My husband and I purchased investment property 10 years ago with a mortgage. I use the same tax person that was used when we purchased the property.
My husband passed in 2010 and this is where the problem starts. I was 5 months default and could not afford to catch up on the mortgage, I decided to try to sale. I was not interested in making money, just wanted the burden lifted. John, the Realtor was interested in purchasing the house by doing a Special Warranty Deed (filed 2013) and I agreed. He explained to me that he would catch up the arrears and make the mortgage payments but the house would still be in my name and he would claim the house on his taxes since he made the payments. John said he had done this before without any problem. Does this sound like illegal transaction?
It's not so much illegal as just a bad deal for you. A special warranty deed will transfer the house into his name, while the loan (and liabliity for the payments) will still be in your name. In addition, there may be a provision in your loan documents which would give the lender a right to require payment of the loan in full due to the sale.
See if the bank will let him assume the loan, (which still won't let you off the hook completely) or find a buyer who will pay the house off with their own loan.
A few things:
1. Assuming this house is in both you and your husband's name, you need to get your husband's name off of the title before you do anything.
2. If you deed out to the John the Realtor, then you don't own the house. You're just on the hook for when John the Realtor doesn't make payments and gets foreclosed.
It's not illegal, but it likely violates the due on sale provision of your deed of trust. Better course of action is to clear title and sell the house outright. Most of the times when people try to do these deals, they make a mess. There's something to the "tried and true" way of dealing with things. If you're unable to sell the house, then ask the bank for permission to do a 'short sale' and list it with a broker who specializes in short sales.
For more information, please visit our website:
Also, please read our disclaimer:
As the other respondents stated, it is not illegal. It's also not horribly unusual these days because of the mortgage mess. I agree that it would almost certainly violate the due on sale clause that is almost certainly in your deed of trust. With that being said, the way you explained it isn't quite how they are usually done.
Typically, these transactions are a measure of last resort. In other words, you have tried to sell the house on a short sale and either the house is too far underwater or the bank will not otherwise agree on an acceptable price. Typically, you should receive some down payment in the form of cash, especially if your bank loan is non-recourse. Additionally, you should have security in the home if he fails to make the payments.
If you are otherwise searching for alternatives, then you could call the bank on some sort of a cash-for-keys program where the bank pays you money to deliver the home to them without any fuss and in good order.
Regardless, you should probably hire an attorney if you are going to do the deal with the realtor.
The above statements are provided as general information and not intended as legal advice. Each matter has its own set of unique circumstances that cannot be adequately addressed without consultation. You are strongly advised to hire an attorney licensed to practice law in your state to represent you.