Can I lease my ex my home???

[houston79]

What is the name of your state (only U.S. law)? TX. I currently own a home in my name only. I bought it before we were married. But we lived together for 3 years before I bought the house. My ex and kids have been living in it for about 13 months now. She's been paying the mortgage with no problem. Nor have I missed a child support payment. I want to give it to her. However, she is unable to get a loan for a number of reasons. Also she's refusing to sign the divorce. I've been living with a buddy since I left. Its time for me to get my own place. I cant get another loan on a new place or even a lease because my debt to income ration is too high with the mortgage. Can I lease her the home? What are my options other than her moving out?

 

[mistoffolees]

What is the name of your state (only U.S. law)? TX. I currently own a home in my name only. I bought it before we were married. But we lived together for 3 years before I bought the house. My ex and kids have been living in it for about 13 months now. She's been paying the mortgage with no problem. Nor have I missed a child support payment. I want to give it to her. However, she is unable to get a loan for a number of reasons. Also she's refusing to sign the divorce. I've been living with a buddy since I left. Its time for me to get my own place. I cant get another loan on a new place or even a lease because my debt to income ration is too high with the mortgage. Can I lease her the home? What are my options other than her moving out?

Is the divorce final? If so, you have to do whatever the divorce decree says.

Otherwise, you can easily petition the court for you to own the home and lease it back to her for a given amount. If it's your home, you can lease it to whoever you wish.

(note: if she's been paying the mortgage, you may owe her some percentage of the home value as her share of the equity)

 

[LdiJ]

What is the name of your state (only U.S. law)? TX. I currently own a home in my name only. I bought it before we were married. But we lived together for 3 years before I bought the house. My ex and kids have been living in it for about 13 months now. She's been paying the mortgage with no problem. Nor have I missed a child support payment. I want to give it to her. However, she is unable to get a loan for a number of reasons. Also she's refusing to sign the divorce. I've been living with a buddy since I left. Its time for me to get my own place. I cant get another loan on a new place or even a lease because my debt to income ration is too high with the mortgage. Can I lease her the home? What are my options other than her moving out?

I have a different idea, that would net you the same result.

Sell it to her. Be the mortgage holder yourself. If you want to give her the equity in the house (which your post seems to imply), then sell it to her for the balance due on the mortgage. If you want a share of the equity, then sell it to her for the balance of the mortgage plus your share of the equity. Give her the same interest rate that you currently have, or perhaps half a point higher.

You can have a real estate attorney draw up the paperwork for the sale. You will want the contract to state that you retain title to the home until she pays off the mortgage or refinances with another mortgage company.

This will help your debt to income ratio the same way that leasing it to her would, but this would truly be a plan that would eventually give her title to the home. The advantage to this is that she would be reponsible for maintenance and repairs, whereas if you lease to her, you are responsible for maintenance and repairs. She would also feel more "invested" in the property. Eventually she will probably qualify for a mortgage with a regular lender, so its unlikely that you would have to do this for 30 years. However, try to structure the length of the mortgage so that her payment remains basically the same as it is now.

 

[mistoffolees]

I have a different idea, that would net you the same result.

Sell it to her. Be the mortgage holder yourself. If you want to give her the equity in the house (which your post seems to imply), then sell it to her for the balance due on the mortgage. If you want a share of the equity, then sell it to her for the balance of the mortgage plus your share of the equity. Give her the same interest rate that you currently have, or perhaps half a point higher.

You can have a real estate attorney draw up the paperwork for the sale. You will want the contract to state that you retain title to the home until she pays off the mortgage or refinances with another mortgage company.

This will help your debt to income ratio the same way that leasing it to her would, but this would truly be a plan that would eventually give her title to the home. The advantage to this is that she would be reponsible for maintenance and repairs, whereas if you lease to her, you are responsible for maintenance and repairs. She would also feel more "invested" in the property. Eventually she will probably qualify for a mortgage with a regular lender, so its unlikely that you would have to do this for 30 years. However, try to structure the length of the mortgage so that her payment remains basically the same as it is now.

Make sure you do the math on taxes before trying to make her payment stay the same. If you charge her the same monthly amount in rent as a mortgage payment, the NET (after tax) amount you receive will be different. Instead of trying to make the payment stay the same, I would try to equalize the AFTER TAX contribution.

If you lease it to her, you're going to pay the property taxes and you'll get the interest deduction. If you sell it to her and carry the mortgage, she'll get the interest deduction and you'll pay taxes on the interest.

It's not hard to adjust the interest rate so you come out even, but you need to take those things into account.

 

[LdiJ]

Make sure you do the math on taxes before trying to make her payment stay the same. If you charge her the same monthly amount in rent as a mortgage payment, the NET (after tax) amount you receive will be different. Instead of trying to make the payment stay the same, I would try to equalize the AFTER TAX contribution.

If you lease it to her, you're going to pay the property taxes and you'll get the interest deduction. If you sell it to her and carry the mortgage, she'll get the interest deduction and you'll pay taxes on the interest.

It's not hard to adjust the interest rate so you come out even, but you need to take those things into account.

Much of that is incorrect.

He still will be getting a deduction for his mortgage interest and the property taxes, it will just be built into the installment sale rather than into rental income/loss. She will get a deduction for the mortgage interest on HER mortgage, but not on the property taxes as she will not be liable for them, since he would be holding the title.

Basically the net effect on his taxes would be little different than the net effect of renting the property. Rental income is offset by expenses (mortgage interest, property taxes other expenses) and Installment sale income is offset by expenses as well.

 

[mistoffolees]

Much of that is incorrect.

He still will be getting a deduction for his mortgage interest and the property taxes, it will just be built into the installment sale rather than into rental income/loss. She will get a deduction for the mortgage interest on HER mortgage, but not on the property taxes as she will not be liable for them, since he would be holding the title.

Basically the net effect on his taxes would be little different than the net effect of renting the property. Rental income is offset by expenses (mortgage interest, property taxes other expenses) and Installment sale income is offset by expenses as well.

As a financial professional, you should be more careful.

Let's do the math. Assume his mortgage payment of $1,000 to the bank and she also pays $1,000 to him (either rental or mortgage payment). Assume taxes of $3,000 per year. (none of the assumptions change anything, but they allow an estimate to occur). For simplicity, I'll assume that they're early in the mortgage so most of the payment is interest and I'm calling the entire amount deductible. That is obviously not correct, but a more detailed analysis gets the same result.

He rents to her:
Her $1,000 payment is not tax deductible. He pays the taxes.
He gets mortgage tax deduction ($1 K per month) but he has rental income of $1 K per month. His net deduction is $3,000 per year (taxes). She pays him $12 K and he pays out of pocket $15 K, for a net expense of $3,000 per year. (He also has to pay for maintenance, so it's even worse). OTOH, all the equity is his.
Her net payments per year are $12 K, all non-deductible.

He sells to her:
Her $1,000 payment is tax deductible. She pays the taxes.
He gets mortgage deduction ($1 K per month) but he has mortgage repayment of $1 K per month from her, so his net deduction is zero. He has zero net expense.
She pays $15 K per year, but all of it is deductible. She is responsible for maintenance expenses. OTOH, all the equity is hers.

Now, there is undoubtedly SOME combination of tax rates and interest rates where it comes out a wash, but that would be purely coincidental. Mathematically, if you choose to make the mortgage payment the same as the interest payment, there is a huge difference between renting and selling.

Just like the 401K issue, taxes must be considered when making a long term financial transaction. Ignoring the tax issues does a major disservice to one (or sometimes both) parties.

 

[LdiJ]

As a financial professional, you should be more careful.

Let's do the math. Assume his mortgage payment of $1,000 to the bank and she also pays $1,000 to him (either rental or mortgage payment). Assume taxes of $3,000 per year. (none of the assumptions change anything, but they allow an estimate to occur). For simplicity, I'll assume that they're early in the mortgage so most of the payment is interest and I'm calling the entire amount deductible. That is obviously not correct, but a more detailed analysis gets the same result.

He rents to her:
Her $1,000 payment is not tax deductible. He pays the taxes.
He gets mortgage tax deduction ($1 K per month) but he has rental income of $1 K per month. His net deduction is $3,000 per year (taxes). She pays him $12 K and he pays out of pocket $15 K, for a net expense of $3,000 per year. (He also has to pay for maintenance, so it's even worse). OTOH, all the equity is his.
Her net payments per year are $12 K, all non-deductible.

He sells to her:
Her $1,000 payment is tax deductible. She pays the taxes.
He gets mortgage deduction ($1 K per month) but he has mortgage repayment of $1 K per month from her, so his net deduction is zero. He has zero net expense.
She pays $15 K per year, but all of it is deductible. She is responsible for maintenance expenses. OTOH, all the equity is hers.

Now, there is undoubtedly SOME combination of tax rates and interest rates where it comes out a wash, but that would be purely coincidental. Mathematically, if you choose to make the mortgage payment the same as the interest payment, there is a huge difference between renting and selling.

Just like the 401K issue, taxes must be considered when making a long term financial transaction. Ignoring the tax issues does a major disservice to one (or sometimes both) parties.

The difference you outline is the property taxes. However, you are incorrect on the property taxes, which I pointed out in my previous post.

I am recommending that the contract state that HE RETAINS TITLE to the property until she pays off the mortgage that he is holding. That means that she CANNOT deduct the taxes because she is not liable for them...and he DOES get to deduct the taxes because he is liable for them.

There are two reasons for him retaining the title. The first reason is above, the second reason is that it protects his original mortgage from being called.

What happens when she goes to refinance, is that its treated as a "sale" at that point, and the equity she has gained while he held the mortgage, is her down payment.

I don't just have professional experience with this, I have sold a home this way, myself.

 

[seniorjudge]

in vino veritas

I thought that was in vino sulfates?

No?

Yes?

 

[mistoffolees]

The difference you outline is the property taxes. However, you are incorrect on the property taxes, which I pointed out in my previous post.

Please go back and re-read my post. There's a lot more difference than the property taxes. In a rental, he gets to deduct his interest payments. In a sale, his interest payments are offset by income.

From her perspective, in a purchase, she can deduct the interest. In a rental, she can't.

Not to mention, of course, the difference in who gets the equity.

There is a huge difference in the actual cost and benefit depending on whether it is rented or purchased. Simply adjusting the rent to equal the mortgage payment would be grossly unfair-as I explained in the post which you completely ignored.

I am recommending that the contract state that HE RETAINS TITLE to the property until she pays off the mortgage that he is holding. That means that she CANNOT deduct the taxes because she is not liable for them...and he DOES get to deduct the taxes because he is liable for them.

There are two reasons for him retaining the title. The first reason is above, the second reason is that it protects his original mortgage from being called.

What happens when she goes to refinance, is that its treated as a "sale" at that point, and the equity she has gained while he held the mortgage, is her down payment.

I don't just have professional experience with this, I have sold a home this way, myself.

She would be foolish to purchase the house and not gain title to it. The first mortgage holder is always going to have first dibs, but she needs some title rights.

 

[nextwife]

What type of mortgage is it? If it is an FHA or VA mtg, it is not due on sale, and he COULD sell it to her on a Land Contract.

 

[LdiJ]

Please go back and re-read my post. There's a lot more difference than the property taxes. In a rental, he gets to deduct his interest payments. In a sale, his interest payments are offset by income.

From her perspective, in a purchase, she can deduct the interest. In a rental, she can't.

I was discussing it from his perspective, not from hers. Never have I been discussing it from her perspective, other than the fact that a sale, versus a rental, makes her more "invested" in the property.

Not to mention, of course, the difference in who gets the equity.

I addressed that in my first post.

There is a huge difference in the actual cost and benefit depending on whether it is rented or purchased. Simply adjusting the rent to equal the mortgage payment would be grossly unfair-as I explained in the post which you completely ignored.

From his perspective there is very little difference in the two options, and I don't know why you keep trying to insist that there is. Nor did I suggest adjusting rent to equal the mortgage. I have not been suggesting rent at all, I have been suggesting a sale.

She would be foolish to purchase the house and not gain title to it. The first mortgage holder is always going to have first dibs, but she needs some title rights.

The contract would protect her. That is the whole purpose of a formal contract.

 

[mistoffolees]

From his perspective there is very little difference in the two options, and I don't know why you keep trying to insist that there is. Nor did I suggest adjusting rent to equal the mortgage. I have not been suggesting rent at all, I have been suggesting a sale.

You suggested a sale where the monthly payment was set equal to the rent. As I pointed out, that is not going to be fair for a number of reasons.

Again, you are repeatedly suggesting making major transactions with no regard to the tax consequences. That is a major mistake. Tax consequences can change things significantly and need to be considered - whether it is a real estate transaction or an IRA for cash transaction.

 

[LdiJ]

You suggested a sale where the monthly payment was set equal to the rent. As I pointed out, that is not going to be fair for a number of reasons.

No I did not. I suggested that the length of the mortgage be such that the payment would be roughly equal to the existing house payment. I don't know how long they have owned the home, but my point was that a 30 year mortgage may not be necessary. A 15, 20, 25 year mortgage might work. She has demonstrated that she can make the existing payments.

Again, you are repeatedly suggesting making major transactions with no regard to the tax consequences. That is a major mistake. Tax consequences can change things significantly and need to be considered - whether it is a real estate transaction or an IRA for cash transaction.

No I am not. I KNOW the tax consequences and you clearly do not. I am a tax professional for crissakes.

Look, this is one example of what people have mentioned to you before. You cannot stand to be wrong and you will argue until you are blue in the face, on issues where you are not an expert.

 

[mommyof4]

Just to back up LdiJ, here is the statement that she made in her first reply.

However, try to structure the length of the mortgage so that her payment remains basically the same as it is now.

You will note that she specifically addressed structuring the length of the mtg. to keep the payments roughly equal. Nowhere did she say to just set the mtg. payment equal to the rental fee.

 

[mistoffolees]

Just to back up LdiJ, here is the statement that she made in her first reply.



You will note that she specifically addressed structuring the length of the mtg. to keep the payments roughly equal. Nowhere did she say to just set the mtg. payment equal to the rental fee.

Just what is the difference?

The point is that LdiJ was suggesting that the mortgage payment would be set equal to the rent payment.

My point is that this neglects all sorts of tax issues and that in order for the two options to be truly equal in value, the mortgage payment value needs to be different than the rent.