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CubbieFan, Both Buyer and Seller in Stevensville, MD

Assuming the mortgage

Asked by CubbieFan, Stevensville, MD Mon Jan 25, 2010

Hi, my mother-in-law's friend is currently unable to pay his mortage due to his company having laid him up. He is currently looking to sell, but my mother-in-law came with idea of assuming his mortgage, and then he would pay her monthly rent. We are trying to figure out how did would all work out. We are looking for lawyer to get this worked out, but in the meantime, is this doable, and more importantly, is this the best option?

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Some good answers already on the question of assumability of loans. In brief: Most loans made during the past 15-20 years are not assumable. FHA and VA are the exceptions. Since you've already gotten good advice on determining if the loan is assumable--and thus whether your mother-in-law can assume the loan--let's assume the loan is NOT assumable.

What then?

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.
0 votes Thank Flag Link Mon Jan 25, 2010
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
Contact
Thank you very much for great answers! I did some research on my own as well, and looks like first thing mother-in-law needs to do is to determine if the loan is assumable.
0 votes Thank Flag Link Tue Jan 26, 2010
In most cases only 2 types of mortgages are assumable. FHA and VA. If the loan is one of these assumption may be a viable option depending on your financial situation. You see, It used to be that you could in essence just step in to the original borrowers shoes or in other words "non credit qualify" for the loan. Those loans are far and few between these days. Most of the FHA and VA loans still out there now require you to credit qualify and income qualify in order to take over or allow someone else to take over your loan. In most cases, they require the same qualifications as if you were going through the normal channels. Today, the 2 major benefits of assuming a loan are 1) no down payment 2) whether the current rate would be lower than existing rates. Additionally, it can be a very cumbersome process as most servicer's are so busy with all of the foreclosures in their portfolio. Here are a few questions to see if assumption is your best option: 1) is the rate on the current mortgage better than what you can get in the current market 2) Is the loan a VA or FHA? 3) Does your Mother-in-law have a down payment? 4)How far behind is the current borrower on their payments? If you would like to contact me with answers to this questions please feel free to contact me at will@happymortgage.com. We can sort through this in a matter of minutes.
0 votes Thank Flag Link Mon Jan 25, 2010
Youngster, Call the mortgage holders customer service department (your mother's friend will have to make the call) and simply ask them if the mortgage is assumable. If so, then your mother in law will need to qualify to assume the mortgage just as if she was applying for any other mortgage. She will be assuming the mortgage of an investment property (owner occupied for him, but investment property for her), so she should draw up a lease with your friend and show the lease income as part of her income on the loan application. The first thing to do is have your friend make the call to the mortgage company and see exactly what they require and what flexibility they have.
Web Reference: http://www.ratewindow.com
0 votes Thank Flag Link Mon Jan 25, 2010
There are a couple things you need to know when trying to assume a loan. First if the mortgagor is delinquent the loan can not be assumed until the loan is brought current. The next thing you have to look at is the mortgage document. Some mortgages allow assumptions and others do not. Some require the person assuming the loan to make a formal application and meet the required underwriting requirements.

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.


Good Luck

Keith Manson
First Weber Goup
Certified Distressed Property Expert
Metro Milwaukee

http://milwaukeebailout.com
0 votes Thank Flag Link Mon Jan 25, 2010
Most mortgages, as written, are not assumable but yours may be? I would suggest your friend who has the mortgage contact his mortgage company and discuss his options. His mortgage company will not discuss his mortgage with anyone else unless he has provided written permission for that individual. You may not need the services of an attorney but possibly a Title Company and there are many good ones in the area that could handle this process.
Jim Bent
Benson and Mangold Real Estate
410-924-0901 - 410-770-9255
jimbent@goeaston.net
0 votes Thank Flag Link Mon Jan 25, 2010
In order to do so the loan would have to have an assunability feature and two the buyer (your mother in law) would have to proove credit worthiness as well to the bank (if thye loan is assumable).
More importantly, if the friend can't make the mortgage payments now, how are they going to be able to pay he rent?
0 votes Thank Flag Link Mon Jan 25, 2010
It depends on a few things. Is he in danger of losing the house NOW? How late is he? Who is the mortgage with and what kind of loan is it? You can contact me @ scotts@watermanrealty.com and I will try and sort this out with you.

Scott Saunders
Coldwell Banker Waterman Realty
0 votes Thank Flag Link Mon Jan 25, 2010
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