Having parents purchase "rental home" then moving in.

[chp13]

Has anyone done this, basically have a relative purchase a home as a rental and you take over the house as if it were your own and eventually when your done with chapter 13 you transfer the property over to your name. I'm in the process of having my mother do this for me. I figure why throw away rental money when I could put it into a house that will eventually be mine.

I will be saving $500 a month. I'll still make a rental payment of 1500 as stated on my ch 13 paper work but my mother will hold the difference in savings and return it to me. Like a savings account, It's a win win situation right?

Any advise?

[tobee43]

well, personally, i never did, but it sounds like a great plan..like a lease option to buy. that's what we did, but not with a relatative, although when we excerised the option to buy we did take a loan to increase the down payment for the owner finacing. it was also a win win situation for us. (and we have paid back every dime of the loan!)

[steveok]

Sounds great to me, but I would run it by the attorney to assure you didn't miss any loop holes. Hopefully not...awesome deal!

[justbroke]

This has trouble written all over it -- if a "diligent" Trustee actually looked deeper into this transaction.

So, I would be very careful with this plan. In fact, I personally wouldn't do it. If I were to do it,. then the home would need to be sold at "current market value" or you will get a lot of trouble from the Trustee. Many people have tried this in order to "defraud" the Bankruptcy Estate and Trustee by selling property for "pennies on the dollar" so that they could recover it after the bankruptcy for those same pennies. Unfortunately, with the way you have designed this deal, you are getting money back from your family member and this is what I'd call an insider preference. Compounding this is that the money back from your family member, is income and would need to be applied to the plan -- since it's regular and recurring.

That is not the purpose of bankruptcy.

I would seek consultation with an asset protection attorney (and/or bankruptcy attorney) to find out the best way to preserve property.

[chp13]

S would there be a difference of the rent would be for the stated amount of 1500? A conflict of interest? Now that I recall, when I filed chapter 13 I was living at my in-laws house and there was no problem with that according to him.

[HHM]

A few more facts would be helpful?

I am with JB on this one, this sort idea needs the assistance of an attorney.

Based on the Tenor of your question it sounds like.
1. You presently own the home (Is there a mortgage or is the house owned free and clear? If there is a mortgage, is there any equity?)
2. So, you want to sell it to mom and then have her rent it back to you?

Nothing "inherently" wrong with it, but there are certain issues that must be addressed.
a. a sale of any asset in anticipation of BK, regardless of to an insider or 3rd party, must be for a fair market value. A transaction to an insider (e.g. mom) receives more scrutiny.

b. money actually needs to change hands. So, if the home is owned free and clear, or there is equity...that money needs to be addressed. For example, if the mortgage is $100,000 and the FMV on the house is $140,000. After costs of sale and paying off the mortgage, you will net $28,800. That is potentially a problem in the BK and needs its own asset planning.

c. the rent has to be real rent. You cannot "claim" the rent to be $1,500 but only pay $500. You will need to establish a history of paying rent and you will need a rental agreement. Also, you need to be careful with the rental agreement. It needs to be true lease. You do not want something open ended (e.g. mom rents to child for along as child wants) because that may actually create a type of property interest (life estate or fee simple determinable) that creates a more robust interest it he property than a mere leasing tenant and have value that can possibly be sold by a trustee. What your mother does with the money is up to her, you certainly would not want to put in writing that a certain portion of the rent will be escrowed, that just creates and asst.

In any event, those are the issues I see off the cuff.

[tobee43]

what??? the OP never said he/she is doing this now? i thought or it sounded like a future plan the way the OP wrote this.

also, to rent from a relative, well, i'm certain many trustees can't disallow this practice. we are in the USA right? the way it sounded to me, and i may be incorrect oppps, but the way i thought OP was speaking about this was his mom will have a rental home that he/she will rent and eventually be able to own after the BK, which could be years down the road. it is a win win when you pay rent towards something you are planning on buying and at least the money doesn't go into the trash. just because a relative ownes it should not disqualify it from the picture.

just to mention this...we were in FACT renting from a relative, after being homeless for a while and, actually staying in one of their rentals when we filed in florida. we were absolutely paying rent (close to $900) it was NOT a problem with the trustee, although, we did not buy that house, 2 years later we found our own, not in the same part of the state. did we mention that the house was owned that we were renting by one of our great uncles..that i do not remember, although, i had our bank statement to prove every single payment made.

[chp13]

I'm sorry let me explain a little:
Im currently renting a house. Now my mother is willing to assist me by purchasing a house and renting it to me. This way I wont be throwing good money towards a rental and actually put money via form of rent towards my moms rental house which will in effect be my house when I complete my chapter 13.

[justbroke]

Im currently renting a house. Now my mother is willing to assist me by purchasing a house and renting it to me. This way I wont be throwing good money towards a rental and actually put money via form of rent towards my moms rental house which will in effect be my house when I complete my chapter 13.

This is better, but you still need to actually be paying rent. See HHM's response paragraph "c". You may get scrutiny when you're renting from your parent so you would need to show actual rent (and that it's not a gift of rent which could affect your disposable monthly income calculation).

Thank you for the additional information. It's not so bad as I first thought -- which was that you were selling your property to a relative.

[HHM]

okay, I see. You don't own the house presently, you are renting the house in question and you want mom to buy it.

Okay, you still need to be cognizant of my point "c" above, but otherwise, shouldn't really be an issue.

[goon]

I am actually doing something very close ( thou we had started renting a couple years before filing ). My in-laws used some of their retirement money ( which wasn't doing very well for them) to buy a bank owned property, we helped them fix it up and now rent it from them. I write them a check for rent every month (make sure you pay by check so that you can prove the payment).

We have loosely discussed that at some point in the future when we are done with the BK that they may sell to us at a discounted price and carry the loan (and/or market price but carry the loan at 0%).

Only thing I will say here is make sure you have a good working relationship with the relative and establish expectations, so you dont end up straining the relationship. For example what happens if repairs are needed while you are "renting", what happens if you get a job offer and end up moving to a different area, what happens if your mom gets into a financial position that she loses the house (hey it can happen to anyone... we are all talking in a bk forum here).....

In my case we are handling it like a typical rental ( other than I am probably paying less than I would and get better service) but my father in law either takes care of or reimburses me for any expenses related to upkeep or improvements. If we decide to leave we can at any point, we can and they will either rent out the house to someone else or sell it.

I would recommend writing out some kind of lease/rental agreement even if you don't think you need one, not so much to protect you from your mother but that way you are on the up and up, and if you have to show an agreement to the trustee you can and don't have to write something after the fact. I would treat this as a simple rental agreement/lease and not include any language about future ownership/purchase. If having a separate agreement which gives you a "purchase option" at some point in time for a "reduced rate" makes you more comfortable you can do that too, but keep that separate from the rental agreement/lease.

Only other thought is make sure that what you are paying in rent is reasonable for the house/district/family size, if you try to pay unrealistically too much towards rent (essentially lowering your DMI) then that is when questions will be asked and closer looks will be had.....

[frogger]

but my mother will hold the difference in savings and return it to me.

It's a win win situation right?

Win win? More like fraud fraud. You know it too..........

[tobee43]

Win win? More like fraud fraud. You know it too..........

LOL!! frogger LOVE you new clothes!! hows the pad going?



now, we didn't do a 13, and i know very little of the rules and regs about the on going process. i just know that after my 7 was complete we were allowed to save money so it was easier to explain why after almost 4 years of our discharge that we were able to buy a house. since i don't know what is or is NOT allowed in a 13 in as much as what or how much someone can save monthly i don't want to say it would not be considered fraud if in fact, one is suppose to be paying down their debt.

i know for US in our particular situation the scenario would have been a win/win.

[frogger]

The pad is going great. Bought me a new top-hat, cane, and tux, ready for the rainy season at the lily pad.

In my opinion, here's the deal with the OP's thoughts:

1. The lease is artificially inflated with a "kickback" scheme/arrangement in place.
2. The OP's creditors are being deprived of the "excessive" rent/funds that are being rebated back to the OP.
3. The rebated funds going back to the OP are nothing more than a hidden type of salary/rebate/kickback/whatever.
4. Disposable income is being artificially reduced in order to benefit the OP.

This arrangement is gaming the system in my opinion. Period.

Perhaps the OP should ask the trustee if this arrangement would be ok. I think that would solve any questions of credibility with this situation. Smell the rat?

[df04527]

In other words....if it walks like a duck?

lol