Buying house from mom - Posted by Jen

Posted by Bill Gatten on September 17, 2001 at 19:37:56:

Honestly Ken, I really think you could use a little study on this issue. Naming an unrelated co-beneficiary or remainder agent in a living trust of any kind is not against the law. Having done a few thousands of these transactions and having taught the subject nationwide for quite a few years should give me a bit of an edge on some of these issues.

Like I said, I wouldn’t want to offend you for any amount of money, Ken, but honestly…truly do be careful when making assertions that might not stand up. Your reference has to do with Title 12 of the Code of Federal Regulations that is to some (a large) degree in opposition with the original law (Title 12 of the U.S. Code). When a lender so “wishes,” it must be provided with a means of being informed of a change of beneficiary: although this is not to be construed as meaning they ‘have’ to be provided such means if they don’t request it. Furthermore, it can be supposed that such regulation pertains to full changes of beneficiary interest (ie., substitution versus a partial assignment for asset protection purposes).


Bill Gatten

Buying house from mom - Posted by Jen

Posted by Jen on September 07, 2001 at 14:04:46:

I have a couple of questions about buying a home from a parent, a home that has not been a residence of the parent.

  1. A realtor told me to have the house put in a Deed of Trust with Escrow collection account. She told me that I would pay the escrow account and that would pay my mother.
    Is this a viable option?
  2. Our credit is good but not great, we do not qualify for the amount mother wants tosell the home for. We want to offer her what she wants for the house and pay her for 30 years, Can this be done?
  3. We are trying to avoid high interest and points required from a traditional mortgage. Mother does not need the entire home amount to live on.

any other creative ideas for financing options?

Interest rates are NOT high now… - Posted by David Krulac

Posted by David Krulac on September 07, 2001 at 20:09:31:

you can get 5.75 fixed rate for 15 years with about 2.5 points. thirty years ago the interest rates were higher, twenty years ago they were a LOT higher, and even ten years ago they were higher. Now’s the time to get while the getting is good.

Re: Buying house from mom - Posted by Ken (ILL)

Posted by Ken (ILL) on September 07, 2001 at 18:19:24:

One way is to take over the house note “Subject-to”. This means that you are going to make the payments on the house as they are on the original loan. Your mother could then do one of two things. Either deed you the house under the “ST” agreement OR she can put it into a Land Trust. She will remain owner, or the DOS clause will be in effect. She can either transfer the benificail interest to you when the time comes, or she can sell it outright to you, which will cancel the trust.

Re: Buying house from mom - Posted by dewCO

Posted by dewCO on September 07, 2001 at 16:42:36:

Sany’s idea is OK, but you dn’t need to have a balloon note, especially if mom is OK with holding the note for 30 yrs. If you get locked into a balloon then you’ll need to pay it all off when it comes due, and you may or may not be in a position to do that, or to get it refinanced via a regular loan.

You don’t really need any CREATIVE financing or ideas. If mom is willing to let you make payments then just do that. Don’t know if ititle companies in your area do closings or if you need an attorney to get it done. Check with a real estate agent.

You have the terminology a little wrong. Your mom will sign a deed, which puts you in title to the property, and you will sign a note, which obligates you to make the payments, and a “deed of trust”, which specifies the lender’s rights and yours should there be a foreclosure. You don’t put the house in a trust by using the deed of trust–that’s 2 different things. Also, you should need a payment esccrow service. Just either always get a cancelled receipt, or pay by check, the whole amount that is due each month, so you can prove, (if you ever need to) that you have made the required payments each and every month. The only advantage of the escrow service (which costs a fee to set up and use each month) would be IF they prepare for you at the end of the year a statement for the interest you have paid, which you can write off on your taxes. However, you do figure that out to, by running an ammortization table of the loan (any real estate should be able to do this for you, if you don’t have access to such a program) and it will specifiy how much is going to interest and principal every month. Just add it up for the 12 months and you have you your mortgage deduction. (Your mother then is supposed to file her income off of this transaction with the IRS tooooo!!!)

You have and mom holds - Posted by Sandy

Posted by Sandy on September 07, 2001 at 14:19:38:

  1. Don’t know
  2. and 3. Have mom hold the note. Find out how much mom needs and give that to her as the downpayment, then come to an agreement on price. As for terms, amortize the note for 30 years with a balloon in maybe 3-5 years. That should give you time to work on your credit and mom will have an income. Mom could be flexible with the terms allowing you to get a mortgage and cash her out when the market is good for you.


Re: Buying house from mom - Posted by Tom – IN

Posted by Tom – IN on September 07, 2001 at 23:00:52:

Ken, I think that you are wrong about DOS clause. One of the specific exemptions is sale to a dependent.

Re: DOS - Posted by Ken(ILL)

Posted by Ken(ILL) on September 08, 2001 at 12:15:42:

You are right…in most instances. However, the lending institution can (and sometimes do) change the contract to suit their own legal dept. It doesn’t hurt to see if the DOS has any added contingencies included in the original contract. Don’t ASSUME anything, unless it is in black and white in front of you!

Re: DOS - Posted by Bill Gatten

Posted by Bill Gatten on September 08, 2001 at 14:41:52:


With no disrespect intended…your answer here reveals an apparent unfamiliarity with the law on such matters. Please try to hold back on offering advice that you are not absolutely sure of…it really can cause problems for someone who takes the advice or assertions as fact?and remember there hundreds or thousands of people exposed to your comments when they are posted (Don?t stop posting and trying to help?just be reeeel sure of what you say).

Contrary to your logic, federal law does prevent lenders (private or institutional) from claiming a DOS violation when a property’s title is transferred to a legitimate spouse or child of the borrower (Title 12 of the US Code and of the Code of Federal Regulations). Federal law also provides that IRRESPECTIVE of what contrary verbiage might be written on the deed or in the security agreement, the Federal Depository Institutions Regulations Act of 1982 will still prevail. Its true that a lender or federal loan insuring agency may “try” to create a smoke screen to divert a borrower’s attention from the facts: but in the end they cannot violate the applicable federal law.

Here’s an example of such a smoke screen (It’s what we call the drafter?s reliance on the readers natural inclination toward ‘Cognitive Rigidity’):

“Unless prohibited by applicable law, the lender of this loan reserves the absolute and undeniable right to foreclose on its security (the house) if the borrower’s mother ever deeds the property’s title to her daughter, the borrower hereunder.”

Note that this is a legally sound statement and is fully enforceable…it’s just misleading without a careful reading of it. The fact is that since such a transfer IS NOT prohibited by applicable law, the threat has no substance or enforceability. And such is true whether the lender has written something else into its documentation or not.

If you think the ?smoke screen? verbiage analogy here is far-fetched take a looks at the DOS Clause in any FHA or VA loan document (Para. 17).*

  • “Unless prohibited and applicable law, the lender may, with approval of the secretary, require immediate payment in full, if all or any part of the property or its title, or any beneficiary interest in a trust holding all or any part of the title, is sold or otherwise transferred without the lender’s prior express consent.” Well…so what? What they’re threatening IS prohibited by applicable law. Anyone who wants to can transfer to a revocable living trust anytime they want to?wholly irrespective of what a lender might prefer or demand.

Bill Gatten

Re: DOS - Posted by Ken(ILL)

Posted by Ken(ILL) on September 10, 2001 at 06:39:15:

I hope you don’t have your clients change benificial interest out of the family. YOU will end up causing the DOS to immediately be inforcable. THAT’s the law.