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Dear Liz: My in-laws just informed us that they have gone through their retirement fund and soon won’t be able to pay their mortgage. They borrowed against the house they’ve lived in for 30 years and currently owe $325,000. They are devastated, so I am trying to figure out the best way for them to stay in their house in their final years, as they are both 73. They have about $300,000 in equity but do not want to sell. They are willing to sell the house to my wife and me at their current balance. We would make the payments and they remain in the house. When they pass, the house would be ours. They looked into a reverse mortgage but this would cover only the payments, not taxes, insurance or maintenance. What is the best way to do this? Do I get a loan and purchase outright? Do I contact their bank and see if I can assume their loan? Do they quit-claim the home to my wife and me? My wife and I can afford to do this, but we want to make the right financial decision.

Answer: Before you do anything, please consult a tax professional and an attorney with experience in estate and elder law.

It’s unlikely the lender will allow you to assume the loan, so you probably would need to set this up as a sale of the home with you and your wife obtaining a new mortgage.
But their plan to sell the house to you at a below-market value could create gift tax issues and could delay their eligibility for Medicaid, should they need help paying for nursing home care.

There are other risks to your in-laws. Your creditors could come after the home if you lose a lawsuit, for example. You could sell the home without their consent, and you would have a claim on the property if you and your wife split up.

Then there are the risks to you. You say you can afford to make the payments (and presumably pay the taxes, insurance and maintenance as well), but what happens if you lose a job or suffer another financial setback?

All of you need to understand the risks involved, and your alternatives, before proceeding.

A sale of the home or a reverse mortgage may well prove to be a better choice. A reverse mortgage wouldn’t completely eliminate their home costs, but would substantially lower them — whoever winds up paying the bill.

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Categories : Q&A, Real Estate, Retirement

7 Comments

1

I have little empathy for situations like this, hmm let’s see, you spent all your money, can’t afford to pay your mortgage anymore but you don’t want to sell your house, but are “willing” to burden your daughter and son-in-law with this debt so you can continue to live a lifestyle that you obviously can’t afford.

I say sell the house before the bank takes and force your in-laws to live within their means, no one is entitled to a lifestyle of luxury just because they are retired.

2

It’s time to sell the house and move them into a basic apartment paid for by the equity from the sale. They are living a life they can’t afford and want you to continue funding it for them at your own risk. Tough love isn’t just for children.

3

Christine, what a judgmental little piece of goods you are. It could very likely be medical bills that have forced them into this situation. If you found out that they borrowed all that money to pay for a kidney transplant, would you still be so dam nasty? What if they paid for their child’s medical bills? Is it really your place to be interjecting your rude comments into this?

4

@ Christine & Leigh. Your’e making judgement calls without any detailed information. First, nowhere in the letter did it say they are asking their son-in-law to buy the house from them. The son-in-law says “so I am trying to figure out the best way for them to stay in their house in their final years.” His idea, not theirs. Second, how do you know they didn’t spend all their money because of medical bills or some other dire situation. My parents own a house worth $500K which they purchased for $256 many years ago. They have very little in retirement funds because they made mostly minimum wage and spent their savings paying for their children’s education. One big trip to the hospital and their savings would be wiped out too. You’re making all kinds of unfair assumptions.

5

It appears to be time to sell. Maybe you can help them find a smaller place that will be set up for their future. A newer, less-expensive house to maintain with lower taxes and insurance, also safer with full access, grab bars, big doorways etc. Planned “aging in place” may keep them out of a nursing home in the future.

If they decide to stay in the big house and get a reverse mortgage, hopefully their maintenance costs, insurance and taxes would be within their income. I know they WANT to be out from under all debt, but a house sale is the only way to accomplish that. If they can’t even afford the expenses, then the house needs to go.

The only way your purchase of the house works out well for you is if you and your spouse really want that house and have been looking forward to inheriting it someday. DO NOT let the ILs coerce you into making a bad financial decision because they don’t want to face the facts. If they had swallowed their pride 5-10 years ago, you may have been able to help them keep the house. The market is better now in most areas. I would take Liz’s advice and seek help from a professional to explain the truth to them and then you can offer them help in finding a new place.

If you think they’d be hard to convince now, ten years from now it would be worse!

6

Have to totally agree with the 1st two comments. Some might think its heartless to do that to parents but its obvious they are not capable of handling their financial affair at their age. Sell the house to outsiders not family.

7

What worries me is that the parents are only 73. Their “final years” could last another two decades or more. And if, as some commenters are assuming, they depleted their retirement fund faster than expected due to medical expenses, they’re likely to have a lot more of those in the future.

LW and his wife need to go into this with their eyes open. They say they can afford to assume the house payments. But will that really get the parents into a stable financial situation, where they can meet all their anticipated needs on whatever money they have coming in (Social Security, pensions, etc.)? Or is this just the tip of the iceberg, and they’re going to need more bailouts a few years down the line?

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