Quit Claim
An 87 year old gentleman has approached me to assume his mortgage and allow him to live the remainder of his life there free of charge. His home is valued at $100k and he currently owes about $55k. I assume the best way to do this would be a Quit Claim Deed and a Living Deed. This opportunity seems to good to be true, what should I be looking out for?
What state do you live in?
I live in Ohio but the property is in Michigan.....thanks
Sounds like a great opportunity. I would consult with an attorney in the state in which the property is located. A few hundred dollars now could save you thousands in the future. You could probably get warranty deed with seller holding life estate. At 87 is seller competent to enter into contract?
Is he a smoker?, some men live to 110. What happens if he goes into a nursing home?
He is very competent, even if he does live to be 110, the way I see it is that I would still be investing in my own property as it appreciates in value. I assume as long as I have a good title history done and it is clear of liens, it is an excellent opportunity. He wants me to just pay his current mortgage until he dies and then I can refinance it, does anyone see any danger in this as long as I have the quit claim deed sogned and recorded?
Treat it as a normal purchase with a warranty deed, title insurance. Basically it is a Sub to Deal. Subject to owners existing mortgage, all other would be covered in the Title insurance policy. A quit claim deed would work, and when recorded you would be owner and could re-finance whenever you want. ( some lenders require seasoning). The agreement with the seller wuld be seperate from the quit claim. Possibly a lease for $1.00 per month as along as he chooses or is able to occupy the property.
While you are getting 45K in equity, you will have a negative cash flow as long as your "seller" continues to occupy the property. You will be locked into making the payments on a property that you can't do anything with. Are you buying this to live in at some time in the future, or as an investment to sell at some later time. What about maintenance costs, insurance, taxes and the like? Are you going to assume responsibility for all of those?
As far as the deed goes, I would want a warranty deed. Typically, a quitclaim is used to clear clouds from the title. You certainly wouldn't want any hidden title problems to come back to haunt you.
Good Luck,
Russell
Thanks for your replys.....I would be doing this purely as an investment, maybe even rent it out once the gentleman passes. If I am able to refinance it, I would probably take some cash out to help with the monthly payment. I just didn't want to make this guys payments for 3,4,5 years and then he dies and then I find out there is something I wasn't aware of possibly preventing me from being the 100% free and clear owner.
You're sure he's legally competent? Wow, that's quite a call and a very dangerous one.
Whatever you pay him, you need to get some outside proof for your file that he IS now legally competent, and won't take your money now, then later he,or his kids claim you took advantage of the poor old guy!
Has happened, and the buyer is left holding a bag and may never get the mess cleared.
How to establish his legal comp. now?
His Dr.'s report written letter to you;
his lawyers's written letter of OK;
two or three people who deal with him all the time-their written letters for your file that he's mentally OK, sharp as tack, etc.;
The more of these the better, so you don't have to be wondering what's coming.
Without one or more, you're paying your money and taking your chances!
And a side note: Do you think any insurance company would pay anbody for any kind of bodily injury claim without at least getting an independent Dr. to examine and verify the claim?
JohnMerchant has made some excellent comments. You may very well be litigating the conveyance with the old guys heirs if you don't do this right. Make sure you hire counsel to represent you in this.
Hello. I am new to this board. I look forward to reading and contributing to your discussions.
I have to weigh in here. I am surprised there is so much support for this deal. I suppose it could be a good deal for you, but I would never take any property that was GUARANTEED to be cashflow negative. There are only so many of those that you can afford to do. And in my opinion that number is ZERO.
That $45k in equity you're getting is a) not liquid, and b) not going to last you real long. What is your plan if the gentleman is (hopefully for him) still with us in 6 years? You will be upside down by that time I would think - possibly sooner.
The way I am looking at this is even if he does live for another 6-10 years, I will be paying down the principal while the house is appreciating. Sorry to say but the old man will pass sooner or later and when he does, I will be free to do whatever I want with the house. Yes...I am having counsel assist me with this....Thanks