I once knew this guy who bought houses from people who couldn't make their payments. He filed or did some kind of paper work that allowed him to take over the payments and property so it never affected their credit. Do you know what that paper work process is called?
I have been looking for it but have either missed it or don't recognize the name.
Tuesday, April 22, 2008
Buying question
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5 comments:
Jade,
Good review of a couple concepts here.
A buyer can 'assume' a loan (take over) from a seller if the lender allows it (usually there is a 'due-on-sale clause in the mortgage documents which prevents this from happening).
The situation you describe sounds like a 'deed-in-lieu-of-foreclosure.' With this, an owner can't make payments on the mortgage and the lender (or a third party) take the deed (ownership of the property) including any liens and mortgages on that property. The owner gives up ownership (the deed) because they want to avoid foreclosure.
Now, there could be some other jargon for this as 'deed-in-lieu-of-foreclosure' is a mouthful. If anyone has heard of another name for this, please share by commenting to the comment.
I think assumption is what he did. But it seems like he got around the due-on-sale clause. I don't think it was officially sold. The house was still in their name but there was an additional doc he showed me. I am guessing it said that he made the payments and could take over possesion. I think that is the document or loop whole I am trying to find. He still paid their payments and interest rates and would turn around and sell the house at a profit. The people buying the house never had to get their own loan. Does that make any sense from what you know?
There could also be an installment sale going on here. Remember, with the installment sale the buyer promisses to make a series of payment and usually takes possession of the property. However, ownership (via a deed)does not transfer until the last payment is made by the buyer.
So what happens if the buyer never finishes the payments? Can the original owner make the last few and keep the house? Or does it go back to the orginal seller?
For an installment sale: If the buyer misses a payment, the seller gets to keep all past payments, keeps ownership of the property (keeps the deed), and can take back possession of the property.
However, if the seller is relying on the buyer to pay a mortgage or other debt, the buyer and seller could be in trouble if the buyer defaults. Ultimately, the sellers lender could end up with the property.
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