Real Estate - Selling to Nephew?

First, it's worth 230-250, but she ultimately only wants 200? Why is that? If she can get 240, even after commission, she nets more than 225.

Given the mess the banks are in, they may shy away from any deal that doesn't actually have cash down, but if I were the local banker, I'd be happy to write a note for 130 vs a value of 200+. Seller backed financing on a second note was common, and in fact, takes some risk off the bank, but that really depends on the bank itself.

How will she want the balance paid? Lump sum in X years? A note that has no payments and then kicks in in X years? At what rate? What makes anyone think the nephew will be able to make any payments when they are due against this second note? 'Smart' is to do it all on the record, use a lawyer, get it in writing. This means recording the second lien.

And it means that in 10 years when he cannot make any payments being willing to foreclose, or not. But if not, then what?

Joe

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The unfortunate truth is that business deals like this among friends and/or relatives are very risky. One saying goes: "When you do business with friends you lose both your friends and your money." By the same token a deal could go sour and result in ill-feeling among relatives for years to come. How many people would be willing to foreclose on a close friend or a nephew? If you did foreclose, how many friends or nephews would take it is stride without ill feeling? My guess is not too many.

lf I were in your position I would talk to mom about the possibility to selling the house to some nice person who would treat the placet well and then find some other way to delight and please that wonderful nephew.

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It's not clear to me exactly what the situation is -- does Mom need to raise money, does she want to/need to move, or does she just want to do something nice for Nephew? Is $130K the most that a bank would lend Nephew, or is it the utmost limit of his resources?

If Nephew really wants this particular house, could he afford to buy it at something closer to its market value by getting a roommate or two to pay rent? Is it an option for Nephew to rent the home from Mom instead of buy it? Like others who've already posted, I'd be really leery of any kind of interest-free loan, etc, because of the bad feelings it would cause in the family Nephew can't pay the mortgage and Mom and her heirs are left holding the bag.

-Sandra the cynic

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As others have said, this puts both family and finances at risk. One additional thought is that a $250,000 house will cost $12,000 to $15,000 a year to insure, pay taxes, utilities, and maintain. Can nephew afford that, too?

-- Doug

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