There is a house down the street from m that is about to go into foreclosure. I don’t know the people personally and in about 2 months the bank will get the house. I would be willing to take over the payments for the title - basically not a short sale and they still lose the house but it is not a foreclosure. The public trustee and the attorney won’t act as the middle man and the bank couldn’t care less so what is the best way to approach basically a stranger and see if he’s interested?
You’re going to need a lot more information. It’s my understanding, if they have a conventional loan, that’s generally not allowed.
I’d guess the only thing the bank would be happy with is if the OP caught up all the back payments and then purchased the house in the normal way (which would pay off the loan). This, however, isn’t what the OP wants.
I think, what the OP wants is to just take over the payments and move in but have nothing else about anything change. No one would know it happened. You could do it, but it’s risky since they could kick you out whenever they wanted, you’d be tresspassing/squatting, but at the same time, you could be held responsible for anything illegal they did that tracked back to that address. It’s a mess waiting to happen.
What you want to do is lease a house. If that’s all you want to do, you’re best bet is to check the newspaper and find a landlord that’s renting one.
If I understand the OP correctly-- you want to gain title to the house, but leave the mortgage under the current owner, while you take over making the payments? I believe the bank will care very much if the mortgage holder is no longer on the title.
Basically the guy is going to be kicked out and the bank gets a property it doesn’t really want. What I would do is take over the payments and the mortgage and title would be in my name which foregoes the down payment and needing a 640 minimum FICO.
That’s buying the house.
ETA, that’s buying the house for what he still owes on it.
The problem is, that he’s probably upside down on the loan, otherwise he could sell the house and get out of this mess on his own, right? If the house could be sold for 100,000 and he owes 90,000, he’d be fine. But it’s probably worth 100,000 and he owes 120,000. A bank isn’t going to give you that money (with no down payment, as you stated, which is really the issue here) and I really don’t think his bank is going to let you take over the payments. I’ve never heard of that happening. It seems like the best bet would be to get a lawyer involved and do this all privately.
You get the payments back on track to get the bank to leave him alone.
After that’s taken care of, then you secure the money to buy the house from him.
That used to be possible under what was known as an assumable loan. That type of loan is pretty much extinct.
IANAL but if the house has a mortgage, that is registered with the title office as a lien(?) on the property. The title cannot be transferred unless the lien is paid off. The normal process would be that the bank giving you a mortgage would pay off the outstanding mortgage, and register the title transfer and the new mortgage. (Your State’s Mileage May Vary)
WHat you are proposing either (a) does not transfer title, in which case in a few years the current owners have you evicted as squatters, or (b) you have a piece of paper saying that they sold, which (again IANAL) because the transfer was never registered may be of doubtful validity or © people who cannot support a mortgage go into bankruptcy, the asset (by title deed) is counted as theirs and sold out from under you at auction, etc.
There’s no great upside for them, since basically their financial health and credit score is dependent on your financial behaviour. If the trick is to avoid having the bank look at your creditworthiness, that probably says something. Besides, what did you plan to do in a few years when the mortgage is up for renewal? Have them return from somewhere across the country to sign to promise to pay based on your goodwill?
Plus as others have pointed out, they probably owe several (many) months back payments, and the home is foreclosing because they probably cannot (have not been able to) sell it for enough to cover the mortgage and back payments. If that is the case, why would you not let it go to auction and buy it then - likely for less than the current outstanding bills.
If the reason is to help out the current owners - buy it through the normal channels. If the reason is that no bank would finance the purchase - well, maybe the bank is trying to tell you something.
It occurs to me you could register your payments on the mortgage as a lien on their house title too, but an accumulating lien like that would require serious legal help - essentially a second mortgage that increases every month. Probably costs more in legal fees than it is worth. Then they would have to transfer when the first mortgage is paid off, meaning you’d have to find them in 25 years to sign.
One could think of a 2nd mortgage that was a line of credit, and it started off having a low capital drawdown but it then increases over time, as the 2nd mortgage repays the first
The state may have rules against a mortgage being used for this purpose! and what with the nearly infinite amount of common law… (who’s to say that there was no case from 1809 where such an arrangement seemed to be corrupt… ? ) they ignore the mortgage , giving you nothing for your money !
Well anyway isn’t it better to turn up at the auction and pay a low prices and buy clear title cheap ?
I think you would need to
- Get loan arrears taken care of
- Find out what he wants, and give it to him
- Get a quit-claim deed from him, and or a Contract for Deed
- Start making payments.
The payments would increase his credit, until you could get your credit situated and get a loan and pay his off, at which time you would register your #3 with the county.
Don’t take my word for it, research yourself, but, I think this will get you into the ballpark.
Caveat: He may have one million dollars of loans/liens against his property, which you would need a Title Search to find out about, not just his word.
Also, in some loan defaults, the bank may not be willing to take back payments, they may just want to foreclose; you would have given him his requests and get nothing in return.
If the piece of paper is notarized, generally it will pass muster with most courts and/or courthouses. The notary, if genuine, will give it about as much validity as would be needed, barring any statute of limitations.
Good point about the bankruptcy thing, tho.
Short walk with a case of your finest local lager?
Ianal (not often though!) but couldn’t you sort out and sign a contract with him to enable you to pay on his behalf, him to continue living there until full ownership achieved by you, which happens (according to that contract) when his loan is paid out in full, and he is then bound to transfer the title to you?.
This seems to give you a cheap investment property with a tenant with a vested interest (his credit rating) it gives him the chance to not wreck his rating due to foreclosure, and maintain solid housing in the medium term. The bank also gets everything they initially expected, so in theory, I don’t see the problem.
That would certainly be a short sale. You get the title, the the seller gets off the hook, and the bank gets the shaft.
Here’s how you do it. Make a purchase offer to the owner, and have him sign. He will have to get bank approval. If the bank thinks it is the best choice for them, they may OK it. If there’s any way you can make personal contact with someone at the bank – that’s sometimes possible with small, local banks – see if they will work with you.
You will need written permission from the owner to talk to the bank because you are meddling in personal finances. For that and other reasons, I strongly recommend the services of an experienced real estate agent and/or attorney.
Dalf DeRouse, I think that was his name had a series on what you are planning.
His plan called for the owner to sign a quit claim deed over to Dalf.
He would then bring the loan current and start making payments.
He would then rent the house out on a 5 year lease to own agreement.
If his tenants were ready to purchase the house after 5 years he would pay off the loan, get clear title to the house. Then sell it. If his tenants were not ready to purchase he would start another 5 year lease to own agreement.
Up side. The people loosing the house would have their credit restored, that is no foreclosure on their records and a loan in their name brought current. The tenants can purchase a house with the gain in equity as the down payment. Dalf would make money on rent and share in the equity increase. This works when house prices are going up.
Down side. Bad tenants. House prices can go down. And when the quit claim deed is recorded the bank can call the note.
This is not a short sale. He gets the title and the note. The seller gets off the hook. And the bank gets the payments on the loan. But for this to work the buyer will have to make loan current. The bank does not have to go through the expence of foreclosing and possably selling the house for less than the loan balance.
A short sell is selling the house for less than the balance of the loan and the bank gets stiffed the balance.
Banks don’t “get” the house unless the bank and owner agree. Without the cooperation of the owner, the bank’s only recourse is a public auction. The bank has a fiduciary obligation to get as much as reasonably possible. (i.e. it can’t hold a secret auction where the bank president’s son gets it for $2300.00). If the bid is for less than the outstanding mortgage, the owner is still on the hook for the balance, but it’s an unsecured loan with little chance of collecting. If the bid is for more than the outstanding balance, the excess must be given to the owner.
Banks, however, are allowed to bid at the auction. Most banks will open the bidding at the outstanding balance otherwise they have to declare the loss at the time of the auction.
There are two ways this could plausibly happen. The first is a novation. Basically, it’s a substitution of one party to the contract (the present owner) for another (you.) However, a novation requires the bank’s consent, and it’s highly unlikely that they are going to give it if you don’t have the credit score to qualify to undertake the loan yourself.
The second is an assumption - you take title subject to the mortgage and your name is added to the loan, essentially. This is a great deal for the bank, since it can then sue either you or the previous owner (or both) if you default, plus foreclose on the house, but it’s a terrible deal for the prior occupant. Sure, he is out from under the house, but he’s still liable on the loan.
What I am describing (post #14) is exactly what a short sale is, selling the house for less than what is owed (to anyone). Whether the bank gets stiffed or tries to collect the balance has no bearing.
The bank does not have to foreclose to make it short sale. The bank might think that such an offer as I described is their best chance to recoup the most possible.
As mentioned above, I looked up “quit claim deed” and that sounds exactly like what the OP wants.
As mentioned, assume nothing - check for additional liens. The quit claim gives you the same rights as the original owner had, but any outstanding money owed - bank mortgage, back taxes, arguments with building trades resulting in liens - those still apply.
The downside for the original owner is that their name is on the mortgage until the bank allows a transfer. The OP could turn it into a crack house, grow op, or simply rent it out and pay nothing to the bank. Even if the OP honestly tried to make things work, if he failed to make payments, the burden falls entirely on the original owners.
Basically they are placing themselves in the OP’s hands. If the point is to rebuild their credit, that is a mighty big pile of trusting. Until the bank agrees to transfer the mortgage obligation to the OP buyer, the original owners are the only ones on the hook. If the bank won’t lend the OP the money (and they can afford to lose it) why would you think you know better than the bank about judging risk? From the OP it appears he is a stranger to these owners.
My next question, is how does a quit claim work? If it is not registered with the land titles office, hen the original owners could (fraudulently) obtain a second mortgage (or refinance) any time down the road and cause legal headaches for the OP, although in the long run he should win.
The same question applies as before- what happens when the mortgage is up for renewal? You have to find the original owners to sign for the next term of the mortgage. if they choose the higher interest rate in return for a $5000 “cash back” option, well, sucks to be you with nothing but a quit claim deed. In another couple of years you have to find them again. This is why you want the mortgage transferred to the name of the new owner ASAP.
Helping out the way you’re suggesting usually only works well when you are helping immediate family and you trust them.
Also remember that the first few years, typically, the majority of a mortgage payment is interest and very little of the principle is paid down. If the owners are at the point of losing the house, odds are they have accumulated a lot of debt which is back interest, and the value of the house is possibly much lower than the total owed in mortgage and taxes (or else they would have gone with a regular sale before now). You’re not just “taking over payments”.
Also consider that if the house has repair issues, that may also indicate why the house was not sold on the market. You want a good home inspection. A “free” house that needs tens of thousands in repairs is not a bargain. Some municipalities (IIRC Toronto has this issue) a rental property is considered commercial and a higher property tax applies. Then, to keep the mortgage valid you also need house insurance to pay off the bank if the place burns down; not sure if that costs more if you are renting. More expenses.