House Deed Covenant Enforceability

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db1216
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House Deed Covenant Enforceability

Post by db1216 » Wed May 10, 2017 10:34 am

Hi All,

I have a question on behalf of my parents, 60ish in age. A few years back, my father lost his job due to to an unexpected employer shutdown. They did the best they could but racked up a lot of debt. During that time, my grandmother moved into a nursing facility and transferred the deed to my father's childhood home to my parents. They moved into that house that was deeded to them shortly thereafter. When my grandmother completed the quitclaim, she added a covenant on the deed that no mortgage or loans could be applied to the property until 2021. My parents and grandparents never got along when it came to money topics. My parents were spenders in their younger days and my grandparents were savers. My parents have tightened up a lot (finally) but the debt was increased through no real fault of their own. That was just to head off any replies telling them not to take on more debt if it'll just happen again (because I totally agree). 8-)

My father is now employed is now doing quite well making more than he ever has previously. However, the amount of debt (100+ plus) is sitting on credit cards with high interest rates. From a review of their finances (thankfully they're allowing me some access), it appears the best route would be to place a 10 year mortgage on the home and pay off all the high interest credit cards. With the minimum payments, they are paying them down but not fast enough. With the mortgage at a reasonable rate, I have no doubt they could knock it out in a couple years.

My grandmother passed away last year. From my review of covenants, it seems like they are barely enforceable when an associated party is alive, much less when they are deceased. My parents went to the lawyer that completed the transfer with the covenant and he said it could not be reversed or removed. I question this from a legal aspect, but I understand from an ethical aspect that he completed it under my grandmother's direction. My parents are hesitant to talk to other attorneys but I believe it is a resolvable situation. I just can't find anything out about it from my research. I believe if I at least have some reliable-ish information, it would prompt my parents to investigate this option further.

For the real question: Anyone know anything about covenants and their removal? Also, the moral/ethical aspect does bother me. What do you folks think?

Sorry for the long post. :sharebeer

Carefreeap
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Re: House Deed Covenant Enforceability

Post by Carefreeap » Wed May 10, 2017 10:39 am

What would be the disposition of the property if they got a loan?

That is, does the property go to someone else?

Gill
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Re: House Deed Covenant Enforceability

Post by Gill » Wed May 10, 2017 10:55 am

Ignoring the question of enforceability, would a lender lend against the property with that covenant in place? I doubt it.
Gill

badger42
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Re: House Deed Covenant Enforceability

Post by badger42 » Wed May 10, 2017 11:02 am

Talk with a bankruptcy lawyer. If your state has good homestead provisions (especially with that covenant), the best bet for your parents may be to bankrupt their way out of as much of the CC debt as possible.

Carefreeap
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Re: House Deed Covenant Enforceability

Post by Carefreeap » Wed May 10, 2017 11:07 am

Gill wrote:Ignoring the question of enforceability, would a lender lend against the property with that covenant in place? I doubt it.
Gill


I think the question is what would the recourse? Who is going to enforce the covenant?

I saw plenty of reversionary deeds while working for the railroad. Some of the boiler plate language on the deeds for our station properties stated the no serving of alcohol on the premises. Guess what was served at the stations that were turned into cafes?

Gill
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Re: House Deed Covenant Enforceability

Post by Gill » Wed May 10, 2017 11:26 am

Carefreeap wrote:
Gill wrote:Ignoring the question of enforceability, would a lender lend against the property with that covenant in place? I doubt it.
Gill


I think the question is what would the recourse? Who is going to enforce the covenant?

I saw plenty of reversionary deeds while working for the railroad. Some of the boiler plate language on the deeds for our station properties stated the no serving of alcohol on the premises. Guess what was served at the stations that were turned into cafes?

As I posted earlier, who is going to enforce the covenant is moot if a lender won't lend against the property with the covenant in place.
Gill

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Re: House Deed Covenant Enforceability

Post by junior » Wed May 10, 2017 12:03 pm

Gill wrote:
Carefreeap wrote:
Gill wrote:Ignoring the question of enforceability, would a lender lend against the property with that covenant in place? I doubt it.
Gill


I think the question is what would the recourse? Who is going to enforce the covenant?

I saw plenty of reversionary deeds while working for the railroad. Some of the boiler plate language on the deeds for our station properties stated the no serving of alcohol on the premises. Guess what was served at the stations that were turned into cafes?

As I posted earlier, who is going to enforce the covenant is moot if a lender won't lend against the property with the covenant in place.
Gill


I agree with Gill, it'll scare lenders away and kill the deal.

Gropes & Ray
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Re: House Deed Covenant Enforceability

Post by Gropes & Ray » Wed May 10, 2017 12:25 pm

Holding a covenant is a property interest. Your grandmother's heirs should be able to release it with proper documentation.

I would apply for the mortgage, which will require a title commitment. Order the title commitment and then see if the covenant comes up on your Schedule B exceptions to the title commitment. Then, either argue it is unenforceable and be prepared to back that up, or follow whatever steps the title company puts on the requirements schedule. An attorney may prove useful at that point. I have convinced title companies to insure over things like that if the law of the state backs my argument.

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dm200
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Re: House Deed Covenant Enforceability

Post by dm200 » Wed May 10, 2017 12:44 pm

While probably a very different type of covenant, my understanding that the very common racial exclusion covenants may still remain in some areas, but are not enforceable.

Carefreeap
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Re: House Deed Covenant Enforceability

Post by Carefreeap » Wed May 10, 2017 12:58 pm

dm200 wrote:While probably a very different type of covenant, my understanding that the very common racial exclusion covenants may still remain in some areas, but are not enforceable.


Enforcement is specifically excluded by various Federal Fair Housing laws. And I know in California but am unsure about other States that a buyer can have the language redacted from the deed.

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Re: House Deed Covenant Enforceability

Post by Carefreeap » Wed May 10, 2017 1:00 pm

Gropes & Ray wrote:Holding a covenant is a property interest. Your grandmother's heirs should be able to release it with proper documentation.

I would apply for the mortgage, which will require a title commitment. Order the title commitment and then see if the covenant comes up on your Schedule B exceptions to the title commitment. Then, either argue it is unenforceable and be prepared to back that up, or follow whatever steps the title company puts on the requirements schedule. An attorney may prove useful at that point. I have convinced title companies to insure over things like that if the law of the state backs my argument.


:thumbsup

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Re: House Deed Covenant Enforceability

Post by bsteiner » Wed May 10, 2017 1:03 pm

dm200 wrote:While probably a very different type of covenant, my understanding that the very common racial exclusion covenants may still remain in some areas, but are not enforceable.


That's the result of the Supreme Court decision in Shelley v. Kraemer, 334 U.S. 1 (1948): https://scholar.google.com/scholar_case ... s_sdt=3,33. Thurgood Marshall, who later became a Supreme Court Justice, argued the case.

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Re: House Deed Covenant Enforceability

Post by littlebird » Wed May 10, 2017 1:54 pm

junior wrote:
Gill wrote:
Carefreeap wrote:
Gill wrote:Ignoring the question of enforceability, would a lender lend against the property with that covenant in place? I doubt it.
Gill


I think the question is what would the recourse? Who is going to enforce the covenant?

I saw plenty of reversionary deeds while working for the railroad. Some of the boiler plate language on the deeds for our station properties stated the no serving of alcohol on the premises. Guess what was served at the stations that were turned into cafes?

As I posted earlier, who is going to enforce the covenant is moot if a lender won't lend against the property with the covenant in place.
Gill


I agree with Gill, it'll scare lenders away and kill the deal.


Me too.

denovo
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Re: House Deed Covenant Enforceability

Post by denovo » Wed May 10, 2017 2:21 pm

badger42 wrote:Talk with a bankruptcy lawyer. If your state has good homestead provisions (especially with that covenant), the best bet for your parents may be to bankrupt their way out of as much of the CC debt as possible.



Agree
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Re: House Deed Covenant Enforceability

Post by sls239 » Thu May 11, 2017 10:02 am

Why would you want them to turn unsecured credit card debt into debt secured by the home they are living in, covenant or no covenant?

I think it is a better strategy to just try and get the interest rates on the credit cards down and help them accelerate their payoffs. I've heard that some credit card issuers will offer a lower rate if they also close the card. Calling every month and asking for a lower rate is not unheard of.

clydewolf
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Re: House Deed Covenant Enforceability

Post by clydewolf » Thu May 11, 2017 10:40 am

" When my grandmother completed the quitclaim, she added a covenant on the deed that no mortgage or loans could be applied to the property until 2021."

You do not say when the quit claim with the covenant was enacted, but your parents did agree to the covenant.

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Re: House Deed Covenant Enforceability

Post by junior » Thu May 11, 2017 11:06 am

There are professional nonprofits who do debt counseling. It might be a good idea for your parents to schedule an appointment with one of them to review options. (And as other suggested maybe a bankruptcy lawyer as well).

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Re: House Deed Covenant Enforceability

Post by Carefreeap » Thu May 11, 2017 12:52 pm

clydewolf wrote:" When my grandmother completed the quitclaim, she added a covenant on the deed that no mortgage or loans could be applied to the property until 2021."

You do not say when the quit claim with the covenant was enacted, but your parents did agree to the covenant.


It sounds like they didn't have much of a choice. According to the OP they had already moved into the house. Sure they could have moved out and let the family dynamics get worse.

My mother pulled a similar stunt on me. I had a bad bicycle accident cycling home from college. Unbeknownst to me she ran out and bought a car and "gave" it to me. Turns out she fully financed it with 0 down (this was back in 1980 when the interest rates were 16-17%). Two months later she told me I had to pay for it because it was my car. I never wanted it, didn't like it and didn't want the responsibility of car ownership. I was 18 living at home and paying for my college education by working 2-3 part time jobs. I sucked it up because I was afraid if I rejected her "gift" she would kick me out of the house and I really wanted to get my college degree.

Some families have some unhealthy dynamics. :(

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Re: House Deed Covenant Enforceability

Post by llama1963 » Thu May 11, 2017 1:09 pm

junior wrote:There are professional nonprofits who do debt counseling. It might be a good idea for your parents to schedule an appointment with one of them to review options. (And as other suggested maybe a bankruptcy lawyer as well).


Absolutely terrible advice. Debt counseling is a rip off and do nothing more than negotiate the amounts owed down. Clear the title and validate the ownership vesting interest. THEN, go and try to obtain a mortgage. Income to support mortgage and credit scores will impact the qualification process.

Good luck.

skepticalobserver
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Re: House Deed Covenant Enforceability

Post by skepticalobserver » Thu May 11, 2017 1:10 pm

Might a quiet title action be useful?

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Re: House Deed Covenant Enforceability

Post by junior » Thu May 11, 2017 1:38 pm

llama1963 wrote:
junior wrote:There are professional nonprofits who do debt counseling. It might be a good idea for your parents to schedule an appointment with one of them to review options. (And as other suggested maybe a bankruptcy lawyer as well).


Absolutely terrible advice. Debt counseling is a rip off and do nothing more than negotiate the amounts owed down. Clear the title and validate the ownership vesting interest. THEN, go and try to obtain a mortgage. Income to support mortgage and credit scores will impact the qualification process.

Good luck.


A cursery google search suggests some counseling service providers also do bankruptcy counseling so it isn't clear what the basis is if your statement that they only negotiate the amount owed is, you would appear to be mistaken, but I will concede all service providers are likely not equal. Consumer reports has an article here discussing which ones are more likely to be legit: http://www.consumerreports.org/cro/news ... /index.htm

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Re: House Deed Covenant Enforceability

Post by llama1963 » Thu May 11, 2017 1:46 pm

junior wrote:
llama1963 wrote:
junior wrote:There are professional nonprofits who do debt counseling. It might be a good idea for your parents to schedule an appointment with one of them to review options. (And as other suggested maybe a bankruptcy lawyer as well).


Absolutely terrible advice. Debhttp://www.consumerreports.org/cro/n ... index.htmt counseling is a rip off and do nothing more than negotiate the amounts owed down. Clear the title and validate the ownership vesting interest. THEN, go and try to obtain a mortgage. Income to support mortgage and credit scores will impact the qualification process.

Good luck.


A cursery google search suggests some counseling service providers also do bankruptcy counseling so it isn't clear what the basis is if your statement that they only negotiate the amount owed is, you would appear to be mistaken, but I will concede all service providers are likely not equal. Consumer reports has an article here: http://www.consumerreports.org/cro/news ... /index.htm


Being in the financial services industry, I can tell you that credit counseling services are not all equal. My recommendation would be to directly negotiate with the creditors to find a solution and remedy. If you are professional and clearly explain the situation, they will work with you. You must me patient as well. Avoid bankruptcy at all cost.

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Re: House Deed Covenant Enforceability

Post by 8foot7 » Thu May 11, 2017 2:53 pm

llama1963 wrote:
junior wrote:
llama1963 wrote:
junior wrote:There are professional nonprofits who do debt counseling. It might be a good idea for your parents to schedule an appointment with one of them to review options. (And as other suggested maybe a bankruptcy lawyer as well).


Absolutely terrible advice. Debhttp://www.consumerreports.org/cro/n ... index.htmt counseling is a rip off and do nothing more than negotiate the amounts owed down. Clear the title and validate the ownership vesting interest. THEN, go and try to obtain a mortgage. Income to support mortgage and credit scores will impact the qualification process.

Good luck.


A cursery google search suggests some counseling service providers also do bankruptcy counseling so it isn't clear what the basis is if your statement that they only negotiate the amount owed is, you would appear to be mistaken, but I will concede all service providers are likely not equal. Consumer reports has an article here: http://www.consumerreports.org/cro/news ... /index.htm


Being in the financial services industry, I can tell you that credit counseling services are not all equal. My recommendation would be to directly negotiate with the creditors to find a solution and remedy. If you are professional and clearly explain the situation, they will work with you. You must me patient as well. Avoid bankruptcy at all cost.


I have assisted family members with this process and can second this. Your best bet is (as weird as it sounds) to get behind on everything, call all creditors every 15-20 days, let them know you know you're behind and are working out what to do, and then after 90 days begin negotiating settlements. You can likely settle all of the credit cards for 20-50% of the current balance by six months after first delinquency. Credit sounds like it is already wrecked so there is no downside. This is better than bankruptcy, and if one of them sues one can always then declare bk.

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Re: House Deed Covenant Enforceability

Post by KlingKlang » Thu May 11, 2017 3:03 pm

Just out of curiosity, if your father is employed and making good money why aren't they making more than minimum payments on the credit cards?

Gropes & Ray
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Re: House Deed Covenant Enforceability

Post by Gropes & Ray » Thu May 11, 2017 3:14 pm

I think the mortgage is a good idea, and I believe they can remove the covenant with a bit of diligence as I outlined above. If they are paying on a credit card the interest is at least 15% and maybe over 20%. They could get a mortgage for less than 4%. The difference is enormous.

Consulting with a bankruptcy attorney may also be worthwhile. However, depending on the amount of equitt they have in the home and other assets, it is unlikely that bankruptcy will benefit them.
Last edited by Gropes & Ray on Thu May 11, 2017 3:26 pm, edited 1 time in total.

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Re: House Deed Covenant Enforceability

Post by FelixTheCat » Thu May 11, 2017 3:22 pm

db1216 wrote:it appears the best route would be to place a 10 year mortgage on the home and pay off all the high interest credit cards.

No. Don't even think about this one second longer.

Use the Dave Ramsey snowball effect on paying off credit cards. https://www.daveramsey.com/blog/get-out-of-debt-with-the-debt-snowball-plan
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Re: House Deed Covenant Enforceability

Post by 8foot7 » Thu May 11, 2017 4:11 pm

FelixTheCat wrote:
db1216 wrote:it appears the best route would be to place a 10 year mortgage on the home and pay off all the high interest credit cards.

No. Don't even think about this one second longer.

Use the Dave Ramsey snowball effect on paying off credit cards. https://www.daveramsey.com/blog/get-out-of-debt-with-the-debt-snowball-plan


Getting a snowball into any critical mass to tackle $100,000 on 15% credit cards will take forever. Moving half of it to a 4% mortgage could well be the catalyst to tackle the remaining 50% on an unsecured basis, while also not encumbering the house in any significant way if the house is worth $100,000 or more.

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Re: House Deed Covenant Enforceability

Post by FelixTheCat » Thu May 11, 2017 4:26 pm

8foot7 wrote:
FelixTheCat wrote:
db1216 wrote:it appears the best route would be to place a 10 year mortgage on the home and pay off all the high interest credit cards.

No. Don't even think about this one second longer.

Use the Dave Ramsey snowball effect on paying off credit cards. https://www.daveramsey.com/blog/get-out-of-debt-with-the-debt-snowball-plan


Getting a snowball into any critical mass to tackle $100,000 on 15% credit cards will take forever. Moving half of it to a 4% mortgage could well be the catalyst to tackle the remaining 50% on an unsecured basis, while also not encumbering the house in any significant way if the house is worth $100,000 or more.

Personally, I wouldn't risk my primary home for unsecured credit card debt.
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Re: House Deed Covenant Enforceability

Post by Carefreeap » Thu May 11, 2017 4:35 pm

FelixTheCat wrote:
8foot7 wrote:
FelixTheCat wrote:
db1216 wrote:it appears the best route would be to place a 10 year mortgage on the home and pay off all the high interest credit cards.

No. Don't even think about this one second longer.

Use the Dave Ramsey snowball effect on paying off credit cards. https://www.daveramsey.com/blog/get-out-of-debt-with-the-debt-snowball-plan


Getting a snowball into any critical mass to tackle $100,000 on 15% credit cards will take forever. Moving half of it to a 4% mortgage could well be the catalyst to tackle the remaining 50% on an unsecured basis, while also not encumbering the house in any significant way if the house is worth $100,000 or more.

Personally, I wouldn't risk my primary home for unsecured credit card debt.


Lol, and you probably wouldn't rack up a $100k in credit card debt either.

BK works in a sudden, unforeseen unpreventable situation like a medical illness or catastrophic damage. Insurance doesn't cover everything.

But as the OP points out, if they have a spending problem they'll rack up debt again and be back in BK as soon as they are allowed. My family is like this and you just can't help them. They won't listen and won't change the habits that get them in the situations that they do. And oh, it's everybody else's fault. :oops:

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Re: House Deed Covenant Enforceability

Post by Gropes & Ray » Thu May 11, 2017 4:46 pm

FelixTheCat wrote:Personally, I wouldn't risk my primary home for unsecured credit card debt.


Depending on the homestead exemption in their state, the status of the credit card debt as unsecured may not be relevant. If chapter 13 unsecured creditors are entitled to at least as much as they would have gotten through a chapter 7, then the equity in the house over the homestead exemption is fair game. Now, if they live in Florida where nearly every home is exempt, maybe Chapter 13 is the way to go. But unless they're seriously thinking they need to file bankruptcy, I would take my chances with mortgage rates over credit card rates.

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Re: House Deed Covenant Enforceability

Post by db1216 » Fri May 12, 2017 10:12 am

Thanks to all for all the replies :sharebeer . Just to answer some of the questions that stuck out to me!

Carefreeap wrote:What would be the disposition of the property if they got a loan?

That is, does the property go to someone else?


From what I can see, there is no "what if" clause. There is no detriment specified to any party in case of a breach of the clause.

badger42 wrote:Talk with a bankruptcy lawyer. If your state has good homestead provisions (especially with that covenant), the best bet for your parents may be to bankrupt their way out of as much of the CC debt as possible.


Unfortunately, this would not be an option. I recognize that this was not specified in the OP, but their income is now based on my father's share of the company he works for. I believe that bankruptcy would terminate that ownership, if I understand correctly.

sls239 wrote:Why would you want them to turn unsecured credit card debt into debt secured by the home they are living in, covenant or no covenant?

I think it is a better strategy to just try and get the interest rates on the credit cards down and help them accelerate their payoffs. I've heard that some credit card issuers will offer a lower rate if they also close the card. Calling every month and asking for a lower rate is not unheard of.


I will discuss this with them. I'm not sure if they have tried this yet or not. I hate the idea of securing the debt as well; however, my thought process is that if they don't pay their property taxes due to no income, the house would be out of their possession anyways.

clydewolf wrote:" When my grandmother completed the quitclaim, she added a covenant on the deed that no mortgage or loans could be applied to the property until 2021."

You do not say when the quit claim with the covenant was enacted, but your parents did agree to the covenant.


It was agreed to, absolutely. Hence the ethical dilemma in addition to the purely legal aspect of this conversation. You are right.

Carefreeap wrote:
clydewolf wrote:" When my grandmother completed the quitclaim, she added a covenant on the deed that no mortgage or loans could be applied to the property until 2021."

You do not say when the quit claim with the covenant was enacted, but your parents did agree to the covenant.


It sounds like they didn't have much of a choice. According to the OP they had already moved into the house. Sure they could have moved out and let the family dynamics get worse.

My mother pulled a similar stunt on me. I had a bad bicycle accident cycling home from college. Unbeknownst to me she ran out and bought a car and "gave" it to me. Turns out she fully financed it with 0 down (this was back in 1980 when the interest rates were 16-17%). Two months later she told me I had to pay for it because it was my car. I never wanted it, didn't like it and didn't want the responsibility of car ownership. I was 18 living at home and paying for my college education by working 2-3 part time jobs. I sucked it up because I was afraid if I rejected her "gift" she would kick me out of the house and I really wanted to get my college degree.

Some families have some unhealthy dynamics. :(


It was more of a situation where they knew she was moving to a nursing facility and were concerned that the house with huge sentimental value would go to pay for that stay or the nursing facility itself. My grandfather built the house himself. Nonetheless, I would tend to agree; I think it was somewhat of a final jab as she entered the facility based on their prior relationship. But I do also agree in that they agreed to the clause, they were not financially (at that time) pushed into it.

skepticalobserver wrote:Might a quiet title action be useful?


I've never heard of this. I am researching this now. Thank you!

Being in the financial services industry, I can tell you that credit counseling services are not all equal. My recommendation would be to directly negotiate with the creditors to find a solution and remedy. If you are professional and clearly explain the situation, they will work with you. You must me patient as well. Avoid bankruptcy at all cost.[/quote]

That's what I was thinking if the mortgage doesn't work out. I'm not sure if they've tried directly with the creditors or not.

KlingKlang wrote:Just out of curiosity, if your father is employed and making good money why aren't they making more than minimum payments on the credit cards?


They are paying more than the minimum, just not enough to get past how much they are losing in the interest each month. They've knocked out a couple of the cards in the last couple months which is outstanding and I am proud of them for that. Call it impatience but I am just trying to see if there is a way to knock this out faster and with less money lost. If he hadn't had a period of unemployment, I would say its a just punishment for racking up debt instead.

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Re: House Deed Covenant Enforceability

Post by Jack FFR1846 » Fri May 12, 2017 10:18 am

The reality: They don't know how to manage money and it's a blessing that they have a house that they can't raid and squander.

If they were able to manage their money, I'd suggest they sell the house and buy a small condo or rent and pay off their debts.
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Re: House Deed Covenant Enforceability

Post by skepticalobserver » Fri May 12, 2017 12:46 pm

db1216 wrote:
I've never heard of this. I am researching this now. Thank you!


You're going to need an attorney for this. An action to "quiet" title (or remove a "cloud" on the title) is a lawsuit asking a court to rule on disputed aspects of the title. Broadly speaking you are seeking a declaratory judgement, that is, a declaration by a court on the status of title. A favorable ruling will result in "clear" title, smoothing the way for the title holder to undertake desired real estate relate transactions.

I can't comment on the merits of you situation; you could lose and thus title impendent would be memorialized by the court.

Not Law
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Re: House Deed Covenant Enforceability

Post by Not Law » Fri May 12, 2017 5:45 pm

The right to enforce the covenant goes to grandmother's heirs. If that is your parent, then it merges out of existence. If bankruptcy is not an option, you might consider loaning your parents the money and taking a mortgage on their home, despite the covenant. Otherwise, the parents need to seek a declaratory judgment that the covenant no longer exists.

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Re: House Deed Covenant Enforceability

Post by afan » Fri May 19, 2017 1:36 pm

I share the concern about borrowing any more money for a family that has had trouble managing debt in the past. I doubly worry about borrowing against the roof over their heads.

However, if the parents are good credit risks now, is there an alternative of taking out a new loan for the purpose of paying off some or all of the CC debt? Not a new credit card, and not secured by the house, but a personal loan?

The exercise of shopping for rates and terms might give you an idea of a bank's opinion on the credit worthiness of the family now. If the bank agrees that this is a safe loan, then the rate should be less than for credit cards.

Not a long term solution, but don't some credit card issuers offer X months at no or low interest if you transfer credit card balances to them? Again, the bank would need to be comfortable lending the money. If this worked then there would be an opportunity to pay more against the balance while the interest was low or zero.

Easier said than done, I know, but the alternative seems to be another round of belt tightening. People who spend beyond their means often have strange ideas about necessities. While one might suspect they learned about economizing while out of work, it is possible that further scrimping might make it possible to get ahead of the interest.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

afan
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Re: House Deed Covenant Enforceability

Post by afan » Fri May 19, 2017 4:29 pm

Not Law wrote:The right to enforce the covenant goes to grandmother's heirs. If that is your parent, then it merges out of existence.


So a bank would not have to worry that the parents would get behind on the mortgage then claim that the bank could not foreclose because of the deed?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

windrose
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Re: House Deed Covenant Enforceability

Post by windrose » Sat May 20, 2017 10:36 am

Another vote for NOT swapping unsecured debt into secured debt with the house.

Since the debt occurred due to a job loss, rather than poor spending habits, what will happen if the income from this job is lost?

What if the company goes under, or one of your parents becomes sick, or this new income is lost in some other way?

Would you be willing to step in and help make the mortgage payments at that point? Or is there enough equity that in such a case they could quickly sell the house and downsize into something else for cash?

I'd just try to pay it off the old fashioned way, even if it meant paying more in interest, in order to make sure they had a secure place to live.

Gropes & Ray
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Re: House Deed Covenant Enforceability

Post by Gropes & Ray » Sat May 20, 2017 11:31 am

Making the minimum payment on $100k on an 18% card would take something like 47 years to pay off and include $150k in interest. A mortgage at 4%, with the same monthly payment amount would finish in 4 years with less than $8k in interest.

afan
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Re: House Deed Covenant Enforceability

Post by afan » Sat May 20, 2017 3:32 pm

Gropes & Ray wrote:Making the minimum payment on $100k on an 18% card would take something like 47 years to pay off and include $150k in interest. A mortgage at 4%, with the same monthly payment amount would finish in 4 years with less than $8k in interest.


If all goes well. If there are more financial reverses, they could lose their house.

It would be safer to seek lower interest rate unsecured credit and try to economize elsewhere to retire this debt.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

heyyou
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Re: House Deed Covenant Enforceability

Post by heyyou » Sat May 20, 2017 7:11 pm

I apologize for the bluntness. I doubt that this will be their last financial problem, it is just the current one. Thus borrowing against their only asset for this year's problem, is not a good long term plan.

db1216
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Re: House Deed Covenant Enforceability

Post by db1216 » Thu Jun 22, 2017 11:46 am

Thank you all so much for all the replies. This was a really good thread to give me a lot of different perspectives.

We (as a family) decided that the idea of swapping unsecured for secured was a poor plan. Not to mention the moral concerns associated with ignoring the provision. We will motor along and they will keep playing the debt snowball plan.

Every single time I go on this board, or post, I learn something. I appreciate that very much. :sharebeer

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unclescrooge
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Re: House Deed Covenant Enforceability

Post by unclescrooge » Thu Jun 22, 2017 3:28 pm

FelixTheCat wrote:
8foot7 wrote:
FelixTheCat wrote:
db1216 wrote:it appears the best route would be to place a 10 year mortgage on the home and pay off all the high interest credit cards.

No. Don't even think about this one second longer.

Use the Dave Ramsey snowball effect on paying off credit cards. https://www.daveramsey.com/blog/get-out-of-debt-with-the-debt-snowball-plan


Getting a snowball into any critical mass to tackle $100,000 on 15% credit cards will take forever. Moving half of it to a 4% mortgage could well be the catalyst to tackle the remaining 50% on an unsecured basis, while also not encumbering the house in any significant way if the house is worth $100,000 or more.

Personally, I wouldn't risk my primary home for unsecured credit card debt.


What happens if you just stop paying your credt card creditors? Apart from harassing phone calls do they have any recourse? Can they garnish wages?

onthecusp
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Re: House Deed Covenant Enforceability

Post by onthecusp » Thu Jun 22, 2017 3:49 pm

db1216 wrote:
With the mortgage at a reasonable rate, I have no doubt they could knock it out in a couple years.


Just did a quick calculation. If they can knock out $100,000 in 2 years at 4%, it will take them 2 years and 2 months at 15%.
They need to stop paying minimum payments and start putting $4500 - 5000 a month into paying off loans to do it in 2 years.

Of course getting the rate down could save them money, about $9000 in interest, but if this takes a few months and a variety of mortgage fees a lot of the savings would be eaten up, likely more than half or just one of those easy monthly payments :twisted:

onthecusp
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Re: House Deed Covenant Enforceability

Post by onthecusp » Thu Jun 22, 2017 3:57 pm

Seriously I feel for them. It took me a few years to get out from under a mountain of debt including student loans for our children's education, part of it using refinancing, so some of the debt is still there as a mortgage balance as I contemplate a target retirement before it is scheduled to be paid off. :oops:
Not as comfortable as it could be.

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