Structuring payoff offer for house in foreclosure, above water

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bnes
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Structuring payoff offer for house in foreclosure, above water

Post by bnes » Wed Jul 05, 2017 2:13 am

I am tasked with making a payoff offer on a home in foreclosure. The 1st is $100k, the 2nd $275k, with $78k in IRS lien. The house is worth maybe $600k, but has been trashed, and would present some difficulties in sale. But basically the lender can recoup their costs in foreclosure.

I have cash available: what's a payoff offer they might accept? $90k? $95k?
Anyone negotiated on an above water loan?
Last edited by bnes on Mon Jul 31, 2017 11:10 pm, edited 1 time in total.

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David Jay
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Re: Structuring payoff offer for house in foreclosure, above water

Post by David Jay » Fri Jul 07, 2017 11:59 am

Perhaps you have not gotten any replies because the scenario is not entirely clear:

Do I take it that the first mortgage holder has started foreclosure proceedings? Is the second mortgage held by a different institution?

If so, why should they accept anything less than full payment? They take the house, pay off the lien, sell the house (rapid sale at low cost), take out their full $100,000 (they are made whole) and give whatever is left to the second mortgage holder (who, in this scenario, will suffer if the house sells below $453,000).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Cobra Commander
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Re: Structuring payoff offer for house in foreclosure, above water

Post by Cobra Commander » Fri Jul 07, 2017 12:13 pm

I've done a little bit of foreclosure defense while I was on a fellowship at one point in my career and this was my experience. When the house was above water the lender did whatever they could to continue the foreclosure proceedings because they could tack on a ton of extraneous fees (late fees, processing fees, documentation fees, etc.) associated with the foreclosure process. Once they extracted all the fees they possibly could they would foreclose and try to buy it themselves at auction. They would then turn around and put the house on the market and pocket the profits.

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Watty
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Re: Structuring payoff offer for house in foreclosure, above water

Post by Watty » Fri Jul 07, 2017 12:24 pm

David Jay wrote:If so, why should they accept anything less than full payment?
+1

In addition while the mortgage it is late they are also be getting all sorts of late fees too so they have no incentive to settle while there is still home equity. If it actually goes through foreclosure they can add all sorts of extra fees for that too.

A "trashed" house that is sold as a short sale will also have to be sold at a significant discount for the additional problems the buyer would face in dealing with the lenders.

Another problem is that if you do delay trying to work out some sort of deal then you might not be able to get the house on the market until next winter which can be a very bad time to try to sell a house in some areas.

I would just have a crew come in and clean out any stuff that is in the house and then sell it as a fixer upper ASAP. A good real estate agent will know companies that can do this and I would think that you could have the house on the market in about two weeks if you there is not problem with the house title. If this is a situation like the owner is older and in a nursing home then one risk is that they could die before the house could be sold. If the house title is in a trust or set up transfer on death then that could delay the sale of the house until their estate can go through probate.

All this can vary by housing market so it would be good to talk to several real estate agents to see what the best way to sell it is in your local market.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by bnes » Mon Jul 10, 2017 11:51 am

OP here: the situation is that the family wishes to keep the homeowner in place, in the house.
But there's not enough committed money available to deal with all the debts: this is an attempt to negotiate some sort of discount.
I can see that with an above water house, and the opportunity to tack on huge fees, the lender's motivation to deal could be low.
This same house was underwater a few years ago, but the owner did not act at the time. The owner is younger, and not cooperative. The 1st offered an unsolicited loan modification this year (from 6% to 3%), but withdrew the offer after a trial payment was missed. The 1st is foreclosing, the 2nd is a different lender, the IRS has taken no visible action.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by David Jay » Tue Jul 11, 2017 8:17 pm

bnes wrote:OP here: the situation is that the family wishes to keep the homeowner in place, in the house.
But there's not enough committed money available to deal with all the debts: this is an attempt to negotiate some sort of discount.
I can see that with an above water house, and the opportunity to tack on huge fees, the lender's motivation to deal could be low.
This same house was underwater a few years ago, but the owner did not act at the time. The owner is younger, and not cooperative. The 1st offered an unsolicited loan modification this year (from 6% to 3%), but withdrew the offer after a trial payment was missed. The 1st is foreclosing, the 2nd is a different lender, the IRS has taken no visible action.
Pay off the first. Done.
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Re: Structuring payoff offer for house in foreclosure, above water

Post by bigred77 » Tue Jul 11, 2017 9:21 pm

I don't know where the IRS lien fits in the hierarchy of claims to be paid from sale but if the house you think is worth 600k sells for 178k or more than I'm confident the primary mortgage holder is made whole. I can't imagine they would deal with you at all. Especially because their likely just the servicer and the loan holder is likely some other entity.

Can the family afford that house (sounds like probably not)? If no, then sell the property now, the right way (fix it up as best you can), and maximize your equity out of it. If you let the bank decide, they have no incentive to sell it for a dollar more than they are owed. If the family can afford it now for some reason, refinancing everything in to a new loan is probably best.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by Saving$ » Tue Jul 11, 2017 10:04 pm

So there is $100k + $275k + $78k = $458k owed on a house worth $600k.

Do you have $458k to pay it off? If not, money is still owed. Can the homeowner make any monthly payments?

You wrote:
- The family wishes to keep the homeowner in place, in the house
- The owner is younger and not cooperative
The family may need to come to terms with the fact that apparently the homeowner does not wish to stay there as much as the family wishes for him/her to stay there. If the owner wants to stay, the owner will make the payments...if not, it is probably time for the owner to leave.

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8foot7
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Re: Structuring payoff offer for house in foreclosure, above water

Post by 8foot7 » Wed Jul 12, 2017 8:42 am

The first lienholder initiated foreclosure because they'll be made whole, even accounting for fees and foreclosure costs. Why would they take $90k today when they can get $115k in six weeks?

As for the second, if there is a deficiency in your state after the house is gone, you can negotiate it away for pennies (5-10 cents) on the dollar.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by jimb_fromATL » Wed Jul 12, 2017 6:18 pm

I don't think any of the parties have any reason to accept less than they're owed. If the actual value is anywhere close to what you say, the first mortgage lender can get all of their money from the sale, including all back interest, late fees, legal fees, and expenses. They typically don't get to keep any surplus, but as I understand it, in most states that would go to the second mortgage lender.

The second mortgage lender has no incentive to accept much if any less, since they can probably get most or all of it from the surplus after the first lender gets theirs. Or they could essentially have a $600K house by paying the first lender their deficit.

The IRS is not going to accept less. As I understand it, they have the right to buy back the house within 120 days of the foreclosure, but they seldom --if ever-- do it. The debtor still owes them the money, because the debt does not magically disappear when the house is foreclosed, because the house is not "collateral". The IRS can still get theirs through legal means by eventually seizing other assets of the debtor, such as garnisheeing wages or tax refunds.

Futhermore, in the past prior to some some changes brought about by the crash of 2008, which may have expired in 2016, if the lenders forgive debt that is owed, that amount not paid was reported to the IRS as income for the debtor. If that's again the case, the debtor will have a tax bill for the amount forgiven. And the IRS will eventually get theirs.

And it sounds like even if they have the money to give away, the family would all have to be crazy to spend that much money to help the uncooperative member keep a house that he/she cannot or will not pay for or even maintain it. Y'all could subsidize a lot of rent for a place for the younger member a long time -- or even buy a less expensive place for him/her for a lot less money.

jimb

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Re: Structuring payoff offer for house in foreclosure, above water

Post by bnes » Wed Jul 12, 2017 10:16 pm

Foreclosure is not worth it to the family: the family knows that if the house is lost, the "owner" will end up in some other relative's basement. Family situations suck. The family has just decided to pay it all off, with or without cooperation, effectively folding it into a new note which probably will never be paid off. Hopefully the deliberate defacing of the house will stop once the threat of foreclosure is past.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by jimb_fromATL » Wed Jul 12, 2017 10:37 pm

bnes wrote:Foreclosure is not worth it to the family: the family knows that if the house is lost, the "owner" will end up in some other relative's basement. Family situations suck. The family has just decided to pay it all off, with or without cooperation, effectively folding it into a new note which probably will never be paid off. Hopefully the deliberate defacing of the house will stop once the threat of foreclosure is past.
The 1st is $100k, the 2nd $275, with $78k in IRS lien. The house is worth maybe $600k
Whoa ... I just noticed the lack of a "K" on the second mortgage. Is there really a second mortgage in default with only $275 (two-hundred-seventy-five dollars) that the young person has not been willing to pay ? I missed that because I never imagined that anybody would default and risk losing a $600K home over such a small amount.

If that is the case, then there's a remote possibility that the first lender might accept a deed-in-lieu of foreclosure for a couple thousand less to avoid the time an hassle and legal fees of foreclosing, unless the process has already been started and is waiting on the sheriff to evict the occupant. But the IRS is not going to bargain, since that tax debt does not disappear if the family pays off the mortgage(s).

Of course if the younger person is so uncooperative, destitute, impaired or irresponsible that they'll default on a 275 dollar loan, then the family might as well be prepared to pay the property taxes and insurance, and the maintenance and repairs to protect their investment.

...and maybe have to pay the member's income taxes, too.

jimb

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Re: Structuring payoff offer for house in foreclosure, above water

Post by JGoneRiding » Wed Jul 12, 2017 11:44 pm

bnes wrote:Foreclosure is not worth it to the family: the family knows that if the house is lost, the "owner" will end up in some other relative's basement. Family situations suck. The family has just decided to pay it all off, with or without cooperation, effectively folding it into a new note which probably will never be paid off. Hopefully the deliberate defacing of the house will stop once the threat of foreclosure is past.
How is the "family " getting a new never yo be repaid note? Are they taking a loan of their own on something else??? You can't make someone be responsible . My advice let the idiot sink and make everyone agree they are on the streets if they don't immediately shape up and stop this nonsense . But then I have zero pity for my family members thay6 pull this stuff (and yeah I am not speaking hypothetical I have these members I will totally let them live on the streets )

Your best bet of "fixing" it is to simply pay the first and second note. Let them deal with irs on their own thr irs won't forclose they just want the money if sold.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by jimb_fromATL » Thu Jul 13, 2017 7:53 am

bnes wrote: Hopefully the deliberate defacing of the house will stop once the threat of foreclosure is past.
If the home is not underwater, then defacing it is destroying his/her own equity. It's not hurting the big bad mortgage company or the IRS. It's taking money out of his own pocket.

Aside from family dynamics, it sounds like the family will be making a terrible financial mistake to try to save this home for the occupant.

If the family member has no more understanding than that, what's to keep him/her from defacing it out of spite if the family asks him/her to pay anything to them for letting him/her continue to live in it? Can the family members really afford to pay for the purchase, maintenance, repairs, and taxes and insurance for a $600K house for the rest of their lives for such an irresponsible family member?

It will be much cheaper to let the home go and just subsidize a rental room or apartment to keep the family member off the street and out of another family member's basement.

jimb
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Re: Structuring payoff offer for house in foreclosure, above water

Post by 8foot7 » Thu Jul 13, 2017 7:57 am

If someone is defacing property then it's time for them to live in a cardboard box for a while and beg for food. Seriously.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by randomguy » Thu Jul 13, 2017 8:11 am

bnes wrote:Foreclosure is not worth it to the family: the family knows that if the house is lost, the "owner" will end up in some other relative's basement. Family situations suck. The family has just decided to pay it all off, with or without cooperation, effectively folding it into a new note which probably will never be paid off. Hopefully the deliberate defacing of the house will stop once the threat of foreclosure is past.
This seems like a horrible idea to me. Seems likely they will not pay taxes or maintence and this house will be a forever money sink. I would think renting them an apartment would be cheaper.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by NotWhoYouThink » Thu Jul 13, 2017 8:28 am

Yep. You could pay apartment rent for a long time for the money you would spend trying to prevent foreclosure.

Really, this is a mental health and family relationship problem, not a financial problem. But if you were just looking at the financial part you would never even start down this road. $100K is a lot to spend to continue the illusion of normalcy.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by JGoneRiding » Thu Jul 13, 2017 6:42 pm

I am still confused. Does the horrifically irresponsible family member not care if they loose the house and is therefore unwilling to sign anything to keep that from happening? Do they have a loan for 100k as first and then a family loan for 275k? for second?

Can you force them to make sale and then agree to pay for x amount of time on an apt?

Is the question can you as second lein holder negotiate for purchase of the first lein? If so maybe but I don't know as they have any obligation to work with you. You could attempt to force horrifically irresponsible family member to make a new loan but I don't see as they actually have to.

If you have the cash (sounds like yes) you could wait until the "auction" occurs. In this situation the first lein holder will usually bid just a little offer what they are owed. So you would be up against everyone else that might want the house for more than that. If you loose the house at auction then you would only get whatever it goes for over what the first lein holder is owed. And it sounds like someone will most likely buy it rather than the lein holder with that much potential equity in it. I do not believe after auction is forced in most states the purchaser has any obligation to you. The irs will still go after the deadbeat house or no house.

So if you really want to keep the house the simplest is to pay the first lein holder all back due payments asap. Then maybe you can get deadbeat to straighten out and sale the place and take the cash they would have and buy a place they can afford.

you 'could' pay the 100k and then just start legally tacking on late fees, int defalt every thing you can think of to the family loan while excepting that you won't see a penny of money from this person until sale. Make it legal but eventually they will decide they want to move and you would recoup the money without going through forclosure. Could take 20years and you would have to pay insurance and property taxes if the person is that horrible

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Re: Structuring payoff offer for house in foreclosure, above water

Post by bnes » Mon Jul 31, 2017 7:44 pm

The family elected to pay the back amount to pull the 1st out of foreclosure, and stop the fee accumulation. That just happened.
There was no indication the 1st holder was willing to negotiate. Let me be clear: the family wants to keep the individual in the house even if it is expensively stupid to do so. The family has enough money to do this, but not keep it up forever.

The 2nd mortgage agreement written by the family included interest, but there's no "late payment penalty" built in. I supposed banks change terms all the time, but would it be legal to start accruing penalty fees at this late date? Beyond sending periodic statements regarding the 2nd loan, is there a way to memorialize the current running (and rising!) balance, so it can't easily be brushed away and forgotten? (nothing's been filed with the County since the 2nd was recapitalized a decade ago).

We've uncovered various other less well drafted loans.... signed scraps of paper in some cases.... mostly badly drafted and probably not enough to collect on, or even for the IRS to allow for a "bad debt" deduction.

----
Note: the individual wants an advance on the expected inheritance to pay off these and other debts.
Last edited by bnes on Mon Jul 31, 2017 7:50 pm, edited 4 times in total.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by bnes » Mon Jul 31, 2017 7:46 pm

JGoneRiding wrote:I am still confused. Does the horrifically irresponsible family member not care if they loose the house and is therefore unwilling to sign anything to keep that from happening? Do they have a loan for 100k as first and then a family loan for 275k? for second?
The family member may be unable to face dealing with the issue, more than a lack of caring. You have the numbers right.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by JGoneRiding » Mon Jul 31, 2017 9:10 pm

bnes wrote:The family elected to pay the back amount to pull the 1st out of foreclosure, and stop the fee accumulation. That just happened.
There was no indication the 1st holder was willing to negotiate. Let me be clear: the family wants to keep the individual in the house even if it is expensively stupid to do so. The family has enough money to do this, but not keep it up forever.

The 2nd mortgage agreement written by the family included interest, but there's no "late payment penalty" built in. I supposed banks change terms all the time, but would it be legal to start accruing penalty fees at this late date? Beyond sending periodic statements regarding the 2nd loan, is there a way to memorialize the current running (and rising!) balance, so it can't easily be brushed away and forgotten? (nothing's been filed with the County since the 2nd was recapitalized a decade ago).

We've uncovered various other less well drafted loans.... signed scraps of paper in some cases.... mostly badly drafted and probably not enough to collect on, or even for the IRS to allow for a "bad debt" deduction.

----
Note: the individual wants an advance on the expected inheritance to pay off these and other debts.
So by not keep it up? Can they pay the first in full? Can they pay what is owed to the first for a long time? Is the family member willing/able /caring enough to get back on tract at least to pay the first again.

If not one of those then theyare just throwing good moneyafter bad and justa matter of time before the either loose the house or in same spot.

If I thought for one second that they would get on trackagain I would say roll all the loans into a new note including the random loans but reality says this person thinks they are owed this house amd they ate going to do nothing to pay their debts to anyone. Why should they the family is clearly willing to rescue them and they are "going to get a big inheritance to fix all their problems"

(That last mentality will never go away until they see all the money is actually gone and they are in big trouble)

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Re: Structuring payoff offer for house in foreclosure, above water

Post by J295 » Mon Jul 31, 2017 9:33 pm

I've tried to understand what it is but can't track from OP his/her objectives. Perhaps a re-set would be helpful. Who exactly is trying to accomplish what here?

In any case, generally speaking .....

Pay off all the liens or they don't go away.

If the first is one of the large lenders (likely), they will not want to "deal" with anyone. It's not in their genetic makeup, and moreover they would not want to try and explain to a regulator why they took less than full payment on a fully secured debt.

If it goes through foreclosure the purchaser will need to be mindful of the IRS regulations of the Services rights of redemption if the Service is not paid in full.

If there is any debt forgiveness the debtors will want to be mindful of forgiveness of indebtedness income (see also IRC 108 in case it is applicable).

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Re: Structuring payoff offer for house in foreclosure, above water

Post by bnes » Mon Jul 31, 2017 11:06 pm

jimb_fromATL wrote:Whoa ... I just noticed the lack of a "K" on the second mortgage. Is there really a second mortgage in default with only $275 (two-hundred-seventy-five dollars) that the young person has not been willing to pay ? I missed that because I never imagined that anybody would default and risk losing a $600K home over such a small amount.
jimb
The k was just missing. It is $275k.
For reference, local rents for a studio or 1 bedroom range from $1k to $2k per month and up. To replicate the home in terms of storage would cost much more, at least $5k/month.

But the impression is correct anyway: there's State Tax debt in the $100's that was allowed to go to garnishment of bank accounts.
The issue is containing undiagnosed mental illness. The family has consulted with several psychiatrists and psychologists, and the result is pretty much the same: chances of an intervention are slim, the best that has a chance of working is to contain the situation until the individual is ready to change.

For an on topic book reference see ISBN 978-0967718934

---
The family goal is to contain the fiscal hemorrhage without spending the entire family stash, keep the individual in the home, remove some current subsidies that are disincentives to getting a job, and to offer a lifeline should the family member choose to deal with the underlying metal illness, and put away a trust for dealing with an individual with very little if any social security coming later.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by Carefreeap » Tue Aug 01, 2017 10:05 am

bnes wrote:The family elected to pay the back amount to pull the 1st out of foreclosure, and stop the fee accumulation. That just happened.
There was no indication the 1st holder was willing to negotiate. Let me be clear: the family wants to keep the individual in the house even if it is expensively stupid to do so. The family has enough money to do this, but not keep it up forever.

The 2nd mortgage agreement written by the family included interest, but there's no "late payment penalty" built in. I supposed banks change terms all the time, but would it be legal to start accruing penalty fees at this late date? Beyond sending periodic statements regarding the 2nd loan, is there a way to memorialize the current running (and rising!) balance, so it can't easily be brushed away and forgotten? (nothing's been filed with the County since the 2nd was recapitalized a decade ago).

We've uncovered various other less well drafted loans.... signed scraps of paper in some cases.... mostly badly drafted and probably not enough to collect on, or even for the IRS to allow for a "bad debt" deduction.

----
Note: the individual wants an advance on the expected inheritance to pay off these and other debts.
Regarding the bold, you'll only be able to change the terms of the loan by getting the borrower to agree to them.

It's probably too late now but it almost sounds like the house needs to be transferred into a Trust in exchange for the loan pay-off. The occupant can't have access to the equity of the property or else s/he will keep using it as a piggy bank.

Has the family talked about getting some kind of guardianship for this person? It might be possible if the family member's doctors were willing to cooperate.

Sorry you are dealing with this situation, sounds very difficult for everyone.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by bnes » Thu Aug 03, 2017 1:07 am

Carefreeap wrote:Has the family talked about getting some kind of guardianship for this person? It might be possible if the family member's doctors were willing to cooperate.
The individual distrusts doctors, and won't see one.

A separate friend had similar problems. The parents were able to get help only after their child burned their house down.
That led to prison, guardianship, drugs and finally stability.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by denovo » Thu Aug 03, 2017 3:32 am

You have an issue that is personal/health-related that is presenting itself as a financial issue. Not much the forum can do. OP's relative knows he has everyone over a barrel and will use it to the max financially. Not the first time this story has occurred in the world.
"Don't trust everything you read on the Internet"- Abraham Lincoln

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Re: Structuring payoff offer for house in foreclosure, above water

Post by Carefreeap » Thu Aug 03, 2017 9:45 am

bnes wrote:
Carefreeap wrote:Has the family talked about getting some kind of guardianship for this person? It might be possible if the family member's doctors were willing to cooperate.
The individual distrusts doctors, and won't see one.

A separate friend had similar problems. The parents were able to get help only after their child burned their house down.
That led to prison, guardianship, drugs and finally stability.
Wow!

Certainly puts my problems in perspective.

Good luck OP with your difficult situation.

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Re: Structuring payoff offer for house in foreclosure, above water

Post by Nutmeg » Thu Aug 03, 2017 1:53 pm

I empathize with your family. I recognize that you didn't ask about this, but now that the first mortgage has been paid off and your family's mortgage is in first place, please be certain that the house is insured, that the noteholder is notified of any insurance cancellations, that the property taxes are paid, and that the noteholder receives tax notices.

I know of a similar situation in which the homeowner discovered that it was possible to cancel the insurance and receive a check from the insurance company for the balance, even though the insurance bill had been paid by the noteholder--and the homeowner did so several times.

If the property taxes will be paid by the family, pay them directly to the revenue office rather than giving the money to the homeowner to pay them.

You can probably check online to see whether the noteholder is listed to receive tax notices.

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