My Dad's 50,000 in debt and I'm paying

[Trimmer]

Recently I have seen a mortgage broker, who is helping me re-finance the house for an amazingly good deal which would help pay off some of my debt and his debt.

I just re-read your OP and noticed this point. Let me make one thing clear: refinancing a property does not "pay off debt."

 

"What?" you say... "But you get this big pile of cash, and you can pay things off..." Yes, but consider carefully what is happening. Let's say you own a house with a market value of $300k, and you have a mortgage with $200k outstanding principal. Thus you would be considered to have an estimated $100k of "equity" in your house - the value of the stake in your house that you actually own. ("Estimated" because you can't ever know your equity until you actually sell a house; before that you can only estimate its market value...)

 

Now, let's also suppose that you have $50,000 of credit card debt, that you think you want to pay off. Thus you have a total of $250k of debt to your name: $50k in credit cards, and a $200k mortgage.

 

So you get caught up with a mortgage broker who can work a deal to refinance your house and "pay off your debt." What happens is that the mortgage broker just helps you take out a new $250k mortgage - the first $200k goes to pay off your old mortgage which then disappears, and the other $50k "pays off" your credit card debt. But look at what happened: you are still have a total of $250k debt to your name, it's just all in your new mortgage, and this results in the fact that you now only have an estimated $50k stake in your house.

 

Your net worth has not changed at all: the amount of your assets (the $300k house) minus your total debts ($250k both before and after the refinance) is $50k; this is your net worth either way. All you have done is to "move" the debt from your credit card to a mortgage. (And I'll bet that the helpful mortgage broker will try to do an attractive-sounding "no fee" mortgage, which means that he/she will gladly finance the loan fees into the mortgage, which means that you will actually end up with something like a $252k or $253k mortgage, once the loan fees are added in. You'll be paying those off for the next 30 years, too.)

 

Now some can reasonably argue that this isn't necessarily a completely bad idea - by moving the debt to your mortgage, you are probably paying a lot lower interest rate on it than when it was on your credit card(s), and in addition, the mortgage interest is deductible if you itemize deductions on your 1040 (assuming you are in the U.S.)

 

However, there are traps here. The first is that idea that refinancing "pays off" your debt - as I've pointed out, it does not; it just moves the debt from one place to another. And if someone who ran that debt up in the first place ends up feeling like their "debt is paid off," they are likely to run up some more. In the long run, this cycle just pisses away the equity stake in one's house by doing this over and over again.

 

The other trap is that you are taking what should have been short-term debt - credit cards that you should be working hard to pay off in months or a year or two - and turning it into long-term debt, which you will leisurely continue carrying for many years (15? 20? 30?) The mortgage broker will show you a seductive calculation of how this refinance will make your total monthly payments lower, but this doesn't change the fact that you will carry that debt for a much longer time. This is not good money management.

 

Back to your original situation: I know you've pretty much decided to step aside and "disentangle," and although I obviously don't know your situation in its entirety, I think that sounds wise. But I'm still curious as to whether your dad can even cover his debts if he sells. Do you have an estimate of the market value of the current house, and what is the oustanding mortgage on it (including all mortgages and/or home equity lines and any other debt secured against the house...)

 

Now, on the other hand, if there were enough excess equity available beyond the $50k needed to pay off his debts, personally, I'd offer to do the refinance and get his debts paid off, IF he were willing to make good on his original promise that the house was intended as a gift, and as part of the deal, he would quit-claim the house to you (a way of transferring ownership to you which is not as complex as doing a complete real-estate sale.) If he's not willing to do that, then you know he's not serious about ever coming through with the "house-as-gift" that he originally proposed, and you graciously walk away from the offer - and his finances - forever.

 

That's just my take on it, but I've done some real estate deals and I would be confident enough to take that on and set up an escrow that would make it all work - and protect me if he backed out - if there were a decent equity stake available on the other side that would end up clearly in my name only. You may not be that comfortable with it, and that's fine - walking away now will at least get you free of his messy finances, and that is the imporant thing here. Then you can really start your own financial life independently.

 

So a couple of questions: do you have an estimate of what the house would currently fetch on the market, what are all the mortagages on it, and finally, are any of those debts of his held jointly in your name, or are they clearly separate?

 

(And P.S., I don't get where that other poster got her perceptions from, either.)

[lifeasiknowit]

Thanks, Trimmer for your concern.

 

The estimate for the house 325,000. Currently there's just one mortgage on it. His 50,000 debt is all his (that he's told me of, I don't know for sure if he is telling me everything). There is a Visa debt of a few thousand that's under mine name that he was using. The mortgage debt left is 300,000 (I've been living in the house for only 2 years)

 

I really appreciate your concern, but I've already resigned myself to leaving the house. I think the situation would be more dire if I had a family of my own to take care of, but I'm only 24 and living with a friend. I think once I get myself into a good situation financially in the future, I'll look to getting my own house. It just seems like every time I put money into his account where the mortgage payments are being taken out of, the money is being used by him to pay for his other debts and payments. It's like putting money into a black hole.

 

I'm at a point where I just want to cut off all ties with him.

 

thanks, anyway!

[Trimmer]

Thanks, Trimmer for your concern.

 

The estimate for the house 325,000. Currently there's just one mortgage on it. His 50,000 debt is all his (that he's told me of, I don't know for sure if he is telling me everything). There is a Visa debt of a few thousand that's under mine name that he was using. The mortgage debt left is 300,000 (I've been living in the house for only 2 years)

 

I really appreciate your concern, but I've already resigned myself to leaving the house. I think the situation would be more dire if I had a family of my own to take care of, but I'm only 24 and living with a friend. I think once I get myself into a good situation financially in the future, I'll look to getting my own house. It just seems like every time I put money into his account where the mortgage payments are being taken out of, the money is being used by him to pay for his other debts and payments. It's like putting money into a black hole.

 

I'm at a point where I just want to cut off all ties with him.

 

thanks, anyway!

 

You're making the right decision. Forget what I said about trying to work a deal if the equity was high enough: it isn't. It's not even close. Run away, fast.

 

Considering the house and mortgage as their own little financial system, you've got a $325k house with a $300k mortgage. You are sitting on only $25k of equity, best case, and NOTHING you do - refinancing, "trading down" or anything like that - will result in you having more than $25k of net worth there. As a matter of fact, most things you could do will eat away even a little (or a lot) more of that $25k: refinancing will cost you fees (even if they are financed into the new mortgage), selling the property outright would cost you a significant amount of that $25k in brokers' commissions, etc.

 

So bottom line, your dad currently has a negative net worth - unless he's got a bunch of positive-net-worth real estate or a pile of cash under a mattress somewhere, his total debts are more than his total assets. Even if he liquidated your house in the most efficient sale possible, he still won't have enough to pay off his debts and break even.

 

Get out. Get out. Get out. You are standing at the edge of a sinkhole, but you may still have time to move back.

 

Make sure he is not an authorized user on any of your credit cards. Getting separated there is highly important, because any debt he runs up on a joint account counts against you, too, and late payments, etc. will become black marks on your credit history.

 

It may well be worth a couple hundred bucks to go see an independent financial adviser, to have him/her review your situation and help you get completely and officially disentangled. If your dad is headed for a financial train wreck, you need to jump off as soon as you can, and get as far away as possible. I know you are taking this seriously, but please consider taking this step to consult with an expert and find out how to protect yourself. I'm not saying you can't be there to help him out if you choose to in the future, but you need to get his finances and yours separated so that anything negative that happens in his world does not automatically come back against you.

[signedin2008]

He does not live with us, but is living in California with his girlfriend.

 

If he is still married and living with your mom, I might have suggested something else, but since he got his own life, you should have your own.

 

Where is you mom? What does he think about you helping your dad financially and that the money might go to wining and dining with his girlfriend?

[lifeasiknowit]

My mother hasn't spoken to him for a long time, and has her own life. His second wife, my stepmother, also hasn't been in contact with him for a few years, so I don't know how she feels. We're not close.

[nocleverusername]

Eek, I'm new here but wanted to offer sympathy & a hug. I'd walk away asap too. I'm not sure how you go about having him removed from that visa but it needs to be done immediately so you can pay it off before it ruins your credit. I'd also check your credit report now, I have a bad feeling there might be stuff on there he's done using your identity. Excellent financial info in this thread (taking notes, lol).

Best of luck.

[2sure]

It is not so uncommon for a parent to take out credit in a child's name once they are an adult. Its sad. They do it because they cant get the credit themselves or because the young adult can get a lower interest rate. Some parents even resort to putting utility accounts in their childrens name because they owe money for gas, electric, etc.

 

Because of poor financial planning, or even the curse of poverty, these kids end up in debt they cant get out of before they are even out the door.

 

Often, it begins as a great idea: Since the young person has no credit built up they need to do that. So, they get a credit card with the intention of the parent using it and paying it off every month. Instant good credit score! But, the parent doesnt pay it off monthly, or is slow to pay, and Bang! Instant poor credit score and debt.

[signedin2008]

My mother hasn't spoken to him for a long time, and has her own life. His second wife, my stepmother, also hasn't been in contact with him for a few years, so I don't know how she feels. We're not close.

 

My point is, you should help out your parents who are in financial trouble if you can, but think twice if they are no longer married and dating someone other than your own parent whom they might spent money on.

[Trimmer]

My point is, you should help out your parents who are in financial trouble if you can, but think twice if they are no longer married and dating someone other than your own parent whom they might spent money on.

It's important to know the difference between helping out someone who is making progress at getting back to an even keel, and enabling continued irresponsible behavior that endangers the helper.

 

You base your suggestion on the fact that he is separated and dating someone else, as if one would withhold genuine help if needed, based on a moral judgment upon that situation. Hey, that doesn't change the fact that he's still her parent.

 

My point is that it doesn't even have to be about that aspect of his life. He's gotten himself into a hole, and more importantly, he's continuing to exhibit irresponsible financial behavior that thretens the financial well-being of the OP. For that reason, out of self-preservation at the very least, she should separate their finances, get out of any "joint" situations (the house, joint accounts or credit,) and then consider that any help she chooses to give in the future should be done "at arm's length," i.e. if you want to send him cash or a check, fine, but no joint endeavors that can come back on you.

[signedin2008]

It's important to know the difference between helping out someone who is making progress at getting back to an even keel, and enabling continued irresponsible behavior that endangers the helper.

 

You base your suggestion on the fact that he is separated and dating someone else, as if one would withhold genuine help if needed, based on a moral judgment upon that situation. Hey, that doesn't change the fact that he's still her parent.

 

My point is that it doesn't even have to be about that aspect of his life. He's gotten himself into a hole, and more importantly, he's continuing to exhibit irresponsible financial behavior that thretens the financial well-being of the OP. For that reason, out of self-preservation at the very least, she should separate their finances, get out of any "joint" situations (the house, joint accounts or credit,) and then consider that any help she chooses to give in the future should be done "at arm's length," i.e. if you want to send him cash or a check, fine, but no joint endeavors that can come back on you.

 

Without getting into details about my response and the reasoning behind it, chances are he would not be having all these irresponsible financial behvaior if he is still married to OP's mom as a long time married couple making decisions collectively.

[Trimmer]

Without getting into details about my response and the reasoning behind it, chances are he would not be having all these irresponsible financial behvaior if he is still married to OP's mom as a long time married couple making decisions collectively.

Well, we're essentially giving the same advice - for her to break away - in slightly different contexts. I'm saying, irrespective of his relationship situation, it's important to break away because he IS being irresponsible, and she needs to protect herself from that, father or not, new relationship or not...

 

If I get what you are saying, the fact that he's in a post-marital or extra-marital relationship gives you concern that the OP's money might not be getting used responsibly anyway, and I see your point, and I don't argue against it.

 

My primary concern is that she take immediate steps to protect and insulate herself financially to avoid suffering damage from his actions.

[lifeasiknowit]

Once I walk away from the house, I'm okay, since the house in no way is tied to me on paper. The visa card is the one issue. My plan is to just pay if off eventually and close it. It would be nice if I could just get it changed from under my name to his, but from what I've been told, he is the one that has the right to do that, not me, since he was the one that signed up for it under my name. He's stopped using the Visa, so I'm hopeful about paying it off. Once that's done, I can basically start over again with a clean slate.

[Angel1111]

Once I walk away from the house, I'm okay, since the house in no way is tied to me on paper. The visa card is the one issue. My plan is to just pay if off eventually and close it. It would be nice if I could just get it changed from under my name to his, but from what I've been told, he is the one that has the right to do that, not me, since he was the one that signed up for it under my name. He's stopped using the Visa, so I'm hopeful about paying it off. Once that's done, I can basically start over again with a clean slate.

 

To make SURE that he's no longer using that Visa, you might want to have them change the account number on it. And also make sure that you're listed as the only user on the account. If you can't do that, open a brand new account with one of those cards that offer to transfer the amount. Then it will be in your name only and you won't have to worry about what your dad might be doing.

[beckyboo2]

This is a pretty bad situation. I would hope that my father would not do something like this but technically the house is in your father's name. This basically means that you have been paying rent to your father who is the "rightful" owner of the house.

 

I know it's pretty lame but you might want to start looking for a new house to purchase under your name so you can start building up equity in it.

 

good luck working this out. Family stuff can get kind of tricky....

[Trimmer]

Once I walk away from the house, I'm okay, since the house in no way is tied to me on paper. The visa card is the one issue. My plan is to just pay if off eventually and close it. It would be nice if I could just get it changed from under my name to his, but from what I've been told, he is the one that has the right to do that, not me, since he was the one that signed up for it under my name. He's stopped using the Visa, so I'm hopeful about paying it off. Once that's done, I can basically start over again with a clean slate.

 

Clearly it still sucks that you have to pay off the debt on this card, but that might be the best way to clear your name. Even though "he stopped using it," though, you don't know whether he might start up again if he gets into a corner.

 

And yeah, that sounds about right on the difficulty of you taking him off the account. When there's a joint account - regardless of who opened it - they are unlikely to take person "B" (say you) off the account without person "A" (your dad) stating that he understands he is taking the complete liability for the debt himself. My ex and I had to do this in writing when we took each other off our joint credit card accounts. The bank has no motivation to make it easy for you to reduce the number of people it can go after for the debt, so it puts you through serious hoops.

 

I'm going to assume your dad would likely not be fully cooperative in this type of action, so if you are the one receiving the mail, you can call them and ask for an account number change, as Angel suggested. Tell them you need to change the account number because of security concerns - you have misplaced one of the cards or you believe someone has learned your number and you don't want them to be able to use it. In my experience, they are pretty willing to do this by verbal request without a lot of explanation - they ARE motivated to prevent fraud, even if you just suspect that it MIGHT occur. They will just issue new cards with a new number, and close access to the account via the old number.

 

When the new cards come, put them away and make sure "nobody" has access to them, and continue to pay them off, under the new account number that your dad will not know as long as you control the mail.

 

Once you get the account down to zero, you may be able to get them to close it, even being the "second" user. In that scenario, call them up and declare that you no longer accept liability for any debt on the account. With the account in a zero state, theoretically it's no risk for them to drop you off the account, whether they close it completely, or just take you off. And they may be required to accept your declaration and let you off the account, as long as the account is paid off at that time. Whether they actually close it or just drop you off is up to them, but you should put your declaration that you no longer accept liability and want to be removed from the account, or the account closed, in writing.

[Gold Pile]

You derive no benifit from living in HIS house. Get your own place...even an apartment. It may seem like it should be yours, but it is HIS.

 

You can spend much of your life paying his debts and have nothing to show for it. His debt pile isn't going to stop at 50,000 he will add to it or the rest of his life. Even you somehow pay it off right now...he will go into debt again.

 

You can walk away...pay only your own bills and build up your credit rating and savings...in the end you'll have something to show for it.

 

Or you can struggle with his problems 4ever and have nothing to show for it.

[dgiirl]

(And P.S., I don't get where that other poster got her perceptions from, either.)

 

I kinda do The OP opens her message saying she's paying her dad's mortgage. The first impression I got was this poor girl was living on her own, paying her own bills and rent, and now supporting her father too. But as I read further, I see that her father doesnt even live in the dwelling, but it is her and a roommate. Woe is me. All she is doing is paying rent?! Well, I got news for you too. I'm paying my landlords mortgage too! I wonder if I should stop paying it for 6 months and then move out?

 

Listen, I read the entire thread. I completely understand the situation. The whole business with the dad using the OP visa is totally not cool. The OP needs to get her father off that visa bill, even if it means closing the credit card and paying off the whole bill herself. One thing I learned from my divorce, never EVER EVER mix your credit with someone else. Having your own credit card makes u have a sense of ownership over your debts and is a hell of a lot cleaner to know whose is whose.

 

But the whole complaint about the house I just dont have any sympathy for. Granted the father seems like a complete tool and is taking advantage of his daughter, but I dont think he's taking any more advantage of her than any other landlord would. You have to pay rent. And rent usually equals a mortgage payments if not slightly more. That's why a lot of people get tired of renting and decide to buy a home, because they feel that rent is just money down the drain and at least with a mortgage you chop away little by little at the principle.

 

The whole "gift" angle I dont have sympathy for either. A house is a VERY expensive item to receive as a gift from anyone. And even tho he was trying to be grandiose and said it was a gift, give him a freaking break. I dont think anyone should _ever_ expect such a gift, and thus with no expectation, I would never have been shocked if it was taken back. If my parents offered to buy me a house and helped me move in, and then I find out later that my parents were not in a financial situation to afford it, I would be the very FIRST person to sell that house. In the very least, I would NEVER want to be contributing to my parents financial ruin.

 

I'm glad to see that the OP has done a few good things. Moving into her own place will be less stressful for her and she should distance herself as much as possible from her father's financial situation. Remove all ties with him financially and clean up your credit. But this doesnt have to ruin your relationship with your dad. Moving out and paying rent will also help her realize what most of the rest of the world has to do.

 

Being only 24, there's a sense of naivety in a lot of your perceptions, which is understandable, but your dad didnt owe you a home and if he can no longer support it, you should be forgiving of that. There are not that many young adults who have actually owned a home at such a early age, and I think "giving" you a home to live in was the biggest mistake any parent can do for their child as it has skewed your perception of entitlement. I think you will appreciate your home MUCH more if you earn it yourself.

 

Also you've learned a great lesson in not mixing your credit with anyone else. You do seem like a responsible capable person, and you are lucky to have learned these lessons at such a young age, because I have a strong feeling these lessons will push you even harder to succeed in life. At least now, if/when you get married or whatever, if your partner starts messing with your credit, you'll have the strength to kick them to the curb.

 

(ps Hi Trimmer!!)

[lifeasiknowit]

dgirl, I see where you're coming from, and my complaint isn't purely based on paying rent for living in his house. My frustration was stemming from the fact that sometimes the money I was depositing for the rent into his account was being sucked up by his other payments that were being withdrawn from the account. In a way, it's a given that a landlord can take the money paid for rent and do whatever the hell he wants with it. I guess I just find it really ****ty that my own dad would be such a ****ty landlord. Oh, well, I've already found another place to rent, and that's all I can do.

[dgiirl]

I think one of the problems is, you know too much about your father's financial situation. You are getting frustrated at your father because you know the ins and outs of your father's bank account. Not many people are privy to that information about others. And you are frustrated because he's making choices you would not, whether he is a spender and you are a saver, or vice versa. If his choices coincided with yours, I bet you'd feel less frustrated.

 

Sadly, your father's debt is not uncommon. Way too many people these days, even younger, dont believe in saving up their money to buy the toys they want. Instead, they put everything on credit and hide their heads in the sand. I would say about 90% of the people I know are in debt, and about 50-60% of them are in major debt of 20k+ (not including mortgage or car payments). So I wouldnt take your dad's choices in life personally, up until it starts affecting your life. The credit card DOES affect your life, so you definitely need to resolve that issue. The house does not affect your life, well not in a way that you are entitled too, so I would let that frustration go. Take the lessons that you need and move on.

[Trimmer]

But the whole complaint about the house I just dont have any sympathy for. Granted the father seems like a complete tool and is taking advantage of his daughter, but I dont think he's taking any more advantage of her than any other landlord would.

Yes, but here's the thing - I suppose we all see this through the filters of our own experiences, so I can't help but see this from a father's perspective. A father can never be "just a landlord." I can totally imagine helping my child by assisting with a house purchase (I have had similar help from parents and parents-in-law myself,) but then I can't imagine going back on that to serve my own interests and to pay my own irresponsible debts.

 

We can assume no more than to rely on the OP's assertion that the intent of the original purpose was to be her house that her dad was helping her purchase - that's a nice gift, but it's not like he's giving her the whole value of the house. It sounds like maybe he put in a down payment, and she has paid the mortgage payments - sounds like something a parent would do for a child...

 

So this isn't just a sterile landlord-tenant business deal. This was a parent offering help to a child to buy a first house, and that offer and help evaporating. You can "justify" that in the landlord-tenant realm by asserting that technically, she never owned the house on paper, and therefore is "not entitled" to it. But where I do feel sympathy is in the realm of the father-daughter relationship, where she has learned something important - and probably also lost something important with respect to that relationship. Tenant or not, I can understand her loss as a daughter, and I'm not talking about finances here, I'm talking about broken threads in her relationship with her father.

 

So all the technical arguments about how she's "just a renter" and she shouldn't complain, etc., are fine - technically - but I now realize it's the father-child relationship damage I'm responding to. (I would have similar thoughts about a son. Matter of fact, for some reason, I though the OP was a male until part way down the thread...)

 

The whole "gift" angle I dont have sympathy for either. A house is a VERY expensive item to receive as a gift from anyone. And even tho he was trying to be grandiose and said it was a gift, give him a freaking break. I dont think anyone should _ever_ expect such a gift, and thus with no expectation, I would never have been shocked if it was taken back.

My reading is that she only "expected" it because it was represented as such at the time of purchase. And again, he wasn't proposing to gift the entire house - it sounds like he kicked in some or all of the down payment, and enough credit history to qualify for the mortgage, but it never rose to anything like a $300k gift. She was making the mortgage payments all along.

 

If my parents offered to buy me a house and helped me move in, and then I find out later that my parents were not in a financial situation to afford it, I would be the very FIRST person to sell that house. In the very least, I would NEVER want to be contributing to my parents financial ruin.

Fair point - and I have to stand up for the OP here and say that I don't hear a lot of whining about it - she's already made a plan to get out on her own, and even the joint credit card that has some of his debt on it, she has already resigned to probably paying off herself. Given the situation, I don't hear a disproportionate amount of "woe is me" here, but again, that may just be my own filter acting.

 

Nonetheless, I do think it is unfortunate that she thought she was starting her homeowning life - not on an unfounded, spoiled "expectation" but apparently on her father's explicit representation at the time of the home purchase - and has now wasted a couple years that she could have been working on a different path.

 

For the sake of argument, let's say I'm at least partially swayed by your points. Then let me say this: if we are giving her the advice that her situation entitles her to no more consideration than in any other landlord-tenant relationship, then she should have no worries about giving 30 days notice, paying the final "rent" that is due, and then walking away to her new life, would we all agree? If we're telling her that her father has no more responsibility to her than any other landlord, then she should have no more responsibility to him than any other tenant, do we agree?

 

Functionally, that's my advice to her, anyway - remove herself and disentangle - and it sounds like she has come to the same conclusion. I just believe that, separate from the landlord-tenant relationship, this has to represent some amount of trauma and loss in the father-daughter relationship, and as both a child of my parents, and as a father of my own children, that makes me sad.