This is a little OT, but I am going to take over the mortgage on my son-in-law and daughters house as I can get more interest from them than on a cd and they will get a lower rate from me than they can get at a bank. (5%). What is a good, cheap way to get the mortgage forms, and what are the different pieces of paper called. It has been a long time since my wife and I had a mortgage and I am rusty on all the various names.
TIA
Bob Hofmann
I don't think you can issue a private mortgage to another private party. Only licensed mortgage companies can do so. This is how I would consider the problem. Make a private loan to your son to pay off his bank mortgage. Your son will pledge the title to his property as security. That security pledge will be a lawyer vetted document transferring the property to you but remains undated, to be effective any time the date is inserted. You should register this document with some government authority. On a separate contract spell out this fact together with the terms of repayment, etc. Don't do this on a handshake. A house is a big ticket item. If there is trouble you not only lose the money you also lose your son and his family. You can always forgive the loan. But never put him in a situation where he can delay a problem by stalling. That delay wreaks even the closest relationships. Don't forget you have to declare the 5% as income for tax purposes.
This is a risky proposition! You have to consider what happens when your son-in-law/daughter can't pay. Do you let it slide? Create a fuss, awkward situation, or family resentment? A CD is insured, what you are proposing is not! If you want a fairly safe investment in real-estate, then consider an AAA-rated GNMA fund and backed by the US government. If you still want to float your daughter a loan, get a real-estate lawyer to draw up the paperwork, and maybe we can watch y'all on Judge Judy!
Also, if you give them a below market interest rate, there can be some rather nasty tax consequences. Personally I wouldn't touch this.
Plus, the son cannot take any mortgage tax deductions, since it won't be a mortgage, just a loan.
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"Good" and "cheap" are basically mutually exclusive.
Don't even consider this w/o legal representation for yourself and I would strongly recommend the SIL/daughter retain counsel for their interests in any such transaction besides.
It's not clear whether there's a current mortgage to deal with the lienholder or this is a new purchase idea, but either will have its own peculiarities plus whatever else there is that is unique in the situation.
As others note, there are also potential tax issues here -- below market interest rates are an area the IRS does look at...
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I'm not so sure about that. What makes a loan a mortgage? What it's used for, or who you get the loan from? Sounds like a question for the IRS or a tax attorney. I'm not about to go poking around in Turbotax at the moment, but clues might be there, too.
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What makes a loan a mortgage is what the collateral is. If the collateral is the property, its a mortgage. Mortgage interest on primary and/or secondary is deductible irregardless of the payee.
But, it needs to be structured properly for this and other enumerated reasons and shouldn't even be considered w/o proper legal representation for each party...
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I am going to have a regular mortgage on the property, the land and the house are the collateral for the oan, just like as if I were a bank. I will have to issue a 1098 form to them for the interest paid each year just like a bank does, and I will have to declare the interest they pay me as interest received just like I do for interest received on a CD.
Thanks for all the warnings, I didn't get to the position of giving them a mortgage without having some $$$$ smarts.
You came here and posted because you don't even know where to get the proper paperwork, or even what paperwork might be needed. I'll refer you to the subject line of your oriiginal post.
Take a deep breath, count to 100, and start over. You are clearly not nearly as smart as you think.
hr(bob) snipped-for-privacy@att.net wrote: ...
Even if grant that to be so this has far less to do with the money itself but using professional help to handle a transaction to ensure it is executed properly and nothing is left uncovered. I still say the S-I-L would be an idjit to enter into the agreement w/o representation as you would be to make it w/o competent assistance. Only some of the issues that I can foresee include title search, etc., disclosure rules applicable in your jurisdiction, potential for hazardous material liability, and on and on that the folks who do this routinely are well versed in and you aren't even aware of.
That's not intended to be an aspersion against either party. If you would consider entering into a real estate transaction on your own w/o representation, I would only invite you to listen to Bruce Williams evening talk show for a while to hear of the tales of woe that have arisen owing to such penny-wise, pound-foolish actions of others...something of this nature is even more likely to have pitfalls for the unwary.
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Right. When he pays off the mortgage they can execute a Quitclaim deed and record that and the OP has Title.
Draw up a Lease purchase contract with details. Pops is now the bank!
The question is better suited to misc.legal or misc.legal.moderated, but I'll answer it here. I have a private mortgage. The term "Seller financing" on a house for sale means the seller will consider giving the buyer a private mortgage. It can be a good deal for both parties.
You need 2 forms, Mortgage (aka Security Deed) and Promissory Note. Using FannieMae / Freddie Mac Uniform Instrument (so called FNMA) versions of these will make it easy for all parties; a uniform mortgage is, well, uniform. You can get the forms an old-fashioned stationery store, the kind that sells forms! Or online: there are many sources. I got my forms (FNMA) online from uslegalforms.com .
A mortgage is a mortgage is a mortgage, for legal and tax purposes.
5% is well within bounds of market rate and thus does not qualify as a gift.Una
Thank you Una!!!
You are the only person who responded correctly with the names of Promissory Note and Mortgage. I posted my original question after finishing doing the income taxes for an individual who runs a home business, owns three homes, and also works outside of the home and a second semi-retired couple who have a large variety of investments and some weird expenses.
I was hoping for someone to say promissory note and mortgage, which is what I thought, but didn't want to prejudice any responses.
To everyone else, thanks for taking the trouble to respond, I am well aware of the pitfalls and there will be language used to make it clear what happens in case of default, death on the part of any of the signatories,etc. I have the forms and am now tailoring them to our particular circumstances.
H. R.(Bob) Hofmann
Your much too kind Bob. Many of the answers here were completely incorrect. Starting with the claim that a private party can't issue a mortgage to another private party. Or suggesting transfering title. Or adding you as a co-signer on the loan, etc. None of those does what you want to do, which is replace the current mortgage on your daughter/SIL's house with one you give them.
Certainly you can do it and have it recorded properly. I would suggest that if the interest rate is going to be any significant amount lower than the prevailing market rate that you check with a tax advisor. The post suggesting possible IRS issues with below market loans is correct. As far as the forms, personally, I'd contact a couple lawyers and ask what their flat fee would be to do this for you. Should only cost a couple hundred bucks and for me it would be worth it to have it done right. Alternatively, if you check at the local hall of records, they can probably point you to the forms/ procedures for recording the new mortgage.
Of course, as others have pointed out, doing this could someday get messy if their situation changes and they miss payments, get divorced, etc. As long as you understand the potential problems, there is no reason you can't do what you want to do. It's done all the time.
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