# Selling house to a family member with bad credit history



## Taxsaver (Jun 7, 2009)

I have this cottage I'm trying to get rid of. Many people showed interest in it, but no buyer yet. I'm afraid I'll have to sell with a huge loss (over $15K). At this time, I have to pay $750 a month for a place. It has become a financial heavy load. One the other side, if I sold with that big loss, I could get rid of this debt within 16 months, and be done once for all with it.

My sister and her husband had huge mortgage and credit payments to make. My brother came in to save them, signing that if they defaulted on their payments, HE would pay. My sister has started a new career last year, and is now brining in good money. My brother is still backing them up financially until 2016.

What my sister suggests to do is to take over my monthly payments to the bank, and sign a contract in which they state they're buying the house. When their credit is back to a decent level and my brother out of the picture, they'll go to the bank and ask for a loan. If they were financially responsible, I would not worry too much. But since they're big spenders, I'm afraid they come to a point where they go in big debts again, and can't pay anymore. They could even come back and cry to me so I refund them whatever they paid him. 

What do you think? Would you do it? Thanks.


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## lb71 (Apr 3, 2009)

No. You're better off taking a larger loss and selling to someone else. Plus, you are not doing your sister any favours. Due to their money problems, this is the only way they will ever get a cottage. Realistically, they should not own a cottage.


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## Taxsaver (Jun 7, 2009)

lb71 said:


> No. You're better off taking a larger loss and selling to someone else. Plus, you are not doing your sister any favours. Due to their money problems, this is the only way they will ever get a cottage. Realistically, they should not own a cottage.


:cheerful:

They should do like me: Buy what you can offord to buy. I understand they want to get away from home once in a while, but there are cheaper ways like renting a cottage for a week-end a few times in the year.


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## Just a Guy (Mar 27, 2012)

Red properties are very tough...in a good economy they are worth a fortune, in a bad one, they are an albatross that you can never get rid of...

That being said, lending money to family is always a huge risk for more than financial losses, especially if they have a bad history. Never lend money you can't afford to lose.

Why the high cost? Is this timeshare, or heavily mortgaged?


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## Taxsaver (Jun 7, 2009)

Half of the debt is on line of credit, so high monthly payments. I will try to have everything on personal loan. The bank refused the mortgage because the cottage is too small.


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## gerogesin (Jan 3, 2014)

I would sell it to someone else. Avoid finances with family because 9 times out of 10, it goes sour.


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## Taxsaver (Jun 7, 2009)

gerogesin said:


> I would sell it to someone else. Avoid finances with family because 9 times out of 10, it goes sour.


I heard things like that. I just wanted to confirm with our members. I'll message them. I'm sure they will come back trying to drag me into a deal. But I won't even respond.


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## Plugging Along (Jan 3, 2011)

Agree with the posters.

Your sister is in no financial position to buy a rec property. I can see this only ending up poorly.


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## lb71 (Apr 3, 2009)

The other thing to consider is that you would increase the chance that they default on their current mortgage, resulting in your brother having to make due on his guarantee. You are making things worst for him.


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## Cal (Jun 17, 2009)

I would carry it, still trying to sell. If you can't sell it otherwise, when they are ready to buy, then ok, sell to them. Otherwise it gets too complicated.

Also, when property changes hands between family members they generally discount the sale price 3-4% and go to a lawyer, as opposed to losing 4.5-5.5% to a RE agent.


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## Mortgage u/w (Feb 6, 2014)

I'm with everyone here - sell to someone else at a loss.

If your sister needs your brother as guarantor, how could she think she could afford another house? If that was my sister that I co-sgined for...never would I allow her to take on another debt!

Ever thought of just renting out the place while you're waiting to sell?


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## carverman (Nov 8, 2010)

Cal said:


> I would carry it, still trying to sell. If you can't sell it otherwise, when they are ready to buy, then ok, sell to them. Otherwise it gets too complicated.
> 
> Also, when property changes hands between family members they generally discount the sale price 3-4% and go to a lawyer, as opposed to losing 4.5-5.5% to a RE agent.


 Be that as it is...if they can't get a mortgage on the recreational property of interestf rom a bank,
and they are in some debt, and really can't afford to come up with the money to pay for the property at time of sale..(



> What my sister suggests to do is to take over my monthly payments to the bank, and *sign a contract in which they state they're buying the house. *When their credit is back to a decent level and my brother out of the picture,* they'll go to the bank and ask for a loan*


What happens if sister defaults by skipping payments because of other higher priority payments) and he doesn't get paid? 
The "contract" signed is just a piece of paper between family members, like a promissory note.
Who owns the property legally at that point?...I believe it is still him, because the property has not legally changed hands in the County Registry office, so he has to pay the property taxes and any payments on it... and now he has to scramble to make up the shortfall.

This will cause bad feelings between brother and sister. I agree with the other posters that this "family arrangement" should be avoided at all costs..better to sell it to strangers, even at a loss and be done with it.


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## Just a Guy (Mar 27, 2012)

As I recall, it's nearly impossible to get a mortgage on a recreation property even if you have good credit. Banks don't normally loan on it, so they probably won't be able to get it anyway, leaving everyone in a lurch. 

Most people I know who've bought rec properties needed to pay for them outright or get a heloc on their other properties. I do know a few people who've managed to mortgage the rec property, there are always exceptions, but since their values vary widely (my place has fluctuated by as much as 700% up and down depending on the economy) you should never count them as being worth anything...when the economy is bad, you can't sell them at any price, and everyone around you is also trying to sell theirs...at any price...with banks not financing them.


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## Plugging Along (Jan 3, 2011)

Maybe it is different out west, but we know tones of people with recreation properties, and pretty much everyone started with a mortgage.


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## Taxsaver (Jun 7, 2009)

Sister just emailed me. I don't dare looking at it. It is either "OK, then" or whinning...


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## OhGreatGuru (May 24, 2009)

Moral of the story: From now on, don't discuss any of your personal financial plans with your sister and/or brother-in-law. You say they've demonstrated they are not financially responsible, so their advice is useless to you; and this latest move suggests that any "help" they offer will be in their own interests, not yours.

PS. Seems to me you are rather over-extended yourself, but at least you recognize it and are trying to do something about it. Maybe you can "soften the blow" by telling your sister that in your current financial situation you need to sell for cash, without offering details. But I doubt it will have much effect, or she wouldn't have proposed such a shaky deal in the first place.


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## My Own Advisor (Sep 24, 2012)

Plugging Along said:


> Agree with the posters.
> 
> Your sister is in no financial position to buy a rec property. I can see this only ending up poorly.


+1 

This can only end up bad...


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## Mike England (Oct 9, 2014)

I would like to suggest to you that sell it to someone else, that will be good for you.


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## donovanbadgerlo8 (Oct 28, 2014)

id rather sell it to someone else though


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