Can My Buyer Do This?
Ok, looks like I got a deal here.
I have a motivated seller that I can buy their property "subject to" their 1st mortage balance. Apprasial $120,000 - Mortgage balance $100,000. PITI -$820.
I have a buyer that will give me $10,000 up front and "take-over" the existing mortgage payments from me.
The question is: Is it possible (legally)for the buyer, as they will be making the mortage payment in essence, to obtain the mortgage interest deductability (even thought the are not the deeded owner)?
This is the only way they will do the deal.
Thanks in advance.
Why wouldn't their name be on the deed if you are selling them the house and they are just making the payments.
Or do you mean they are paying you and YOU are going to make the mortg payments?
MrMike
Greetings from Sanford.
Yes, the owners name remains on deed and mortgage, and I contract my subject to, if you will, to the new buyer. (hopefully I am describing this correctly)
erikahlberg,
Glad to meet you.
You are not from what I read doing a traditional Subject To on this property.
Under what method of investing are you going to be using, Lease Option or Land Contract to aquire this property?
John $Cash$ Locke
Ok - forgive me as I am very new, and I may not be describing this totally correctly.
Basically, I take-over the existing owners mortgage payments, I collect $10,000 from a buyer and assign my rights to the buyer who wants to "feel like they own a home" & get all the tax & other benefits (appreciation) that go along with it.
If the buyer defaults, I cover the mortgage payments for the original owner, evict and get another buyer.
Can the buyer gain the mortgage interest deduction- because in essence they are making the mortgage payments. Although I would have they go through me each month (to monitor), but be made payable to the bank.
I guess what really matters to everyone is whether or not you actually take deed to the house. If you are simply paying the mortgage, then I would assume that the only people that can (legally) get the tax credit would be the owners for whom you are making the payments. Basically, your tenant/buyers would be in essence renting from them and you are just a middle man, like a lease/option.
However, if you take deed to the home and they buy the house from you (they are now on the deed) they have equitable interest in the property and they can then take the tax credit.
Tell me if I'm wrong but that is the way I understand it.
Mitchell
erikahlberg,
From what I am reading and not to discourage you from entering this great industry you are not ready to do any kind of creative real estate deal.
You refer to just evicting someone, which if they are buying and have put $10K down would require a Judicial Foreclosure.
You cannot explain how you are taking tilte to the property except to say "taking over the existing loan payments". A method to do this needs to be in place, which there are several.
Have you done your due diligence to see if the person selling the property is the actual owner of the property and their are no outstanding liens or encumbrances?
There is so much more that you need to cover, when you are advised to just go do it, always remember those that advise this have no liability involved.
Bottom line you need to study some more so you understand the process of creative real estate investing.
John $Cash$ Locke
Thanks for the response from all & the reality check from John.
Guess I'm a little excited as I have a seller who will let me take-over their mortgage payments....and a buyer that will come up with $10,000 for me and will assume my "rights".
Guess I'm just not sure of the best way, if it's possible at all, to structure this deal.
erikahlberg,
I am not saying it can't be done and you may be getting private messages to help you, if you do let me know.
John $Cash$ Locke
BOBFORDD,
Glad to meet you.
Your understanding is wrong, when you sell on a Land Contract or Contract for Deed the person purchasing the property is entitled to the tax deduction even though the do not have the deed.
John $Cash$ Locke
erikahlberg,
As I THINK I understand it, one way to do this as a Sub 2 is to get the seller to sign a warranty deed to you. Do your Due Dilligance and check to see that they can deliver a clear title, then record the deed with the county. Once that is done you can SELL the prop to the new buyer,(collect the Down Pmt) but you are still responsible to ultimately pay the mortgage.
NOTE: I am a newbie myself, so this may NOT be accurate,. I would spend more time reading& surfing TCI for info.
Read EVERYTHING John Locke has!
-Paul
Thanks Paul & everyone else
This is great. I'm learning soooo much, just in the past 2 days.
This is going to be a very exciting experience for me.
Erik
Hello Erik from Winter Springs.
John Locke is a VERY good person to listen to.
I have a thought,
If after following John's advice to get educated why don't you: put the property in trust with yourself as the trustee and assign beneficial interest to the buyer, generally the person with beneficial interest collects the mortgage deduction.
Couldn't you setup a contract for deed with the current owner for the exact amount of the mortgage, and then sell that contract to YOUR buyer for $10,000? Then you would not be liable for payments. Which brings me to the question of why when you buy subj-2 can you not buy on contract for the exact price and terms as the original mortgage. How is subj-2 any different than buying on contract?
OR
Buy the property subj-2 and take title. The sell the house subj-2 to your buyer for 10k cash, giving them the deed. Why couldn't this work?
In either of those cases, the ending buyer would be allowed tax deduction, correct?[ Edited by Ruman on Date 02/07/2004 ]
Subject To 101
1. You purchase the property Subject To the exisiting loan staying in place. You get the Deed making you the owner of the property.
2. You sell this property via Contract for Deed, Land Contract or other state specific device.
Since you have created a loan for the Buyer included with the Contract for Deed they are intitled to the tax deduction at the end of the year.
The original seller is not intitled to the interest deduction because they are not paying on the loan to the lender.
If you need to got to Subject To 102 then you must pass the test on Subject To 101.
I typed this post very slowly to give those that try to make this complicated time to study that it isn't.
John $Cash$ Locke
OK Gentleman! I have found our answer after several hours of DD.
IRS code 1.163-1(B)
"Interest Paid by a taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness"
Obviously this, like many IRS deductions, are subject to interpertation. But, I feel, and I am not a CPA or tax Attorney, that after reading this IRS language, that a buyer who assumes or takes-over mortgage payments subyect to would be allowed to claim mortgage interest deductability.
Erik
John,
I am slow but come on I had this part down after reading your manual. One question you refer to a note. Isn't that what a contact for deed is? I sold the house for 135,000 with 3,000 down. Balance due in 2 year is 132,000 The mortgage is 113,000. Packed the payments $100.00. So far so good. Should I have had them sign a note for the 19,000? Maybe it is time for Sub to 102..... Thanks John