Posted by B.L.Renfrow on April 10, 2000 at 09:01:12:
Because the Internal Revenue Code states the deductions may be claimed by the property owner, regardless of whose name the statements are issued in.
If the new owner wants to refinance the property, it would be necessary to pay off the existing loan(s). If you’re asking whether the new owner can place a junior mortgage on the property while maintaining an existing first, I don’t know the answer to that one; never have done it.
As to whether a lease option would ever work in a preforeclosure, sure, but the question is, would it ever be a good idea? To me, the answer would be no.
A co-worker knows of a home that will soon be on foreclosed because the owner is behind in his payments with no likelihood of catching up. She wants to purchase the property unknown to the current owner by buying through her corporation; I told her I do not think that this is possible because communicating with the owner is needed to collect information regarding past due payments etc.
(1) Is it possible to purchase the home using the “subject to” method, and if so how would she get credit for payments made, and interest deductions because the mortage will still be in the name of the current owner? If the mortage company is notified after the owners sign over the property via a quick claim deed, will there be any problem with DOS?
(2) How would the lease option method of purchasing work in a situation like this? If the mortgage company is contacted by her regarding bringing the property current, what about DOS problem from such a contact?
Posted by B.L.Renfrow on April 09, 2000 at 09:59:48:
If the foreclosure sale has not yet taken place, the current owner is the one your coworker would have to deal with; this could not be accomplished “unknown to the current owner.” It would be necessary to get an authorization to release information from the seller in order to know the numbers involved.
Why would she want to remain anonymous to the seller anyway? The only way I can think of to do that would be if the corp is more than one member, another officer would have to execute the documents.
It is not only possible to purchase subject-to, it is usually the preferred method. She would be entitled to the tax/interest deductions because she or her corp or the land trust which she controls would be the owner, regardless of the fact that the mortgage loan would remain in the seller’s name. Of course, the buyer would have to come up with the cash to cure the default. And title would have to be checked for other liens.
The deed you refer to is “quit claim,” not “quick.” The lender might or might not care. There are ways outlined in detail in the archives of avoiding the DOS in such a situation.
Finally, lease option would not be a great idea in a pre-foreclosure. The object is to get the deed and get the financially-distressed seller out of the picture.
Thanks for very much for the wonderful and intensive response to my question! There is just one more point I need additional explanation because I don’t seem to be able to picture this in my mind; if the loan remains in the seller’s name how can the new owner get tax write-off benefits? The end of the year interest statements would have the now previous owner’s name on its paperwork not the new owner.
What if the new owner wanted to cash out some of the equity now gained from the newly acquired property and his name is not on the loan as such?
Thanks again for your help! I especially liked your advice about not pursuing the current owner in a lease option situation because at the pre-foreclosure point it is easier due to the pressure to remove him from the picture altogether. However, are there ever any circumstances where a lease options would work in a foreclosure situation whereas the current is eager to be relieved of the burden but wants to hang on to the property for some reason?