Dying Underwater

[August1991]

Le Monde had a fascinating front page article yesterday about people who renounce their inheritance because their parents have more liabilities than assets at their death.

C'est un indice spectaculaire de la France en crise et des difficultés économiques des personnes âgées : de plus en plus de Français sont contraints de renoncer à leur héritage à cause des dettes accumulées par leurs parents décédés. En guise de bas de laine, les héritiers découvrent en effet, de plus en plus souvent, des factures impayées, des arriérés de loyers et des crédits en cours. Pour ne pas avoir à rembourser les créanciers, les héritiers sont contraints de faire une croix sur les successions. Le nombre de refus d'héritage a ainsi augmenté de 33,5 % depuis 2004, et devrait battre tous les records en 2011, avec l'aggravation de la crise.

Le Monde

For a variety of reasons, old people either exhaust their capital or take loans against it and so at death, they are "underwater" (assets<liabilities). As a result, their children renounce any estate gifts to avoid assuming the liabilities. In the case of a spouse, it's more complicated and they apparently divorce/separate before one of them dies.

One wonders how easy/difficult it is for someone who is old to obtain credit. What stops someone diagnosed with a fatal disease from running up large debts and then gifting the proceeds to someone else? Do lenders have a legal recourse to seize such assets?

I'm travelling now so it's difficult for me to do research on the situation in Canada. As in France, I imagine that the number of Canadians "dying underwater" is increasing too.

----

If someone dies with net assets of less than zero (underwater), then the lenders in effect have given a gift to the dead person. But in Canada (as in France), we as a society have net positive wealth. So who in effect gains from this situation?

Edited December 6, 2011 by August1991

[CPCFTW]

If someone dies with net assets of less than zero (underwater), then the lenders in effect have given a gift to the dead person. But in Canada (as in France), we as a society have net positive wealth. So who in effect gains from this situation?

Who do you think? The evil bankers!

But seriously, it's just a bad debt that the lender would write off like any other bad debt.

[August1991]

Who do you think? The evil bankers!

But seriously, it's just a bad debt that the lender would write off like any other bad debt.

Don`t be so flippant.

The question is fundamental to both those on the left, and the right. And in addition, it does not have an easy answer.

[Michael Hardner]

Well, how much of a problem is this really?

We already bail out banks that lend money to people without the ability to pay... maybe this will become the next trend ?

[Bryan]

One wonders how easy/difficult it is for someone who is old to obtain credit.

I guess that depends on what your definition of "old" is.

My Mother in Law is in her 70's and just recently got a new mortgage, line of credit, car loan, etc. We all thought she was crazy to even try to get BACK into debt after her mortgage on her appropriately sized for a single person house was paid off, but she wanted more room, a bigger yard, to travel, etc, and no one was going to stop her. The bank gave it to her. Unless she lives another 25 years, all she'll leave behind is debt.

All I know is there's no way in hell I'm paying it.

Edited December 7, 2011 by Bryan

[Guest American Woman]

I guess that depends on what your definition of "old" is.

My Mother in Law is in her 70's and just recently got a new mortgage, line of credit, car loan, etc. We all thought she was crazy to even try to get BACK into debt after her mortgage on her appropriately sized for a single person house was paid off, but she wanted more room, a bigger yard, to travel, etc, and no one was going to stop her. The bank gave it to her. Unless she lives another 25 years, all she'll leave behind is debt.

All I know is there's no way in hell I'm paying it.

And there's no way in hell you will have to pay it if your name isn't on the loan too.

[jacee]

The banks are responsible for managing their risks.

[Topaz]

When you get a mortgage, loan or line of credit, the banks want you to have it insurance against sickness and death, so the banks do get their money back.

[fellowtraveller]

And in addition, it does not have an easy answer.

It does have an easy answer in Canada, which is different from France..

Debts transfer to your estate, but they do not transfer to anybody else after that estae is exhausted.

Your surviving children or executor or named beneficary would have zero responsibility for your actions in life or your debts after life.

I am not surprised that it is screwed up in France, their estate laws are bizarre. For example, if you and your spouse jointly own a home and one of you dies, in Canada that ownership as joint tenants ensures that the survivor gets the other share.

Not in France, where the share passed to the children who are always beneficiaries fo that share of the estate. The surviving spouse cannot sell their share either, they are allowed to live in the home until they die, when that share also must go to the kids.

Also, age has little to do with borrowing money, the lenders look at the same things as if you were young. Credit history, income, ability to repay, collateral, risk.

Your bank will be nervous about advancing gobs of money beyond what you have the ability to pay back anytime, not just when you are old.

Edited December 8, 2011 by fellowtraveller

[Guest American Woman]

When you get a mortgage, loan or line of credit, the banks want you to have it insurance against sickness and death, so the banks do get their money back.

One can have a mortgage or line of credit without having mortgage/loan insurance, and in that case the bank gets the house or whatever was used as collateral - and gets whatever money back that it is able to through the sale of the house or collateral.

[eyeball]

Le Monde had a fascinating front page article yesterday about people who renounce their inheritance because their parents have more liabilities than assets at their death.

I suspect the number of human beings who have the luxury to fuss over financial quibbles like this will dwindle sharply after present generations have liquidated most of Earth's natural and ecological capital. Most and even the 'wealthiest' of our descendants are poised to inherit a huge inter-generational inequity that no amount of renouncing will fix.

Only time and evolution will do that I'm afraid.

[CPCFTW]

I suspect the number of human beings who have the luxury to fuss over financial quibbles like this will dwindle sharply after present generations have liquidated most of Earth's natural and ecological capital. Most and even the 'wealthiest' of our descendants are poised to inherit a huge inter-generational inequity that no amount of renouncing will fix.

Only time and evolution will do that I'm afraid.

Is this stuff as comedic to anyone else?

I love reading posts from "the sky is falling" portion of the left.

[CPCFTW]

When you get a mortgage, loan or line of credit, the banks want you to have it insurance against sickness and death, so the banks do get their money back.

I'm sorry what? You can't blame everything on the banks.

Actually it's the government that forces you to get mortgage loan insurance if you put down less than a 20% down payment. This is to encourage the banks to make mortgage loans with low interest rates to people with poor credit and low incomes.

That's when people like you cry because the bank wants its money back when jacee defaults on the loan that the government coerced the banks into providing her.

[Bryan]

And there's no way in hell you will have to pay it if your name isn't on the loan too.

I know I'm not required to. What I mean is, before she would have willed the paid off house to her daughter (my wife). She could have sold the house, used it for rental income, or given it to our son. Now, that house comes with a big enough lien against it, that it would not be worth it to assume payments on another mortgage just so my son can keep gramma's house. Obviously it's her money and her choice to leave anything behind or not, I'm just saying I'm not about to inherit someone else's debt (especially since I'm not required to).

The bank has no issue with 'inheriting' her debt though, and she did not need extra insurance either, because her down payment was more than 25% of the initial mortgage (far less than 10% of the total debt now though, since she started running a line of credit to pay for a car and trips to europe and such).

[fellowtraveller]

Actually it's the government that forces you to get mortgage loan insurance if you put down less than a 20% down payment. This is to encourage the banks to make mortgage loans with low interest rates to people with poor credit and low incomes.

??? Neither the govt or the banks require you to have life or disability insurance on any resdiential mortgage at any loan-to-value ratio. It is true that the banks push hard for simpletons to buy this insurance from them, but only because they make so much money off the insurance. Note that as the value insured drops over time because you are paying down the mortgage, the premiums you pay on a declining insured amount do not decline correspondingly. Bank-provided mortgage insurance is a very poor deal for consumers.

It may be prudent to insure your loved ones against being homeless, but don't buy the crap sold by a bank,, just get cheaper and better coverage through straight life insurance.

And you are completely and utterly wrong abouyt banks being able to provide high ratio loans to really bad crdit risks. It simply does not happen in Canada, because the Bank Act restricts all banks ability to lend mortgages at 80%. After that, every borrower must meet strict and inflexible credit worthiness rules from CMHC. That fact, not opinion, is a major reason why Canada has done relatively well in the subprime mortgage horror show: because we have very few subprime loans relative to the US nightmare.

[PIK]

I came in with nothing and I am going to go out owing millions.

[CPCFTW]

??? Neither the govt or the banks require you to have life or disability insurance on any resdiential mortgage at any loan-to-value ratio. It is true that the banks push hard for simpletons to buy this insurance from them, but only because they make so much money off the insurance. Note that as the value insured drops over time because you are paying down the mortgage, the premiums you pay on a declining insured amount do not decline correspondingly. Bank-provided mortgage insurance is a very poor deal for consumers.

It may be prudent to insure your loved ones against being homeless, but don't buy the crap sold by a bank,, just get cheaper and better coverage through straight life insurance.

And you are completely and utterly wrong abouyt banks being able to provide high ratio loans to really bad crdit risks. It simply does not happen in Canada, because the Bank Act restricts all banks ability to lend mortgages at 80%. After that, every borrower must meet strict and inflexible credit worthiness rules from CMHC. That fact, not opinion, is a major reason why Canada has done relatively well in the subprime mortgage horror show: because we have very few subprime loans relative to the US nightmare.

Afaik, and according to the cmhc website, You have to get mortgage insurance if you put down less than 20%.

[dre]

Le Monde had a fascinating front page article yesterday about people who renounce their inheritance because their parents have more liabilities than assets at their death.

Le Monde

For a variety of reasons, old people either exhaust their capital or take loans against it and so at death, they are "underwater" (assets<liabilities). As a result, their children renounce any estate gifts to avoid assuming the liabilities. In the case of a spouse, it's more complicated and they apparently divorce/separate before one of them dies.

One wonders how easy/difficult it is for someone who is old to obtain credit. What stops someone diagnosed with a fatal disease from running up large debts and then gifting the proceeds to someone else? Do lenders have a legal recourse to seize such assets?

I'm travelling now so it's difficult for me to do research on the situation in Canada. As in France, I imagine that the number of Canadians "dying underwater" is increasing too.

----

If someone dies with net assets of less than zero (underwater), then the lenders in effect have given a gift to the dead person. But in Canada (as in France), we as a society have net positive wealth. So who in effect gains from this situation?

If someone dies with net assets of less than zero (underwater), then the lenders in effect have given a gift to the dead person. But in Canada (as in France), we as a society have net positive wealth. So who in effect gains from this situation?

Most large loans are insured against this. If I die my mortgage will get paid out.

This is all just garden variety risk management.

The real problem is that mortgage insurers will do whatever they can to avoid paying... and since the banks sells this insurance, but its an external product theres often clerical errors that result in your non-coverage. The CBC did a good documentary on this a while back.

Edited December 8, 2011 by dre

[Guest American Woman]

Afaik, and according to the cmhc website, You have to get mortgage insurance if you put down less than 20%.

You have to get mortgage insurance added to payments until the 20% mark has been reached; once there's 20% equity, it's no longer required.

[guyser]

Most large loans are insured against this. If I die my mortgage will get paid out.

This is all just garden variety risk management.

Hopefully from life insurance.

The real problem is that mortgage insurers will do whatever they can to avoid paying... and since the banks sells this insurance, but its an external product theres often clerical errors that result in your non-coverage. The CBC did a good documentary on this a while back.

Mortgage insurance is the worst form of insurance out. Why anyone would pay for this inferior product is beyond me.

Readers Digest version of why....

Buy $100g of mortgage insurance----pay corresponding premium every month til note is finished,

But note is diminishing each and every month, yet you pay based on $100G

You are down to your last mortgage payment, the principal amount due is $15 (yea, fifteen dollars)and you drop dead......

remember the face amount of $100G and the corresponding premium?....

the bank pays off the $15 and gives your estate a letter indicating the note is paid in full. Your monthly premium may in fact (at the end)be equal to the amount owing on your mortgage.

However....

Buy $100G of life insurance, your spouse gets $100G and can pay the mortgage off (all $15) and keep the rest...tax free !

There are a number of other problems w Mort Ins but the above is the worst reason to buy it.

Edited December 8, 2011 by guyser

[wyly]

my life insurance wipes out all my debts, mortgage, line of credit, credit cards...mrs wyly's insurance does the same plus kicks in 200K cash....the worst thing that could happen to me or mrs wyly is a long extended illness that would suck everything away...I can't speak for mrs wyly but my passing will be a quick one...

[Guest American Woman]

Hopefully from life insurance.

Mortgage insurance is the worst form of insurance out. Why anyone would pay for this inferior product is beyond me.

I agree. As was pointed out, though, it is a necessity if less than 20% was put down - until the 20% equity is met. That's for the bank's protection, of course.

[guyser]

...I can't speak for mrs wyly but my passing will be a quick one...

mrs wyly will ensure that it is fast ?

[wyly]

mrs wyly will ensure that it is fast ?

I sleep with one eye open...

[wyly]

Hopefully from life insurance.

Mortgage insurance is the worst form of insurance out. Why anyone would pay for this inferior product is beyond me.

Readers Digest version of why....

Buy $100g of mortgage insurance----pay corresponding premium every month til note is finished,

But note is diminishing each and every month, yet you pay based on $100G

You are down to your last mortgage payment, the principal amount due is $15 (yea, fifteen dollars)and you drop dead......

remember the face amount of $100G and the corresponding premium?....

the bank pays off the $15 and gives your estate a letter indicating the note is paid in full. Your monthly premium may in fact (at the end)be equal to the amount owing on your mortgage.

However....

Buy $100G of life insurance, your spouse gets $100G and can pay the mortgage off (all $15) and keep the rest...tax free !

There are a number of other problems w Mort Ins but the above is the worst reason to buy it.

hmm good info to know, I'll check out what my policies say...