I give my mother’s ailing next-door neighbor $500 a month. She agreed to sell me her house, although she’ll continue to live there. Is this a good plan?
Dear Quentin,
A few years ago, I moved in with my mother so that she could retire. I’m 55 and she is 77. She had no retirement savings, but she owns a small home with a mortgage. Every month, I give her money to pay the mortgage and other bills.
She has a next-door neighbor who is 72 and disabled, and has even more serious problems. Her husband’s death (following a long illness) has left her with very little money, and she has no family in the area, and a Social Security check that doesn’t cover her food and medicine.
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I have been giving my mother’s next-door neighbor around $500 each month to keep her afloat. She doesn’t like asking for or accepting help, but she can’t make it without it. I once offered to buy her home and let her stay there, rent-free.
However, she said she wanted to leave her house to her niece. She has since changed her mind, and asked me to draw up a contract. I’m looking for advice on how to proceed. Are there legal templates online that might be useful?
I confess that I feel like I am offering her a reverse mortgage. I don’t want to take advantage of her situation, but the money I am giving her could also be used to pay down my own and my mother‘s debts or be put aside for my own retirement, which is currently underfunded.
Daughter, Neighbor & Friend
Related: Reverse mortgage, sell the house or Medicaid? How can my parents pay for long-term care?
Dear Daughter,
If you could afford it, I’d give you the green light. From what you say, however, you can’t. There are real-estate purchase agreements available online, but once again — in the event that you do decide to go ahead with this plan — I urge you to hire a real-estate attorney. Don’t do it alone.
That said, I’m going to give it to you straight: Given that you and your mother have debts, you cannot afford to give money to your mother’s next-door neighbor. You are not responsible for her, even if her modest circumstances awaken your charitable and generous nature.
If your debts are credit-card and/or personal loans — you should be paying them off in full before you spend any money on yourself or anyone else, and you should reduce your expenses. You simply can’t keep giving it away at the expense of your and your mother’s future.
What’s more, you made this lady an offer and, even after receiving a $500 monthly stipend from you, she told you she had a niece who would inherit her home. And that’s how it should be. Her niece, if she is her only living relative, should step in to help out.
You will have your mother’s mortgage in addition to this woman’s mortgage to pay off. Can you afford both? It’s time to sit down with a financial adviser or an accountant and run through your income/expenses and savings before making a decision.
You can be the one who helps everyone, including this neighbor who clearly needs help, but you risk ending up in the same position in 20 years time, wondering what you did with all your savings. Every $500 you give away is money that could be invested for your own retirement.
I agree that a reverse mortgage could be a solution to your mother’s neighbor’s problems, and you can certainly help her do that with her own bank. If she is sitting on equity and does not have enough cash for her day-to-day needs, she is a prime candidate.
With a reverse mortgage loan, she can use her home as security for the loan, but rather than make monthly payments, which she can ill-afford at this time in her life, the loan comes due when this woman dies and/or no longer lives in the home full time.
But reverse mortgages are not a free lunch. Your mother’s neighbor would still be required to keep up to date with her property taxes and homeowners insurance, pay for the upkeep and maintenance of the home, and use the property as their principal residence.
“With a reverse mortgage loan, the amount the homeowner owes to the lender goes up–not down–over time,” according to the Consumer Financial Protection Bureau. “This is because interest and fees are added to the loan balance each month.”
Interest and fees are also added to the reverse-mortgage loan balance. “As your loan balance increases, your home equity decreases,” the CFPB adds. “The homeowners or their heirs will eventually have to pay back the loan, usually by selling the home.”
You can’t be all things to all people. You have a responsibility and a duty to help your mother, but if you spread your finances too thin, no one will win — least of all you. You can, however, give your neighbor your time and moral support to help her make the right decisions.
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