By Fredrick P. Niemann, Esq., a NJ Real Estate Attorney
My clients, an older couple, want to sell a house they own to their adult son. The son has lived in the house for the last 10 years and has been paying rent to his parents during the entire time and has never missed a payment. He has looked into getting a mortgage from a financial institution so he can purchase the house but has been unable to qualify. His parents (the current owners of the house) are willing to give him mortgage and would like to structure the sale and financing so the monthly mortgage payment is close to the amount he is currently paying as rent so that he can afford the payments. In addition, they wanted to know how much, if any, of the rent he has paid in the past can be used as a credit against the purchase price (such as in a transaction where there is a lease with an option to buy. How do you structure such a transaction?
It seems to me that the parents can characterize the rent or a portion of that rent that has been paid to date as a down payment if they wish to do so. This effectively reduces the purchase price of the house, so these figures are real numbers to a certain extent. As to the mortgage, if there is agreement between the parties, again it can be structured in such a manner and over a certain period of years and at a designated interest rate so that the monthly payment on the mortgage would roughly equal the monthly rental payment the son is making at this time. This mortgage would have to be recorded for the protection of the parents. The son will also have to pay the property taxes and all expenses on the property, so he will have to be made aware of this. And there will have to be a closing in which the property is transferred to the son, the mortgage and other closing documents signed, and the mortgage and deed recorded in the county register’s office.
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