[RAnthonyC]

What type of contract should I use if I am buying a house from a family member, without going to an attorney?
My father owns a house. He obtained a $100,000 loan to have a detached garage added to the property and some remodeling done to the house. After all was said and done, he decided to buy a new home. He asked me if I wanted to buy the house, simply pay the loan. The county appraisal is almost 3x the loan amount. Since this would be a step up from where we currently live, I figured it's a good deal. But I want something in writing. I don't want to insult or hurt my fathers feelings. I also know that he will not pay for any lawyer fees, nor do I. Will a simple contract (I will pay this much for this long... etc) signed by both of us suffice? What about those blank contract for deed?

In advance, thanks for all the help.

[ScottGem]

You said he offered you the house for cost of the loan. Do you need to pay off the loan or assume payments? If you are paying off the loan will you need to get a mortgage on your own? The answer to your question depends on these factors, so please let us know.

Also I would check into the tax implications of this. If he is selling you a house for WAY below market value, part of the difference might be considered a gift and therefore have tax implications.

[RAnthonyC]

He said I just have to make the monthly payments on the loan. The loan would stay in his name.

[ScottGem]

Ahh that is a different animal. You DO need a contract but it can be simply drawn. Something like this will do:

I <insert your name> agree to purchase the property located at <insert legal description of property (street address, lot, etc.)> from <insert owners name> for the sum of <insert current balance of loan>.

The purchase of this property will be made by making all remaining payments of the loan provided by <insert name of lender>. The amount of these payments is <insert monthly payment> for <insert remaining months>. These payments are due on the <insert day of month> of each month commencing on <insert first due date you are responsible for>. Any late charges or fees will be the responsibility of <insert your name>. In addition, <insert your name> will be responsible for all property taxes due on the property starting with the <insert tax year> tax year. <insert your name> also agrees to maintain and pay homeowner's insurance on the property.

When the loan is paid in full <insert owner's name> will convey a deed transferring the property to <insert your name>. In case of default of this agreement, the property will remain in <insert owner's name> and all monies paid will be forfeit.

Get that (or similar) signed and notarized with each of you keeping a copy.

Frankly, however, I wouldn't do it. I would obtain my own financing equal to the principal of the loan and buy it outright. At the loan closing the property will be legally transferred. The contract wording I propose does give you that opportunity though. You can obtain your own financing at any time and pay off the loan. Again, at the closing the property would be transferred.

[excon]

Hello RA:

I would do it a little bit differently. I don't know what your credit situation is, or whether the present loan terms are favorable. These factors ARE important. So, whether you'd be able to come up with your own mortgage right now is not known.

IF the terms are good, and you want to keep the loan, then you need an agreement that will insure the loan stays in place. I say that, because I'll bet your dad's loan has a due on sale clause. That means, if the bank finds out that your dad sold the house to somebody else (you) without telling them, they can demand that the loan be paid in full right now.

The contract for sale above would be the kind of document that could trigger the due on sale clause. Therefore, you need an agreement that won't do that.

A lease with an option to purchase would do the same thing. And, I'll bet there are others that are even better.

I know you don't want to see a lawyer. But, the teency weency little problem I pointed out above, is just one of HUNDREDS of things that can jump up and bite you in the butt. Somewhere down the road, you could LOSE all your money. You really could for reasons that I couldn't even guess right now. We see that stuff here ALL the time.

But, lawyers can envision those things. That's their job. That's why you pay them. You pay them a little in front, so that you can save BIGTIME in back.

I suggest this house is probably the most expensive thing you ever bought. Spend a little. Do it right. It'll protect your dad too.

excon

[RAnthonyC]

That is exactly what I am looking for! You have taken a lot of weight off my shoulders.
Thank you for your help.

[ScottGem]

excon makes a point, but I'm not sure how valid it is. I specifically used language that stated the property would be transferred ONLY when the loan was paid in full. That shouldn't trigger the due on sale clause because you will have no legal interest in the property until the loan is paid.

The language I suggested is actually heavily weighted in your father's favor. As long as you maintain the loan payments you should be OK. Once the loan is paid off, you have protection if your father reneges. But if you can't make the payments, you can lose everything.