Pay Dirt is Slate’s money advice column. Have a question? Send it to Lillian, Athena, and Elizabeth here. (It’s anonymous!)
Dear Pay Dirt,
In June, after years and years of renting, I finally saved up enough (and improved my credit score enough) to buy a small condo. It’s wonderful, two-bed, two-bath. The location and price were exactly what I wanted. The condo fees to the management company were low and the whole monthly payment was less than what I was paying in rent. I was able to get back to saving money and even splurge a little on myself and my son.
However, in September, the condo association announced a “special” assessment for the roof. It caught multiple people, myself included, completely off guard (there had been about four other condos bought this year). My portion of it is almost $600 a month for five years, bringing this affordable place much higher than what I was paying on rent. In fact, if it had been for the fees when I was looking, I would have passed. I was informed during the inspection that it looked like the roof had another two or three years to it. I have an option of making a lump sum payment but that is way out of my price range. It was also announced that because of the way the roof and the building are shaped while two-thirds are getting done now (neither over my direct apartment), likely by the time we finish paying off this assessment, they’ll just do another. This was after I was told by the owner that they hadn’t had any special assessments for years.
I understand that if this was a house all the roof costs would fall to me, but I feel like I might have had better options. I had no say in who was chosen or what price was going to be charged (this was all done before I moved in). In the past few months, I’ve used up all my savings and am now back to cutting back on all the “fun things” even if it makes life more difficult. The whole reason I bought the place was to cut down on what I was paying! Someone suggested taking the lump sum from my 401(k) and then paying it back. I’m not sure how I feel about that. And I don’t think I have enough equity in my condo to pay for a home equity loan. What are my options here? Do I cut my losses and try to sell it even though I won’t then have enough money to buy anything in my area? Do I borrow from my 401(k)? Do I just spend the next 10 years not enjoying much of anything?
—Now Not Saving
Dear Now Not Saving,
I’m sorry you were put in such an unfair situation. Amongst rapidly rising rents, one of the biggest reasons to buy a condo is to stabilize your monthly housing costs. Having your housing expenses jump $600 per month immediately after moving in defeats that goal.
I want to address the suspiciousness of getting hit with such a significant assessment shortly after moving in, especially if you did your due diligence on the HOA and the condition of the building. You should be able to see the repair discussion in your homeowner association’s minutes, and this assessment should’ve been projected in budgets and financial statements. If multiple new buyers were surprised by this assessment, there’s a possibility that information was being concealed. It could be worth consulting with a real estate attorney to see if your situation meets the threshold for a seller disclosure case or could be covered by the title insurance from your purchase.
Taking the lump sum payment as a loan from your 401(k) is your riskiest option. For one, you’ll need to pay the loan back with interest, which can affect your retirement savings. Is a condo roof worth pushing out your retirement age, possibly more than five years, as you lose out on compound interest? But the scariest part of a 401(k) loan is that if you leave your job or are fired, you’ll typically have to pay the loan back in full within months, or it will be treated as a withdrawal and subject to significant taxes and penalties.
If you feel the special assessment is too much to handle or you’re starting to feel skeezy about the condo association’s motives, selling the condo might be the best way out. But before selling, research how quickly rents on similar properties are increasing in your area. This rent versus buy calculator includes rental growth projections. It will help you run the numbers on whether you’d be better off financially in the rental market than paying the assessment over the next five years.
Suss out the vibes of the honesty of the condo association and factor that into your decision, don’t just focus on cost alone. It’s a lot to add to your monthly budget, but if it’s genuinely a needed repair, it’s adding to your property value and making your house safer. Depending on the local market, the extra $600 might not exceed how much you’d end up paying in rent. But if you’ve been tricked into buying the property when they knew a special assessment was coming, or the repairs seem to cost much more than reasonable (or are done by the owner’s cousin’s brother-in-law), I’d sell simply to get out of a sketchy building.
In the future, you might look into loss assessment coverage on condo insurance—this only covers costs in a few specific situations but may be a way to hedge some financial surprises.
Dear Pay Dirt,
Despite being an intelligent, sensible woman, my mother became the victim of a scam where the criminals claimed that I was in prison for hitting a child while driving drunk (I don’t even know how to drive!), and needed money for bail. They even had a woman come on and pretend to be me, hysterical. Blinded by motherly concern, she acted without thinking and lost $10 000 via e-transfer. We’ve called the police and her bank, but is there any chance of getting the money back? I’m upset with her, and she’s upset with herself, and we don’t know what to do. How do we get over this?
—Not a Jailbird
Dear Not a Jailbird,
I’m sorry to hear about the terrible scam that your mother fell victim to. It’s important to remember that scammers are very good at what they do and can be very convincing. It’s not uncommon for people to act without thinking when they believe their loved ones are in danger or need help. The scammers probably relied on the shame of drunk driving and hitting a child to keep your mother from talking to someone else who might realize the details didn’t add up.
As for getting the money back, it’s common for scammers to use methods that make it difficult to trace their activities or recover stolen funds, like an e-transfer. The FTC recommends asking your bank or wire transfer company to reverse the transaction.
And as for moving forward and getting over this, it might be helpful to focus on what steps you can take to protect against future scams. I’d also reassure your mother that she’s not alone and that it’s not her fault. These scams are sneaky. Generally, no legitimate situations require “immediate” payment to get someone out of trouble. If you get a call like this, hang up and directly call the person “in trouble” at a phone number you know is right. Check if they really need help.
Dear Pay Dirt,
I am a recently divorced mother of a 14-year-old who is struggling with his mental health. We are at the point of investigating hospital-based interventions (intensive outpatient, partial inpatient, etc.), the cost of which could be as much as $15,000-$20,000 out of pocket if I don’t run it through insurance.
I work for a very small family-owned company and their insurance plan is self-funded. This means the company pays directly out of pocket for any claims incurred. Because of this, they see all actual costs. I’m not sure about the level of detail they get (e.g. the provider, services provided, etc.) but they very definitely see each person’s total claim costs. While I’m fairly certain it’s illegal and very certain that it’s immoral, I know for a fact that the controller looks at these costs and actively advocates terminating our older employees with high healthcare costs. I worry for my job if I were to submit this level of claims, especially if they’re able to tell that it’s for mental health, which can be chronic and need ongoing care, rather than an isolated catastrophic illness or injury.
My parents are very comfortably retired and each year gift their three children the $10,000 maximum cash gift that is allowed before triggering taxes. Half of that has already been given and spent this year. I expect the other half at Christmas and had it earmarked to take the pressure of monthly bills and start rebuilding my non-existent post-divorce savings. I am thinking of asking them if they’d be able to pay for his hospital services, which I’m certain they can do comfortably. My question is whether or not they can do that without it being considered a gift for tax purposes. To be clear, they’d be paying upfront for services, not gifting me money to pay the already accrued medical debt. (Even if I do eventually decide to run it through insurance, the out-of-pocket costs will still wipe out my savings.)
—I Wish I Could Worry About My Son Instead of Money
I am so sorry that America is like this; you’ve highlighted yet another reason to decouple health care from employment in this country. And you’re right: This kind of discrimination in health plans is illegal, but it happens regularly. In a self-funded health insurance plan, your controller will see that you are getting more health care than usual—and they may be able to see the providers or facilities where health care was provided. Especially in a smaller workplace, it’s often easy for an employer to make an educated guess even without that data, especially because HIPAA protections do not cover other employee benefits. But just because your employer might do illegal things doesn’t mean you shouldn’t utilize the insurance you are entitled to, especially for something as expensive and serious as inpatient mental health treatment.
The good news is that if you can get help from your parents to pay your out-of-pocket costs, they needn’t worry about gift taxes. Direct payments to providers for medical expenses are not part of the definition of “gifts” used on the federal gift tax return. Your parents would not even need to report their payments of medical expenses to the IRS. They’d also be able to give you and your son up to $16,000 (2022 limit) each, plus pay for medical costs directly, before they’d even need to fill out the gift tax form. Your parents would also have to be very comfortably retired with a joint estate of over $25.84 million to owe any taxes on the gifts (even over the annual exclusion) made between 2018 and 2025.
And a final word of advice: Please be cautious of troubled teen industries. There are many programs preying on worried parents with kids struggling with mental illness. They market themselves as “treatment” facilities but often end up harming these teens further, even causing their death. Typically, they’ll advertise themselves as more affordable than insurance-paid inpatient programs and offer payment plans for parents. Sending your son all the healing wishes to get the treatment he needs.
Dear Pay Dirt,
I am in my early 30s and facing many of the same problems as other millennials—student loan debt and an impossible housing market. I currently rent a room in a townhouse and am in graduate school so my loan payments are deferred, but I am also accruing more debt for my master’s degree. I am ready for a place of my own but feel overwhelmed at the thought of taking on a mortgage, and unsure of where to start. At the same time, my mother is considering selling her house, which is in a very desirable neighborhood in our city, to buy a new place with her boyfriend. Her house is small, only has one bathroom, and is livable but needs a lot of work done. We think that if she sells it, it’s likely that someone would tear it down and build a large house on the property, which is what has happened to many of the older houses in that neighborhood. I would love to buy her house and borrow extra in order to renovate it. How would we even go about doing this?
Neither one of us is wealthy, and my mom needs to get as much money as possible for her house but also isn’t interested in pouring money into it before selling. This is all complicated by the fact that my mom still owes money on the house, and also has parent PLUS loans that my sister and I will need to take on so that my mom can retire. I also want anything we work out to be equitable to my sister, but I don’t know exactly what that would look like—my sister lives in another state and has a house, and is fine with whatever we do as long as my mom gets what she needs financially to be comfortable. Where should we start to figure out if it’s possible to do this in a way that would benefit all of us? I grew up in this house and would love to turn it into my own place, but I’ve also watched my mom struggle to pay for everything and keep up with maintenance and repairs, and I’m terrified of getting in over my head.
Dear Treading Water,
I’ll say it upfront: To me, you’re not in the best position to make this home purchase work in the near term. To qualify for a mortgage, you’ll need the last two years of working in a field before most lenders consider that income, which could be a factor if you’re not working full-time while in graduate school. Your student loans will also count against your debt-to-income ratio, reducing the amount you can borrow.
If you don’t have enough savings for a down payment right now (which would be understandable right after grad school), and your mom doesn’t have the wealth to purchase another house without selling this one—this might not be an option for you. Plus, a business deal with family can get messy and hurt your relationship. Think about what the holidays would look like if you learned that your mother knew about water damage but didn’t tell you so she could get more money out of the house.
You do have several financing options that could include extra for repairs if this childhood home is important enough to make this transaction. I recommend taking the homebuyer education course at your local FHA homebuyer’s center and walking through your options with one of their homebuying counselors. They will review how much you can borrow with your student loan debt and give you a good idea of the available mortgage types, including special programs for your city and in-family transfers.
Before my mother died, she had the diamonds on her engagement ring made into three necklaces for her three granddaughters. My niece left hers with her mother before going to college; she is engaged now and wants to turn the necklace back into a ring. My sister lost the necklace. She swears she turned the house upside down looking for it. It’s missing. Now my sister wants my daughter to give up her necklace and pretend it is her daughter’s. The necklace has been appraised at over $1,000.
Update, Dec. 20, 2022: This post was updated to more accurately characterize loss assessment coverage.