Loan Assumption (Family Farmhouse)

[Shaydon Childers]

Hello, I am trying to find a creative way to take over my father in laws house (67). He owes 200K (assumable) on a deteriorating farm house in a great area, on 5 acres. House is worth 650K in its current condition and about 900k after 130 K rehab. He is retired, on a very limited income and can't afford a new roof or any of the long put off maintenance. There is a (non permitted) livable ADU on the property. He would like to stay on the property until he leaves this earth. I suggested to him that I assume the loan, give him 30K down, let him stay in the ADU rent free for life and monthly installments to pay him the rest of his equity. He wanted 150k down and I think he would have done it. I don't have enough cash for the down-payment and the much needed maintenance. He is also worried that we could just kick him out some day if we moved or changed our mind. Any thoughts on a better angle? I don't need the house as much as he needs the help but my wife really wants to live there. She is also worried he will lose it someday, he is filing for bankruptcy at the moment but assured us the mortgage is current.

[Caroline Gerardo]

Filing for bankruptcy makes the mortgage not assumable. To be assumable lender requires loan to be current and not tied into BK. You have to get court approval to sell or have you assume Any non arms length transaction (sold to family) is going to be disputed. Also the BK court will do their own appraisal and likely come higher than you think. Assumption is full documentation with two years of your IRS return net and all the 100 other papers. Assumption takes 90 days, this is not a plan.

You need a huge down payment to make the difference between loan of $200000 and sales price $650000.

I like the idea of a reverse mortgage. His social security or income can be used to offset the tax and insurance BUT the house has to be in good condition to meet FHA rules. Is there well and septic they will require inspections... You need a solid roof, and that costs $15000 minimum...

If you could qualify for a USDA purchase loan you don't need as much cash for closing and no down payment needed. There are grants to help with the closing costs. Property again needs to meet health and safety codes. I think USDA is the best option look in the map and see if address fits. Here is the link https://eligibility.sc.egov.usda.gov/eligibility/welcomeActi...   Then if you have the income on your IRS taxes offer him a LIFE ESTATE to stay until his death, thus giving you the responsibility to make payments and he pays nothing. Are there other siblings or heirs? You brother or sister will balk at this and say: just sell it and give Dad the total proceeds. 

If you have siblings are they willing to co-sign IF THEY have INCOME what is net number on IRS?

If he files Bankruptcy he has a year-ish to wipe out credit card debt but the court may force him to sell the house to pay off the debt. Bankruptcy takes away choices and puts it in the court or a funky attorney's hands. Imagine an auction, it will break his heart. I assume the house is his sole asset. If he filed a homestead (file it now) it gives him $125,000 of equity in his primary residence through the homestead exemption but the court will have an outside appraisal that says the house is worth $700000 and he owes $200000 - this number will increase as a year of non payment and legal fees gets tacked on. $700000- $125000 -270000 or more = leaves about $300000 - $10000 for personal property. He gets $135000. The remainder net proceeds will get divided up among the creditors- cards, vehicle loans, liens, medical bills.. 

If you don't have the income on taxes or someone to co-sign. Sell before he files bankruptcy. If he already filed, you can un-file it.