Should we help my deadbeat father out of foreclosure trouble?

[mrstop]

Background
My father's property is about to go into foreclosure. His mortgage debt is about $150,000 which he has negotiated down to about $75,000. The value of the property is probably between $200 and $270,000.

My father (age 67) has no savings and lives on minimal social security. He does have some rental income from the property which helps to offset the mortgage but still results in a considerable loss each month. He is mentally and physically capable of having a job, but it is not something that he chooses to aggressively pursue.

Since he hasn't had any stable income since the early 1970's, he has lived via playing in financial spiral versus within his means (although it is more like Sanford & Sons). He has borrowed against the property along with credit cards to survive. Using one loan to pay another. In addition, he has no track record of payoff anyone he has ever borrowed (even his brother). Whenever he does have any money, it goes towards things other than his real obligations. He rationalizes it, because everyone can 'afford it."

My brother and I have been telling him to sell the property for over 10-years. Unfortunately, it was tied to one of his failed get rich scheme's and is emotionally tied to the property.

With the pending loss of the property, he finally put the property for sale last fall for $275,000. However, he has not been aggressive in selling it and even turned down an offer for close to what he was asking. Other things he has said to us indicates that he has no urgency in selling either. the property is in a soft "resort" market, so it's also a little more difficult to sell.

He has been only marginally involved in my brother's an my life. My parents divorced in 1977 and was involved and visited when convenient. As you can imagine from his track record he was less than helpful in providing financial support to my mother.

His request for help
My rational side says, he made his bed let him lie in it. Despite this, I feel some biological obligation to help out. My brother and I have lived our lives very differently and do have means to help, but would put our long term strategy in jeopardy.

He has applied for mortgage to pay off the $75,000 negotiated amount. True to form he actually asked for $100,000. The bank has requested him to get a cosigner and he has requested my brother and I help by cosigning the loan. Cosigning is definitely not an option. There is really no way I would co-sign for anyone given the risk. Since my father is been pretty much a deadbeat his whole life (harsh but true) we are even less interested. We have told him this, but it resulted in a shouting match with him.

He obviously is not willing to do the right thing and price the property to sell quickly. Even if he did sell it in time, he would quickly burn through the money on junk rather than save it for when he needs it.

Alternative way to help
Outside of letting things happen as they should, I have been thinking about helping in a way "force him to do the right thing." This is to get him out of trouble out of the property, and save some of the equity to supplement his income and provide some safety.

My thoughts are to:

1. Buy the property under market for the $75,000 he has negotiated
2. Have him move out of the property into something that he can afford
3. Price and sell the property for a quick sale
4. Use the equity (after taxes, expenses, and some reasonable return for our time) to
   • put into a trust or investment account that would payout 3-4% per year
   • payoff other non-secured debts (which he has no intention of repaying)

There will most likely be some obvious tax implications for him (gift) and us (capital gains). We'll definitely need a tax/estate attorney's help in the transaction (another cost we'll incur)



My questions

1. Should my brother and I help him? Or, given that he's a grown man and his situation is the result of his own actions, should we just let him lose the equity (which would help to reduce the inevitable future burden to my brother and I)?
2. What do you think of our possible solution to help? Are there other options which minimizes our risk while helping out?

 

[braumeister]

Aside from the actual amounts and a few other details, this case sounds exactly like my BIL.
We have pursued precisely the same approaches, with the same lack of result.

I wish you the best of luck, and would love to hear the denouement of this saga if you ever get it worked out, so we can try the same thing.

 

[Letj]

I like you solution to purchase the property. It does not make sense to lose that much equity given the low balance on the mortgage. If I were you, I would purchase the property and let him live there for the equivalent of the cost of capital. I imagine you and your brother can some day inherit the property.

 

[Chuckanut]

You made a statement about his not providing financial support to your mother. Does that mean he owes her alimony payments? If so, I would offer to reduce this debt to your mother by giving her some money and asking her to deduct it from what he owes her. Just a thought.

 

[haha]

I like you solution to purchase the property. It does not make sense to lose that much equity given the low balance on the mortgage. If I were you, I would purchase the property and let him live there for the equivalent of the cost of capital. I imagine you and your brother can some day inherit the property.

If they own it, they wouldn't really have to inherit it as they would already own it. They should never plan on hoping for an inheritance from someone like this; he would almost certainly find a way to stiff them.

Ha

 

[Nords]

Have him move out of the property into something that he can afford

You'd probably have to evict him to get him to move.

If you read your post in a case study at a business school or a social-worker's seminar, would you advise stepping in to offer financial assistance?

It's hard to see how this is different from any other enabling behavior.

I think the term "biological obligation" is misleading... maybe even oxymoronic.

 

[Twinkle Toes]

I don't see any upside for anyone in this. You buy "his" house for $75,000 and Dad's going to say you took his equity. You sell it and he has no where to live. You set up a trust that will give him 3-4% per year...he still has no where to live and the trust distribution won't be enough money to live on, and oh yes...you took his equity. You let him "rent" the property from you and...he doesn't make payments. You, as owner, will be responsible for upkeep (M&R, taxes, etc.) on the house and if he doesn't pay rent, you have the option of booting Dad out of "his" house.

 

[Dimsumkid]

If you decide to buy the property for your father, make sure you have a rental contract in force and collect the rent. If you don't and he can prove you let him live rent free in the property, it's almost impossible to ever get the money back in court. I had a deadbeat brother do this to my mother, and he basically laughed about doing this to her while using up her SS money to pay for food, utilities, etc. In the end, I'm glad we got him evicted, but it took over 2 yrs in court.

 

[MichaelB]

How to help someone that won't or can't help himself. I would attempt something similar - try to get the equity out of the house and away from him, downsize him as much as possible, then use the remaining funds to help him. I would just check to make sure there was no violation in negotiating the mortgage settlement and then transferring the property for less than market value. If that is ok this sounds like a reasonable approach for a problem with no good solution.

 

[mrstop]

You made a statement about his not providing financial support to your mother. Does that mean he owes her alimony payments? If so, I would offer to reduce this debt to your mother by giving her some money and asking her to deduct it from what he owes her. Just a thought.

That was long ago (20+ years). Fortunately my mom moved on and is happily retired in a paid for home.

 

[pb4uski]

Whether or not you help him is a very personal decision that only you and your brother can make.

However, if you do help him, it might be useful to frame a few choices for him.

He can do nothing, in which case the bank will foreclose and he will end up with any excess of the proceeds from the foreclosure sale over the amount he owes (presumably the $150k). At a minimum this will cost him $75k, and likely more.

He can sell the property to a third party and use the proceeds to pay off the mortgage and live on the remainder (or buy a SPIA that provides him a monthly payment that he can then live on).

He can sell the property to you for $75k (which would be used to pay off the mortgage) and monthly payments which can help provide for him (you could either make the payments to him directly or buy a SPIA where he is the beneficiary). He would then have to move and you could then sell the property.

He can sell the property to you for $75k (which would be used to pay off the mortgage) and live there for the rest of his life rent free and perhaps some monthly payment to help him with living expenses depending on how the economics work out (assuming that you and bro are willing).

In no case would I lend him money as he has demonstrated that he isn't creditworthy, but since you and bro have means, you might be able to help him out in a way that is mutually beneficial. From what you have described though, it doesn't sound like he would have the good sense to accept a good offer from you, in which case you and bro can at least be relieved that you made a reasonable attempt to help him out of his situation.

You can't fix stupid.

 

[mrstop]

They should never plan on hoping for an inheritance from someone like this; he would almost certainly find a way to stiff them.

Probably not intentional, but unfortunately true.

 

[Chuckanut]

I have know several people like this. They want help, but they want it on their own terms. There's the problem. You end up being an enabler.

 

[FIREd]

He refused an offer for close to $275K, what makes you think he will go along with your plan and sell you his house for $75K? He probably has been living in denial for too long to know what's good for him. Under your plan, the equity in the house gets transferred from him to you and you get to control his spending by doling the equity back to him. I can't see how that would be an acceptable outcome for someone like him.

 

[TeeRuh]

You can't fix stupid.

+1

 

[mrstop]

Whether or not you help him is a very personal decision that only you and your brother can make.

However, if you do help him, it might be useful to frame a few choices for him.

He can do nothing, in which case the bank will foreclose and he will end up with any excess of the proceeds from the foreclosure sale over the amount he owes (presumably the $150k). At a minimum this will cost him $75k, and likely more.

He can sell the property to a third party and use the proceeds to pay off the mortgage and live on the remainder (or buy a SPIA that provides him a monthly payment that he can then live on).

He can sell the property to you for $75k (which would be used to pay off the mortgage) and monthly payments which can help provide for him (you could either make the payments to him directly or buy a SPIA where he is the beneficiary). He would then have to move and you could then sell the property.


In no case would I lend him money as he has demonstrated that he isn't creditworthy, but since you and bro have means, you might be able to help him out in a way that is mutually beneficial. From what you have described though, it doesn't sound like he would have the good sense to accept a good offer from you, in which case you and bro can at least be relieved that you made a reasonable attempt to help him out of his situation.

You can't fix stupid.

I like these giving him the options and putting it back on him. And you're right he probably won't accept the offer despite its being the best resolution.

He can sell the property to you for $75k (which would be used to pay off the mortgage) and live there for the rest of his life rent free and perhaps some monthly payment to help him with living expenses depending on how the economics work out (assuming that you and bro are willing).

While my brother and I have means, it's not a long term solution to let him live rent free in the property. It would dip into my own emergency funds and funds I have earmarked for other things. It would also take away from funds my brother has set aside for his son who will likely have special needs as he gets older

 

[Nemo2]

One of my late wife's brothers has always been, how can I say this, "Somewhat unreliable"...........in fact he apparently told one of the other brothers, (who later told me), to whom he had failed to repay a 'loan', "You should have known better to have loaned money to me".

Perhaps there's a moral and/or a lesson in there somewhere.

 

[mrstop]

I have know several people like this. They want help, but they want it on their own terms. There's the problem. You end up being an enabler.

So true. Right now we're the a-hole sons who work hard, pay our bills, raise a family right, save our money but won't give poor dad what he wants. Despite what he is thinking right now, we want to be able to have the means to help at the time he really needs it.

The last thing we want to do is enable him.

 

[Chuckanut]

A friend of mine has a brother who is a lot like your father. He is currently living in another country, apparently through the generosity of various women - he is quite the silver fox. My friend offered to help him out by providing him 3 months room and board in her house while he finds a job and a place for himself. His problem? First, he really does not want to work. Second, his passport expired years ago and he believes that once he leaves he will ever be able to return to the foreign country with the gullible women. Apparently, the authorities know he is in their country, they just can't find him.

What he wants is for her to send him money.

 

[mrstop]

He is currently living... apparently through the generosity of various women - he is quite the silver fox.

What he wants is for her to send him money.

Yes this is pretty much him. He has, in many ways, been able to make a living off the "generosity" of other women. I guess that's one Early Retirement strategy...

 

[modhatter]

It is doubtful your dad will ever change his ways. I think you just need to look at this financially first, and as a son or daughter second. If there is that much equity in the house, it sounds like a good investment, provided the bank did agree to sell it for $75,000, which they might not. They might agree to refinance for $75,000 but not necessarily sell it for that to a second party. (especially a relative) so you need to clarify that.

If you purchased it, it will give your dad a place to live. You probably can't count on him to pay you rent, so I would run an add for a room mate for one of the bedrooms, for whatever the market rent is there. Then your father will only have 1/2 the expense, and chances are even if he doesn't pay his half you may make enough with the tenant to at least pay the real estate taxes and homeowners insurance.

Yes, he will say you stole it from him, but would he be better off if they foreclosed on him? If he pays his rent, then you could use the money to buy a gift card at his local grocery store, so you know that at least that portion of his money is going to the right place, and it would be a way of paying him back from the equity in the house.

My cousin has this problem with his mom. What he has had to resort to is having her fax him a grocery list every week, and he calls the nearest grocery store that delivers, and groceries are delivered. If he didn't do this, she would give the money to her irresponsible wayward daughter instead and then have no money for groceries herself. She doesn't like it, but I guess it's tough love.

 

[W2R]

Whether or not you help him is a very personal decision that only you and your brother can make.

+1 It does seem to me (from even the title of the thread) that you are not inclined to help him. That is your decision.

However, if you do help him, it might be useful to frame a few choices for him.

[...]

He can sell the property to you for $75k (which would be used to pay off the mortgage) and live there for the rest of his life rent free and perhaps some monthly payment to help him with living expenses depending on how the economics work out (assuming that you and bro are willing).

+2 This is my favorite of the possible solutions that have been suggested thus far. You will need to pay the property tax and homeowners' insurance until he dies, as well as the $75K. But if you take this path, you will need to be careful that this doesn't open the door for more requests for help. Start collecting information about local food banks, utility payment help, and any other information for those who need assistance so that you don't end up having to pay for all this as well.

 

[mrstop]

+1 It does seem to me (from even the title of the thread) that you are not inclined to help him. That is your decision.

I wouldn't say I am not inclined to help him, as I do. I am really wrestling with this as he does not have a good track record of making the best decisions. I don't want to help him in a way that either enables his behavior, prolongs what will inevitably happen, or put my families finances in jeopardy.

+2 This is my favorite of the possible solutions that have been suggested thus far. You will need to pay the property tax and homeowners' insurance until he dies, as well as the $75K. But if you take this path, you will need to be careful that this doesn't open the door for more requests for help. Start collecting information about local food banks, utility payment help, and any other information for those who need assistance so that you don't end up having to pay for all this as well.

Having him stay in the property isn't the best long term solution. It is very high maintenance and he has trouble with that now. Also, the environment that is very distracting to him leading to even further financial issues. He has expressed his desire to move elsewhere. I think he is just having a hard time letting go either emotionally or because of what he thinks it is worth.

If we were to support his living arrangements (which may ultimately have t happen), it would be in a better and more affordable environment.

 

[Brat]

He may not go for this but...

Buy the house if you can get favorable terms from the bank and offer Dad a second mortgage (in an amount that makes sense to you) if he would move to an apartment so you can rent it to a third party. That would provide Dad some extra income and he would be out of "your" house. That assumes that there is a vibrant home rental market in your area and the deal pencils out.

 

[MissMolly]

It is very unlikely that the bank would allow a short-sale to a son. Most of the short-sale programs do not permit this because this is not considered and "arm's length" transaction. However, I've been out of the business for about a year and a half now, so it's possible the rules have changed.