Sunday, June 14, 2015

How to Pay off Your Parent’s Mortgage?

 

My Parents divorced when my Mom was 55. One of the first things she did after securing full-time employment was to purchase a condo. Despite refinancing her mortgage for a more favorable interest rate (than the outrageous balloon she originally incurred) and a shorter mortgage term she still owed $60,000 of principle when she was forced to retire at age 75. She quickly discovered with almost no accumulated savings, making ends meet on a fixed income with a mortgage was difficult.

My siblings and I began discussing how we could assist her in paying off her mortgage, then recoup our investment when she eventually sold it.

My mom met with an elder care lawyer to discuss deeding her condo to her children. I knew it had become more difficult to transfer property since President Bush had signed the Deficit Reduction Act of 2005 (this Act increased Medicaid’s look back period from three years to five), but was surprised when the lawyer flat out refused to help us. She said with my mom having virtually no savings she would be ineligible for Medicaid for the next five years until every penny of equity transferred to us had been paid to her nursing home. What if her children couldn’t come up with this money? She refused to put my mom in that situation. 

We asked, “What if my mom doesn’t need nursing home care in the next five years?”
The lawyer didn’t care, she felt my mom’s condo equity should remain with my mom to cover her long term care or other expenses whenever they may occur. The discussion was over.

$60,000 split four ways was too great of an expense for my siblings and I to handle. There were spouses and grand-children to consider, child-care expenses and our own mortgages; $15,000 was a lot of money to hand over to your mother-in-law with no guarantee of ever getting it back. We explored other options such as selling the condo and having my mom rent or live with one of us, but she wasn’t ready for that. Plus, monthly rental payments cost almost as much as her mortgage expense. Instead, my brother reviewed all of her bills and cut every unnecessary expense. It literally made us sick to see how she had been taken advantage of over the years by cable companies, insurance agents, car repairmen, investment advisors, etc. When he finished her monthly expenses were manageable.
Her condo will be paid off next February and I’m confident she’ll make it.

I was reminded of my mom’s mortgage when my husband and I met with a Wisconsin title employee last week. As the representative was going over our mortgage paperwork she said something about it not being a good idea for our children to make our loan payments. Instead, she recommended they refinance the mortgage in their own names if they wanted to make payments.

After the closing was over, I asked her to explain what she meant about children refinancing the mortgage in their own names and if this was the preferred method for a child to pay off their parent’s mortgage.

She actually recommended children not pay off their parent’s mortgage and if needed do so only if:
- A written agreement was drafted by a lawyer and signed by the parent and the child prior to the child making any payments.

- All siblings were aware of the agreement and a written repayment plan was discussed and agreed upon by all siblings.

- Every mortgage payment was made with a paper trail. Never give a parent cash to make a payment.

She knows of several children (including herself) who paid mortgages and other expenses on behalf of their parents assuming they would be reimbursed from their parent’s estate only to have these repayments disputed by siblings. Lawyers were involved, the child was never reimbursed and the siblings no longer speak to each other.

Her bottom line advice on how to pay off your parent’s mortgage:

Don’t do it.

Have you or your siblings paid expenses on behalf of your parents? Has it been a favorable experience?

8 comments:

  1. Not a mortgage, no, thank goodness, but I paid all their living expenses for the past .. 10-15 years? I didn't expect any repayment so at least there was no reason to be disappointed on that front. There was a time I thought that there would be an end to the expenses because they would get back on their feet but it never happened. So now I just plan for continuing support for the rest of Dad's life and budget accordingly. Not an awesome experience but better than wondering if there's a roof over his head and if he's eating.

    ReplyDelete
    Replies
    1. Revanche,
      So true - paying there expenses is better than not worrying about a roof over their head. It is hard though especially when they never learn. My mom gave away so much of her money over the years; if someone wasn't outright scamming her she was falling for every convincing hard-luck story. She is generous. I will say that. I once told her if she won the lottery she would give it all away and still end up living in a box.

      Delete
  2. You know, I'm not at that level yet with my parents. My mom married another man a few years ago and hence acquired his mortgage problems (they have 2 out on his crappy house in a crappy area that will never be paid off nor worth anything to anyone). I can say assuredly I will have nothing to do with her mortgage situation, if for the simple reason that I'd rather have her walk away from it permanently than actually pay a single dime toward this man's debt problems. Harsh but true. And silly as this sounds, I actually have a plan to build a small dwelling on a large piece of land with access to a garden and a short drive from my own property...and the plan goes, she can move there whenever she wants, provided she comes alone. I really don't like the guy she married haha!

    As for my in-laws (who consider my a daughter regardless of how shitty their son can be), they own two homes that are both completely paid off. They are smooth sailing. EXCEPT.....they are hoarders, so each house is brimming with crap that I'll eventually be weeding through piece by dusty piece.

    ReplyDelete
    Replies
    1. I love the plan for your mom. I agree I'd never pay money towards remarried debt Ugh. We bought my husband's aunt and uncle's house. They may not have been hoarders, but they never threw anything out. You would never have guessed they actually took things with them when they moved out. It took me years to get rid of it all and turned me into sort of a minimalist - which I see as a good thing.

      Delete
  3. Very interesting. I haven't had to deal with this yet.

    ReplyDelete
    Replies
    1. And hopefully you never will.

      Delete
  4. This is really interesting. I was not aware of all this stuff, although I do have a lot of experience in estate stuff. All four of our parents died without a proper will or trust in place and it was a nightmare. My husband's sister is just now back on speaking terms with us years later. One thing I did was to set up a proper will and family trust for our home and possessions because I was not about to saddle my children with such a mess. That doesn't address what we would do if we were not able to make our house payment. I don't know what we would do in that case. I think I'll have to look into this a little further. Thanks for bringing up the topic.

    ReplyDelete
  5. Mortgages are always such a struggle. This is why one should be careful about their expenses, because they tend to overlap with some payments at some point. It’s so sad about the situation of your mother, and the extraordinary weight of it all. All of these on top of having a family of your own, and your own mortgage payments to deal with. In any case, I hope that matter is resolved soon, and that your mother is pulled out of that spot. Good day!

    Naomi Cruz @ 4 Pillars

    ReplyDelete