Seller financing with no equity and current mortgage

[Andrew Pappas]

Hello, I have a specific question and haven't been able to find the answer.

I have a very motivated seller who owes about $126,000 on his house, which is also what it's worth.  He is willing to repair the property and sell it to me through a contract for deed for no money down.  His monthly principal and interest payments are $859, taxes are $700/year, and insurance $763/year.  I buy the house seller financed for the balance of the mortgage.  He continues to pay his mortgage, and I pay him the monthly principal and interest payment, which I will structure be the same amount he pays.  He is no longer burdened by the property. My questions are:

1. So the seller would hold legal title to the property, but I would take possession and full responsibility for the property, correct?  How do we avoid triggering the due on sale clause with the mortgage?  I would have to insure the property in my name, and the mortgage company would see this.

2.  Do I just pay the taxes directly to the county and insurance to the provider, instead of through escrow?  The seller would have to change his escrow payment to remove taxes and insurance, correct?

3.  For my exit strategy, I would seller finance it to an owner occupied buyer.  Can I set the interest rate so that I generate cash flow off the note after I pay the seller my payment, or does this violate Dodd-Frank?  And I won't be able to structure a balloon payment with an existing mortgage on the property, because the new buyer won't be able to refinance.

I see a potential for everyone to win here-the seller is relieved from this property, my new owner-buyer gets a nice property for below rent payments, and I get a monthly cash flow from the note.   Thanks for the advice