I’ve owned a 5-plex for 2 years and have not been able to make it profitable and I can’t sell it for what it’s worth. I met a contractor who purchased the next door 4-plex and did a total renovation.
He is willing to partner with me on my place using a Quitclaim deed where he would take over decisions to the property and he would pay my mortgage payments. When the market turns and the property can be sold for at least the mortgage balance, it will be sold and the loan will be paid off. He would get to keep any monthly income from the property.
Has anyone gone thru this and can give me some advise and what to watch out for? Of course, I would have all documents reviewed by my lawyer.
Sounds like a sub 2 deal. He is taking the property subject to the existing mortgage. You are still responsible since it’s in your name and it doesn’t sound like you get anything from the future sale.
What I would get out of it would be no participation on my part, which would be a blessing to me. It would save us from forclosing on the property which might be out next step.
If he defaults on a mortgage payment the property, with all the renovations he paid for, would come back to me. He’s NOT going to default and loose that money.
What’s the difference between the title and deed? The bank would hold the title since they are fronting the mortgage under my name but the contractor would own the deed which allows him to make all decisions.
If you sign a quit claim deed, you are giving him your rights in the property. That means he owns it and you no longer own it. Although he is making payments, it’s your credit that is harmed if he doesn’t and you don’t get the property back. The bank will take it via foreclosure.
There is a legal distinction, but it doesn’t matter for a lay person. They basically mean ownership. The bank isn’t an owner. They just have an interest in the property. You are the owner until you sign that quit claim deed. The buyer becomes the new owner when he files the deed with registry of deeds in your area.
OK - I think I understand. But is this a bad thing? I can’t maintain or rent the place anymore but don’t want a forclusure on my record so this is a way out to save my credit. What might I
It’s not a bad thing and it just may be the best thing for you. I just want to make sure you understand the consequences. I got the impression from your posts that you will keep some kind of interest in the property. In a typical sub 2, you are walking way from the property with nothing, except a credit ding if the investor doesn’t pay the mortgage or pays it late.
garfieldgroup - I personally don’t like this deal. Let’s run some scenarios:
1 - buyer is successful in renovating and renting it out. He makes money and keeps paying the mortgage until he can refinance it in his name. This is the best case scenario. It would resolve your problems.
2 - buyer starts losing money in the property. I do recognize that he has already invested money to renovate. However even after renovating, if he can’t get the property to cash flow he may simply let it go so he can stop the bledding. In this case you would be stuck with the credit problem. This may be a good thing because if at that point you could get the property back from him, you would end up with a refurbished property, which will probably be worth more than it is now. The problem is - he may not be willing to quit claim it back to you if he can’t make payments. I believe you could put a restriction in the deed stating that he will need to keep the mortgage payments current. Otherwise the property reverts back to you. I don’t know how to do it… I would talk with a real estate lawyer…
Thanks for the helpful comments. This property is old and needs a complete overhaul, which I just can’t afford. This contractor can and he did it next door with great success. At this point, I stand to loose it all if I forclose. I will be consulting a RE lawyer tomorrow.
I’m wondering if my loss of ownership will keep me from purchasing additional property…this time in the correct manner!!! It seems like the bank would see a large loan with no property. Any ideas?
Maybe you should consider a Limited Partnership with this contractor and structure it so that you maintain ownership and he does the renovations and deals with the renters.
He collects the rent and makes his money and pays you and you pay your mortgage.
You get the benefit of the increased value after renovations.
Just something to consider.
I noticed you said you can’t sell it for “what it is worth”. But can you sell it for your loan balance (assuming you owe less than what it is worth)? You can always sell it for the loan balance to another investor, pay off your note and then your credit will be safe.
And just how are you going to make him do the renovations after you quit claim the property to him? You keep thinking he will have money invested, but I don’t see any way to guarantee that.
I would not give over total ownershp of any property while I was still responsible for the mortgage. Once you quit claim, he owns it and you no longer have any say in anything.
I would strongly suggest that you have someone evaluate the entire situation before signing a quit claim deed conveying title to the contractor. There may be more value in the property than you think. You are risking your credit regardless if you default or the contractor defaults ( He could collect rents for several months and then default on the payments made to you). This is very common when a quit claim is executed. I am not saying that the contractor is unethical, but a second offer wouldn’t be a bad idea. I am sure you could find one person on this forum that would take a look at the property and give you a second opinion.