How to Take Over a Home and Mortgage of a Family Member
Deciding to take over the home and the mortgage of a family member can be a delicate and complex process. Understanding the legal and financial implications is crucial to avoid any unforeseen complications. This guide explores the options available, restrictions imposed, and considerations to keep in mind.
Understanding Due on Sale Provisions
Most secured home loans include a 'due on sale' provision. This means that if the owner/borrower sells the house, the loan can be accelerated and made due and payable in full immediately. Even leases with options to purchase can trigger this clause. In such situations, you would have a very short time, perhaps as little as 30 days, to find a new loan. If the property or the borrower fails to qualify, the property could be lost through foreclosure.
Assumption and Release Agreement
An 'assumption and release' agreement is one of the options available. Some lenders may permit loans to be assumed for a small fee, provided the person assuming the loan qualifies independently to carry it. However, this option is usually only available between related parties, such as spouses, domestic partners, or business partners who are separating and going their separate ways. You will need to carefully review the old owner's loan documents and seek legal advice from a real estate attorney to navigate the process.
Buying on a Land Contract
Another option to consider is buying the property on a land contract. In this scenario, the current owner would remain responsible for the mortgage, but you could make the payments. Over time, you could work to complete the deed and take full ownership of the property. This method can be advantageous as you get to build up equity while you own the property.
Rental Agreement with an Option to Buy
Another strategy is to rent the property with an option to buy. All rental payments would go to the lender, and over time, you can build up the equity. This approach can be beneficial if you are not yet ready or able to assume full ownership immediately.
The Best and Safest Way to Transfer Ownership
The best and safest way to transfer ownership of the property is through a formal sale from one party to the other. If there is a mortgage on the property, it might be assumable, but you would need to check with the lender first. Assuming the mortgage without notifying the lender and getting official approval can result in the lender calling the loan due and payable.
Summary
To summarize, when considering taking over a family member's home and mortgage, you must first understand the 'due on sale' provision and explore options such as an assumption and release agreement, buying on a land contract, or setting up a rental agreement with an option to buy. The best path forward is usually a formal sale with possible mortgage assumption, but always check with the lender first. Seeking legal advice is advisable to ensure a smooth transition and avoid any legal pitfalls.
Important Key Phrases: