Land contract?

[k23h9723]

What is the name of your state (only U.S. law)? CA

I have a rental property that my brother in law in interested in buying, however he does not have the credit to get a loan so he proposed an idea and I would like to get some advice, please. He is asking me to continue to carry the mortgage under my name but he would be taking over the monthly payment, on top of that he would also give me a sizable down payment (about 80% of what I have paid on the house so far). He asked me to add his name to the property (so that he and I would both be listed as owners) and only when he pays off the house, I then remove my name off the property. My questions are as follow:

1. Is this legal or is there other way to do this but protect both of us?

2. If I add his name as co-owner, is there tax consequence?

3. Is there any way he can claim the mortgage payment on his tax return?


Thanks in advance
Chuck

 

[latigo]

What is the name of your state (only U.S. law)? CA

I have a rental property that my brother in law in interested in buying, however he does not have the credit to get a loan so he proposed an idea and I would like to get some advice, please. He is asking me to continue to carry the mortgage under my name but he would be taking over the monthly payment, on top of that he would also give me a sizable down payment (about 80% of what I have paid on the house so far). He asked me to add his name to the property (so that he and I would both be listed as owners) and only when he pays off the house, I then remove my name off the property. My questions are as follow:

1. Is this legal or is there other way to do this but protect both of us?

2. If I add his name as co-owner, is there tax consequence?

3. Is there any way he can claim the mortgage payment on his tax return?


Thanks in advance
Chuck

There are numerous reasons why doing what seems to be on the table would be foolishly unwise; some of which you don’t seem to have considered.

For example, are you aware that if he were to become a co-owner of the property as he is suggesting that it would immediately become prime meat for any of his current or future judgment creditors, a Trustee in Bankruptcy, the IRS?

And attaching creditors or no, that if he were to default on the deal you could end up in a costly lawsuit in an attempt to have not only his name removed from the title but your sister’s as well?

If you are offered any advice from this forum other than to follow that of your attorney and one well experienced in practicing real property law, ignore it!

 

[OHRoadwarrior]

Presumably the 80% is a significant portion of the sales price. The idea a lender would not loan with an immediate equity basis in a property is concerning. In a land contract, he does not get his name on the property until after it is paid off.

 

[k23h9723]

There are numerous reasons why doing what seems to be on the table would be foolishly unwise; some of which you don’t seem to have considered.

For example, are you aware that if he were to become a co-owner of the property as he is suggesting that it would immediately become prime meat for any of his current or future judgment creditors, a Trustee in Bankruptcy, the IRS?

And attaching creditors or no, that if he were to default on the deal you could end up in a costly lawsuit in an attempt to have not only his name removed from the title but your sister’s as well?

If you are offered any advice from this forum other than to follow that of your attorney and one well experienced in practicing real property law, ignore it!

Thanks for the reply, so you would not advice for such action. Is there any other way I can protect myself from the situation when he defaults on the deal? I have known him for over 10 years and I believe he is a trust-worthy person, however we all have to think the 1% "what if". Your advice is greatly appreciated. Thank you.

 

[k23h9723]

Presumably the 80% is a significant portion of the sales price. The idea a lender would not loan with an immediate equity basis in a property is concerning. In a land contract, he does not get his name on the property until after it is paid off.

Currently the house is worth about $350k, he is going to pay me $120k and take over the monthly payment. He could probably get a loan but would be costly for him, that's why he proposed this idea. So you are suggesting NOT to put his name on until he pays off the whole thing? Then would there be something that he can do to protect himself? I appreciate your advice. Thank you.

 

[k23h9723]

Tax

Also I am not even sure if he can claim this property on his tax return or how, since the mortgage is not on his name. I mean, if he can't then there is no point to add his name on the property but we have to have something to protect his interest, I guess?

 

[OHRoadwarrior]

Also I am not even sure if he can claim this property on his tax return or how, since the mortgage is not on his name. I mean, if he can't then there is no point to add his name on the property but we have to have something to protect his interest, I guess?

That is the purpose of the land contract.

 

[k23h9723]

That is the purpose of the land contract.

Thanks again for your reply. So his proposal of land contract is correct - which lets him claim the mortgage payment on his tax return but I should not add his name to the property until the house is paid in full.

Last question, how much usually does this cost to have a lawyer draw up the land contract? Or I can simply use something online like Legalzoom.com?


Thank you very much.
-chuck

 

[STEPHAN]

What about homestead exemption?