Need some strategy...

[Anonymous]

Hello!  I'm trying to get some strategy on my dad's situation.

My mom and dad have only one grandson, Nate, who is my son, age 27.  He and Mirah married 3/4 yrs ago.  They bought a house in Tucson, AZ, and somehow ended up losing it.

So, my mom and dad (here in IL) gave Nate permission (POA?) to sign on a mortgage loan and some other loan in order for Nate and Mirah to live in a new house, again, in Tucson.  I think the total of the loans was for about $250K.  I, of course, told them not to do it!  It ended up being an "interest only" loan, I think 6% interest, in my mom & dad's name.  Nate & Mirah said that they would stay in it two or three years and then sell it with a profit.  My mom and dad also had plans of moving from IL to Tucson "sometime in the future".  I don't know if they were planning on living in this same house or not...  It's a beautiful house out in what's called Picture Rocks, but their address is is actually Tucson.

Ends up that my mom (age 78) and dad (age 80) were making all the payments (@ $1600/mo) with their pensions...  Nate doesn't work very much.  Mirah is going to school and will be done in August.

Last November, my mom died of pancreatic cancer.  So my dad no longer has my mom's pension as income.  He's cashed in a couple of CD's in order to continue making these mortgage payments.

Nate and Mirah now have plans of moving to Texas sometime after August...  Nate and Mirah are going to put the house up for sale probably in May/June.  According to Zillow.com, the "Zestimate" is $154K.  What is the best thing to do?  Try to sell it for $250K?  Let it go back to the bank (Chase)? 

My mom & dad's credit score was very high...they never missed a payment on any loan that they ever had.  Their house here in IL has been paid off for years.  My dad now has no payments except for the Tucson house.

My mom's mom (my grandmother) is still living at age 99...she lives with my dad, and I'm there everyday for many hours to help with Grandma.  I'm also retired receiving a pension, so I can't help with that payment.  I don't think my dad could refinance?  I'm not sure...  He has a great credit rating...and he has some investments with a really good investment firm.  My investments are with the same firm.

I hope I've covered most everything.  We just need some idea of what options my dad has instead of worrying to death about this.  If you have any questions, please ask.  It's such a mess...  I would appreciate your thoughts.

amquilter

[Lel]

Hi amquilter, welcome to the FICO forums.

I'm sorry to hear about the situation that your father is in.  It seems like his (and your late mother's) decision to help our your son, who still has much to learn about financial responsibility, has put him in a difficult situation.  Good deeds never go unpunished.

Though Zillow's estimates are often poor surrogates for the true market value of a home, it's still highly likely that the Tucson house is worth far less than the purchase price.  Given the severe decline in housing values, there is zero chance of the house selling for the amount owed.  Refinancing the loan is probably out of the question, too, because it's so far underwater.  Since this is not your father's primary residence, I don't believe that it would qualify for any of the government programs.  The Tucson house would be considered an investment property or second home.

A short sale is a possibility, but this would have severely negative implications on your father's credit score.  Though he may not have much need for new credit at this time in his life, a short sale could still hurt him if his other creditors start slashing his credit limits in response to the short sale.  Also, if he does need new credit (for example, to purchase a new car), then it could be difficult for him to get a favorable interest rate.

Short sales for both sellers and buyers are arduous processes - it take a long time to complete.  You also mentioned that there are "loans" on the home - a first and second mortgage, I assume?  Having a junior lienholder makes the short sale process even more difficult, because both lenders would have to approve the short sale, and the junior lienholder would stand to lose a significant amount of its investment.  If the second mortgagor is also Chase, then it might be less difficult.

Letting the house go back to the bank - either through foreclosure or deed in lieu of foreclosure - also has significant negative implications on one's credit score, possibly worse than a short sale.  Before choosing this option, make sure that you clarify the recourse laws in the state of Arizona to see what rights the lenders retain in terms of seeking repayment of any shortfall.  I believe that for primary residences, Arizona is a non-recourse state (lenders can't sue for the difference between foreclosure sale price and amount owed), but different laws might apply for investment properties.

It seems like that option that would save your father's credit and get him out from under this debt would be to make that move to Tucson that he was considering.  He could sell his Illinois home and use the proceeds to pay off the full amount of the loan balances for the home in Tucson.

[Anonymous]

Thank you, Lel!!! I appreciate your help with my father's situation!  And you're right!  Nate needs to learn alot about financial responsibility!  His father died in a plane crash in Nevada back in 2000, just before Nate was to graduate from high school...no insurance...no nothing...and didn't pay into Soc Sec.  He was in business for himself...htg & a/c...  So, Nate didn't have a very good teacher...

Unfortunately, my dad has to stay here in the Illinois home until my 99-yr-old grandmother (my mom's mom) passes away.  She's in pretty good health except that she's legally blind and almost deaf and has dementia.

So, if after Grandma passes away, and my dad sells the Illinois home, then the AZ home could be considered his primary residence, right?  Nate and Mihra would love for him to come out and stay with them anytime (after all...the house is in my dad's name!  LOL).  But, I'm sure he wouldn't do that.  We're both taking care of Grandma.

Maybe the economy will have turned around in a couple of years and he could sell the AZ house and not lose anything...  Nate and Mihra just might not get to move to Texas as soon as they have planned.  It sure would be great if they got good paying jobs and paid my dad back!  But, this was all between them...  Just such a shame!

Ok...thanks alot again!  I really appreciate your help!  Thanks for everything!

[Anonymous]

It does sound like he has the financial ability to keep up the payments and long term, that will be more beneificial than walking away from the home.  That said, it could be a very long term thing to get that property back up to equity.  It is quite likely it is over 100K negative currently and that will take many years to recover.  There will not be another boom like we had a few years ago.  So he needs to seriusly consider what he wants to do, what he has the ability to do, and what of all that makes the most sense for him. 

Three things that need to be done right away I would say:

Get a real estate agent out and get an idea what the real value is verses the loan balance.  Get the info directly from the agent, not the son, as they are obviously not good at  taking care of money stuff.

Get an idea of the condition of the property.  Are they keeping it up.

Give them an ultimatum to start making at least a minimal payment (I would say half the payment at least) towards the mortgage or move out so he can find renters.  Then get a rental agency to handle it.  It will cost more, but being out of state may necessitate that.

Last.  If it was an interest only loan, then it has to be up for a reset soon as most of those are 3-4 years or maybe 5 year loans.  That mean that 1600 payment is going to go up quite a bit before too long.  The owner needs to seriously loo at what that is going to do to his payments, look at his current assets, the property laws in

[Anonymous]

Thank you, mickie08!  I'm sure glad you said something about the interest only loan coming up for a "reset" soon!  I figured it was a 30-yr loan...  I should get the papers out and look them over again.  I have POA over my dad.  He's just worried sick about this situation.  This won't be any good news to his ears either...  Thank you again!  I'll look into this!

I wonder if I call Chase and the other bank is SunTrust...  I think the small SunTrust loan is a regular loan...the principal goes down, but not much!  And the property tax is held in an escrow account.

You had a great idea too about getting renters who could pay and it would help with the payments...  I'll mention that to my dad, too!  I like that idea....and getting a real estate agent out there!  We need to know what that property is worth.

I do know that Nate and Mirah are taking excellent condition of the house and the property.  I go out there ocassionally.  The neighbor on the right has a nice house and property, but the neighbor on the left is a really old trailer/modular home, and they have a horse or two and four dogs in their back yard!  It's a pretty nice area out there except for Nate's neighbor.

Yes, Nate thinks that he's in business for himself like his dad was.  I guess he's trying to be like his dad.  = (    I was the real worker and saver in the family.  You'd think he would want to be like me, not a loser like his dad was!  Nate's dad convinced him to come out to AZ and live with him when Nate was 16.  His dad promised Nate "the world"...  I couldn't convince Nate to stay with me...  Well, that's in the past...can't change what happened...

I've told him that I listen to Dave Ramsey on the radio...  He's listened several times...and I think he's catching on and has realized that what he did was wrong.  So, he's growing up slowly...

And I like the Rental Agency idea!  I'll tell my dad that too!  Thank you so very much for taking your time to help!  I really appreciate it!

[leah5570]

+1 Mickie08!

Being from the Tucson area, I know first hand how bad the housing market is over there. I would most definately look into finding someone who can pay the mortgage. If your son can afford something and not the whole amount of the mortgage payment monthly, get a feel and see if what they can afford equates to a decent apartment. I'd then find a property manger who can find tenants who can pay at the mortgage price. In the Tucson area especially, you see how rent prices are dictated by the mortgage loans acquired a few years back. The property manager will screen the tenant and handle the rent money for you. At least the property manager I knew in AZ did so for her clients who were residents of CA.

Best thing would be to save the property. Yeah it depreciated. But the bad thing is to keep looking at how underwater you are in it. It's still a home, and sounds very nice. When things pick up (hopefully soon! this is crazy), your family will have a decent property that can be used for a second home or ready and waiting for your son when he and his wife look to start a family and decide where their home should be. (TX or AZ).

I hope it all works out for you. It should, just keep your head up and explore all avenues. Don't stress over something that can be fixed pretty quick with either a new tenant or contributions toward the mortgage payment or negotiations with the lenders. Best of luck!

[Anonymous]

Thank you leah5570!  I like the advice about getting a renter in there who can afford to pay, and I like the idea of the Property Manager. 

I'm going to discuss all of these options with my sister first, get it all organized, and then present it to my dad.

I just hate it because he's lost so much money with this stupid "interest only" loan.  Why in the world would any lender even suggest something like that?

Thanks for all your thoughts!  I'd love to move out there...my husband doesn't like the heat...he's a machine operator...has two backhoes.  Now he has mentioned that he'd move to Texas!  Nate would love to go into business with my husband.  I don't know if that would work...

If you come up with anymore ideas, please let me know!  I appreciate all of these great ideas!  This is the first time I've ever been involved with a Forum!  It's great!