Buy, keep owner as tenant? Foreclosure

[Tami Olsen]

I am really not sure where this posts belongs as it touches on a few different topics. I had posted this on a FB group and it was recommended I try here as well for more advice on the investment side.

We met a woman whose house is being foreclosed on. She lost her job and has no income at this time. House is set to go to auction in May, she turns 62 less than a month after that (June) so will be eligible for SS at that time.

Is it common that when they look at modification and working out the loans, they would not have looked that far ahead to see she would be getting steady income?

She mentioned declaring bankruptcy to stop the foreclosure but I know I read (here I think)  that while it would do that, it will cause other issues.

She has no family left to help her and apparently her loan was an HELOC so when she defaulted they called it in in full (from what she told me, I have not seen any paperwork).

The house is semi-for sale so buying it is an option but of course she still has nowhere to go. She's applied for elderly housing in a few towns but in one of them I know the wait list is 1-2 years. Even if someone bought today (it's a cash sale) she said she'd want 2-3 months to get situated somewhere else, which could be a hotel.

Buying the house and keeping her as a tenant is an option but she would not be able to afford to pay market rate even with her SS. Close but no cigar. There are unfinished rooms on the second floor though which could be finished and heated, even with a bathroom so perhaps a roommate is possible with a shared kitchen? But I am not sure if that is legal - I know an owner can rent rooms if they live there but I am not sure of the legality if they are not living there. Think same entrance, shared kitchen and laundry. 

On the plus side, keeping her as a tenant means doing a lot less work to the main floor that she lives on, than we would otherwise. On the big minus side, of course she could manage to default again and then we'd be responsible for kicking her out.

My questions: is there any way to reopen the case with her upcoming income? Or is it a done deal now that the courts have issued an auction date?

I did contact HUD counseling and at least have the right phone number and will give that to her next week. They in turn gave me info for my state but I'm not sure that will work, but it's at least someone to talk to. I know she really should talk to a lawyer soon.

Someone on the other group mentioned that investors sometimes buy and let the owner live there for awhile after with the proceeds from the sale or whatever.

In a nutshell, my perfect world has this lady keeping her house until she dies or voluntarily leaves. Next best is we buy it as a rental (a) with her or (b) without her. 

I'm sure most feel 2b is the best option but I'd really like to see if 1 or 2a works as well. No, I cannot afford to lose money monthly waiting for her to "move on" either! - she's not *that* old and I'm not 20.

(some details have been glossed over so that I don't bore you but I will be happy to answer any questions)

Thank you!!!