Are You Stuck Holding a Real Estate Loan for Someone Else’s Benefit?

My friend asked me to qualify for a real estate loan for them a few years ago because they were unable to do so. The plan was to have them purchase/refinance from me in two years when the value had gone up and there would be some equity in the property. We’re both on title, but only my friend is on the loan and now they want off. What can we do?

Unfortunately, unexpected repercussions for this type of situation are very common right now. Many people had a third party qualify for a purchase loan on their behalf in order to “buy” a property for their benefit. Since property values have gone done, the friend with the good credit is now on the hook for this loan because it can be near impossible to receive a loan to purchase the property from them. Even worse, many times, the “friend” stops making payments because the property value has dropped, or because they’re having financial problems themselves. There are a few different options in this situation:

1. Draw up an agreement between yourself and your friend indicating how and who will make mortgage payments. You don’t want your credit affected anymore than it has been. You want to allocate who will receive what percentage of any increase in value, and who will be responsible for a potential loss as well.

2. Agree to sell the property now and determine who will end up paying a deficiency judgment if there is one and/or who will pay any potential tax consequences for a short sale, if the property has lost value.

3. Make sure that title is held the way you want; you want the loan holder on title for their protection if you’ve altered that since loan origination.

For a complicated real estate situation such as this one, contact a real estate attorney to go over the points that should be included in the contract. You may realize that if that happened in the first place, you wouldn’t have to deal with this unfortunate situation and circumstance now.