My mother and stepfather just co-signed a mortgage for my brother. My mother said their house was used as collateral. If my brother can’t pay his mortgage, our mother will have to pay it for him, or the bank will take his house, right?
Also, what happens if my mother and stepfather both pass away and my brother’s house is not paid off? What happens if one of them needs assisted care and the house has to be sold for it? They are both in their sixties.
The other brother
“Worst case scenario, your brother defaults and your parents have to find the money to repay the loan or lose their house. »
Illustration from the Market Observatory
Dear other brother or sister,
The most obvious way to remove a lien on your parents’ house would be for your brother to pay off that debt. He could refinance, if his financial situation improves; although he’s unlikely to do so if he’s stuck at a low interest rate and few could blame him for wanting to refinance when the 30-year rate is flirting with 8%. If they had simply signed as co-signers, they would be responsible for the loan as co-owners of that property.
The real estate market has been tough in recent years: low inventory, high interest rates and rising prices. This is a conundrum for many economists who repeatedly predict that sales will improve and interest rates will fall. Well, life gets in the way: unexpected events add to growing geopolitical tensions. Young people, in particular, are hit hard by rising prices and tariffs; the parents see their pain and, perhaps against their better judgment, want to help them.
Worst case scenario, your brother defaults and your parents have to find the money to repay the loan or lose their house. Either your brother has no money to pay the mortgage and your parents step in and pay the monthly obligation or your brother agrees to move in with your parents so they can rent the house. The obligation does not necessarily die with the guarantor; If your parents died, it could complicate the probate of their estate.
“Young people, in particular, are hit hard by rising prices and tariffs; the parents see their pain and, perhaps against their better judgment, want to help them.»
“Housing has become out of reach for many first-time buyers,” says Mike Fiffik, an attorney in Green Tree, Pa., and a member of LegalShield, a lawyer network. “It’s no surprise that more and more parents are being asked to help their children financially buy a home. This is a wonderful thing to do, but do it wisely. The value of your brother’s new home alone should be enough to secure the loan. Shop around and see if other lenders have the same terms.
Your parents have limited options. “At a minimum, the lien on your parents’ house should be cleared once the loan balance reaches 80% or less of the fair market value of your brother’s house,” he adds. “They should not allow the lien to last until your brother’s loan is paid in full. If your parents want to sell their home for any reason, including to pay for long-term care, they will need to pay all or part of the mortgage balance in order to release the lien.
“They should also have an agreement with your brother, and your spouse if applicable, requiring your brother to cover their expenses in the event of your brother defaulting on the mortgage or divorce,” adds Fiffik. “This is a complicated situation, full of delicate conversations. I’m only scratching the surface. I would strongly recommend that they get legal advice so that they can make an informed decision to help your brother.
I understand your concerns. Your parents’ financial future and possibly a large portion of your own inheritance are at stake. Your parents may not want you to address this issue with your brother and want you to stay out of it, because it was their decision to make. However, you know your mother and stepfather best. Are they likely to make decisions that are not in their best interest? Does your brother tend to pressure people to get what they want?
Maybe it’s time to have a family reunion, the kind that should be called out in advance and not held in the heat of the moment, and shouldn’t happen on Thanksgiving.
You can email The Moneyist with financial and ethics questions at qfottrell@CNET.com and follow Quentin Fottrell on X, the platform formerly known as Twitter.
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2023-10-27 16:30:52
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