Well the short story is my in-laws are going to lose their home. They've been bounced form job to job over the past 8+ years, burned through savings during the unemployed periods and are now forced into retirement. They're 62 and 63 and the chances of finding employment in their field are nil. They cannot afford their home and they are starting the short sale process. It is in Georgia with a first through Greentree and the second through BOA. Combined balance of about 270k, house is worth about 140k. They aren't bailing because of the value, they honestly can't make the payments.
To help them I'm buying a condo about 1 mile from where we live now. I'm going to let them live in it rent free in exchange for them watching my kids during the day. It will actually save the wife and I about $600 per month in daycare expenses so it works for all of us. Them not having any rent also helps them recover financially and eliminates a big stressor for them also. But here is the part I'm pondering.....
Their savings has dwindled to nearly nothing and income is restricted to retirement and SS. If they end up in forclosure or other process I want to help them keep from losing more money from liens, lawsuits or judgements. Part of this thought was to help them appear "non-collectable" financially. They have already stopped making house payments and the dings are on their credit reports now. But they are still able to stay current on their other debts (car, credit card, etc..). Not easily but they are doing it. I don't want the mortgage holder coming after them with a lawsuit under the assumption they CAN pay since they are current on everything else. I was thinking they should let one or two credit cards go 30 days late then catch it up again the next month. Maybe allow a low balance card to hit 60 days late. But not the car payments.
Essentially if the mortgage holder did an account review before forclosue or during the short sale process they may see the other lates and take notice that they ARE stuggline financially and would probably get nothing from lawsuit or liens. Especially since they are retired, have no assets and income is protected social security.
Thoughts?
Hi cahiatt!
Good for you and your spouse for helping both your ILs and your immediate family with a win/win solution. That's an excellent way to both help family, and allow them the dignity of helping themselves. Not to mention, kids get the benefit of having their grandparets in their daily lives. Wins for everyone! 
I wouldn't encourage them to go late on their credit card obligations if they can help it. It's not going to prohibit the mortgage company from going after them IF Georgia is a recourse state. <-- That's a question you'll need to answer. Some states are "no recourse" for foreclosure and/or short-sales. They may not be liable to the bank for the difference.
IF they will be liable, it sounds like they're virtually judgment proof anyway. So... there's really no point in further damaging their credit in an effort to prevent *another* public record. The forclosure will be a PR (major derog). If they get sued it doesn't sound like they have garnishable assets. Now, if the credit card debt has gotten to be too mch, and there's no way for them to maintain it, even living rent free, it might be time to consider BK protection from their creditors. And, BK is not something to be considered lightly, of course, and should be avoided if at all possible, but if their unsecured debt is going to interfere with their ability to feed themselves, and secure basic medical care, then that may be the most viable option. If that's where they end up, better to go into BK with as few derogs as possible... it'll be easier to rebuild. Sixty something is still young, so they will definitely want to rebuild.
They've been through BK before about 15 years ago and I know they don't want to do it again. Georgia IS a recourse state but I haven't searched to see how the lenders are handling it yet. I hope they just leave them alone.
They do have a house in North Carlolina that is owned outright. Was received last year through the passing of my wifes Grandmother. I'm not sure if that is protected or not but discussing the option of me buying the house from them as an owner-finance and record the deed as such. I'll just rent it out and pass the rents to them. It's been sitting for two years now with nobody in it. I can't get them to do anything with it. That's a potential revenue generator that they are ignoring. I think that little extra a month would help them out also.
1) The wife and I are going to approach them about signing over the house. It might make them feel better about the situation if it felt like it was some sort of equity exchange by us putting them in a condo and them giving us the house. I've already given them a $0 lease to sign with indefinite and automatic renewal. They needed it for utilities and I needed it for the insurance company to know someone would be occupying the place.
2) They have started packing already and getting rid of things they don't need.
3) Not advising them yet to go late on anything. Doesn't seem worth it based on feedback so far.
4) Only income now is from social security, schoolteacher retirement and anything they draw from IRA/401k which isn't much left. I've advised them to pay off debt with savings and put the money they WERE paying towards debt back into savings. I even went so far as making an excel file comparing the two for them to see how much MORE money they would have in 10 years versus a net loss. They won't do it. They are pretty thick headed on this part of the finances and will NOT relinquish cash. I think they have about $9k in credit card debt ranging between 15% and 27% and generally make minimum payments. It's eating them alive and they have the cash to eliminate them now.
From a legal standpoint, as I understand it, the bank CAN go after their retirement plan income (401k and pension) but can NOT touch the ss.
Maybe you could explain to them, since they are walking away from their house, that the bank can, and probably will go after their 401k entirely and could go after their pension payments. It's in their best interests to drain the 401k now and pay off the debt.
I agree with someone else said about posting the house for sale. It's tough to be a long distance landlord. The money from the sale of the house could be used down the road, for your IL.
Something to consider...having a power of attorney for the IL's. Or maybe guardianship. I don't think the bank is likely to go after your parents for money if they have guardians.
Just thoughts. And thank you for being kind to your IL's.