Okay, my little brother's gotten himself into quite a mess- HELP!?

Question

My brother bought a house with his now ex wife. They divorced and at the same time his adjustable rate mortgage increased his payments. He tried selling his house, but he'd taken out a personal loan for some home improvements. Because the sale wouldn't cover the loan, they wouldn't let him sell.
My brother has since moved 3 hours away and has basically been letting his house be in default.
Do you think this is a feasible solution - my brother makes an arrangement with the lenders to take care of the arrears, either by entending the term of his loan or paying more money on his mortgage every month. We find someone to rent his house. If there's any deficiency between his mortgage payment and the rent, I'll pay that so his mortgage is paid on time every month.
I don't want his credit to be ruined. Do you see any down falls? I can afford his mortgage payment with no tennant on top of my own, so that's not an issue if the place didn't rent out very quickly.

I coudl care less about making money on the deal, I just want to save his credit.

His ex wife was never on the loan and only lived in the house for a short period of time, less than a year I believe. In the divorce decree she forfeited any right to the house, simply because there was no equity.

Answer 1

How long did he live in the home? If it was over a year, you should be able to rent it out with little legal dificulties as most "Owner Occupied" provisions will have been met.

The moment that the house is caught up in mortgage payments, refinance that bad boy into a 30-50 yr fixed.

You can cover your own home payment and his? Sweet. What job do you have, and how do I get it (or a similar one). =)

This may save his credit, but how much money are you going to have to sink into his home? Would it just be easier to pay off his personal loan to the bank and make him pay it back to over over the years and sell the home now?

Ex-wife asside, he really set himself up for problems by enrolling in the ARM. Make sure he understands how far back he started making his mistakes.

On a personal note, you're being a hell of a sister. I've got three sisters myself, and while we've all helped each other out, it's never been for something as massive as a continuous mortgage payment.

Answer 2

Not a bad idea; your brother is fortunate that you could afford to do this. How about this: In addition to renting out the house AND your brother taking care of the arrears,write a contract with your brother that has him borrowing the total amount he needs to " uncloud" his house title ( pay-off the personal loan) then sell the house. You could allow him to defer repaying you until the 61 days after the sale closes or the next month after it is rented.
I suggest that you seek an active duty military family as the renter with an escape clause for the renter when the sale closes (60 days to move)or PCS orders takes the family more than 100 miles away. This would work best if a military base is within reasonable ( about an hour) commuting distance from the house. Include the active duty member's commanding officer contact information in the rental agreement ( this ensures prompt rent money); rent should be the amount of the mortgage payment rounded up to the next $5 increment. This would limit both of your financial liabilities until the house is SOLD!

Answer 3

Since he has negative equity in his home it will be very hard for him to get any help. He should have spoke to his lender more because they don't like to foreclose. It cost them more money that way, when they can work something out with the homeowner. There is loss mitagation or short sale if the lender allows. Did he buy his wife's half and not refinance it in his name after the divorce? How far behind is he and can you pay the arrears right now? He could do a lease option with you, that way for now you could help him with his payments, he could live in the house again and at the end of a one or two year contract, you can decide if he can handle the payments again and you can say you are not interested in buying the house or you can buy the house.

Answer 4

If I am reading the question correctly, it seems that you would be agreeing to cosigning a loan to refinance the home.

First, assuming the lender is okay with it and that your credit is good, you have to consider that you are as much, assuming the debt as your brother is. If he defaults, YOU owe the money.

Next, most residential loans will not allow the owner to rent out the property to someone else. Again, if the lender agrees, then the contract will have to be written in a way that allows this. It may call for additional insurance coverage, which will add to the monthly costs.

If you walk into this with both eyes wide open, and protect yourselves, then there should be no problems. Keep in mind that the lender has a big say in whether or not this is possible.

Answer 5

The ONE thing I haven't seen anyone of these answer's address is also the most important in relation to your concern with this question... your brother's credit.

It is already ruined if he just went into default and left the property there in the arrears. Even if you have been making the payments every since default, to keep it out of foreclosure, he is still paying each new payment LATE. With each new "rolling late" he is damaging his credit. The loan needs to be brought completely current in order to keep from further damaging his credit. At which point I do know of a couple lender's that will actually lend up to 125% of your homes value... There may be a solution there for him, if his credit isn't too far gone by now.

Answer 6

Seems to me that you should think twice about what you are doing! I have a little brother too! but, how will they learn if they don't have to face the consequences? You didn't create this problem and frankly if you are going to cure it then get the bank to sell it to you on short sale! Let him worry about resolving the tax issues with the IRS and you get the benefits of the property. You still have a save-he has to fix something that can be tricky but, it is doable. You can afford it and it will end up adding to your portfolio and your assets. Make the bank listen to your plan and get the title changed. Guide him into a better smarter way of thinking that you value your credit above all else so that you have options in a pinch! Good luck with it.

Answer 7

Your suggestion of renting the house (or leasing it on a longer term basis) makes a good deal of sense. Letting it go by default means your brother won't get anything back on his investment. How does his ex-wife fit into the equation? Does she benefit if the house is sold? If so, she might be interested in doing something about maintaining her equity in it (if she has one).
Check with a real estate lawyer to find out what would be the best thing for your brother to do, because there are many pitfalls in real estate deals. But your suggestion does sound like a good one -- and your brother is one heckuva lucky guy to have a backup like you!

Answer 8

Nice and generous of you but if he is already in default, his credit has already been ruined and will remain or showing a default for seven years even if you catch the mortgage up. Should of discussed this before the situation got to this point. Maybe sold the home and co-signed a note for the home improvement loan.

Answer 9

You have two big problems with this "solution".

One, arrears need to be paid in full, they are not separate loans that you get to make payments on.

Two, his loan more then likely is for "owner occupied", renting it out is actually fraud. he has to refinance to an investment loan in order to legally rent the house out.

Answer 10

Either buy the house outright or let him suffer the consequences and learn a valuable lesson!