Want to know my options

[Eccentrica_Gallumbits]

It is absolutely incorrect that that only the principal portion of your mortgage payments would go towards your equity. You are entitled to a share of the appreciation as well.

You are unmarried joint owners of a property. You would not go to court the way that a married couple would go to court if they were separating. You would file a partition suit. If you could not then agree to a fair apportionment of the equity, the court would auction the home off and give each one of you half of the proceeds after the mortgage was paid off.

Thank you. It didn't feel right to me, the way he looked at it.

 

[Eccentrica_Gallumbits]

Loans don't get modified unless you are in default. Which means you quit paying, face foreclosure, and the lender gives you a modification because it's to the lender's benefit.



Yet still risky and when things go wrong could turn into a nightmare. Avoid renting part of your house to strangers at all costs.



Avoid ARMS. Interest rates are likely to continue rising for a while and your payments will get higher and higher until you can't pay them anymore.



Yes.



He would agree that you owe him $322,000 and you can make payments to him until such time as you are in a position to refi or sell the house.

He can write a second mortgage securing the loan and quitclaim the property to you. You keep making the payments on the first mortgage which is already 9 years old and probably at a much lower interest rate.

You and he can agree on whatever terms you want. One example is a 30 year note at 2%. That makes your payments to him about $1728 per month. You can agree to sell or refi in 5 years when the kids are both over 18. You would then owe him about $295,000. Or you can agree to sell or refi in 10 years when you would owe him about $262,000.

You might get him to cut you some slack on the $322,000 because if you sold the house now, for $900,000, you'd pay about $54,000 in realtor commissions which would reduce his share by about $27,000.

You can play around with figures using this amortization calculator.

Mortgage/Loan Calculator with Amortization Schedule (bretwhissel.net)

One more comment. Why are your kids sharing a room when it's a three bedroom house? They are at the age when they need their own space.

Can I ask another question about what you described, with me making payments directly to him, and doing a quitclaim on the deed? I had asked this in the Real Estate Law forum because I thought it maybe fit better there, but was told it's favorable to keep it all in one place.

He and I talked about that and is offering to ask less for the buyout, so I got excited about this option as it involves keeping the loan, which as you guessed, is at a much lower interest rate. But then I Googled a bit and learned of something called a due-on-sale clause. My mortgage likely has this (I'm requesting a copy so I can see, but the examples I've read are written pretty vaguely).

Here's what I wrote in that other post:

***************************************

I am reading what triggers the due-on-sale clause, and see that among other things, if one spouse transfers to the other, or if one spouse dies, it is not triggered.

I'm curious about my situation. My partner and I are NOT married. We bought a home 9 years ago, both are on the mortgage, both on the deed (joint tenants). I posted on another thread the difficulties in doing a buy-out refi right now (or any refi) due to interest rates, and we are exploring other avenues, including him exiting the deed, me paying him off via a separate legal agreement (tbd) and me continuing with this same loan to keep my total costs down.

My questions:

1. If one of us did a quit claim and took themselves off the deed (but left mortgage as-is), could that trigger the due-on-sale clause?

2. How much time is given to respond if it is triggered? If there's a lot of equity in the home and the interest rate on the existing loan is low and the current rates high, could the lender make it due today, foreclose next week, no time to sell or refi?

3. I also see that a property settlement agreement can protect against this happening. The source didn't say whether the two had to be married, though. I see property settlement agreements occasionally mentioned as an option for unmarried people splitting up. Any idea if this is true or a possible route to go?

 

[adjusterjack]

1. If one of us did a quit claim and took themselves off the deed (but left mortgage as-is), could that trigger the due-on-sale clause?

Can't really answer that question without reading the exact wording of your due on sale clause.

2. How much time is given to respond if it is triggered? If there's a lot of equity in the home and the interest rate on the existing loan is low and the current rates high, could the lender make it due today, foreclose next week, no time to sell or refi?

Today, next week, no time?

No.

Foreclosure has statutory requirements that result in foreclosure taking a few months.

3. I also see that a property settlement agreement can protect against this happening. The source didn't say whether the two had to be married, though. I see property settlement agreements occasionally mentioned as an option for unmarried people splitting up. Any idea if this is true or a possible route to go?

Again, can't speculate, gotta read the due on sale clause.

 

[Eccentrica_Gallumbits]

Can't really answer that question without reading the exact wording of your due on sale clause.



Today, next week, no time?

No.

Foreclosure has statutory requirements that result in foreclosure taking a few months.



Again, can't speculate, gotta read the due on sale clause.

Thanks. I asked my mortgage holder (Rocket, was originally with Quicken) for my mortgage agreement and they were surprised it wasn't on my accounts page. A few days later they sent me a very short and sweet document with no clauses at all. So I'm thinking that's not the entirety of my agreement, but trying to figure out what that is is proving challenging.

I did learn that while there's a 120-day law about foreclosures in general (due to nonpayment), that does not appear to apply to the due-on-sale clause. And lenders tend to pursue this option more when interest rates are climbing and prices are high, gulp. So I definitely need to get to the bottom of this.

 

[adjusterjack]

What happened to your copy of the mortgage contract? You had it in your hand when you signed it. You should have gotten and kept a copy of the document.

You might find the recorded document online at the county recorder's website.

 

[Eccentrica_Gallumbits]

What happened to your copy of the mortgage contract? You had it in your hand when you signed it. You should have gotten and kept a copy of the document.

You might find the recorded document online at the county recorder's website.

He has it, I'm sure. But he's got some stuff boxed up and is moving, so rather than ask him I thought it would be straightforward to get it from the mortgage company. I'll ask him.

 

[Eccentrica_Gallumbits]

What happened to your copy of the mortgage contract? You had it in your hand when you signed it. You should have gotten and kept a copy of the document.

You might find the recorded document online at the county recorder's website.

Ha! What do you know. I didn't think my county was with-it enough, but I was able to access online. I typed it out. Here's what it says:

Section 18. Transfer of the Property or a Beneficial Interest in Borrower. As used in this Section 18, "Interest in the Property" means any legal or beneficial interest in the Property, including, but not limited to, those beneficial interests transferred in a bond for deed, contract for deed, installment sales contract or escrow agreement, the intent of which is the transfer of title by Borrower at a future date to a purchaser.

If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender's prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if such exercise is prohibited by Applicable Law.

If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice shall provide a period of not less than 30 days from the date the notice is given in accordance with Section 15 within which Borrower must pay all sums secured by this Security Instrument. If Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this Security Instrument without further notice or demand on Borrower.

Section 19. Borrower's Right to Reinstate after Acceleration. If Borrower meets certain conditions, Borrower shall have the right to have enforcement of this Security Instrument discontinued at any time prior to the earliest of: (a) five days before sale of the Property pursuant to any power of sale contained in this Security Instrument; (b) such other period as Applicable Law might specify for the Instrument. Those conditions are that Borrower: (a) pays Lender all sums which then would be due under this Security Instrument and the Note as if no acceleration had occurred; (b) cures any default of any other covenants or agreements; (c) pays all expenses incurred in enforcing this Security Instrument, including, but not limited to, reasonable attorneys' fees, property inspection and valuation fees, and other fees incurred for the purpose of protecting Lender's interest in the Property and rights under this Security Instrument; and (d) takes such action as Lender may reasonably require to assure that Lender's interest in the Property and rights under this Security Instrument, and Borrower's obligation to pay the sums secured by this Security Instrument, shall continue unchanged. (It then goes into more detail about how the Borrower could pay, details that probably aren't important here.)

Thoughts? Does this sound like they can foreclose or require immediate payment if we take his name off the deed? We are both currently on both deed and mortgage.

ETA here is what I think they mean by Applicable Law.
https://www.law.cornell.edu/uscode/text/12/1701j-3
I think this is the pertinent part:

(d)Exemption of specified transfers or dispositionsWith respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon—
(1)
the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;
(2)
the creation of a purchase money security interest for household appliances;
(3)
a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
(4)
the granting of a leasehold interest of three years or less not containing an option to purchase;
(5)
a transfer to a relative resulting from the death of a borrower;
(6)
a transfer where the spouse or children of the borrower become an owner of the property;
(7)
a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
(8)
a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or
(9)
any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.

 

[adjusterjack]

Thoughts? Does this sound like they can foreclose or require immediate payment if we take his name off the deed?

Yes.

And if you don't pay it the lender will have to foreclose and you're back to whatever length of time the foreclosure takes.

You might be interested in reading the Hawaii statute about due on sale clauses.

Section 6-27-15 - Sale or transfer of mortgaged property, Haw. Code R. § 6-27-15 | Casetext Search + Citator

All of these penalties presuppose that you make the transfer without the consent of the lender.

Once you reach an agreement with your partner and nail down some way of paying him off, what's stopping you from asking the lender for consent.

Oh, I know. You think the lender will say no. Well, there's only one way to find out. And if the lender says no, you're in no worse shape than you are now.

That being said, the Hawaii statute prohibits the lender from unreasonably withholding consent if you agree to the conditions listed in the statute I linked to.

Another solution to the problem is get married. Stay married for a year, then do the transfer and the lender can't say boo about it because of the exemption for a transfer between spouses.

 

[Eccentrica_Gallumbits]

Yes.

And if you don't pay it the lender will have to foreclose and you're back to whatever length of time the foreclosure takes.

You might be interested in reading the Hawaii statute about due on sale clauses.

Section 6-27-15 - Sale or transfer of mortgaged property, Haw. Code R. § 6-27-15 | Casetext Search + Citator

All of these penalties presuppose that you make the transfer without the consent of the lender.

Once you reach an agreement with your partner and nail down some way of paying him off, what's stopping you from asking the lender for consent.

Oh, I know. You think the lender will say no. Well, there's only one way to find out. And if the lender says no, you're in no worse shape than you are now.

That being said, the Hawaii statute prohibits the lender from unreasonably withholding consent if you agree to the conditions listed in the statute I linked to.

Another solution to the problem is get married. Stay married for a year, then do the transfer and the lender can't say boo about it because of the exemption for a transfer between spouses.

Thank you for that information about Hawaii. I had not found that. So, if I’m reading this correctly They would have to let us do this (we are in good standing, have missed no payments)…BUT they could jack up the interest rate 4% AND require full payment within 3 years.

Funny, I actually was just thinking about the getting married option. It’s got a certain macabre humor to it, as the endcap of a substantial relationship.

There are a few advantages as I see it. I could keep the existing loan and get him off the deed easily. Also, if for whatever reason we decided to put off the buyout, I understand that as long as it’s part of our settlement agreement when we divorce, he could continue to consider this his primary residence for however many years we agree in order to avoid capital gains whenever we did sell. In other words, it allows more flexibility all around. I imagine we could draft an easy prenup, as our finances were never tangled other than in the house.

Is there anything glaringly obvious you see that could backfire with this idea of getting married? He’s actively moving out and likely won’t be back under the same roof as of a few weeks from now.

Also, you mentioned a year. Did you just throw out that number or is that based on a legally required amount of time to be able to do such things?

Speaking of capital gains, do you happen to know whether there’s any difference in terms of his taxes if I buy him out with cash versus via a mortgage equity buyout? I see that in cases of divorce, there does not seem to be. Like, I read it can be considered capital gains from the family home even if it’s part of a broader agreement not involving the sale of the home (like if the couple agrees that one stays in the house and forgoes alimony and in return gets the whole house, the leaving spouse can claim capital gains exemption on what would have been their share), something like that. Sigh…is this another of those things you need to be married to be able to do?

ETA: I was just reading about civil unions in Hawaii. We certainly could declare ourselves that. Would this cover us the same way as being married for these purposes?

https://hawaii.staterecords.org/commonlawmarriage

https://casetext.com/statute/hawaii-revised-statutes/division-1-government/title-7-public-officers-and-employees/chapter-88-pension-and-retirement-systems/part-i-general-provisions/miscellaneous/section-88-12-civil-unions

 

[adjusterjack]

You've gotten way beyond my knowledge. Time to consult an attorney and/or tax pro.

 

[Eccentrica_Gallumbits]

You've gotten way beyond my knowledge. Time to consult an attorney and/or tax pro.

Thank you so much for hanging in there, and for all your help and suggestions.

 

[Eccentrica_Gallumbits]

Hello, omnipresent needy person here

For anyone who wants to take it. It’s basically just a math problem. I would have to have to retain a lawyer for this at this point.

My ex and I spoke, and he came up with a really interesting idea. It goes like this:

To avoid the current mortgage rates, we pay off the existing mortgage (rounds up to 260k). I pay 200k, he pays 60k. Bye, Rocket/ Quicken, due-on-sale clause no longer an issue, no need to consider getting married to avoid it. (Also bye, my incoming inheritance and hello also owing Mom some money.)

Then he extends me a mortgage at a low interest rate. He threw out 3%, but he would probably go 2%. That’s just what his tax guy tells him to do when he extends personal loans to friends, to avoid it looking like a gift or income.

This new mortgage would be to buy him out of his equity.

We get a quit claim deed done, taking him off the deed, so it’s only me.

I like the low interest rate and the fact that for all his faults, I trust him to hold my mortgage and not mess with me or foreclose, even if times get tough. He likes that he’d have a guaranteed income, which would come in handy if he ends up moving to the Mainland where his job (musician) doesn’t pay nearly as well as here in Hawaii. Give him some time to regroup.

Here’s where it gets sticky.

I’ll show my thinking, and would appreciate if someone would poke holes in it or validate it.

He thinks around 350k is a good amount for the buyout. Granted, this is a rough, back-of-napkin figure based on the property being rounded up to 900k, and the current balance of 256k, with a bit more due to him putting more down. But it’s got me worried and I disagree, because of the uneven loan payoff he’s proposing.

I could use some eyes on the math here. I could be WAAAAAAYYY off.

History:

************************
Loan amount: 312k

Above that, he paid 60k down.
I think I paid $12k down, but it’s hard to recall. May have been 18k. Let’s just say 12k is it, for now.

I paid 2/3 of the mortgage for the duration, so about 38k of the principle can be attributed to me, and 20k to him.

***********************************

If we do as he suggests and I pay 200k and he pays 60k to pay off the loan, what we would each have into the loan payoff works out to

Him: 140k (orig. 60k + proposed 60k + 20k of the principle)
Me: 250k (orig. 12k + proposed 200k + 38k of the principle)

Or somewhere close to that. That equals +\- the amount we paid for the house.

Now. The way I see it, if we’re going to calculate and divide equity, we start here. With us paying off the loan, which we are doing unevenly.

Orig. house cost was 390k. It would probably appraised at 830k, based on Zillow lately. It seems to be coming down. Let’s use 830k just for the sake of math, I know an appraisal should be done, and I will do so before finalizing anything.

Can someone help me calculate what the fair buyout amount would be, given the above?

*****************
(Not the most critical part but he paid 15k for improvements, and in previous conversations had been allocating that all as equity. It occurs to me that fair at the time would have been to split that cost (which I offered to do), so the way I see it, above whatever buyout amount, I owe him 7.5k for that. Please let me know if I’m thinking wrongly about this.)

Thank you for any replies, I REALLY appreciate it. I don’t want to retain a lawyer unless we can’t agree, I feel like we’re so close to a workable arrangement.

 

[Taxing Matters]

Stay married for a year, then do the transfer and the lender can't say boo about it because of the exemption for a transfer between spouses.

If the marriage is a sham and the lender can prove it, that's a problem both because the due on sale protection would not apply and because it could amount to criminal or civil fraud. I would strongly suggest you not marry just to avoid the due on sale provision. Besides, marriage brings with it a load of other things, including the need to get a divorce to end the marriage (unless one of you dies before that, of course).

Also, if for whatever reason we decided to put off the buyout, I understand that as long as it’s part of our settlement agreement when we divorce, he could continue to consider this his primary residence for however many years we agree in order to avoid capital gains whenever we did sell.

Again, if the marriage is a sham then what you proposing to do amounts to tax fraud. That can earn you up to 6 years in federal prison on the IRS side and perhaps more time with the state if the sham is discovered.

You are ending your relationship with him. It's pretty clear to me from your posts that you'd only marry to try to avoid the contract and tax issues, and that can backfire on both of you.

There may be other things you can do in this situation to save the home and save tax, but I don't think marriage is one of them. Before you do that, you really should see an attorney. The money you pay for that advice will be well worth it if it avoids the prospect of problems with fraud. We can't give you legal advice here and I don't practice in your state. You need a Hawaii lawyer for that. Sometimes going cheap to save a few bucks on the front end ends up costing you dearly later.

Certainly you should consider all of your legal options and I commend you for asking questions to get a general sense of what might be available, but if I were in your shoes I would not rely on what unknown people on the internet tell you.

 

[Eccentrica_Gallumbits]

If the marriage is a sham and the lender can prove it, that's a problem both because the due on sale protection would not apply and because it could amount to criminal or civil fraud. I would strongly suggest you not marry just to avoid the due on sale provision. Besides, marriage brings with it a load of other things, including the need to get a divorce to end the marriage (unless one of you dies before that, of course).



Again, if the marriage is a sham then what you proposing to do amounts to tax fraud. That can earn you up to 6 years in federal prison on the IRS side and perhaps more time with the state if the sham is discovered.

You are ending your relationship with him. It's pretty clear to me from your posts that you'd only marry to try to avoid the contract and tax issues, and that can backfire on both of you.

There may be other things you can do in this situation to save the home and save tax, but I don't think marriage is one of them. Before you do that, you really should see an attorney. The money you pay for that advice will be well worth it if it avoids the prospect of problems with fraud. We can't give you legal advice here and I don't practice in your state. You need a Hawaii lawyer for that. Sometimes going cheap to save a few bucks on the front end ends up costing you dearly later.

Certainly you should consider all of your legal options and I commend you for asking questions to get a general sense of what might be available, but if I were in your shoes I would not rely on what unknown people on the internet tell you.

That totally makes sense and I've moved past that idea. Thank you for your thoughtful reply. I've posted a new scenario and question, if you have the time. Mahalo!

(ETA: I would also always double check on any ideas presented here before proceeding with anything.)

 

[adjusterjack]

The first thing that the two of you have to understand is that, if you don't reach an agreement, you'll have to sell the house.

My math is based on selling the house for $830,000.

You'll pay 6% commission ($51,000) leaving $781,000.

You get your $200,000 back from the loan payoff. He gets his $60,000 back from the loan payoff.

That leaves $501,000.

He gets $60,000 back for his down payment. You get $12,000 back from your down payment.

That leaves $429,000.

You get $38,000 that you paid into the principle. He gets $20,000 that he paid into the principle.

That leaves $371,000.

Divide that in half and you owe him $185,500

At 3% interest with a 30 year amortization your P and I would be $782 per month.

In your mortgage contract you could agree to sell or refinance after the kids are grown. At 5 years your balance would be $165,000. At 10 years $141,000. Shouldn't be too hard for you to refinance that amount.

If he won't go along with the adjustment for the commission and you don't want to risk having to sell the house, add the $51,000 to the $371,000 and you get $422,000. Divide that in half and you owe him $221,000. $932 per month. Balance at 5 years $196,400. At 10 years $168,000.

If you want to calculate 2%, use this amortization calculator.

Mortgage/Loan Calculator with Amortization Schedule (bretwhissel.net)