What kind of trouble will follow subleasing a mortgaged home?
April 10, 2017 4:23 AM Subscribe
My sister-in-law is living in a house owned by a former coworker and making mortgage payments on behalf of the owner. She is not renting from the owner but is actually making the owner's mortgage payments in his name. There is no official or legal arrangement or contract. She believes she is "taking over the mortgage" by paying it and that one day, the house will be hers. What could go wrong here?
Bizarre situation - my sister-in-law has been living in a house that belongs to her former coworker for a few years. He owns the house and the mortgage is in his name. I assume the homeowner's insurance and taxes probably come out of the escrow tied to the mortgage in the owner's name. According to my sister-in-law, she "pays" the mortgage, although I'm not sure if she pays the bank directly or how she does this. I do know that she is not leasing or renting the house from the owner and that the mortgage is solely in the owner's name and is being paid in his name, and that no provision has officially been made for their arrangement.
The situation came about because the ex-coworker went to prison for a while, so he offered to allow her to live in his house, along with her boyfriend, children, various relatives, and animals, if she would pay the mortgage and take care of his dogs while he served his prison sentence. He has been released from prison but he can't go back to live in his house because he was convicted of a sex crime (wrongly, according to my sister-in-law) and can't live in the same household with my sister-in-law's children. He has been living in homeless shelters, and his probation officer instructed him to evict my sister-in-law so he can take back his house and live in it. He opted not to do so, presumably because he has no income to pay the mortgage, and according to my sister-in-law, he didn't have the heart to kick her out.
Now, the homeowner has dropped off the radar. According to my sister-in-law, she doesn't know where he is and she has not heard from him for a long time. She doesn't know if he went back to prison, left the state, or if something happened to him. She continues to pay the mortgage that is still his name, and she considers the house hers and incorrectly believes that once the mortgage is paid off, she will become the legal owner. She has proceeded to make improvements to the home and now has foster children living there with her.
Not that this is my problem, and I certainly it doesn't become my problem in the future when the situation inevitably implodes, but I'm just wondering what sorts of issues are on the horizon for my sister-in-law?
Bizarre situation - my sister-in-law has been living in a house that belongs to her former coworker for a few years. He owns the house and the mortgage is in his name. I assume the homeowner's insurance and taxes probably come out of the escrow tied to the mortgage in the owner's name. According to my sister-in-law, she "pays" the mortgage, although I'm not sure if she pays the bank directly or how she does this. I do know that she is not leasing or renting the house from the owner and that the mortgage is solely in the owner's name and is being paid in his name, and that no provision has officially been made for their arrangement.
The situation came about because the ex-coworker went to prison for a while, so he offered to allow her to live in his house, along with her boyfriend, children, various relatives, and animals, if she would pay the mortgage and take care of his dogs while he served his prison sentence. He has been released from prison but he can't go back to live in his house because he was convicted of a sex crime (wrongly, according to my sister-in-law) and can't live in the same household with my sister-in-law's children. He has been living in homeless shelters, and his probation officer instructed him to evict my sister-in-law so he can take back his house and live in it. He opted not to do so, presumably because he has no income to pay the mortgage, and according to my sister-in-law, he didn't have the heart to kick her out.
Now, the homeowner has dropped off the radar. According to my sister-in-law, she doesn't know where he is and she has not heard from him for a long time. She doesn't know if he went back to prison, left the state, or if something happened to him. She continues to pay the mortgage that is still his name, and she considers the house hers and incorrectly believes that once the mortgage is paid off, she will become the legal owner. She has proceeded to make improvements to the home and now has foster children living there with her.
Not that this is my problem, and I certainly it doesn't become my problem in the future when the situation inevitably implodes, but I'm just wondering what sorts of issues are on the horizon for my sister-in-law?
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What could go wrong? The owner might appear at any moment and evict her, all perfectly within the law. At some point he might die & his heirs might do exactly the same. Paying the mortgage does not in and of itself give you ownership rights over a property.
That said, in many countries it’s possible to take adverse possession of a property if the original owner abandons it - but the precise way in which this works varies enormously by jurisdiction & usually unless and until the transfer is finalised by a court the property could be taken away at any moment by the original owner.
posted by pharm at 4:58 AM on April 10, 2017 [5 favorites]
What could go wrong? The owner might appear at any moment and evict her, all perfectly within the law. At some point he might die & his heirs might do exactly the same. Paying the mortgage does not in and of itself give you ownership rights over a property.
That said, in many countries it’s possible to take adverse possession of a property if the original owner abandons it - but the precise way in which this works varies enormously by jurisdiction & usually unless and until the transfer is finalised by a court the property could be taken away at any moment by the original owner.
posted by pharm at 4:58 AM on April 10, 2017 [5 favorites]
I mean, she could be evicted but she could also make a legal claim. It would behoove her to talk to a lawyer about this situation so that she might know her rights currently to the home and how her behavior and actions may or may not give her claim to the home. I mean, really, she is just acting (in some ways) like a renter. She is paying for a property that she does not own and will never own without some legal fight or agreement. She should just talk to a lawyer. Things that could happen, just like with any renter: she could get evicted. Things that could happen, not like any renter with a normal landlord: she could have a flood or fire and find out the property is not properly insured or that is is uninhabitable because the insurers won't work with her. She could get in arrears on some kind of taxes which she is not properly being notified of and...who knows?!
She needs to talk to a lawyer and then act on their advice. It worries me that she has foster children in a not-very-settled housing situation. I hope this all works out for her.
posted by amanda at 4:58 AM on April 10, 2017 [5 favorites]
She needs to talk to a lawyer and then act on their advice. It worries me that she has foster children in a not-very-settled housing situation. I hope this all works out for her.
posted by amanda at 4:58 AM on April 10, 2017 [5 favorites]
These situations vary state to state, but I think the general contours of the situation look like this:
- Without a written agreement no rights to ownership can be tranferred
- Rental situations can occur without a written agreement
Right now I think she would fall under rental laws, and any attempts at eviction would go under that state's eviction rules.
Without anything written, she has no stake in the ownership.
I am not sure of that state's rules, but this situation seems a lot like how a contract for deed would work. Does the sister in law have the money and motivation to get a contract for deed? She would need to pay an attorney or real estate agent to draft the contract, likely some downpayment, and fees to find the owner and hopefully get him to agree to this. The down payment might make him quite interested.
posted by littlewater at 6:07 AM on April 10, 2017
- Without a written agreement no rights to ownership can be tranferred
- Rental situations can occur without a written agreement
Right now I think she would fall under rental laws, and any attempts at eviction would go under that state's eviction rules.
Without anything written, she has no stake in the ownership.
I am not sure of that state's rules, but this situation seems a lot like how a contract for deed would work. Does the sister in law have the money and motivation to get a contract for deed? She would need to pay an attorney or real estate agent to draft the contract, likely some downpayment, and fees to find the owner and hopefully get him to agree to this. The down payment might make him quite interested.
posted by littlewater at 6:07 AM on April 10, 2017
It sounds like this guy might have asked her to 'cover the mortgage' while he was detained, ie pay rent equivalent to the mortgage, and either he misrepresented it or she misinterpreted it.
posted by showbiz_liz at 6:37 AM on April 10, 2017 [7 favorites]
posted by showbiz_liz at 6:37 AM on April 10, 2017 [7 favorites]
IAAL, IANYL, your sister desperately needs to talk to a lawyer in the relevant jurisdiction.
It may be helpful for your sister to point out that the homeowner runs a pretty big risk, too -- in certain places, if utility bills or homeowner's assocation fees or the local municipality's assessment for the new school or even real estate taxes, these can result in a lien being put on the property. Best case scenario is that the homeowner ends up having to chase the occupant for money to pay those, even though there is nothing in writing saying that the occupant had to pay.
Worst case scenario is that the occupant vamooses, the liens pile up, foreclosure processes are initiated, the actual property owner doesn't know about the foreclosure because they're not at the property, and bam, the property is sold to someone else at sheriff or lien sale for pennies on the dollar.
I'll also point out that something that comes up in situations like these is that even if the original property owner intends to convey once the mortgage is paid off, etc., all sorts of things can happen. What happens if they die, and the heirs want to sell the property for cash on the table? What happens if the person gets hit by a bus and needs money for the bills? What happens if the person gets a big judgment against them in a lawsuit, and the person who gets the judgment decides that they aren't getting their money any other way, so they "attach" it to the house and force a sale at an auction? What if the owner just disappears one day, and 30 years later, can't be tracked down to sign over the house?
tl;dr: EVERYBODY WANTS TO GET THIS IN WRITING EVEN IF THE GUY IS NOT IN A SITUATION WHERE HE IS LIKELY TO BE ACTIVELY INVOLVED.
posted by joyceanmachine at 6:44 AM on April 10, 2017 [11 favorites]
It may be helpful for your sister to point out that the homeowner runs a pretty big risk, too -- in certain places, if utility bills or homeowner's assocation fees or the local municipality's assessment for the new school or even real estate taxes, these can result in a lien being put on the property. Best case scenario is that the homeowner ends up having to chase the occupant for money to pay those, even though there is nothing in writing saying that the occupant had to pay.
Worst case scenario is that the occupant vamooses, the liens pile up, foreclosure processes are initiated, the actual property owner doesn't know about the foreclosure because they're not at the property, and bam, the property is sold to someone else at sheriff or lien sale for pennies on the dollar.
I'll also point out that something that comes up in situations like these is that even if the original property owner intends to convey once the mortgage is paid off, etc., all sorts of things can happen. What happens if they die, and the heirs want to sell the property for cash on the table? What happens if the person gets hit by a bus and needs money for the bills? What happens if the person gets a big judgment against them in a lawsuit, and the person who gets the judgment decides that they aren't getting their money any other way, so they "attach" it to the house and force a sale at an auction? What if the owner just disappears one day, and 30 years later, can't be tracked down to sign over the house?
tl;dr: EVERYBODY WANTS TO GET THIS IN WRITING EVEN IF THE GUY IS NOT IN A SITUATION WHERE HE IS LIKELY TO BE ACTIVELY INVOLVED.
posted by joyceanmachine at 6:44 AM on April 10, 2017 [11 favorites]
Among other issues, if he should die, the bank (probably, depending on the state) has the legal right to demand payoff of the mortgage or force a sale, even if she continues to make the payments.
posted by Candleman at 6:49 AM on April 10, 2017 [1 favorite]
posted by Candleman at 6:49 AM on April 10, 2017 [1 favorite]
Just like uninsured people having to go to the emergency room for all health care is my problem even if I have health insurance, this kind of situation is everybody's problem. When it implodes, it could put a huge burden on a lot of overstressed systems, and the fates your nieces, nephews, sister in law, and those pets aren't something you'll be able to just shrug off; they're related to you for their entire lives, and you'd have some emotional investment even if this were a group of strangers you just happened to know. So, you have some standing to ask this question.
I don't know anything about squatter's rights, but it seems vaguely like it might have some relevance here. At least it's a potentially positive direction that your sister-in-law's lawyer might explore with her, and might be a reason she'd find it interesting to at least consult with a lawyer.
Also, the bank would probably prefer to have her on the loan to him, since she's probably better able to pay than he is.
The trick will be figuring out what advantage, if any, he would get from having her take over this debt. If he paid a bunch of money into the house before she moved in, then it would be fair for her to give him some return on that money.
If he's making less money than before, then it would be difficult for him to make payments on the current mortgage even if he moved in, so he'd end up homeless eventually.
Essentially, if he just sold the house to her -- and she could probably negotiate a pretty good deal -- he would get some cash to potentially buy a manageable smaller house, on which he could actually make the payments.
posted by amtho at 7:10 AM on April 10, 2017 [1 favorite]
I don't know anything about squatter's rights, but it seems vaguely like it might have some relevance here. At least it's a potentially positive direction that your sister-in-law's lawyer might explore with her, and might be a reason she'd find it interesting to at least consult with a lawyer.
Also, the bank would probably prefer to have her on the loan to him, since she's probably better able to pay than he is.
The trick will be figuring out what advantage, if any, he would get from having her take over this debt. If he paid a bunch of money into the house before she moved in, then it would be fair for her to give him some return on that money.
If he's making less money than before, then it would be difficult for him to make payments on the current mortgage even if he moved in, so he'd end up homeless eventually.
Essentially, if he just sold the house to her -- and she could probably negotiate a pretty good deal -- he would get some cash to potentially buy a manageable smaller house, on which he could actually make the payments.
posted by amtho at 7:10 AM on April 10, 2017 [1 favorite]
She might also talk to her bank and shop around a bit to see what kind of home loan she might qualify for. If it is within her means to buy him out, that might be the fairest and most expedient thing to do to get this home. He helped her and if he is in dire straits this would be a good way to repay the favor and help him get re-established elsewhere in a hopefully more affordable living arrangement.
posted by amanda at 7:48 AM on April 10, 2017
posted by amanda at 7:48 AM on April 10, 2017
Also, if she bought the house, she would then own a house, which is huge. It would probably be great for her credit rating -- currently she's getting no credit for all those payments she's already made (her friend is).
posted by amtho at 7:57 AM on April 10, 2017 [1 favorite]
posted by amtho at 7:57 AM on April 10, 2017 [1 favorite]
this situation seems a lot like how a contract for deed would work. Does the sister in law have the money and motivation to get a contract for deed?
The contract for deed is a terrible exploitative device which this woman should not get into. It will actually make her situation worse, in that, right now, if she chose to leave the property tomorrow she most likely would not owe any further duties to the homeowner. (Most likely, the laws of her state would treat her current arrangement as a month-to-month lease, though the laws in this area do vary a lot.) If she enters into a contract for deed, she'd breach her contract by doing so and could take a further financial hit. Yes, if she never misses a payment, in theory at the end she gets the deed, but most people in this situation never make it that far.
posted by praemunire at 8:08 AM on April 10, 2017
The contract for deed is a terrible exploitative device which this woman should not get into. It will actually make her situation worse, in that, right now, if she chose to leave the property tomorrow she most likely would not owe any further duties to the homeowner. (Most likely, the laws of her state would treat her current arrangement as a month-to-month lease, though the laws in this area do vary a lot.) If she enters into a contract for deed, she'd breach her contract by doing so and could take a further financial hit. Yes, if she never misses a payment, in theory at the end she gets the deed, but most people in this situation never make it that far.
posted by praemunire at 8:08 AM on April 10, 2017
Just a note about adverse possession: in the US at least, the possession has to actually be adverse (i.e. hostile to the owner's rights). Since he gave her permission to occupy the property, her subsequent possession of it will likely not be considered "hostile" to his ownership rights. Owner's permission is usually a complete bar to adverse possession claims.
posted by melissasaurus at 8:15 AM on April 10, 2017 [7 favorites]
posted by melissasaurus at 8:15 AM on April 10, 2017 [7 favorites]
She continues to pay the mortgage that is still his name, and she considers the house hers and incorrectly believes that once the mortgage is paid off, she will become the legal owner.
She needs to be corrected on this belief, stat. It's not "the" mortgage. It's HIS mortgage, which can never magically become her mortgage, no matter what magical thinking she applies, and more crucially, no matter how much money she applies. The mortgage was taken out in HIS name, and on HIS credit and income. It's not "a" mortgage or "the" mortgage, it is HIS mortgage.
She can keep on paying on his mortgage until it's paid off -- then it becomes HIS house fully.
She is a tenant paying rent. The word mortgage does not make it different. The fact that she pays a bank does not make it different. Her money will never apply towards her tenancy for any time period more than the present month.
She is at a lot of risk, because she has no effective lease. She could be evicted at any time, if for instance, the bank called in the mortgage on a person who could not be found. The bank would then take possession of the house that is the collateral to the loan; and she'd be out literally of the house, and out of all and any money she'd paid. Her money is not going towards ownership.
With an absent owner, it would be almost impossible for her to buy the house and work towards owning it herself. Even if she could qualify for a mortgage, the deed and previous mortgage are all but impossible for her to deal with.
Another issue is that he and she are almost certainly violating the insurance contract (which is almost certainly set up under the assumption of owner occupancy), and the insurance would not pay if something happened.
She needs to get out, stat. She is at all kinds of risk here, with everything to lose and nothing to gain.
posted by Dashy at 9:57 AM on April 10, 2017 [15 favorites]
She needs to be corrected on this belief, stat. It's not "the" mortgage. It's HIS mortgage, which can never magically become her mortgage, no matter what magical thinking she applies, and more crucially, no matter how much money she applies. The mortgage was taken out in HIS name, and on HIS credit and income. It's not "a" mortgage or "the" mortgage, it is HIS mortgage.
She can keep on paying on his mortgage until it's paid off -- then it becomes HIS house fully.
She is a tenant paying rent. The word mortgage does not make it different. The fact that she pays a bank does not make it different. Her money will never apply towards her tenancy for any time period more than the present month.
She is at a lot of risk, because she has no effective lease. She could be evicted at any time, if for instance, the bank called in the mortgage on a person who could not be found. The bank would then take possession of the house that is the collateral to the loan; and she'd be out literally of the house, and out of all and any money she'd paid. Her money is not going towards ownership.
With an absent owner, it would be almost impossible for her to buy the house and work towards owning it herself. Even if she could qualify for a mortgage, the deed and previous mortgage are all but impossible for her to deal with.
Another issue is that he and she are almost certainly violating the insurance contract (which is almost certainly set up under the assumption of owner occupancy), and the insurance would not pay if something happened.
She needs to get out, stat. She is at all kinds of risk here, with everything to lose and nothing to gain.
posted by Dashy at 9:57 AM on April 10, 2017 [15 favorites]
Agreed that she needs to be informed (by someone she will believe) that "paying someone's mortgage" (in the absence of certain marital arrangements) does not and can not create an ownership interest in the house. It's just rent.
posted by fingersandtoes at 10:06 AM on April 10, 2017 [2 favorites]
posted by fingersandtoes at 10:06 AM on April 10, 2017 [2 favorites]
She should also check into taxes and insurance --if she's not sure whether the mortgage covers those she could end up evicted for non-payment of taxes.
posted by warriorqueen at 12:05 PM on April 10, 2017 [2 favorites]
posted by warriorqueen at 12:05 PM on April 10, 2017 [2 favorites]
Also, who is paying the property taxes? Is it part of the mortgage? If there are unpaid property taxes, when the house is sold those taxes, and usually penalties and interest have to be paid off before the new owner can get title.
posted by DarthDuckie at 4:57 PM on April 10, 2017
posted by DarthDuckie at 4:57 PM on April 10, 2017
She may have a claim to ownership of the property under adverse possession, but she really needs the help of a good real estate attorney here. Just paying the mortgage won't convey title to her.
posted by vignettist at 9:19 AM on April 11, 2017
posted by vignettist at 9:19 AM on April 11, 2017
A friend did this for years - paid the mortgage for a "family friend" who had to return to her home country for a lengthy period of time. The story was that she would have first right of refusal when "family friend" was ready to sell. What actually ended up happening is the family friend sold the house to someone else without telling her and she had 30 days to find a new residence.
posted by getawaysticks at 11:27 AM on April 13, 2017 [1 favorite]
posted by getawaysticks at 11:27 AM on April 13, 2017 [1 favorite]
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