I am currently renting my house to a family who has been trying to secure a mortgage so that they can buy it from me. They have been unable to secure a mortgage and have proposed that I do a QCD to transfer my ownership rights to them. I would dearly like any feedback on their proposal as the nature of this transaction is completely new to me.
Summary of their proposal is as follows:
They would pay me lump sum down payment for the difference between sale price and my mortgage.
They would take ownership of the house “subject to” the existing mortgage and then they would assume responsibility for the monthly mortgage payments. We would set up an interim bank account so that I could monitor the payments in and out and know immediately if a payment was not being made.
Some questions:
They are claiming that full closing costs are not required on the transaction. Is this correct?
Will the existing mortgage count against me from a credit assessment standpoint if I were to try and raise a future mortgage to purchase a new house?
What protection can I put into the contract to protect myself if the buyer does not pay their monthly amounts?
You need to talk to a lawyer licensed in New Jersey. I think attempting to convey the property to someone else without the approval of the current mortgage company might cause some problems, but this is way out of my practice area, and I’m not licensed in your state.
If they are unable to secure a mortgage, then they are presumably not good credit risks. I, personally, would therefore be not very happy loaning them money which is essentially what you’re doing. You only transfer your rights to the property (whatever they are) with a QCD. The mortgage would (I’m pretty sure, but I’ve only ever heard of QCDs used to transfer unencumbered property between relatives or in a divorce) still be in your name and be your liability and count against your credit score.
Real estate transactions are definitely things that should not be done without a lawyer.
I’m surprised they suggested a quitclaim deed. I could give you a quitclaim deed for my ownership interest in the Brooklyn Bridge, and that would be perfectly legal.
Get a good NJ real estate lawyer and see what they suggest. I’m thinking installment sale, just to kick around one idea.
This sounds like an absolutely terrible idea. You are going to remain fully liable under the mortgage, which you will almost certainly have breached by selling the underlying property. Hire a lawyer, and if he suggests you go ahead with this transaction, fire him and hire a different one.
What they said – I very much doubt you have a right under your mortgage to absolve yourself of liability to pay without the noteholder’s permission, which is what the scheme anticipates. It seems like the likely outcome is that you’d be liable on the note if they fail to keep up with the payments, but you’d have no remedy against the buyers in such a situation. (And even if you had legal recourse, if they didn’t pay the note because they were broke, your legal remedies against them would be worthless.)
IIRC, if you take it “subject to” the seller (you) remain on the hook for the balance no matter what.
Overall, I would say - don’t do this. They need to get a lawyer, and so do you. Sure, they cost money, but there’s a good reason for one in a case like this.
But if you did actually own the Brooklyn Bridge, like the OP does his home, then you would be transferring all of your interest in the Brooklyn Bridge.
Actually the QCD is better for the OP than a general warranty or other type of deed. He would owe them no assurances that he has good title. However, for the other reasons suggested, it is still a bad deal. They are basically asking you to finance the property for them. And since the bank won’t lend them money, why should you?