Expert: Dick Dennis - 8/12/2008

Question
Recently we put in an offer on the home of our dreams, but hit a dead end when the seller told us that she would not consider any offers from anyone that had not already sold their home.  We have been scrambling to see what we could do when we found out that friends of our's, who adore our house, were suddenly in the market.  We do not want to "sell" them the house, but simply give it over to them at our payments, which is less than what they could finance.  We had orignally been told about giving over our loan, but then told that it is not legal to do this anymore.  However, today I was told about selling a house "under contract".

Under contract was described to me as basically they pay us the monthly payment and then we pay it to the bank.  There is a contract involved which covers both sides and would normally have a balloon in it that states that after a set amount of years, they finance for the amount of the loan at it's current state.  It would also state that their payments during the course of the contract would be considered a down payment for the sale of the home to them.  

I have spoken to several people at work about this, none professionals, and several have done it or know someone who does.  However, I can not find any proper information on it on any websites.  I was told by a person who had done it before that there is websites to actually download the contracts for you to fill out and then have noterized, but again I can not seem to find them.  Is this all whispers in the wind or am I just not looking at the right sites?  Any advice would be greatly appreciated, especially if helps both us and our friends into the homes that we desire.  Thank you.

Answer
You're not going to find anything on the Internet upon which you can rely. So forget that idea, Franklin.

Your mortgage stipulates that upon "alienation of the title" the loan becomes due and payable. It is not illegal to sell or give the property to anyone else. It just violates the terms of the loan when you first got the house.

However, you can forget that, too, these days. No banks want to foreclose and take back any houses they don't really have to. They have enough houses in their "for sale" lot already. Your friends can take over your loan on a "subject to" provision. As long as your friends do make the payments on time and don't give the lender any reason for foreclosing the property then, if it was me, I would let your friends take over.

As for the contracts mentioned (it is called "contract for deed") forget that, too. The banks don't care how the new owner takes title, without being paid off on the loan, it is still alienation of title as far as the banks are concerned. You can, however, do a variation if you don't want to disturb the hive, so to speak. You can have your friends take over the loan on a subject to and let them pay you and you pay the lender. The thing that alerts the lender that there is someone new in the house is the insurance that the new owner is certain to want. When the lender sees that there is someone new on the insurance beneficiary then they could, if they wanted to, call the loan due and payable. Or foreclose if you don't pay up.

But like I previously said, with the market being what it is these days, the lender is not going to call the loan due as long as the payments are kept on time. To make sure that this all done properly and to protect your interests, I recommend you have a REAL ESTATE attorney handle this conveyance of title for you. A good real estate attorney knows how to handle the "subject to" provision of the purchase agreement. I do wish you well.

Dick Dennis       dixiedee13@aol.com