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I'm thinking about liquidating my Roth IRA and taking a loan out against my 401k to pay the property taxes my cancer stricken mom owes on her home. She's several years behind, and the county is foreclosing on it soon. She has no savings besides maybe home equity, and no income because she's currently on FLMA until the doctors can figure out why she's still in pain months after the surgery to remove her tumor.

My annual budget without attempting to support her leaves me saving roughly 50 percent of my income, so I can probably recover from it, but it would drain everything I've got. Do I take what I've saved for retirement thus far to satisfy her creditors, or should I just let the county foreclose and help her out afterward?

EDIT: I'd written up a detailed question but felt it got quite long. But I suppose brevity isn't always best. The facts:

  1. She has a fully drawn HELOC for $100k at WSJ minus 0.25 percent. This is a ticking timebomb when it goes into repayment, but not yet a problem. One bedroom apartments in the area cost roughly what she pays to own her home after taxes and insurance.
  2. The house itself was appraised at $150k when the loan was made, but the house two doors down with a similar floorplan has been on the market for months at $100k and not sold (I think something's wrong with that house), and the house between them just went on the market at $149k. There could be money left over, there might not. She lives in a recourse state, so she can't just walk away.
  3. The county has shown no willingness to accept payment plans, and in fact recent law mandates the newest debt gets paid off first.
  4. I've got at least 30 years until retirement.
  5. I live and work three hours away, renting a room from a house, so she can't just move in.
  6. I'll probably be on the hook for her living expenses left unmet by food stamps and other community support until she can return to work.
  7. She's not paid her mortgage in some time, thus ruining her credit score.
  • Are the close votes because this is advice, not a fact based question? I was about to ask questions of the OP, but upon further reflection.... – JoeTaxpayer Sep 22 '11 at 0:48
  • Would it be better to simply ask about the risks? – foreverBroke Sep 22 '11 at 1:10
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    Have you considered solutions where you mom doesn't keep the house? Her health is the most important thing, and the house could go if she is taken care of. – MrChrister Sep 22 '11 at 1:59
  • I've thought about it. The amount we're talking about could pay her rent for a year or two, but there's a good chance that her house won't make the lenders whole. If they place a garnishment with her bank, I'm not sure how I would be able to pay her rent. – foreverBroke Sep 22 '11 at 2:16
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    It sounds like the county tax lien comes first leaving the remaining equity short of the remaining loan balance? Recourse or not, a bankruptcy would discharge this. Paying anything may be throwing money down the drain. You and mom might be better off having her file, and buy a house to rent to her. Hoping others reading have another view on this. – JoeTaxpayer Sep 22 '11 at 3:27
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You're crazy to cash out your Roth or take on 401k loan, as that is addressing a short-term problem without doing anything about the longer-term issue. Just don't do it.

Through no fault of her own, your mom is insolvent. It happens to people all of the time, and the solution is chapter 7 bankruptcy.

The only thing that I would do with my money in this situation is help her with bankruptcy attorney fees if needed, and maybe bid on it at auction, if the house in in good shape.

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    AFAIK, Chapter 7 won't discharge taxes owed, and liens will survive if you keep the asset. So Chapter 7 will only solve the problem if you sell the home. It does have the advantage of getting rid of the OP's "ticking time bomb" though. – jldugger Sep 22 '11 at 15:23
  • Real estate taxes can in certain cases be discharged in Chapter 7, but the rules are a bit tricky. To be dischargeable, the tax would have been due and payable without penalty over a year prior to the filing date. But please double-check! – Tony the Pony Sep 22 '11 at 20:07
  • @jldugger That's going to depend on the locality -- the bankruptcy attorney can help with those issues. The thing the has to be reconciled is the stress/trauma of impending doom worse than the trauma of moving. – duffbeer703 Sep 22 '11 at 21:28
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@foreverBroke - Ok, here are the questions - Is mom's house paid for in full? If there's any mortgage, is it current? If not, what are the numbers? Is it underwater, i.e. owe more that it's worth? Will the tax department talk to you and negotiate? Maybe let you make payments over time? If you have that kind of cash flow, the slower payment may keep you from killing your savings. We don't know your age. I do know that the early years savings, often around the first 8-12 years, are the funds that turn into half your final retirement savings due to compounding.

Obviously, this a tough time emotionally, what I don't want is for you to make a financial move that is a temporary fix. Not knowing the rest of the story limits my answer. If my mom needed my help I'd want to understand the whole picture.

Not that I'm a fan, but have you considered a reverse mortgage? It may be a way to keep the house but give up the equity, or some of it, on her moving out or passing.

  • The question contains this information. There is no equity remaining in the house, and it may be under water considering the back taxes, unpaid mortgage, and questionable valuation. – cmm Jun 21 '18 at 16:12
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First, I'm really sorry to hear about your mother. My wife was recently diagnosed with Stage 4 cancer, so I know that there is a possibility that your mind is in "survival" mode, trying to preserve as much as you can in the way of things that you can effect (that's how I've been feeling recently). Having a loved one with cancer is really tough because there is absolutely, positively nothing tangible that you can do to change the fact that they have cancer.

You will have to ask yourself some questions:

How important is it that your mom can stay in her house? Moving could add some unneeded stress.

How may years have you been contributing to your 401k? If you have 30 years left, you could have enough time to recover some of your losses from reducing the amount of money you have given up for your mom.

Will your mom be able to pay you back for paying the taxes over time, or would this be a 'gift'?

Have her doctors told her that she "... has N months left..."?

What is the next step after you are able to pay her taxes and save the house?

Someone close to me recently told me that "There is no point in trying to save for someone for the future, if you can't sustain them until they get to that future. What will happen to your mom if she loses her house? Will it make it easier or harder for her to recover if she can stay?

To paraphrase someone famous, "you can't take a loan out for your retirement, but you could take a loan out for this event."

At any rate, good luck. My thoughts are with you and your mother.

  • Fortunately they detected it very early, and she's been given a remission diagnosis thanks to a double mastectomy. The problem seems to be a hernia; she just got a second opinion on that today to have them take a look at it. I'd expect, if ever, to get the money back in a distant inheritance. – foreverBroke Sep 22 '11 at 23:33
  • "How may years have you been contributing to your 401k?" About one year now. So I've got plenty of time to 'catch up', and an amazingly good retirement program to help out on that front. – foreverBroke Sep 22 '11 at 23:38
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    @foreverBroke One thing to watch out for if you take out the 401K loan is that some plans will only let you take out 50% of the value at a time, and that you can only have 2 loans out at a time. A few positives if you do take out the loans, You can take almost an infinite amount of time paying them back, as long as you don't quit your job unexpectedly (you will either have to pay them back in full or take it as income on your taxes), and you can pay yourself back instead of paying a bank. – bakoyaro Sep 22 '11 at 23:56
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I question if this situation is only because of cancer. You say that the property taxes are several years behind. The medical situation accounts for (maybe) a year. Something was already going wrong in her financial life before cancer. That problem needs to be addressed before a stable situation can be reached.

If your mother is still of sound mind, you might consider both of you moving into a shared residence. The total expense would be lower, and you would be in a position to help be sure her medical care was properly coordinated.

This would require that you and your mom are close, and could stand to be sharing space. If you are, this could be a good time for you to bond further. Obviously, if you are in a relationship, your partner's opinion also matters.

Do you currently know her COMPLETE financial position? Every account? Every credit card? Every asset? Every "agreement" she may have made with people?

You can help her sort out her situation, but waving your financial wand to magically "fix" the problem may not fix anything. If dealing with the creditors is too difficult for her, you might consider offering to become her Power of Attorney. You then would be empowered to act on her behalf. It's not like being a Trustee -- she still has her own power and ability to further mess things ups -- but you can get access to everything and negotiate on her behalf.

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    Good answer, if a bit belated. Medical expenses can bankrupt you, but the HELOC mentioned in the question hints at ongoing expenses being too high. – Brian Jun 21 '18 at 15:10
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    I see that this is belated. I should check the dates on questions. I often answer questions of years past. OTOH, since the purpose of this group is both to answer the question for the OP, and to build a repository of answers, an answer to a stale question is not without purpose. I agree that medical expenses can bankrupt you. I don't know the timing of the HELOC -- it could have been solely for medical treatment, but the years of unpaid taxes predate the cancer treatment, and suggest a structural problem. – cmm Jun 21 '18 at 16:16
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If it turns out that you do want to help pay the tax bill (after answering all the questions above), I say cash out those funds. You are apparently very young with a long work life ahead (lucky you). Step aside from the actual money part of it for a moment. What does your Mom want? What do you really want to do about this? Is it from love that you want to help but are afraid it's a bad financial decision? Or is it from a feeling of duty and you deep down don't really want to spend your savings on Mom's tax bill. - If you really do want to help and you have the wherewithall to do so, then do it. Otherwise don't. You can recover financially. - I myself have had my retirement savings go to nearly zero 3 times. The first time I recovered pretty easily. The second time, not so easily. I'm just starting on the recovery path for the 3rd time at age 58 and I highly doubt I ever will recover this time. I didn't cash out on purpose but the stock market was not friendly. - My main point is to figure out truly what you want.

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