Should you take over someone's mortgage payments?

Gina Pogol

Dear Gina, I have bad credit and can't get approved for a mortgage. My brother-in-law wants me to buy his house from him and just take over his payments. He said the lender won't care as long as I don't pay late. I don't have to put any money down. Is this a good way to buy a house? His mortgage rate is about 6 six percent. - Leo, Mobile, Ala.

Dear Leo,

Taking over someone else's home loan, even if you have bad credit and can't qualify for your own mortgage, is risky. You're looking at several potential pitfalls.

Lenders don't just let people take over mortgages

On one hand, your brother-in-law is right. As long as the checks keep coming and no one says anything, the lender may not know or care that you have purchased the property.

On the other hand, you could lose the home to foreclosure or end up in court.

Unless your brother-in-law has an FHA mortgage, his loan almost certainly has what's called a "due on sale" or an "acceleration" clause. That means that once the property changes hands, the lender can require that the balance be paid in full within 30 days.

Lenders include this clause because when they approve a mortgage, the creditworthiness of the borrower is part of the package. They don't want to fund bad credit mortgages without knowing it.

Are you likely to get caught? Maybe. Firms like Dataquick sell their monitoring services to lenders. One of those services is looking for changes in utility accounts or public records and advising lenders of possible due-on-sale violations.

Even if the lender doesn't care, you probably should

Okay, let's assume that you're not doing anything sneaky -- you record the sale with the county, and you put the utilities and insurance into your own name. Because you aren't putting anything down, you're not risking anything if the lender decides to foreclose. So why not take your chances?

How well do you know your brother-in-law? Why is he selling the house to you this way? I can think of a few kind of icky reasons:

• The house is underwater. He knows that he can't get enough for the property to pay off the mortgage unless he can convince you to take over the payments.
• There are liens against the property. If he has judgments against him or unpaid taxes, there could be liens against the house. If he tries to transact via a traditional sale, these liens will pop up, and he'll have to pay the debts to get the liens released.
• He might be planning to encumber the home. Until the sale is recorded with the county and the home officially transferred to you, it's still his. If he has enough equity, he could even put another mortgage on it, sucking up an equity that you thought was yours.

If you're intent on buying the home, make sure you do the following:

1. Buy title insurance, or at least pay for a title search.
2. Transfer utilities and insurance into your own name.
3. Record the sale with the county.

I'm not saying that your brother-in-law is a dirt bag. He may simply be trying to save you the lender fees and himself a real estate commission. But play it safe if you go through with this.

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  Gina Says: Dear Bruce, Every lender is different when it comes to short sales. But a new program may be able to help you. It's part of Making Home Affordable and it's called the Home Affordable Foreclosure Alternative (HAFA) program. It goes into effect next month. If your lender participates in Making Home Affordable, you may be able to get a short sale done much more easily than you could have before...

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• Bad Credit Mortgage: Is Owner Financing Better?

  Jayne Asks: Dear Gina, I have bad credit but want to buy a home fast to get the first time home buyer credit. I found a house that the owner is willing to finance for me. What do I need to watch out for if I take this deal?

  Gina Says: Dear Jayne, Owner financing can certainly be cheaper, especially if you have credit problems. However, owner financing isn't exactly foolproof. The landscape is littered with people who make a nice living selling and financing the same properties over and over. Especially if they offer you a lease option, be very careful. many scammers love to prey on people with bad credit because they can get a nice down payment from them, then evict them from the home and keep all their money if they're a couple of days late with a payment...

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• Finding a Bad Credit Mortgage Is Tough

  Ed Asks: Dear Gina, The Internet is full of stories about how there is no subprime lending taking place any more. Is this true? How can I find a bad credit lender so I can buy a house?

  Gina Says: Dear Ed, Yes, it's true; bad credit mortgage lenders are leaving the business faster than scalded cats. There is financing available but you have to look harder. Several lenders that exited the market in the last couple of years have re-entered it, although with fewer products and stricter guidelines...

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• Mortgage Modification Help

  Maryanne Asks: Dear Gina, I am trying to hang onto my home and avoid bad credit. Mortgage modification seems to be the best solution, but I'm having a hard time getting hold of my lender and it's taking so long I'm afraid of ending up in foreclosure before it's finished. Can these modification companies really help?

  Gina Says: Dear Maryanne, I'm sorry to hear about your frustration with your lender. Mortgage modification is a new industry and unfortunately it seems to have attracted more than its share of crafty characters. In fact, the Federal Trade Commission (FTC) decided to step in and regulate all companies it classifies as mortgage assistance relief services (MARS). The agency wants to force these companies to disclose their services, how long they take, that they aren't affiliated with the government, and that there is no guaranty of a modification or achieving a specific interest rate or mortgage payment. In addition, the FTC wants to make it illegal for these providers to take payment in advance--they would only be allowed to be paid if they get you a modification commitment in writing from your lender...

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