Creative financing advice needed!
Question: My deceased aunt recently left me a house with an appraised value of $57,500. However her will stipulates that her roommate may live in the house as long as she wishes. Therefore the only way for me to raise any cash from this inheritance is to obtain some sort of mortgage on the property.
My credit sucks (though NO bankruptcy), I have NO job nor recent job history, and have about 2 grand in the bank.
(1) CAN I obtain a mortgage given my above circumstances? If so, through what particular means?
(2) I will not have in-hand a title with my name on it for another 60 to 90 days. 
Has anyone any creative finacing ideas by which I could get my hands on approx. $10,000 NOW, based solely upon the future mortgaging of the property?
Thanks in advance,
Answer: From your description it sounds as though your aunt’s roommate may have been left a life estate in the property. If so, you have a remainder interest, not present ownership. The roommate would be the present owner. It’s like there are two ownerships in the property — hers is the present ownership and yours is a future ownership.
From a legal perspective, both of you will have titles. And either of you can do whatever you want with your title, including selling it, mortgaging it, etc. But you can’t mortgage something you don’t own, so in your case all you can mortgage is your remainder interest. I know of no lender who will lend on a regular mortgage on a remainder.
The roommate can also borrow against the life estate but, in the same vein, cannot mortgage any more than the life estate. Again, lenders would be unwilling to take a life estate as collateral. The problem is that upon the death of the roommate you suddenly become vested in full and the life estate is extinguished. If the collateral is extinguished, the mortgage goes bye-bye at the same time, leaving the bank with an unsecured note signed by someone who is now dead. However, it is common to encounter mortgages on life estates where the holder of the future estate (you) agrees to sign the mortgage as well. That way the mortgage reaches both estates and would not be extinguished on the death of the roommate.
What you could do is reverse the procedure and get a mortgage on both estates by getting the roommate to agree to sign the mortgage also. The bank should then be willing to lend. However, from what you said originally it sounds as though it may not be possible to get the roommate to agree to this. In that case, the only thing you can do is try private financing. It would take a lender who really understands real estate law to do this. Perhaps you could find a local attorney or real estate broker who deals in real loans as an investment. Expect a very high interest rate, however.
A better approach might be just to sell the remainder. Again, the buyer would have to be someone who understands real estate law.
But what if my supposition is wrong and you will be getting something other than a remainder? From your description it is possible that you will be getting full title, but subject to a tenancy at will.
Any tenancy where the tenant has a legal right of possession is considered an encumbrance on the title. The definition of “encumbrance” is anything that burdens the title and survives a transfer of the title. In other words, if you sell the property the buyer will take title subject to the tenancy at will.
Now, the same thing happens if you mortgage the property. The tenant’s (roommate’s) rights existed before the mortgage. Therefore, the mortgage is subject to the tenancy at will. If the bank forecloses, they can take the property but must let the roommate stay. As you can imagine, this pretty well nixes the idea of getting a regular mortgage loan on the property.
There is a way around this which is quite commonly used by investors who wish to refinance property that they have leased to others. All they need is a subordination agreement from the tenant. The subordination agreement is between the tenant and the bank. It says that the bank’s rights will be superior to the tenant’s rights. Now if the bank forecloses they can evict the tenant if they wish. Banks are accustomed to this so it should not be a significant problem. The problem, of course, may be in getting the roommate to agree to a subordination to your lender.
Note that regardless of what interest you are getting, you really can’t do much about borrowing against it without the roommate agreeing to sign something as well. It would take someone who understands about real estate and contract law and also likes to invest by lending money. The first thing you need to do is to contact the attorney for the estate and verify exactly what you’re getting. Will it be a remainder, or a fee title subject to a tenancy at will? Whichever it is, that is what you have to pledge as collateral. And what you have right now is the right to that interest in 60-90 days, so you can pledge that as collateral today. Any rights can be pledged as collateral, but first you have to figure out what it is you have.
Having said all the above, it might be simpler just to borrow unsecured. As an alternative, consider selling whatever interest you are going to receive. If it is full title subject to the tenancy at will, then sell that. If it is a remainder, then sell the remainder. At the right price and terms there is always a buyer for anything. Good luck!
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