Where I live (NM) you would get a title insurance policy. The title company searches the public records to see if there are outstanding loans or other issues that would prevent the seller from being able to deliver good title to you. I understand that in some/many of the eastern states a lawyers title opinion is used to do much the same thing.

Given the current economic conditions I would not feel certain conventional financing would be available within the time constraints you are talking about. My understanding is that most lenders are in such trouble with bad loans these day they are unlikely to have time to worry about who is making payments on a loan that is current. However, do you and the seller understand he could get a nasty letter demanding immediate payment of the outstanding balance at any time, and that his credit would get trashed if he couldn’t/wouldn’t pay?

Have you quantified the exact benefits of this “opportunity”? Will it cash flow after repairs and maintenance, etc. Will the income hold up if rents have to be lowered? That sort of thing.

What if you arranged a master lease with the right to sub-lease. The “seller” would still be the owner of record. You wouldn’t get the depreciation deduction. What if your 20% was called a refundable/nonrefundable option fee? With the help of an experienced real estate attorney I think you and the seller could come up with agreements that minimized the dangers and still give you each what you are looking for.

I am considering purchasing a duplex. It’s a great property and I don’t want to miss out on the opportunity. I am unable to get financing at the moment, but after a couple more months my situtaion will seem a bit more promising for lenders. The seller currently has a mortgage on the property. We would be placing 20% down and making his mortgage payments through escrow with the title being in my name. The term of our agreement is 3 years. Does this seem like a legitimate way to aquire the property or will be get in trouble with his mortgage company and have the risk of the loosing the home?

Related to that is the question of whether the seller is the one and only one who has to sign the sales documents. I live in a community property state (New Mexico). Unless I have gone to great pains to maintain a “Sole and separate estate” I had best have my wife’s signature on the documents.

Finally, the documents need to be notarized before they can be recorded. Recording means you take the documents down to the county clerks office in the country where the property is located, pay a fee, and they take the documents, copy them and the copies go into the public record. In the future anyone who wants to know who owns the property or has any kind of interest in it will be able to find that information in the public record. Recording is what prevents the property from being sold a second time, etc.

I appreciate this adds complexity and cost to what seems like a simple agreement between you and the seller. In fact, the seller may not be willing to go along with it. I just have heard several painful stories of what can happen years later when it turns out there are problems and the paperwork isn’t there to support your position. A lawyer may seem expensive now, but I can assure you it is MUCH cheaper to set things up properly than it is to fix them later!

Thanks for writing and good luck with your deal.
Paul

Paying the seller directly would be a really bad idea.