How to have a named added to a property without risking the “due on sale” clause?

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How to have a named added to a property without risking the “due on sale” clause?

Significant other and I share a home that is in his name only. We are unmarried and he has a VA loan on the home which he purchased 11 years ago. I have been paying the mortgage note for the last 2 years and need to know how to proceed to protect my interest. We are unable to refinance due to his debt and bad credit. I have excellent credit. Purchasing the property from him is not an option because it will remove him from the title and I will incur settlement fees. Is there an option to assume the VA loan and have both he and I appearing with joint tenancy, or are there alternative solutions such as some sort of estate planning or other legal devices to resolve this matter?

Asked on January 26, 2012 under Real Estate Law, Pennsylvania

Answers:

Joseph Gasparrini

Answered 9 years ago | Contributor

Based on your question it appears that you believe you should receive some compensation or repayment because you have been making the principal and interest payments on the mortgage for the past two years.  Perhaps you and your friend can come to some agreement that a certain portion of the payments you have made will be treated as your contribution to the living expenses, and a certain portion will be treated as money invested into the house (I would think that, at a minimum, the principal portion of your payments should be treated in the latter category).  That portion could be treated as a loan from you to him; written up in the form of a promissory note; and secured by a second mortgage on the house.  This way, when the house is eventually sold or refinanced, you would be entitled to be repaid from the proceeds, with interest, the same way that a bank holding a second mortgage would be.  The note and mortgage should be prepared by a lawyer to ensure they are valid and that they address the unusual circumstances that you are not giving a loan in a single lump sum, but instead you are giving a loan in installments that increase the principal amount of the loan month by month.  This arrangemeent would be similar to the transaction that banks refer to as a "reverse mortgage."  This is just one possible approach to the circumstances that you have described.  You should consider other ways that you could protect your interests.  Any transaction involving loans, mortgages and real estate will have long term implications, some of which you might not even have anticipated when you first make a deal.  Therefore, before you take any action situation, you should obtain the advice of a qualified professional and consider the pros and cons of several options before making a decision.


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