Minnesota subject-to family strategy, legal?

[Matt Merkel]

hey BP community!

I have been sitting here thinking about ways to fond money for future investments. I am new and am currently in the process of my first approval for a duplex and am really tight on cash. My brother and I will have to wait 1 year to purchase our second (we are taking things in stride in order to learn and utilize our own resources at first) and buy a quad. We both have full time jobs and I have 2 jobs atm to raise capital to invest. 

So I moved back home with my parents as well until this first property is in our hands and I began asking my parents about their house. It's in a very small town, valued at 90k about 6 years ago. During this time they rehabbed the entire main floor and 2nd level (kitchen, dining, family, and 3 bedrooms) they owe 20k on the mortgage and took out 28k line of credit for the rehab 6 years ago, so they owe 48k for the loan still.  350/m for credit and 450/m for the loan. 

I'm guessing the house would be valued at 130k at least if it were appraised today. 

Would it be possible (legal) for my brother and I to take over the loan, get the house appraised, have our parents still live in the house and not continue to the payment or pay rent in any way (living rent free) and us using the equity of the house as our own little bank so to speak? That way we can pull out a high amount of equity tax free (right?) throw it into our next quad and our new "loan" on the quad would be this houses payments + the loan we would aquire for the quad. 

Assuming at 130k value on the house with 48k left in payments lets just say we pull out roughly 50k and use it as a down payment for a 200k listed quad. IF THE NUMBERS work could this hypothetically make sense to do and is it legal? 

Help me out everyone!? Are there laws that are out there where I would get in bug trouble if this happens and or what would the process be to do so? 

Thanks everyone! 

[Bill Gulley]

Yes, we could get convoluted and creative, but, seems your parents qualified for the two payments, why not refi and payoff the existing loans, cash out at 97,500 - 48,000 gives you 49,500. less costs? 97,500 @ 5%, 30yr fixed is 523.40 a month, owner occupied. 

Then just have your folks loan you the money and you can pay the house payment!

You can also have your folks deed 1/4th interest to each child prior to the refinancing and your income MAY be used to qualify, tell the new lender this is for estate planning purposes and you MAY go on the note with your parents, ask your bank. 

USC Title 12 Chapter 13, exemptions to the due-on-sale, transfer of ownership to a spouse or children of a borrower. Transfer of property to a living trust where the beneficiary remains as the borrower and remains in the home. 

If you just take title, your property will then be a non-owner occupied refinance and cashing out may be difficult. 

Estate planning is a family affair, see your attorney and banker. :)