How do I purchase a home subject to?

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How do I purchase a home subject to?

I want to buy the house I am living in subject to the existing mortgage. I am
buying from my mother in law. What is the easiest and cheapest way to
complete this transaction?

Asked on May 14, 2017 under Real Estate Law, Arizona

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

You can't buy subject to the existing mortgage unless the bank lets you take the mortgage over--they probably will not, but there is absolutely no harm in asking. If the bank does allow you take over the mortgage, then just figure out with your mother-in-law what she wants for the home: is taking over the mortgage from her enough, or does she want some other payment, too? Whatever it is, if the terms are acceptable to both of you, do a simple contract for sale (you can find templates or sample online) for that amount, then do whatever paperwork the bank requires for you to "assume" (take over) the mortgage). 
Again, though, it is up to the bank whether to allow you to assume the mortgage (check the mortgage to make sure, but almost all mortgages contain terms which do not allow someone else to take over the morgage either without bank approval or at all--but even if the terms of the mortgage say no assumption of the mortgage, ever, the bank could opt to allow you to do so). If they have the power to stop you from doing this, there is nothing you can do about it other than try to convince them.
If  you can't take over the mortgage, you'll have to pay it off in buying the home, such with a new mortgage in your name. Negotiate a price with her that is at least equal to the existing mortgage, since you will be required to pay it off (satisfy it) when you purchase the home. Ideally, set a price that is within the range for "fair market value,"  even if it is the very lowest price that might be reasonable for this home (given the location, size, features, etc.)--the reason why you would ideally pay a "defensible" amount for the home is in case your mother-in-law goes into a Medicaid-paid nursing home in the next 5 years, if you paid less than what is at least arguably fair market value, Medicaid could potentially undo the transaction as fraudulent as to it and take the home. To avoid that, pay at least the lowest amount of possible fair market value.


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