Author Topic: Should I take over my dad's mortgage?  (Read 2499 times)

kythuen

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Should I take over my dad's mortgage?
« on: December 03, 2012, 10:13:24 PM »
This idea may be a little crazy, but I'm having trouble evaluating it on my own because I'm in a very high-stress, emotional situation right now.  I'm visiting my elderly father, who lives with my older disabled (mentally, physically) brother, and we're trying to make some decisions about the next stage of their lives.

My mom passed away about three years ago, leaving my dad to ramble around in a fairly large house with just my brothers to keep him company.  Without going into too much detail, my brothers are both older than I am and the one who isn't disabled is basically a waste of skin.  We've reached the point where my dad can no longer keep up with the house, caring for himself, AND caring for my older brother. 

Unfortunately, my dad was never very mustachian.  He has an above-average income due to a military pension and social security after a life of hard work, and if not for my brothers, he'd be perfectly comfortable and probably have a lot more savings.  He lives in an area with a very low cost of living.  But as it is, he's barely getting by, and only has about $4500 in savings. 

We'd like to get him into a much smaller place, probably an apartment in the same area or one near me (which I would prefer).  This plan involves only my dad and my older brother; the one who is perfectly able to work and has chosen never to do so would be out on his own.  The problem is, my dad can't pay rent on an apartment AND continue to pay his mortgage.

He owes about $58k on a house that was originally purchased for $70k back in 1994.  Due to being basically wrecked by my brothers over the years and my dad now being too old to maintain it, the house needs a ton of work before it would sell for what my dad owes on it.  Some of it is just cosmetic (but extensive), some of it is plumbing and air/heat ducts needing cleaning.  My dad is 82, and not particularly healthy; he has neither the money nor the constitution to manage this kind of work at this point in his life.  The house, as-is, would probably take a very long time to sell - more time than my dad can afford.  We've been making tentative plans for him to walk away from the house and let the bank have it back in some kind of voluntary foreclosure.

I've been thinking about this for a couple of days.  At first I was just thinking, I can pay the mortgage for him and then he can stay in the house.  Now that I'm here, it's clear that wouldn't work.  He needs out of this house altogether.  Then I started thinking about some of the ideas I've read on MMM and in a few other places, about buying foreclosure properties and fixing them up to rent to pay off the mortgage and then have a fairly steady income.

This basically would be a foreclosure property, only I already know the house very well, so I know it's basically sound.  If I took over my dad's mortgage, either by paying it and him leaving it to me, or by actually assuming the mortgage myself, I could probably rent the house pretty easily and fix it up over time.  I think I'd be able to break even if not better through renting it out.  I'm just not sure if this is a smart thing to do.

There's a way I could do it at no risk to my own credit for the immediate future.  I'm my dad's legal proxy, and I could pay the mortgage monthly and rent out the house in his name while he's still living.  That would give me a chance to make sure I could handle it financially until it's rentable.  If it doesn't work, he could still walk away from the mortgage, and it wouldn't hurt my credit - just his, which is already going to take that hit if we don't try this. 

Some facts about the house: It's a decently large 3 bedroom/2 bath house in a small town/rural area with very low property taxes.  It's around 30 years old.  The current interest is 7% (but we would refinance - he just didn't know he had the option, and I'm just now getting the full picture of his finances.) 

Is this crazy?  Is there a better/safer way to do it?  Are there hidden costs I'm not thinking of outside of renovations, routine maintenance and homeowner's insurance?  If I give this a shot, it will delay some of my other retirement and debt-repayment plans until the place is rented, so I'm not sure it's worth it on that score, either.  Right now I'm leaning towards doing it, but waffling.
« Last Edit: December 03, 2012, 11:26:12 PM by kythuen »

PJ

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Re: Take over my dad's mortgage?
« Reply #1 on: December 03, 2012, 11:55:23 PM »
I will leave it to those with rental property experience to help you with the numbers - there's another thread active in the forums right now with a discussion about the math for determining viability of a rental property that you might find helpful. 
 
I just want to share what came to mind as I read about the situation - in my old job, I provided support to people with developmental disabilities and their families, including helping when siblings would have to start taking on the care of their parents and the person with the disability.  So, my first thought is about finding the right situation for your father and your brother.  Wherever they move to, you'll want to be looking ahead to the next stage after this one.  At 82, even if your dad is fairly healthy now, the decline in functioning can be rapid once it starts.  Often people move out of their house into a seniors' facility where there are multiple levels of care available - starting with independent living but the availability of social events, etc. and gradually increasing up to full nursing home supports.  Depending on your brother's age and disability, it might actually be possible for them both to qualify for such a place, which would ease the future strain of meeting your brother's needs as your dad ages.  Where will your brother end up in the long run - i.e. after your dad passes?  With you?  In a residence?  If so, what are the waiting lists like?  And ditto for whatever kind of day programs are appropriate for his needs.  Does your brother receive financial support, or any other kind of support, such as attendant care, case management/service coordination? Sometimes it's easy to transfer these things to a new area (i.e. closer to you), and sometimes it's not.  You'll want to look into all that.  For that matter, as you say the current crisis is that your dad can't keep up with himself, your brother and the house, are there any supports they could be accessing that they aren't?  The support system tends to be convoluted and hard to access - the squeaky wheel gets the grease, unfortunately, when there isn't enough grease to go around.  But some extra support could make the difference between extending their time in the house or having to make some drastic changes pretty quickly. 

While you're dealing with all this, you might also want to consider what you need to do to have the authority you need to support your disabled brother.  Depending on his functioning level, does he make his own decisions and manage his own money, or are there some legal arrangements that will need to be made?  If so, now is the time to get that paperwork in place too. 
 
Now, if you went ahead with the idea of turning the house into a rental property, how do you propose to get your other brother to move out?  If he's never worked, he's not going to be able to get a place on his own.  And how would you keep him from just moving on in with your father again?  I presume your father has allowed him to stay there all this time, so why wouldn't he allow it in the new place?  If you think your dad can assert himself on this, then selling the house or turning it back over to the bank could force your brother out, but if you keep it then you'll likely have a fight on your hands.  Can you really manage to deal with getting your father and disabled brother re-situated, renovating and renting out the house, and evicting your other brother? 
 
Just a few things to think about ... I hope it's helpful!