Dad passed away, Mom is losing house

Posted by Cam on May 21, 2008 at 07:57:58:

My dad passed away last month. My parents have been upside-down in their mortgage. Mom now owes about $550K ($430K on first mortgage and $120K on second...together about $4,400/month). According to Zillow.com, house is worth about $450K. So she's under water by $100K. They had been taking money out of their IRA to pay the mortgage--not good.

Mom really has no assets, other than car and furniture, outside of IRA money, which should be safe. She will get my dad's social security check and pension. We're planning on getting her into senior housing. Rent is a maximum of 30% of her income after health insurance and prescriptions. Talked to a bankruptcy lawyer, and he said that she should stop paying my dad's credit card bills and the mortgages and let the house go into foreclosure. He said that my mom would be pretty much "judgment-proof."

Here's the new wrinkle: Mom just found out that my dad had a life insurance policy through his former employer with a death benefit of $100K.

If we let the house go into foreclosure, first lender could probably sell the house at market value and get his money. Second lender would previously have been out of luck based on my mom's situation. Now, however, I would think that the second lender would be able to go after the $100K from the life insurance. Is there any way to protect that money?

Thanks for reading.

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