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On Love & Liabilities

Jan24

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Hi Amy!

I’m a first-time mom-to-be, currently 7 weeks pregnant! I am little obsessive compulsive (ok maybe a lot) and found your pregnancy calendar while I was diligently researching what to expect and the best methods for getting pregnant (which of course is obvious to everyone but me) and now I’m hooked!

Here’s my dilemma: my husband and I are very blessed individuals. We share a very happy marriage filled with laughter and love. We are also very successful in our careers and make enough money to support ourselves and a future little one with little concerns.

I am very close with my family and sometimes rush to their aid without thinking of the consequences to me and my family. My parents have done everything for me, raised me, put me through college, co-signed for my first house, etc. and now they need help. They are both in their late 60s and have recently run into financial difficulties. They got caught up in the Las Vegas housing bubble and are now upside down in their mortgage. They both are retired and need to walk away from the house they love. Before I became pregnant, my husband and I agreed we would sign the mortgage for a new house for them. Now that I am pregnant, well you know, everything is different.

My husband is afraid that adding an extra mortgage will financially tie us up and cause us future issues, and I do not see how it will hurt. We are probably both right and both wrong in a very simplistic way. We would not be paying the monthly payments, my parents can manage that fine. All we would be doing is adding another mortgage to our names. My husband is afraid long-term: what happens if something were to happen to them, as financially stable as we are we could not afford daycare and a $1,000 mortgage. I hate to even think about something happening to them, but my thinking is if something were to happen to my dad, my mom would receive the social security survivor benefits and continue to draw from the 401k, if something were to happen to both we would inherit the 401k, pay off the house and either sell it or rent it.

I am so torn between listening to my husband and helping the parents who got me to where am I am. I just do not know what to do. I was hoping that writing this would make me feel better, but seeing it on paper makes me realize that I am in a no-win situation, someone is going to get hurt. Do I focus on my new family or help my parents? Is there some middle road I can take that I can’t see?

I know that you will not have all the answers but I really just need some advice and support from an outside source.

Thank you so much!
A seriously torn future momma

Let me fire a couple questions right back at you:

1) Have you and your husband spoken to a good financial planner?

2) Have your parents?

If the answer to either of those questions is “no,” then for the love of all things holy, DO THAT FIRST. Do not co-sign anything, do not pass go, do not collect $200 or any other potentially life-altering financial liability on someone else’s behalf. Forget everybody’s feelings. This is an absolute, bare-minimum must, pregnancy aside. (But also, yes, especially because you’re pregnant and everything is changing.)

A good financial planner will be able to outline (to you) all the risks of this undertaking, and will ALSO honestly assess the benefits of another go at homeownership for your parents. I understand the emotional toll that foreclosure on a beloved home can take, but I’m really wondering why they necessarily need to buy another house. Especially right away. They are in their late 60s (and you mention their financial difficulties in the present tense), so…what’s the problem with finding a nice rental in their budget? (You can co-sign a lease, if their credit is in tatters, without assuming as much risk as a house.) This really does have me perplexed. Are they clinging to a romantic belief that Homeownership is Always Better (it’s not) or see buying another house as a way to make them “whole” or “stable” again (nooope)? Are they hoping to recoup their losses in some way via this purchase? Do you trust their judgment on that call? (Especially since a 30-year mortgage would mean they’ll be making payments on this place until their late 90s. Whaaaaat.)

Look, my parents owned a very small townhouse in a very nice area. They moved there when I went to college and it was a great place for them for a few years. And then practically overnight, that house became an unbelievable burden on them — financially and physically.  My father’s health started to fail and he couldn’t help my mom (who was also in her late 60s) with the upkeep and cleaning, the stairs became dangerous for him and while paying the mortgage was never a problem for them…paying for unexpected stuff like a new water heater or repairing a leaking pipe that left terrible mold in the walls or roof repairs WAS a problem. New construction flooded the very nice area over the years, so nobody wanted the older styles. Their development became primarily rentals and then plagued with short sales and foreclosures as the owners failed to rent or flip the houses. Bank-owned properties meant dead lawns and peeling paint; their next-door neighbor had severe problems with hoarding (animal and otherwise) and the family was prone to big screaming fights in the front yard.

All we (their kids) wanted was for them to sell that house and get into a nice single-level rental where they wouldn’t have to worry about maintenance, but thanks to all the fundamental issues with their once-awesome neighborhood, we knew that was easier said than done. They tried to sell it after my dad’s leukemia diagnosis and couldn’t — eventually my mom was able to sell it to an investor for much less than she was hoping for, but by that point she was so desperate to get away from the place it was hard to care. She’s now in a 55+ apartment complex that allows pets, has a pool, community center, and she loves it— especially the whole “calling the maintenance office to take care of every little problem for free” part. I wish she and my dad had moved there ages ago, together.

Anyway, I’m not including these details because I think this exact scenario will repeat itself or anything, but just to illustrate that aging parents and homeownership don’t always go too well together. If your parents have not met with a long-term financial planner — someone who will be brutally honest about the state of their finances and retirement account and who is willing to bring up unpleasant scenarios related to rushing right back into homeownership (illness, injury, loss of income, a damn tree falling on the roof, etc.) — then I think you and your husband need to tell them that the new mortgage talk is officially tabled until they do.

This isn’t just about protecting yourself and your growing family — though your own meeting with a planner should cover that — and this isn’t about hurting your parents’ feelings or being ungrateful for everything they’ve done. This is about making sure that they are not about to make (another) financial mistake. Because you love them and want what’s best for them.

(And yes, because this time, any inability to make mortgage payments or “walking away” would take you down with it. Family aside, you guys deserve a clear and accurate view into your parents’ finances and ability to pay for the mortgage, property taxes, homeowner’s insurance, etc. What if there’s an emergency and you and your husband need to obtain credit or a loan and can’t because of this mortgage? Your desire to help is understandable and admirable; your husband’s caution is not heartlessness.)

As much as you “hate to think about” something happening to either of your parents, you owe it to them to think this arrangement and all of the worst-case scenarios through, beyond some fuzzy idea that ehhh, I think everything will work out pretty okay.

About the author

Amalah

http://www.amalah.com
Amalah is a pseudonym of Amy Corbett Storch. She is the author of the Advice Smackdown and Bounce Back. You can follow Amy's daily mothering adventures at Amalah. Also, it's pronounced AIM-ah-lah.

If there is a question you would like answered on the Advice Smackdown, please submit it to amyadvice@gmail.com.

Amy also documented her second pregnancy (with Ezra) in our wildly popular Weekly Pregnancy Calendar, Zero to Forty.

Amy is mother to rising first-grader Noah, preschooler Ezra, and toddler Ike.


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28 Responses to “On Love & Liabilities”

  1. Wendy Jan 24 at 6:12 pm Reply Reply

    I 100% agree with Amy.  There is no way to predict the future for yourself or your parents, and it is never a good idea to rush into that kind of financial decision.  There are usually good deals for 55+ rental housing and renting can not only allow a lot of freedom, but also give everyone time to get over the loss of the foreclosure and reassess finances etc.  I’ve been through a foreclosure myself and know how it feels to want to hold on (no matter what) and to feel a great deal of loss and helplessness when its no longer possible.  I’m several years past it now and can tell you it gets easier.  Like a loss of anything you once loved, you start to heal and realize there is a freedom in letting go of the burden that makes you wish did it sooner.  You can still be there for your parents in ways that don’t require you to put your and your husband’s name on a mortgage, and congratulations on your pregnancy!

  2. Stephanie Jan 24 at 6:34 pm Reply Reply

    I think you also need to talk to a financial planner or tax accountant about what the tax liabilities are if you’re the owner. Are you charging rent? Are they paying the mortgage company directly? What does this do to your income taxes? Can they afford the property taxes? Can you write-off the property taxes if you buy it? I think Amy’s advice is really great. Renting is so much better. They’re not getting any money out of their house by walking away from it, so there’s nothing to be gained by either of you, unless you really want an investment property. But see again: tax liabilities.

  3. Kacie Jan 24 at 6:42 pm Reply Reply

    I’m confused — if the parents can manage the extra payments, why does the mortgage need to be in the poster’s names?

    If you are upside-down on the mortgage but want to stay put, then does that really matter?

    I agree with Amy — talk to a financial planner (a fee-based one). 

    • emily Jan 24 at 7:57 pm Reply Reply

      Because they can afford the monthly payments but have blown credit scores from foreclosure so cannot get a loan for a new mortgage, nor do they have the savings to put toward a DP or an outright cash purchase. And yes, it matters when you are paying monthly payments that are 100% higher than market value and expect things to remain that way for years.

  4. yasmara Jan 24 at 6:49 pm Reply Reply

    This is VERY good advice. We just barely were able to sell my grandma’s house when she was in her late 70′s & suddenly became unable to take care of it, manage stairs, etc. That’s the thing about aging – sometimes the decline is VERY sudden & can be unpredictable. A stroke, heart attack, or just something changing (in my grandma’s case it was her arthritis going from negligible to crippling within a very short span of time) can incapacitate someone super quickly, especially when it comes to home maintenance. It just doesn’t seem to make any financial sense in this case to take on another mortgage. I would look into helping your parents in other ways.

  5. E Jan 24 at 7:09 pm Reply Reply

    If your parents can’t get a mortgage from the bank on their own, that is because there is a good chance that they cannot actually afford it. Banks always (even in the post-bubble climate) offer to lend more than people can actually afford. If the bank says your parents can’t afford this mortgage – LISTEN. DON’T DO THIS.

    The idea about co-signing a lease for them if they need that to rent is a good one. That would still expose you to liability (that you are very likely to get stuck with – again, if the landlord/bank think they can’t pay, it’s for a reason) – but it would be very limited. You’d be looking at your family being put underwater for at most the term of the lease, not a lifetime.

  6. emily Jan 24 at 7:53 pm Reply Reply

    Rent. Heck, we were in your same position career-wise several years ago and now I’m ready to sell my house and rent. I’d be able to quit my job to be with my kids and take classes toward a new career, we’d be able to move to a better position for my husband…

    • Natalie Jan 25 at 3:00 pm Reply Reply

      DITTO…when we had our first 5 years ago we both had stable full time jobs and were making a good amount of money. 5 years later with number 2 on the way my husband makes less, I took a part time job after leaving my very stressful full time job and we are considering selling our house. You never know what life will throw at you (hence your parents’ situation) Talk to a planner, make sure they do too and I hope things work out for you.

  7. Michelle Jan 24 at 8:09 pm Reply Reply

    I agree that your parents should rent an apartment or house. I think that is the middle road that you are not seeing. If your parents are able to make a mortgage payment of $1000, then they can just as easily put that money towards rent. Another benefit of renting is that they don’t have to be responsible for maintenance and property taxes, and there is no long term commitment.

  8. z Jan 24 at 11:32 pm Reply Reply

    Well, that sounds like a hard position.  Of course you want to help your parents find a comfortable place to live– who wouldn’t?  But there are better and worse ways to go about it.  Amy is right.  A financial planner can help you understand your husband’s concerns, how adding a mortgage will damage your credit score even if you never have to pay it, the tax implications, life insurance for your parents, how much Social Security they can expect, etc.  There are many options for a middle ground here, and a financial planner can help you discover them.  

    I would also investigate if one or both of them can work a few hours a week, if only to give your husband confidence that they can afford the mortgage, insurance, taxes, and maintenance, and to make it more of a partnership.  I would have a hard time signing a mortgage for someone who was able to work but chose not to, personally.  I know the job market is awful, but they could at least try.

    Aside from the practical considerations, do not underestimate the financial anxiety of an expectant father!  It’s pretty common for guys to express baby anxiety by obsessing about finances and providing for their new family.  So if he seems a little crazy in this area, try to be understanding.  Your parents are asking a lot and it comes at a difficult moment in a guy’s life.

  9. Autumn Jan 25 at 12:55 am Reply Reply

    Amy is totally right on with her advice.  

    I’m a physical therapist on a short term rehab unit (get sick, need some therapy to get better/strong enough to return home situation), and the saddest and hardest part of my job is telling patients and families that home isn’t a safe option anymore.  If you do eventually decide to co sign, set conditions that it is a single level no steps to enter condo or town home.  A wheelchair friendly property.  Because you never know what can happen and having home being at least physically accessible is a big advantage.

    However, I would suggest they rent for a year or two.  They might learn to love having the maintenance guy a phone call away and look for a senior community.  Good luck.  Remember no matter what they have done for you, they would want you to protect your baby, their grandchild, financially.  

  10. Liz Jan 25 at 12:27 pm Reply Reply

    I feel like what her parents are asking her to do is totally selfish and unreasonable. They will not live long enough to pay off the mortgage. Aging is very, very expensive. There is a reason that so many seniors downsize into rentals. Her parents have already made bad financial decisions and now they want to drag their daughter and her husband down with them.

  11. Susan Jan 25 at 1:18 pm Reply Reply

    When my dad got sick in his mid 60s, and could no longer work, my parents moved to a senior community. They bought the house, but the property is rented and the owners of the community will buy the house back. Renting a house would’ve probably been easier so they wouldn’t have to worry about maintenance of the house but at least being in the community was a lot easier on them. And when my dad died, my mom felt she was in a good place, a gated community with easy access to help from the front office if she needed it. 

  12. Tracy Jan 25 at 11:57 pm Reply Reply

    Agree with Amy, but I also don’t understand why they “need” to abandon their current mortgage. If they can afford a payment, why can’t they just keep paying their existing one?

  13. z Jan 26 at 8:14 am Reply Reply

    Because their current monthly payment is really high– it’s based on a pre-recession valuation of the home.  If they walk away from their current mortgage and get a new one on a house with a lower value, they will have a smaller mortgage and a much lower monthly payment.  

    That’s assuming they won’t have to pay off the part of their current mortgage that exceeds the value of the house.  

  14. SarahB Jan 27 at 10:54 am Reply Reply

    I think Amy is right that they seem like prime candidates for a 55 and older community.  Something one level that they can stay in as they age. 

    I also agree that renting sounds like a better option than buying.  It may be hard to see.  I’ve been on the selling end of a short sale–an underwater property in Las Vegas, in fact. The emotions are big–shame, fear, loss.  It sucks.  

    The best thing that helped us get through it was involving professionals.  We spent a relatively small sum on a real estate attorney based in Las Vegas who navigated the short sale for us.  It would be worth paying for the hour to get a consultation for your parents.  Even if the outcome is the same, with someone else handling some of the paperwork and logistics, it saves stress and heartache.  Talking with someone we paid to be on “our side” was way easier than talking to the mortgage company.

    And then, yes, your parents need to see a financial planner and might need to hire someone to do their taxes next year to deal with any ramifications of losing the house.

    The best thing you can do for your parents is to help them find these professionals and use them.  And there will still be many opportunities for you to help your parents in the future, opportunities less risky than co-signing a mortgage. 

  15. Hannah Jan 27 at 11:22 am Reply Reply

    I short sold a house, because it was worth less than half what we owed on it, and we’d been broken into 3 times in 7 years.  Engage either a real estate professional, a real estate lawyer, a bankruptcy lawyer, or some combination of the three, and see if there are other options besides a straight foreclosure (short sale, land contract to buy the house back for less, etc.)  You and your parents should definitely meet with a financial planner – it may be that they have other debts they haven’t told you about, in which case bankruptcy might help, or they may have other assets that everyone needs to know about, because unless Nevada is a non-recourse state, a foreclosure could mean that the bank could pursue your parents individually if they don’t get the full balance owed on the mortgage when they sell the house after they foreclose.  The more information you have, the better.

    And, I also agree with everyone else – your parents should rent.  There is no reason they need to buy a house, especially after losing one, their credit is shot (and that’s what’s going to make it impossible for them to get a new mortgage) and it’ll take several years to repair.  After you meet with the financial planner, make sure that their rent payment is less than their mortgage payment, and pick a nice place for them to lease for a couple of years.  Then, if they really want to, they can pursue purchasing a house.  Now is not the time, and, frankly, there’s too much risk to you in signing a mortgage for them (unless you’re prepared to sell your own house and move in to theirs in the event that they can’t pay this new, unadvisable mortgage you’re thinking of getting them).

  16. Just me Jan 27 at 12:37 pm Reply Reply

    I agree with all the advice given about suggesting a rental place and talking with a financial planner. I wanted to touch on the ‘expectations’ part. You and your husband are at a turning point in your marriage in that you are about to embark on having a family. That means, you and your husband need to sit down and have a really hard and important discussion about defining your expectations for helping with parents. Anyone with a loving relationship with their parents wants them to do well. But you really need to evaluate if what you are doing is helping them or enabling them. Have you always felt a guilt motivated reason to help them out? Do you think you have emotionally healthy boundaries in place?

    • Kat Jan 27 at 3:00 pm Reply Reply

      I agree here – marriage and a baby on the way means some serious conversations for some couples. In our case, my husband and I had to seriously consider how and if we would ever provide any help to my MIL should she run into trouble when we combined our finances. My gut said no, but I wanted to make sure that there were no expectations on his side that I would be okay with taking money out of our pockets to help (enable) his mother. He loves her, but she has made poor financial decisions a way of life. That doesn’t sound like the case here, but it is something that a lot of people deal with. I’m not saying don’t help your parents, but I am saying: if for some reason they cannot pay, imagine an entire extra mortgage coming out of your pockets. Could you handle that burden? Could your marriage? Your stress levels? I agree with Amalah – worst case scenarios have to be considered when talking about money.

  17. Lydia Jan 27 at 1:11 pm Reply Reply

    As I read this I was screaming “RENT!” by the end.  If nothing else it buys you time to figure it out, if they need to get out of their house soon.

    Good luck, these things aren’t easy.  

  18. Andrea West Jan 27 at 1:29 pm Reply Reply

    I am a loyal follower of Suze Orman and she says never, ever, ever co-sign for someone. We were upside down on our mortgage a few years ago, did a short sale, rented for a few years, and now own our dream home. They can do the same. Or they can refinance under HARP 2.0 if they are current on their payments and want to keep the home.

  19. Sasha Jan 27 at 2:19 pm Reply Reply

    One more very important item: make sure any financial planner you engage is INDEPENDENT. Do not be seduced by the lure of “free” financial planning. You need to pay someone, so their loyalty is to you, not to any products they are peddling. (Please note: this is not a general slam on tied financial planners; they are fine in other situations, but the OP definitely needs independent advice.)

  20. -k- Jan 27 at 4:34 pm Reply Reply

    This (cosigning a mortgage or loan for parents/ILs) would never, ever, ever be okay with me. I understand not wanting to leave parents in the lurch, but they’re independent adults. If they decide to become dependent, it has to be on the terms of everyone involved, not just their own. 

    Your parents have asked for X. For your husband’s sake, please remember that you and your husband deciding you can give instead X-Y, be that helping them into a rental or giving them a lump sum of cash, does *not* mean you are abandoning your parents. It means you are helping in the way that you can given your other responsibilities and commitments, and that *does* count even if it doesn’t look like what they’d envisioned. 

  21. leslie Jan 28 at 5:10 pm Reply Reply

    Yes, yes, yes to what everyone else said. Like Lydia above, before I even read any other comments, all I could think is “why don’t they rent???” It seems like a no brainer to me. At their age (and considering their financial situation), buying another home just doesn’t make sense. And asking you to sign the mortgage for them is asking too much. There is no reason why you can’t co-sign a lease for them instead. Much less risk. And, like everyone else said, there is the added bonus of not having to worry about maintenance and taxes! Win-win for everyone.

  22. Annie Jan 28 at 11:30 pm Reply Reply

    Before we were married, my husband co-signed a mortgage loan with his parents. They’d done so much for him, they’d run into some financial challenges, he thought it was the right decision to make as a loving, thankful and financially blessed son. Unfortunately, this turned out to be an enormous burden on us, and our two small children as the years went on. Please don’t do this to yourselves.

  23. Kim Jan 29 at 1:25 pm Reply Reply

    The other thing that I’ve seen happen as folks either age, or in my case, get broke for a few years (the recession was not kind to us, although we hung on to the house) is maintenance gets deferred.  Either there’s a lack of money or a lack of energy, but the house ends up depreciating, or at least not appreciating as much as it could. Your folks sound like they’ve got a double whammy going on. It isn’t just the  broken stuff that needs replacing *now*, it’s painting and replacing carpets or updating lighting fixtures or sprinkler systems – all that stuff adds up over the years.
    Get them out from under the house.  Rent.  And remember, renting now doesn’t mean they can’t buy something in a few years if they so choose.

  24. LBEC Feb 03 at 10:50 am Reply Reply

    DO.NOT.DO.THIS. And that has nothing to do with your parents and everything to do with you, your husband and your baby. The simple reason is this: you NEVER know. No matter how stable your careers and financial situation are now, you really can never tell what may happen in the future. Case in point, my husband and I were in your position–more than financially stable enough to have a baby, great jobs…and then I developed extremely sever postpartum depression shortly after the birth of our son and ended up having to take more than a year off from my job. We were ok, but it definitely put significantly more pressure on us financially. I truly have to side with your husband on this. Taking on another mortgage as you’re about to start a family is just NOT a good idea, especially with aging parents. There are so many other options for them and I’m sure they will understand your hesitation to help them buy another house. Good luck.

  25. Amanda Feb 03 at 7:44 pm Reply Reply

    I have to agree with Amy and many others here. I am an apartment manager and I own my own my 1st home now but always rented previously . Over the years I have seen MANY people in similar situations as the OPs parents. Both renting and owning have benefits and drawbacks. However in this situation, renting may provide more options for right now. The maintenance issue is huge and is very often the most frequent reason seniors offer when choosing to rent after owning (also when people are separating or after the death of a spouse ). Additionally, you can rent with mediocre to poor credit and not have it change how much the monthly payment is, just possible the upfront costs such as a higher deposit. The OP’s parent may not even need a cosigner if they make enough money (usually need to show some multiplier of the rent, ex 3.5x the rent) . There are communities that are specifically for seniors and some that are income based as well. Renting also buys time. You can sign a 12 month  lease or shorter and keep renewing if you want or just use that time to get other finances and credit back in order. If something goes wrong the most the OP or her parents would be liable for would be the remaining rent for that term.  Maybe the OPs parents, after talking with a financial planner, could talk to some of their friends or social network to find out what others in Las Vegas have done, I’m sure they are not the only ones who have been in the situation. Maybe have them visit an apartment community or tour a house rental. 

    Good Luck!

    PS if they get any money back from the sale that can, working with a financial planner again, invest it and pay all or a portion of the rent out of the dividends/interest

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