Rental Home sold

[tsuewalker]

Client bought a home as his main residence in 1987. He lived in it for several years and then it became a rental property. in April, 2015, he started carrying the note for the house for 3 years and then the buyer/renter is to obtain his own mortgage. Does this constitute a sale? If the buyer can't obtain a mortgage within 3 years, the property reverts back to my client. Not really sure how to handle this. I've been reporting the interest he has been receiving since this transaction began.

Thanks for your help in advance.

Tanya

[Burke]

Sounds like a sale to me. Is there any documentation? There is no way "the property reverts back to my client" without some contract being signed.

[taxmom34]

sounds like maybe an installment sale

[DaveO]

Got one of these too. Same situation but they have a contract that states the buyer/renter will make a payment equal to the house payment to a special account setup by the Owner/Seller which will make the mortgage payment. The buyer/renter will pay all other expenses of the property and make improvements to it to get it in good enough shape to get a conventional mortgage. After two years the buyer/renter has the option to purchase the property for a set price less the sum of the two years of payments. If he can't close the loan the property reverts to the owner/seller. The attorney who wrote the contact advised them it would not hold up in court and would violate the terms of the mortgage which would result in the loan being called if the bank finds out. I advised them it puts the property in a grey area of not really sold but not really a rental. Of course paying for professional advice in no way obligates them to follow it.

[taxea]

It is an installment sale.