Father Wants a Home Mortgage (Bad Credit Score)

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
ever1809
Posts: 17
Joined: Fri Apr 14, 2017 10:04 am

Father Wants a Home Mortgage (Bad Credit Score)

Post by ever1809 » Mon Sep 10, 2018 8:28 am

Backstory relevant to the situation:
When my father faced his second divorce (my ex-step-mother), he had to fight a legal battle to retain the home he was raised in and lived in the majority of his life. Although he won the rights to the house, he owed her half the value of the home. He had a bad credit score and struggled to get a loan to give her that money. My grandfather offered my father a deal - he would buy the home from my father, enabling my father to give her the required money, and then let my father buy the house back.

They had a gentlemen's agreement that my dad would make the payments of the mortgage to my grandfather (as well as property taxes and insurance), structured as a rent-to-own. That agreement seemed to be going smoothly as my father did not miss a single payment (even started paying double to my grandfather since my grandparents began having money issues), and my father currently owes ~$52k of the original ~$130k.

However, whether due to greed or money issues, my grandfather sent my father a notice that he needs to buy the home for ~$130k or he would evict my father and sell the home to someone else. My father requested to buy the home for $52k, but my grandfather's attorney sent him a letter turning the $52k offer down and stating he had 10 days (until 09/14/18) to agree to the $130k or they would withdraw the offer to let him buy the home.

Because there was no formal written agreement for the rent-to-own, technically my father was simply a renter by law and cannot fight the price dispute. As a result, my father swallowed his frustrations and has considered getting a mortgage for the $130k. The problem is that my grandfather was not reporting the rent my father paid to the credit bureau, and my father's credit score is still too low to get a typical mortgage.

The ask:
So, my father turned to me for help, even though I've made it clear that I don't want to loan to any family members. What my father is seeking is a bona fide mortgage with a private lender for the ~$130k (he doesn't care if it's me or a stranger as long as it's a formal written agreement), and he is willing to pay extra interest than the typical mortgage due to the risk (not sure what interest rate he would accept).

I'm confident that he won't miss a payment, and the only reason I haven't agreed to it is that I don't want to set a precedent of loaning to family members. Is there anyone out there who would be willing to invest in real estate as a private lender in this instance (if so, at what interest rate)? If not, is there anything else any of you would recommend?

alfaspider
Posts: 1602
Joined: Wed Sep 09, 2015 4:44 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by alfaspider » Mon Sep 10, 2018 8:47 am

Your dad got into this situation through a problematic mix of finances and family. I'd hate to see the same sort of problems trickle down to another generation.

Is $130k a reasonable market price for the home or is it below market? If it's market price, I think your father would be far better off buying another similar house without the complicated family baggage. If it's below market, that may help getting the loan as the creditor would be much better protected from default.

RickBoglehead
Posts: 1002
Joined: Wed Feb 14, 2018 9:10 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by RickBoglehead » Mon Sep 10, 2018 10:38 am

Danger Will Robinson, Danger!

There are countless stories of people's credit being destroyed by another family member that cosigns a loan.

Possible scenario - you buy the house, titled in your name, and are responsible for the payments. Or, you simply cosign the mortgage Dad has a financial disaster, or passes away, and you're on the hook for the mortgage or your credit is destroyed.

Your father made a very, very poor decision not having a documented rent-to-own agreement, and now is paying the price. Hard lesson. Don't get taught one yourself.

ever1809
Posts: 17
Joined: Fri Apr 14, 2017 10:04 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by ever1809 » Mon Sep 10, 2018 10:42 am

alfaspider wrote:
Mon Sep 10, 2018 8:47 am
Your dad got into this situation through a problematic mix of finances and family. I'd hate to see the same sort of problems trickle down to another generation.

Is $130k a reasonable market price for the home or is it below market? If it's market price, I think your father would be far better off buying another similar house without the complicated family baggage. If it's below market, that may help getting the loan as the creditor would be much better protected from default.
Agreed. It's one of the reasons I decided not to loan to family members.

As far as I know, $130k is a reasonable market price. That's what Zillow estimates the value is, though I don't know how accurate Zillow really is. I don't think he is opposed to buying another house, but he'd still have the same issue in regard to obtaining a mortgage. If he can't find a mortgage anywhere, he'd likely have to rent a much smaller home (which he might have to do).

bloom2708
Posts: 4910
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by bloom2708 » Mon Sep 10, 2018 11:16 am

If the home is valued around $130k, you and/or your father will not get a mortgage for $130k.

If he paid the verbal note (was this a rent to own agreement or just a rent?) Has he made $82k in rent payments over the years?

Does he have 10% to put down and enough for closing costs?

Tough scenario, no doubt. If you decide to co-sign and help with a downpayment/closing costs, be prepared to assume the full mortgage burden (now or future). Can your credit/finances support the full payment, taxes and insurance? If not, it is time for dad to move and rent.

I would probably help him co-sign a rental agreement over getting a mortgage. He has been paying payments so has the ability to pay rent.

Good luck!
Last edited by bloom2708 on Mon Sep 10, 2018 11:54 am, edited 2 times in total.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

JGoneRiding
Posts: 1194
Joined: Tue Jul 15, 2014 3:26 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by JGoneRiding » Mon Sep 10, 2018 11:31 am

Can your dad document that he paid rent?

If so I would be very tempted to tell grandfather to go screw himself. I would continue paying "rent" but stop paying insurance and taxes. And inform grandfather you will see him in court.

It is extremely difficult to evict a paying renter

Ultimately your father will loose the house but it sure as heck bears paying for it 3 times!

ever1809
Posts: 17
Joined: Fri Apr 14, 2017 10:04 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by ever1809 » Mon Sep 10, 2018 11:41 am

bloom2708 wrote:
Mon Sep 10, 2018 11:16 am
If the home is valued around $130k, you and/or your father will not get a mortgage for $130k.

Does he have 10% to put down and enough for closing costs?

Tough scenario, no doubt. If you decide to co-sign and help with a downpayment/closing costs, be prepared to assume the full mortgage burden (now or future). Can your credit/finances support the full payment, taxes and insurance? If not, it is time for dad to move and rent.

I would probably help him co-sign a rental agreement over getting a mortgage. He has been paying payments so has the ability to pay rent.

Good luck!
I'm not sure how much he can put down, if anything. It's possible he could swing a 10% down payment, though. My credit/finances could support everything without putting me in a bind. I could fund the mortgage, taxes, and insurance with cash flows, and I also have enough to buy the house outright with cash. I'm 29 with zero debt (own my home), have 6x annual expenses in my investments/emergency fund, and am currently saving 45-50% of my annual expenses each year.

ever1809
Posts: 17
Joined: Fri Apr 14, 2017 10:04 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by ever1809 » Mon Sep 10, 2018 11:52 am

JGoneRiding wrote:
Mon Sep 10, 2018 11:31 am
Can your dad document that he paid rent?

If so I would be very tempted to tell grandfather to go screw himself. I would continue paying "rent" but stop paying insurance and taxes. And inform grandfather you will see him in court.

It is extremely difficult to evict a paying renter

Ultimately your father will loose the house but it sure as heck bears paying for it 3 times!
Since my father is essentially a month-to-month renter (there is no formal contract), I think my grandfather can evict him as long as he gives him ample notice (the notice states that my father would have to vacate by the end of the year, since my father had prepaid through the end of the year). The Friday deadline is simply for deciding on whether or not my father will purchase the home (my grandfather set that deadline, saying he would need time to show the house to potential buyers if my father vacates and goes elsewhere).

retiredjg
Posts: 34219
Joined: Thu Jan 10, 2008 12:56 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by retiredjg » Mon Sep 10, 2018 11:52 am

If I were in this situation and if I had the money, I'd just buy the house and rent (or rent to own) to my father. I'd do the same paperwork that I would use for any renter. I see this as the route that would protect both me and dad the best.

If you have been told the whole story, it is the grandfather who has reneged on the gentlemen's agreement. It appears your father kept up his end of the bargain. It also appears your father can afford the payments, at least in his current situation.

I would not worry about the precedent.

researcher
Posts: 640
Joined: Thu Mar 12, 2015 7:05 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by researcher » Mon Sep 10, 2018 12:01 pm

retiredjg wrote:
Mon Sep 10, 2018 11:52 am
If I were in this situation and if I had the money, I'd just buy the house and rent to my father.
I see this as the route that would protect both me and dad the best.
This is exactly what I would do.

Also, you mention not wanting to set a precedent of loaning money to "family members."
This isn't your second cousin Betty Sue. This is your father.
The only precedent you would be setting would be to help your mother out if she ever needed.

Nate79
Posts: 3604
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by Nate79 » Mon Sep 10, 2018 12:06 pm

I would get the opinion of an attorney to see if the verbal agreement could be considered a contract. But otherwise I would not buy the house - any relative who treated me like that doesn't deserve a penny and I would move and find another place, likely renting.

riverguy
Posts: 440
Joined: Sun May 23, 2010 10:33 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by riverguy » Mon Sep 10, 2018 2:29 pm

JGoneRiding wrote:
Mon Sep 10, 2018 11:31 am
Can your dad document that he paid rent?

If so I would be very tempted to tell grandfather to go screw himself. I would continue paying "rent" but stop paying insurance and taxes. And inform grandfather you will see him in court.

It is extremely difficult to evict a paying renter

Ultimately your father will loose the house but it sure as heck bears paying for it 3 times!
???

No written agreement = month to month tenant = easy to get rid of
Nate79 wrote:
Mon Sep 10, 2018 12:06 pm
I would get the opinion of an attorney to see if the verbal agreement could be considered a contract. But otherwise I would not buy the house - any relative who treated me like that doesn't deserve a penny and I would move and find another place, likely renting.
Contracts over a year and contracts relating to real estate transfers must be in writing. Statute of frauds.

omgbirdman
Posts: 73
Joined: Tue Aug 01, 2017 3:25 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by omgbirdman » Mon Sep 10, 2018 3:23 pm

If grandfather was reporting this to the IRS (unlikely), he would have either reported this as rental income, or as an installment sale on form 6252. If he reported it as an installment sale, perhaps this could be used to show intent, even though there is no contract?

I would consider turning the old man into the IRS. They might take interest.

Katietsu
Posts: 1628
Joined: Sun Sep 22, 2013 1:48 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by Katietsu » Mon Sep 10, 2018 3:25 pm

Unlike some others, I am not opposed to mixing family and money. But I do think you need to be very careful in working out all the details since the consequences of a bad outcome are so much greater than just the lost of funds.

My concern for you is whether or not you know the full story. Your Dad has apparently had several years since the hardship of the divorce. Even without the steady rent payments being reported, he should have been able to bring his credit score into a range that would allow obtaining some type of mortgage. Then you have the odd response from your grandfather. Though it might be that your grandfather was told that his involvement would just be for a year or two and he has now lost his patience.

Have you spoken to your grandfather? Have you seen your father’s credit report? Are you sure there are not mortgages or buyers assistance that your father could qualify for? Could you help him navigate the mortgage process? Is it possible that a small gift, say $5000, for the closing costs and down payment is all that is needed for Dad to be able to use a bank mortgage? I think you need to know more before you commit to anything.

vicmen123
Posts: 1
Joined: Mon Sep 10, 2018 8:57 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by vicmen123 » Mon Sep 10, 2018 3:31 pm

I think your Grandfather has some explaining to do. He received $78,000 from your father - how did he reflect this on his tax return. If he ignored it, it would lead me to conclude that he recognized these as valid loan payments. If he listed these payments on Schedule E, then he recognized these as valid rent payments. He cannot have it both ways. Remember, if he says that this was rent and did not report it, this would constitute fraud as he understated his income for tax and medicare purposes.

bltn
Posts: 214
Joined: Mon Feb 20, 2017 9:32 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by bltn » Mon Sep 10, 2018 3:46 pm

Time for your father to rent another house, if he can t buy his current one. Don t get involved. There is a reason his credit rating is poor and your grandfather wants to end their deal.
Have you spoken with your grandfather or just your father?
You should not let your father know you can afford to help. I bet it s too late for that advice.

ever1809
Posts: 17
Joined: Fri Apr 14, 2017 10:04 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by ever1809 » Mon Sep 10, 2018 4:04 pm

omgbirdman wrote:
Mon Sep 10, 2018 3:23 pm
If grandfather was reporting this to the IRS (unlikely), he would have either reported this as rental income, or as an installment sale on form 6252. If he reported it as an installment sale, perhaps this could be used to show intent, even though there is no contract?

I would consider turning the old man into the IRS. They might take interest.
I'm under the impression he reported it as rental income, but I don't know that for sure.
Katietsu wrote:
Mon Sep 10, 2018 3:25 pm
Unlike some others, I am not opposed to mixing family and money. But I do think you need to be very careful in working out all the details since the consequences of a bad outcome are so much greater than just the lost of funds.

My concern for you is whether or not you know the full story. Your Dad has apparently had several years since the hardship of the divorce. Even without the steady rent payments being reported, he should have been able to bring his credit score into a range that would allow obtaining some type of mortgage. Then you have the odd response from your grandfather. Though it might be that your grandfather was told that his involvement would just be for a year or two and he has now lost his patience.

Have you spoken to your grandfather? Have you seen your father’s credit report? Are you sure there are not mortgages or buyers assistance that your father could qualify for? Could you help him navigate the mortgage process? Is it possible that a small gift, say $5000, for the closing costs and down payment is all that is needed for Dad to be able to use a bank mortgage? I think you need to know more before you commit to anything.
You're right. I might not know the whole story. I've only talked to my father about it as I'm not very close to my grandfather. I think it's likely my grandfather is tired of the whole thing, especially if he's reporting what he's receiving as rental income and having to pay taxes on it.

I haven't seen my father's credit report and have only heard from him that his credit is low to mid 600s. I do think it's possible that enough for a down payment is all he will need, and he indicated that's something he will be investigating.
bltn wrote:
Mon Sep 10, 2018 3:46 pm
Time for your father to rent another house, if he can t buy his current one. Don t get involved. There is a reason his credit rating is poor and your grandfather wants to end their deal.
Have you spoken with your grandfather or just your father?
You should not let your father know you can afford to help. I bet it s too late for that advice.
My father doesn't know what I can or can't afford, but he does know that I'm doing well for myself and would be shocked if I couldn't help (though he doesn't expect it since he told me he would completely understand if I wanted to stay out of it).

alfaspider
Posts: 1602
Joined: Wed Sep 09, 2015 4:44 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by alfaspider » Mon Sep 10, 2018 4:21 pm

Not to sound morbid, but given that you are an adult, I presume your grandfather is rather elderly. What are his prospects for still being around in 5 years?

Do you have any idea who stands to inherit the house? Presumably not your father given the situation. How might other relatives who DO stand to inherit the house think of the situation? Another reason why it might not make sense to buy the house.

User avatar
Watty
Posts: 14405
Joined: Wed Oct 10, 2007 3:55 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by Watty » Mon Sep 10, 2018 4:45 pm

Katietsu wrote:
Mon Sep 10, 2018 3:25 pm
My concern for you is whether or not you know the full story.
+1
ever1809 wrote:
Mon Sep 10, 2018 4:04 pm
and have only heard from him that his credit is low to mid 600s.
You need to have a number of issues to get a credit score that low.

I would have to question if he can really afford the house payments, property taxes, insurance, maintenance, etc of owning that house if he already had a boatload of other debt that he is not able to pay on time.

bob60014
Posts: 691
Joined: Mon Jul 31, 2017 8:59 pm
Location: The Land Beyond ORD

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by bob60014 » Mon Sep 10, 2018 5:03 pm

"My father doesn't know what I can or can't afford, but he does know that I'm doing well for myself and would be shocked if I couldn't help (though he doesn't expect it since he told me he would completely understand if I wanted to stay out of it)........"

Well, he completely understands, so do yourself a favor and stay out of it!

It's not personal, its business!

2015
Posts: 2104
Joined: Mon Feb 10, 2014 2:32 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by 2015 » Mon Sep 10, 2018 10:35 pm

This will not end well. Why are you deliberately stepping in this as opposed to stepping around it? It's not like you can scrape it off your shoe if things go bad. And they will.

Loving/liking bias particularly when involving friends/relatives/family is a hideous bias as people get us to do things we don't want to do and indeed should not do based on familiarity/similarity.

Breaking these kinds of decisions into a probability model is useful. That your relatives produced piles of their own making all over their own lawn in the past increases the probability they will produce more piles in the future. Again, why are you deliberately stepping into something that smells so bad?

sixty40
Posts: 223
Joined: Sat Dec 06, 2014 11:53 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by sixty40 » Mon Sep 10, 2018 10:38 pm

ever1809 wrote:
Mon Sep 10, 2018 8:28 am
Is there anyone out there who would be willing to invest in real estate as a private lender in this instance (if so, at what interest rate)? If not, is there anything else any of you would recommend?
From a friend who is finalizing her divorce, her credit is shot, and has to pay about $300k to setting with her ex, there are private investors out there that will lend money starting at about 10% with adequate collateral. She has to use her home as collateral. Even though she has more than enough home equity, the bank and normal lenders will only lend her a small amount.

dknightd
Posts: 969
Joined: Wed Mar 07, 2018 11:57 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by dknightd » Mon Sep 10, 2018 10:41 pm

I would stay far far away from this. Let your dad work out something with his dad. Or not.
Maybe your dad should move back in with his dad, It seems to be the thing to do ;)
Or he could move in with you. Also common. If he has the income, I'd suggest he rent a place to live

Nissanzx1
Posts: 308
Joined: Wed Jul 18, 2018 11:13 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by Nissanzx1 » Tue Sep 11, 2018 6:28 am

No way would I consider getting involved in this mess. This will almost certainly bring you pain if you involve yourself.

Sorry to hear he put himself in this horrible situation. It's time to cut his losses. I would resent just pulling into the driveway every day a home I paid for three times...

Leemiller
Posts: 1055
Joined: Sat Jun 01, 2013 12:42 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by Leemiller » Tue Sep 11, 2018 6:56 am

omgbirdman wrote:
Mon Sep 10, 2018 3:23 pm
If grandfather was reporting this to the IRS (unlikely), he would have either reported this as rental income, or as an installment sale on form 6252. If he reported it as an installment sale, perhaps this could be used to show intent, even though there is no contract?

I would consider turning the old man into the IRS. They might take interest.
I would tell the grandfather this. He will either be reported for tax evasion or he can keep the terms of the original agreement. I’d also check your state laws on eviction, sometimes it can be extremely difficult. Probably, this is worth speaking to an attorney about at some point.

But, wow, this is your grandfather?!? What a piece of work. Reminds me of some of my family members unfortunately. How painful for your father, even if he doesn’t talk about it.

Jack FFR1846
Posts: 7988
Joined: Tue Dec 31, 2013 7:05 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by Jack FFR1846 » Tue Sep 11, 2018 7:38 am

Your father can't afford the house. Here's what *I* would tell him. Go to free legal aid in the nearest city. Start working the process. Depending on the state, this can drag things out for 6 months to a year. Make the grandfather go through formal eviction. From legal aid, find the failing points that can reset the clock or delay eviction. Force the point to where police/sheriff will come to evict.

In my state, this can easily drag on for a year. Starting today, pay no rent. Take that time to sell off as much as possible on craigslist and eBay, expecting that a very short notice move is coming. Line up a place to stay temporarily once thrown out.

There are other nasty things your father can do to cost the grandfather money, but I don't want to put questionable things here. I only know about these things from friends who rent houses and have these done to them. It's not hard to cost the grandfather $10k on the day he takes the house over.
Bogle: Smart Beta is stupid

ever1809
Posts: 17
Joined: Fri Apr 14, 2017 10:04 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by ever1809 » Tue Sep 11, 2018 7:50 am

alfaspider wrote:
Mon Sep 10, 2018 4:21 pm
Not to sound morbid, but given that you are an adult, I presume your grandfather is rather elderly. What are his prospects for still being around in 5 years?

Do you have any idea who stands to inherit the house? Presumably not your father given the situation. How might other relatives who DO stand to inherit the house think of the situation? Another reason why it might not make sense to buy the house.
He is in good health and will likely be around for a while. He's actually my father's step-dad and is married to my father's mom, who is also still alive. I have no idea, though, who would inherit the house should both pass away. In all likelihood, it probably would still go to my father, despite the situation.
2015 wrote:
Mon Sep 10, 2018 10:35 pm
This will not end well. Why are you deliberately stepping in this as opposed to stepping around it? It's not like you can scrape it off your shoe if things go bad. And they will.

Loving/liking bias particularly when involving friends/relatives/family is a hideous bias as people get us to do things we don't want to do and indeed should not do based on familiarity/similarity.

Breaking these kinds of decisions into a probability model is useful. That your relatives produced piles of their own making all over their own lawn in the past increases the probability they will produce more piles in the future. Again, why are you deliberately stepping into something that smells so bad?
I haven't stepped into anything at the moment unless you count trying to help him find a willing lender. I told him I would make a post on this site to get ideas or potentially find someone willing to take on the risk (with a higher interest rate to compensate) and did not agree to anything else.
sixty40 wrote:
Mon Sep 10, 2018 10:38 pm
ever1809 wrote:
Mon Sep 10, 2018 8:28 am
Is there anyone out there who would be willing to invest in real estate as a private lender in this instance (if so, at what interest rate)? If not, is there anything else any of you would recommend?
From a friend who is finalizing her divorce, her credit is shot, and has to pay about $300k to setting with her ex, there are private investors out there that will lend money starting at about 10% with adequate collateral. She has to use her home as collateral. Even though she has more than enough home equity, the bank and normal lenders will only lend her a small amount.
Where can he go to find one of these private investors? He is seeking a formal agreement similar to a conventional mortgage, so he would be willing to use the home as collateral.

student
Posts: 2591
Joined: Fri Apr 03, 2015 6:58 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by student » Tue Sep 11, 2018 8:21 am

I think we only have OP's father's side of the story. OP mentioned that he is under the impression that the grandfather has been reporting the rental income. We know OP's father is the stepson of the grandfather. If the grandfather is willing to be involved in the mess for his stepson, he doesn't seem to be a bad guy. This seems to be an example of the grandfather making a mistake in involving himself from the start. As for you helping out your dad, I guess it depends on your finances.

ColoRetiredGirl
Posts: 127
Joined: Mon Nov 13, 2017 11:40 pm
Location: Colorado

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by ColoRetiredGirl » Tue Sep 11, 2018 9:00 am

I am not an attorney but since your fathers actions (paying property taxes, insurance, paying ahead etc) would indicate a rent to own agreement was made, I would take him to court indicating a traditional renter agreement was not the agreement. If he has proof of making these non traditional payments it may sway the court in your fathers favor. I would talk to an attorney! What would be a typical monthly rent payment for that area?

User avatar
djpeteski
Posts: 667
Joined: Fri Mar 31, 2017 9:07 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by djpeteski » Tue Sep 11, 2018 9:20 am

What about threat of the IRS? If the money was indeed rent did your grandfather claim those rent payments as income? Your father may be well served to see an attorney on his own.

Slacker
Posts: 630
Joined: Thu May 26, 2016 8:40 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by Slacker » Tue Sep 11, 2018 9:21 am

ever1809 wrote:
Tue Sep 11, 2018 7:50 am
I haven't stepped into anything at the moment unless you count trying to help him find a willing lender. I told him I would make a post on this site to get ideas or potentially find someone willing to take on the risk (with a higher interest rate to compensate) and did not agree to anything else.
...
Where can he go to find one of these private investors? He is seeking a formal agreement similar to a conventional mortgage, so he would be willing to use the home as collateral.
Bigger Pockets forum is where you may find a note investor.

Stay away from hard money lenders though -> they typically want the loan paid off in 18 months or less.


Edited to add:
A 1/2 hour consultation with an attorney should be relatively affordable and if your father is honest with the attorney he should get a much better idea of what (legal) options he has at this point based on the facts of the case.

sixty40
Posts: 223
Joined: Sat Dec 06, 2014 11:53 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by sixty40 » Tue Sep 11, 2018 10:06 am

ever1809 wrote:
Mon Sep 10, 2018 8:28 am
Where can he go to find one of these private investors? He is seeking a formal agreement similar to a conventional mortgage, so he would be willing to use the home as collateral.
I did not get into details with her, but her divorce attorney told her about it and most likely she will need to take that route. And I doubt an investor or lender would lend anything near $130k to someone with not prime credit and does not currently own the property. In her case she has about $1.0M in equity and her bank would not lend her much.

If you have good credit, you can go to a lender buy the home from your grandfather, then have an attorney (or someone) draft a contract between you and your dad.

forgeblast
Posts: 168
Joined: Fri Oct 13, 2017 8:45 am
Location: PA
Contact:

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by forgeblast » Tue Sep 11, 2018 10:44 am

I would find out both sides,
and if you dad has check stubs showing he was making double payments that should lead some credibility to his side of the story that he is renting to own.
Seems strange that it was out of the blue something must have happened.

retiredjg
Posts: 34219
Joined: Thu Jan 10, 2008 12:56 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by retiredjg » Tue Sep 11, 2018 11:06 am

forgeblast wrote:
Tue Sep 11, 2018 10:44 am
Seems strange that it was out of the blue something must have happened.
Dementia? Some medication which causes strange behavior? Money problems? Just plain old greed? All good reasons to have the proper paperwork in place, even with family.

Not Law
Posts: 190
Joined: Sun Sep 14, 2014 8:05 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by Not Law » Tue Sep 11, 2018 12:48 pm

Grandparents may be doing some medicaid planning in advance of anticipated future nursing home care. Father needs his attorney to contact grandparent's attorney and attempt to negotiate a resolution that satisfies everyone.

ever1809
Posts: 17
Joined: Fri Apr 14, 2017 10:04 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by ever1809 » Wed Sep 12, 2018 10:06 pm

Thank you to everyone who shared their input. Just to let everyone know that no additional advice is needed. My father successfully found a bank willing to do a mortgage.

The only condition was a 2.5% down payment plus closing costs to obtain a mortgage with an APR of 5%.

Because he didn’t have enough to cover the down payment and closing costs, I gave him a one-time gift to cover it. He told me he would pay me back with interest, and I told him he could do so in whatever he thought was a fair timeline and fair interest, but I’m treating it as if it’s purely a gift and expecting nothing in return.

User avatar
Earl Lemongrab
Posts: 5700
Joined: Tue Jun 10, 2014 1:14 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by Earl Lemongrab » Thu Sep 13, 2018 12:53 pm

It's relatively cheap to get a lawyer to write a threatening letter. Actually going to court and prevailing is a much riskier and expensive proposition. I would return a letter saying that your father is ready to go to court and has substantial supporting evidence with family members ready to testify to the nature of the agreement.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

texasdiver
Posts: 2719
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by texasdiver » Thu Sep 13, 2018 1:11 pm

I'm happy to hear that this situation has been resolved.

Something that no one here has mentioned but I wonder if it is a "thing" is to hire a mediator to resolve this sort of situation.

If I found myself in the sort of situation as the OP (between 2 family members) I think I would tell them that they need to come to a mediated solution that they both agree to abide by and I would pay for the mediator and then wash my hands of it. That way you aren't involved in "taking sides" and you are hiring an unbiased professional to sort it out.

Bogle_Bro
Posts: 82
Joined: Sat Mar 31, 2018 11:43 am
Location: Frisco Texas, Mortgage Banker & Attorney

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by Bogle_Bro » Thu Sep 13, 2018 9:09 pm

Nate79 wrote:
Mon Sep 10, 2018 12:06 pm
I would get the opinion of an attorney to see if the verbal agreement could be considered a contract.
its not an enforceable contract... but a good lawyer would play up UNJUST ENRICHMENT or EQUITABLE ESTOPPEL

"Equitable estoppel is a defensive doctrine preventing one party from taking unfair advantage of another when, through false language or conduct, the person to be estopped has induced another person to act in a certain way, which resulted in the other person being injured in some way."

Bogle_Bro
Posts: 82
Joined: Sat Mar 31, 2018 11:43 am
Location: Frisco Texas, Mortgage Banker & Attorney

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by Bogle_Bro » Thu Sep 13, 2018 9:21 pm

riverguy wrote:
Mon Sep 10, 2018 2:29 pm

Nate79 wrote:
Mon Sep 10, 2018 12:06 pm
I would get the opinion of an attorney to see if the verbal agreement could be considered a contract. But otherwise I would not buy the house - any relative who treated me like that doesn't deserve a penny and I would move and find another place, likely renting.
Contracts over a year and contracts relating to real estate transfers must be in writing. Statute of frauds.
yep. not enforceable.

Bogle_Bro
Posts: 82
Joined: Sat Mar 31, 2018 11:43 am
Location: Frisco Texas, Mortgage Banker & Attorney

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by Bogle_Bro » Thu Sep 13, 2018 9:30 pm

ever1809 wrote:
Mon Sep 10, 2018 4:04 pm

I haven't seen my father's credit report and have only heard from him that his credit is low to mid 600s. I do think it's possible that enough for a down payment is all he will need, and he indicated that's something he will be investigating.
fha is 580+, 3.5% down. Assuming no serious derogatory credit, like BK/FC/SS etc,

no name banks on lending tree are dying to lend on that

Bogle_Bro
Posts: 82
Joined: Sat Mar 31, 2018 11:43 am
Location: Frisco Texas, Mortgage Banker & Attorney

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by Bogle_Bro » Thu Sep 13, 2018 9:33 pm

ever1809 wrote:
Wed Sep 12, 2018 10:06 pm
Thank you to everyone who shared their input. Just to let everyone know that no additional advice is needed. My father successfully found a bank willing to do a mortgage.

The only condition was a 2.5% down payment plus closing costs to obtain a mortgage with an APR of 5%.

Because he didn’t have enough to cover the down payment and closing costs, I gave him a one-time gift to cover it. He told me he would pay me back with interest, and I told him he could do so in whatever he thought was a fair timeline and fair interest, but I’m treating it as if it’s purely a gift and expecting nothing in return.
oh, sorry i didnt see the resolution before i suggested it ! glad it worked out!

TropikThunder
Posts: 1066
Joined: Sun Apr 03, 2016 5:41 pm

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by TropikThunder » Thu Sep 13, 2018 9:51 pm

ever1809 wrote:
Wed Sep 12, 2018 10:06 pm
Thank you to everyone who shared their input. Just to let everyone know that no additional advice is needed. My father successfully found a bank willing to do a mortgage.

The only condition was a 2.5% down payment plus closing costs to obtain a mortgage with an APR of 5%.

Because he didn’t have enough to cover the down payment and closing costs, I gave him a one-time gift to cover it. He told me he would pay me back with interest, and I told him he could do so in whatever he thought was a fair timeline and fair interest, but I’m treating it as if it’s purely a gift and expecting nothing in return.
Glad it worked out. Honestly, 5% APR isn't even that bad considering great credit loans today are ~4.5% APR.

IntangibleAssets
Posts: 40
Joined: Wed Sep 07, 2016 11:06 am

Re: Father Wants a Home Mortgage (Bad Credit Score)

Post by IntangibleAssets » Fri Sep 14, 2018 5:56 pm

This was fascinating, glad it worked out, but that might be the most expensive 130k house in history :happy :happy

Post Reply