Is this real estate deal legal???

[travistee2]

What is the name of your state? VT


The property was a large old farm house in a small town. It was converted to a hotel. Because of Covid the state did not allow rooms to be rented. It could not be left empty so the owner converted it to apartments. It wasn't making enough money. The elderly owner made a deal with a man who used to be the handy man/ repairs. She didn't have a lawyer. The handyman/new owner, with his lawyer, made a deal with her. In the contract she gave the property to the new "owner" in exchange she was given a room that she can live in rent free. She thinks that he owns it now. She is 78 with no income other than social security.
The mortgage remains in her name. The new owner gives her a check each month to pay the mortgage that is still in her name.

I told her that she is still the owner and there was no closing with the bank . I told her that the money he pays her is income and the interest she pays on the mortgage is still tax deductible. She doesn't have a lawyer or an accountant. I think there are multiple issues regarding his/hers taxes and the bank not knowing about this deal. What legal/accounting/tax issues in this crazy deal?

 

[Just Blue]

px hx.

 

[Ohiogal]

What is the name of your state? VT


The property was a large old farm house in a small town. It was converted to a hotel. Because of Covid the state did not allow rooms to be rented. It could not be left empty so the owner converted it to apartments. It wasn't making enough money. The elderly owner made a deal with a man who used to be the handy man/ repairs. She didn't have a lawyer. The handyman/new owner, with his lawyer, made a deal with her. In the contract she gave the property to the new "owner" in exchange she was given a room that she can live in rent free. She thinks that he owns it now. She is 78 with no income other than social security.
The mortgage remains in her name. The new owner gives her a check each month to pay the mortgage that is still in her name.

I told her that she is still the owner and there was no closing with the bank . I told her that the money he pays her is income and the interest she pays on the mortgage is still tax deductible. She doesn't have a lawyer or an accountant. I think there are multiple issues regarding his/hers taxes and the bank not knowing about this deal. What legal/accounting/tax issues in this crazy deal?

You are giving her legal advice? Don't do that. It is very possible that he has a contract to purchase. Unless you know what the contracts say and are an attorney, you can't guarantee or legitimately state any of that.

 

[LdiJ]

What is the name of your state? VT


The property was a large old farm house in a small town. It was converted to a hotel. Because of Covid the state did not allow rooms to be rented. It could not be left empty so the owner converted it to apartments. It wasn't making enough money. The elderly owner made a deal with a man who used to be the handy man/ repairs. She didn't have a lawyer. The handyman/new owner, with his lawyer, made a deal with her. In the contract she gave the property to the new "owner" in exchange she was given a room that she can live in rent free. She thinks that he owns it now. She is 78 with no income other than social security.
The mortgage remains in her name. The new owner gives her a check each month to pay the mortgage that is still in her name.

I told her that she is still the owner and there was no closing with the bank . I told her that the money he pays her is income and the interest she pays on the mortgage is still tax deductible. She doesn't have a lawyer or an accountant. I think there are multiple issues regarding his/hers taxes and the bank not knowing about this deal. What legal/accounting/tax issues in this crazy deal?

She is selling the property on contract, so I disagree with you that she is still the owner. It could be a sale with a life estate for her, or it could be an installment sale with the installment payment being her housing, or the contract can specify other details. If she is equally concerned about potential tax liability then she can take her contract and her SS statement and consult with a tax pro. However you should probably stop telling her that she is still the owner, because there is virtually no chance that you are correct about that since an attorney was involved in the process. Yes, she is still on the hook for the mortgage and the mortgage company might be quite unhappy with the terms of the sale if they knew, but that doesn't have anything to do with the ownership status at this point.

 

[stealth2]

px hx.

Aaah, yes... The busybody. Next.

 

[Eekamouse]

What is the name of your state? VT


The property was a large old farm house in a small town. It was converted to a hotel. Because of Covid the state did not allow rooms to be rented. It could not be left empty so the owner converted it to apartments. It wasn't making enough money. The elderly owner made a deal with a man who used to be the handy man/ repairs. She didn't have a lawyer. The handyman/new owner, with his lawyer, made a deal with her. In the contract she gave the property to the new "owner" in exchange she was given a room that she can live in rent free. She thinks that he owns it now. She is 78 with no income other than social security.
The mortgage remains in her name. The new owner gives her a check each month to pay the mortgage that is still in her name.

I told her that she is still the owner and there was no closing with the bank . I told her that the money he pays her is income and the interest she pays on the mortgage is still tax deductible. She doesn't have a lawyer or an accountant. I think there are multiple issues regarding his/hers taxes and the bank not knowing about this deal. What legal/accounting/tax issues in this crazy deal?

Why do you care? I don't see how this is any of your business.

 

[Taxing Matters]

What is the name of your state? VT
What legal/accounting/tax issues in this crazy deal?

There are too many possibilities to cover them all in a message board post. I have nowhere near the information needed to determine that. The first and most important things I'd want to do if I were her lawyer would be (1) read the actual contract and (2) get a title search done on the home. As you've described it the arrangement is not illegal. But it may well have been a bad deal for her. But the fact that she went into a bad deal doesn't allow the get of that deal. She should have sought the advice of a real estate lawyer and a tax lawyer or other tax professional to review the proopsed plan and explain to her what the effect on her would be if she went through with it. She evidently did not do that and trusted the other party in this deal. That's a mistake in just about any significant purchase. The old warning "buyer beware" still applies to most purchase deals.

But as I said, I don't have most of what I'd need to determine what she should do other than recommend she take the contract to a real estate lawyer for advice and then a tax professional to explain how the taxes are working out not versus what she'd pay in tax going with what the attorney recommended.

 

[Harper James]

I am not a lawyer, accountant, or tax professional, but I can provide some general information regarding the situation you described. It appears that the elderly owner of the converted farm house made a deal with the former handyman/repairs person, giving him the property in exchange for a room she can live in rent-free. However, the mortgage remains in her name, and the new owner provides her with a monthly check to pay the mortgage.

Given the complexity of this arrangement and the potential legal, accounting, and tax implications, it is strongly advisable for the elderly owner to consult with professionals who specialize in these areas. Here are a few potential issues to consider:

1. Ownership and Title: It is important to clarify the legal status of the property and whether the transfer of ownership was properly documented. Consulting a lawyer can help determine if the original owner has effectively transferred ownership or if she still retains legal ownership rights.
2. Mortgage Responsibility: Even if the mortgage remains in the original owner's name, it is crucial to understand the terms of the mortgage agreement and any potential consequences of transferring the property without notifying the lender. Engaging with the bank and seeking legal advice is essential to address any potential issues related to the mortgage.
3. Tax Implications: There may be various tax considerations involved in this arrangement. Both the original owner and the new owner may have tax obligations and reporting requirements based on the rental income received and the property transfer. Seeking guidance from an accountant or tax professional can help navigate the tax implications and ensure compliance with relevant tax laws.
4. Estate Planning and Elder Law: Given the elderly owner's age and reliance on Social Security income, it may be advisable to consult with an attorney specializing in estate planning and elder law. They can assess the overall situation, evaluate any potential risks or challenges, and provide guidance on protecting the owner's interests and ensuring financial stability.

It's important for the elderly owner to seek professional advice specific to her circumstances. This response should not be considered legal, accounting, or tax advice, and consulting experts in these fields is crucial for a comprehensive understanding of the situation and appropriate actions to be taken.