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How does an agreement for sale work?

dUstrrbUnii

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Can somebody please tell me how an "agreement for sale works"? I have a friend, we will, call her Jane, who lives in a condo that her parents own. She pays the mortgage on it each month but does not have any ownership of it as of now. Her parents tried to sell her the property for $1.00 and unfortunately was turned down by the bank that held the mortgage - they said that she would need to fully qualify for the mortgage to get her name on the title... The mortgage is for $197 000.



Unfortunately for Jane she only makes $2000/month, the bank told her that to qualify for this she would need to make a minimum of $4000/month...



I am speaking out of relative ignorance on this subject but is there any way that she can purchase this property from her parents on an agreement for sale? If so, please tell me how this transaction would work?
 

GaryW

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[quote user=dUstrrbUnii]Can somebody please tell me how an "agreement for sale works"?


Hi There:

An Agreement For Sale(AFS) is a way to buy property with seller financing that eliminates non-assumable mortgage issues. The mortgage and title stays in the parents name , but Jane would now have control over it. You would use the standard Purchase & Sale Agreement along with the agreed upon financing schedule(being that it is her parents home, the financing could very well be the same). Since you've signed the Purchase & Sale Agreement for an agreed price and time of closing(which would have to be before the parents term ends) , then Jane is now building equity. The AFS "When You Are The Buyer" is here on the Critical Forms section. You'd probably want to use Barry McGuire's office for this.

Hope this helps,

Gary
 

Thomas Beyer

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[quote user=dUstrrbUnii]is there any way that she can purchase this property from her parents on an agreement for sale?
An Agreement-FOR-Sale (AfS) is just that: an agreement for future sale, executed today. It is also called a wrap mortgage. The buyer (Jane) wraps her interest in the property around the seller's mortgage. Seller stays on title, as does seller's mortgage.



The issue here is that Jane will eventually buy the property and go on title, usually on mortgage expiry, say 3 years from now. Then she will have to get a new mortgage, unless she intends to sell the property by then !



A better option might be for Jane to pre-qualify for a mortgage, and have her parents gift her the difference, or sell the property to her for below market value, lower than the current $197,000 mortgage. Let's assume she can qualify for a $120,000 mortgage. Her parents could sell her the condo for $130,000. Jane puts up $10,000 and her parents have to come up with $67,000 to discharge the mortgage.
 
L

lanedry77

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Hey Nick,



An Agreement For Sale (AFS) doesn't seem to be the best fit here... Thomas' suggestion of her parents gifting her the money does seem like the best bet.



Further to that, I'll add that a wrap mortgage (Thomas, I presume that was a type-o and you're not referring to some sort of star trek 'warp' mortgage :) usually involves the title transfering to the buyer. This is a type of seller financing (just like an AFS is), but will involve a foreclosure process to re-take the property.



An AFS can be written in a large variety of ways, but the way I've always done it is that title stays with the seller, but the benefitial ownership and control of the property transfer over to the buyer. In an AFS purchase, it's very simple (comparatively) for the seller to regain control of the property.





Thanks,



David.
 

dUstrrbUnii

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Wow thanks guys... You have given me some really good ideas here, I will let you know how this pans out...



Nick
 
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