Co-Signing Won't Help Them
Wendy's daughter and son-in-law had a condo in another state, and since it didn't sell, they're going into a short sale. Wendy wants to help them finance another home. Dave has an answer Wendy wasn't expecting.
QUESTION: Wendy in Dallas has a daughter and son-in-law who recently moved to Texas. They had a condo in another state, and since it didn’t sell, they’re going into a short sale. The homeowners association won’t allow them to rent it. They’re considering finding another small home for them, and Wendy would help them finance it. Dave has an answer Wendy wasn’t expecting.
ANSWER: This answer is going to sound a little weird to you, but it is still what I would do if I were in your shoes. If you want to help them, I wouldn’t do it unless you just give them the house. That sounds weird. But if you’re not willing to write a check, don’t get involved because here’s the problem. When you loan someone money, it changes your relationship with them. Thanksgiving dinner tastes different when you eat with your master. The borrower is slave to the lender, and you don’t want to change your relationship to them—and they’ve just been through hard times and bad times. The last thing they need is a payment that if it gets screwed up, Mom’s on them.
I would rather them rent and get their act together for a year and actually show that they know how to handle money now, and let’s get through this short sale and see what happens there. I don’t want them getting sued after the short sale or a foreclosure or something like that and you giving them a house that they could lose then. Let’s get the short sale completely behind them. Let them rent. Let’s get them on a budget. Let them save money. They can make it on that. They don’t have to buy right now. It could be a good opportunity, but it’s really not good timing in their lives. If they buy and put something in their names, it could end up with a problem with this short sale looming over them. I’m going to get the short sale behind me, and I’m going to prove that I can get my act together with money, which they didn’t because they have no money.
They made a decision that put them in a pinch or had to or whatever. We’re still there. I really want them to have a year of healing financially and get this short sale off, and then if I’m in your shoes, what I’m probably going to do is write them a check. You need to see your tax advisor to do that properly and do it under the unified estate tax credit because otherwise you’re going to have gift tax if you give them more than $13,000—give an individual more than $13,000, which you obviously will be doing. But you can give this and have it count toward your estate and for that matter, you can count it—if you have other children—against their portion of the estate. That would be fair to the other children. That sound a little weird, but I wouldn’t get a mortgage deal with them, I wouldn’t sign with them, I wouldn’t co-sign with them, and I wouldn’t loan them money that they had to pay back. You’re going to get them into a mess and a relationship mess with you. I would avoid that. Just make it real clean, and if you’re not willing to write $125,000 check out of your $1 million, then don’t do the deal at all.