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If I buy a portion of a house (let's say $200k for 50% of the home ownership) from a mortgaged owner, and he stops paying the mortgage and the bank forecloses, what happens to my 50%?

Edit -- more details: Assuming Ted is 5 years into his 30 year mortgage of a house. I buy 50% of the house from him (pay money order directly to him) and 3 months later he stops paying the bank. What happens to my 50% ownership? Is it in any way affected by the foreclosure?

Brythan
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StackOverflowed
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  • Related: https://money.stackexchange.com/questions/6160/in-a-house-with-shared-ownership-if-one-person-moves-out-and-the-other-assumes – Michael Sep 29 '17 at 21:54
  • Thanks @Michael -- it's sort of related. I believe the other question is based on more than one party entering into the mortgage agreement together. This is an agreement with me and the current owner as he pays off his mortgage. – StackOverflowed Sep 29 '17 at 22:29
  • Could you add more detail to your question? – Michael Sep 29 '17 at 22:30
  • @Michael I expanded a bit, let me know if you need more details. – StackOverflowed Sep 29 '17 at 22:34
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    You should notify your mortgage lender and they will explain what the rules are regarding your mortgage and what you can do with your house while it is mortgaged. – Robert Longson Sep 29 '17 at 23:07
  • @RobertLongson in this case they're not my lender, they're his. I would have paid cash directly from my savings. – StackOverflowed Sep 29 '17 at 23:39
  • OK, he should contact his lender then. – Robert Longson Sep 29 '17 at 23:39
  • Right but assuming he's being uncooperative, what recourse do I have? – StackOverflowed Sep 29 '17 at 23:42
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    Are you on the deed? What kind of paperwork do you have? – mkennedy Sep 30 '17 at 02:07
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    This question is essentially unanswerable since the OP refuses to provide any of the relevant information. One does not buy 50% of a house merely by handing over a check for the agreed-upon price; there is lots of paperwork involved and the change in ownership needs to be recorded in the local land registry records (parish or city or district or county or whatever). Based on what has been revealed thus far, it seems that it would be best for the OP to kiss the money and the friendship goodbye and chalk it up to a lesson learned the hard way. – Dilip Sarwate Sep 30 '17 at 02:48
  • The OP hasn't said the transaction has happened yet. – GS - Apologise to Monica Sep 30 '17 at 08:17
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    You are thinking of paying cash for 50% of a house that's 80% (or higher) mortgaged? Think about it, I put $50k down for a $500k house, and then sell 50% for $250K. I now have $200K in my pocket. This sounds like the start of a great scam. – JTP - Apologise to Monica Sep 30 '17 at 14:14
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    No lender would permit such a transaction, and no lawyer would carry out such a transaction without consulting the lender. – DJClayworth Sep 30 '17 at 23:20

2 Answers2

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The current mortgaged owner would typically not have the right to sell any portion of the house without approval from the bank. The bank doesn't "own" the house through the mortgage, but they do have a series of rights that, in some cases, look similar to ownership.

Remember that a mortgage is just a loan that uses a house as collateral, to reduce the risk to the lender in the event of default. If it was just a personal loan, without collateral, then there would be a much higher risk of default (and therefore the interest rate would be closer to 20% than 2%). But because the loan was taken with collateral, that collateral can't be sold without the bank's permission.

If the bank allowed this to happen, then one risk would be exactly as you say - that the mortgagee stops paying the bank, and the bank no longer is able to recover the full value of the loan on selling the remaining 50% of the house owed as collateral.

Grade 'Eh' Bacon
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  • @StackOverflowed I get the sense that someone may have offered to perform something similar to you. While I think my answer (and all other comments) still apply, the following caveat might help: don't ever complete a real estate transaction without using a lawyer of your choosing. If someone wants to do a cash deal for property (or really any similarly large cash deal), that is a massive red flag. Often these scams work because they prey on one's own greed. In this case, the implication is that going with the scammer might give you instant return on your investment. – Grade 'Eh' Bacon Oct 02 '17 at 17:30
  • A common excuse for why to not use a lawyer is 'if we do it all under the table, we save taxes!'. This is a prime example where something similar looks like it's happening. Don't be fooled by a grifter - pay attention to warning signs and always do large transactions above-board, legally, to avoid being scammed. – Grade 'Eh' Bacon Oct 02 '17 at 17:30
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    Actually, I have a friend of a friend who's a shady character who was talking about selling a portion of his newly mortgaged house. This guy is always looking for any advantage he can get, even if he hurts others. I wanted to see what recourse a buyer would have had in that situation. – StackOverflowed Oct 02 '17 at 17:45
  • I don't think it's a divorce situation but it's just that he's just a shady character (not my friend but a friend of a friend - I need to reiterate as I coudl never be friends with a person like that!). He's one of those guys that maxxed out all his credit cards and then declared bankruptcy (about 10 years ago). Not sure how he was able to get a mortgage. – StackOverflowed Oct 03 '17 at 01:53
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If the foreclosed property is sold for more than is owed, then the borrower is entitled to the excess. If sold for what is owed or less, then the borrower gets nothing.

Any money that you are entitled to would be determined by your contract with the mortgaged owner, but the bank is the first lien-holder, they get made whole first, and if there is excess then you may see some of your money back depending on your contract with the mortgaged owner.

Since the bank owns the property until the mortgage is paid off, you would have had to work with the bank in order to have legal ownership of a portion of the house and approving partial sale of a house is not something most banks would likely care to do. A contract you worked up with the borrower doesn't give you legal claim to the house (in foreclosure, at least), due to the bank's lien.

You'd have to contact a lawyer for firm answers, but it sounds bleak.

Hart CO
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