Post # 1
I need some opinions (preferrably some legal ones!). Last year, my husband and I bought a house from my parents. They sold it to us for a good price and we set up a 30 year fixed mortgage to pay them back over the years. We pay for the taxes on it all, too. They waived the fees (seller fees, that kind of stuff) as our graduation and wedding gift (i know, nice, right?) and then we got married. Now we’re redoing some paperwork (we refinanced it based on the economy) and we are making sure we have the proper paperwork in order so that we can claim the mortgage on our taxes just like anybody else. The paperwork is what is holding us off. Initially, Dad was going to have it drawn up by an attorney. Well, for the $500 he was going to pay him, the attorney was dragging his feet. A week went by and nothing got done. So, my Dad decided that he’s seen enough legal documents in his day to write it up himself. Which, my Dad does own his own businesses so that does somewhat make sense….I think. So Mom and Dad signed the paperwork and Dad has his friend notarize it (she’s a notary). They mailed it to us and now WE are supposed to sign it, notarize it, then send them the original copy and keep a copy for us. He says this will be our legal paperwork ‘proving’ we are making our payments, we bought the house from them, and this way we can claim our mortgage. The deed is in our name by the way.
Now, I know my dad wouldn’t screw us over (in fact, mom says he plans to just give it to us in 15 years when he’s too old to care anymore) and he’s always been generous like this but the fact that he wrote up the document himself (not an attorney) makes us a little nervous, particularly my husband. I cannot blame him–he doesn’t know my dad as well as I do. Mom says I am being ridiculous.
Is it legal to draw up a contract like this and have it notarized? I’m afraid that if we mention to my Dad that we want it drawn up with a lawyer, he’ll be insulted and then insist we pay all the fees for it (which we can barely afford). After all, he fronted the money on the house. By the way, he completely insisted on doing as graduation/wedding gifts for us and it’s not like we aren’t making our payments AND interest every month, so it’s just like a bank. We had to be talked into taking something so generous because it really was a lot for us. We are grateful but we also want to make sure we’re doing the right thing and not cutting too many corners that could end us up with legal problems down the road. Dad insists that notarized paperwork is a contract and that it’s legal to the point we could sue him at some point. He says it’s a binding legal contract. I don’t know much about these things. What do you think? I’ll try to answer any questions best I can. We appreciate the help.
Post # 3
Don’t do this unless you have talked to someone who knows all the awnsers to this for sure.
I used to work in the mortgage biz and I do know that a notarized document is about as good as it gets……BUT I am no lawyer. Make sure you get a third opinion before signing anything
Your dad may mean well……but you always need to watch out for yourself
Post # 4
NOT A LAWYER HERE (aka, this is not legal advice). My understanding is that there is no reason you can’t write a binding contract on your own. However, contracts involve a lot of technical language. Without a lawyer, it can be hard to make the contract say what you want it to say. Some parts of a contract might be unenforceable if they are not written carefully. In this case, I would be particularly worried about how well the contract specifies what percentage of the payment is interest in any given year, since that’s what you usually claim as a deduction on your taxes.
I think it would be a very good idea to pay an attorney (maybe a different one, if your Dad’s usual lawyer is dragging his feet) to review the document you’ve signed and make sure it is actually enforceable and says what you intend it to say. If it’s already good, you’ll have peace of mind. If not, you can make the changes you need.
If you need help finding a lawyer, you can contact your state’s bar association, which should be able to give you a list of a few people in your area who practice in the field you need. In your case, someone familiar with both tax law and real estate law would be ideal.
Post # 5
sounds like a law school exam question! property law can be a very very tricky area! it cant hurt to go consult with an attorney! usually the promissory note and contract for sale are two different documents…
Post # 6
So, I am an attorney, but not a real estate attorney. But I can say this:
1) Two ordinary people can absolutely write up a binding contract. There is no need for a lawyer at all to make a contract binding.
2) Historienne hit my concern entirely: the calculation of interest. The percentage that represents interest can be hard to calculate. I would seriously advice contacting an attorney or an accountant to draw up an interest v. principal payment schedule so you know the right amount to deduct.
3) You probably don’t need to worry about signing the document. At the end of the day, if you defaulted it would be your parents enforcing the loan, and they aren’t going to hire a high payed lawyer to go after you.
So, get someone to calculate the interest v. principal. I think that is the main concern here.
Post # 7
Not a lawyer…accounting student. Few questions. Is your dad the owner of the house? Or did he simply transfer the mortgage? Who did you refinance through?
Post # 8
Actually the interest is not very difficult to calculate, all you need is a financial calculator. If you pm me I can walk you through it. Make sure you get all the credits that are being offered for first time homebuyers, not 100% sure if that $8000 credit is still around but it definitely doesn’t hurt to ask.
Post # 9
Thank you ladies!
Actually we just make flat payments every month which includes our mortgage and interest basically. Over 30 years the house would be paid off. However, it’s incredibly unlikely my dad even has 30 years left. I could easily sit down and calculate the interest on the price of the house and the principal, though. We’re interest-only for the first year so maybe this is something more to deal with next year?
The house was originally in dad’s name when he bought it but now the deed and everything has been transferred to us so that we can rightly claim the mortgage. We did have this all done by a lawyer so that it would be done right. Now it’s just the paperwork “proving” it all in legal jargon basically.
We “refinanced” through him. Basically because of the economy we changed our interest rate from 7% down to 5%.
I know all the legal stuff was taken care of by a property attorney and this last bit of paperwork is the only thing my dad actually is doing himself; I just wanted to make sure it was 100% legal and I guess it is!
Post # 10
@ MyraG: Okay, so it is hard for me! Smarty pants.
@ OP: Good luck! Sounds like you guys will be fine.
Post # 11
- Wedding: March 2010 - Calamigos Ranch
This isn’t legal advice(!!!–I am not a lawyer! etc.), but I don’t think you need a lawyer to draw up a contract. However, a lot of problems with contracts can be avoided if a *good* lawyer who knows the law does it. Personally, what I would do is take it to a lawyer to review it before completing it, but what your dad did is almost certainly going to be a legally binding document. You just have to make sure that it actually says what you intend for it to say.
Post # 12
You will get a really nice return because your mortgage interest is deductible and that 8000 credit is still around. Take all your mortgage statements so that your accountant can easily calculate your interest paid to date
Post # 13
Also make sure that you take any receipts for energy improvements that you’ve done to your home. Or anything that will increase the value (I.e. Water softener)