Mom sold her home, owner financed, and still making payments to the bank. What kind of problems could come of this?

She probably sold it to the niece on a "quit claim" deed. So if mom dies, the mortgage is called immediately and must be paid in full. If mom goes into a nursing home on Medicaid, there will be a lien on the house by Medicaid to recover the cost.

She sold it to her with a contract between her and my niece. All terms laid out in the contract, total price, monthly payment, due date and amortization table. Signed by both. No attorney involved. I fear if something happens to mom, the bank with take the house and my niece will be out of a home and all the money she has invested in it. If mom goes into a NH, how will this be considered into her finances and assets?

IF there is no Quit Claim of the Deed, IF there has been no 'legal' transfer of the the title/deed home into your niece's name, IF the Deed is still on record in your mother's name, then the house is still your mother's house and is her asset.

IF your mother transferred the title/deed to your niece, then the money your niece is paying to your mother for the house is income and is considered an asset for your mother.

It doesn't sound like there was a transfer of title/deed if your mother is paying the bank on a monthly basis. That means the house and mortgage is still in your mother's name. IMO, your mother has not done your niece a favor with this arrangement. If mother goes into a NH on Medicaid, what psteigman said is true: Medicaid will put a lien on the house to recover costs for your mother's care. Perhaps a legal sale of the house to your niece can be arranged before your mother goes into the NH.

The answer depends on if the legal work that was done. There is nothing illegal about the arrangement, but I would have a lawyer look at it and see if it needs some "fixing" so that the deed will transfer without problems after the house has been paid for. The main person who is in jeopardy here would be the niece if things are not set up right. Was your niece not able to get a mortgage? That would have been a neater way to handle this. Was there equity in the house? Did the niece pay the equity or is the house being sold at a low market price? This could be a problem if your mother needs to apply for Medicaid. I would consult a real estate lawyer to get the loose ends tied up.

A house is typically a persons greatest investment and often their greatest asset
. Typically worth a few hundred thousand dollars. Did they save $400 or $600 by not hiring an attorney....penny wise and dollar foolish. Please see an attorney and sort this out.

I was afraid this was a bad arrangement but no body will listen to me. Mom lives with us and I am her caregiver but she arranged this through my husband and niece who had no where to live and needed a home as soon as possible for her four children and her boyfriend. It was done very casually, in my opinion without much thought into the future of this situation. It was kinda like a rent to own contract but she is supposed to be buying not renting. It has already been done and I don't know how to fix it. Mom nor my niece (or her bf) could afford to do this through an attorney and my niece kept pushing her to do it and move her stuff out so she could move in. If I even mention it, I am told to just stop worrying about it. Everything will be alright.

Mom'sonly - I think I put my thoughts on another question for you.But here it goes

OK it sounds like mom still has a mortgage & the mortgage on the property is still in mom's name, IF this is the situation then it doesn't matter who has been paying on the mortgage as the bank or mortgage holder ONLY RECOGNIZES whomever is listed on the legal document that a mortgage is. Your mom owns the house. A Martian could be paying the note, the mortgage holder don't care, it is mom who is getting the benefit and credit history for paying it. If mom died tomorrow, the property would have to be dealt with in probate court to get the mortgage paid off and released to be transferred to your nieces name. If mom had something happen and needed to go into a NH tomorrow, then the house would be her allowed asset and but would have the required Medicaid claim or lein placed against the property. That claim or lein would have to be lifted (or released by your states MERP program) in order for the sale of the property to be properly done. Yes, you are right to be worried!

You or I just cannot sell, transfer or gift or quit claim a house to another person if there is a mortgage on it, it doesn't matter what we put in a letter either. We do not own the property to do so as there is a mortgage (which is a binding lien) which owns the property till the mortgage is paid in full and then we get a "release of deed of trust" from the mortgage holder and go and file that very important legal document at the courthouse. Only then do you fully own the property to sell.

Mortgage companies just do not just change the paperwork and just transfer a mortgage to another person. Most of the time, they will require that a mortgage get cancelled (paid in full) and then the new owner qualify for a new mortgage. Some mortgage companies will allow for the property to short-sell to a specific buyer but this is would be a true real estate transaction. The only time usually a mortgage company will just let it go to another is in a divorce decree by court order.

Now if mom did this via a quit claim, here is the problem….with a quit claim deed there is NO guarantee of ownership. What a QCD does is state the the person doing the sale is selling what they believe is property that they own. There may be others who have a claim or ownership on the property too - a QCD does not have to take that into account. The mortgage trumps any QCD. This can lead to very real issues later on as there will be a cloud on ever getting a title on the property. Most banks now will not lend or take as collateral QCD property now, they will want a property that has been sold via a "warranty deed" and with title insurance as that ensures the ownership is real.

For whatever reasons some people pass down family property via a QCD. I did a lot of outreach after Hurricane Katrina and saw so many of these QCD situations. The problems were over & over the same, grannie QCD house to her kids, one of the kids stayed in the house, they paid for everything and viewed the house as theirs. Well in fact they did not own it, as they did not have true title to it, it was everybody's and sometimes had liens on it from the others financial misadventures and the worst was those who kept the insurance in gran's name and the insurance company would not pay as the policy was invalid (they did return the premiums). In order to get SBA or Road-Home grants, they had to have all the possible property owners sign off on their share too, which someone always wouldn't or wouldn't do without getting paid for their "share". A true clusterF*. Now this was extreme situations, but you don't want there to be a problem later on. I see a whole issue with the BF as they are not married and he could in a fit of pique do a workman's lein on the property which is a whole other cluster to deal with.

Mom needs to pay off the mortgage, get the release and then sell it to the niece.

error in para. 2. "Your mom owns the home" should say "your mom doesn't yet own the home outright".

Keep in mind, that if mom needs a NH within the next 5 years, she will face a possible transfer penalty which will have to be worked out BEFORE she can be eligible for Medicaid to pay for the NH. The transfer penalty will be based on the Fair Market Value of the home not whatever lesser price your niece pays for it. (BTW that decreased value is considered gifting and has IRS tax issues too). FMV usually is the amount that the county or city tax assessor places on the property.
Most property tax is due at the end of January, so you should have that bill or statement sent to you back in November or December.

You do want to find it the assessor statement and carefully look at it. Then look at the mortgage document that mom has. If she is underwater on the house, this would be something to think about how best to deal with this. Good luck.

On the bright side, you niece has a roof over her head. Unfortunately she has nothing more than that. They won't listen to you, so let it go. Some folks have to learn the hard way. Let go, Let God.

Yeah Pstegman, there is not much I can do. She lives with me and I take care of her but I am not a POA and have no such powers and never will have. I can't help but be concerned about it. My brother, her dad, should be concerned it but it seems that none of them are really getting involved in it. Especially the ones who wanted the house and didn't want mom to do this. If something happens to mom, I am afraid they will do all they can to throw my niece out and even though I think she has done something irresponsible to just jump into this, I don't want her done wrong over it. So, I will keep trying to talk them into fixing this problem but mostly leaving it in God's hands.

You can tell your husband and niece that what they've come up with is more like a landlord/renter agreement than a home purchase. So your niece needs to realize that her monthly payments don't make her the legal owner. They simply give her the right to occupy the house. I'm not a lawyer but that's what it sounds like.

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Thank you all for all the helpful suggestions and advice.

What if the mother transferred the property into a revocable living trust with language stating the property goes to the niece when the time came. How would that affect the existing mortgage? One thing for sure is your niece should really look into finding the funds to take care of the paperwork. She is in a unique situation that will benefit her and her children's future. Not all families have the generosity your mother has shown. Good Luck

Your mother won't listen to you. Give up on that.

MAYBE your niece will listen to you. MAYBE you could lend her the money to go to an attorney. She should listen because she is the one who will be SOL if Granny needs to apply for Medicaid.
Good luck.