happen then we will have to move to one of the other options.  This is not negotiable. 

2. I evict you and find a renter that can actually cover the mortgage. 

3. I sell the house.

4. I will have the house foreclosed as I am not able to cover the mortgage payments."



I would get a real estate lawyer and find out what your options are.  Given that it is highly unlikely given your sister's pattern of behaviour that they will be able to pay you on time, you should evict her.

prof61820

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #16 on: September 21, 2013, 09:11:22 AM »
Is your family's failure to pay you on time and in the full amount the result of anti-mustachian behavior or is it something else?

tomsang

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #17 on: September 21, 2013, 09:13:28 AM »
Sounds like you have some good options. Another is to hire a property manager and let them deal with the collection of rent. They will impose and collect fines from your sister, but then it is out of your hands. The challenge is coming up with a reason to go to the property manager. This also could be one of the options you give your sister. Tell her that you are at wits end, that this house is hurting your relationship and hurting your financial well being so if she does not ship up then you are turning it over to the property manager to deal with collections to save your sanity.

Good luck!

Gerard

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #18 on: September 23, 2013, 06:57:17 PM »
I want to chime in with a completely different idea. If they can only make full payments to you when they get their tax refunds, can you restructure the payments so that that becomes what they're supposed to do? 'Cause it doesn't sound like they're going to change their ways any time soon. Or maybe in the intervening months the mom who cooked up this plan could cover the difference?
[Note to grumpy people: I'm not saying that these ideas are how things should work in a well-ordered world; I'm just trying to make it work with the reality on the ground.]

arebelspy

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #19 on: September 23, 2013, 07:07:04 PM »
Everyone chiming in so far, as well as OP, has missed the biggest problem.

(EDIT: Looking back through the responses, I see I missed one, HamhockHammock actually did call it. /END EDIT)

One that will, once you understand, make you say "oh mother of god" and think that the problem in the OP is a small one.

It is no longer an eviction scenario.   They have equitable interest / equitable title (it is referred to by both names depending where you are).  Google it.

Regardless of the fact that you never filed the paperwork, you signed an agreement to sell it to them, and they've been paying you mortgage payments, not rent payments.

In other words: to get them out, you will have to foreclose on them, not evict them*.

Nor can you sell it as a solution, you have already sold it to them.  Even though they are not performing on the contract, you can't just sell to someone else, you have to go through the remedies provided within that contract.

This will be a messy, messy situation if you can't get them to leave voluntarily that will require not just a lawyer, but many billable hours and court costs.  If you're lucky.  Do you know your state's foreclosure laws?

*Especially since this was a land contract / contract for deed (again, same thing, different words) rather than a lease option.

tl;dr : you cannot legally sell it. you cannot legally evict them.  You need to work out a solution with them, fast, that they agree to - in writing - that gets them out.

Also, please talk with a lawyer.  Though I'm fairly sure of what I'm talking about, I don't know the laws in your state.  Nor do any of the above commenters, who missed this huge issue.  Please don't listen to randoms on the internet for legal advice, but consult a lawyer.

I may have a creative solution for you.  Sent a PM for some more details.
« Last Edit: September 23, 2013, 09:54:11 PM by arebelspy »
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Mr.Macinstache

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #20 on: September 24, 2013, 11:40:38 AM »
So does that mean if the bank forecloses, the OP is free and clear and the burden falls upon them?

SunshineGirl

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Re: Mortgage + Family = trouble. Please help with ideas!
« Reply #21 on: September 24, 2013, 03:07:16 PM »
Ouch. I don't envy you.

I think what I'd probably do is have a good sit-down with your sister and demand that you become the first bill paid, and that you're paid every week, or every two weeks rather than every month. For instance, if payday is this Friday, his/her check gets automatically deposited and a set amount is automatically tranferred to your account. Every single payday, you should be the first one paid.

It would be ideal to help her get set up with YNAB so she can start getting better with money. Is she open to help?