Selling my home/buying MIL's w/renovation

MercymygftJune 20, 2011

Ok, here is our dilemma. My MIL has now moved into an assisted living facility. She has some funds for now but we need to sell her home in order that she has continued funds to live. We have contacted a realtor and have somewhat started the process. Right now my husband has been working down there fixing the things the realtor has suggested to get it ready for sale. However, as my husband has been working there, he is starting to think that maybe we should buy her house and sell our home.

Her home is a single family home with a detatched garage. We live in a townhouse. The houses are within a mile of each other, so basically the same neighborhood. We have seen quite a few houses in her neighborhood that have had additions put on (most of the houses are quite small), so we are thinking that maybe we should purchase her house (we can get it for a pretty good price) and put an addition on. If we could, we would like to bump out the back and put a family room w/a new kitchen.

I can�t seem to get my head wrapped around how to do all this, or if we can even afford it. My MIL�s house is paid for. We owe about $191,000 on our house and ours would probably only sell for $235-240,000 tops.

Anyone know how all this would work?

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Does your husband have siblings?

    Bookmark   June 20, 2011 at 11:01PM
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You sell your house, and make an offer to buy your MIL's house, taking out a new mortgage to do so.

    Bookmark   June 20, 2011 at 11:22PM
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Well, you could look into an FHA loan where you could get away with having a downpayment as little as 3.5%. I'm thinking that after the sale of your home, even with closing costs, you'll walk away with some money.

Or, I wonder since this is your MIL if you could work out other financing options - like "rent to own." Or just flat out rent from her until you build up some more savings for a larger downpayment (or for renovations).

I don't see how you could come up with the money for renovations right away unless perhaps if you MIL was to loan you the money from the sale of her home.

    Bookmark   June 21, 2011 at 8:50AM
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Or, I wonder since this is your MIL if you could work out other financing options - like "rent to own." Or just flat out rent from her until you build up some more savings for a larger downpayment (or for renovations).

Or you could purchase it on a land contract from your MIL. It depends on if she needs all the money out of the house now, or just a monthly amount.

    Bookmark   June 21, 2011 at 11:52AM
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"Anyone know how all this would work? "

Poorly is my guess. Any transaction is going to have to be "at arms length". Since your MIL doesn't have other cash to pay for her expenses, it is a sure bet that assisted living is going to eat through this money pretty quickly and then she'll need public assistance. You need to be able to prove that this transaction was for market value and not a way to shelter money. That basically means that you can't get "a deal"

If you want to move - move. There are tons of houses that really are great deals right now. There is no way I would recommend buying a relatives house with the intention of doing major renovations. I also wouldn't rent or rent to own from a relative - especially if you are taking responsibility for that relatives finances. There are just too many potential downfalls there. eg you lose your job (or are injured), you can't pay the rent, and your MIL gets tossed out of the assisted living center.

    Bookmark   June 21, 2011 at 2:50PM
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If you were to get "a deal" from MIL, that would basically be taking money out of her pocket that she may need to live on. I other words, your "deal" is her "too low" sale price. As Billl pointed out, that might even be undone by the courts if she were to run out of money and need public assistance. It could also open you up to allegations from other siblings or even unrelated 'do-gooders' who feel you are taking unfair advantage.

If you were to offer her a fair market price, your "deal" disappears. Yet most of the disadvantages remain. You're still open to allegations of wrong-doing, until you can prove to the satisfaction of the charging party that your price was amply fair. And they might not be reasonably satisfied...

Then there's the whole 'but she said it was in good shape' set of issues... How many buyers find out that some of the things their sellers said (and may have sincerely believed) were untrue? Things like furnace or roof age, date of last septic field refresh, condition of A/C units, appliances, etc.?

I see the temptation -- but many, many downsides...

    Bookmark   June 21, 2011 at 3:11PM
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I just went through a Medicaid application process for my own 90 year old MIL- they now go back ten years looking for "deals."
They scrutinize every penny of income and doubly so with liquidated assets.

    Bookmark   June 21, 2011 at 3:22PM
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OP HERE!! First off I want to thank you all for your comments, they have given us something to think about.

I see where the "deal" may not be an option, but I don't see anything wrong with buying her house at a fair market price. What's the difference if we buy it or someone else does?

As far as siblings there is one brother who lives out of state. We would not move forward with this if he objected. However, I really don't think that will happen. He would probably be happy we got the house if that is what we wanted. There are also no issues with the 'but she said it was in good shape' thing. My husband 'knows' this house and knows what is good an what is not. We know the things that will need to be updated, etc.

My MIL is 88 and has alzheimer's, I'm not sure I see her living another 10 years. I think if we purchased her home at a fair market price with the money she already has, she would be fine.

We are certainly not trying to rip off Mom or anything, my husband has spent the past few years totally invested in taking care of his mom and has done a wonderful job (I hope my kids are as kind to me). It's just a shame to sell her house to someone else if it could be an opportunity for us is all. His mom has already 'given' us her house over an over, but we keep telling her we can't do that because she needs the money to live.

We have a contractor coming on Friday to give us an idea of what can be done with the house and then if we can afford it, so that is where we are starting. Please don't take my comments as argumentative, we're just trying to figure this thing out. I do appreciate all your comments.

    Bookmark   June 21, 2011 at 6:06PM
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Too bad you guys didnt do something about this 5 years ago. That was the time when she should have "sold" her house to a relative for "one dollar". She needed to take care of her finances 5 years prior to entering such a facility - or else they will take every last cent she has before Medicare will kick in. Average stay costing $5k per month per person..........they are gonna eat up whatever she has really quick. I'd much rather see my family and friends get whatever I have left at the end of life than to let the nursing home get it all. Thats a real shame.

    Bookmark   June 21, 2011 at 6:26PM
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I think the above poster means Medicaid, rather than Medicare, as stated.

Anyway, she is in as Assisted Living now, and I don't think Medicaid covers those places anyway, except for 60 days after being in the hospital for 3 days or longer (or something close to this). But possibily Medicaid does pay for Assisted Living when Alziemers is in the picture.

I think( I could be totally wrong) Medicaid only covers long term living for nursing homes, which give more care than an assisted living facility. But being 88, she could need to move to a nursing home soon anyway.

    Bookmark   June 21, 2011 at 6:48PM
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sweet tea...My MIL can stay at the facility she is in till the end of her life, given her funds hold out. They are equipped to care for her till the end, they told us that when we moved her in. They also have an alzheimer's unit there (she is not in there at present) where she may have to go. But I think she will be ok there.

    Bookmark   June 21, 2011 at 6:55PM
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When my husband told our realtor our plans, she didn't say anything like it couldn't be done and she gave us a couple names of contractors she knows. So my husband has an appointment to meet with one of them on Friday to see what can be done and how much it would be.

At this point everything is hinging on how much it would be and if we can then afford to do this. I told my husband that if we can't afford to do the reno, then I would scrap the idea because I don't like the house enough the way it is now to purchase.

    Bookmark   June 22, 2011 at 10:32AM
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I doubt your realtor is a Medicare expert, so don't rely on such advice.

First you should be talking to someone at your local Area Agency on Aging, to get some specifics on how your state Medicaid program works in regards to your MIL's financial/physical situation.

Second, the five-year lookback period for Medicaid is the Federal requirement; individual states may impose additional limitations because Medicaid is funded 50-50 between state and the federal governments, unlike Medicare which is 100% federal.

Many facilities will accept paying patients, then when the patient's personal funds run out they apply to Medicaid. Most high-end facilities will not take Medicaid-only patients because of the low rate of reimbursement.

Be aware that if a facility closes down, it can be a scramble to find a place to move your family member, especially if they are on Medicaid reimbursement by then.

The first thing you should do is contact your bank or whatever financial institution you want to use for a new mortgage. Ask them for the referral to the loan appraiser they prefer to use, because a lot of banks will not do business with just any appraiser.

Pay for the appraisal (you would probably be responsible for this anyway; many banks don't absorb the cost any longer) on your MIL's house. It will be brutally fair and will take into account whatever has sold in the last 60 days - meaning short sales and foreclosures.

The maximum your MIL can discount to you is 20% off that appraisal price, according to the IRS. Then, and only then, should you two decide whether selling your home is a reasonable consideration.

You may wish to have the appraiser do both your MIL's home and your own condo at the same time - negotiate on this! - which will give you firm figures to work with. If you need to sell your condo very quickly, you are going to have to consider discounting that appraisal price for a fast sale.

This can be done, but it isn't quick or simple. And you have to do it correctly or both the IRS AND Medicaid will be on your backs, and you don't want/need to be in that position.

The process I've outlined above is my own understanding of the Medicaid and IRS rules, so be sure to confirm those assumptions are valid.

    Bookmark   June 22, 2011 at 1:50PM
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Bear in mind the reno's ALWAYS cost more than estimates..often a lot more. There is no way to know what can come up once you start breaking into walls. And reno's usually require things that are grandfathered to be brought up to today's code, which can be costly indeed.
So, unless you have a spare pool of money that you can use in all the events that could very likley require such, I would think very hard about moving forward with the purchase.

In addition, check with your town to see if what you want to do is allowed. Don't assume that because others did it that it is OK. Even if they were allowed, it may no longer be best to do your homework on that first and foremost. Also, some places require an architect to draw up the plans..and that can add considerably to the cost of the reno in fees.

Last but not least, realize that you will have to live in the house during the reno...which can be a MAJOR PITA.

IMO, in this market it seems to me that it would be so much easier to just look for a house that already has the layout, space and features that you want...far less hassle, aggravation and stress...and probably less expensive when all is said and done.

    Bookmark   June 22, 2011 at 1:55PM
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Ok, I'm really not sure what all the talk about Medicare/Medicade is all about. She is in a private pay facility. She has funds already, but we have to sell her home any way so she has funds to continue her care for the duration of her life. What difference does it make if we purchase her home or someone else does. When and if her money runs out, her money runs out. Our realtor already said we won't get top dollar for the house because it needs updating. So I really don't want to "give" it away to strangers, when we could purchase it. I am not talking about ripping her off, but buying it at a fair price.

As far as homes in our area. We live on the east coast in a major city near a "major" political town. Houses are very expensive here. I think we could purchase her home and do the renovations and still not spend as much as other homes for sale in the area... that will still probably need some work. This way we get a nice house in a decent neighborhood and fixed the way we want.

    Bookmark   June 22, 2011 at 3:17PM
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"Anyone know how all this would work?"

That was your original question.

Probably with a lot of money out of pocket.

    Bookmark   June 22, 2011 at 5:32PM
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>>I'm really not sure what all the talk about Medicare/Medicade[Medicaid] is all about. She is in a private pay facility. She has funds already, but we have to sell her home any way so she has funds to continue her care for the duration of her life. >>

We bring it up because very few people end up having sufficient funds to pay for nursing care for the remainder of their lives. Usually the money runs out, and because the facilities cannot just 'dump' a patient, they are forced to apply to Medicaid for reimbursement assistance.

That is when the five-year lookback period starts, so if the money your MIL receives from the sale (to whomever) only lasts 4 yrs 10 months, the transaction will be examined automatically. If you have bought your MIL's house, then you want to be certain that the IRS guideline of a 20% max discount to a family member IS ACCEPTED by Medicaid in your state. Otherwise, Medicaid would have the right to say, you tried to hide 20% of the purchase price which was a legitimate estate asset, and that money is now owed to the state to be legally recoverable.

Governments, both state and federal, have been known to pass laws where one regulatory agency and a second agency clash (e.g., the Dodd-Frank legislation vs the HIPAA law). So you want to talk to people familiar with your situation and state laws to be certain there will be no future issues.

It sounds like she has enough money, but if I were you I'd want to be certain that such a transaction has been set up to avoid any potential future issues. People never want to be audited by the IRS, but the stories I've heard about Medicaid sound, frankly, much worse. Get on their bad side and it takes a really long time to clear up an issue, even if it's their error to begin with.

    Bookmark   June 22, 2011 at 9:40PM
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jkom51... Ok I see what you are saying. Thank you for clarifying, your comments are appreciated. We want to do everything on the up and up and also protect my MIL and also ourselves. If we do decide to proceed with this we will certainly investigate all the laws in our state regarding this.

We have a couple contractors coming this week, so we can at least see if what we want to do is feasible. So we'll start there and see what happens.

    Bookmark   June 22, 2011 at 10:12PM
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Only suggestions I have along with other advice is
Get legal help
DO NOT rely on a realtors suggestions regarding contractors unless you have check it out complete. Get your own. Make sure they are registered in your state/county/city? You could need permits etc.
Good luck

    Bookmark   June 22, 2011 at 11:05PM
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We have both, marie-ndcal a contractor our realtor suggested and a couple of our own.

Thank you all for your suggestions and comments, they have been helpful.

    Bookmark   June 23, 2011 at 5:58AM
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