Actually I am not sure the family mortgage would be the first mortgage;
they are talking about paying 50% at the time of sale. That could be
financed via a first mortgage from a lender (bank); the lender usually
will require that its mortgage be the first. Designation of first and
second is achieved by the order in which the two mortgages are recorded
at the county records office; the documents make no reference to their
relative standing.

Anyway, re the scenario in which the lady gives the buying relations a
mortgage, this could work out well in the event of higher-than-expected
medical care expenses *if* the buyers are able to pay extra each month.
In effect cash-flow to the lady would increase as needed to cover her
bills, the duration of the mortgage would shorten, the lady would get
less total interest income, and her relations would pay less interest
income.

If the buyers have high equity in the house, probably they could get a
home equity line of credit to provide higher cash-flow to this lady as
needed and without causing themselves cash-flow problems.

Una

In misc.taxes.moderated, Marion1E[at]comcast.net wrote:

- quote -

Non-expert opinion: Yes. Discounting to an arms-length buyer who
will pay cash is normal. So discounting to you would seem proper
too. In addition, a buyer who will accept a property without the
property being emptied and broom clean would seek and reasonably get
a discount too.


- quote -

Yes, if she is there for medical care as it usually is with
Alzheimer's. It is not just for her convenience as a place to live.
See http://www.irs.gov/pub/irs-pdf/p502.pdf page 12. Medical
deduction is subject to the 7.5% threshold.

Thanks Joe and Una for the mortgage resale primer. You learn somethin'
new every day!

kastnna <kastnna[at]auburnalum.org> wrote:
- quote -

I know someone who has sold multiple houses with seller financing, ie
giving the buyer a mortgage. This person gets calls constantly from
people who offer to buy the mortgages. Mortgages are public records.
I have also seen classified ads seeking to buy mortgages. It is not
a problem. But, to get FMV someone will have do some research on the
lady's behalf, to find out what FMV is at that time and also find a
buyer willing to pay FMV. This can get complicated. Say the mortage
interest rate is 6%; how desirable is it, if the current rate is 3%?
Or if the current rate is 12%?

Also, selling the note usually has no effect on the buyers of the house,
other than the address to which the checks are sent, *provided* the
terms are standard. Don't get a standard contract and then strike out
all the clauses you think won't apply or you don't understand.

Several loans I have obtained over the years have been sold to others,
no big deal.

Anyway, the value of money is an important factor. I too would rather
get full value for the house at the time of sale and invest the money.
Given that there is a plan for what happens after the assets run out,
it seems reasonable that the lady may be able to tolerate a higher risk
investment than a CD, so may be able to earn higher interest than a CD.
I probably would put it in a mutual fund of stocks or mixed stocks and
bonds. Mutual funds provide a lot of flexibility: you can take out
exactly what you need, when you need it.

Una

kastnna wrote:

- quote -

The note represents a first lean on a house presumably (from OP's
details) worth twice the note's face value. There's a market, I'm sure,
but not a very liquid one. The shorter the term, the better, of course,
but the low LTV seems an attractive re-sell feature.
JOE

On Dec 20, 5:15*pm, kam...[at]panix.com (Arthur Kamlet) wrote:
- quote -

It's that last sentence that scares me. I am admittedly unfamilar with
mortgage brokerage.

To whom does one sell a single mortgage note? In addition, who is
going to give FMV to a dying old lady that is desparate for funds? It
sounds like a "fire sale" scenario. It is similar circumstances that
the viatical industry was born out of and time has shown how that
ended up.

Marion1E[at]comcast.net wrote:
- quote -

As someone else notes, that would imply at least a period of time as a
possibility of needing Medicaid to take care of expenses while she has
no cash assets other than this note and the related interest in the
house. That could have implications on your status in the house as well
as her eligibility for Medicaid. The best advice given here is "see an
elder lawyer" before you do a thing. There are many possible pitfalls
for the unwary, even those who are trying their darndest to do the right
thing.

While it appears too late for your mother unfortunately, I'll carp on
one my pet topics -- "long term care insurance". Having it in place
would have resolved or at least greatly mitigated these concerns for her
remaining years and lessened the risk and stress on the rest of the family.

--

On Dec 21, 6:41*am, "Phil Marti" <prm20...[at]verizon.net> wrote:

- quote -

Phil's right, the average nursing home care stay is 2.5 years. You are
better in tune with her medical condition than any of us, but keep
that in mind.

On Dec 21, 12:31*am, Mario...[at]comcast.net wrote:

- quote -

Your neglecting the time value of money!

Even though you are paying her interest using your plan, she only has
the monthly mortgage amount "in her pocket". By using outside
financing she would have the full value of the house right away, which
even at CD rates would also pay her 5% interest. Depending on the
terms of the loan and prevailing interest rates, she could make mroe
OR less using your plan and she'd still have the medicaid problems
that we've already emntioned. I would still rethink this.

Phil Marti wrote:
- quote -

That's a good point. At least under California's version of Medicaid,
if someone owns a home and intends to return (even if their health
makes it a practical impossibility for them to actually return), the
value of the home is not included in your assets to determine
eligibility. However if the home is sold, the value of the note used
to purchase the property probably would be included in her assets, and
as a result Medicaid could be denied.

Stu

<Marion1E[at]comcast.net> wrote:

- quote -

And at that point her assets haven't run out, because she still holds the
mortgage, which may affect Medicaid eligibility. I hate to say it, but you
also may be too optimistic that she'll be able to stay at that care level
for that long. She may require full nursing, which is much more expensive,
which would bring her to this point faster.

This is a major part of why I recommend an elder care attorney before you do
anything. It's not a fun process, but you need to project this through its
various endings to make sure you do the best you can.

--
Phil Marti
Clarksburg, MD

In article <acda9d6c-207b-4774-8d2d-6f85895a0e1e[at]i29g2000prf.googlegroups.com> ,
<Marion1E[at]comcast.net> wrote:
- quote -

Sounds reasonable.


I would hope the will explains what happens to the mortgage she holds.


Does it go to you? Does it effectively get torn up? The lawyers
have a term for forgiving a note at deathe passes.



--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

On Dec 20, 4:15*pm, kam...[at]panix.com (Arthur Kamlet) wrote:
- quote -

Thank you for all your great input. Here is some extra info. We are
living in Albuquerque, NM. If my husband and I buy my mom's house, she
will be able to pay herself for the assistant living for 4 to 5 years
till all the money runs out except her pension and social security. At
that point, she will have to go on Medicaid. Should she pass away
before we paid the entire sale price of the house to her, the
remainder will be devided among the people that are in her will which
includes us and one more family member. We are not trying to pull a
fast one on my mom. Finacing the sale through my mom will give her
more income since she also will receive the interest. The priciapal,
interest, social security, and pension might last even more than the 4
to 5 years. My mom is 87 and I believe that this might be all the time
she has left. As for the power of attorney and the will, it is all in
place. Thank you again for all your great tips, questions, and
thoughts. Keep on sending your input, we appreciate it.
Marion

In article <e73099a0-6fe7-41da-ab98-ffe4b30f8131[at]d21g2000prf.googlegroups.com> ,
kastnna <kastnna[at]auburnalum.org> wrote:
- quote -


I would think the note's FMV, and surely someone can place a market
value on that note, is part of her total resources. If so, as long
as her medicaid total resources exceed the threshold allowed in her
state, [it is $1,500 in Ohio] she is not medicaid eligible. She
could sell the note and spend down the funds from the sale.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

Joe, you got me thinking (that's dangerous, I'll admit):-) There is a
realistic possibility that nursing care costs could eventually drain
all of her assets.

What then happens to the mortgage note? The income stream would almost
assuredly exceed the allowed annual income limits for medicaid but is
also unlikely to be enough to support her. Does her possession of the
mortgage note back her into a corner or does Medicaid have a solution
for this scenario? I've never heard of them handling illiquid
mortgages in this manner.

Una wrote:
- quote -

Given rick++'s remarks about states going after the house if the person
is covered under medicaid, how will they handle an illiquid asset such
as this mortgage? Since the OP originally stated a 50% down, with Mom
taking back a note on the balance, wouldn't bank financing be preferred?
I don't know, myself, just adding this question back.
JOE

Let's say the lady sells her house now to a relative, at its current
market value. To do that would take at least one appraisal and at
least one inspection, both by licensed professionals. I don't see
that a real estate agent needs to be involved but depending on which
state you are in a real estate attorney would be a good investment
or even necessary. Sell the house with "owner financing", where
the lady gives the buyer a mortgage, using a standard ("uniform
instrument") mortgage contract and note. They are separate legal
documents. Both ducuments can be purchased from an old-style full
service stationery store, or online.

The lady will need to revise her will to designate what happens with
the mortgage upon her death. It can come due or be sold (both choices
liquidate the asset), be forgiven (this involves simply returning the
note to the buyer), or be passed to one or more inheritors other than
the buyer.

Definitely consult an attorney. An estate attorney should be familiar
with situations like this.

Una

Who is paying for the assisted living?
If its Medicaid, the state will take the house
for payment if Mom owned within five years
of getting state aid. Some states are extremely
aggressive about this, but usually wait until the
spouse has died.

On Dec 19, 5:29Â*pm, Mario...[at]comcast.net wrote:
- quote -

Talk to an attorney before doing anything. You'll likely need a power
of attorney to handle any sales if your Mother is not of sound mind.
Real estate transactions usually require a separate, limited POA.

And be careful with your thought process regarding the market being
"in your favor". That means its not in your mother's favor, which some
party involved could construe as taking advantage of a disabled
individual. Situations like this lend themselves to lawsuits from
outside family members.

I know nothing of your family and its intertwined relationships, nor
am I accusing you of swindling your mother, but these are definitely
issues for an attorney. My sympathies to your mother and good luck,

ed wrote:
- quote -

But when the kids run out of money, what happens when mom is forced to
sell the house? There are those who would have suggested sometime back
to put the house in trust and do whatever it takes to get assets out of
mom's name so medicaid would kick in. This is nearly the opposite, no
one looking to put the bill back on others, but if they pay out of their
pocket it opens a can of worms, if not a Pandora's box. Talking to an
elder law attorney is still the best advice given here. OP should take
Phil's advice and seek that professional.
JOE