Shared home and bankruptcy
My wife and I share a home with her parents. All four of us purchased the house 10 years ago. All of our names are listed on the deed to the house and on the mortgage.
The house has recently been valued at $275,000 with $121,000 still owing on the mortgage. Due to lack of work, age, and $40,000 in debt her parents are now considering bankruptcy. My question is what will happen with regards to the house?
Will we have to sell it?
Please help!
Based on the very limited information that you have provided, I am not certain that your in-laws have the right to file bankruptcy.
In order to be eligible to file bankruptcy you have to be insolvent. One of the definitions is that if your assets were sold you would not be able to pay off your debts.
If your in-laws own 1/2 of your home and that home has $130,000 in equity after closing costs then they own an asset worth $65,000. If they only owe $40,000 then they are not eligible to file bankruptcy.
Unfortunately, in order to “get at” that money the house has to be sold to someone. If you can’t afford to “buy” your parent’s interest from them then you may not have any choice except to sell it to someone else.
Think this through carefully: go and see your banker (or mortgage company) and ask if you and your spouse will qualify for a $190,000 mortgage – enought to pay off your existing mortgage and give your in-laws $65,000 to buy them out. If your income isn’t high enough by yourselves then have your in-laws sign a rental agreement (and/or co-sign the mortgage). Use their rental payment to you to pay a portion of the mortgage.
In this model your in-laws receive the money they need to pay off their debts, you get 100% ownership of the house and no one has to move.
It may not be the right answer, but at least it may open your eyes to the possibilities. Regardless, go see your banker/mortgage company before you decide what to do next.