Is It Better to Sell My Mom’s House or Have It Go into Foreclosure?

Q:

My mother was admitted to a nursing home in November 2016. At that time we applied for Medicaid and she was approved. In April 2017, she had a stroke and my sister decided to take care of her at my sister’s house. My mother’s house is valued at around $80,000, and she has a mortgage with a $57,000 balance. No one is currently living in the house and between the mortgage, insurance, and taxes, it is a financial burden to keep the house. I think it is best to let the house go into foreclosure, but my sister wants to do a short sale. I am concerned about the legal issues for both. We are not trying to make money but my sister is trying to save my mother’s credit rating. I understand that Medicaid views the home as an asset. Will there be penalties associated with either scenario? We really do not know how to proceed. Any help would be greatly appreciated.

A:

While it’s impossible to say for sure, I don’t think you would have a problem with either approach. Both ways of proceeding can be defended to the state Medicaid agency as a rational economic decision. The route that could get the most money out of the house would be the best if that can be determined. That said, I’m not sure why your sister would be concerned about your mother’s credit rating. I assume she is not going to go out and buy another house or car at this point in her life.

David Wingate is an elder law attorney at the Elder Law Office of David Wingate, LLC. The elder law office services clients with powers of attorneys, living wills, Wills, Trusts, Medicaid and asset protection. The Elder Law office has locations in Frederick and Montgomery Counties, Maryland.