Since the real estate bubble burst, I’ve been seeing a lot of ads like this.
Regardless of whether this particular ad is legitimate or not, is it legal and above board to take over payments on a house and then have the title transferred to you? With no down payment and only paying part of the mortgage, is this too good to be true?
If this is actually feasible, what would I need to know and do going into an arrangement like this?
I asked this exact same question a few weeks ago with no replies.
Are you trying to be the person who takes over payments from others, or the person who has their payments taken over by somebody else?
It’s legal for any two people to contract to do something which isn’t illegal.
For the original property owner, this would be a way to escape a mortgage they couldn’t afford (say, post-layoff) without having to declare BK. Sure, they’d abandon 100% of any equity they had, but that might be a good enough deal for a desperate person.
For the taker-over, this is a way to buy into real estate without a down payment. Depending on your situation, this could work well. I also see it as a great way for cash-rich vulture investors to buy up a lot of property cheap. If they can sit tight a few years, they might make a boat load on their invenstment, particularly if they can keep the place moslty rented while they wait for prices to stabilize.
In most cases the mortgage company will have something to say about this. Not as a matter of law, but as a matter of the contract the original buyer signed to get the loan. Often the loan cannot be assumed or assigned by the original buyer without the mortgage company’s approval.
Which they might give if the alternative was a foreclosure, or they might not if they thought the payment-taker-over-person was a worse credit risk than the original borrower.
Remember, if you’re desperate, ther’s always somebody with sharp teeth glad to help you out in exchange for a big bite outta yo’ ass.
If the alternative is losing the house and declaring bankruptcy, giving up the house and equity and keeping your credit intact is not an unreasonable plan. One issue to be aware of in addition to all the others is to know who is acting as the middleman in these scenarios and how do they expect to be paid, and by whom.
Let’s assume A owns a home worth $400,000, has a loan on it for $320,000. is 4 months behind in paymnents.
B comes in and offers A to take over his payments and bring his loan current. A then signs a Quit Claim deed to B and moves out.
Now B is the legal owner of the house. When the Quit Claim deed is filed the bank can call the note but probably will not.
B now leases the house out on a rent to own lease to C that matures in 5 years.
Now for this to work the house has to be worth more than the existing loan.
The question is what does A get out of the deal. His loan is being paid and in 5 years the house will be resold and the loan paid off.
In reflecting further though, there has to be some catch as any real property transfer is going to involve transfer/sales taxes and recordation fees totaling several thousand dollars in most cases. Who’s going to pay that? Who’s going to pay the other normal settlement fees?
I imagine not going bankrupt and having his credit destroyed is what “A” gets.
Which makes these kinds of deals the same as buying a house the usual way – credit check, loan approval, inspection, etc.
I hope people aren’t getting scammed. AFAIK, no one gets actual title to a property until it’s been paid for. I think you can quit claim your ownership interest in a property, but you can’t sell or give away property that you don’t own.
Bingo, correct
As far as I know this is completely legal. As with any real estate deal, though, I’d do the deal through a real estate lawyer to make sure your ass is completely covered.
This is know as ‘Assuming a mortgage’ http://www.investopedia.com/terms/a/assumablemortgage.asp. It is perfectly legit, as long as the original mortgage was written to allow it to be assumed. Many mortgages contain clauses which prohibit the practice.
Many years ago I bought a house and assumed the existing mortgage. I believe the sellers remained on the hook though as long as the mortgage had not been repaid in full.
Real estate person checking in. It’s legal IF the mortgage is assumable and the mortgage company agrees to it. There will be additional fees tacked on, probably to the tune of about $5K.
Thanks for the answers, folks. For the record, I am looking to buy, so I would be the one assuming the mortgage.