My wife and I want to buy the house that we are currently renting from my father in law. Further, he wants to hold the mortgage so that in case anything happens (we die, we default, we get abducted by aliens) the house stays in the family. The house will be sold to us for fair market value and we want this all to be on the up and up. What needs to be done for this sort of arrangement? Some things that I can think of include (in no particular order):
Inspection and resolution of any problems found
Some sort of legal agreement specifying the terms of the mortgage. I imagine that this would be done though a real estate lawyer.
Something like a lien placed against the house so that my father in law can recover it if we don’t pay up?
I’m sure that there are a hundred other things that I am not thinking of. What’s the Straight Dope?
Yes, a mortgage or security agreement of some type should be filed as a lien against the property and that security agreement needs to detail the repayment of the loan. You can even have a third party act as trustee to handle all of the payments and such.
Other than that it’s just like buying any other house. Have a home inspector come and look it over, etc. You’ll also want to still go through a title company so that they can issue you an owners policy to make sure that your ownership of said property and the transfer of such is free of defects, get the mortgage and deed recorded for you and just make it as close to a normal closing as possible. They’ll also make sure that it stays as fair as you’d like it to be in terms of property tax payments and the like.
I bought a house from my parents, and we used a real estate lawyer for all the details. He didn’t charge much - I’m thinking less than $200 - and he made sure all the legalities were in place. It was pretty easy.
You probably can get recent sold properties from a local neighborhood Realtor for a minimal charge. Ask them to go back only six months and see what sold and also what is on the market.
Well - if he sells you the house, and finances the mortgage himself, he does NOT get the house if you both die. That is, unless your wills are so set up. It’s treated the same as if you were financing it through any big mortgage company. Obviously if your heirs don’t keep up with the mortgage payment, then he could foreclose on them. But it does not automatically go back to him.
Default? Yeah, he can take it back.
Abducted by aliens? You’ll miss a few payments, then go into default, then see above.
Other than that - yeah, you can draw up whatever contract seems appropriate, and you’ll want a real estate lawyer to vet whatever you do and prepare the paperwork. Could be a win-win situation all around - your FIL might give you better-than-market financing, he’ll get a steady stream of income.
I knew of a family where the mortgage was from the grandparents. IIRC, the grandparents’ wills were written so that the mortgage was forgiven upon their deaths. I’m not sure what the tax implications are there - probably the mortgage is treated like any other asset of the person who died, and its value subject to state / federal inheritance tax.
