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OT -Need to file a private mortgage?? hr(bob) hofmann@att.net 05-30-2008
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Posted by hr(bob) hofmann@att.net on May 30, 2008, 11:22 pm
I am giving a relative a mortgage on their home as I can get a higher
interest rate and they can get a lower interest rate than either of us
could get using a regular bank. I will issue annual 1099 forms so
they can claim the interest on their taxes and I will declare the
interest on my income tax. We have all the papers drafted, etc, but
someone asked why we were bothering to plan to record the mortgage
with the county recorder.

I was surprised, I never even thought about why, just assumed that
everyone did record all mortgages. The only reason I can see for
recording the mortgage is to let any future prospective purchasers of
the property be aware of the fact the the owners do not have a
completely clear title to the property. What am I missing??

Bob Hofmann

Posted by hr(bob) hofmann@att.net on May 30, 2008, 11:41 pm
> wrote:
>
> > I am giving a relative a mortgage on their home as I can get a higher
> > interest rate and they can get a lower interest rate than either of us
> > could get using a regular bank. =A0 =A0I will issue annual 1099 forms so=

> > they can claim the interest on their taxes and I will declare the
> > interest on my income tax. =A0We have all the papers drafted, etc, but
> > someone asked why we were bothering to plan to record the mortgage
> > with the county recorder.
>
> > I was surprised, I never even thought about why, just assumed that
> > everyone did record all mortgages. =A0The only reason I can see for
> > recording the mortgage is to let any future prospective purchasers of
> > the property be aware of the fact the the owners do not have a
> > completely clear title to the property. =A0What am I missing??
>
> > Bob Hofmann
>
> There's no reason to record the mortgage. =A0It's a relative. =A0Just
> trust them, what could happen? =A0I mean, sure they could sell it and
> not repay you, but what is the price of trust? =A0Or they could run up a
> bunch of credit card bills and have the credit card company file a
> lien against the house -- so what that they would be in first position
> and the only way you could retain you interest would be to buy out the
> credit card company. =A0I mean, you'll save a couple of hundred bucks by
> not filing. =A0And what is the likelihood that they'll have a DWI, kill
> someone, and the family will sue for everything they own -- and you'll
> be left high and dry. =A0Come on, it's family.
>
> Oh that messy divorce. =A0And she claims there is no mortgage and she
> wants 1/2 of the equity. =A0She alledges in court that the "unfiled
> mortgage" is a scam.
>
> And what is the possibility that YOU die. =A0Then what. =A0Proof? What
> proof? =A0So you lose a few bucks.
>
> And so what if you want to foreclose and there's no filed mortgage.
> So what if, when you do try to file, the relative fights it. So what
> if it clouds the mortgage for years and year. =A0So what?
>
> Nah. =A0Just a handshake should be fine.

Yeah, but if we have a signed and witnessed document/mortgage and
promissory note, what is the advantage of having filed the mortgage vs
each of us having a signed/witnessed/notarized document??

Posted by Erma1ina on May 31, 2008, 12:22 am
"hr(bob) hofmann@att.net" wrote:
>
> > wrote:
> >
> > > I am giving a relative a mortgage on their home as I can get a higher
> > > interest rate and they can get a lower interest rate than either of us
> > > could get using a regular bank. I will issue annual 1099 forms so
> > > they can claim the interest on their taxes and I will declare the
> > > interest on my income tax. We have all the papers drafted, etc, but
> > > someone asked why we were bothering to plan to record the mortgage
> > > with the county recorder.
> >
> > > I was surprised, I never even thought about why, just assumed that
> > > everyone did record all mortgages. The only reason I can see for
> > > recording the mortgage is to let any future prospective purchasers of
> > > the property be aware of the fact the the owners do not have a
> > > completely clear title to the property. What am I missing??
> >
> > > Bob Hofmann
> >
> > There's no reason to record the mortgage. It's a relative. Just
> > trust them, what could happen? I mean, sure they could sell it and
> > not repay you, but what is the price of trust? Or they could run up a
> > bunch of credit card bills and have the credit card company file a
> > lien against the house -- so what that they would be in first position
> > and the only way you could retain you interest would be to buy out the
> > credit card company. I mean, you'll save a couple of hundred bucks by
> > not filing. And what is the likelihood that they'll have a DWI, kill
> > someone, and the family will sue for everything they own -- and you'll
> > be left high and dry. Come on, it's family.
> >
> > Oh that messy divorce. And she claims there is no mortgage and she
> > wants 1/2 of the equity. She alledges in court that the "unfiled
> > mortgage" is a scam.
> >
> > And what is the possibility that YOU die. Then what. Proof? What
> > proof? So you lose a few bucks.
> >
> > And so what if you want to foreclose and there's no filed mortgage.
> > So what if, when you do try to file, the relative fights it. So what
> > if it clouds the mortgage for years and year. So what?
> >
> > Nah. Just a handshake should be fine.
>
> Yeah, but if we have a signed and witnessed document/mortgage and
> promissory note, what is the advantage of having filed the mortgage vs
> each of us having a signed/witnessed/notarized document??

FIRST, if you are thinking about taking back a mortgage (family or not),
the entire transaction should be scrutized by a YOUR competent real
estate attorney and, if you have one, YOUR financial advisor.

As "Pat" explained, you need to establish the PRIORITY of your financial
claim relative to any other claims that might ever be made on that
property.

As an example of advice for seller financing, check out:

http://www.moneyinstructor.com/doc/sellerfinancing.asp

Excerpt:

"ESTABLISH YOUR FINANCIAL CLAIM. Have your mortgage recorded in public
records to establish the priority of your lien, your financial claim, on
the property."

Posted by Tim on May 31, 2008, 12:23 am
> Or they could run up a bunch of credit card bills and have
> the credit card company file a lien against the house --
> so what that they would be in first position and the only
> way you could retain you interest would be to buy out the
> credit card company.
>
> Nah. Just a handshake should be fine.

>> Yeah, but if we have a signed and witnessed
>> document/mortgage and promissory note, what is the
>> advantage of having filed the mortgage vs each of us
>> having a signed/witnessed/notarized document??

Lien Position is the key.

What could happen? The other poster explained some
of the pitfalls of not 'protecting' your lien position.

If the person you are giving the mortgage to has any
financial hardship down the road and the house gets
liens on it, they will be in position to get paid first.

You, without a recorded interest (lien position) in
the property, would not get any money; until those
who file their suits get paid first and are in position.

You want a First Position Lien (First Mortgage).

RECORD IT!

Good luck with this journey. You have already pointed
out that they couldn't get a good interest rate as it is,
so that must mean their credit is already shaky. Do you
really want to be left out in the cold should they
go somehow further down a credit problem path?


Rough example only.....

$ 75k Mortgage
$ 25k Credit Card Debt
$ 25k Car Note
$ 50k Hospital Bills Unpaid

Hospital puts a lien on house, car people decide to sue and
put a lien on the house. Your buyer now decides to just
go into bankruptcy, so now the credit card companies
are looking to get in line.

House gets sold at foreclosure for $100k.
Hospital was in line first for their $50k
Car people got their $25k
And the credit card company squeaked by for their $25k.

Excellent! They went bankruptcy and all creditors got paid.

Oh wait, you didn't know their was a bankruptcy until after
it happened? Bummer, you would have been notified of
your buyer's credit problem if you had a recorded
mortgage as FIRST LIEN POSITION so you would
get paid FIRST.

Rough example above, but you get the point. Hopefully....






Posted by mm on May 31, 2008, 1:31 am

>> Or they could run up a bunch of credit card bills and have
>> the credit card company file a lien against the house --
>> so what that they would be in first position and the only
>> way you could retain you interest would be to buy out the
>> credit card company.
>>
>> Nah. Just a handshake should be fine.
>
>>> Yeah, but if we have a signed and witnessed
>>> document/mortgage and promissory note, what is the
>>> advantage of having filed the mortgage vs each of us
>>> having a signed/witnessed/notarized document??
>
>Lien Position is the key.
>
>What could happen? The other poster explained some
>of the pitfalls of not 'protecting' your lien position.
>
>If the person you are giving the mortgage to has any
>financial hardship down the road and the house gets
>liens on it, they will be in position to get paid first.
>
>You, without a recorded interest (lien position) in
>the property, would not get any money; until those
>who file their suits get paid first and are in position.
>
>You want a First Position Lien (First Mortgage).
>
>RECORD IT!
>
>Good luck with this journey. You have already pointed
>out that they couldn't get a good interest rate as it is,
>so that must mean their credit is already shaky. Do you
>really want to be left out in the cold should they
>go somehow further down a credit problem path?
>
>
>Rough example only.....
>
>$ 75k Mortgage
>$ 25k Credit Card Debt
>$ 25k Car Note
>$ 50k Hospital Bills Unpaid
>
>Hospital puts a lien on house, car people decide to sue and
>put a lien on the house. Your buyer now decides to just
>go into bankruptcy, so now the credit card companies
>are looking to get in line.
>
>House gets sold at foreclosure for $100k.
>Hospital was in line first for their $50k
>Car people got their $25k
>And the credit card company squeaked by for their $25k.
>
>Excellent! They went bankruptcy and all creditors got paid.
>
>Oh wait, you didn't know their was a bankruptcy until after
>it happened? Bummer, you would have been notified of
>your buyer's credit problem if you had a recorded
>mortgage as FIRST LIEN POSITION so you would
>get paid FIRST.
>
>Rough example above, but you get the point. Hopefully....
>
And to add to this, your relative will tell you that he had no choice.
And I think he'll be telling the truth. Once the other liens are
filed, and they will be filed promptly, which could be months before
the house of cards falls down, there will be no way for him to sell
the house and pay you before he pays them without breaking the law.
Maybe no way to do it at all.

BTW, Pat gave several examples of this problem in his reply. You need
to read his reply again. as well as Erma and Tim's.


>
>


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