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I Inherited A House… Or Did I?

771e3f211d9545a99f9170dbe7dc0581In my Dad’s will he left me the house in Las Vegas that my grandma is currently living in.  But unfortunately it’s not the windfall it might seem like.

My Dad had taken out a second mortgage on it in 2005 or 2006 during the real estate bubble.  So now there is more owed than it’s worth.  I figured this was the case even before I knew details.  My Dad didn’t shy away from borrowing!

At this point we haven’t done a thing with the house.  It’s still part of the estate, we haven’t even started a Nevada probate at this point.  My step-mom has been making the payment.  A few weeks ago my step-mom called me and said that my grandma is going to move out and she (my step-mom) is going to stop making the payment at that point, which is fine with me.

So I called a Realtor in Las Vegas to see what my options were.

Option 1: Rent it

This would be the option I would most hope for.  The tenants can pay off the mortgage for me and when I retire I can have rental income or sell it for cash.  The real estate agent said that it would rent for about $1,100 per month.  The mortgage is $1,300 per month.  I’m not willing to take the house if it’s cash flow negative.

So keeping it as a rental is out.

Option 2: Sell it

With renting out of the question my next choice is to sell it.  I didn’t figure this was an option since a year ago, when my Dad passed away, the house was underwater.  But it’s been a year so I asked the real estate agent to run some numbers for me.

We estimate there is approximately $160,000 owed on the house.  I can’t find out actual numbers since the bank won’t talk to me until I get a court document proving that I am a trustee of the estate.  I could do that but it costs money, of course.  Estimated numbers are fine for our purposes.  The agent thinks we could sell the house for approximately $175,000.

So on the surface there is about $15,000 to be made here.  But not so fast.  It’s not free to sell a house you know!  My Realtor estimated about $14,278 in fees.  Which leaves me a big ole’ profit of $772.00!  Wohoo.

Of course to take true ownership of the house, which I would have to do to sell it, I would have to refinance the mortgages into my own name.  Plus all the lawyer and court fees I would have to pay to actually have everything transferred over.

So selling the house is out.

Option 3: Walking away

If my grandma doesn’t want to continue to live in the house, and my step-mom doesn’t want to continue to pay the mortgage our only option is to let the house foreclose.

The only reason we haven’t done this already is because of my grandma.  She needs a place to live.  My Dad and her had an agreement that he would provide her a place to live.  Whether this responsibility transfers over to my step-mom upon my Dad’s passing is a whole other story.  But my step-mom has taken this on, for now at least.

Rent in that area is about $1,100.  If my grandma moved into a rental that would save my step-mom $200 a month.  I think she hasn’t asked my grandma to move out in hopes that someday I will be able to get something out of that house if we can hold on to it until the market improves.

You’d think inheriting a house would be a good thing financially.  Hey, a free house!  Unfortunately, it’s not that simple.  I basically have to buy the house for the amount owed.  And in this case, it’s just not worth it.

Side note: I suppose I could let it get foreclosed and then buy it when the bank puts it on the market.  I would avoid lawyer, court, and Realtor fees.  If the house had sentimental value maybe that would be an option, but it doesn’t.  I would take it if it were a fantastic deal, but it’s not.

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12 comments… add one

  • Travis @debtchronicles April 21, 2014, 5:35 am

    I think renting it would still be worth it. Paying $200 a month for a mortgage on a home that will (hopefully) increase in value…not to mention by the end of the mortgage you would have paid way less than what the house is worth (again, because most of the mortgage would have been paid for by renters) seems like a good ROI. Is there any possibility of attempting to rent it for what your mortgage is each month?

    • Ashley April 21, 2014, 10:41 am

      I see what you are saying but I would be basically buying the house for $160,000 plus all the costs of getting it transferred to my name. Which this house isn’t worth that.

      I can buy any house for above market value. If I was going to buy a rental house this is not the house I would buy. I could use that money to find a house that is cash flow positive that is closer to me. I would keep it if it were a good deal… but this just isn’t. Sadly.

  • Kurt @ Money Counselor April 21, 2014, 8:00 am

    Whose credit will take the hit if there’s a foreclosure?

    • Ashley April 21, 2014, 10:28 am

      That’s a great question… It would be my Dad’s credit. He is the only signer on the mortgage so no one else is responsible for the payments. I assume they could come after the estate for any money owed but there isn’t anything there for them to grab.

  • Sher@FatGuySkinnyWallet April 21, 2014, 10:58 am

    What a tough spot! I have to admit, I tend to be very conservative when it comes to the stress I am willing to take on in my life, so I probably would let the house go. It seems like there is no way you could involve yourself with the property without added expense and added complications to your life.

    • Ashley April 21, 2014, 11:03 am

      I’m also conservative when it comes to stress in my life. I like that phrase. I’m going to use that more often. As much as it sucks… I also think letting it go is the best thing.

  • DC @ Young Adult Money April 21, 2014, 9:24 pm

    I’d walk away if you are 100% sure that your credit won’t take the hit. Otherwise I’d probably just rent it.

    • Ashley April 25, 2014, 12:03 pm

      Yeah, those seem to be the options. I just talked to my lawyer yesterday about walking away and he said that if we sell it inside the estate I can take a fee for myself. It’s set by law how much I can take but I think it’s my best option.

  • Jason@LiveRealNow April 22, 2014, 1:33 pm

    We got lucky when we inherited my mother-in-law’s house. It was paid off and she left enough life insurance money to fix it up. She was a hoarder, so there was 9 months of hell cleaning it up, but now we’ve got an almost completely passive income stream. I wish my wife would have talked to me before setting the rent amount with the tenants, but that’s not a big deal. The next tenants can pay more.

    • Ashley April 25, 2014, 12:01 pm

      I wish the house was paid off…. oh how I wish that.

  • Jackie April 22, 2014, 9:43 pm

    I’m betting you don’t have to take ownership of the house to sell it, since you are the executor of the estate. As the person it’s willed to you, would only actually get the house after the debts owed to the estate are paid, so you could most likely argue that as executor you’re required to sell it to pay the mortgage.

    • Ashley April 25, 2014, 12:01 pm

      No you are right Jackie. I just talked to my lawyer yesterday about all this and he said that we can sell it as trustees and even take a fee equal to the lawyer fee (which is set by law as a % of the estate) right off the top of the sale price before the mortgage is paid. Which, to use my lawyers words, is better than a stick in the eye. :)

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