Well, first, pay attention to Corey's question: "if the friend can't make the mortgage payments now, how are they going to be able to pay he rent?" That's very important. There are ways your mother-in-law can step in, but she wouldn't want to do so if the friend can't afford the rent.
OK. If it's not assumable, there are a number of things your mother-in-law can do. Most of them will result in the friend violating the "due on sale" clause of his mortgage. That's a provision that says if he sells or transfers an interest in the property without prior approval of the lender, the lender can call the loan immediately due and payable. Will the lender actually do that? Probably not. The lender probably isn't going to hassle someone who's making timely payments. But is it a risk? Could it happen? Yes.
Your mother-in-law could do a "subject to" on the property. That's as close as you can get to assuming the loan. The friend would deed the property to your mother-in-law. The mortgage would remain in the friend's name. Your mother-in-law would make your friend's monthly mortgage payments. At some point in the future, your mother-in-law would refinance the property, taking the friend's name off the mortgage. The risk would be that your mother-in-law would stop making payments while the mortgage was in the friend's name. The lender would then come after the friend.
Your mother-in-law could do an equity share with your friend. She could pay some/all of the mortgage each month, in return for a share of the equity (if any) in the property.
Your friend could put his property into an Illinois-style land trust. Your mother-in-law would then be named a beneficiary of the land trust. The friend would also be a beneficiary. The friend then would lease the property from the land trust. At some point, as with a lease-option, the property would be brought out of the trust and sold--to your mother-in-law, to the friend, or to a third party. Under this option (per the Garn St. Germain Act), a person transferring his property into his own land trust would not be violating the due on sale clause.
There are several other possibilities, too. But these are the most obvious. Again, though, the problem is that if the friend can't make his mortgage payments, how will he pay rent? Under any of these scenarios, it would be possible for your mother-in-law to pay some of the monthly mortgage (presumably in return for a larger ownership share). But all that needs to be worked out up front.
A good real estate lawyer could handle a subject-to or equity share. Not as many are familiar with land trusts and how they can be used. For more information on those, go to http://www.landtrust.net.
Hope that helps.
When looking at selling the property it is important to understand the equity position and if the owner is under water or in a equity position. If underwater the owner should consider a short sale given the circumstances laid out. Because if the owner does not have a job it would be impossible to apply for a modiification.
First Weber Goup
Certified Distressed Property Expert
Benson and Mangold Real Estate
410-924-0901 - 410-770-9255
More importantly, if the friend can't make the mortgage payments now, how are they going to be able to pay he rent?
Coldwell Banker Waterman Realty