17 Feb We’re buying a house. Can the seller still take a home loan?

Q. For the last few years, we’ve been buying a house from my wife’s cousin. We have a contract to pay her monthly until the total has been paid. A few weeks ago, she asked my wife if we would be okay with her taking a loan out against the house so that she can pay some of her own bills. We told her no because she has not been good with money. For example, we’ve helped her pay back taxes that she couldn’t cover. Anyway, she tells my wife that her name is still on the deed, so we’re worried she may take a home loan, not pay it and then leaving us to pay or lose the house. We almost have the house paid off. What can we do?
— Buyers

A. We’re sorry to hear about this.

It’s an unfortunate example of what can happen when things go wrong when you do business with family.

You have limited options, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

“I think the easiest way is to buy the home from her, transfer the deed into your name, and give her the cash that you owe her so she is no longer the bank,” he said.

This will solve several problems, he said.

First, it puts the home in your name.

“Right now, if she has creditor issues and the home is in her name, this can be your problem,” he said. “We need to fix this.”

Second, she will get her money and third, you won’t have any issues with loans on the property, he said.

“People change their mind over time and it is very important that the deal is spelled out in advance and that it is structured correctly,” he said, questioning whether your contract was structured properly.

“In her mind, she is getting her money today as she needs it. In your mind, she is taking equity from a home you own,” Lynch said. “Setting things up correctly avoids these problems and generally does not cost much to do.”

You may want to ask an attorney to review the contract to see if there’s other action you can take.

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This story was originally published on Feb. 17, 2022.

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