Protect Your Interests While Lending a Helping Hand

Q I inherited a home from a family member, and it has no mortgage. The house is in California, and I am in Georgia. The caretaker, who was instrumental in taking care of my elderly aunt before her death, wants the house but would not qualify for the mortgage based on her income and assets.

I will be happy to hold the mortgage to make this house a viable option for her; she was a godsend during my aunt's illness.

Document preparation is my primary concern, although I could probably get a good real estate lawyer to help me with that. I do not need a middleman to handle the payments as I have a number of rental properties. I want to ensure that I am completely informed of all issues surrounding this transaction.

AYou're trying to reward someone who helped you out in a time of need, and that's a good thing. What you need to focus on is whether you should sell the home to this person or rent it to her.

If you rent the home to the caretaker, you might give her time to get her finances in order until she has enough assets or income to qualify to buy the home from you. You and the caretaker can decide on the rent you would be paid and the responsibilities each of you would have for the maintenance.

If you simply want to sell the home to the caretaker, you and she should agree on a price, the amount that you would finance for the purchase and the interest that you would earn on the loan amount. If the interest is well below the market interest rates for the loan, you could run afoul of the Internal Revenue Service, and some of the terms of the loan could be considered a gift to the caretaker.

In terms of financing the home, you would have two options in most places. One option would be to sell the home outright to the caretaker and take back a mortgage or deed of trust on the amount she would owe you.

The second option would be to sell her the home on an installment basis or contract for deed. In this arrangement, you would remain the legal owner of the home and your caretaker would pay you over time for the title to the home. When the caretaker satisfies the terms of the contract, title to the home would be transferred to her.

Because there is no mortgage on the property, and you don't have to worry about covering expenses beyond real estate taxes, insurance and simple maintenance, the finances of the property should be relatively easy for you. Depending on the circumstances and what your intentions are for the home and your late aunt's caretaker, once you and she agree on the financial details, she can send her monthly payments to you.

But you should draw up a proper lease or sales document that conforms to California law. My suggestion would be to go to the California Department of Real Estate to see if it has a lease form you can buy or use. Or hire a real estate lawyer in California to draw up the sales documentation along with the mortgage documents.

I wish to refinance my rental townhouse. I have been advised that a cash-out refinance isn't possible in today's climate, and that if I want to take cash out of the transaction, I have to use an equity loan. I asked if federal or state law required me to refinance this way, but I've received no definitive explanation. Can I refinance to take money using an equity loan?

The current credit markets have made it difficult to finance rental property, even if you have a large amount of equity. Doing a cash-out refinance may also be difficult now because investors have been burned and don't want to buy these sorts of loans.