Full question:
My mom currently has a home with a mortgage on it, which I am paying for out of my money. Since I can't deduct these payments, and all the repairs I've done to her property, what can I do to buy the property? We were going to do a 7 year land contract with a balloon payment? Is this a good idea??
- Category: Real Property
- Subcategory: Sales
- Date:
- State: National
Answer:
I cannot provide legal advice, but I can outline some considerations. Your situation involves various tax implications and the potential for an acceleration clause in the mortgage, which could be triggered by a transfer of the property.
A balloon payment allows the buyer to pay off or refinance early, which can ease the seller's financial burden. However, this arrangement carries risks. Both the buyer and seller depend on the buyer's ability to secure financing for the balloon payment when the contract matures. If financing isn't possible, the seller may need to foreclose on the contract or wait longer for payment.
Insurance can be complex in a contract for deed. Typically, the buyer is responsible for homeowners' insurance, but if the seller holds the mortgage, the insurance may need to be in the lender's name. It's important for sellers to discuss insurance policies with their mortgage company.
Property taxes also need to be addressed. Some sellers may include taxes in monthly payments, while others will invoice the buyer when tax bills arrive. It's crucial for both parties to agree on how taxes will be managed during the contract.
A disadvantage of land contracts is the foreclosure process. This process is generally quicker for sellers compared to traditional financial institutions, and if the contract terminates, the buyer may lose any invested money. Additionally, land contracts can violate due-on-sale clauses in many mortgages, potentially resulting in the lender calling in the loan. Even a long-term lease could trigger this clause, leading to financial complications for the seller.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.