Buying Subject to with an attached Life Estate

New to Real Estate · Newburyport, MA · Member since 2011 · 31 posts · 14 votes

Hey All,

My wife and I are looking to buy my wife's grandmother's house in Massachusetts and grant her a life estate. Given the interest rate increases recently, we would like to buy it subject to her current mortgage and be able to give her some cash in process. Does anyone have any experience with this type of situation?

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Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

You might find a better way with an estate planner, something I might rarely suggest as real estate usually isn’t their expertise, so maybe just a smart lawyer.

What I’m thinking, and only because this is a relative and not a stranger. You’d be financially way better off if you found a way to inherit the property instead of buying it. Something along the way of placing a lien against it and giving her cash. Maybe you put a lien against it, giver her the cash and then she lends some of it back to you where the interest you any her is exactly the mortgage payment.

This is all assuming there’s a bunch of equity. More than the $250k she can take tax free. The advantage is your cost basis is also set hopefully far in the future when she passes, further lowering your tax liability. This also avoids any possibility of the lender calling the loan due. I don’t know how a Medicare claim would affect either plan. Get an expert involved if there’s more than $100k in equity. Good luck.

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3y
You might find a better way with an estate planner, something I might rarely suggest as real estate usually isn’t their expertise, so maybe just a smart lawyer.
What I’m thinking, and only because this is a relative and not a stranger. You’d be financially way better off if you found a way to inherit the property instead of buying it. Something along the way of placing a lien against it and giving her cash. Maybe you put a lien against it, giver her the cash and then she lends some of it back to you where the interest you any her is exactly the mortgage payment.
This is all assuming there’s a bunch of equity. More than the $250k she can take tax free. The advantage is your cost basis is also set hopefully far in the future when she passes, further lowering your tax liability. This also avoids any possibility of the lender calling the loan due. I don’t know how a Medicare claim would affect either plan. Get an expert involved if there’s more than $100k in equity. Good luck.
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Mohammed Rahman
Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes
3y
Hey @Haven M. - I recommend speaking with an experienced real estate attorney + CPA in the houses' local region right away.
Depending on how the initial mortgage was structured, you may not even be able to take it over - but that obviously also depends on how much equity is built into the home too.
You may also want to consider owner financing the remaining balance if the sum of the mortgage is assumable too... why spend more cash up front if the seller is open to collecting a steady monthly income into their retirement?
P.S. Please upvote this post, it helps with my ranking thanks!
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Lien VuongBusiness Member
Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
3y
You have to check if the loan is assumable and then secondly you can take an equity line out after you purchase to give her those funds if you do not have that in cash at this time. A real estate attorney would be your best bet. It is important to note that you should have her 'gift' part of this equity to you to minimize the tax loan on her end.
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