How can this be structured legally? - Posted by Jim Beavens


Posted by David Alexander on October 23, 1998 at 17:09:57:

Could the land and home be put together as a package,
then the land gifted to your mom, and that would give
your mom her downpayment. The grandparents might have to take ownership of the home momentarily until, your mom refinanced.

If the land is worth more than 10,000 then the gift would be taxable I believe. So, they might want to gift only 10,000 a year for a few years. Depending on
your mothers credit, I’m sure a 10k down would work

Like I said, just a thought.

David Alexander


How can this be structured legally? - Posted by Jim Beavens

Posted by Jim Beavens on October 23, 1998 at 16:25:44:

Ok, I just saw another one of Mr. Behle’s posts about keeping everything on the up-and-up when dealing with a bank, so I thought it’s about time I ask about a potentially bad situation that my mother (yes, my mother :wink: is getting into.

My grandparents (mom’s parents) own a 140-acre farm. My mother and grandparents have reached an agreement where mom will buy a 40-acre parcel of this land, and have a manufactured home put on it (one of those high-end triple-wides). Obviously, my grandparents are as flexible as can be here, since they’re dealing with their daughter, and they love the idea that she’s interested in staying on the farm after they’re gone. So they’ve agreed to carry 100% of the financing for this land. Doing this with no money down is important to mom, since this way she doesn’t need to sell her current house right away (my step-dad isn’t ready to retire, and may stay there for significant periods of time with roommates that they rent the house to). As I type this, I suddenly wonder if mom has any equity in her house, and if this could be put to use here…hmmm, I’ll have to ask her…but I digress.

My mom thinks that she can be clever and keep this financing arrangement solely between her and her parents (no mortgage or lien will be recorded or anything, although they’ll write up a sales contract between them). So she’s going to go to a bank and say that her parents gifted her this land, and use it as collateral to obtain 100% financing for the manufactured home.

I say there’s got to be a thousand better ways of doing this to acheive the same results, but I’m not sure what would be the best way. I was thinking that my grandparents could co-sign for the home loan and put up the land themselves as collateral (ie, they own the land, mom owns the house, although I don’t know how this would be set up). Then after everything was squared away, they could do a separate transaction after the fact to sell the land to mom under any terms that they’d like. They’d probably still have some responsibility for the home loan, however.

Anyway, I can honestly say that the chances of anything going wrong in this whole thing is practically nil, and I can’t blame mom for looking for a shortcut to make things easier. But I’d love to give her a couple alternatives to consider that would make everything here ironclad in a legal sense, and would protect everyone’s interests.

Any suggestions?


Subordination or substitution - Posted by John Behle

Posted by John Behle on October 24, 1998 at 01:19:32:

It is common in the building industry on a land sale that there is an agreement to subordinate to a new construction or other first loan. There is enough equity that a lender shouldn’t have a big problem with it.

You mentioned your mom had equity in her current house. She could create the note against that equity instead of the land. Depending on the amounts all or at least a big part of the cost of the land can be secured by the house.

So the grandparents being in a second position or securing by the other property would probably meet the needs. The co-sign scenario you mentione could work, but they would be liable for the loan. Your mom could always refinance later to get them off the loan. In todays market, it is easier to get refinance money than it is to finance the property to begin with.

There are many more options, but try the simplest first.