Mortgage rescue
October 6, 2005 5:37 PM Subscribe
Best way to "sell" half a house to someone willing to assume a mortgage - keep lawyers & bank out of it to save money, or play it safe?
A good friend of mine is in a long distance (~3 hour drive) relationship with this "great guy". For various reasons (jobs, children, etc.), neither of them will be able to move to the other's city and try to get a job there, at least for a few years. Meanwhile, my friend is barely making ends meet. She owns a house - or rather, she owns about 60% of a house and the bank owns about 40% of it, based on the current assessment. She has come up with this idea where she would like to "sell" half the house to her significant other, in exchange for which the S.O. takes over the mortgage (either "officially" or by simply informally taking over the mortgage payments). He seems willing to do so, and is financially more than capable of doing it.
Ideal scenario: they move in together in "her" house in a few years, the mortgage gets paid off, and they live happily ever after.
Less than ideal: they break up at some point and they (or my friend only ...) have to sell the house, splitting the proceeds 50-50. My friend would then be minus a house but with some cash in hand roughly equal to the equity she currently has in the house.
My friend and her S.O. dislike the thought of giving precious money to lawyers and are seriously thinking of trying to write up their own contract, with some friends as witnesses.
While I understand the predicament (and have no reasons to suspect that the relationship she's in will not last, but still...), I am a bit concerned about the whole thing.
Does anyone have any words of advice to pass along? If it helps, this is in Canada (Nova Scotia) where mortgage payments are not tax deductible.
A good friend of mine is in a long distance (~3 hour drive) relationship with this "great guy". For various reasons (jobs, children, etc.), neither of them will be able to move to the other's city and try to get a job there, at least for a few years. Meanwhile, my friend is barely making ends meet. She owns a house - or rather, she owns about 60% of a house and the bank owns about 40% of it, based on the current assessment. She has come up with this idea where she would like to "sell" half the house to her significant other, in exchange for which the S.O. takes over the mortgage (either "officially" or by simply informally taking over the mortgage payments). He seems willing to do so, and is financially more than capable of doing it.
Ideal scenario: they move in together in "her" house in a few years, the mortgage gets paid off, and they live happily ever after.
Less than ideal: they break up at some point and they (or my friend only ...) have to sell the house, splitting the proceeds 50-50. My friend would then be minus a house but with some cash in hand roughly equal to the equity she currently has in the house.
My friend and her S.O. dislike the thought of giving precious money to lawyers and are seriously thinking of trying to write up their own contract, with some friends as witnesses.
While I understand the predicament (and have no reasons to suspect that the relationship she's in will not last, but still...), I am a bit concerned about the whole thing.
Does anyone have any words of advice to pass along? If it helps, this is in Canada (Nova Scotia) where mortgage payments are not tax deductible.
This plan is lunacy. First of all she is selling half of the house for 40% of the rest of the mortgage, which likely represents far less than 40% of the value of the house right now. If she breaks up soon, the boyfriend gets half of the house for a very good price. If the house was originally $100,000 and has now risen in value to $140,000, the boyfriend gets half interest in a $140,000 dollars for $40,000 - a $30,000 gift. Are there tax consequences in CA? What if they break up next Spring? What sort of instrument will control the transaction? Who will record it?
GET A LAWYER!
This should not cost that much anyway and it would be money well spent.
posted by caddis at 5:53 PM on October 6, 2005
GET A LAWYER!
This should not cost that much anyway and it would be money well spent.
posted by caddis at 5:53 PM on October 6, 2005
Your friend should get a lawyer and a financial advisor. A little informal thing written on a piece of paper witnessed by loving friends has no legal value.
posted by alms at 6:19 PM on October 6, 2005
posted by alms at 6:19 PM on October 6, 2005
The point isn't that the contract would be unenforcable -- it's that it might be enforcable in ways that the parties (or one party) did not intend.
posted by Mid at 6:59 PM on October 6, 2005
posted by Mid at 6:59 PM on October 6, 2005
LUCY v. ZEHMER is on a website because the outcome is unusual. A bad sign for your plan not a good one.
posted by Carbolic at 7:01 PM on October 6, 2005
posted by Carbolic at 7:01 PM on October 6, 2005
Also, this sounds really bad.
If the dude wants to help her, great -- he should hand over the cash. If the dude isn't serious enough about her to just fork over the cash without legal "protection" for his "investment" in the house, then I would say the dude's committment level isn't very high. Meaning that this will all fall apart no matter what they do, so she should avoid signing away her house in the process.
posted by Mid at 7:02 PM on October 6, 2005
If the dude wants to help her, great -- he should hand over the cash. If the dude isn't serious enough about her to just fork over the cash without legal "protection" for his "investment" in the house, then I would say the dude's committment level isn't very high. Meaning that this will all fall apart no matter what they do, so she should avoid signing away her house in the process.
posted by Mid at 7:02 PM on October 6, 2005
>My friend and her S.O. dislike the thought of giving precious money to lawyers. . .
She is unwilling to give a few hundred bucks to a lawyer and is willing to risk tens to hundreds of thousands of dollars to avoid doing so. This does not sound like rational thinking. This sounds like an exaggerated fear of lawyers.
I agree with caddis, without the shouting but with similar emphasis.
posted by megatherium at 7:08 PM on October 6, 2005
She is unwilling to give a few hundred bucks to a lawyer and is willing to risk tens to hundreds of thousands of dollars to avoid doing so. This does not sound like rational thinking. This sounds like an exaggerated fear of lawyers.
I agree with caddis, without the shouting but with similar emphasis.
posted by megatherium at 7:08 PM on October 6, 2005
What a lawyer would likely suggest is a transfer to her and her SO as joint tenants, with a separate contract that would act like a prenuptial agreement in the event that they parted ways. They want to act like a married couple, without the rice, and this lets them do so with a string or two.
posted by megatherium at 7:11 PM on October 6, 2005
posted by megatherium at 7:11 PM on October 6, 2005
Why not sell the house at market value to be held jointly by friend/boyfriend? That way fresh fish gets to take out the appreciation on the equity and reinvest it in order to avoid taxes (IANAL, so I dunno if it's kosher to sell the house to yourself and get the tax-savings). The friend and boyfriend can sign an agreement relating to the sale of the "new" house if and when that time comes.
posted by mullacc at 7:12 PM on October 6, 2005
posted by mullacc at 7:12 PM on October 6, 2005
If the dude wants to help her, great -- he should hand over the cash. If the dude isn't serious enough about her to just fork over the cash without legal "protection" for his "investment" in the house, then I would say the dude's committment level isn't very high.
Others offer better advice than I could about what your friend should do, but to this point I say: um, what? Forking over tens of thousands of dollars without your name on anything would be very stupid, regardless of your "commitment level".
posted by transient at 7:28 PM on October 6, 2005
Others offer better advice than I could about what your friend should do, but to this point I say: um, what? Forking over tens of thousands of dollars without your name on anything would be very stupid, regardless of your "commitment level".
posted by transient at 7:28 PM on October 6, 2005
What Caddis said!
There are men who prey on single people with property. They are very charming and sweet. The deal as proposed is lopsided against your friend, as Caddis explained.
Any such deal has to reflect that your friend has already invested > 50%, both in terms of the mortgage as well as maintainence, and time in the investment.
posted by Goofyy at 1:15 AM on October 7, 2005
There are men who prey on single people with property. They are very charming and sweet. The deal as proposed is lopsided against your friend, as Caddis explained.
Any such deal has to reflect that your friend has already invested > 50%, both in terms of the mortgage as well as maintainence, and time in the investment.
posted by Goofyy at 1:15 AM on October 7, 2005
Why not just do this as a loan? The dude gives her the money on a monthly basis and they document each payment on a schedule attached to a basic IOU-type document that sets out an interest rate and a repayment date.
This way, the dude gets "his name on something," but the woman keeps whatever upside she has in the house. If they get married, they can just tear up the IOU.
The main problem (as several have pointed out) is that, by putting the house in the mix, the dude is getting an unfair share of the upside without paying for it.
Also: transient -- my problem is that I'm not sure what "having your name on something" means here. This isn't an ordinary commercial transaction. What's he going to do if they break up? Demand that she move out of the house so that he can take it and sell it? Demand that she repay him money that it appears she can't afford? Sue her? This seems to me a situation more governed by personal/moral/emotional issues than by legal issues. If there is no realistic way that he is ever going to sue her or evict her, then having his name on something really means nothing. And if there is a possibility that he will sue her or evict her in the future, then this probably isn't a great idea anyway.
posted by Mid at 6:08 AM on October 7, 2005
This way, the dude gets "his name on something," but the woman keeps whatever upside she has in the house. If they get married, they can just tear up the IOU.
The main problem (as several have pointed out) is that, by putting the house in the mix, the dude is getting an unfair share of the upside without paying for it.
Also: transient -- my problem is that I'm not sure what "having your name on something" means here. This isn't an ordinary commercial transaction. What's he going to do if they break up? Demand that she move out of the house so that he can take it and sell it? Demand that she repay him money that it appears she can't afford? Sue her? This seems to me a situation more governed by personal/moral/emotional issues than by legal issues. If there is no realistic way that he is ever going to sue her or evict her, then having his name on something really means nothing. And if there is a possibility that he will sue her or evict her in the future, then this probably isn't a great idea anyway.
posted by Mid at 6:08 AM on October 7, 2005
Put another way, in more personal terms: when I was younger, I earned a lot more than my then-girl friend. I was very serious about her, and I helped her with rent and some expenses. It never occurred to me to "get my name on" a loan document or some other form of security for eventual repayment. I just figured it would work out. And, if it didn't, I was out some cash.
I think that's the way most people approach these sorts of situations. Anyone that is looking to protect their legal rights in one of these sorts of transactions is acting funny, if you asked me. Either give your friend the money or don't. But don't try to make it into a formalized commercial transaction.
If I were her lawyer, I'd tell her to keep his name off her house.
posted by Mid at 6:32 AM on October 7, 2005
I think that's the way most people approach these sorts of situations. Anyone that is looking to protect their legal rights in one of these sorts of transactions is acting funny, if you asked me. Either give your friend the money or don't. But don't try to make it into a formalized commercial transaction.
If I were her lawyer, I'd tell her to keep his name off her house.
posted by Mid at 6:32 AM on October 7, 2005
My friend and her S.O. dislike the thought of giving precious money to lawyers and are seriously thinking of trying to write up their own contract, with some friends as witnesses.
The problem is that if it all goes to hell someone will be happy to involve lawyers. At that point their half-assed homebrew contract will be eviscerated by people who know contracts inside and out.
If she's barely making ends meet and is 60% of the way through her loan perhaps it's time to cash out.
posted by phearlez at 6:58 AM on October 7, 2005
The problem is that if it all goes to hell someone will be happy to involve lawyers. At that point their half-assed homebrew contract will be eviscerated by people who know contracts inside and out.
If she's barely making ends meet and is 60% of the way through her loan perhaps it's time to cash out.
posted by phearlez at 6:58 AM on October 7, 2005
Lots of things can happen, and a breakup can turn people angry and vindictive in ways that can't be foreseen. He could get into financial trouble and she could lose her house. A contract protects both people. Get lawyer referrals from Legal Aid. He could pay her mortgage and earn equity over time. He could loan her money with the house as collateral. A good lawyer should be able to help in only a few hours, and it's worth the money. Getting a lawyer saved my house when I got divorced (pre-marriage equity).
posted by theora55 at 8:03 AM on October 7, 2005
posted by theora55 at 8:03 AM on October 7, 2005
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posted by caddis at 5:44 PM on October 6, 2005