Background
My [-]father's [/-]friend'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[/-] friend (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.
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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.
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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[/-] friend has 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:
- Buy the property under market for the $75,000 he has negotiated
- Have him move out of the property into something that he can afford
- Price and sell the property for a quick sale
- 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
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)[/-]?
- What do you think of our possible solution to help? Are there other options which minimizes our risk while helping out?