Bankrupt Brother Needs Mortgage Help

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daytona
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Bankrupt Brother Needs Mortgage Help

Post by daytona »

I have a brother-in-law who had a business venture fail on him and he had to declare bankruptcy. He has since been working at a very stable Fortune 500 company and I’d like to help him get into a small house (he has three little kids.)

I have a 350k cash position, about 800k in (high risk) equities (we can talk about that later!), an existing mortgage to my mother (secured by her home) and due at the sale of her home for 110k at 4% interest (she was gonna do a reverse mortgage), and I own my own home (250k) free and clear and have no debt.

(I also have several business ventures as well — mostly restaurants. The restaurants have no debt but I own some real estate that are mortgaged. The ventures provide a decent income but currently they’re too immature to be counted toward my net worth. ... and, I’m in hospitality during a global pandemic. Haha. But they are doing well.)

I am 48.

The house is 165k and he will put down 65k.

I need strategy advice to help him. Important consideration (I have zero concerns about him failing to pay me back. He has high integrity. I understand life could happen, but they are good people. I say that because character is important in lending. But I will also say, I think I have the capacity, and I think he does too, to be rather emotionless about the transaction. ... I think we could both agree that if required, we could easily foreclose on him.)

(1) Provide a bridge loan with the expectation that in a few years he may qualify for a loan / refi and pay me back.

(2) Co-sign on a mortgage, if we can find someone who will do that.

(3) Provide a long-term mortgage — 15 or 30 years at some decent interest rate. (If so, what?)

... regarding my stock, it is from an ipo. I am still long, but am eager to provide some much needed Boglehead balance to my portfolio. ... perhaps a long-term mortgage like with my mother’s, would satisfy that in your eyes?

Thanks!!!!
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Watty
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Re: Bankrupt Brother Needs Mortgage Help

Post by Watty »

daytona wrote: Fri Sep 04, 2020 7:24 am I need strategy advice to help him.
Another cleaner option would be for you to buy the house and then lease it to him with the option to buy it at a set price when he is able to. Maybe a ten year lease, that would give him plenty of time improve his credit or save up enough to pay cash for the house.

You would want a lawyer to draw up the contract.
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Silly Wabbit
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Re: Bankrupt Brother Needs Mortgage Help

Post by Silly Wabbit »

How about renting a house rather than buying?
Jack FFR1846
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Re: Bankrupt Brother Needs Mortgage Help

Post by Jack FFR1846 »

Never cosign.

He could run into hard times, stop making payments and trash YOUR credit. Then you pay off the loan and unless you're on the deed, you own nothing.
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gr7070
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Re: Bankrupt Brother Needs Mortgage Help

Post by gr7070 »

Watty wrote: Fri Sep 04, 2020 8:32 am
daytona wrote: Fri Sep 04, 2020 7:24 am I need strategy advice to help him.
Another cleaner option would be for you to buy the house and then lease it to him with the option to buy it at a set price when he is able to. Maybe a ten year lease, that would give him plenty of time improve his credit or save up enough to pay cash for the house.

You would want a lawyer to draw up the contract.
This. Though you don't even need the lease to be ten years. Can just do standard lease lengths with rent to own clause.

If you are going to (I would not) loan then the money or do some owner finance sale, etc. I'd talk to your sister or have wife talk to hers first. Make sure there's nothing brewing in their marriage. He may be awesome, but if they divorce things may change greatly.

Renting to own you don't have to worry about this possibility, and many others.
Last edited by gr7070 on Fri Sep 04, 2020 8:47 am, edited 2 times in total.
rooms222
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Re: Bankrupt Brother Needs Mortgage Help

Post by rooms222 »

If you loan it to him now, he can get FHA two years after discharge if he has rebuilt credit and stays at the Fortune 500-
http://www.fhahandbook.com/blog/fha-aft ... uirements/

If you own the home when he gets the FHA, there may be additional information required at that time-

https://www.fha.com/fha_article?id=891
random_walker_77
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Re: Bankrupt Brother Needs Mortgage Help

Post by random_walker_77 »

Watty wrote: Fri Sep 04, 2020 8:32 am
daytona wrote: Fri Sep 04, 2020 7:24 am I need strategy advice to help him.
Another cleaner option would be for you to buy the house and then lease it to him with the option to buy it at a set price when he is able to. Maybe a ten year lease, that would give him plenty of time improve his credit or save up enough to pay cash for the house.

You would want a lawyer to draw up the contract.
I agree that is cleaner. But many people end up moving within 10 years -- will you be ok if your BIL never exercises the option, thereby leaving you as a landlord on this extra house?

No matter what, don't co-sign their mortgage, otherwise you're responsible for the mortgage payments (and your credit record is on the line) if your BIL fails to make payments.

Money can really screw up relationships. What if your BIL has trouble and falls behind on payments? What if there's a divorce and you're no longer related? If you're ok giving him the money outright (including a loan that's never fully repaid), then that's one thing, but if you lend expecting repayment and there are complications, the relationship will get strange really quick.
toocold
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Re: Bankrupt Brother Needs Mortgage Help

Post by toocold »

I think he should rent if he wants a house, while building his credit. It can get ugly if you co-sign and he can't pay, and he takes down your credit while you may not even know about it.
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rterickson
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Re: Bankrupt Brother Needs Mortgage Help

Post by rterickson »

Is the $65K down payment his money or your money?
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Brianmcg321
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Re: Bankrupt Brother Needs Mortgage Help

Post by Brianmcg321 »

Do not co-sign anything, ever for anyone.

He can rent a house.
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deltaneutral83
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Re: Bankrupt Brother Needs Mortgage Help

Post by deltaneutral83 »

In the OP's multiple scenarios, there are hundreds of ways this can go wrong. There is only one where it can go right, by the BIL servicing the debt in the way it is outlined based on the scenario chosen. Speaking of character, is the BIL going to go behind the BK and make his creditors whole when he has the opportunity, regardless of BK court obligations?
stan1
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Re: Bankrupt Brother Needs Mortgage Help

Post by stan1 »

Has brother been told by several lenders he can't qualify for a mortgage on his own or is everyone just assuming he can't? First place to start would be with a mortgage broker to find out for sure whether he can't get a mortgage himself given that he has stable income and a large down payment.

After that if brother has $65K and house is $165K and you have $350K in cash I think you would just together buy the house with cash and not involve a third party lender. Your finances would not be ruined if brother never pays the $100K back loan.

Given rates right now 2.5% to 3% for 30 years would be fair. Maybe since the loan amount is $100K he wouldn't need 30 years to pay you back and it could be a 10 year loan.

If brother never pays you back for some reason are you OK with that?
Bobby206
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Re: Bankrupt Brother Needs Mortgage Help

Post by Bobby206 »

Assuming he is putting down his own $65k then just loan him $100k, amortize it over 30 with a balloon in 5. Do it at like 4% so it's no bargain for him but still a good deal. You can always extend it after the 5 years but better to have a short window in my opinion.
FoolStreet
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Re: Bankrupt Brother Needs Mortgage Help

Post by FoolStreet »

Only #3 makes sense to me. Treat it like a real loan. If he refinances, all the better, but anything less and it will seem hard for either of you to feel stable.
000
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Re: Bankrupt Brother Needs Mortgage Help

Post by 000 »

Renting will do fine. The next house can be purchased with cash. Anything else has a high chance of creating serious problems for you.
Frugalbear
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Re: Bankrupt Brother Needs Mortgage Help

Post by Frugalbear »

Watty wrote: Fri Sep 04, 2020 8:32 am
daytona wrote: Fri Sep 04, 2020 7:24 am I need strategy advice to help him.
Another cleaner option would be for you to buy the house and then lease it to him with the option to buy it at a set price when he is able to. Maybe a ten year lease, that would give him plenty of time improve his credit or save up enough to pay cash for the house.

You would want a lawyer to draw up the contract.
+1
deltaneutral83
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Re: Bankrupt Brother Needs Mortgage Help

Post by deltaneutral83 »

Bobby206 wrote: Fri Sep 04, 2020 9:36 am Assuming he is putting down his own $65k then just loan him $100k, amortize it over 30 with a balloon in 5. Do it at like 4% so it's no bargain for him but still a good deal. You can always extend it after the 5 years but better to have a short window in my opinion.
Loan of 4% over 30 years for someone with a recent BK is not only a bargain, it's a sweetheart deal.
FoolStreet
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Re: Bankrupt Brother Needs Mortgage Help

Post by FoolStreet »

Bobby206 wrote: Fri Sep 04, 2020 9:36 am Assuming he is putting down his own $65k then just loan him $100k, amortize it over 30 with a balloon in 5. Do it at like 4% so it's no bargain for him but still a good deal. You can always extend it after the 5 years but better to have a short window in my opinion.
Yes. This is a good idea. Put the loan on title of course.
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daytona
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Re: Bankrupt Brother Needs Mortgage Help

Post by daytona »

stan1 wrote: Fri Sep 04, 2020 9:32 am Has brother been told by several lenders he can't qualify for a mortgage on his own or is everyone just assuming he can't?
Not to my knowledge. He has a call today with a banker who is also a friend. So that should provide some clarity.
stan1 wrote: Fri Sep 04, 2020 9:32 am If brother never pays you back for some reason are you OK with that?
Yes exactly, that's what I was trying to communicate. And more than that, I feel the particulars of this deal, the risks are very low. But I could walk away from the money very easily. (I've factored that in.)

My idea is to take first position on the home. And as HE would be putting a 40% down payment on the home, I feel very secure.

Maybe what I'm also trying to determine, is given my sense of confidence in the particulars of the deal (though I understand don't analyze well in a forum on paper), I wonder if this is an opportunity for me to put some money in a secure asset.

That is, if I can get 4-5% on 100k, and being helping a family member, that feels like a really good use of my money (from a values perspective.)

But maybe you are saying, I am better off putting the money in XYZ if he is able to get a loan himself? I'm open to that too.
capasram
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Re: Bankrupt Brother Needs Mortgage Help

Post by capasram »

I understand you want to help your brother-in-law, family is more important than money. However, I think the best way to help is to provide free financial advice and to help him to establish a good credit. That will set him up for long-term success. Bankruptcy records stays on for 7 years, if he declared bankruptcy recently, do understand it takes time to rehab the credit score backup.

If you do decide to go ahead and finance his purchase, set it up properly as a private mortgage, record your first lien on the title (real estate lawyer usually can setup closing with private lender as well as bank). However private mortgage is hard to service, you have to act as servicer yourself, e.g. send in month statement and escrow the property tax and home insurance as well. You don't really want him to skip on paying tax bill, because property tax is more senior than first lien, house can be foreclosed for not paying property tax. Or to skip on home insurance in case the house got destroyed by fire. If he puts 65k down himself, and you are confident that the property is worth 165k (an RE appraiser can solve that problem with a fee). You are holding an over-collateralized (65%) first lien on hard asset, to me, it's not that risky.
Last edited by capasram on Fri Sep 04, 2020 9:53 am, edited 1 time in total.
Topic Author
daytona
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Re: Bankrupt Brother Needs Mortgage Help

Post by daytona »

Bobby206 wrote: Fri Sep 04, 2020 9:36 am Assuming he is putting down his own $65k then just loan him $100k, amortize it over 30 with a balloon in 5. Do it at like 4% so it's no bargain for him but still a good deal. You can always extend it after the 5 years but better to have a short window in my opinion.
I like this idea. We can always extend after 5 years.

Is 4% enough? If the guy had no bankruptcy, wasn't family, and a good job on a strong down payment, what would be a good return?

(I'm partially evaluating this as on its opportunity level.) Or does the forum think private mortgages are just not a great place to put money?
stan1
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Re: Bankrupt Brother Needs Mortgage Help

Post by stan1 »

daytona wrote: Fri Sep 04, 2020 9:56 am
Bobby206 wrote: Fri Sep 04, 2020 9:36 am Assuming he is putting down his own $65k then just loan him $100k, amortize it over 30 with a balloon in 5. Do it at like 4% so it's no bargain for him but still a good deal. You can always extend it after the 5 years but better to have a short window in my opinion.
I like this idea. We can always extend after 5 years.

Is 4% enough? If the guy had no bankruptcy, wasn't family, and a good job on a strong down payment, what would be a good return?

(I'm partially evaluating this as on its opportunity level.) Or does the forum think private mortgages are just not a great place to put money?
Market rate for a 30 year fixed FHA loan right now is 2.5%. That's what he would get from a lender if he had good credit. You might not be aware of current market rates.
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wander
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Re: Bankrupt Brother Needs Mortgage Help

Post by wander »

Watty wrote: Fri Sep 04, 2020 8:32 am
daytona wrote: Fri Sep 04, 2020 7:24 am I need strategy advice to help him.
Another cleaner option would be for you to buy the house and then lease it to him with the option to buy it at a set price when he is able to. Maybe a ten year lease, that would give him plenty of time improve his credit or save up enough to pay cash for the house.

You would want a lawyer to draw up the contract.
+1. I like this idea.
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whodidntante
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Re: Bankrupt Brother Needs Mortgage Help

Post by whodidntante »

Out of your suggestions, do #3. I would charge more than a conforming loan. 6% at an absolute minimum. More likely, 8%. He can refinance if he is able to do better, and a higher rate will give him incentive to do so. And file a lien and agree on what happens if he falls behind in advance. Also, do escrow. You don't want to find the house burned down and he "forgot" to mail the payment.

The problem with #1 is that if you agree that he will repay the loan in 36 months, what happens at month 37 and he can't or just won't refinance? Are you going to call the note and foreclose? That might make Thanksgiving dinner slightly awkward.

#2 is all of the risk with none of the rewards.

Propose a win win deal. If he doesn't want it, that should be fine with you.

You can find a company to service a mortgage for you and handle escrow. You'll have to pay something but you might find it is worth it.
Mike Scott
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Re: Bankrupt Brother Needs Mortgage Help

Post by Mike Scott »

Buy the house and then do the lease to own option. You decrease your risk and he owns the house later if he satisfies the terms.
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Sandtrap
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Re: Bankrupt Brother Needs Mortgage Help

Post by Sandtrap »

1 Brother bil rents home on own.
2 Buy home then rent to brother.
3 Gift down payment.

j :D
Last edited by Sandtrap on Fri Sep 04, 2020 11:15 am, edited 2 times in total.
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Normchad
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Re: Bankrupt Brother Needs Mortgage Help

Post by Normchad »

Mike Scott wrote: Fri Sep 04, 2020 10:53 am Buy the house and then do the lease to own option. You decrease your risk and he owns the house later if he satisfies the terms.
+1 on this.

You are a good person for trying to help out your. BIL. I applaud you for that.

These sort of money entanglements are an awesome way to destroy relationships. But it sounds like you are comfortable with the risk, so knowing that up front should help. .
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Re: Bankrupt Brother Needs Mortgage Help

Post by The 19th hole »

Bobby206 wrote: Fri Sep 04, 2020 9:36 am Assuming he is putting down his own $65k then just loan him $100k, amortize it over 30 with a balloon in 5. Do it at like 4% so it's no bargain for him but still a good deal. You can always extend it after the 5 years but better to have a short window in my opinion.
+1 You act as the bank for the $100k.
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Re: Bankrupt Brother Needs Mortgage Help

Post by Bobby206 »

daytona wrote: Fri Sep 04, 2020 9:56 am
Bobby206 wrote: Fri Sep 04, 2020 9:36 am Assuming he is putting down his own $65k then just loan him $100k, amortize it over 30 with a balloon in 5. Do it at like 4% so it's no bargain for him but still a good deal. You can always extend it after the 5 years but better to have a short window in my opinion.
I like this idea. We can always extend after 5 years.

Is 4% enough? If the guy had no bankruptcy, wasn't family, and a good job on a strong down payment, what would be a good return?

(I'm partially evaluating this as on its opportunity level.) Or does the forum think private mortgages are just not a great place to put money?
I just said 4% off the cuff. As someone above said that might be a sweetheart deal with their credit. So make it 5%. The key, to me, is you don't need to charge points like hard money lenders do and it's a win-win.

Also, as someone above said, definitely secure your interest. Do the whole thing through a title company or lawyers office as is customary in your area.
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Re: Bankrupt Brother Needs Mortgage Help

Post by Jags4186 »

deltaneutral83 wrote: Fri Sep 04, 2020 9:11 am In the OP's multiple scenarios, there are hundreds of ways this can go wrong. There is only one where it can go right, by the BIL servicing the debt in the way it is outlined based on the scenario chosen. Speaking of character, is the BIL going to go behind the BK and make his creditors whole when he has the opportunity, regardless of BK court obligations?
Paying back discharged bankruptcy debt does not make one have or lack character.
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daytona
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Re: Bankrupt Brother Needs Mortgage Help

Post by daytona »

Jags4186 wrote: Fri Sep 04, 2020 11:36 am
deltaneutral83 wrote: Fri Sep 04, 2020 9:11 am In the OP's multiple scenarios, there are hundreds of ways this can go wrong. There is only one where it can go right, by the BIL servicing the debt in the way it is outlined based on the scenario chosen. Speaking of character, is the BIL going to go behind the BK and make his creditors whole when he has the opportunity, regardless of BK court obligations?
Paying back discharged bankruptcy debt does not make one have or lack character.
Agreed. Like it or not, bankruptcy is part of the playing field.
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Re: Bankrupt Brother Needs Mortgage Help

Post by deltaneutral83 »

daytona wrote: Fri Sep 04, 2020 12:19 pm
Jags4186 wrote: Fri Sep 04, 2020 11:36 am
deltaneutral83 wrote: Fri Sep 04, 2020 9:11 am In the OP's multiple scenarios, there are hundreds of ways this can go wrong. There is only one where it can go right, by the BIL servicing the debt in the way it is outlined based on the scenario chosen. Speaking of character, is the BIL going to go behind the BK and make his creditors whole when he has the opportunity, regardless of BK court obligations?
Paying back discharged bankruptcy debt does not make one have or lack character.
That's certainly your opinion
Agreed. Like it or not, bankruptcy is part of the playing field.
I agree it's common, I just don't distinguish debts between a company and a private loan. Seen many relationships go down the tubes due to co-signing, straight up personal loan, etc etc. When the lender got the shaft, the response of "that's part of the playing field" didn't negate the feelings the lender had to the borrower. I don't see shafting Chase/BoA/WF vs your brother/friend/In law as any different. Debt is debt to me. I can't say that defaulting on institutional debt is no judge of character but that defaulting on your father in law makes you a sleezeball. Just my $0.02.
finite_difference
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Re: Bankrupt Brother Needs Mortgage Help

Post by finite_difference »

Brianmcg321 wrote: Fri Sep 04, 2020 8:52 am Do not co-sign anything, ever for anyone.

He can rent a house.
Would you rent a house to someone who just declared bankruptcy and has terrible credit?

Renting a (nice) place may be harder than everyone here seems to think.
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CAsage
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Re: Bankrupt Brother Needs Mortgage Help

Post by CAsage »

Yet another random person on the Internet likes Option 3 - since he's putting down a huge down, and you are both willing to write it off or foreclose, it's much cleaner than renting it to him (which may leave you with a house don't want and undermines your brother getting on his feet. Never cosign a loan, that's all the bad and no good. I would certainly charge him 4% or even 5%, simple interest, no points. My Depression Era Dad who was a champion skinflint would not buy my parents main home unless he could get a 6% mortgage and he wrote that in the purchase offer. Mortgage rates today are incredibly low (and pushing up house prices, since people can now afford more), and so is any return you can get on safe money. Whatever you and your brother agree on is perfectly fine, and I like the idea of a balloon - maybe 10 years though. P.S. His old business debt is water under the bridge; a side effect of investing "other people's money" and frankly I'd never hold that against him. Or repay discharged debt.
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daytona
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Re: Bankrupt Brother Needs Mortgage Help

Post by daytona »

deltaneutral83 wrote: Fri Sep 04, 2020 1:56 pm When the lender got the shaft, the response of "that's part of the playing field" didn't negate the feelings the lender had to the borrower. I don't see shafting Chase/BoA/WF vs your brother/friend/In law as any different. Debt is debt to me. Just my $0.02.
We were talking about "character" (ethics), now you're talking about feelings. That's different.

If someone's feelings are hurt, understood. But feelings aren't a good judge of ethics. Wells Fargo knows up front the risks involved. They know bankruptcy is part of the landscape. So too should the one at risk in a personal loan. If they don't, that's on them.

Always hire a good lawyer.
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daytona
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Re: Bankrupt Brother Needs Mortgage Help

Post by daytona »

CAsage wrote: Fri Sep 04, 2020 2:14 pm Yet another random person on the Internet likes Option 3 - since he's putting down a huge down, and you are both willing to write it off or foreclose, it's much cleaner than renting it to him (which may leave you with a house don't want and undermines your brother getting on his feet. Never cosign a loan, that's all the bad and no good. I would certainly charge him 4% or even 5%, simple interest, no points. My Depression Era Dad who was a champion skinflint would not buy my parents main home unless he could get a 6% mortgage and he wrote that in the purchase offer. Mortgage rates today are incredibly low (and pushing up house prices, since people can now afford more), and so is any return you can get on safe money. Whatever you and your brother agree on is perfectly fine, and I like the idea of a balloon - maybe 10 years though. P.S. His old business debt is water under the bridge; a side effect of investing "other people's money" and frankly I'd never hold that against him. Or repay discharged debt.
Yeah, thanks. All good advice. I like the ballon, and they 4-5%. We'll see if he needs the help. If not, it was a fun exercise. (And I learned, never co-sign!)
deltaneutral83
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Re: Bankrupt Brother Needs Mortgage Help

Post by deltaneutral83 »

daytona wrote: Fri Sep 04, 2020 2:17 pm
deltaneutral83 wrote: Fri Sep 04, 2020 1:56 pm When the lender got the shaft, the response of "that's part of the playing field" didn't negate the feelings the lender had to the borrower. I don't see shafting Chase/BoA/WF vs your brother/friend/In law as any different. Debt is debt to me. Just my $0.02.
We were talking about "character" (ethics), now you're talking about feelings. That's different.

If someone's feelings are hurt, understood. But feelings aren't a good judge of ethics. Wells Fargo knows up front the risks involved. They know bankruptcy is part of the landscape. So too should the one at risk in a personal loan. If they don't, that's on them.

Always hire a good lawyer.
Not so different according to many I know who have been in the exact position you're about to undertake. One thing I will say about these types of matters, I like to hear the opinions of people who have been in this area of the pool for 30 years worth of experience. The phrase "always hire a good lawyer" with the ace up your sleeve of foreclosing on your brother in law has the potential to make Thanksgivings down the road rather awkward in my opinion.
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daytona
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Re: Bankrupt Brother Needs Mortgage Help

Post by daytona »

deltaneutral83 wrote: Fri Sep 04, 2020 2:48 pm Not so different according to many I know who have been in the exact position you're about to undertake. One thing I will say about these types of matters, I like to hear the opinions of people who have been in this area of the pool for 30 years worth of experience. The phrase "always hire a good lawyer" with the ace up your sleeve of foreclosing on your brother in law has the potential to make Thanksgivings down the road rather awkward in my opinion.
I think what you're saying is: Have hard conversations. Ensure that both parties go in eyes-wide-opened.

And I agree with that. I would even go further to really cautioning, as I think you are intending, that both parties fully understand that "in many situations" this could leave family relationships fractured. ... and that's a big deal. I get it. I'm not naive to that.

All I was saying is bankruptcy (and foreclosure for that matter) is ethical and not a judgment on someone's character.
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Re: Bankrupt Brother Needs Mortgage Help

Post by willthrill81 »

daytona wrote: Fri Sep 04, 2020 9:56 am
Bobby206 wrote: Fri Sep 04, 2020 9:36 am Assuming he is putting down his own $65k then just loan him $100k, amortize it over 30 with a balloon in 5. Do it at like 4% so it's no bargain for him but still a good deal. You can always extend it after the 5 years but better to have a short window in my opinion.
I like this idea. We can always extend after 5 years.

Is 4% enough? If the guy had no bankruptcy, wasn't family, and a good job on a strong down payment, what would be a good return?

(I'm partially evaluating this as on its opportunity level.) Or does the forum think private mortgages are just not a great place to put money?
To be frank, I highly doubt that you would do anything remotely like this for someone who wasn't family.

I wouldn't touch this with a 39 and a half foot pole. Not only has he demonstrated that he's not adept at handling money, but mixing family and money can lead to disputes of epic proportions.

I know that you want to help him, but I wouldn't do so at all unless you only give, not loan, him a set amount of money up front and not a penny more. Any type of loan or even renting to him could be disastrous. Evicting a family member isn't going to go over well with the rest of your family.
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Sandtrap
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Re: Bankrupt Brother Needs Mortgage Help

Post by Sandtrap »

willthrill81 wrote: Fri Sep 04, 2020 3:13 pm
daytona wrote: Fri Sep 04, 2020 9:56 am
Bobby206 wrote: Fri Sep 04, 2020 9:36 am Assuming he is putting down his own $65k then just loan him $100k, amortize it over 30 with a balloon in 5. Do it at like 4% so it's no bargain for him but still a good deal. You can always extend it after the 5 years but better to have a short window in my opinion.
I like this idea. We can always extend after 5 years.

Is 4% enough? If the guy had no bankruptcy, wasn't family, and a good job on a strong down payment, what would be a good return?

(I'm partially evaluating this as on its opportunity level.) Or does the forum think private mortgages are just not a great place to put money?
To be frank, I highly doubt that you would do anything remotely like this for someone who wasn't family.

I wouldn't touch this with a 39 and a half foot pole. Not only has he demonstrated that he's not adept at handling money, but mixing family and money can lead to disputes of epic proportions.

I know that you want to help him, but I wouldn't do so at all unless you only give, not loan, him a set amount of money up front and not a penny more. Any type of loan or even renting to him could be disastrous. Evicting a family member isn't going to go over well with the rest of your family.
+1
Renting to a relative or family member can sometimes turn into a lifetime housing subsidy that never ends.
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Carefreeap
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Re: Bankrupt Brother Needs Mortgage Help

Post by Carefreeap »

finite_difference wrote: Fri Sep 04, 2020 2:07 pm
Brianmcg321 wrote: Fri Sep 04, 2020 8:52 am Do not co-sign anything, ever for anyone.

He can rent a house.
Would you rent a house to someone who just declared bankruptcy and has terrible credit?

Renting a (nice) place may be harder than everyone here seems to think.
I rented my mother's condo in a very nice part of San Diego to a couple whereby the wife had done a voluntary foreclosure thus preventing her from buying for three years. They were some of the best tenants I had.

The folks I rented my personal residence to filed BK and had no problem finding another very nice rental.

The key (to me) is that they are up front with the problem, acknowledge responsibility, and have no other debt or other issues and have the income to make the payments.

Many tenants have SOME financial dings. If it's a one time event, it's understandable. If it's chronic it's another story.
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zie
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Re: Bankrupt Brother Needs Mortgage Help

Post by zie »

I've done something like this.

In 2006, I sold my house to a family member.

In 2014 they started falling behind, as of 2020, they are now a full 2 years behind in payments. They still makes payments on occasion, or smaller than required payments. The last 2 payments were made in full and mostly on time. Will the trend continue? I have no idea.

Luckily my personal financial position is one where I don't require/need that income to live or survive, so I'm doing OK, but it really sucks to do that math every once in a while and see the debt keep creeping up. Will I ever get my money back? No clue. I don't count it in my net worth, and don't consider any of that money in any planning I do.

I could foreclose, but then where would they be? Making anyone homeless is hard, making family homeless is very hard.

So for everyone saying this is almost certainly a bad idea, I can only agree. In 2006 I probably wouldn't have listened to this advice.

If you do this, make sure you at least cover your risk *some* by getting the loan recorded with the county.
TravelGeek
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Re: Bankrupt Brother Needs Mortgage Help

Post by TravelGeek »

Couple of thoughts:

- where is the brother (in law?) living now? I am always fascinated by the desire of people to own a home they can’t afford or qualify for. There is nothing wrong with renting. During the 2008 crisis I saw three relatives lose their homes, and it didn’t surprise me because IMHO none of them had any business “owning” a home.

- we helped a niece by selling her one of our cars for a way-below-market value. Our concern was that the alternative was going to be a $200 junker with zero safety and reliability. And since she was just starting out in her career, we structured it as a five year no interest loan. I think we got payments for roughly two years until the excuses started. Checks were “in the mail” but got “lost”. A broken windshield meant she didn’t have the money to pay us. Roommate disappeared with checkbook. ... (all the while we saw FB updates from restaurants, clubs, concerts and tattoo parlors....). Eventually we gave up and considered the remaining balance lost as it was just too frustrating. The lost money (maybe $3k) didn’t matter, but the lost trust and damaged relationship continues to hurt.
Kelrex
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Re: Bankrupt Brother Needs Mortgage Help

Post by Kelrex »

I've done this kind of thing and would NEVER EVER do it again.

I would rather give someone I love 100K than ever, ever, EVER again get tied up in their housing again.

Just a personal perspective.
jwfails
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Re: Bankrupt Brother Needs Mortgage Help

Post by jwfails »

Heres what I did, I am not saying this is the best or smartest or most tax efficient way.

My brother went thru a divorce/bankruptcy/foreclosure. He got the kids and needed a house. He picked out a house, I bought the house in my name,set up the mortgage payments on auto pay out of my account so I knew the payments were made on time. He paid me rent each month while simultaneously rebuilding his credit. It took him 5 years before he could buy the house from me. He was responsible for all closing cost and tax implications on my end. I have an accountant who tracked all the tax issues and cost for me. I had to list the house on my taxes as an investment. I did this to help him not make money. When He bought the house from me I let him keep all the equity minus my cost for closing twice and taxes I paid on investment property during the five year period. He has financially recovered and has never looked back. Hope this helps.
spectec
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Re: Bankrupt Brother Needs Mortgage Help

Post by spectec »

This has been hashed out pretty well, and I agree with the advice to never co-sign. I had one experience with a family member who we wanted to help in purchasing a home. We bought the home ourselves, but our agreement was that they would make the payments. Our requirement was that we open a joint checking account with the family member which we could access online. They then set up an automatic deposit from their paycheck into the account which was sufficient to cover the payment, which was also on auto-draft from the common account. I backed up the joint checking account with overdraft protection with a money market account, which contained roughly 6 months of payments.

Everything went smoothly, and a couple of years down the line their credit had been reestablished. At that time they obtained a mortgage in their name and bought the house from us for the same price we originally paid for it. The arrangement involved a few extra costs in attorney fees and an extra appraisal, but it was worth it.

During the loan period, I would have been notified if a transfer from my money market account occurred, and I could check the status of the joint checking account online at any time. So there was no chance of our credit being adversely affected by a missed payment. Plus, we had roughly a 6-month window to discover any missed payment(s).
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JackoC
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Re: Bankrupt Brother Needs Mortgage Help

Post by JackoC »

finite_difference wrote: Fri Sep 04, 2020 2:07 pm
Brianmcg321 wrote: Fri Sep 04, 2020 8:52 am Do not co-sign anything, ever for anyone.

He can rent a house.
Would you rent a house to someone who just declared bankruptcy and has terrible credit?
Renting a (nice) place may be harder than everyone here seems to think.
He's presumably renting someplace now. But for a new place your point could have merit. Although, if the person has $65k for a house down payment they could easily put down 12 months rent in advance on a $165k property and assuage at least some landlords' concerns. Also I assume many tenants renting $165k houses don't have good credit, granted didn't recently go bankrupt necessarily, just those landlords may not be used to getting top credit either.

On the general theme many suggested OP buy the place but that's not really a solution to the question 'what do you do if the family member can't/won't pay?'. Is it really easier to evict a family member for non-payment of rent than to foreclose on a mortgage you extended to them? Also the $65k of *BIL* money in the BIL buys/OP lends option secures OP to some degree, the $65k remains in BIL's pocket in OP buys/BIL rents case. And, a landlord has various obligations (just in terms of time and attention) a mortgage lender doesn't.

Seems OP is approaching this realistically as to the thorny issue of non-payment by a relative. Once you do that, I think BIL puts down $65k and OP lends $100k (formally documented and registered as per local standard) is the simplest option, not really a less secured position practically than OP buys/BIL rents, and doesn't bring in third parties like cosigning, which I agree w/ the consensus is a bad idea. I don't see a substantial difference between 1 and 3: a long term mortgage is going to have prepayment option if standard, BIL will refinance if credit improves. And a penalty rate is appropriate to encourage that. I'd note though that non-conforming (eg. jumbo) 30yr mortgage rates for good credit are more like 3.5% than 2.5%, so maybe 5% is more like a semi-token penalty rate (obviously an institution would charge way more if at all willing to do it). 'Just rent somebody else's property' might work, though like you say some landlords might balk, but in any case it's rejecting OP's premise of wanting to extend help.
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