Wednesday, June 30, 2010

Underwater and 90 Years Old....


My Parents are both in poor health and need full time assistance and care. I am currently providing the care at their home but it is becoming too much to handle and I need some help in providing for them. Our plan is to do a strategic default as their home is underwater (worth 145K owes 207K) I would rent a house in my name and my sister would live with us so she could help with providing the needed care. Their house is too small and too far away from where my sister works so her moving in at their house and helping isn't an option. With their current medical problems and at their advanced ages I suspect it means that within the next couple of years they probably will pass on, so it is painful decision but necessary. Any advice would be appreciated.

Good Afternoon.
I am sorry to hear about your families’ situation.
Is the property in your parent’s name alone? The reason I ask is this. If you decided to strategically default then the borrower of the mortgage loan and the owner of the property face certain consequences.
· It will negatively impact their credit score.
· It will expose them to a possible deficiency judgment. A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note or mortgage loan, in full. Please click this link to learn more about deficiency judgments and debt obligations.
· Their peace of mind and space will be disturbed by collection calls, letters, and perhaps visits.
Based on what you have told me, I do not believe that your parents will be concerned about their credit score. However, if they have savings, stocks, bonds, or other assets then a deficiency judgment can be an issue. Any debt incurred by your parents may stay with your parents even after they pass on. If you live in a state that do not allow for deficiency judgments then this may not be an issue. A state that does not allow for deficiency judgments is called a non-recourse state.
You may also consider contacting the bank and telling them about the situation. You can tell the bank that your parents want to give the property to the bank in exchange for the complete and full satisfaction of all of the debt that is owed to the bank. This is called a deed-in-lieu of foreclosure. This will eliminate any deficiency judgment risk to your parents. The key is to get any agreement with the bank in writing.
Do you parents have a will? What about a health care proxy or a medical directive? I recommend you speak to an estate attorney and discuss these matters in detail. A will lays out the plan for the distribution of your parents’ personal property and real estate. The health care proxy or medical directive allow your parents to entrust their health care decisions with you or other family member, if your parents are unable to make health decision for themselves.
Focus on what’s best for your parents. Also, you need income to take care of your parent’s health and for your needs. So it can make sense to use the mortgage payments for family needs instead of paying on a worthless property.
I do not believe it makes any sense to put money into a house that has no value. Also, do you want to inherit the house?
First things first. Focus on the needs of your parents and yourself. Then be clear about the risks of strategically defaulting. As I mentioned before the primary risk is any deficiency judgment your parents may be exposed to.
I wish you and your family well.
Please write me with any questions.
Thank you.
Augustine A. Diji

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