Pros and cons of holding a mortgage

Q. I am going to sell a house I rent out, and I never went through anything like this before. What about holding a mortgage? What percentage should you get for down payment? I am over 70 years old. I want to do this myself without an agent.

A. I can understand your wanting to hold a mortgage — lend your buyer some of the purchase price, and collect your proceeds over a period of years rather than all at once. That will bring more monthly income than you could expect just about anywhere else these days. Your buyers save on closing costs, and you don’t have to worry about the appraisal and inspection their bank’s mortgage department would require. As this is not your own home, you’d owe capital gains tax on your profit, but only year by year as you collected it.

But if you offer what is known as seller take-back financing, you’ll hear from people who can’t qualify for bank loans. Because it’s the only way they can buy, they’re usually ready to pay a bit over market value and higher interest rates. That sounds fine, but I’d hate to see you risking money, at your age, on people with poor credit or undependable income. Buyers who are good credit risks don’t need to pay anything extra to finance their purchase. They can go through regular lenders.

Banking theory holds that receiving 20 percent down represents safety for you. Otherwise, people who have little of their own money invested might just walk away and abandon the whole thing if the going got tough. And if you had the house back on your hands after a foreclosure, you’d also have that 20 percent in cash.

So if you did hold a mortgage: Ideally, you’d want to receive that substantial down payment. Your attorney or accountant could help you get and interpret a clean credit report from prospective buyers. And you’d have all documents drawn up by your own lawyer or at least screened by your attorney before you signed them.

Q. We paid off our house six months ago. I’m worried about getting the deed. Whom do I contact for answers? The bank? The county I live in?

A. In some states, you’re entitled to a certificate of satisfaction of mortgage. In other states, it’s a reconveyance deed. Either way, the important thing is that this vital document be entered in your county’s public records office. Start by finding out whether it is already on file. That office is called “public” because anyone can have access to the documents. You can go down yourself, or often, these days, search online. If the important document shows up there, you’re all set. That’s more important than having the paper in your own hands. You could always order a copy from the public records office. But if the records show the debt still out against your property, get after your lender. You can also contact the state agency that supervises mortgages. Send a complaint to the president of your mortgage company also. A public librarian can help you find the right addresses.

Q. I am going to sell a rental house to my son. Is this something I could do on my own? I was told I could go to an office supply store for the forms and take them to the courthouse to record them.

A. You can try, but the deed has to be in a specific form (legal description of the property, signatures acknowledged, etc.) before it will be accepted for recording.

Any current leases will be just as binding on your son as they are on you, including the obligation to return security deposits someday. And if you have a mortgage on the property, it’s possible the full amount may be called in when there’s a change of ownership. Check with your lender about that.

Q. We’re going to sell our home next year. We have a few friends who are real estate agents, and we don’t know how to list with one of them without hurting the other’s feelings. What do you suggest? Should we just pick a name out of a hat?

A. If you are considering two prospective agents, tell them just what you’ve told me, and ask if they’d want to work together to co-list your property. If you’re worrying about more than two friends in real estate, you could ask each of them for advice about what to do. Their answers might be helpful, and at least they’ll realize you are trying to be considerate.

Ÿ Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (include a stamped return envelope), or readers may email her through askedith.com.

© 2012, Creators Syndicate Inc.