Q: My daughter is getting a divorce. She is supposed to get the house but she doesn’t earn enough to make the mortgage payments.
The house has been on the market for the last two months for less than 50 percent of what she owes. She’s hoping to do a short sale.
According to her real estate agent, she will not have to pay the bank the difference. I’m looking at buying her house (I live in another state) and renting it back to her with the idea that I’ll eventually sell it to her.
She owes about $275,000 and the house is on the market for $125,000. The mortgage company won’t talk restructuring and she has looked at bankruptcy. She has no other debts. Her credit cards are paid up, and she owns her car free and clear, etc. She doesn’t want to hurt her credit, but what steps do you suggest she take?
A: My first question is why should your daughter have to deal with “getting the house”? Is she getting a significant amount of assets from her soon-to-be-ex? Why shouldn’t he have to deal with the sale if the home is that far underwater?
As for you buying it, I wonder if the bank will even permit that. Typically, lenders don’t let close relatives purchase property in a short sale because it could easily be a scam.
You’d probably be better off finding another house to buy for her and allowing her to rent it from you after she declares bankruptcy, if that’s the direction in which she’s headed.
She shouldn’t worry about her credit at the moment. The moment she does a short sale or deed-in-lieu of foreclosure, her credit history will take a big hit and her credit score could go down by as much as 100 to 150 points.
Speaking of credit, while a short sale might have the least (though still significant) impact on her credit, she might be better off simply doing a foreclosure or a deed-in-lieu of foreclosure, moving out of the home and on with her life.
You’ll want to hire a real estate attorney who can help your daughter with the paperwork and make sure that the “missing money” disappears from her life forever, instead of having the bank sell it to a collections company and come after her for the next 20 years.
If her house is selling for $125,000 or less, you should be able to buy another foreclosure or short sale in the area for a similar amount of money. You and she should find a new property, cut the ties to this house and help her move on. That’s the best way for her to rebuild her life, and her finances.