Q: I inherited a home from a family member which has no mortgage. The house is in California and I am in Georgia. The caregiver who was instrumental in taking care of my elderly aunt prior to her death wants the house but would not qualify for the mortgage based on her income/assets.
I will be happy to hold the mortgage to make this house a viable option for her; she was a “godsend” during my aunt’s illness. I think you mentioned a company on your radio show or in one of your columns that can help with the transaction itself.
Document preparation is my primary concern, although I could probably get a good real estate attorney to help me with that. I do not need a middleman to handle the payments as I have a number of rental properties. I want to ensure I am completely informed of all issues surrounding this transaction.
A: You’re trying to reward someone who helped you out in a time of need and that’s a good thing. What you need to focus on is whether you should sell the home to this person or rent it to her.
If you rent the home to the caregiver, you might give her time to get her finances in order until she has enough assets and/or income to qualify to purchase the home from you. You and the caregiver can decide on the rent you would be paid and the responsibilities each of you would have for the maintenance and care of the home.
If you simply want to sell the home to the caregiver, you and she could agree on a price for the home, the amount that you would finance for the purchase and the interest that you would earn on the loan amount. If the interest is well below the market interest rates for the loan, you could run afoul of Internal Revenue Service issues, and some of the terms of the loan could be considered a gift to the caregiver.
In terms of financing the home, you would have two options in most places. One option would be to sell the home outright to the caregiver and take back a mortgage or deed of trust on the amount she would owe you from the sale of the home.
The second option would be to sell her the home on an installment basis or contract for deed. In this arrangement, you would remain the legal owner of the home and your caregiver would pay you over time for the title to the home. When the caregiver satisfies the terms of the contract, title to the home would be transferred to her.
Since there is no mortgage on the property, and you don’t have to worry about covering expenses above and beyond real estate taxes, insurance and simple maintenance, the finances of the property should be relatively easy for you. Depending on the circumstances and what your intentions are for the home and your late Aunt’s caregiver, you and she will have to agree on a price for the home and monthly mortgage/home payments or monthly rental payments she can afford. Thereafter, she can send you monthly payments to you.
But you should draw up a proper lease or sales document that conform to California laws. My suggestion would be to go to the California Department of Real Estate to see if they have a lease form you can buy or use, or you should hire a real estate attorney in California to draw up the sales documentation along with the mortgage documents.